U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                  FORM 10-KSB

[X] Annual  report under section 13 or 15(d) of the  Securities  Exchange Act of
1934 for the fiscal year ended June 30, 2002 [ ] Transition report under section
13 or 15(d) of the  Securities  Exchange Act of 1934 for the  transition  period
from to

Commission file number: 0-22916

                                    PHC, INC.
                 (Name of small business issuer in its charter)


MASSACHUSETTS                                           04-2601571
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
Incorporation or organization)

200 LAKE STREET, SUITE 102, PEABODY, MA                    01960
 (Address of principal executive offices)                (Zip Code)

Issuer's telephone number:  (978) 536-2777

              Securities registered under Section 12(b) of the Act:

                                      NONE.

              Securities registered under Section 12(g) of the Act:

                 CLASS A COMMON STOCK, PAR VALUE $.01 PER SHARE
                                (Title of class)

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Securities  Exchange  Act  during the past 12 months (or for
such shorter period that the registrant was required to file such reports),  and
(2) has been subject to such filing requirements for the past 90 days.
                                                                    Yes X No __

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the  best  of  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB.
                                                             No Disclosure X

The issuer's revenues for the fiscal year ended June 30, 2002 were $22,698,268 .
The aggregate market value of the voting stock held by  non-affiliates  computed
by  reference  to the price at which the stock was sold,  or the average bid and
asked  prices of such  stock,  as of August 1,  2002,  was  $7,439,461.90.  (See
definition of affiliate in Rule 12b-2 of Exchange Act).

At August 1, 2002,  12,880,916  shares of the issuer's  Class A Common Stock and
726,991 shares of the issuer's Class B Common Stock were outstanding.

                 TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT:
                                    Yes__ No X

                                     - 1 -
<PAGE>
PART I

ITEM 1.           DESCRIPTION OF BUSINESS

INTRODUCTION

     Our company is a national health care company,  which provides  psychiatric
services primarily to individuals who have alcohol and drug dependency,  related
disorders and to individuals  in the gaming and  transportation  industries.  We
operate  substance  abuse  treatment  facilities  in  Utah  and  Virginia,  four
outpatient  psychiatric  facilities  in  Michigan,  two  outpatient  psychiatric
facilities  in Nevada,  one  outpatient  psychiatric  facility  in Kansas and an
inpatient   psychiatric  facility  in  Michigan.  We  also  operate  a  website,
Wellplace.com,  which provides  education,  training and materials to behavioral
health  professionals  in addition to providing  Internet  support to all of our
other  subsidiaries.  We also provide help line services through  contracts with
major  railroads  and the State of Nebraska.  Through our newest  subsidiary  in
Michigan   the  company   conducts   studies  of  the  effects  of   psychiatric
pharmaceuticals  on  a  controlled   population  through  contracts  with  major
manufacturers  of these  pharmaceuticals.  Until  February 2001 we also provided
management  and  administrative  services  to  psychotherapy  and  psychological
practices in New York.

     Our company  provides  behavioral  health  services  and  products  through
inpatient  and   outpatient   facilities   and  online  to   behavioral   health
professionals.  Our substance abuse  facilities  provide  specialized  treatment
services to patients who  typically  have poor  recovery  prognoses  and who are
prone to relapse. These services are offered in small specialty care facilities,
which permit us to provide our clients with efficient and  customized  treatment
without the  significant  costs  associated with the management and operation of
general  acute  care  hospitals.  We  tailor  these  programs  and  services  to
"safety-sensitive"  industries  and  concentrate  our  marketing  efforts on the
transportation,  heavy equipment,  manufacturing,  law  enforcement,  gaming and
health  services   industries.   Our  psychiatric  facility  provides  inpatient
psychiatric  care and  intensive  outpatient  treatment,  referred to as partial
hospitalization,  to children,  adolescents  and adults.  Our outpatient  mental
health clinics provide services to employees of major  employers,  as well as to
managed  care,  Medicare  and Medicaid  clients.  The  psychiatric  services are
offered  in a larger,  more  traditional  setting  than  PHC's  substance  abuse
facilities,  enabling  PHC to take  advantage  of  economies of scale to provide
cost-effective treatment alternatives.

     The company  treats  employees  who have been  referred for  treatment as a
result  of  compliance  with  Subchapter  D of the  Anti-Drug  Abuse Act of 1988
(commonly  known as the Drug Free Workplace Act),  which requires  employers who
are Federal  contractors  or Federal  grant  recipients  to establish  drug-free
awareness programs which,  among other things,  inform employees about available
drug  counseling;  rehabilitation  and  employee  assistance  programs.  We also
provide   treatment   under  the   Department  of   Transportation   implemented
regulations,  which  broaden the  coverage and scope of alcohol and drug testing
for employees in "safety sensitive" positions in the transportation industry.

     The company was  incorporated in 1976 and is a  Massachusetts  corporation.
Our corporate  offices are located at 200 Lake Street,  Suite 102,  Peabody,  MA
01960 and our telephone number is (978) 536-2777.



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<PAGE>
PSYCHIATRIC SERVICES INDUSTRY

Substance Abuse Facilities

         Industry Background

     The demand for substance abuse treatment  services increased rapidly in the
last  decade.  The  company  believes  that the  increased  demand is related to
clinical  advances  in  the  treatment  of  substance  abuse,  greater  societal
willingness  to  acknowledge  the  underlying  problems as treatable  illnesses,
improved  health  insurance  coverage  for  addictive   disorders  and  chemical
dependencies  and governmental  regulation  which requires certain  employers to
provide  information to employees about drug counseling and employee  assistance
programs.

     To contain costs  associated  with  behavioral  health issues in the 1980s,
many private payors instituted  managed care programs for  reimbursement,  which
included pre-admission certification,  case management or utilization review and
limits on financial coverage or length of stay. These cost containment  measures
have  encouraged  outpatient  care  for  behavioral  problems,  resulting  in  a
shortening of the length of stay and revenue per day in inpatient chemical abuse
facilities.  The company  believes that it has addressed these cost  containment
measures by specializing in treating  relapse-prone patients with poor prognoses
who have failed in other  treatment  settings.  These  patients  require  longer
lengths of stay and come from a wide geographic  area. The company  continues to
develop  alternatives  to  inpatient  care  including  partial  day and  evening
programs in addition to on site and off site outpatient programs.

     The company  believes  that because of the apparent  unmet need for certain
clinical and medical services, its strategy has been successful despite national
trends  towards  outpatient  treatment,  shorter  inpatient  stays and  rigorous
scrutiny by managed care organizations.

         Company Operations

     The company has been able to secure insurance reimbursement for longer-term
inpatient treatment as a result of its success with poor prognosis patients. The
company's two substance abuse  facilities work together to refer patients to the
center that best meets the patient's  clinical and medical needs.  Each facility
caters  to  a  slightly  different  patient  population   including   high-risk,
relapse-prone  chronic  alcoholics,  drug  addicts,  Native  Americans  and dual
diagnosis  patients  (those  suffering from both substance abuse and psychiatric
disorders).  The company concentrates on providing services to insurers, managed
care  networks  and  health  maintenance   organizations  for  both  adults  and
adolescents.  The  company's  clinicians  often work  directly  with managers of
employee  assistance programs to select the best treatment facility possible for
their clients.

     Each of the company's  facilities  operates a case  management  program for
each  patient  including  a clinical  and  financial  evaluation  of a patient's
circumstances to determine the most  cost-effective  modality of care from among
outpatient treatment,  detoxification,  inpatient, day care, specialized relapse
treatment  and others.  In addition to any care provided at one of the company's
facilities,  the case management  program for each patient  includes  aftercare.
Aftercare  may  be  provided  through  the  outpatient  services  provided  by a
facility.  Alternatively,  the company may arrange for outpatient aftercare,  as
well as family and mental  health  services,  through its numerous  affiliations
with clinicians located across the country once the patient is discharged.



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<PAGE>
     In general,  the company  does not accept  patients  who do not have either
insurance coverage or adequate financial resources to pay for treatment. Each of
the company's substance abuse facilities does,  however,  provide treatment free
of charge  to a small  number of  patients  each year who are  unable to pay for
treatment,  but who meet certain  clinical  criteria and who are believed by the
company  to  have  the  requisite  degree  of  motivation  for  treatment  to be
successful. In addition, the company provides follow-up treatment free of charge
to relapse  patients who satisfy  certain  criteria.  The number of patient days
attributable  to all patients who receive  treatment free of charge in any given
fiscal year is less than 5%.

     The company  believes that it has benefited from an increased  awareness of
the need to make substance abuse treatment  services  accessible to the nation's
workforce.  For  example,  Subchapter  D of the  Anti-Drug  Abuse  Act  of  1988
(commonly  known as The Drug Free  Workplace  Act),  requires  employers who are
Federal contractors or Federal grant recipients to establish drug free awareness
programs to inform employees about available drug counseling, rehabilitation and
employee assistance  programs and the consequences of drug abuse violations.  In
response to the Drug Free  Workplace Act, many  companies,  including many major
national corporations and transportation  companies,  have adopted policies that
provide for treatment options as an alternative to termination of employment.

     Although the company does not directly provide federally  approved mandated
drug testing, the company treats employees who have been referred to the company
as a result of compliance  with the Drug Free Workplace Act,  particularly  from
companies  that are part of the  gaming  industry  as well as  safety  sensitive
industries such as railroads,  airlines, trucking firms, oil and gas exploration
companies,  heavy  equipment  companies,   manufacturing  companies  and  health
services.

     HIGHLAND RIDGE - Highland Ridge is a 32-bed,  freestanding alcohol and drug
treatment  hospital,  which the company has been operating since 1984. It is the
oldest  facility  dedicated  to  substance  abuse  in  Utah.  Highland  Ridge is
accredited by the Joint Commission on Accreditation of Healthcare  Organizations
("JCAHO") and is licensed by the Utah  Department of Health.  Highland  Ridge is
recognized nationally for its excellence in treating substance abuse disorders.

     Most patients are from Utah and surrounding states.  Individuals  typically
access Highland Ridge's services through professional referrals, family members,
employers,  employee  assistance  programs or contracts  between the company and
health maintenance organizations located in Utah.

     Highland  Ridge  was the  first  private  for-profit  hospital  to  address
specifically  the  special  needs of  chemically  dependent  women in Salt  Lake
County.  In addition,  Highland  Ridge has  contracted  with Salt Lake County to
provide medical  detoxification  services  targeted to women.  The hospital also
operates a specialized continuing care support group to address the unique needs
of women and minorities.

     A pre-admission evaluation,  which involves an evaluation of psychological,
cognitive and situational factors, is completed for each prospective patient. In
addition,  each  prospective  patient  is  given  a  physical  examination  upon
admission.   Diagnostic  tools,   including  those  developed  by  the  American
Psychological  Association,  the American Society of Addiction  Medicine and the
Substance Abuse Subtle Screening Inventory are used to develop an individualized
treatment   plan  for  each   client.   The   treatment   regimen   involves  an
interdisciplinary  team which integrates the twelve-step principles of self-help
organizations,  medical detoxification,  individual and group counseling, family
therapy,  psychological  assessment,  psychiatric  support,  stress  management,
dietary planning,  vocational  counseling and pastoral  support.  Highland Ridge
also offers extensive aftercare assistance at programs  strategically located in
areas of client  concentration  throughout  the United  States.  Highland  Ridge


                                     - 4 -
<PAGE>
maintains a comprehensive  array of professional  affiliations to meet the needs
of discharged  patients and other  individuals  not admitted to the hospital for
treatment.

     Highland Ridge periodically  conducts or participates in research projects.
Highland Ridge was the site of a research project conducted by the University of
Utah Medical School.  The research explored the relationship  between individual
motivation  and treatment  outcomes.  The research was regulated and reviewed by
the Human  Subjects  Review Board of the  University  of Utah and was subject to
federal  standards that  delineated  the nature and scope of research  involving
human  subjects.  Highland  Ridge  benefited from this research by expanding its
professional  relationships  within the medical school community and by applying
the  findings of the  research  to improve  the quality of services  the company
delivers.

     In the  spring of 1994,  the  company  began to  operate  a crisis  hotline
service under contract with a major transportation client. The hotline,  Pioneer
Development  Support  Services,  or PDS2  ("PDS2"),  shown as  Contract  support
services on the accompanying income statement, is a national,  24-hour telephone
service,  which  supplements  the  services  provided by the  client's  Employee
Assistance  Programs.   The  services  provided  include   information,   crisis
intervention,  critical  incidents  coordination,  employee  counselor  support,
client monitoring,  case management and health promotion. The hotline is staffed
by counselors who refer callers to the  appropriate  professional  resources for
assistance  with  personal  problems.   Four  major   transportation   companies
subscribed to these  services as of June 30, 2002.  This operation is physically
located in Highland Ridge  Hospital,  but a staff dedicated to PDS2 provides the
services. PDS2 is currently operated by the parent entity, PHC, Inc.

     MOUNT  REGIS - Mount  Regis  is a  26-bed,  freestanding  alcohol  and drug
treatment center located in Salem, Virginia,  near Roanoke. The company acquired
the center in 1987.  It is the oldest of its kind in the Roanoke  Valley.  Mount
Regis is  accredited  by the JCAHO,  and  licensed by the  Department  of Mental
Health,  Mental  Retardation and Substance Abuse Services of the Commonwealth of
Virginia.  In addition,  Mount Regis operates Changes,  an outpatient clinic, at
its Salem Virginia location.  The Changes clinic provides  structured  intensive
outpatient  treatment for patients who have been discharged from Mount Regis and
for patients who do not need the formal  structure  of a  residential  treatment
program.  The program is licensed by the  Commonwealth  of Virginia and approved
for reimbursement by major insurance carriers.

     Mount  Regis  Center's  programs  are  sensitive  to  needs  of  women  and
minorities.   The  majority  of  Mount  Regis  clients  are  from  Virginia  and
surrounding  states. In addition,  because of its relatively close proximity and
accessibility  to New York,  Mount Regis has been able to attract an  increasing
number  of  referrals  from  New  York-based  labor  unions.   Mount  Regis  has
established  programs  that  allow the  company to better  treat dual  diagnosis
patients (those suffering from both substance abuse and psychiatric  disorders),
cocaine  addiction  and  relapse-prone  patients.  The  multi-disciplinary  case
management, aftercare and family programs are key to the prevention of relapse.

General Psychiatric Facilities

Introduction

     The  company  believes  that its proven  ability to provide  high  quality,
cost-effective  care in the treatment of substance  abuse has enabled it to grow
in the related behavioral health field of psychiatric  treatment.  The company's
main  advantage  is its  ability  to provide an  integrated  delivery  system of
inpatient and outpatient care. As a result of integration, the company is better
able to manage and track patients.



                                     - 5 -
<PAGE>
     The  company  offers  inpatient  and  partial  hospitalization   psychiatry
services through Harbor Oaks Hospital. The company also currently operates seven
outpatient psychiatric facilities.

     The  company's  philosophy  at  these  facilities  is to  provide  the most
appropriate and efficacious care with the least restrictive modality of care. An
attending physician and a case manager with continuing  oversight of the patient
as the patient  receives  care in different  locations  or programs  handle case
management.  The integrated  delivery system allows for better patient  tracking
and follow-up, and fewer repeat procedures and therapeutic or diagnostic errors.
Qualified,  dedicated  staff members take a full history on each new patient and
through  test and  evaluation  procedures  they  provide a  thorough  diagnostic
write-up of the  patient's  condition.  In addition a physician  does a complete
physical  examination  for  each  new  patient.   This  information  allows  the
caregivers  to  determine  which  treatment  alternative  is best suited for the
patient and to design an individualized recovery program for the patient.

     Managed health care organizations,  state agencies, physicians and patients
themselves  refer patients to our  facilities.  These  facilities have a patient
population  ranging from children as young as 5 years of age to senior citizens.
The psychiatric facilities treat a larger percentage of female patients than the
substance abuse facilities.

     HARBOR  OAKS  -  The  Company  acquired  Harbor  Oaks  Hospital,  a  64-bed
psychiatric hospital located in New Baltimore, Michigan,  approximately 20 miles
northeast of Detroit, in September 1994. Harbor Oaks Hospital is licensed by the
Michigan  Department  of Commerce  and it is  accredited  by JCAHO.  Harbor Oaks
provides  inpatient  psychiatric care,  partial  hospitalization  and outpatient
treatment to children, adolescents and adults. Harbor Oaks Hospital has serviced
clients  from Macomb,  Oakland and St.  Clair  Counties and has now expanded its
coverage area to include Wayne, Sanilac and Livingston Counties.

     The company  utilizes the Harbor Oaks facility as a mental health  resource
to complement its nationally focused substance abuse treatment programs.  Harbor
Oaks Hospital has a specialty  program that treats  substance abuse patients who
have a coexisting  psychiatric  disorder.  This program  provides an  integrated
holistic  approach to the treatment of individuals who have both substance abuse
and  psychiatric  problems.  Both adults and  adolescents  can benefit from this
program.

     On February  10, 1997,  Harbor Oaks  Hospital  opened an 8-bed  adjudicated
residential  unit  serving  adolescents  with a  substance  abuse  problem and a
co-existing mental disorder who have been adjudicated to have committed criminal
acts and who have been referred or required to undergo psychiatric  treatment by
a court or family service  agency.  The patients in the program range from 13 to
18 years of age. The program provides patients with educational and recreational
activities and adult life functioning skills as well as treatment.  Typically, a
patient is admitted to the unit for an initial  period of 30 days to six months.
A case  review is done for any patient  still in the program at six months,  and
each  subsequent  six-month  period  thereafter,   to  determine  if  additional
treatment is required.  State authorization  allowed the company to increase the
number of beds in the adjudicated  residential unit to twelve on May 1, 1998 and
twenty on June 26, 1998.

     HARMONY HEALTHCARE - Harmony Healthcare,  which consists of two psychiatric
clinics in Nevada, provides outpatient psychiatric care to children, adolescents
and adults in the local area. Harmony also operates employee assistance programs
for  railroads,  health  care  companies  and  several  large  casino  companies
including Boyd Gaming  Corporation,  the MGM Grand and the Venetian with a rapid
response  program to provide  immediate  assistance 24 hours a day. Harmony also
provides outpatient  psychiatric care and inpatient  psychiatric case management
through  a  capitated  rate  behavioral   health  carve-out  with  Pacific  Care
Insurance. In addition, Harmony began clinical trials in the last quarter of the
current fiscal year.

                                     - 6 -
<PAGE>
     TOTAL CONCEPT EAP - Total Concept,  an outpatient clinic located in Shawnee
Mission, Kansas, provides psychiatric and substance abuse treatment to children,
adolescents  and adults  and  manages  employee  assistance  programs  for local
businesses, gaming, railroads and managed health care companies.

     NORTH  POINT-PIONEER,  INC. - NPP consists of four  psychiatric  clinics in
Michigan.  The  clinics  provide  outpatient  psychiatric  and  substance  abuse
treatment to children,  adolescents and adults  operating under the name Pioneer
Counseling Center. The four clinics are located in close proximity to the Harbor
Oaks  facility,  which  provides  more  efficient  integration  of inpatient and
outpatient  services,  a larger coverage area and the ability to share personnel
which results in cost savings.

     PIONEER PHARMACEUTICAL  RESEARCH, INC. - PPR works with major manufacturers
of psychiatric  pharmaceuticals to assist in the study of the effects of certain
pharmaceuticals  in the treatment of specific mental illness.  These studies are
conducted primarily through our facilities in Michigan, Harbor Oaks Hospital and
North  Point-Pioneer  with the  permission and assistance of patients who are in
treatment.

Internet Operations

     WELLPLACE - Behavioral  Health Online  designs,  develops and maintains the
company's  web site,  Wellplace.com  in addition to providing  Internet  support
services and maintaining  the web sites of all of the other  subsidiaries of the
company.  The company's web sites provide  behavioral health  professionals with
the  educational  tools  required  to keep them  abreast  of  behavioral  health
breakthroughs  and keeps  individuals  informed of current  issues in behavioral
health of interest to them.



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<PAGE>
Operating Statistics

     The following table reflects selected financial and statistical information
for all psychiatric services.

                                                     Year Ended June 30,

                                                  2002               2001
                                                 _____________________________
         Inpatient
         Net patient service revenues           $ 14,130,471      $ 13,507,124
         Net revenues per patient day (1)       $        413      $        418
         Average occupancy rate (2)                    76.9%             72.0%
         Total number of licensed beds
              at end of period                           122               122
         Source of Revenues:
              Private (3)                             76.82%             82.0%
              Government (4)                          23.18%             18.0%
         Partial Hospitalization
         and
         Outpatient
         Net Revenues:*
              Individual                        $  4,678,493      $  5,283,278
              Contract                          $  2,300,140      $  2,297,071
         Sources of revenues:
              Private                                  98.1%             97.9%
              Government                                1.9%              2.1%
         Other Psychiatric Services:
                                 PDS2 (5)       $    842,345      $    944,567
                  Practice Management (6)       $          0      $    345,111

(1)  Net revenues per patient day equals net patient service revenues divided by
     total patient days.
(2)  Average  occupancy  rates were  obtained  by dividing  the total  number of
     patient days in each period by the number of beds available in such period.
(3)  Private pay percentage is the percentage of total patient  revenue  derived
     from all payors other than Medicare and Medicaid.
(4)  Government  pay  percentage  is the  percentage  of total  patient  revenue
     derived from the Medicare and Medicaid programs.
(5)  PDS2, Pioneer Development and Support Services,  provides clinical support,
     referrals  management  and  professional  services  for  a  number  of  the
     company's  national  contracts  and a smoking  cessation  help line for the
     state of Nebraska.
(6)  Practice  Management  revenue was  produced  through  BSC-NY and PHC,  Inc.
     During the fiscal year ended June 30,  2001 the company  closed it practice
     management  services  as  outlined in this  report  under  "Description  of
     Business" and detailed in footnote A to the financial  statements  included
     in this report.



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<PAGE>
Business Strategy

     The  company's  objective  is to become the  leading  national  provider of
treatment services, specializing in substance abuse and psychiatric care.

     The company focuses its marketing efforts on "safety-sensitive" industries.
This focus  results in  customized  outcome  oriented  programs that the company
believes   produce   overall  cost  savings  to  the  patients   and/or   client
organizations.  The company intends to leverage experience gained from providing
services to customers in certain  industries  that it believes  will enhance its
selling efforts within these certain industries.

 Marketing and Customers

     The  company  markets  its  substance   abuse,   inpatient  and  outpatient
psychiatric  health  services both locally and  nationally,  primarily to safety
sensitive industries,  including transportation,  oil and gas exploration, heavy
machinery and equipment,  manufacturing and healthcare  services.  Additionally,
the company  markets  its  services  in the gaming  industry  both in Nevada and
nationally.

     The company  employs four  individuals  dedicated  to  marketing  among the
company's  facilities.  Each facility performs marketing activities in its local
region.  The Senior Vice  President  of the company  coordinates  the  company's
national marketing efforts. In addition, employees at certain facilities perform
local  marketing  activities  independent  of the  Senior  Vice  President.  The
company,  with the  support  of its  owned  integrated  outpatient  systems  and
management services,  continues to pursue more at-risk contracts and outpatient,
managed  health  care  fee-for-service   contracts.  In  addition  to  providing
excellent  services  and  treatment  outcomes,  the  company  will  continue  to
negotiate pricing policies to attract patients for long-term intensive treatment
which meet length of stay and  clinical  requirements  established  by insurers,
managed  health  care  organizations  and the  company's  internal  professional
standards.

     The company's integrated systems of comprehensive  outpatient mental health
clinics  complement  the  company's  inpatient  facilities.  These  clinics  are
strategically located in Nevada, Virginia, Kansas City, Michigan, and Utah. They
make it possible  for the  company to offer  wholly  integrated,  comprehensive,
mental health services for  corporations  and managed care  organizations  on an
at-risk or exclusive fee-for-service basis.  Additionally,  the company operates
Pioneer  Development  and Support  Services (PDS2) located in the Highland Ridge
facility in Salt Lake City,  Utah. PDS2 provides  clinical  support,  referrals,
management  and  professional  services for a number of the  company's  national
contracts.  It gives the  company the  capacity  to provide a complete  range of
fully integrated mental health services.

