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, 2003

[ ]  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, 2003 were $23,833,323.

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,  2003,  was  $8,751,891.16.  (See
definition of affiliate in Rule 12b-2 of Exchange Act).

At August 1, 2003,  13,342,213  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, through wholly owned
subsidiaries,  provides  psychiatric  services primarily to individuals who have
alcohol and drug dependency,  related disorders and to individuals in the gaming
and  transportation   industries.   Our  subsidiaries  operate  substance  abuse
treatment  facilities  in  Utah  and  Virginia,   three  outpatient  psychiatric
facilities in Michigan,  two outpatient  psychiatric  facilities in Nevada,  one
outpatient  psychiatric facility in Kansas and an inpatient psychiatric facility
in Michigan.  One of our  subsidiaries  also operates 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.  Through  another  subsidiary,  we also provide help line services
through  contracts with major  railroads and the State of Nebraska and operate a
call  center  for Wayne  County,  Michigan.  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.

     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.  As used herein,  our Company
refers to and includes the Company and each of it's subsidiaries  through which,
substantially all of our business and operations are conducted.




                                     -- 2 --
<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.

     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


                                     -- 3 --
<PAGE>
     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.  The
hospital is in the process of increasing  bed capacity by 14. It is  anticipated
that the new beds will come on line in the second  quarter of fiscal 2004. 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
maintains a comprehensive  array of professional  affiliations to meet the needs
of discharged  patients and other  individuals  not admitted to the hospital for
treatment.

                                     -- 4 --
<PAGE>
     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 fro m 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.  Highland  Ridge  recently  contracted  with  a  major  pharmaceutical
manufacturer  to participate  in a research  study in  cooperation  with a local
nursing home.

     In the  spring  of 1994,  the  Company  began to ope rate a crisis  hotline
service  under  contract  with  a  major  transportation  client.  The  hotline,
Wellplace,  formerly known as Pioneer  Development  Support  Services,  or 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,  2003.
Wellplace  also  operates  the  smoking  cessation  helpline  for the  State  of
Nebraska. This operation is physically located in Highland Ridge Hospital, but a
staff  dedicated to Wellplace  provides the services from a separate  designated
area of the Hospital.  Wellplace recently  contracted with Wayne County Michigan
to operate its call center. The Wellplace primary focus is now placed on growing
its operations to take advantage of current  opportunities and capitalize on the
economies  of  scale in  providing  similar  services  to  other  companies  and
government units.

     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 the 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 six
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,  Medicare  certified and  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
expanded its coverage area to include Wayne, Sanilac and Livingston Counties.

     Harbor Oaks has become a primary provider for Medicaid patients from Wayne,
Macomb and St. Clair  counties.  Utilization of a short-term  crisis  management
model in  conjunction  with strong case  management  has allowed  Harbor Oaks to
successfully enter this segment of the market.  Reimbursement for these services
is comparable to traditional  managed care payors.  Given the current climate of
public sector treatment  availability,  Harbor Oaks anticipates continued growth
in this sector of the business.

     On February 10, 1997, Harbor Oaks Hospital opened an 8-bed 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

                                     -- 6 --
<PAGE>
Insurance. In addition, Harmony began clinical trials in the last quarter of the
current fiscal year.

     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 three 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 three  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,
                                                     2003              2002
                                                  _____________________________
         Inpatient
         Net patient service revenues            $14,430,069       $14,130,471
         Net revenues per patient day (1)        $       417       $       413
         Average occupancy rate (2)                    77.7%             76.9%
         Total number of licensed beds
         at
               end of period                             122               122
         Source of Revenues:
              Private (3)                             62.20%            76.82%
              Government (4)                          37.80%            23.18%
         Partial Hospitalization
         and
         Outpatient
         Net Revenues:
              Individual                         $ 4,865,392       $ 4,678,493
              Contract                           $ 1,947,716       $ 2,300,140
         Sources of revenues:
              Private                                  98.0%             98.1%
              Government                                2.0%              1.9%
         Other Psychiatric Services:
               Wellplace (5)                     $ 1,649,374       $   842,345

(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)  Wellplace,   formerly  PDS2,  Pioneer  Development  and  Support  Services,
     provides clinical support,  referrals management and professional  services
     for a number of the Company's national contracts,  a smoking cessation help
     line for the state of Nebraska and operates the Wayne County  Michigan call
     center.