     The company has been  successful in securing a number of national  accounts
with a variety of corporations  including:  Boyd Gaming,  Conrail, CSX, the IUE,
MCC, MGM,  Station  Casinos,  Union  Pacific  Railroad,  Union Pacific  Railroad
Hospital Association, VBH, and others.

     In addition to its direct patient care services;  the company maintains its
web site, Wellplace.com,  which provides articles and information of interest to
the general public as well as the behavioral health professional.  The company's
Internet  Company  also  provides  the  added  benefit  of web  availability  of
information  for various EAP contracts  held and serviced by those  subsidiaries
providing direct treatment services.




                                     - 9 -
<PAGE>
Competition

     The company's substance abuse programs compete nationally with other health
care providers,  including  general and chronic care hospitals,  both non-profit
and for-profit,  other substance abuse facilities and short-term  detoxification
centers.  Some competitors have substantially  greater financial  resources than
the company.  The company believes,  however,  that it can compete  successfully
with  such  institutions  because  of its  success  in  treating  poor-prognosis
patients.  The company  will  compete  through its focus on such  patients,  its
willingness to negotiate appropriate rates and its capacity to build and service
corporate relationships.

     The company's psychiatric  facilities and programs compete primarily within
the  respective  geographic  area  serviced by them.  The company  competes with
private doctors,  hospital-based clinics, hospital-based outpatient services and
other comparable facilities. The main reasons that the company competes well are
its integrated  delivery and dual  diagnosis  programming.  Integrated  delivery
provides for more  efficient  follow-up  procedures  and reductions in length of
stay.  Dual  diagnosis  programming  provides a niche service for clients with a
primary mental health and a secondary  substance  abuse  diagnosis.  The company
developed  its dual  diagnosis  service in  response  to demand  from  insurers,
employers and treatment facilities.  The company's Internet Company provides the
competitive  edge for service  information  and delivery for our direct  patient
care programs.

Revenue Sources and Contracts

     The company has entered into relationships with numerous  employers,  labor
unions and third-party payors to provide services to their employees and members
for the treatment of substance abuse and psychiatric disorders. In addition, the
company admits patients who seek treatment  directly without the intervention of
third  parties  and  whose   insurance  does  not  cover  these   conditions  in
circumstances  where the patient either has adequate financial  resources to pay
for  treatment  directly  or is  eligible  to  receive  free  care at one of the
company's  facilities.  The company's psychiatric patients either have insurance
or pay at least a portion of treatment costs based on their ability to pay. Free
treatment  provided  each year  amounts to less than 5% of the  company's  total
patient days.

     Each contract is negotiated  separately,  taking into account the insurance
coverage provided to employees and members, and, depending on such coverage, may
provide for  differing  amounts of  compensation  to the  company for  different
subsets of employees and members. The charges may be capitated,  or fixed with a
maximum charge per patient day, and, in the case of larger  clients,  frequently
result in a  negotiated  discount  from the  company's  published  charges.  The
company  believes that such  discounts are  appropriate as they are effective in
producing a larger volume of patient admissions. The company treats non-contract
patients  and bills them on the basis of the  company's  standard per diem rates
and for any additional ancillary services provided to them by the company.


Quality Assurance and Utilization Review

     The company has established comprehensive quality assurance programs at all
of its  facilities.  These  programs are  designed to ensure that each  facility
maintains  standards that meet or exceed  requirements  imposed upon the company
with the objective of providing  high-quality  specialized treatment services to
its patients.  To this end, the Joint  Commission on Accreditation of Healthcare
Organizations  ("JCAHO") survey and accredit the company's inpatient  facilities
and the company's  outpatient  facilities  comply with the standards of National
Commission  Quality  Assurance  ("NCQA")  although the  facilities  are not NCQA
certified.  The  company's  professional  staff,  including  physicians,  social


                                     - 10 -
<PAGE>
workers, psychologists, nurses, dietitians, therapists and counselors, must meet
the minimal requirements of licensure related to their specific  discipline,  in
addition to each facility's own internal quality assurance criteria. The company
participates in the federally  mandated National  Practitioners Data Bank, which
monitors professional accreditation nationally.

     In  response to the  increasing  reliance  of  insurers  and  managed  care
organizations upon utilization review  methodologies,  the company has adopted a
comprehensive  documentation policy to satisfy relevant reimbursement  criteria.
Additionally,  the company has  developed an internal  case  management  system,
which  provides  assurance  that services  rendered to  individual  patients are
medically  appropriate  and  reimbursable.   Implementation  of  these  internal
policies has been integral to the success of the company's strategy of providing
services to relapse-prone, higher acuity patients.

Government Regulation

     The company's  business and the  development and operation of the company's
facilities  are  subject  to  extensive  federal,  state  and  local  government
regulation.  In recent years, an increasing number of legislative proposals have
been  introduced  at both the  national and state levels that would affect major
reforms  of the  health  care  system  if  adopted.  Among the  proposals  under
consideration   are  reforms  to  increase  the  availability  of  group  health
insurance, to increase reliance upon managed care, to bolster competition and to
require that all businesses offer health insurance  coverage to their employees.
The company  cannot  predict  whether  any such  legislative  proposals  will be
adopted and, if adopted,  what effect,  if any, such proposals would have on the
company's business.

     In  addition,  both the  Medicare  and  Medicaid  programs  are  subject to
statutory and regulatory  changes,  administrative  rulings,  interpretations of
policy, intermediary  determinations and governmental funding restrictions,  all
of which may  materially  increase or decrease  the rate of program  payments to
health care facilities. Since 1983, Congress has consistently attempted to limit
the growth of federal spending under the Medicare and Medicaid programs and will
likely continue to do so.  Additionally,  congressional  spending reductions for
the Medicaid program  involving the issuance of block grants to states is likely
to hasten the reliance upon managed care as a potential savings mechanism of the
Medicaid  program.  As a result of this reform  activity the company can give no
assurance that payments under such programs will in the future remain at a level
comparable to the present level or be sufficient to cover the costs allocable to
such patients.

Health Planning Requirements

     Some of the states in which the  company  operates,  and many of the states
where the company may consider  expansion  opportunities,  have health  planning
statutes which require that prior to the addition or  construction  of new beds,
the addition of new services,  the acquisition of certain  medical  equipment or
certain  capital  expenditures  in  excess of  defined  levels,  a state  health
planning  agency must  determine  that a need exists for such new or  additional
beds, new services, equipment or capital expenditures. These state determination
of need or certificate of need ("DoN") programs are designed to enable states to
participate in certain  federal and state health  related  programs and to avoid
duplication  of health  services.  DoN's  typically  are issued for a  specified
maximum expenditure, must be implemented within a specified time frame and often
include  elaborate  compliance  procedures  for  amendment or  modification,  if
needed.  Several  states  have  instituted  moratoria  on some types of DoN's or
otherwise stated intent not to grant approvals for certain health services. Such
moratoria may adversely  affect the company's  ability to expand in such states,
but may also provide a barrier to entry to potential competitors.



                                     - 11 -
<PAGE>
Licensure and Certification

     State regulatory  authorities must license all of the company's facilities.
The company's Harbor Oaks facility is certified for  participation as a provider
in the Medicare and Medicaid programs.

     The  company's  initial and  continued  licensure  of its  facilities,  and
certification to participate in the Medicare and Medicaid programs, depends upon
many  factors,  including  accommodations,  equipment,  services,  patient care,
safety,  personnel,  physical  environment,  the existence of adequate policies,
procedures  and controls and the  regulatory  process  regarding the  facility's
initial  licensure.  Federal,  state and local agencies  survey  facilities on a
regular  basis to  determine  whether such  facilities  are in  compliance  with
governmental  operating and health standards and conditions for participating in
government  programs.  Such surveys  include review of patient  utilization  and
inspection of standards of patient care.  The company has procedures in place to
ensure that its  facilities  are operated in compliance  with all such standards
and conditions.  To the extent these standards are not met, however, the license
of a facility could be restricted,  suspended or revoked, or a facility could be
decertified from the Medicare or Medicaid programs.

Medicare Reimbursement

     Currently  the  only  facility  of  the  company  that  receives   Medicare
reimbursement  is Harbor Oaks. For the fiscal year ended June 30, 2002 13.36% of
revenues for Harbor Oaks were derived from Medicare programs.

     The Medicare program generally reimburses  psychiatric  facilities pursuant
to its prospective  payment system ("PPS"),  in which each facility  receives an
interim  payment of its allowable  costs during the year which is later adjusted
to reflect actual allowable direct and indirect costs of services based upon the
submission of a cost report at the end of each year.  However,  current Medicare
payment policies allow certain  psychiatric  service providers an exemption from
PPS. In order for a facility to be eligible for exemption from PPS, the facility
must  comply  with  numerous   organizational   and  operational   requirements.
PPS-exempt  providers  are cost  reimbursed,  receiving  the lower of reasonable
costs or reasonable charges. The Medicare program fiscal intermediary pays a per
diem rate based upon prior year costs, which may be retroactively  adjusted upon
the submission of annual cost reports.

     The  Harbor  Oaks  facility  is  currently  PPS-exempt.  The  amount of its
cost-based   reimbursement   may  be  limited  by  the  Tax  Equity  and  Fiscal
Responsibility Act of 1982 ("TEFRA") and regulations  promulgated under the Act.
Generally,  TEFRA limits the amount of reimbursement a facility may receive to a
target amount per discharge,  adjusted  annually for  inflation.  The facility's
reasonable Medicare operating costs divided by Medicare  discharges,  plus a per
diem  allowance for capital costs during its base year of operations  determines
the target  amount.  It is not possible to predict the ability of Harbor Oaks to
remain  PPS-exempt or to anticipate  the impact of TEFRA upon the  reimbursement
received by Harbor Oaks in future periods.

     In order to receive Medicare  reimbursement,  each  participating  facility
must meet the applicable  conditions of  participation  set forth by the federal
government  relating to the type of facility,  its equipment,  its personnel and
its standards of medical  care,  as well as compliance  with all state and local
laws and regulations.  In addition,  Medicare regulations generally require that
entry into such facilities be through physician referral. The company must offer
services  to  Medicare  recipients  on a  non-discriminatory  basis  and may not
preferentially accept private pay or commercially insured patients.




                                     - 12 -
<PAGE>
Medicaid Reimbursement

     Currently  the only  facility of the company  that  receives  reimbursement
under any state Medicaid  program is Harbor Oaks. A portion of Medicaid costs is
paid by states under the Medicaid program and the federal matching  payments are
not made unless the state's portion is made. Accordingly,  the timely receipt of
Medicaid  payments by a facility may be affected by the  financial  condition of
the relevant state.

     Harbor Oaks is a participant in the Medicaid  program  administered  by the
State of  Michigan.  The  company  receives  reimbursement  on a per diem basis,
inclusive  of  ancillary  costs.  The state  determines  the rate and adjusts it
annually based on cost reports filed by the company.


Fraud and Abuse Laws

     Various  federal and state laws  regulate  the business  relationships  and
payment  arrangements  between  providers and suppliers of health care services,
including employment or service contracts, and investment  relationships.  These
laws  include  the fraud and  abuse  provisions  of the  Medicare  and  Medicaid
statutes as well as similar state statutes  (collectively,  the "Fraud and Abuse
Laws"),  which prohibit the payment,  receipt,  solicitation  or offering of any
direct or indirect remuneration intended to induce the referral of patients, the
ordering,  arranging,  or providing  of covered  services,  items or  equipment.
Violations of these provisions may result in civil and criminal penalties and/or
exclusion   from   participation   in   the   Medicare,   Medicaid   and   other
government-sponsored  programs.  The federal  government has issued  regulations
that set forth certain "safe harbors,"  representing business  relationships and
payment  arrangements  that can safely be  undertaken  without  violation of the
federal  Fraud and Abuse  Laws.  Failure to fall  within a safe  harbor does not
constitute a per se violation of the federal  fraud and abuse laws.  The company
believes that its business  relationships and payment  arrangements  either fall
within the safe harbors or otherwise comply with the Fraud and Abuse Laws.

     The  company  has an active  compliance  program in place with a  corporate
compliance  officer and  compliance  liaisons at each  facility  and a toll free
compliance  hotline.  Compliance  in services and  trainings  are conducted on a
regular basis.


Employees

     As of July 31, 2002 the company had 327 employees of which 4 were dedicated
to marketing,  77 (13 part time) to finance and  administration and 246 (84 part
time) to patient care.  All of the  company's  327 employees are leased  through
Inovis,   which  was   recently   purchased   by  Team   America,   a   national
employee-leasing firm. The company has elected to lease its employees to provide
more favorable employee health benefits at lower cost than would be available to
the company as a single employer and to eliminate certain  administrative  tasks
which otherwise would be imposed on the management of the company. The agreement
provides that Inovis,  now Team Inovis,  will  administer  payroll,  provide for
compliance with workers'  compensation laws,  including  procurement of workers'
compensation  insurance  and  administering  claims,  and  procure  and  provide
designated  employee  benefits.  The  company  retains  the right to reject  the
services of any leased employee and Inovis has the right to increase its fees at
any time upon thirty days' written  notice or  immediately  upon any increase in
payroll taxes, workers' compensation  insurance premiums or the cost of employee
benefits provided to the leased employees.



                                     - 13 -
<PAGE>
     The company believes that it has been successful in attracting  skilled and
experienced  personnel.  Competition for such employees is intense, however, and
there can be no  assurance  that the company  will be able to attract and retain
necessary qualified employees in the future. None of the company's employees are
covered by a collective  bargaining  agreement.  The company  believes  that its
relationships with its employees are good.


Insurance

     Each of the company's facilities maintains separate professional  liability
insurance policies.  Harbor Oaks, Mount Regis Center, Harmony Healthcare,  Total
Concept and NPP have  coverage of  $1,000,000  per claim and  $3,000,000  in the
aggregate.  In addition to this coverage Harbor Oaks and Mount Regis Center each
maintain  an  umbrella  policy  of  $1,000,000.  Highland  Ridge  has  limits of
$1,000,000  per  claim and  $6,000,000  in the  aggregate.  In  addition,  these
entities maintain general liability insurance coverage in similar amounts.

     The  parent  company  maintains   $1,000,000  of  directors  and  officers'
liability insurance coverage, general liability coverage of $1,000,000 per claim
and $2,000,000 in aggregate and an umbrella  policy of  $1,000,000.  The company
believes,  based on its experience,  that its insurance coverage is adequate for
its business and that it will continue to be able to obtain adequate coverage.



                                     - 14 -
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY

Executive Offices

     The company's executive offices are located in Peabody, Massachusetts.  The
company's lease agreement in Peabody covers  approximately 4,800 square feet for
a 60-month  term,  which expires  September 17, 2004. The current annual payment
under the lease is $85,728  and  increases  to $88,896  in the final  year.  The
company  believes  that this  facility will be adequate to satisfy its needs for
the foreseeable future.

Highland Ridge Hospital

     The Highland Ridge premises consist of approximately  24,000 square feet of
space  occupying  the majority of first floor of a two-story  hospital  owned by
Valley Mental Health. The lease is for a five-year agreement, which provides for
monthly rental payments of approximately  $16,360,  which included  housekeeping
and maintenance  provided by the landlord for the first six months, and includes
changes in rental payments each year based on increases or decreases in the CPI.
In July 1999 the  facility  began  paying  approximately  $6,500  each month for
housekeeping and maintenance.  The lease expires December 31, 2004, and includes
an option to renew for an additional five years. The company believes that these
premises are adequate for its current and anticipated needs.

Mount Regis Center

     The company owns the Mount Regis facility,  which consists of a three-story
wooden  building  located on an  approximately  two-acre  site in a  residential
neighborhood. The building consists of over 14,000 square feet and is subject to
a mortgage in the approximate amount of $406,000.  The facility is used for both
inpatient and outpatient services.  The company believes that these premises are
adequate for its current and anticipated needs.

Psychiatric Facilities

     The company owns or leases premises for each of its psychiatric facilities.
Harmony, Total Concept, North Point Pioneer and Pioneer Pharmaceutical  Research
lease their premises. The company believes that each of these premises is leased
at fair market value and could be replaced  without  significant time or expense
if necessary.  The company  believes that all of these premises are adequate for
its current and anticipated needs.

     The company  owns the building in which  Harbor Oaks  operates,  which is a
single  story brick and wood frame  structure  comprising  approximately  32,000
square feet  situated  on an  approximately  three acre site.  The company has a
$2,500,000  mortgage on this property.  The company believes that these premises
are adequate for its current and anticipated needs.


ITEM 3.  LEGAL PROCEEDINGS.

     As a consequence of Franvale's  bankruptcy and subsequent  receivership,  a
number of claims were asserted against the Company. In April 2002 the Bankruptcy
Court allowed the Final Report and Account of the Trustee in this matter closing
all claims relating to the  bankruptcy.  This resulted in the elimination of the
current  liability  of  discontinued  operations  and an  increase  in equity of
approximately $800,000.




                                     - 15 -
<PAGE>
     On or about May 15,  2000,  the  company  was served with a subpoena by the
United  States  Attorney  for  the  District  of  Massachusetts.   The  subpoena
requested,  inter  alia,  patient  and  financial  records  relating to Franvale
Nursing  and  Rehabilitation  Center for the period of 1995  through  1998.  The
company has reached an agreement in principle  with the government to settle all
outstanding  billing issues.  The final agreement is currently being drafted for
signatures.  The  company  believes  that  it has  adequately  accrued  for  the
settlement of this claim in the accompanying financial statements.


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

     No matters  were  submitted  to a vote of the  company's  security  holders
during the fourth quarter of the fiscal year ended June 30, 2002.















                                    - 16 -










<PAGE>
PART II

ITEM 5.     MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     Since the company's  public offering which was declared  effective on March
3, 1994, until December 2000 the company's Units, Class A Common Stock and Class
A Warrants were traded on the NASDAQ National Market under the symbols  "PIHCU,"
"PIHC" and  "PIHCW,"  respectively.  In December  2000 the  Company's  stock was
delisted due to failure to meet listing criteria.  Currently the company's Class
A  common  Stock is  traded  on the  NASDAQ  Bulletin  Board  under  the  symbol
"PIHC-BB."  There is no public trading  market for the company's  Class B Common
Stock.  In March 2001 the  company's  warrants  issued with its  initial  public
offering  expired:  therefore,  there is currently  no market for the  company's
warrants or units.  The following table sets forth,  for the periods  indicated,
the high and low sale price of the company's  Class A Common Stock,  as reported
by NASDAQ.

                                                        HIGH             LOW

2001
        First Quarter                               $   1.50         $    .50
        Second Quarter                              $    .5625       $    .6250
        Third Quarter                               $    .6094       $    .1250
        Fourth Quarter                              $    .59         $    .19

2002
        First Quarter                               $    .48         $    .30
        Second Quarter                              $    .63         $    .34
        Third Quarter                               $    .45         $    .35
        Fourth Quarter                              $    .99         $    .37

2003
        First Quarter (through August 1, 2002)      $    .81         $    .56


     On August 1, 2002, the last reported sale price of the Class A Common Stock
was $.65.  On August 1, 2002 there were 696  holders of record of the  company's
Class A Common Stock and 313 holders of record of the  company's  Class B Common
Stock.

DIVIDEND POLICY

     The company has never paid any cash  dividends on its Common Stock.  During
the fiscal year ended June 30, 2002 the company was precluded  under capital law
from paying cash dividends,  however, the company accrued dividends on preferred
stock  according to the  preferred  stock  agreement  and paid all  dividends in
common stock,  as required,  upon  conversion of the preferred  stock.  Although
there are now no  restrictions  on the Company's  ability to pay dividends,  the
Company  anticipates  that, in the future,  earnings will be retained for use in
the business or for other corporate  purposes,  and it is not  anticipated  that
cash  dividends  in  respect  to Common  Stock  will be paid in the  foreseeable
future.  Any decision as to the future  payment of dividends  will depend on the
results of  operations,  the  financial  position  of the Company and such other
factors, as the Company's Board of directors, in its discretion, deems relevant.

                                     - 17 -
<PAGE>
ITEM 6.     MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

     The following is a discussion  and analysis of the financial  condition and
results of operations of the company for the years ended June 30, 2002 and 2001.
It should be read in conjunction with the consolidated  financial statements and
notes thereto appearing  elsewhere herein.  During fiscal year 2001 BSC-NY, Inc.
was closed, as part of the divestiture of unprofitable  business, as outlined in
this report under  "Description  of Business"  and detailed in footnote A to the
consolidated financial statements included in this report.

Overview

     The company presently provides  behavioral health care services through two
substance abuse treatment centers,  a psychiatric  hospital and seven outpatient
psychiatric centers (collectively called "treatment facilities").  The company's
revenue for providing  behavioral  health services  through these  facilities is
derived from contracts with managed care companies,  Medicare,  Medicaid,  state
agencies,  railroads,  gaming industry  corporations and individual clients. The
profitability of the company is largely dependent on the level of patient census
and the payor mix at these treatment  facilities.  Patient census is measured by
the number of days a client  remains  overnight at an inpatient  facility or the
number of visits or encounters with clients at out patient clinics. Payor mix is
determined  by the  source of  payment  to be  received  for each  client  being
provided billable services.  The company's  administrative  expenses do not vary
greatly as a percentage  of total revenue but the  percentage  tends to decrease
slightly as revenue  increases.  Although  the company has changed the focus and
reduced expenses of its' internet operation,  Behavioral Health Online, Inc., to
provide  technology and internet support for the company's other operations,  it
also continues to provide  behavioral  health  information and education through
its web site at Wellplace.com.  The expenses of the Internet operation decreased
approximately  78% through the  consolidation  of operations and  elimination of
excess leased space. The company's most recent addition,  Pioneer Pharmaceutical
Research, contracts with major  manufacturers of psychiatric  pharmaceuticals to
assist in the study of the effects of certain  pharmaceuticals  in the treatment
of specific mental illness.

     The healthcare  industry is subject to extensive  federal,  state and local
regulation governing,  among other things, licensure and certification,  conduct
of operations, audit and retroactive adjustment of prior government billings and
reimbursement. In addition, there are on going debates and initiatives regarding
the  restructuring of the health care system in its entirety.  The extent of any
regulatory  changes and their impact on the company's  business is unknown.  The
current  administration  has put forth  proposals  to  mandate  equality  in the
benefits available to those individuals suffering from mental illness. If passed
this legislation will improve access to the companies programs. Managed care has
had a  profound  impact  on the  company's  operations,  in the form of  shorter
lengths of stay, extensive  certification of benefits  requirements and, in some
cases, reduced payment for services.

Critical Accounting Policies

     The  preparation of our financial  statements  requires  management to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues,  expenses and related  disclosures.  On an on-going basis, we evaluate
our  estimates  and  assumptions,  including but not limited to those related to
revenue  recognition,   accounts  receivable  reserves  and  the  impairment  of
long-lived  assets,  goodwill and other intangible assets. We base our estimates
on historical  experience  and various other  assumptions  that we believe to be
reasonable  under the  circumstances,  the  results  of which form the basis for
making  judgments about the carrying  values of assets and liabilities  that are
not readily  apparent from other  sources.  Actual results may differ from these
estimates under different assumptions or conditions.

                                     - 18 -
<PAGE>
Revenue recognition and accounts receivable:

     Patient care revenues and accounts  receivable  are recorded at established
billing rates or at the amount  realizable  under  agreements  with  third-party
payors,  including  Medicaid and  Medicare.  Revenues  under  third-party  payor
agreements are subject to examination  and contractual  adjustment,  and amounts
realizable  may change due to periodic  changes in the  regulatory  environment.
Provisions  for  estimated  third party payor  settlements  are  provided in the
period the  related  services  are  rendered.  Differences  between  the amounts
provided and  subsequent  settlements  are recorded in operations in the year of
settlement.  The provision for contractual  allowances is deducted directly from
revenue and the net revenue  amount is  recorded  as  accounts  receivable.  The
allowance for doubtful accounts does not include the contractual allowances.

Allowance for doubtful accounts:

     Reserves  for bad  debt  are  maintained  at a  percentage  of  outstanding
accounts receivable based on the company's historic collection results,  the age
of the receivable and other relevant information.

Property and equipment:

     Property and  equipment are stated at cost.  Depreciation  is provided over
the estimated  useful lives of the assets using  accelerated  and  straight-line
methods.

Organization costs:

     Organization  costs are  expensed as  incurred as required by the  American
Institute of Certified Public Accounts Statement of Position 98-5 "Reporting the
Costs of Start-up Activities".

Goodwill:

     The excess of the  purchase  price over the fair market value of net assets
of an acquisition is recorded as goodwill. The company's net goodwill relates to
the treatment services segment of the company and is evaluated at least annually
for impairment.

Results of Operations

Years Ended June 30, 2002 and 2001

     The company  experienced a significant  increase in profitability  from its
ongoing  operations  during the fiscal year ended June 30, 2002.  Total revenues
excluding BSC-NY, Inc., the practice management operation closed in the previous
fiscal year, increased 1.3% to $22,698,268 for the year ended June 30, 2002 from
$22,404,725  for the year ended June 30, 2001.  The  stability of the  company's
core business revenues and reduced operating  expenses,  resulted in an increase
in income from  operations  of 82.7% to  $1,764,274  for the year ended June 30,
2002 from $937,486 before closing expenses of the practice management  operation
for the year ended June 30, 2001 and an increase in net income before  dividends
of $1,148,294 to $1,083,895  for the fiscal year ended June 30, 2002 from a loss
of $64,399,  excluding BSC-NY, Inc. closing costs of $5,186,306,  for the fiscal
year ended June 30,  2001.  The company has  returned  to  profitability  having
recorded its sixth consecutive  profitable  quarter from ongoing operations with
the quarter ended June 30, 2002.



                                     - 19 -
<PAGE>
     Total net patient  care revenue from all  facilities,  remained  relatively
stable  at  $21,109,104  for  the  year  ended  June  30,  2002 as  compared  to
$21,087,473  for the year ended June 30, 2001.  This  stability of core business
revenues  coupled with reductions in expenses  resulted in increased net income.
Although patient census  increased as shown in "Operating  Statistics" on page 7
of this report,  a change in payor mix resulted in lower net revenue per patient
day. Net inpatient  care revenue from  psychiatric  services  increased  4.6% to
$14,130,471  for the year ended June 30,  2002 from  $13,507,124  for the fiscal
year ended June 30,  2001.  Net  partial  hospitalization  and  outpatient  care
revenue  decreased  7.9% to  $6,978,633  for the year ended  June 30,  2002 from
$7,580,349 for the year ended June 30, 2001. This decrease is due in part to the
decrease in the number of employees covered under our contracts in the aftermath
of September 11, 2001.  Revenues from Pioneer  Development and Support  Services
("PDS2")  decreased  10.8% to  $842,345  for the year ended  June 30,  2002 from
$944,567 for the year ended June 30, 2001.  This is due to the  completion  of a
large  short-term  contract  in the  fiscal  year  ended  June 30,  2001 and the
elimination of the related  revenues.  All revenues reported in the accompanying
statements of operations are shown net of estimated contractual  adjustments and
charity care provided.  When payment is made, if the  contractual  adjustment is
found to have been understated or overstated appropriate adjustments are made in
the period the  payment  is  received  in  accordance  with the AICPA  Audit and
Accounting Guide for Health Care Organizations.

     Patient care  expenses  increased by  approximately  $1,028,772  due to the
increase in patient  census at our inpatient  facilities for the year ended June
30, 2002.  Inpatient census  increased by approximately  1,900 patient days, 6%,
for the year  ended June 30,  2002  compared  to the year  ended June 30,  2001.
Direct patient care payroll and payroll related expenses increased approximately
8% to $9,762,087  for the year ended June 30, 2002 from  $8,617,575 for the year
ended June 30, 2001;  pharmacy costs increased  approximately 9% to $351,531 for
the year ended June 30,  2002 from  $322,520  for the year ended June 30,  2001;
laboratory fees increased  approximately 48% to $213,973 for the year ended June
30,  2002 from  $144,485  for the year ended  June 30,  2001;  and food  expense
increased  approximately  8% to  $481,363  for the year ended June 30, 2002 from
$445,651 for the year ended June 30, 2001. All of these  increases were a result
of increased patient census and increased acuity of patients.  We also increased
our census from outside of the facilities'  local areas resulting in an increase
in patient  transportation  expense of approximately 6% to $289,715 for the year
ended  June 30,  2002 from  $274,493  for the year ended  June 30,  2001.  Other
patient related  expenses  increased  approximately  259% due to the increase in
patients participating in research studies through our newest subsidiary Pioneer
Pharmaceutical  Research.  The corresponding  revenue increase was approximately
$388,000 or 109% over last year's  revenues.  We continue to closely monitor the
ordering  of  hospital  supplies,  food and  pharmaceutical  supplies  but these
expenses  all relate  directly  to the number of days of  inpatient  services we
provide and are expected to increase with higher patient census (see  "Operating
Statistics" Part I, Item 1).

     Website  expenses  decreased  78.7% to $287,556 for the year ended June 30,
2002 from  $1,351,150 for the year ended June 30, 2001.  This decrease is due to
the change in focus of the  Internet  company to  internal  support of the other
operating  locations.  Website  expenses  are expected to continue at this level
while the Internet company's focus remains internal.

     In December  2000 the  Company's  Board of Directors  decided to close its'
BSC-NY,  Inc.  practice  management  operations  due  to  the  deterioration  of
operating results. Revenues of BSC-NY, Inc. were dependent on the success of the
professional  corporation  for  which it provided management services.  Although
the New  York  practice  management  operations  reported  operating  income  of
approximately $131,000 for the fiscal year ended June 30, 2000, adverse business
conditions resulted in a loss of approximately $399,000 for the six months ended


                                     - 20 -
<PAGE>
December 31, 2000 before closing expenses.  These adverse  operating  conditions
were caused by the decline in revenues produced by the professional  corporation
which had closed down its business operations. Closing expenses for the practice
management   company  were  $5,186,306  and  included   $1,545,609  in  goodwill
impairment,  $3,401,650 in receivables due from the Professional Corporation and
$239,047 in lease termination and other expenses.

     Contract  expenses related to PDS2 decreased 17.6% to $704,363 for the year
ended  June 30,  2002 from  $855,128  for the year  ended  June 30,  2001.  This
decrease  is due to the  completion  of a  large  short-term  contract  and  the
elimination of related expenses.

     Total  administrative  expenses  for  all  facilities  increased  14.5%  to
$8,533,571  for the year ended June 30, 2002 from  $7,452,714 for the year ended
June 30, 2001. This increase in administrative expense is due to the increase in
expenses  for Pioneer  Pharmaceutical  Research  and the  non-cash  equity based
compensation charge of approximately $264,000.

     Interest  expense  decreased  24.2% to $790,955 for the year ended June 30,
2002 from  $1,043,030 for the year ended June 30, 2001.  This decrease is due to
the  refinancing  of debt  resulting in lower interest rates and the decrease in
prime rate,  which  dictates the interest  rate on the majority of the company's
long-term debt.

     The Company's  income taxes of $15,446 and $44,450 for the years ended June
30, 2002 and June 30, 2001,  respectively,  are significantly  below the Federal
statutory  rate of 34% primarily  related to the  availability  of net operating
loss carry-forward. Total income tax expense for fiscal 2002 and 2001 represents
state income taxes for certain subsidiaries with no available net operating loss
carry-forwards.

     Bad debt expense decreased 71.2% to $716,681 for the fiscal year ended June
30, 2002 from  $2,490,307  for the fiscal year ended June 30, 2001.  This is due
primarily  to the  elimination  of bad  debt  related  to  the  closed  practice
management  company and the overall decrease in the age of outstanding  accounts
receivable.

     The  environment  the  company   operates  in  today  makes  collection  of
receivables,  particularly  older  receivables,  more difficult than in previous
years.   Accordingly,   the  company  has  increased  staff,  standardized  some
procedures  for  collecting   receivables   and  instituted  a  more  aggressive
collection  policy,  which has  resulted in an overall  decrease in its accounts
receivable.  Although the  company's  receivables  have  decreased,  the company
continues  to reserve  for bad debts  based on  managed  care  denials  and past
difficulty in  collections.  The growth of managed care has negatively  impacted
reimbursement  for  behavioral  health  services  with a higher  rate of denials
requiring higher reserves.

Liquidity and Capital Resources

     The company`s net cash provided by operating  activities was $1,576,109 for
the year ended June 30, 2002  compared to cash used by operating  activities  of
$461,277 for the year ended June 30, 2001.  Cash flow from  operations in fiscal
2002 consists of net income of $1,083,895 plus  depreciation and amortization of
$202,776,  decrease in accounts receivable of $440,638 and non-cash equity based
charges of $336,745 less cash used for net changes in other operating assets and
liabilities  of $487,945.  Cash flow from  operations  would have been  $156,506
higher  in  fiscal  2002  without  the  legal  expenses  related  to  the  final
disposition of the Franvale bankruptcy.



                                     - 21 -
<PAGE>
     Cash used in investing  activities in fiscal 2002  consisted of $124,362 in
capital  expenditures  compared to $186,842 and $70,226 in capital  expenditures
and website development costs, respectively in fiscal 2001.

     Cash used in financing  activities  in fiscal 2002  primarily  consisted of
$1,113,344  in debt  repayments  compared  to $63,806 in net  borrowings  during
fiscal 2001. Other fiscal 2002 financing activities are summarized below.

     During the fiscal years ended June 30, 2000 and 2001 the company  issued 8%
series C convertible preferred stock in a private placement. As of June 30, 2002
all  of  this   preferred   stock  has  been  converted  with  the  issuance  of
approximately  4,600,000 shares of class A common stock.  Approximately  541,000
additional  shares were  issued in payment of unpaid  accrued  dividends  on the
preferred stock. The company incurred costs of $198,149 in fiscal 2002,  related
to the private placement of the preferred stock conversion shares.

     A  significant  factor in the liquidity and cash flow of the company is the
timely collection of its accounts  receivable.  Current accounts receivable from
patient care, net of allowance for doubtful accounts decreased  approximately 7%
to $5,768,419 on June 30, 2002 from  $6,220,715 on June 30, 2001.  This decrease
is a result of better  accounts  receivable  management due to increased  staff,
standardization  of  some  procedures  for  collecting  receivables  and a  more
aggressive  collection  policy.  The increased  staff has allowed the company to
concentrate on current accounts receivable and resolve any problem issues before
they become  uncollectable.  The company's  collection  policy calls for earlier
contact  with  insurance  carriers  with  regard  to  payment,  use of  fax  and
registered  mail to  follow-up  or  resubmit  claims and earlier  employment  of
collection  agencies to assist in the collection  process.  Our collectors  will
also seek  assistance  through every legal means,  including the State Insurance
Commissioner's  office,  when appropriate,  to collect claims. At the same time,
the  company  continues  to  closely  monitor  reserves  for bad  debt  based on
potential insurance denials and past difficulty in collections.

     In May 2001, in order to support the company's  continued  revenue  growth,
the company increased its accounts receivable funding revolving credit agreement
with Heller Healthcare Finance, Inc. on behalf of three of its subsidiaries. The
amended agreement  provides for funding of up to $3,000,000 based on outstanding
receivables.  The outstanding balance on this receivables  financing on June 30,
2002 was  $1,468,644,  reflecting a $642,942  decrease  from June 30,  2001.  In
November 2001 the company  refinanced all of the outstanding  mortgage debt with
Heller  Healthcare  Finance.  This  resulted  in the  consolidation  of  several
outstanding  notes,  the reduction of interest on the debt from prime plus 5% to
prime plus 3.5% and the  reduction  in the  principal  payments  due each month.
Total proceeds from the refinancing  transaction  during fiscal 2002 amounted to
$748,912. Principal payments on long-term debt totaled $1,219,314 in fiscal 2002
compared to $639,157 in fiscal 2001.




                                     - 22 -
<PAGE>
     The Company's future minimum payments under contractual obligations related
to capital  leases,  operating  leases and term notes as of June 30, 2002 are as
follows:

      Year Ending              Term       Capital     Operating
      June 30,                 Notes      Leases      Leases          Total
_______________________________________________________________________________

 2003                     $   765,415     $ 13,556    $  776,551    $1,555,522
 2004                         823,659       10,536       748,119     1,582,314
 2005                       1,255,415        8,126       539,195     1,802,736
 2006                          47,598        5,037       181,607       234,242
 2007                          32,307           --       111,239       143,546
 Thereafter                   269,966           --            --       269,966
                            _________     _________   ___________   ___________
 Total minimum payments   $ 3,194,360     $ 37,255    $2,356,711    $5,588,326
                          ===========     =========   ===========   ==========

     In  addition  to the above term notes,  the  company  also has  $500,000 in
outstanding convertible debentures, which include the provision that the holders
of the debentures may put all or any portion of the debentures to the company at
the original  purchase  price plus unpaid  interest upon 30 days written  notice
beginning December 3, 2001. The holders of the debentures have exercised the put
provision in the agreement as to 50% of the outstanding debentures.  The company
will begin making monthly  payments of $25,000 plus accrued  interest in October
2002, which will further reduce indebtedness and interest costs. .

     The company  believes that, with the refinancing  debt mentioned above, its
revolving  credit  facility  through  its  primary  lender  and cash  flow  from
operations,  it will have  sufficient  cash and financing  available to fund its
growing  operations for the foreseeable  future. The company is concentrating on
its core  business  and  expansion  of its  pharmaceutical  research  operations
through  additional  contracts,  which will increase  revenues  considerably and
provide for additional cash from operations.

     The  liquidation of the assets and  liabilities  of Franvale  resulted in a
non-cash  increase in equity of $804,046 in the quarter  ended June 30, 2002. In
April 2002 the bankruptcy was finalized and all obligations were recorded.  (see
Note A to the  accompanying  consolidated  financial  statements  for additional
information.) This increase in equity,  coupled with the increase in equity from
fiscal  2002 net  income,  contributed  to a  positive  stockholders'  equity of
$615,985 for the company as of June 30, 2002  compared to a total  stockholders'
deficit of $1,281,120 as of June 30, 2001.

     The company has operated ongoing operations  profitably for six consecutive
quarters.  The current positive business  environment  towards behavioral health
treatment  and the new  business  opportunities  give us  confidence  to foresee
continued improved results.

New accounting standards

     In June 2001,  the Financial  Accounting  Standards  Board  finalized  FASB
Statements No. 141, Business Combinations ("SFAS 141") and No. 142, Goodwill and
Other Intangible  Assets ("SFAS 142"). SFAS 141 requires the use of the purchase
method of accounting and prohibits the use of the pooling-of-interest  method of
accounting for business  combinations  initiated  after June 30, 2001.  SFAS 141
also requires that the Company recognize  acquired  intangible assets apart from
goodwill if the  acquired  intangible  assets meet  certain  criteria.  SFAS 141
applies  to all  business  combinations  initiated  after  July 1,  2001 and for
purchase business  combinations  completed on or after July 1, 2001. It also may
require,  upon  adoption of SFAS 142 that the Company  reclassify  the  carrying
amounts of intangible assets and goodwill based on the criteria in SFAS 141.

                                     - 23 -
<PAGE>
     SFAS 142 requires,  among other things,  that companies no longer  amortize
goodwill,  but instead  test  goodwill  for  impairment  at least  annually.  In
addition,  SFAS 142 requires that the Company  identify  reporting units for the
purpose of assessing  potential  future  impairments  of goodwill,  reassess the
useful  lives  of  other  existing  recognized   intangible  assets,  and  cease
amortization of intangible  assets with an indefinite useful life. An intangible
asset  with an  indefinite  useful  life  should be  tested  for  impairment  in
accordance  with the  guidelines in SFAS 142. SFAS 142 is required to be applied
in fiscal  years  beginning  after  December  15, 2001 to all goodwill and other
intangible assets recognized at that date,  regardless of when those assets were
initially recognized

     The  Company  elected  early  adoption  of SFAS  142 in the  quarter  ended
September  30, 2001.  The  Company's  net  goodwill of $969,099  relating to the
treatment  services segment of the Company was evaluated as of July 1, 2001. The
adoption of SFAS 142 resulted in a decrease in  amortization  expense of $65,700
for the year ended June 30, 2002.

The impact of the adoption of SFAS 142 is summarized as follows:

                                                     For the Year Ended
                                                            June 30,
                                                     2002              2001
                                                    ___________    ____________
      Reported net income (loss) applicable to
         common shareholders                        $ 985,484     $ (5,634,323)
    Add back:  Goodwill amortization                       --           65,700
                                                    ___________    ____________
    Adjusted net income (loss)                        985,484       (5,568,623)

    Basic earnings per share:
      Reported net income(loss)applicable to
         common shareholders                        $    0.10     $      (0.66)
      Goodwill amortization                                --              .01
                                                    ___________    ____________
      Adjusted net income (loss)                    $    0.10     $      (0.65)

    Diluted earnings per share:
      Reported net income (loss)applicable to
         common shareholders                        $    0.09     $      (0.66)
      Goodwill amortization                                --              .01
                                                    ___________    ____________
      Adjusted net income (loss)                    $    0.09     $      (0.65)

     In  October  2001,  the FASB  issued  SFAS  No.  144,  "Accounting  for the
Impairment  or  Disposal  of  Long-Lived   Assets,"  which  addresses  financial
accounting  and reporting for the  impairment or disposal of long-lived  assets.
This  statement  supersedes  SFAS No. 121,  "Accounting  for the  Impairment  of
Long-Lived  Assets and for Long-Lived  Assets To Be Disposed Of" and APB Opinion
No. 30, "Reporting the Results of  Operations-Reporting  the Effects of Disposal
of a Segment of a Business".  SFAS No.144 becomes effective for the fiscal years
beginning  after  December 15, 2001.  The Company will adopt SFAS No. 144 in the
first  quarter of fiscal 2003.  The Company does not expect the adoption of SFAS
No. 144 to impact its financial position and results of operations.



                                     - 24 -
<PAGE>
     In July 2002, the FASB issued SFAS No. 146, "Accounting for Cost Associated
with Exit or Disposal Activities".  SFAS No. 146 requires companies to recognize
cost associated  with exit or disposal  activities when they are incurred rather
than at the date of a commitment to an exit or disposal  plan.  SFAS 146 will be
applied  prospectively  to any  exit  or  disposal  activities  initiated  after
December 31, 2002. The company  expects there will be no effect on its financial
results relating to the adoption of SFAS No. 146.






















                                     - 25 -
<PAGE>
ITEM 7.           FINANCIAL STATEMENTS.
                                                                      PAGE

Index                                                                  F-1
Report of independent certified public accountants                     F-2
Consolidated balance sheets                                            F-3
Consolidated statements of operations                                  F-4
Consolidated statements of changes in stockholders'equity (deficit)    F-5
Consolidated statements of cash flows                                  F-6, F-7
Notes to consolidated financial statements                             F-8, F-26







































                                                                          F-1



                                     - 26 -
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors and Stockholders
PHC, Inc.
Peabody, Massachusetts


We have audited the  accompanying  consolidated  balance sheets of PHC, Inc. and
subsidiaries  as of  June  30,  2002  and  2001  and  the  related  consolidated
statements of operations,  changes in stockholders'  equity (deficit),  and cash
flows  for  the  years  then  ended.   These   financial   statements   are  the
responsibility of the company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  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.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the consolidated  financial position of PHC,
Inc.  and  subsidiaries  at June 30,  2002 and  2001  and the  results  of their
operations  and their cash flows for the years  then  ended in  conformity  with
accounting principles generally accepted in the United States of America.




                                                             BDO Seidman, LLP

Boston, Massachusetts
August 16, 2002












                                                                          F-2






                                     - 27 -
<PAGE>
PHC, INC.  AND SUBSIDIARIES
Consolidated Balance Sheets
                                                                June 30,
                                                          2002           2001
                                                      ___________   __________
ASSETS (Note C)
Current assets:
    Cash and cash equivalents                         $  204,564    $   43,732
    Accounts receivable, net of allowance for
      doubtful accounts of $2,715,760 and
      $2,632,525 at June 30, 2002 and 2001,
      respectively  (Note A)                           5,078,419     5,620,715
    Prepaid expenses                                      66,652        63,940
    Other receivables and advance                        137,032       112,579
    Deferred income tax asset (Note F)                   766,793       613,980
                                                       ___________  ___________
         Total current assets                          6,253,460     6,454,946
Accounts receivable, non-current                         690,000       600,000
Other receivables (Note A)                                92,068       104,863
Property and equipment, net (Notes A, B and D)         1,259,648     1,338,066
Deferred financing costs, net of amortization
  of $122,109 and $114,109 at June 30, 2002
  and 2001, respectively                                  12,000        20,000
Goodwill, net of accumulated amortization of $270,105
  at June 30, 2002 and 2001  (Note A)                    969,099       969,099
Other assets (Note A)                                    197,340       236,478
                                                      ___________   ___________
         Total assets                                 $9,473,615    $9,723,452
                                                      ===========   ==========
LIABILITIES
Current liabilities:
    Accounts payable                                  $1,283,389    $1,866,631
    Notes payable - related parties (Note E)             200,000       200,000
    Current maturities of long-term debt (Note C)        765,415     2,038,077
    Revolving credit note (Note C)                     1,468,644     2,111,586
    Deferred revenue                                     129,258            --
    Current portion of obligations under capital
      leases (Note D)                                     11,020        16,725
    Accrued payroll, payroll taxes and benefits          452,177       460,723
    Accrued expenses and other liabilities             1,597,642     1,208,469
       Convertible debentures (Notes C)                  500,000       500,000
       Net liabilities of discontinued operations
         (Note I)                                             --       960,552
                                                       ___________  ___________
         Total current liabilities                     6,407,545     9,362,763

Long-term debt, less current maturities  (Note C)      2,428,945     1,609,649
Obligations under capital leases (Note D)                 21,140        32,160
                                                       ___________  ___________
         Total liabilities                             8,857,630    11,004,572
                                                       ___________  ___________
Commitments and contingent liabilities
   (Notes D, G, H, I, and J )

STOCKHOLDERS' EQUITY (DEFICIT) (Notes A, C, H,
  J and K) Convertible Preferred stock, $.01 par
  value; 1,000,000 shares authorized: series C, none
  and 150,700 shares issued and outstanding at June 30,
  2002 and 2001, respectively, stated value $10 per
  share, liquidation preference of $1,507,000 at June
  30, 2001                                                    --         1,507
                                     - 28 -
<PAGE>
Class A common stock, $.01 par value; 20,000,000 shares
  authorized, 12,919,042 and 8,709,834 shares issued
  June 30, 2002 and 2001, respectively                   129,190        87,098
Class  B common stock, $.01 par value; 2,000,000 shares
 authorized, 726,991 issued and outstanding June 30,
 2002 and 2001, convertible into one share of Class A
 common stock.                                             7,270         7,270
Additional paid-in capital                            18,769,863    18,696,779
Treasury stock, 38,126 and 22,926 common shares at
 cost at June 30, 2002 and 2001, respectively            (30,988)      (24,894)
Notes receivable - common stock                          (80,000)      (80,000)
Accumulated deficit                                  (18,179,350)  (19,968,880)
                                                      ___________   ___________
         Total stockholders' equity (deficit)            615,985    (1,281,120)
                                                      ___________   ___________
         Total liabilities and stockholders'
           equity (deficit)                           $ 9,473,615   $ 9,723,452
                                                      ===========   ===========

           See accompanying notes to consolidated financial statements


                                                                           F-3

                                     - 29 -
<PAGE>
PHC, INC.  AND SUBSIDIARIES
Consolidated Statements of Operations

                                                  For the Year Ended June 30,
                                                 2002                    2001
                                                 ___________      _____________
Revenues:
     Patient care, net (Note A)                  $21,109,104      $ 21,087,473
     Management fees                                      --           345,111
     Pharmaceutical study                            742,380           354,618
     Website services                                  4,439            18,067
     Contract support services                       842,345           944,567
                                                 ___________      _____________
       Total revenues                             22,698,268        22,749,836
                                                 ___________      _____________
Operating expenses:
     Patient care expenses                        10,691,823         9,663,051
     Cost of contract support services               704,363           855,128
     Provision for doubtful accounts                 716,681         2,490,307
     Website expenses                                287,556         1,351,150
     Practice management closing expenses (Note A)        --         5,186,306
     Administrative expenses                       8,533,571         7,452,714
                                                 ___________      _____________
         Total operating expenses                 20,933,994        26,998,656
                                                 ___________      _____________
Income (loss) from operations                      1,764,274        (4,248,820)
                                                 ___________      _____________
Other income (expense):
     Interest income                                  10,852            23,519
     Interest expense                               (790,955)       (1,043,030)
     Other income, net                               115,170            62,076
                                                 ___________      _____________
              Total other expense, net              (664,933)         (957,435)
                                                 ___________      _____________
Income (loss) before income taxes                  1,099,341        (5,206,255)
Income taxes (Notes A and F)                          15,446            44,450
                                                 ___________      _____________
              Net income (loss)                    1,083,895        (5,250,705)

Dividends (Note J)                                   (98,411)         (383,618)
                                                 ___________      _____________

Income (loss) applicable to common shareholders   $  985,484      $ (5,634,323)
                                                  ==========      =============

Basic income (loss) per common share (Note A)     $      .10      $       (.66)
                                                 ___________      _____________
Basic weighted average number of shares
  outstanding                                     10,232,286          8,518,408
                                                  ==========      =============
Fully diluted income (loss) per common share
  (Note A)                                        $      .09      $       (.66)
                                                 ___________      _____________
Fully diluted weighted average number of
  shares outstanding                              11,012,861          8,518,408
                                                  ==========      =============


        See accompanying notes to consolidated financial statements
                                                                           F-4


                                     - 30 -
<PAGE>
PHC, INC.  AND SUBSIDIARIES

Consolidated  Statements of Changes In Stockholders' Equity (Deficit) (See Notes
A, C, H, J and K)
<TABLE>
<S>                             <C>          <C>         <C>        <C>        <C>         <C>

                                   Class        A          Class      B
                                   Common       Stock      Common     Stock      Preferred  Stock
                                   Shares       Amount     Shares     Amount     Shares     Amount
                                   _________   __________  ________   ________   __________ _________

Balance - June 30, 2000            7,019,608   $ 70,196    726,991    $7,270     136,000    $1,360

Costs related to private
  placements
Issuance of shares for earn-out
   obligations                       414,815      4,148
Issuance of notes receivable for
   employee stock purchase
Conversion of preferred stock      1,130,646     11,308                          (19,300)     (193)
Common stock issued for accrued
   dividends                          29,514        295
Issuance of preferred stock at a
   discount                                                                       34,000       340
Beneficial conversion feature of
   preferred stock
Dividends on preferred stock
Shares issued for employee bonuses    92,663        925
Issuance of warrants for services
Issuance of employee stock
   purchase plan shares               22,588        226


                                     - 31 -
<PAGE>
                                   Class        A          Class      B
                                   Common       Stock      Common     Stock      Preferred  Stock
                                   Shares       Amount     Shares     Amount     Shares     Amount
                                   _________   __________  ________   ________   __________ _________
Purchase of treasury stock in
   exchange for note
Repurchase of shares on open
   market
Net loss - year ended June 30,
   2001
                                   _________   __________  ________   ________   __________ _________
Balance - June 30, 2001            8,709,834     87,098    726,991     7,270     150,700     1,507

Costs related to private
   placements
Dividends on preferred stock
Issuance of shares for options
   exercised                          1,250          13
Repurchase of shares on open
   market
Issuance of warrants for services
Shares issued for employee bonuses   71,750         717
Conversion of preferred stock     3,483,583      34,836                         (150,700)   (1,507)
Common stock issued for accrued
   dividends                        511,800       5,118
Issuance of shares for warrants
   exercised                         31,624         316
Issuance of employee stock
   purchase plan shares              25,871         259
Issuance of shares for services
   provided                          83,330         833
Reclassification of net
   liabilities of discontinued
   operations
                                     - 32 -
<PAGE>
                                   Class        A          Class      B
                                   Common       Stock      Common     Stock      Preferred  Stock
                                   Shares       Amount     Shares     Amount     Shares     Amount
                                   _________   __________  ________   ________   __________ _________

Net income-year ended June 30,
   2002
                                ____________   __________  ________   ________   __________ _________
Balance - June 30, 2002          12,919,042   $ 129,190    726,991   $ 7,270    $      0    $    0
                                ===========    =========   =======   =======     ========   =========





   See accompanying notes to consolidated financial statements.


</TABLE>
                                     - 33 -
<PAGE>
PHC, INC.  AND SUBSIDIARIES (con't)

Consolidated  Statements of Changes In Stockholders' Equity (Deficit) (See Notes
A, C, H, J and K)
<TABLE>
<S>                           <C>           <C>        <C>   <C>    <C>    <C>

                                              Notes
                                 Additional   Receivable
                                 Paid-in      Stock       Treasury   Stock       Accumulated
                                 Capital      Purchase    Shares     Amount      Deficit          Total
                                ____________  __________  _________  __________    ____________   ___________

Balance - June 30, 2000         $ 17,895,162  $      --       2,776   $ (12,122)  $(14,334,557)  $3,627,309

Costs related to private
   placements                        (45,102)                                                       (45,102)
Issance of shares for earn-out
   obligations                       293,352                                                        297,500
Issuance of notes receivable for
   employee stock purchase                      (90,000)                                            (90,000)
Conversion of preferred stock        (11,115)                                                             0
Common stock issued for accrued
   dividends                           3,211                                                          3,506
Issuance of preferred stock
   at a discount                     339,660                                           (90,000)     250,000
Beneficial conversion feature of
   preferred stock                   166,500                                          (166,500)           0
Dividends on preferred stock                                                          (127,118)    (127,118)
Shares issued for employee
   bonuses                            29,741                                                         30,666


                                     - 34 -
<PAGE>
                                             Notes
                                 Additional   Receivable
                                 Paid-in      Stock       Treasury   Stock       Accumulated
                                 Capital      Purchase    Shares     Amount      Deficit          Total
                                ____________  __________  _________  __________    ____________   ___________

Issuance of warrants for services     14,640                                                         14,640
Issuance of employee stock
   purchase plan shares               10,730                                                         10,956
Purchase of treasury stock in
   exchange for note                             10,000      11,750     (10,000)                          0
Repurchase of shares on open
   market                                                     8,400     ( 2,772)                    ( 2,772)
Net loss - year ended June 30,
   2001                                                                             (5,250,705)  (5,250,705)
                                ____________  __________  _________  __________    ____________   ___________
Balance - June 30, 2001           18,696,779    (80,000)     22,926     (24,894)   (19,968,880)  (1,281,120)

Costs related to private
   placements                       (198,149)                                                      (198,149)
Dividends on preferred stock                                                           (98,411)     (98,411)
Issuance of shares for options
   exercised                             612                                                            625
Repurchase of shares on open
   market                                                    15,200      (6,094)                     (6,094)
Issuance of warrants for services       5,461                                                         5,461
Shares issued for employee bonuses     29,780                                                        30,497
Conversion of preferred stock         (31,690)                                                        1,639
Common stock issued for accrued
   dividends                          213,644                                                       218,762
Issuance of shares for warrants
   exercised                            9,684                                                        10,000


                                     - 35 -
<PAGE>
                                              Notes
                                 Additional   Receivable
                                 Paid-in      Stock       Treasury   Stock       Accumulated
                                 Capital      Purchase    Shares     Amount      Deficit          Total
                                ____________  __________  _________  __________    ____________   ___________
Issuance of employee stock
   purchase plan shares                 9,575                                                         9,834
Issuance of shares for services
   provided                            34,167                                                        35,000
Reclassification of net
   liabilities of
   discontinued operations                                                             804,046      804,046
Net income-year ended June
   30,2002                                                                           1,083,895    1,083,895
                                ____________  __________  _________  __________    ____________   ___________
Balance - June 30, 2002          $ 18,769,863 $ (80,000)     38,126   $ (30,988)  $(18,179,350)  $  615,985
                                 ============ =========  ==========  ===========  =============   ===========





          See accompanying notes to consolidated financial statements
                                                                                                F-5



</TABLE>



                                     - 36 -
<PAGE>
PHC, INC.  AND SUBSIDIARIES
Consolidated Statements of Cash Flows
                                                   For the Year Ended June 30,
                                                         2002             2001
                                                   ____________________________
Cash flows from operating activities:
     Net income (loss)                                 $ 1,083,895  $(5,250,705)
     Adjustments to reconcile net income (loss)
       to net cash provided by (used in)
       operating activities:
         Depreciation and amortization                     202,776      262,227
         Goodwill impairment                                    --    1,545,609
         Write down of accounts receivable from
           professional corporation                             --    3,401,650
         Compensatory stock options and stock and
           warrants issued for obligations                  72,745        5,306
         Equity based compensation charge                  264,000       40,000
         Changes in operating assets and liabilities:
              Accounts receivable                          440,638      649,407
              Prepaid expenses and other current assets     (2,712)      56,541
              Other assets                                (113,675)     (22,873)
              Accounts payable                            (462,580)     152,775
              Accrued expenses and other liabilities       247,528     (377,532)
              Net liabilities of discontinued
                operations                                (156,506)    (923,682)
                                                        ___________   __________
               Net cash provided by (used in)
                 operating activities                    1,576,109     (461,277)
                                                        ___________   __________
Cash flows from investing activities:
     Acquisition of property and equipment                (124,362)    (186,842)
     Website development costs                                  --      (70,226)
     Disposition of property, equipment and
       intangibles                                              --        3,689
                                                        ___________   __________
               Net cash used in investing
                 activities                               (124,362)    (253,379)
                                                        ___________   __________
Cash flows from financing activities:
      Borrowing (repayment) revolving debt, net           (642,942)     556,437
          Proceeds from borrowings                         748,912      146,526
          Principal payments on long-term debt          (1,219,314)    (639,157)
      Deferred financing costs                               8,000       26,554
      Preferred stock dividends                                 --       (6,767)
      Issuance of preferred stock at a discount                 --      250,000
      Cost related to preferred stock issuance            (198,149)     (45,102)
      Purchase of treasury stock                            (6,094)      (2,772)
      Issuance of common stock                              18,672       10,956
      Notes receivable for stock purchase                       --      (90,000)
                                                        ___________   __________
               Net cash provided by (used in)
                 financing activities                   (1,290,915)     206,675
                                                        ___________   __________
Net increase in cash and cash equivalents                  160,832     (507,981)
Cash and cash equivalents, beginning of year                43,732      551,713
  activities

Cash and cash equivalents, end of year                   $ 204,564     $ 43,732
                                                         =========     ========
Supplemental cash flow information: Cash paid
  during the period for:
           Interest                                      $ 782,416   $1,040,276
           Income taxes                                  $  25,164   $   94,780
        See accompanying notes to consolidated financial statements        F-6
                                     - 37 -
<PAGE>
PHC, INC.  AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)

                                                    For the Year Ended June 30,
                                                         2002             2001
                                                   ____________________________

  Supplemental disclosures of non-cash investing and
    financing activities:
      Conversion of preferred stock at stated value      $ 1,507,000  $ 193,000
      Issuance of stock in lieu of cash for dividends
        due                                                  218,762      3,506
      Accrued dividends on series C preferred stock           98,411    120,351
      Increase in equity as  a result of the
        reclassification of net liabilities of
        discontinued operations                              804,046         --
      Issuance of warrants in connection with preferred
        stock conversion                                      53,848         --
      Issuance of stock for the earn-out liability                --    297,500
      Beneficial conversion feature of preferred stock            --    166,500
      Preferred stock discount                                    --     90,000
      Purchase of treasury stock in exchange for note             --     10,000























        See accompanying notes to consolidated financial statements



                                                                          F-7

                                     - 38 -
<PAGE>
PHC, INC.  AND SUBSIDIARIES

Notes to Consolidated Financial Statements
June 30, 2002 and 2001

NOTE A - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Operations and business segments:

PHC, Inc. and its wholly owned subsidiaries (the "company") is a national health
care company  specializing in behavioral health services including the treatment
of substance  abuse,  which  includes  alcohol and drug  dependency  and related
disorders and the provision of psychiatric  services.  The company also provides
management,  administrative  and online behavioral health services.  The company
primarily operates under three business segments:

1.   Behavioral  health  treatment  services,   including  two  substance  abuse
     treatment facilities:  Highland Ridge Hospital,  located in Salt Lake City,
     Utah,  which  has  recently  begun  a  treatment  program  for  psychiatric
     patients;  and Mount Regis  Center,  located in Salem  Virginia,  and eight
     psychiatric  treatment  locations  which include  Harbor Oaks  Hospital,  a
     64-bed  psychiatric  hospital located in New Baltimore,  Michigan and seven
     outpatient  behavioral health locations (two in Las Vegas, Nevada operating
     as Harmony  Healthcare,  one in Shawnee Mission,  Kansas operating as Total
     Concept and four locations  operating as Pioneer  Counseling  Center in the
     Detroit, Michigan metropolitan area);
2.   Behavioral   health   administrative   services,   including   delivery  of
     management,  administrative  and help line  services.  PHC,  Inc.  provides
     management and administrative  services for its behavioral health treatment
     subsidiaries.  BSC-NY,  Inc., a subsidiary  of PHC,  Inc.,  which closed in
     fiscal 2001,  provided  management  services on behalf of  physician  owned
     behavioral  health practices in the greater New York City metropolitan area
     (see below).  Pioneer  Development and Support Services  ("PDS2")  provides
     help line services primarily through contracts with major railroads and the
     State of Nebraska.  Pioneer Pharmaceutical  Research, Inc. conducts studies
     of the effects of psychiatric  pharmaceuticals  on a controlled  population
     through contracts with major manufacturers of these pharmaceuticals; and
3.   Behavioral  health online services,  provides internet support services for
     all of the other  subsidiaries and their contracts and provides  behavioral
     health   education,   training  and  products  for  the  behavioral  health
     professional, through its website Wellplace.com.

In December 2000 the Company's Board of Directors  decided to close its' BSC-NY,
Inc.  practice  management  operations  due to the  deterioration  of  operating
results. The table below summarizes the practice management closing expenses for
the year ended June 30, 2001.

                Goodwill impairment                          $1,545,609
                Write down of the receivable
                  due from the professional corporation       3,401,650
                Lease termination and other expenses            239,047
                                                             ___________
                                  Total                      $5,186,306

On October 5, 1998 Quality Care Centers of  Massachusetts,  Inc., which operated
the company's  long-term  care  facility,  Franvale  Nursing and  Rehabilitation
Center, filed for protection under the Chapter 7 Bankruptcy Code. In April 2002,
the  bankruptcy  court accepted the report of the trustee and the bankruptcy was
closed.  This event resulted in the  reclassification  of the net liabilities of
discontinued  operations  of  $804,046  to  stockholders'  equity in the  fourth
quarter of fiscal 2002.

                                                                          F-8
                                     - 39 -
<PAGE>
PHC, INC.  AND SUBSIDIARIES

Notes to Consolidated Financial Statements
June 30, 2002 and 2001

NOTE A - OPERATIONS AND BUSINESS SEGMENTS (CONTINUED):

Revenues and accounts receivable:

Patient  care  revenues  and accounts  receivable  are  recorded at  established
billing rates or at the amount  realizable  under  agreements  with  third-party
payors,  including  Medicaid and  Medicare.  Revenues  under  third-party  payor
agreements are subject to examination  and contractual  adjustment,  and amounts
realizable  may change due to periodic  changes in the  regulatory  environment.
Provisions  for  estimated  third party payor  settlements  are  provided in the
period the  related  services  are  rendered.  Differences  between  the amounts
provided and  subsequent  settlements  are recorded in operations in the year of
settlement.  The provision for contractual  allowances is deducted directly from
revenue and the net revenue  amount is  recorded  as  accounts  receivable.  The
allowance for doubtful accounts does not include the contractual allowances.

Medicaid  reimbursements  are currently based on established  rates depending on
the  level  of  care   provided   and  are  adjusted   prospectively.   Medicare
reimbursements  are  currently  based on  provisional  rates  that are  adjusted
retroactively  based on annual cost reports filed by the company with  Medicare.
The company's cost reports to Medicare are routinely audited on an annual basis.
The company  periodically reviews its provisional billing rates and provides for
estimated Medicare adjustments. The company believes that adequate provision has
been made in the financial statements for any adjustments that might result from
the outcome of Medicare audits. Approximately 15% and 11% of the company's total
revenue is derived from  Medicare  and Medicaid  payors for the years ended June
30, 2002 and 2001, respectively.

Long-term assets include accounts  receivable  non-current,  other  receivables,
non-current,   related  party  and  other  receivables.   Accounts   receivable,
non-current  consists of amounts  due from former  patients  for  service.  This
amount represents  estimated  amounts  collectable  under  supplemental  payment
agreements,  arranged by the company and its' collection agencies,  entered into
because of the patients'  inability to pay under normal  payment  terms.  All of
these receivables have been extended beyond their original due date. Accounts of
former patients that do not comply with these  supplemental  payment  agreements
are written off when deemed unrecoverable.

Charity care amounted to approximately $415,700 and $491,000 for the years ended
June 30, 2002 and June 30,  2001,  respectively.  Patient care revenue is stated
net of charity care in the accompanying consolidated statements of operations.

Estimates and assumptions:

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amount  of  assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.

Cash equivalents:

Cash equivalents include short-term highly liquid investments with maturities of
less than three months, when purchased.



                                                                          F-9
                                 - 40 -
<PAGE>
PHC, INC.  AND SUBSIDIARIES

Notes to Consolidated Financial Statements
June 30, 2002 and 2001

NOTE A - OPERATIONS AND BUSINESS SEGMENTS (CONTINUED):

Property and equipment:

Property and  equipment  are stated at cost.  Depreciation  is provided over the
estimated  useful  lives  of the  assets  using  accelerated  and  straight-line
methods. The estimated useful lives are as follows:

                                           Estimated
             Assets                        Useful Life
             _______________________       ___________________
             Buildings                     39 years
             Furniture and equipment        3 through 10 years
             Motor vehicles                 5 years
             Leasehold improvements        Term of lease


Other assets:

Other assets consists of deposits, deferred expenses and web development costs.

Organization Costs:

Organization  costs  are  expensed  as  incurred  as  required  by the  American
Institute of Certified Public Accountants  Statement of Position 98-5 "Reporting
the Costs of Start-up Activities".

Goodwill:

The  excess of the  purchase  price  over the fair  market  value of net  assets
acquired was amortized on a  straight-line  basis over twenty years through June
30, 2001. During fiscal year 2001, the company recorded  goodwill  impairment of
$1,545,609 in connection with the closing of its practice management  operations
in accordance  with Statement of Financial  Accounting  Standard (SFAS) No. 121,
which required that long-lived assets be reviewed for impairment whenever events
or changes in  circumstances  indicate that the carrying  amount of an asset may
not be recoverable.

The  company  adopted  SFAS 142 in the first  quarter of fiscal  2002.  SFAS 142
requires,  among other things,  that companies no longer amortize goodwill,  but
instead test goodwill for impairment at least  annually.  In addition,  SFAS 142
requires that the Company identify  reporting units for the purpose of assessing
potential  future  impairments  of goodwill,  reassess the useful lives of other
existing  recognized  intangible  assets,  and cease  amortization of intangible
assets with an indefinite useful life.

The  Company's  net  goodwill of $969,099  relating  to the  treatment  services
segment of the  Company  was  evaluated  under SFAS 142 as of July 1, 2001.  The
Company ceased  amortization of goodwill  resulting in a decrease in expenses of
$65,700  for the year ended June 30,  2002.  The company  will  continue to test
goodwill for impairment at least  annually in accordance  with the guidelines of
SFAS 142.




                                                                          F-10

                                     - 41 -
<PAGE>
PHC, INC.  AND SUBSIDIARIES

Notes to Consolidated Financial Statements
June 30, 2002 and 2001

NOTE A - OPERATIONS AND BUSINESS SEGMENTS (CONTINUED):

The impact of the adoption of SFAS 142 is summarized as follows:

                                                       For the Year Ended
                                                             June 30,
                                                      2002              2001
                                                    __________    _____________
    Reported net income (loss) applicable to
      common shareholders                           $ 985,484     $ (5,634,323)
    Add back:  Goodwill amortization                       --           65,700
                                                    __________    _____________
    Adjusted net income (loss)                        985,484       (5,568,623)

    Basic earnings per share:
      Reported net income (loss) applicable to
        common shareholders                         $    0.10     $      (0.66)
    Goodwill amortization                                  --              .01
                                                    __________    _____________
    Adjusted net income (loss)                      $    0.10     $      (0.65)

    Diluted earnings per share:
      Reported net income (loss) applicable to
        common shareholders                         $    0.09     $      (0.66)
      Goodwill amortization                                --              .01
                                                    __________    _____________
    Adjusted net income (loss)                      $    0.09     $      (0.65)

Fair value of financial instruments:

The carrying amounts of cash, trade receivables,  other current assets, accounts
payable,  notes  payable and accrued  expenses  approximate  fair value based on
their short-term maturity and prevailing interest rates.


Basic and diluted income (loss) per share:

The income (loss) per share is computed by dividing the income (loss) applicable
to common shareholders,  net of dividends charged directly to retained earnings,
by the weighted  average number of shares of common stock  outstanding  for each
fiscal year.  All dilutive  common stock  equivalents  have been included in the
calculation  of diluted  earnings  per share for the fiscal  year ended June 30,
2002:  however,  because  their effect would be  anti-dilutive,  no common stock
equivalents  were included in the calculations of diluted loss per share for the
fiscal year ended June 30, 2001.

The weighted average number of common shares outstanding used in the computation
of earnings per share is summarized as follows:



                                                                        F-11

                                     - 42 -
<PAGE>
PHC, INC.  AND SUBSIDIARIES

Notes to Consolidated Financial Statements
June 30, 2002 and 2001

NOTE A - OPERATIONS AND BUSINESS SEGMENTS (CONTINUED):

                                                        Years Ended June 30,
                                                      2002             2001
                                                    __________    _____________
    Denominator for basic earnings per share-
      weighted average shares                      10,232,286        8,518,408

    Effect of dilutive securities:
      Employee stock options                          439,431               --
      Warrants                                         91,144               --
      Convertible debentures                          250,000               --
                                                    __________    _____________
    Denominator for diluted earnings per share-
      adjusted weighted average shares and
      assumed conversions                          11,012,861        8,518,408
                                                   ==========       ===========

The following table summarizes securities, which were outstanding as of June 30,
2002 and 2001 but not  included in the  calculation  of diluted net earnings per
share because such shares are antidilutive:
                                                        Years Ended June 30,
                                                      2002             2001
                                                    __________    _____________

          Employee stock options                      191,500        1,141,000
          Warrants                                  1,013,800        1,623,362

Stock-based compensation:

The company accounts for its employee stock-based  compensation under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees".  In
October 1995,  the  Financial  Accounting  Standards  Board issued SFAS No. 123,
"Accounting   for   Stock-Based   Compensation",   SFAS  No.123   establishes  a
fair-value-based  method of accounting for stock-based  compensation  plans. The
company adopted the disclosure only  alternative,  which requires  disclosure of
the pro forma  effects  on loss and loss per  share as if SFAS No.  123 had been
adopted, as well as certain other information.

All of the company's  employees are employed  under  leasing  arrangements.  The
company  believes that its leased  employees  meet the common law  definition of
employee  and  therefore  qualify as  employees  for  purposes of applying  SFAS
No.123. The company's employee leasing arrangement meets the employee definition
requirements   under  FASB   Interpretation   No.44   "Accounting   for  Certain
Transactions involving Stock Compensation".

Income taxes:

The company follows the liability  method of accounting for income taxes, as set
forth in SFAS No. 109, "Accounting for Income Taxes". SFAS No. 109 prescribes an
asset and liability  approach,  which requires the  recognition of, deferred tax
liabilities  and assets for the expected  future tax  consequences  of temporary
differences  between  the  carrying  amounts and the tax basis of the assets and
liabilities.  The company's  policy is to record a valuation  allowance  against
deferred  tax assets  unless it is more likely than not that such assets will be
realized in future  periods.  The company  considers  estimated  future  taxable
income or loss and other  available  evidence  when  assessing  the need for its
deferred tax valuation allowance.

                                                                         F-12
                                     - 43 -
<PAGE>
PHC, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
June 30, 2002 and 2001

NOTE A - OPERATIONS AND BUSINESS SEGMENTS (CONTINUED):

New accounting standards:

In June 2001, the Financial Accounting Standards Board finalized FASB Statements
No. 141,  Business  Combinations  ("SFAS  141") and No. 142,  Goodwill and Other
Intangible Assets ("SFAS 142"). SFAS 141 requires the use of the purchase method
of  accounting  and  prohibits  the  use of the  pooling-of-interest  method  of
accounting for business  combinations  initiated  after June 30, 2001.  SFAS 141
also requires that the Company recognize  acquired  intangible assets apart from
goodwill if the  acquired  intangible  assets meet  certain  criteria.  SFAS 141
applies  to all  business  combinations  initiated  after  July 1,  2001 and for
purchase business combinations completed on or after July 1, 2001.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal  of  Long-Lived  assets,"  which  addresses  financial  accounting  and
reporting for the  impairment or disposal of long-lived  assets.  This statement
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets To Be Disposed Of," and APB Opinion No. 30, "Reporting the
Results  of  Operations-Reporting  the  Effects  of  Disposal  of a Segment of a
Business."  SFAS No. 144 becomes  effective for the fiscal years beginning after
December 15, 2001.  The Company will adopt SFAS No. 144 in the first  quarter of
fiscal 2003.  The Company does not expect the adoption of SFAS No. 144 to impact
its financial position and results of operations.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Cost Associated with
Exit or Disposal Activities".  SFAS No. 146 requires companies to recognize cost
associated  with exit or disposal  activities when they are incurred rather than
at the  date of a  commitment  to an exit or  disposal  plan.  SFAS  146 will be
applied  prospectively  to any  exit  or  disposal  activities  initiated  after
December 31, 2002. The company  expects there will be no effect on its financial
results relating to the adoption of SFAS No. 146.

NOTE B - PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following:


                                                             June 30,
                                                      2002              2001
                                                    __________    _____________

         Land                                      $   69,259       $   69,259
         Buildings                                  1,136,963        1,136,963
         Furniture and equipment                    1,123,258        1,023,636
         Motor vehicles                                92,871           92,871
         Leasehold improvements                       443,733          418,992
                                                    __________    _____________
                                                    2,866,084        2,741,720
         Less accumulated depreciation and
           amortization                             1,606,436        1,403,654
                                                    __________    _____________
         Property and equipment, net               $1,259,648       $1,338,066
                                                   ==========       ==========


                                                                         F-13


                                     - 44 -
<PAGE>
PHC, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
June 30, 2002 and 2001

NOTE C - NOTES PAYABLE AND LONG-TERM DEBT

Long-term debt is summarized as follows:
                                                             June 30,
                                                        2002           2001
                                                      ____________  ___________
9%   mortgage note due in monthly installments of
     $4,850, including interest through July 1,
     2012, when the remaining principal balance is
     payable, collateralized by a first mortgage
     on the PHC of Virginia, Inc, Mount Regis
     Center facility.                                   $406,068     $ 426,702
Note Payable issued in conjunction with the final
     earn-out  on  the  BSC-NY, Inc. acquisition
     due in monthly installments of $11,567
     including interest at 11% through July 2005
     (see Note K).                                       361,564       454,939
Note Payable issued in conjunction with the final
     earn-out on the BSC-NY, Inc. acquisition due
     in monthly installments of $3,653 including
     interest at 11% through July 2005
     (see Note K).                                       114,178       143,665
Note Payable due in monthly installments of $429
     including interest at 8.69% through May 2004.         9,119        13,347
Note Payable due in monthly installments of $5,088
     including interest at 9% through October 2002.       20,352        81,408
Note Payable due in monthly installments of $665
     including interest at 10.8% through November
     2005.                                                22,538        27,774
Term mortgage note payable with principal installments
     of $45,000 beginning December 2001 through
     November 2002 and increasing annually by $5,000
     through November 2004 at which time the
     remaining balance of approximately $830,500
     becomes due. The note bears interest at prime
     plus 3.5% (8.25% at June 30, 2002) is
     collateralized by all assets of PHC of
     Michigan, Inc., guaranteed by PHC, Inc. and
     may be renewed at the end of three years.         2,260,541            --
Term mortgage notes refinanced in November 2001.              --     2,499,891
                                                      ____________  ___________
          Total                                        3,194,360     3,647,726
Less current maturities                                  765,415     2,038,077
                                                      ____________  ___________
Long-term portion                                    $ 2,428,945    $1,609,649
                                                     ===========    ==========
Maturities of long-term debt are as follows as
     of June 30, 2002:
             Year Ending
             June 30,                           Amount
             _____________                      _________
             2003                            $  765,415
             2004                               823,659
             2005                             1,255,415
             2006                                47,598
             2007                                32,307
             Thereafter                         269,966
                                             ___________
                                             $3,194,360
                                                                         F-14
                                     - 45 -
<PAGE>
PHC, INC.  AND SUBSIDIARIES

Notes to Consolidated Financial Statements
June 30, 2002 and 2001

NOTE C - NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)

The company has a revolving  credit note under which a maximum of $3,000,000 may
be  outstanding at any time. At June 30, 2002 and 2001 the  outstanding  balance
was  $1,468,644  and  $2,111,586,  respectively.  Advances  are made  based on a
percentage  of accounts  receivable  and  principal  is payable  upon receipt of
proceeds of the accounts  receivable.  Interest is payable monthly at prime plus
2.25% (7% at June 30,  2002).  The  agreement  is  automatically  renewable  for
one-year  periods  unless  terminated  by either  party.  Upon  expiration,  all
remaining  principal  and  interest  is due.  The  notes are  collateralized  by
substantially all of the assets of the company's  subsidiaries and guaranteed by
PHC.

On  December  7, 1998 the  company  issued  the  principal  sum of  $500,000  of
convertible  debentures  with interest at 12% per annum that are due on December
2, 2004.  Interest is payable quarterly.  The debentures and any unpaid interest
are convertible into shares of common stock at the rate of $1,000 for 500 shares
of common stock,  which  equates to $2.00 per share of common stock.  The traded
market  price of the  company's  common  stock at the  date of  issuance  of the
convertible  debentures  was  $1.188  per  share  and  accordingly  there was no
beneficial  conversion feature.  The holders of the debentures have the right to
put all or any portion of the debentures to the company at the original purchase
price plus unpaid  interest upon 30 days written  notice  beginning  December 3,
2001.  Accordingly,  the $500,000 is  classified  as a current  liability on the
accompanying  Balance  Sheet.  The company has the right to call the  debentures
upon the same terms as above. If called, the holders of the debentures then have
20 days from the date of written notice to exercise their  conversion  privilege
as to any debentures not then already converted. In July 2002 the holders of the
debentures  have  exercised  the put provision in the agreement as to 50% of the
outstanding  debentures.  The  company  will begin  making  monthly  payments of
$25,000 each plus accrued interest in October 2002.

NOTE D - CAPITAL LEASE OBLIGATION

At June 30, 2001,  the company was obligated  under various  capital  leases for
equipment providing for monthly payments of approximately  $1,100 and $1,400 for
fiscal 2002 and 2001,  respectively  and terms  expiring  from July 2002 through
June 2006.

The  carrying  value of assets  under  capital  leases  included in property and
equipment is as follows:

                                                        June 30,
                                                   2002        2001
                                                __________    __________

      Equipment and improvements                $ 50,271      $ 73,888
      Less accumulated amortization              (33,108)      (39,940)
                                                __________    __________
                                                $ 17,163      $ 33,948
                                                ==========    ==========

                                                                          F-15

                                     - 46 -
<PAGE>
PHC, INC.  AND SUBSIDIARIES

Notes to Consolidated Financial Statements
June 30, 2002 and 2001

NOTE D - CAPITAL LEASE OBLIGATION (CONTINUED)

Future minimum lease  payments  under the terms of the capital lease  agreements
are as follows at June 30, 2002:

           Year Ending
           June 30,
           ____________
           2003                                         $ 13,556
           2004                                           10,536
           2005                                            8,126
           2006                                            5,037
                                                        _________
           Total future minimum lease payments            37,255
           Less amount representing interest               5,095
                                                        _________
           Present value of future minimum
                lease payments                            32,160

           Less current portion                           11,020
                                                        _________

           Long-term obligations under capital leases  $  21,140
                                                        =========


NOTE E - NOTES PAYABLE - RELATED PARTIES

Related party debt is summarized as follows:
                                                                 June 30,
                                                           2002         2001
                                                        __________   __________
Notes payable, Tot Care, Inc., company owned by
  the President and principal stockholder,
  interest at 12% and payable on demand                   $100,000     $100,000

Note payable, President and principal stockholder,
  interest at 12% payable on demand                        100,000      100,000
                                                        __________   __________

Total                                                     $200,000     $200,000
                                                        ==========   ==========










                                                                         F-16

                                     - 47 -
<PAGE>
PHC, INC.  AND SUBSIDIARIES

Notes to Consolidated Financial Statements
June 30, 2002 and 2001

NOTE F - INCOME TAXES

The company has the following  deferred tax assets included in the  accompanying
balance sheets:
                                                              Year Ended
                                                                June 30,
                                                          2002          2001
                                                       __________    __________
       Temporary differences attributable to:
         Allowance for doubtful accounts               $1,086,000    $1,053,000
         Depreciation                                      72,000        89,000
         Reserves not currently deductible and other      173,000       208,000
         Operating loss carryforward                    3,383,000     3,578,000
                                                       __________    __________
                Total deferred tax asset                4,714,000     4,928,000
       Less:
         Valuation allowance                           (3,947,207)   (4,314,020)
                                                       __________    __________
       Subtotal                                           766,793       613,980
         Current portion                                 (766,793)     (613,980)
                                                       __________    __________
                Long-term portion                      $       --    $       --
                                                       ===========   ==========

The company  had no  deferred  tax  liabilities  at June 30, 2002 and 2001.  The
company anticipates that it will have sufficient taxable income in future fiscal
years to realize its net  deferred  tax asset.  During the past four years,  the
company has closed three facilities that  contributed most  significantly to its
past  losses,  the Franvale  Nursing and  Rehabilitation  Center,  the Good Hope
Center and the  Pioneer  Counseling  of Virginia  clinics.  The company has also
closed its  practice  management  business  and has  implemented  procedures  to
improve the operating efficiency of its remaining centers.

Income tax expense is as follows:
                                                              Year Ended
                                                                June 30,
                                                          2002          2001
                                                       __________    __________
       Current state income taxes                      $   15,446    $   44,450
                                                       ===========   ==========

The above  current  state  income  taxes  are  significantly  below the  Federal
statutory  rate of 34% primarily  related to the  availability  of net operating
loss carry-forward. Total income tax expense for fiscal 2002 and 2001 represents
state income taxes for certain subsidiaries with no available net operating loss
carry-forwards.  In fiscal 2002 the  company's  deferred tax benefit of $152,813
was offset by current tax accrual changes of similar amounts.




                                                                         F-17
                                     - 48 -
<PAGE>
PHC, INC.  AND SUBSIDIARIES

Notes to Consolidated Financial Statements
June 30, 2002 and 2001

NOTE F - INCOME TAXES (CONTINUED)

At June 30,  2002 the  company had a federal  net  operating  loss  carryforward
amounting to approximately $10,000,000. The Company's Federal net operating loss
carryforwards  are subject to review and  possible  adjustment  by the  Internal
Revenue  Service  and  are  subject  to  certain  limitations  in the  event  of
cumulative changes in the ownership interest of significant  stockholders over a
three-year period in excess of 50%. The Federal  carryforward  expires beginning
in 2011 through 2020.

The company has provided a significant  valuation allowance against its deferred
tax  asset  at June  30,  2002  and  2001  due to the  uncertainty  of its  full
recoverability  given the company's  history of operating  losses. No additional
valuation  allowance  was  provided on the  company's  net deferred tax asset of
$766,793  and  $613,980  at June  30,  2002  and  2001,  respectively,  based on
managements estimated projection of future taxable income.

NOTE G - COMMITMENTS AND CONTINGENT LIABILITIES

Operating leases:

The company  leases  office and  treatment  facilities,  furniture and equipment
under operating  leases expiring on various dates through May 2005. Rent expense
for the  years  ended  June 30,  2002 and 2001 was  approximately  $799,000  and
$812,000 respectively. Rent expense includes certain short-term rentals. Minimum
future rental payments under non-cancelable  operating leases,  having remaining
terms in excess of one year as of June 30, 2001 are as follows:

                          Year Ending
                          June 30,         Amount
                          ____________     __________

                          2003            $  776,551
                          2004               748,119
                          2005               539,195
                          2006               181,607
                          2007               111,239
                                           _________
                                          $2,356.711
                                           ==========

Litigation:

Various legal  proceedings,  claims and  investigations  of a nature  considered
normal to its business  operations  are pending  against the  company.  The most
significant of these matters is described below.

On or about May 15,  2000,  the company was served with a subpoena by the United
States Attorney for the District of Massachusetts. The subpoena requested, inter
alia,   patient  and  financial   records   relating  to  Franvale  Nursing  and
Rehabilitation  Center for the period of 1995  through  1998.  The  company  has
reached an agreement in principle with the government to settle all  outstanding
billing  issues.  The final agreement is currently being drafted for signatures.
The company  believes that it has adequately  accrued for the settlement of this
claim in the accompanying financial statements.

                                                                         F-18

                                     - 49 -
<PAGE>
PHC, INC.  AND SUBSIDIARIES

Notes to Consolidated Financial Statements
June 30, 2002 and 2001

NOTE H - STOCK PLANS

[1]       Stock plans:
          The company has three stock plans:  a stock  option plan,  an employee
          stock purchase plan and a nonemployee directors' stock option plan.

          The stock  option  plan  provides  for the  issuance  of a maximum  of
          1,750,000  shares of Class A common  stock of the company  pursuant to
          the grant of incentive  stock  options to  employees  or  nonqualified
          stock options to employees,  directors,  consultants  and others whose
          efforts are  important to the success of the  company.  Subject to the
          provisions of this plan,  the  compensation  committee of the Board of
          Directors  has the authority to select the optionees and determine the
          terms of the options including:  (i) the number of shares, (ii) option
          exercise  terms,  (iii) the  exercise or purchase  price (which in the
          case of an  incentive  stock  option  will not be less than the market
          price of the Class A common stock as of the date of grant),  (iv) type
          and  duration of transfer or other  restrictions  and (v) the time and
          form of payment for restricted stock upon exercise of options.

          The employee  stock purchase plan provides for the purchase of Class A
          common stock at 85 percent of the fair market value at specific dates,
          to encourage stock ownership by all eligible  employees.  A maximum of
          250,000 shares may be issued under this plan.

          The  non-employee  directors' stock option plan provides for the grant
          of nonstatutory stock options automatically at the time of each annual
          meeting of the Board. Through June 30, 2002, options for 65,500 shares
          were  granted  under  this plan.  A maximum  of 250,000  shares may be
          issued under this plan. Each outside  director is granted an option to
          purchase 10,000 shares of Class A common stock at fair market value on
          the date of  grant,  vesting  25%  immediately  and 25% on each of the
          first three anniversaries of the grant.

          Under the above plans, at June 30, 2002, 884,565 shares were available
          for future grant or purchase.

          The company had the  following  activity in its stock option plans for
          fiscal 2002 and 2001:

                                                 Number       Weighted-Average
                                                  Of           Exercise Price
                                                 Shares          Per Share
                                                __________    ________________

              Balance - June 30, 2000           782,500            $1.46
              Granted                           420,500            $0.28
              Cancelled                         (62,000)           $0.25
              Repriced Options
                Original                       (791,500)           $1.38
                Repriced                        791,500            $0.25
                                              __________         __________
              Balance - June 30, 2001         1,141,000            $0.33
              Granted                           245,000            $0.51
              Expired                          (111,000)           $0.27
                                              __________         __________
              Balance - June 30, 2002         1,275,000            $0.37
                                              ==========         ===========
                                                                          F-19

                                     - 50 -
<PAGE>
PHC, INC.  AND SUBSIDIARIES

Notes to Consolidated Financial Statements
June 30, 2002 and 2001

NOTE H - STOCK PLANS (CONTINUED)

[2] Stock-based compensation:

     The following tables summarize  information about stock options outstanding
     and exercisable at June 30, 2002:

                              Options Outstanding
     ___________________________________________________________________________
                                                          Weighted-Average
                              Number Outstanding          Remaining Contractual
       Exercise Price         At June 30, 2002            Life (years)
     ___________________________________________________________________________

           $ .19                     5,000                    3.5
             .22                     8,000                    3.5
             .25                   665,000                    2.35
             .30                   332,500                    3.75
             .35                    40,000                    8.25
             .45                    33,000                    4.5
             .55                   148,000                    5
             .75                    14,000                    5
             .81                     6,000                    7.5
            1.03                     6,000                    6.5
            2.06                     6,000                    5.5
            3.50                     6,000                    4.5
            6.63                     5,500                    3.5
          _______                __________                ________
           $ .37                 1,275,000                    3.4
          =======                ==========                ========

                               Options Exercisable
     ___________________________________________________________________________
                                                          Weighted-Average
                              Number Exercisable          Remaining Contractual
       Exercise Price         At June 30, 2002            Life (years)
     ___________________________________________________________________________

           $ .19                     2,500                    3.5
             .22                     4,000                    3.5
             .25                   566,500                    1.85
             .30                   166,250                    3.75
             .35                    10,000                    8.25
             .45                     8,250                    4.5
             .55                    37,000                    5
             .75                     3,500                    5
             .81                     4,500                    7.5
            1.03                     6,000                    6.5
            2.06                     6,000                    5.5
            3.50                     6,000                    4.5
            6.63                     5,500                    3.5
          _______                __________                ________
           $ .37                   826,000                    2.7
          =======                ==========                ========

                                                                         F-20


                                     - 51 -
<PAGE>
PHC, INC.  AND SUBSIDIARIES

Notes to Consolidated Financial Statements
June 30, 2002 and 2001

NOTE H - STOCK PLANS (CONTINUED)

[2] Stock-based compensation: (continued)

     The Company  re-priced 791,500 options in January 2001. As a result of this
     modification, 572,750 of the options remaining at June 30, 2002 are subject
     to variable accounting from the date of the modification.  The compensation
     expense  related to 502,250 of the vested  re-priced  options  amounted  to
     approximately  $264,000  and $40,000,  for the year ended June 30, 2002 and
     2001,  respectively.  Approximately  $250,000 of the expense related to the
     current  fiscal year was recorded in the fourth  quarter of fiscal 2002 due
     to the increase in share price during that quarter.

     The company has adopted the disclosure only provisions of SFAS No. 123, but
     applies   Accounting   Principles   Board   Opinion   No.  25  and  related
     interpretations  in accounting for its plans. If the company had elected to
     recognize  compensation  cost for the plans  based on the fair value at the
     grant date for awards  granted,  consistent  with the method  prescribed by
     SFAS No. 123,  the net income  (loss) per share would have been  changed to
     the pro forma amounts indicated below:
                                                             Year Ended
                                                              June 30,
                                                         2002          2001
                                                      _________________________
        Net income (loss)
          applicable to common
          Shareholders                As reported     $ 985,484   $ (5,634,323)

                                      Pro forma       $ 947,118     (5,721,161)

        Basic net income (loss)
           Per share                  As reported     $     .10   $       (.66)

                                      Pro forma       $     .09   $       (.67)

        Diluted net income (loss)
           Per share                  As reported     $     .09   $       (.66)

                                      Pro forma       $     .09   $       (.67)

The fair value of the  company's  stock  options  used to compute  pro forma net
income  (loss) and net  income  (loss) per share  disclosures  is the  estimated
present value at grant date using the  Black-Scholes  option-pricing  model with
the following weighted-average  assumptions for 2002 and 2001: dividend yield of
0%;  expected  volatility  of 30%; a  risk-free  interest  rate of 6.0% and 6.5%
respectively; and an expected holding period of five years.

The per share weighed average grant date fair value of options granted during
the years ended June 30, 2002 and 2001 was $.16 and $.10, respectively.


                                                                       F-21


                                     - 52 -
<PAGE>
PHC, INC.  AND SUBSIDIARIES

Notes to Consolidated Financial Statements
June 30, 2002 and 2001

NOTE I - DISCONTINUED OPERATIONS

On May 26, 1998,  PHC,  Inc.'s  wholly owned  subsidiary,  Quality  Care,  which
operated  Franvale filed for  reorganization  under Chapter 11. On May 29, 1998,
the Bankruptcy Court terminated the Chapter 11 proceeding determining that there
was no  likelihood  of  reorganization  since the  prospective  acquirer  of the
facility was now imposing certain terms  unacceptable to all interested  parties
and that the transfer of patients and  liquidation of assets could be as readily
effectuated in a state court  receivership  under the aegis of the Massachusetts
Health Care Statutes and  accordingly  dismissed the Chapter 11 case. On June 1,
1998, a receiver  was  appointed to transfer the patients and close the facility
expeditiously.  The company has recorded the losses of Franvale  through May 31,
1998.

The company's Bankruptcy Attorney was notified that effective September 30, 1998
the patient care  receivership for Quality Care had been terminated.  On October
5, 1998, in response to the termination of the State  Receivership,  the company
filed for protection under Chapter 7.

In April 2002 the  bankruptcy  court  accepted the  trustees'  final  bankruptcy
report,  closing the bankruptcy.  This final disposition  resulted in a non-cash
increase in stockholders' equity of $804,046.

Net liabilities of discontinued operations consists of the following:

                                                              June 30,
                                                       2002           2001
                                                    ____________   ____________
  Debt forgiveness and reserve for contingencies    $ 2,641,537    $ 2,641,537
  Less legal and other expenses incurred to date     (1,837,491)    (1,680,986)
  Reclassified to stockholders' equity                 (804,046)            --
                                                    ____________   ____________
  Net liabilities of discontinued operations        $        --    $   960,551
                                                    ============   ============

NOTE J - CERTAIN CAPITAL TRANSACTIONS

In addition to the outstanding options under the company's stock plans (Note H),
the company has the following options and warrants outstanding at June 30, 2002:
<TABLE>
<S>          <C>                                      <C>                <C>            <C>

Date of                                                      Number of      Exercise        Expiration
Issuance                  Description                        Shares           Price            Date
_________    _________________________________________    ______________  _______________   ___________

03/03/1997   Consultant warrant for investor relations
             $16,306 value passed as an adjustment         20,000 shares  $ .50 per share    March 2002
09/17/1998   Consultant warrant for investor relations
             $12,776 value passed as an adjustment         40,000 shares  $ .50 per share    March 2002
09/19/1997   Private Placement warrants with common stock
             issuance Equity transaction                   86,207 shares  $2.90 per share    Sept 2002

                                                                                             F-22



                                     - 53 -
<PAGE>
PHC, INC.  AND SUBSIDIARIES

Notes to Consolidated Financial Statements
June 30, 2002 and 2001

NOTE J - CERTAIN CAPITAL TRANSACTIONS  (CONTINUED)

Date of                                                      Number of      Exercise        Expiration
Issuance                  Description                        Shares           Price            Date
_________    _________________________________________    ______________  _______________   ___________

03/10/1998   Warrants issued as a penalty for late
             registration of private placement shares.
             Equity transaction                               3,000 shares $2.90 per share    March 2003
03/10/1998   Warrants issued as additional interest on debt
             $48,809 value charged to interest expense over
             term of loan                                    71,186 shares $1.76 per share    March 2003
07/10/1998   Warrants issued with extension of debt
             $28,740 value charged to interest expense
             over term of loan                               69,347 shares $1.37 per share    July 2003
07/10/1998   Warrants issued with extension of debt as price
             guarantee $14,779 value charged to interest
             expense over term of loan                       25,827 shares $1.16 per share    July 2003
12/31/1998   Warrants issued with convertible debenture
             $9,240 value charged to professional fees
             over term of debentures                         30,298 shares $ .83 per share    Dec 2004
12/31/1998   Warrants issued for convertible debentures
             finder's fee $25,873 value charged to
             professional fees over term of debentures       72,724 shares $1.51 per share    Dec 2003
12/31/1998   Warrants issued for convertible debentures
             finders fee $3,696 value charged to
             professional fees over term of debentures       13,288 shares $1.51 per share    Dec 2003
12/31/1998   Warrants issued for convertible debentures
             finders fee $3,246 value charged to
             professional fees over term of debentures       19,311 shares $1.17 per share    Dec 2003
12/01/1998   Warrants issued for convertible debentures
             finders fee $1,302 value charged to
             professional fees over term of debentures       12,119 shares $ .83 per share    Dec 2003
01/01/1999   Warrants issued for convertible debentures
             finders fee $3,696 value charged to
             professional fees over term of debentures       12,119 shares $ .83 per share    Jan 2004
02/01/1999   Warrants issued for convertible debentures
             finders fee $3,696 value charged to
             professional fees over term of debentures       12,119 shares $ .83 per share    Feb 2004
03/01/1999   Warrants issued for convertible debentures
             finders fee $3,696 value charged to
             professional fees over term of debentures       12,078 shares $ .83 per share    Mar 2004
04/01/1999   Warrants issued for convertible debentures
             finders fee $3,696 value charged to
             professional fees over term of debentures       12,078 shares $ .83 per share    Apr 2004
05/01/1999   Warrants issued for convertible debentures
             finders fee $3,696 value charged to
             professional fees over term of debentures       12,078 shares $ .83 per share    May 2004
06/01/1999   Warrants issued for convertible debentures
             finders fee $3,696 value charged to
             professional fees over term of debentures       12,037 shares $ .83 per share    June 2004
01/05/1999   Warrants issued for investment banker services
             $18,100 value charged to professional fees over
             service period                                  48,071 shares $1.13 per share   Jan 2004
04/05/1999   Warrants issued for investment banker services
             $18,100 value charged to professional fees
             over service period                             47,680 shares $1.14 per share    Apr 2004
02/23/1999   Consultant warrant for investor relations
             $1,307 value charged to professional fees        3,724 shares $ .97 per share    Feb 2004
04/21/1999   Consultant warrant for web site development
             services $1,547 value charged to professional
             fees                                             6,039 shares $ .83 per share    Apr 2004
05/18/1999   Consultant warrant for web site advisory services
             $1,848 value charged to professional fees        6,020 shares $ .83 per share    Apr 2004
04/21/1999   Warrant issued for management consultant services
             $1,547 value charged to professional fees        5,373 shares $ .93 per share    Apr 2004
05/18/1999   Warrant issued for management consultant services
             $370 value charged to professional fees          1,204 shares $ .83 per share    May 2004
07/01/1999   Warrants issued for convertible debentures
             finders fee $5,745 value charged to professional
             fees over term of debentures                    12,037 shares $ .83 per share    July 2004
08/01/1999   Warrants issued for convertible debentures
             finders fee $4,187 value charged to professional
             fees over term  of debentures                   12,037 shares $ .83 per share    Aug 2004
07/05/1999   Warrants for investment banker services
             $12,944 value charged to professional fees
             over service period                             47,369 shares $1.15 per share    July 2004
10/05/1999   Warrants for investment banker services
             $6,042 value charged to professional fees over
             service period                                  47,369 shares $1.15 per share    Oct 2004



                                                                          F-23

                                     - 54 -
<PAGE>
PHC, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
June 30, 2002 and 2001

NOTE J - CERTAIN CAPITAL TRANSACTIONS  (CONTINUED)

Date of                                                      Number of      Exercise        Expiration
Issuance                  Description                        Shares           Price            Date
_________    _________________________________________    ______________  _______________   ___________


03/31/2000   Warrants issued for services $10,000
             value charged to website development            11,334 shares $1.32 per share    Mar 2005
05/26/2000   Warrants issued as additional interest on debt
             $33,264 value charged to interest expense       60,000 shares $1.50 per share    May 2005
06/28/2000   Warrants issued with preferred stock placement
             Equity transaction                             125,000 shares $3.00 per share    June 2005
06/28/2000   Warrants issued with preferred stock placement
             Equity transaction                             115,710 shares $1.41 per share    June 2005
12/20/2000   Warrants issued for investment banker services
             $1,938 value charged to professional fees       52,530 shares $ .20 per share    Dec 2005
03/20/2001   Warrants issued for investment banker services
             $969 value charged to professional fees         25,195 shares $ .21 per share    Mar 2006
04/15/2001   Warrants issued for investor relations
             consulting services $1,136 value charged
             to professional fees                            10,061 shares $ .25 per share    Apr 2006
05/15/2001   Warrants issued for investor relations
             consulting services $2,577 value charged
             to professional fees                            10,000 shares $ .25 per share    May 2006
06/15/2001   Warrants issued for investor relations
             consulting services $2,577 value charged
             to professional fees                            10,000 shares $ .25 per share   June 2006
06/20/2001   Warrants issued for investment banker services
             $5,383 value charged to professional fees       25,000 shares $ .21 per share   June 2006
07/20/2001   Warrants issued for investor relations
             consulting services $1,786 value charged
             to professional fees                            12,000 shares $ .35 per share   July 2006
02/08/2002   Warrants issued for investor relations
             consulting services $391 value charged
             to professional fees                             3,000 shares $ .42 per share   Feb 2007
03/01/2002   Warrants issued for investor relations
             consulting services $1,476 charged
             to professional fees                            25,000 shares $.37 per share    Mar 2007
03/01/2002   Warrants issued for investor relations
             consulting services $398 charged
             to professional fees                            20,000 shares $ .37 per share   Mar 2007
03/01/2002   Warrants issued for investor relations
             consulting services $310 charged
             to professional fees                             3,000 shares $ .38 per share   Mar 2007
04/01/2002   Warrants issued for investor relations
             consulting services $310 value charged
             to professional fees                             3,000 shares $ .38 per share  Apr 2007
05/01/2002   Warrants issued for investor relations
             consulting services $790 charged
             to professional fees                             3,000 shares $ .59 per share  May 2007
05/07/2002   Warrants issued as a finders fee in connection
             with preferred stock conversion.
             Equity transaction.                            151,783 shares $ .62 per share  May 2005
05/07/2002   Warrants issued as a finders fee in connection
             with preferred stock conversion.
             Equity transaction.                             50,594 shares $ .62 per share  May 2005
</TABLE>

Warrants issued for services or in connection with debt are valued at fair value
at grant date using the  Black-Scholes  pricing  model and charged to operations
consistent  with the  underlying  reason the warrants  were  issued.  Charges to
operations in connection  with these warrants  amounted to $5,461 and $14,640 in
fiscal 2002 and 2001, respectively.

On June 28, 2000 the company  issued  136,000  shares of series C 8% convertible
preferred stock,  with a stated and liquidation  value of $10.00 per share, at a
discount  for  $1,000,000,  which  resulted  in a  dividend  charge to  retained
earnings of $360,000 for the year ended June 30, 2000. In conjunction  with this
transaction  the company  also issued a warrant to  purchase  125,000  shares of
class A common stock, which resulted in a charge to retained earnings of $14,963
in the year ended June 30,  2000.  The  investor  was  required  to  purchase an
additional  34,000  shares  of  series  C  preferred  stock as  provided  in the
agreement for $250,000.  This additional purchase of 34,000 shares was completed
in August 2000 resulting in an additional  dividend charge to retained  earnings
in fiscal year 2001 of $90,000.

                                                                          F-24



                                     - 55 -
<PAGE>
PHC, INC.  AND SUBSIDIARIES

Notes to Consolidated Financial Statements
June 30, 2002 and 2001

NOTE J - CERTAIN CAPITAL TRANSACTIONS (CONTINUED)

The  series C  preferred  stock was  convertible  into  shares of class A common
stock.  In February 2001 the Series C preferred  stock  agreement was amended to
allow for  conversion at 90% of the market value of class A common  Stock.  This
beneficial conversion feature resulted in a dividend charge to retained earnings
of $166,500  for the year ended June 30,  2001.  As part of the  amendment,  the
holders of the series C preferred  stock also agreed to limit its conversions of
preferred stock so that such conversions will not in the aggregate  convert into
greater than 20% of the  outstanding  common stock of the  corporation,  821,705
additional  shares  of class A  common  stock,  from  the date of the  agreement
through July 31, 2001. Through June 30, 2001, 1,160,160 shares of class A common
stock had been issued upon  conversion  of 19,300 shares of series C convertible
preferred  stock,  including  accrued  dividends  outstanding on those preferred
shares.  During the  fiscal  year ended  June 30,  2002 the  remaining  series C
preferred stock were converted  resulting in the issuance of 3,483,583 shares of
class A common stock.  In addition  511,800  shares of class A common stock were
issued in payment of accrued dividends in fiscal 2002.

Accrued  dividends  included in accrued  expenses and other  liabilities  in the
accompanying  consolidated  balance  sheet were  $120,350 at June 30,  2001.  No
dividends were accrued and unpaid at June 30, 2002.

Under  existing  dilution  agreements  with other  stockholders  the issuance of
common stock under  agreements other than the employee stock purchase and option
plans will  increase  the number of shares  issuable  and  decrease the exercise
price of certain of the above warrant agreements based on the difference between
the then  current  market  price and the price at which the new common  stock is
being  issued.  The dilutive  effect of  transactions  through June 30, 2002 are
reflected in the table above.  The value of the additional  shares issuable as a
result of these dilution provisions was not material.

NOTE K - ACQUISITIONS

On  November 1, 1996,  BSC-NY,  Inc.  ("BSC"),  merged  with  Behavioral  Stress
Centers,  Inc.,  a  provider  of  management  and  administrative   services  to
psychotherapy  and  psychological   practices  in  the  greater  New  York  City
Metropolitan  Area. In connection with the merger,  the company advanced 150,000
shares  of  PHC,  Inc.  Class A  common  stock  and  funds  to the  professional
corporation, which were in turn issued to the former owners of Behavioral Stress
Centers, Inc. to acquire the assets of the medical practices previously serviced
by BSC.

In December  2000 the company's  Board of Directors  decided to close BSC due to
the  deterioration  of  its  operating  results.  Although  the  company  had no
ownership  interest in the  professional  corporation,  BSC was dependent on the
success of its operations  through its  management  services  agreement.  During
fiscal 2001, the professional corporation closed its business operations and the
net  amount  due from the  professional  corporation  of  $3,401,650  was deemed
unrecoverable and charged to practice management closing expenses (see note A).




                                                                         F-25




                                     - 56 -
<PAGE>
NOTE L - BUSINESS SEGMENT INFORMATION

The  company's  behavioral  health  treatment  services  have  similar  economic
characteristics,  services,  patients and clients.  Accordingly,  all behavioral
health treatment  services are reported on an aggregate basis under one segment.
The company's segments are more fully described in Note A above. Residual income
and expenses from closed facilities are included in the administrative  services
segment. The following summarizes the company's segment data:

<TABLE>
<S>                          <C>              <C>                   <C>          <C>             <C>
                                                 BEHAVIORAL HEALTH
                                 TREATMENT        ADMINISTRATIVE       ONLINE
                                  SERVICES         SERVICES           SERVICES     ELIMINATIONS      TOTAL
      For the Year ended       _____________     _________________    _________   _______________    ________
         June 30, 2002
  Revenues - external
    customers                    $21,114,504        $1,579,325         $  4,439  $         0        $ 22,698,268

  Revenues - intersegment            162,468         1,896,000          300,000   (2,358,468)                  0
  Segment net income (loss)        3,421,774        (2,060,457)        (277,422)           0           1,083,895
  Total assets                     7,834,299         1,541,976           97,340            0           9,473,615
  Capital expenditures                89,957            34,405                0            0             124,362
   Depreciation & amortization       140,130            50,628           20,078            0             202,776

         June 30, 2001
  Revenues - external
    customers                    $21,087,473       $ 1,644,296        $  18,067            0        $ 22,749,836
  Revenues - intersegment                  0         1,932,792           35,245  $(1,968,037)                  0
  Segment net income (loss)        2,936,935        (7,384,801)        (802,839)           0        $ (5,250,705)
  Total assets                     8,503,698         1,094,172          125,582            0        $  9,723,452
  Capital expenditures               126,566            43,063           87,439            0        $    257,068
   Depreciation & amortization    $  187,876        $   53,179        $  21,172            0        $    262,227

</TABLE>
                                                                       F-26
                                    - 57 -
<PAGE>
PART III

ITEM 9.     Directors, Executive Officers, Promoters and Control Persons

DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The  directors  and  officers  of the  company  as of June 30,  2002 are as
     follows:

       Name                     Age            Position
______________________________________________________________________________

Bruce A. Shear                  47   Director, President and Chief Executive
                                       Officer
Robert H. Boswell               54   Senior Vice President
Michael R. Cornelison           52   Executive Vice President
Paula C. Wurts                  53   Controller, Treasurer and Assistant Clerk
Gerald M. Perlow, M.D. (1)(2)   64   Director and Clerk
Donald E. Robar (1)(2)          65   Director
Howard W. Phillips              72   Director
William F. Grieco (1)           48   Director
David E. Dangerfield            61   Director

(1)  Member of Audit Committee.
(2)  Member of Compensation Committee.


     All of the directors hold office until the annual  meeting of  stockholders
next  following  their  election,  or until  their  successors  are  elected and
qualified.  The Compensation Committee reviews and sets executive  compensation.
Officers  are  elected  annually  by the  Board of  Directors  and  serve at the
discretion  of the  Board.  There are no family  relationships  among any of the
directors or officers of the company.

     Information with respect to the business experience and affiliations of the
directors and officers of the company is set forth below.

     BRUCE A. SHEAR has been President,  Chief Executive  Officer and a Director
of the company since 1980 and Treasurer of the company from September 1993 until
February 1996. From 1976 to 1980 he served as Vice President, Financial Affairs,
of the company. Mr. Shear has served on the Board of Governors of the Federation
of American Health Systems for over ten years. Mr. Shear received an M.B.A. from
Suffolk  University in 1980 and a B.S. in Accounting  and Finance from Marquette
University in 1976.

     ROBERT H.  BOSWELL has served as the Senior Vice  President  of the company
since  February 1999 and as executive vice president of the company from 1992 to
1999. From 1989 until the spring of 1994 Mr. Boswell served as the Administrator
of the company's Highland Ridge Hospital facility where he is based. Mr. Boswell
is principally involved with the company's substance abuse facilities. From 1981
until 1989, he served as the Associate Administrator at the Prevention Education
Outpatient Treatment  Program--the Cottage Program,  International.  Mr. Boswell
graduated from Fresno State University in 1975 and from 1976 until 1978 attended
Rice University's doctoral program in philosophy.  Mr. Boswell is a Board Member
of the National Foundation for Responsible Gaming and the Chair for the National
Center for Responsible Gaming.



                                     - 58 -
<PAGE>
     MICHAEL R.  CORNELISON  has served as Executive  Vice  President  and Chief
Operating  Officer of the company since June 1999. Mr. Cornelison also served as
the Director of Michigan Operations from December of 1997 through April 1998 and
Vice  President of  Operations  from April 1998  through June of 1999.  Prior to
joining the company Mr. Cornelison spent eleven years as a psychiatric  hospital
administrator  for both Universal  Health Services and Charter Medical  Systems.
Mr.  Cornelison  attended  Washington  State University and received a degree in
Business  Management from LaSalle  University in 1975. Mr. Cornelison has served
two terms as member of the Board of  Governors  of the  Federation  of  American
Health Systems.

     PAULA C. WURTS has served as the  Controller  of the company since 1989, as
Assistant Clerk since January 1996, as Assistant Treasurer from 1993 until April
2000 when she became  Treasurer.  Ms. Wurts served as the  company's  Accounting
Manager  from 1985 until  1989.  Ms.  Wurts  received an  Associate's  degree in
Accounting  from the  University of South Carolina in 1980, a B.S. in Accounting
from  Northeastern  University in 1989 and passed the  examination for Certified
Public  Accountants.  She received a Master's  Degree in Accounting from Western
New England College in 1996.

     GERALD M. PERLOW,  M.D.  has served as a Director of the company  since May
1993 and as Clerk since February 1996. Dr. Perlow is a retired  cardiologist who
practiced  medicine  in Lynn,  Massachusetts,  and has been  Associate  Clinical
Professor of Cardiology at the Tufts  University  School of Medicine since 1972.
Dr.  Perlow is a Diplomat of the  National  Board of Medical  Examiners  and the
American  Board of Internal  Medicine  (with a  subspecialty  in  cardiovascular
disease) and a Fellow of the American Heart Association, the American College of
Cardiology and the American College of Physicians. From 1987 to 1990, Dr. Perlow
served as the Director, Division of Cardiology, at AtlantiCare Medical Center in
Lynn,  Massachusetts.  Dr.  Perlow  served  as a  consultant  to  Wellplace.com,
formerly  Behavioralhealthonline.com,  in  fiscal  year  2000  and  has  been  a
contributing  journalist to Wellplace.com since 1999. Dr. Perlow received a B.A.
from  Harvard  College  in 1959 and an M.D.  from  Tufts  University  School  of
Medicine in 1963.

     DONALD E. ROBAR has served as a Director of the  company  since 1985 and as
the Treasurer from February 1996 until April 2000. He served as the Clerk of the
company from 1992 to 1996.  Dr. Robar has been a professor of  Psychology  since
1961, most recently at Colby-Sawyer  College in New London,  New Hampshire.  Dr.
Robar received an Ed.D.  from the University of  Massachusetts  in 1978, an M.A.
from Boston College in 1968 and a B.A. from the University of  Massachusetts  in
1960.

     HOWARD W. PHILLIPS has served as a Director of the company since August 27,
1996 and has been employed by the company as a public relations specialist since
August 1, 1995.  From 1982 until October 31, 1995, Mr. Phillips was the Director
of Corporate  Finance for D.H. Blair  Investment Corp. From 1969 until 1981, Mr.
Phillips  was  associated  with  Oppenheimer  & Co.  where he was a partner  and
Director of Corporate  Finance.  From 1995 until 1999 Mr.  Phillips  served as a
member of the Board of Directors of Food Court Entertainment  Network,  Inc., an
operator  of  shopping  mall  television   networks,   and  Telechips  Corp.,  a
manufacturer of visual phones.

     WILLIAM F. GRIECO has served as a Director of the  company  since  February
18, 1997.  Since  November  2001 Mr.  Grieco has been Senior Vice  President and
General Counsel of IDX Systems Corporation,  a healthcare information technology
company.  From August 1999 to October 2001 Mr. Grieco was a Managing Director of
Arcadia  Strategies,  LLC, a legal and business  consulting  organization.  From
November  1995 to July  1999 he  served as Senior  Vice  President  and  General
Counsel for Fresenius  Medical Care North  America.  From 1989 until November of
1995, Mr. Grieco was a partner at Choate,  Hall & Stewart, a general service law
firm.  Mr.  Grieco  received a BS from Boston  College in 1975,  an MS in Health
Policy and  Management  from  Harvard  University  in 1978 and a JD from  Boston
College Law School in 1981.

                                     - 59 -
<PAGE>
     DAVID E. DANGERFIELD has served as a Director of the company since December
2001.  Since 1977,  he has served as the  Executive  Director for Valley  Mental
Health in Salt Lake City, Utah.  Since 1974, Mr.  Dangerfield has been a partner
for  Professional  Training  Associates  (PTA).  In 1989, he became a consultant
across the nation for managed  mental health care and the  enhancement of mental
health  delivery  services.  David  Dangerfield  serves as a Board member of the
Mental Health Risk  Retention  Group and Mental Health  Corporation  of America,
which are privately held corporations,  and the Utah Hospital Association, which
is a state organization.  Mr. Dangerfield  graduated from the University of Utah
in 1972 with a Doctorate  of Social Work after  receiving  his Masters of Social
Work from the University in 1967.

Compliance With Section 16(A) Of The Exchange Act

     Based on a review of Forms 3 and 4 furnished to the company, all directors,
officers and  beneficial  owners of more than ten percent of any class of equity
securities of the company  registered  pursuant to Section 12 of the  Securities
Exchange Act filed on a timely basis  reports  required by Section  16(a) of the
Exchange Act during the most recent fiscal year.

ITEM 10.    Executive compensation.

Employment agreements

     The  company  has not  entered  into  any  employment  agreements  with its
executive officers.  The company owns and is the beneficiary on a $1,000,000 key
man life insurance policy on the life of Bruce A. Shear.

Executive Compensation

     Four executive  officers of the company  received  compensation in the 2002
fiscal  year,  which  exceeded  $100,000.  The  following  table  sets forth the
compensation  paid or accrued by the  company  for  services  rendered  to these
executives in fiscal year 2002, 2001, and 2000:

                           Summary Compensation Table
<TABLE>
<S>                       <C>    <C>           <C>          <C>              <C>            <C>
                                                                                Long Term
                                                                                Compensation
                                      Annual Compensation                       Awards

(a)                          (b)    (c)            (d)         (e)              (g)             (i)
                                                                                Securities
Name and                                                       Other Annual     Underlying      All Other
Principal                    Year   Salary          Bonus      Compensation     Options/SARs    Compensation
Position                            ($)             ($)        ($)              (#)             ($)
______________________       ____   ____________    _______    _______________  ____________    ______________

Bruce A. Shear               2002   $310,000(1)     $37,500    $71,390 (2)       20,000         $ 3,400
  President and Chief        2001   $310,000(1)          --    $19,571 (3)       67,000         $ 6,285
  Executive Officer          2000   $300,195(1).         --    $10,159 (4)       50,000         $22,517

Robert H. Boswell            2002   $137,000        $ 7,000    $67,301 (5)       25,000         $ 3,725
  Senior Vice President      2001   $126,000        $16,309    $15,521 (6)       41,000         $ 3,864
                             2000   $116,000        $32,200    $12,846 (7)       26,666         $14,261

Michael R. Cornelison        2002   $114,333             --    $60,356 (8)       10,000         $ 1,700
   Executive Vice President  2001   $ 96,000        $15,910    $14,160 (9)       41,000         $ 3,864
                             2000   $ 88,750        $13,000    $11,537(10)        5,000         $ 2,252

Paula C. Wurts               2002   $111,800        $ 2,000    $36,825(11)       25,000         $ 3,725
   Controller, Treasurer     2001   $100,800        $ 6,414    $13,867(12)       41,000         $ 3,864
   And Assistant Clerk       2000    $90,800        $13,500    $ 9,642(13)       33,334         $17,263
</TABLE>

(1)  Although the Board of Director  authorized  base salary  effective  July 1,
     1995 is $310,000 base salary was drawn as listed above.

(2)  This amount represents  $3,983  contributed by the company to the company's
     Executive Employee Benefit Plan on behalf of Mr. Shear,  $4,768 in premiums
     paid by the company with respect to life  insurance  for the benefit of Mr.
     Shear,  $336 in club membership dues paid by the company for the benefit of
     Mr.  Shear,  $2,678  personal  use of a company  car held by Mr.  Shear and
     $59,625  based on the  intrinsic  value of the repricing of options held by
     Mr. Shear.

(3)  This amount represents  $3,799  contributed by the company to the company's
     Executive Employee Benefit Plan on behalf of Mr. Shear,  $4,768 in premiums
     paid by the company with respect to life  insurance  for the benefit of Mr.
     Shear,  $208 in club membership dues paid by the company for the benefit of
     Mr.  Shear,  $2,921  personal  use of a company  car held by Mr.  Shear and
     $7,875 based on the intrinsic value of the repricing of options held by Mr.
     Shear.

(4)  This amount represents  $3,383  contributed by the company to the company's
     Executive Employee Benefit Plan on behalf of Mr. Shear,  $4,837 in premiums
     paid by the company with respect to life  insurance  for the benefit of Mr.
     Shear and $1,938 personal use of a company car held by Mr. Shear.

                                     - 60 -
<PAGE>
(5)  This amount represents a $6,000 automobile allowance, $2,323 contributed by
     the company to the company's  Executive  Employee Benefit Plan on behalf of
     Mr. Boswell, $640 in membership dues paid by the company for the benefit of
     Mr.  Boswell,  $363 in benefit  derived from the purchase of shares through
     the employee stock purchase plan, and $57,975 based on the intrinsic  value
     of the repricing of options held by Mr. Boswell.

(6)  This amount represents a $6,000 automobile allowance, $1,195 contributed by
     the company to the company's  Executive  Employee Benefit Plan on behalf of
     Mr.  Boswell,  $22 in Class A Common  Stock  issued to  employees,  $219 in
     benefit  derived  from the purchase of shares  through the  employee  stock
     purchase plan, and $8,085 based on the intrinsic  value of the repricing of
     options held by Mr. Boswell.

(7)  This amount represents a $6,000 automobile  allowance,  $952 contributed by
     the company to the company's  Executive  Employee Benefit Plan on behalf of
     Mr. Boswell,  $3,000 in relocation  expenses paid to Mr. Boswell and $2,894
     in benefit  derived from the purchase of shares  through the employee stock
     purchase plan.

(8)  This  amount  represents  a $7,800  automobile  allowance,  $243 in medical
     expenses reimbursed by the company and $52,313 based on the intrinsic value
     of the repricing of options held by Mr. Cornelison.

(9)  This amount represents a $7,050 automobile allowance, $22 in Class A Common
     Stock issued to employees  and $7,088 based on the  intrinsic  value of the
     repricing of options held by Mr. Cornelison.

(10) This amount represents a $4,700 automobile allowance, $6,050 as a result of
     the  exercise of options and $787 in benefit  derived  from the purchase of
     shares through the employee stock purchase plan.

(11) This amount represents a $4,800 automobile allowance, $4,319 contributed by
     the company to the company's  Executive  Employee Benefit Plan on behalf of
     Ms. Wurts,  $181 in benefit derived from the purchase of shares through the
     employee  stock  purchase plan and $27,525 based on the intrinsic  value of
     the repricing of options held by Ms. Wurts.

(12) This amount represents a $4,800 automobile allowance, $4,319 contributed by
     the company to the company's  Executive  Employee Benefit Plan on behalf of
     Ms. Wurts, $22 in Class A Common Stock issued to employees, $146 in benefit
     derived from the purchase of shares  through the  employee  stock  purchase
     plan and $4,580 based on the  intrinsic  value of the  repricing of options
     held by Ms. Wurts.

(13) This amount represents a $4,800 automobile allowance, $3,878 contributed by
     the company to the company's  Executive  Employee Benefit Plan on behalf of
     Ms. Wurts and $964 in benefit  derived from the purchase of shares  through
     the employee stock purchase plan.

COMPENSATION OF DIRECTORS

     Directors  who are  employees of the company  receive no  compensation  for
services as members of the Board. Directors who are not employees of the company
receive  $5,000  stipend per year and $1,250 for each Board meeting they attend.
In  addition,  directors of the company are  entitled to receive  certain  stock
option grants under the company's  Non-Employee  Director Stock Option Plan (the
"Director Plan").



                                     - 61 -
<PAGE>
COMPENSATION COMMITTEE

     The  Compensation  Committee  consists of Mr.  Donald Robar and Dr.  Gerald
Perlow.  The compensation  Committee met once during fiscal 2002. Mr. Shear does
not participate in discussions concerning, or vote to approve, his salary.


AUDIT COMMITTEE

     The Audit Committee consists of Mr. Donald Robar, Dr. Gerald Perlow and Mr.
William  Grieco.  The Audit  Committee  met two times during  fiscal  2002.  All
committee members attended both meetings.

OPTION PLANS

Stock Plan

     The Board of Directors  adopted the company's Stock Plan on August 26, 1993
and the  stockholders of the company  approved the plan on November 30, 1993 and
amended the plan on December 26, 1997,  December 23, 1998 and December 19, 2001.
The Stock Plan provides for the issuance of a maximum of 1,750,000 shares of the
Class A Common  Stock of the company  pursuant to the grant of  incentive  stock
options to employees and the grant of  nonqualified  stock options or restricted
stock  to  employees,  directors,  consultants  and  others  whose  efforts  are
important to the success of the company.

     The  Board  of  Directors  administers  the  Stock  Plan.  Subject  to  the
provisions of the Stock Plan, the Board of Directors has the authority to select
the  optionees or  restricted  stock  recipients  and determine the terms of the
options or restricted stock granted,  including:  (i) the number of shares, (ii)
option exercise  terms,  (iii) the exercise or purchase price (which in the case
of an incentive stock option cannot be less than the market price of the Class A
Common  Stock as of the date of grant),  (iv) type and  duration  of transfer or
other restrictions and (v) the time and form of payment for restricted stock and
upon exercise of options. Generally, an option is not transferable by the option
holder  except  by  will or by the  laws  of  descent  and  distribution.  Also,
generally, no option may be exercised more than 60 days following termination of
employment.  However,  in  the  event  that  termination  is  due  to  death  or
disability,  the option is  exercisable  for a period of one year following such
termination.

     During the fiscal year ended June 30, 2002, the company  issued  additional
options to purchase  245,000 shares of Class A Common Stock under the 1993 Stock
Plan at a price per share  ranging  from $.35 to $.75.  Generally,  options  are
exercisable  upon grant for 25% of the shares  covered  with an  additional  25%
becoming  exercisable  on each of the first three  anniversaries  of the date of
grant.

     A total of 1,250 options were exercised at $.25 each during the fiscal year
ended June 30, 2002. No options were exercised during the fiscal year ended June
30, 2001.



                                     - 62 -
<PAGE>
Employee Stock Purchase Plan

     On October 18, 1995, the Board of Directors voted to provide  employees who
work in excess of 20 hours per week and more than five months per year rights to
elect to  participate  in an Employee  Stock  Purchase  Plan (the "Plan")  which
became  effective  February 1, 1996.  The price per share shall be the lesser of
85% of the  average of the bid and ask price on the first day of the plan period
or the last day of the plan period. The plan was amended on December 19, 2001 to
allow for a total of 250,000  shares of class A common  stock to be issued under
the plan.

     As of June 30, 2002 a total of 112,185  shares of class A common stock have
been issued under the plan since the first  offering  which began on February 1,
1997 through the latest  completed  offering which ended in January 2001.  Eight
employees are participating in the current offering period under the plan, which
began on February 1, 2002 and will end on January 31, 2003.

Non-Employee Director Stock Plan

     The Board of Directors  adopted the company's  Non-Employee  Director Stock
Plan (the "Director  Plan") on October 18, 1995. The Stockholders of the company
approved the plan on December 15, 1995 and amended the plan on December 26, 1997
and  December  19,  2001.  Non-qualified  options to purchase a total of 250,000
shares of Class A Common Stock are  available  for  issuance  under the Director
Plan.

     The Board of Directors or a committee of the Board administers the Director
Plan.  Under the Director Plan,  each director of the company who was a director
at the time of adoption of the Director Plan and who was not a current or former
employee of the company  received an option to purchase that number of shares of
Class A Common  Stock as equals 500  multiplied  by the years of service of such
director  as of the date of the  grant.  At the  first  meeting  of the Board of
Directors  subsequent to each annual meeting of stockholders,  each non-employee
director is granted under the Director  Plan an option to purchase  2,000 shares
of the Class A Common  Stock of the company.  The plan was amended  December 19,
2001 to increase the number of options  issued each year from 2,000 per director
to 10,000 per director.  The option  exercise  price is the fair market value of
the  shares of the  company's  Class A Common  Stock on the date of  grant.  The
options are  non-transferable and become exercisable as follows: 25% immediately
and 25% on each of the first,  second and third anniversaries of the grant date.
If an optionee  ceases to be a member of the Board of  Directors  other than for
death or permanent  disability,  the unexercised  portion of the options, to the
extent  unvested,  immediately  terminate,  and the  unexercised  portion of the
options  which have vested lapse 180 days after the date the optionee  ceases to
serve  on the  Board.  In the  event  of  death  or  permanent  disability,  all
unexercised options vest and the optionee or his or her legal representative has
the  right  to  exercise  the  option  for a period  of 180  days or  until  the
expiration of the option, if sooner.

     On February 18, 1997,  the company  issued options to purchase 6,000 shares
of Class A Common  Stock under the Director  Plan at an exercise  price of $3.50
per share.  On January 22, 1998,  the company  issued  options to purchase 6,000
shares of Class A Common Stock under the Director  Plan at an exercise  price of
$2.06. On February 23, 1999, the company issued options to purchase 6,000 shares
of Class A Common Stock under the Director  Plan at an exercise  price of $1.03.
On December 28, 1999,  the company  issued  options to purchase 6, 000 shares of
class A common stock under the Director  Plan at an exercise  price of $.81.  On
January 11, 2001 the company  issued options to purchase 6,000 shares of class A
common stock under the Director  Plan at an exercise  price of $.22. On December
19, 2001 the company issued options to purchase  30,000 shares of class A common
stock under the Director Plan at an exercise price of $.35. As of June 30, 2002,
none of the options issued had been exercised.

                                     - 63 -
<PAGE>
     The following table provides information about options granted to the named
executive officers during fiscal 2002 under the company's Stock Plan, Employee
Stock Purchase Plan and Non-Employee Director Stock Plan.

                     Individual Grants

(a)                  (b)            (c)              (d)           (e)
                                   % of Total
                     Number of     Options/SARs
                     Securities    Granted to
                     Underlying    Employees     Exercise or
                     Options/SARs  in Fiscal     Base Price       Expiration
Name                 Granted (#)   Year          ($/Share)           Date
_______________________________________________________________________________

Bruce A. Shear         20,000        8.2%         $ .55              04/18/2007
Robert H. Boswell       7,500        3.1%         $ .45              12/19/2006
                       10,000        4.1%         $ .55              04/18/2007
                        7,500        3.1%         $ .55              04/18/2007
Michael R. Corneliso   10,000        4.1%         $ .55              04/18/2007
Paula C. Wurts          7,500        3.1%         $ .45              12/19/2006
                       10,000        4.1%         $ .55              04/18/2007
                        7,500        3.1%         $ .55              04/18/2007
All Directors and
 Officers as a
 group (9 Persons)    203,000        82.8%    $.35-$.55   12/19/2006-04/18/2007


     The following  table provides  information  about options  exercised by the
named executive  officers during fiscal 2002 and the number and value of options
held at the end of fiscal 2002.

(a)                  (b)        (c)          (d)             (e)
                                             Number of
                                             Securities       Value of
                                             Underlying       Unexercised
                                             Unexercised      In-the-Money
                                             Options/SARs     Options/SARs
                     Shares     Value        at FY-End (#)    FY-End (#)at
                     Exercise   Realized     Exercisable/     Exercisable/
                     (#)        ($)          Unexercisable    Unexercisable
________________   ___________  _________    _____________   ________________

Bruce A. Shear            --         --      237,000/163,500  $118,630/$ 85,115
Robert H. Boswell         --         --      196,666/146,583  $ 97,650/$ 76,567
Michael R. Cornelison     --         --      161,000/130,500  $ 82,140/$ 68,820
Paula C. Wurts            --         --       137,084/83,667  $ 65,475/$ 42,593
All Directors and
 Officers as a
 group (9 persons)        --         --    1,079,750/718,250  $502,650/$353,343

     In  February  1997,  all  95,375  shares  underlying  the then  outstanding
employee  stock  options were repriced to the current  market  price,  using the
existing  exercise  durations.  In  September  1998,  all 21,875  options due to
expire,  were extended for an additional five years. Also in September 1998, all
183,875  shares  underlying  the then  outstanding  employee  stock options were
repriced to the current market price, using the existing exercise durations.  In
January 2001, all 791,500 shares underlying the then outstanding  employee stock
options were repriced to $0.25,  which was greater than the then current  market
price, using the existing exercise durations.  The computed effect of the option
repricing of $251,159  and $55,831 was charged to salaries in the quarter  ended
June 30, 2002 and 2001.


                                     - 64 -
<PAGE>
ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth certain information  regarding the ownership
of shares of the  company's  Class A Common  Stock and Class B Common Stock (the
only classes of common stock of the company currently  outstanding) as of August
1, 2002 by each person known by the company to beneficially  own more than 5% of
any class of the company's voting securities, each director of the company, each
of the named  executive  officers  as  defined in 17 CFR  228.402(a)(2)  and all
directors  and officers of the company as a group.  Unless  otherwise  indicated
below,  to the  knowledge  of the  company,  all persons  listed below have sole
voting and investment power with respect to their shares of Common Stock, except
to the extent  authority is shared by spouses under applicable law. In preparing
the following table, the company has relied on the information  furnished by the
persons listed below:

                         Name and Address      Amount and Nature     Percent of
Title of Class           of Beneficial Owner   of Beneficial Owner   Class (14)
____________________     ___________________   ___________________   __________

Class A Common Stock      Gerald M. Perlow         69,875(1)            *
                          c/o PHC, Inc.
                          200 Lake Street
                          Peabody, MA   01960
                          Donald E. Robar          78,925(2)            *
                          c/o PHC, Inc.
                          200 Lake Street
                          Peabody, MA   01960
                          Bruce A. Shear          423,495(3)           3.3%
                          c/o PHC, Inc.
                          200 Lake Street
                          Peabody, MA   01960
                          Robert H. Boswell       179,150(4)           1.4%
                          c/o PHC, Inc.
                          200 Lake Street
                          Peabody, MA   01960
                          Howard W. Phillips       88,875(5)            *
                          P. O. Box 2047
                          East Hampton, NY   11937
                          William F. Grieco        63,875(6)            *
                          115 Marlborough Street
                          Boston, MA   02116
                          Paula C. Wurts         107,977(7)             *
                          c/o PHC, Inc.
                          200 Lake Street
                          Peabody, MA   01960
                          Michael R. Cornelison  143,409(8)            1.1%
                          c/o PHC, Inc.
                          200 Lake Street
                          Peabody, Ma  01960
                          David E. Dangerfield     2,500(9)             *
                          5965 South 900 East
                          Salt Lake City, UT 84121
                          All Directors and    1,158,081(10)           8.5%
                          Officers as a
                          Group (9 persons)



                                     - 65 -
<PAGE>
                         Name and Address      Amount and Nature     Percent of
Title of Class           of Beneficial Owner   of Beneficial Owner   Class (14)
____________________     ___________________   ___________________   __________
Class B Common Stock      The Shaar Fund Ltd.  1,234,327(12)           9.5%
                          c/o Citco Funds
                            Services, Curacao
                          Kaya Flamboyan 9
                          Curacao, Netherland
                            Antilles
                          Bruce A. Shear         671,259(13)          92.3%
                          c/o PHC, Inc.
                          200 Lake Street
                          Peabody, MA   01960
                          All Directors and      671,259              92.3%
                          Officers as a
                          Group (9 persons)

  *    Less than 1%

1.   Includes 48,125 shares  issuable  pursuant to currently  exercisable  stock
     options or stock options which will become  exercisable  within sixty days,
     having an exercise price range of $.22 to $6.63 per share.
2.   Includes 51,625 shares  issuable  pursuant to currently  exercisable  stock
     options or stock options which will become  exercisable  within sixty days,
     having an exercise price range of $.22 to $6.63 per share.
3.   Includes  163,500  shares  of Class A Common  Stock  issuable  pursuant  to
     currently exercisable stock options, having an exercise price range of $.25
     to $.55 per share.
4.   Includes an  aggregate of 146,583  shares of Class A Common Stock  issuable
     pursuant to currently  exercisable stock options at an exercise price range
     of $.25 to $.55 per share.
5.   Includes 49,625 shares  issuable  pursuant to currently  exercisable  stock
     options having an exercise price range of $.22 to $.45 per share.
6.   Includes  42,125  shares  of  Class A Common  Stock  issuable  pursuant  to
     currently exercisable stock options, having an exercise price range of $.22
     to $3.50 per share.
7.   Includes  83,667  shares  of  Class A Common  Stock  issuable  pursuant  to
     currently exercisable stock options, having an exercise price range of $.25
     to $.55 per share.
8.   Includes  130,500  shares  of Class A Common  Stock  issuable  pursuant  to
     currently exercisable stock options, having an exercise price range of $.25
     to $.55 per share.
9.   Includes  2,500  shares  of  Class A  Common  Stock  issuable  pursuant  to
     currently exercisable stock options,  having an exercise price of $ .55 per
     share.
10.  Includes an  aggregate  of 718,250  shares  issuable  pursuant to currently
     exercisable stock options.  Of those options,  5,500 have an exercise price
     of $6.63 per share,  6,000 have an exercise price of $3.50 per share, 6,000
     have an exercise price of $2.06 per share,  6,000 have an exercise price of
     $1.03 per share,  4,500 have an  exercise  price of $.81 per share,  37,000
     have an exercise  price of $.55 per share,  3,750 have an exercise price of
     $.45 per share,  10,000 have an exercise  price of $.35 per share,  133,250
     have an exercise price of $.30 per share, 502,250 have an exercise price of
     $.25 per share and 4,000 have an exercise price of $.22 per share.
11.  Each share of class B common stock is convertible into one share of class A
     common stock  automatically upon any sale or transfer or at any time at the
     option of the holder.
12.  Includes  125,000  shares  of Class A Common  Stock  issuable  pursuant  to
     currently exercisable stock warrants, having an exercise price of $3.00.
13.  Includes  56,369  shares of class B common stock pledged to Steven J. Shear
     of 2 Addison Avenue,  Lynn,  Massachusetts 01902, Bruce A. Shear's brother,
     to secure the purchase  price  obligation  of Bruce A. Shear in  connection
     with his purchase of his brother's  stock in the company in December  1988.
     In the absence of any default under this obligation, Bruce A. Shear retains
     full voting power with respect to these shares.


                                     - 66 -
<PAGE>
14.  Represents percentage of equity of class, based on numbers of shares listed
     under the column headed "Amount and Nature of Beneficial  Ownership".  Each
     share of Class A Common  Stock is  entitled  to one vote per share and each
     share of Class B Common  Stock is  entitled  to five votes per share on all
     matters on which  stockholders  may vote  (except  that the  holders of the
     Class A Common  Stock are  entitled to elect two  members of the  company's
     Board of Directors  and holders of the Class B Common Stock are entitled to
     elect all the remaining members of the company's Board of Directors).

     By virtue of the fact that Mr. Shear owns 92% of the class B shares and the
class B shareholders have the right to elect all of the directors except the two
directors elected by the class A shareholders,  Mr. Shear has the right to elect
the majority of the members of the Board of directors and may be deemed to be in
control of the company.

     Based on the number of shares  listed under the column  headed  "Amount and
Nature of  Beneficial  Ownership,"  the  following  persons  or groups  held the
following  percentages  of voting rights for all shares of common stock combined
as of August 1, 2002:

          Bruce A. Shear                                   22.66%
          All Directors and Officers as a Group
          (9 persons)                                      26.19%


ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS.

Related Party Indebtedness

     For approximately  the last thirteen years,  Bruce A. Shear, a director and
the President and Chief Executive Officer of the company, and persons affiliated
and associated with him have made a series of unsecured loans to the company and
its  subsidiaries  to enable them to meet  ongoing  financial  commitments.  The
borrowings  generally  were entered into when the company did not have financing
available from outside sources and, in the opinion of the company,  were entered
into at market rates given the financial  condition of the company and the risks
of repayment at the time the loans were made.  As of June 30, 2002,  the company
owed an aggregate of $200,000 to related parties.

     During the period  ended June 30,  2002,  the  company  paid Mr.  Shear and
affiliates  approximately  $381,600  in  principal  and accrued  interest  under
various unsecured notes to meet short term working capital  requirements.  As of
June 30, 2002,  the company owed Bruce A. Shear  $100,000 on a promissory  note,
which is dated August 13, 1998,  bears  interest at the rate of 12% per year and
is  payable  on demand  and Tot Care,  Inc.,  an  affiliate  of Bruce A.  Shear,
$100,000  on  promissory  notes  dated May 28,  1998 and June 9, 1998 which bear
interest at the rate of 12% per year and are payable on demand.



                                     - 67 -
<PAGE>
ITEM 13.    EXHIBITS AND REPORTS ON FORM 8-K.

Exhibit
 No.                            Description

3.1  Restated Articles of Organization of the Registrant,  as amended. (Filed as
     exhibit 3.1 to the company's Registration Statement on March 2, 1994).
3.1.1Articles of Amendment filed with the Commonwealth of Massachusetts.  (Filed
     with the 10-QSB dated May 1997).
3.1.2Restated Articles of Organization of the Registrant,  as amended. (Filed as
     exhibit  3.1.2 to the  company's  report on Form 10-QSB dated May 14, 2001.
     Commission file number 0-22916).
3.2  By-laws  of the  Registrant,  as  amended.  (Filed  as  exhibit  3.2 to the
     company's  Post-Effective  Amendment  No.  2 on  Form  S-3 to  Registration
     Statement on Form SB-2 under the  Securities Act of 1933 dated November 13,
     1995. Commission file number 333-71418).
3.3  Certificate of Designation of Series C Convertible  Preferred Stock of PHC,
     Inc.  adopted by the Board of Directors on June 15, 2000 and June 26, 2000.
     (Filed as exhibit 4.39 to the company's report on Form 10-QSB dated May 14,
     2001. Commission file number 0-22916).
4.1  Form  of  Warrant  Agreement.  (Filed  as  exhibit  4.1  to  the  company's
     Registration Statement on March 2, 1994).
4.2  Form of Unit  Purchase  Option.  (Filed  as  exhibit  4.4 to the  company's
     Registration Statement on March 2, 1994).
4.3  Consultant  Warrant  Agreement  by and  between  PHC,  Inc.,  and  C.C.R.I.
     Corporation  dated March 3, 1997 to purchase  160,000 shares Class A Common
     Stock.  (Filed as exhibit 4.18 to the company's  Registration  Statement on
     Form SB-2 dated April 15, 1997. Commission file number 333-25231).
4.4  Warrant Agreement by and between PHC, Inc. and ProFutures  Special Equities
     Fund,  L.P. for up to 86,207 shares of Class A Common Stock dated 09/19/97.
     (Filed as exhibit 4.25 to the company's  report on Form 10-KSB,  filed with
     the Securities and Exchange Commission on October 14, 1997. Commission file
     number 0-22916).
4.5  Warrant Agreement by and between PHC, Inc. and ProFutures  Special Equities
     Fund, LP for 3,000 shares of Class A Common  Stock.  (Filed as exhibit 4.27
     to the company's  Current Report on Form 8-K, filed with the Securities and
     Exchange Commission on April 29, 1998. Commission file number 0-22916).
4.6  Warrant  to  purchase  up to 52,500  shares of Class A Common  Stock by and
     between PHC, Inc., and HealthCare Financial Partners,  Inc. dated March 10,
     1998.  (Filed as exhibit 4.30 to the  company's  Registration  Statement on
     Form SB-2 dated July 24, 1998. Commission file number 333-59927).
4.7  Warrant  to  purchase  up to 52,500  shares of Class A Common  Stock by and
     between PHC, Inc., and HealthCare  Financial Partners,  Inc. dated July 10,
     1998.  (Filed as exhibit 4.31 to the  company's  Registration  Statement on
     Form SB-2 dated July 24, 1998. Commission file number 333-59927).
4.8  Warrant Agreement by and between HealthCare  Financial  Partners,  Inc. and
     its subsidiaries  (collectively "HCFP") and PHC, Inc. dated July 10, 1998 -
     Warrant No. 3 for 20,000 shares of Class A Common Stock.  (Filed as exhibit
     4.14 to the company's report on Form 10-KSB,  filed with the Securities and
     Exchange Commission on October 14, 1997. Commission file number 0-22916).
4.9  Warrant Guaranty  Agreement for Common Stock Purchase  Warrants issuable by
     PHC,  Inc.  dated  August 14,  1998 for  Warrants No 2 and No. 3. (Filed as
     exhibit  4.19 to the  company's  report  on Form  10-KSB,  filed  with  the
     Securities  and Exchange  Commission on October 14, 1997.  Commission  file
     number 0-22916).
4.10 12%  Convertible  Debenture by and between PHC, Inc., and Dean & Co., dated
     December 3, 1998 in the amount of  $500,000.  (Filed as exhibit 4.20 to the
     company's  report on Form 10-QSB dated February 12, 1999.  Commission  file
     number 0-22916).
4.11 Securities Purchase Agreement for 12% Convertible  Debenture by and between
     PHC, Inc. and Dean & Co., a Wisconsin nominee partnership for Common Stock.
     (Filed  as  exhibit  4.21 to the  company's  report  on Form  10-QSB  dated
     February 12, 1999. Commission file number 0-22916).


                                     - 68 -
<PAGE>
Exhibit
 No.                            Description

4.12 Warrant  Agreement to purchase up to 25,000  shares of Class A Common Stock
     by and between PHC, Inc., and Dean & Co., dated December 3, 1998. (Filed as
     exhibit  4.22 to the  company's  report on Form 10-QSB  dated  February 12,
     1999. Commission file number 0-22916).
4.13 Warrant  Agreement  by and  between  PHC,  Inc.,  and  National  Securities
     Corporation  dated  January 5, 1999 to  purchase  37,500  shares of Class A
     Common Stock. (Filed as exhibit 4.23 to the company's report on Form 10-QSB
     dated February 12, 1999. Commission file number 0-22916).
4.14 Warrant  Agreements  by and  between  PHC,  Inc.,  and George H. Gordon for
     10,000 shares, 15,000 shares, 5,000 shares, 5,000 shares, 50,000 shares and
     10,000 shares of Class A Common Stock dated December 31, 1998; 5,000 shares
     of Class A Common Stock dated  December 1, 1998;  10,000  shares of Class A
     Common  Stock dated  January 1, 1999;  and 10,000  shares of Class A Common
     Stock  dated  February  1, 1999.  (Filed as exhibit  4.24 to the  company's
     report on Form 10-QSB  dated  February  12,  1999.  Commission  file number
     0-22916).
4.15 Warrant  Agreement by and between PHC, Inc., and Barrow Street Research for
     3,000  shares of Class A Common Stock dated  February  23, 1999.  (Filed as
     exhibit  4.24 to the  company's  Registration  Statement  on Form S-3 dated
     April 13, 1999. Commission file number 333-76137).
4.16 Warrant Agreement by and between PHC, Inc., and George H. Gordon for 10,000
     shares of Class A Common Stock dated March 1, 1999.  (Filed as exhibit 4.25
     to the company's  Registration  Statement on Form S-3 dated April 13, 1999.
     Commission file number 333-76137).
4.17 Warrant Agreement by and between PHC, Inc., and George H. Gordon for 10,000
     shares of Class A Common Stock dated April 1, 1999.  (Filed as exhibit 4.26
     to the  company's  Registration  Statement  on Form S-3 dated June 1, 1999.
     Commission file number 333-76137).
4.18 Warrant Agreement by and between PHC, Inc., and George H. Gordon for 10,000
     shares of Class A Common Stock dated May 1, 1999. (Filed as exhibit 4.27 to
     the  company's  Registration  Statement  on Form S-3  dated  May 14,  1999.
     Commission file number 0-22916).
4.19 Warrant  Agreements  by and  between  PHC,  Inc.,  and George H. Gordon for
     10,000  shares  of Class A Common  Stock  dated  April 1,  1999.  (Filed as
     exhibit 4.28 to the company's report on Form 10-KSB dated October 13, 1999.
     Commission file number 0-22916).
4.20 Warrant  Agreements  by and  between  PHC,  Inc.,  and George H. Gordon for
     10,000 shares of Class A Common Stock dated July 1, 1999. (Filed as exhibit
     4.29 to the  company's  report  on Form  10-KSB  dated  October  13,  1999.
     Commission file number 0-22916).
4.21 Warrant  Agreements  by and  between  PHC,  Inc.,  and George H. Gordon for
     10,000  shares of Class A Common  Stock  dated  August 1,  1999.  (Filed as
     exhibit 4.30 to the company's report on Form 10-KSB dated October 13, 1999.
     Commission file number 0-22916).
4.22 Warrant  to  purchase  up to 37,500  shares of Class A Common  Stock by and
     between PHC, Inc., and National Securities Corporation dated April 5, 1999.
     (Filed as exhibit 4.31 to the company's report on Form 10-KSB dated October
     13, 1999. Commission file number 0-22916).
4.23 Warrant  to  purchase  up to 37,500  shares of Class A Common  Stock by and
     between PHC, Inc., and National Securities  Corporation dated July 5, 1999.
     (Filed as exhibit 4.32 to the company's report on Form 10-KSB dated October
     13, 1999. Commission file number 0-22916).
4.24 Warrant to purchase  40,000  shares of Class A Common  Stock by and between
     PHC, Inc. and CCRI,  Inc. and Warrant to purchase  40,000 shares of Class A
     Common Stock by and between PHC,  Inc. and M&K Partners  both dated 3/3/97;
     replaces  warrant for 160,000  shares dated 3/3/97 by and between PHC, Inc.
     and CCRI,  Inc.  (Filed as  exhibit  4.34 to the  company's  report on Form
     10-QSB filed with the Securities  and Exchange  Commission on May 11, 2000.
     Commission file 0-22916).

                                     - 69 -
<PAGE>
Exhibit
 No.                            Description

4.25 Common Stock  Purchase  Warrant by and between PHC, Inc. and The Shaar Fund
     Ltd.  dated  June  28,  2000.  (Filed  as  exhibit  4.36  to the  company's
     Registration  Statement  on Form S-3 dated July 14, 2000.  Commission  file
     number 333-41494).
4.26 Common  Stock  Purchase  Warrant  by  and  between  PHC,  Inc.  and  Heller
     Healthcare Finance,  Inc. for 60,000 shares of Class A Common Stock. (Filed
     as exhibit  4.37 to the  company's  report on Form  10-KSB,  filed with the
     Securities and Exchange  Commission on September 29, 2000.  Commission file
     number 0-22916).
4.27 Equity Purchase  Warrant to purchase 1% equity in Behavioral  Health Online
     by and between PHC,  Inc.,  and Heller  Healthcare  Finance dated March 16,
     1998.  (Filed as exhibit  4.38 to the  company's  quarterly  report on Form
     10-QSB,  filed with the Securities and Exchange  Commission on November 14,
     2000. Commission file number 0-22916).
4.28 Warrant Agreement issued to Union Atlantic Capital,  LC. to purchase 25,000
     Class A Common  shares dated March 20, 2001.  (Filed as exhibit 4.40 to the
     company's report on Form 10-QSB dated May 14, 2001.  Commission file number
     0-22916).
4.29 Warrant  Agreement  issued to Marshall  Sternan to purchase  10,000 Class A
     Common shares dated April 15, 2001. (Filed as exhibit 4.41 to the company's
     report on Form 10-QSB dated May 14, 2001. Commission file number 0-22916).
4.30 Equity Purchase  Warrant to purchase 1% equity in Behavioral  Health Online
     by and between PHC, Inc., and Heller Healthcare  Finance dated December 18,
     2000.  (Filed as exhibit 4.36 to the company's  report on Form 10-KSB dated
     September 25, 2001. Commission file number 0-22916).
5.1  Opinion  of Arent Fox  Kintner  Plotkin & Kahn,  PPLC  dated May 1,  2000..
     (Filed as an exhibit to the  company's  Registration  Statement on Form S-3
     dated June 6, 2000. Commission file number 333-76137).).
5.2  Opinion of Arent Fox Kintner Plotkin & Kahn, PPLC. (Filed as exhibit 5.2 to
     the  company's  report on Form SB-2 dated June 19,  2002.  Commission  file
     number 333-76137).
10.1 Deed of Trust Note of Mount Regis Center  Limited  Partnership  in favor of
     Douglas  M.  Roberts,  dated  July 28,  1987,  in the  amount of  $560,000,
     guaranteed by PHC, Inc., with Deed of Trust executed by Mount Regis Center,
     Limited  Partnership  of even date.  (Filed as  exhibit  10.33 to Form SB-2
     dated March 2, 1994).  Assignment  and  Assumption  of Limited  Partnership
     Interest, by and between PHC of Virginia Inc. and each assignor dated as of
     June 30,  1994.  (Filed as exhibit  10.57 to Form 10-KSB on  September  28,
     1994)
10.2 Copy of Note of Bruce A. Shear in favor of Steven J. Shear,  dated December
     1988, in the amount of $195,695;  Pledge  Agreement by and between Bruce A.
     Shear and  Steven  J.  Shear,  dated  December  15,  1988;  Stock  Purchase
     Agreement by and between Steven J. Shear and Bruce A. Shear, dated December
     1, 1988. (Filed as exhibit 10.52 to the company's Registration Statement on
     Form SB-2 dated  March 2, 1994.  Commission  file number  333-71418).
10.3 Unconditional  Guaranty of Payment and performance by and between PHC, Inc.
     in favor of HCFP.  (Filed  as  exhibit  10.112 to the  company's  quarterly
     report on Form 10-QSB, filed with the Securities and Exchange Commission on
     February 25, 1997. Commission file number 0-22916).
10.4 Agreement  between  Family  Independence  Agency and Harbor  Oaks  Hospital
     effective January 1, 1997. (Filed as exhibit 10.122 to the company's report
     on Form 10-KSB,  with the Securities and Exchange Commission on October 14,
     1997.  Commission  file number 0-22916)
10.5 Master Contract by and between Family  Independence  Agency and Harbor Oaks
     Hospital  effective  January  1,  1997.  (Filed  as  exhibit  10.123 to the
     company's  report on Form 10-KSB,  filed with the  Securities  and Exchange
     Commission on October 14, 1997. Commission file number 0-22916).


                                     - 70 -
<PAGE>
Exhibit
 No.                            Description

10.6 Financial Advisory Agreement,  Indemnification Agreement and Warrant by and
     between  Brean Murray & Company and PHC,  Inc.  dated  06/01/97.  (Filed as
     exhibit  10.125 to the  company's  report on Form  10-KSB,  filed  with the
     Securities  and Exchange  Commission on October 14, 1997.  Commission  file
     number 0-22916).
10.7 Loan and Security  Agreement by and among HCFP  Funding,  Inc.,  and PHC of
     Michigan,  Inc.,  PHC of  Utah,Inc.,  PHC of Virginia,  Inc.,  PHC of Rhode
     Island, Inc., and Pioneer Counseling of Virginia, Inc. dated as of February
     18, 1998. (Filed as exhibit 10.139 to the company's  Registration Statement
     on Form SB-2 dated July 24, 1998. Commission file number 333-59927).
10.8 Credit Line Deed of Trust by and between PHC of  Virginia,  Inc.,  and HCFP
     Funding II, Inc. dated July 1998. (Filed as exhibit 10.140 to the company's
     Registration  Statement on Form SB-2 dated July 24, 1998.  Commission  file
     number 333-59927).
10.9 Promissory Note for $50,000 dated May 18, 1998 by and between PHC, Inc. and
     Tot Care,  Inc.  (Filed as  exhibit  10.142 to the  company's  Registration
     Statement  on Form  SB-2  dated  July  24,  1998.  Commission  file  number
     333-59927).
10.10 Promissory   Note for $50,000  dated June 9, 1998 by and between PHC, Inc.
     and   Tot  Care,  Inc.  (Filed  as   exhibit   10.143  to   the  company's
     Registration Statement  on Form  SB-2  dated  July  24,  1998.  Commission
     file number 333-59927).
10.11 Amendment No. 1  to  Loan  and  Security   Agreement  in  the   amount  of
     $4,000,000 by and among HCFP Funding,  Inc.,  and  PHC of  Michigan,  Inc.,
     PHC of Utah, Inc.,  PHC of  Virginia,  Inc.,  PHC of Rhode  Island,  Inc.,
     and  Pioneer Counseling of Virginia,  Inc. dated as of February  18,  1998.
     (Filed as exhibit  10.57  to  the  company's  report  on Form 10-KSB  dated
     October 13, 1998. Commission file number 0-22916).
10.12 Promissory  Note by and between  PHC, Inc. and Bruce A. Shear dated August
     13,  1998,  in the  amount  of  $100,000.  (Filed as  exhibit  10.58 to the
     company's  report on Form 10-QSB dated  November 3, 1998.  Commission  file
     number 0-23524).
10.13 Financial  Advisory  and  Consultant Agreement  by  and  between  National
     Securities Corporation and PHC, Inc. dated 01/05/99 (Filed as exhibit 10.61
     to the company's report on Form 10-QSB dated February 12, 1999.  Commission
     file number 0-22916).
10.14 Promissory Note by and between PHC, Inc. and Mellon US Leasing Corporation
     dated November 1999, in the amount of $160,000.  (Filed as exhibit 10.68 to
     the company's report on Form 10-QSB dated November 15, 1999.
10.15 Amendment  number 1 to Loan and Security Agreement dated February 17, 2000
     by and between PHC of Michigan,  Inc., PHC, of Utah, Inc., PHC of Virginia,
     Inc., PHC of Rhode Island,  Inc. and Pioneer  Counseling of Virginia,  Inc.
     and Heller  Healthcare  Finance,  Inc., f/k/a HCFP Funding in the amount of
     $2,500,000.  (Filed as exhibit 10.70 to the company's report on Form 10-QSB
     filed  with  the  Securities  and  Exchange  Commission  on May  11,  2000.
     Commission file 0-22916).
10.16 Registration Rights  Agreement by and between PHC, Inc. and The Shaar Fund
     Ltd.  dated  June 28,  2000.  (Filed  as  exhibit  10.72  to the  company's
     Registration  Statement  on Form S-3 dated July 14, 2000.  Commission  file
     number 333-41494).
10.17 Release Notice by and between PHC, Inc. and The Shaar Fund Ltd. dated June
     28, 2000. (Filed as exhibit 10.73 to the company's  Registration  Statement
     on Form S-3 dated July 14, 2000. Commission file number 333-41494).
10.18 Escrow Instruction  by and  between  PHC,  Inc.;  The Shaar Fund Ltd.  and
     Cadwalader, Wickersham & Taft (an Escrow Agent) dated June 28, 2000. (Filed
     as exhibit 10.74 to the company's  Registration Statement on Form S-3 dated
     July 14, 2000. Commission file number 333-41494).

                                     - 71 -
<PAGE>
Exhibit
 No.                            Description

10.19 Securities  Purchase Agreement by and between PHC, Inc. and The Shaar Fund
     Ltd.  dated  June 28,  2000 to  purchase  125,000  shares of Class A Common
     Stock. (Filed as exhibit 10.75 to the company's  Registration  Statement on
     Form S-3 dated July 14, 2000. Commission file number 333-41494).
10.20 Promissory  Note for $532,000 dated May 30, 2000 by and between PHC,  Inc.
     and Irwin J.  Mansdorf,  Ph.D.  (Filed as  exhibit  10.76 to the  company's
     report on Form 10-KSB, filed with the Securities and Exchange Commission on
     September 29, 2000. Commission file number 0-22916).
10.21 Promissory  Note for $168,000 dated May 30, 2000 by and between PHC,  Inc.
     and Yakov Burstein,  Ph.D.  (Filed as exhibit 10.77 to the company's report
     on Form  10-KSB,  filed with the  Securities  and  Exchange  Commission  on
     September 29, 2000. Commission file number 0-22916).
10.22 Settlement  Agreement and Mutual  Releases by and between  PHC,  Inc.  and
     Yakov  Burstein,  Ph.D.  and Irwin J. Mansdorf,  Ph.D.  dated May 30, 2000.
     (Filed as exhibit 10.78 to the company's report on Form 10-KSB,  filed with
     the  Securities and Exchange  Commission on September 29, 2000.  Commission
     file number 0-22916).
10.23 Amendment  number  2  to  Loan  and  Security  Agreement originally  dated
     February 18, 1998 by and among PHC, of Utah,  Inc.,  PHC of Virginia,  Inc.
     and PHC of Michigan, Inc. and Heller Healthcare Finance, Inc. in the amount
     of  $3,000,000  amended as of May 24, 2001.  (Filed as exhibit 10.46 to the
     company's  report on Form 10-KSB dated September 25, 2001.  Commission file
     number 0-22916).
10.24 The Company's  1993 Stock  Purchase and Option Plan, as amended. (Filed as
     exhibit 10.47 to the  company's  report on Form S-8 dated January 29, 2002.
     Commission file number 333-81528).
10.25 The Company's  1995 Employee  Stock  Purchase  Plan, as amended. (Filed as
     exhibit 10.48 to the  company's  report on Form S-8 dated January 29, 2002.
     Commission file number 333-81528).
10.27 The Company's  1995  Non-Employee  Director Stock Option Plan, as amended.
     (Filed as exhibit 10.49 to the  company's  report on Form S-8 dated January
     29, 2002. Commission file number 333-81528).
10.28 Amendment Number 3 dated  December 6, 2001 to Loan and Security  Agreement
     dated February 18, 1998 by and between PHC of Michigan,  Inc., PHC of Utah,
     Inc.,  and PHC of  Virginia,  Inc.  and  Heller  Healthcare  Finance,  Inc.
     providing  collateral for the Loan and Security  Agreement in the amount of
     $3,000,000.  (Filed as exhibit 10.50 to the company's  quarterly  report on
     Form 10-QSB,  filed with the Securities and Exchange Commission on February
     12, 2002. Commission file number 0-22916).
10.29 Consolidating  Amended  and  Restated  Secured Term Note in the  amount of
     $2,575,542 dated December 6, 2001 by and between PHC of Michigan, Inc. and.
     Heller  Healthcare  Finance,  Inc. (Filed as exhibit 10.51 to the company's
     Registration  Statement  on Form  10-QSB,  filed  with the  Securities  and
     Exchange Commission on February 12, 2002. Commission file number 0-22916).
10.30 Amended and  Restated  Revolving  Credit Note in the amount of  $3,000,000
     dated  December 6, 2001 by and between PHC of Michigan,  Inc., PHC of Utah,
     Inc. and PHC of Virginia,  Inc. and. Heller Healthcare Finance, Inc. (Filed
     as exhibit  10.52 to the company's  Registration  Statement on Form 10-QSB,
     filed with the  Securities  and Exchange  Commission  on February 12, 2002.
     Commission file number 0-22916).
10.31 Amended and  Restated   Consolidated   Mortgage  Note  in  the  amount  of
     $5,688,598  dated December 6, 2001 by and between PHC of Michigan,  Inc and
     Heller  Healthcare  Finance,  Inc. (Filed as exhibit 10.53 to the company's
     Registration  Statement  on Form  10-QSB,  filed  with the  Securities  and
     Exchange Commission on February 12, 2002. Commission file number 0-22916).


                                     - 72 -
<PAGE>
Exhibit
 No.                            Description

10.32 Third Amended  and  Restated   Cross-Collateralization  and  Cross-Default
     Agreement dated December 6, 2001 by and between PHC, Inc., PHC of Michigan,
     Inc., PHC of Utah, Inc. and PHC of Virginia,  Inc. and.  Heller  Healthcare
     Finance,  Inc. (Filed as exhibit 10.54 to the company's quarterly report on
     Form 10-QSB,  filed with the Securities and Exchange Commission on February
     12, 2002. Commission file number 0-22916).
10.33 Overline Credit  Advance in the amount of $100,000  dated January 11, 2002
     by and between PHC of Michigan,  Inc., PHC of Utah,  Inc., PHC of Virginia,
     Inc. and Heller  Healthcare  Finance,  Inc.  (Filed as exhibit 10.56 to the
     company's  quarterly  report on Form 10-QSB,  filed with the Securities and
     Exchange Commission on February 12, 2002. Commission file number 0-22916).
21.1 List of  Subsidiaries.  (Filed as exhibit 21.1 to the  company's  report on
     Form SB-2 dated June 19, 2002. Commission file number 333-76137).
*99.1 Written Statement of Chief Executive Officer and Chief  Financial  Officer
     certifying the 10-KSB Annual Report.

* Filed herewith

 (b) REPORTS ON FORM 8-K.

     The company  filed no reports on Form 8-K during the quarter ended June 30,
2002.






                                     - 73 -
<PAGE>


                                   SIGNATURES

     In accordance  with Section 13 or 15(d) of the  Securities  Exchange Act of
1934,  the  registrant  caused  this  report to be  signed on its  behalf by the
undersigned, thereunto duly authorized.



                                          PHC, INC.


Date:    September 19, 2002               By:   /S/ BRUCE A. SHEAR
                                                    Bruce A. Shear, President
                                                    and Chief Executive Officer

     In  accordance  with the  Securities  Exchange Act of 1934,  the  following
persons  on  behalf of the  registrant  and in the  capacities  and on the dates
indicated have signed this report below.

          SIGNATURE                TITLE(S)                        DATE

/s/  BRUCE A. SHEAR               President, Chief           September , 2002
     Bruce A. Shear               Executive Officer and
                                  Director  (principal
                                  executive officer)

/s/  PAULA C. WURTS               Controller and Treasurer   September 19, 2002
     Paula C. Wurts               (principal financial
                                  and accounting officer)

/s/  GERALD M. PERLOW             Director                   September 19, 2002
     Gerald M. Perlow

/s/  DONALD E. ROBAR              Director                   September 19, 2002
     Donald E. Robar

     ________________             Director                   September , 2002
     Howard Phillips

/s/  WILLIAM F. GRIECO            Director                   September 19, 2002
     William F. Grieco

     _____________________        Director                   September , 2002
     David E. Dangerfield



                                     - 74 -
<PAGE>

Exhibit 99.1




                                WRITTEN STATEMENT
                                       OF
               CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

     The  undersigned  hereby  certify that, to the best of the knowledge of the
undersigned, the Annual Report on Form 10-KSB for the fiscal year ended June 30,
2002 filed by PHC,  Inc.  with the  Securities  and  Exchange  Commission  fully
complies  with the  requirements  of  Section  13(a) or 15(d) of the  Securities
Exchange Act of 1934 and that the  information  contained  in the report  fairly
presents,  in all material  respects,  the  financial  condition  and results of
operations of the issuer.



Date:  September 19, 2002                 By:   /s/  Bruce A. Shear
                                                     Bruce A. Shear, President
                                                     and Chief Executive Officer

Date:  September 19, 2002                 By:   /s/  Paula C. Wurts
                                                     Paula C. Wurts, Controller
                                                     and Chief Financial Officer






                                     - 77 -