                                     -- 8 --
<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 and its help line services 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. "At risk" contracts require that
the Company provide all the clinically  necessary behavioral health services for
a group of people for a set fee per person per month. The Company  currently has
one at risk contract with a large insurance carrier,  which requires the Company
to provide  behavioral  health  services  to all of its  insured in the state of
Nevada for a fixed fee.  This at risk  contract  represents  less than 5% of the
Company's total gross revenues.  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
Wellplace  located in the  Highland  Ridge  facility  in Salt Lake  City,  Utah.
Wellplace  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") surveys and accredits the Company's inpatient facilities
and the Company's  outpatient  facilities  comply with the standards of National
Commission on Quality Assurance ("NCQA") although the facilities are not NCQA

                                    -- 10 --
<PAGE>
     certified. The Company's outpatient facilities in Michigan are certified by
the American Osteopathic  Association ("AOA"), which is nationally recognized by
all payers as the  measure of quality in  outpatient  treatment.  The  Company's
professional staff, including physicians, social workers, psychologists, nurses,
dietitians,  therapists and  counselors,  must meet the minimum  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
determinations  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


                                    -- 11 --
<PAGE>
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.


Licensure and Certification

     All of the  Company's  facilities  must be  licensed  by  State  regulatory
authorities.  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, 2003, 12.99% 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


                                    -- 12 --
<PAGE>
     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.


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,  2003,  the  Company  had 374  employees  of whom  four were
dedicated  to  marketing,  113 (10 part time and 1  contingent)  to finance  and
administration  and 257 (21 part time and 45 contingent) to patient care.  Until
January  of 2003,  all of the  Company's  employees  were  leased  through  Team
America,  a national  employee-leasing  firm. The Company elected to discontinue
the use of the  leasing  Company  and  begin  using a more  traditional  payroll
service  while  providing  more  employee  services  when the benefit of using a
leasing Company began to diminish.


                              -- 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.  On July 31, 2003,  the Company's
largest  facility,  with 125 Union  eligible  employees,  voted for union  (UAW)
representation.  Contract  negotiations  with the  Union  will  begin as soon as
practicable.


Insurance

     Each of the Company's facilities maintains separate professional  liability
insurance policies.  Harbor Oaks, Mount Regis Center, Harmony Healthcare,  Total
Concept and NPP each 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.


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 July 31, 2004. The current annual payment under
the lease is $88,896.  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 the first floor of a two-story hospital owned by
Valley Mental  Health.  The lease is for a six-year  term expiring  December 31,
2004,  which  provides for monthly  rental  payments of  approximately  $16,230.
Changes in rental  payments each year are based on increases or decreases in the
CPI. In March 2003,  the Company  entered  into an agreement to expand the space
being leased at the Highland  Ridge  location and complete an early  exercise of
the option to renew the lease pending  completion of the remodeling of the space
and the  approval  of the  additional  beds by the  State of Utah.  The  Company
expects  the  renovations  to be  complete  and the beds  approved by the end of
September of 2003.  The lease will be effective  through  December 31, 2009. All
terms and  conditions  of the  previous  lease  remain in  effect.  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 $383,500.  The facility is used for both
inpatient and outpatient services.  The Company believes that these premises are
adequate for its current and anticipated needs.

                                    -- 14 --
<PAGE>
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
$2,100,000  mortgage on this property.  The Company believes that these premises
are adequate for its current and anticipated needs.

ITEM 3.  LEGAL PROCEEDINGS.

     A medical  malpractice  claim was filed by a former  patient  against North
Point Mental Health Associates,  the Company's subsidiary,  North Point-Pioneer,
Inc.,  and Pioneer  Counseling  Centers in the  Circuit  Court for the County of
Wayne, State of Michigan (Case No.  00-017768-NH,  November 21, 2000),  alleging
sexual abuse by a former  clinical  psychologist.  At trial in December  2002, a
jury returned a verdict in favor of the plaintiff in the amount of approximately
$9 million plus interest and taxable costs and  attorney's  fee for conduct that
first manifested itself prior to the Company's  acquisition of the subsidiary in
1996. The clinical  psychologist  declared bankruptcy and was not a party to the
proceeding.  Although the Court subsequently  reduced the award to $3.2 million,
plus applicable interest and taxable costs and attorney's fee, the Court has not
yet entered a judgment  and is  considering  motions made by the  defendants  to
further  reduce the award,  to set aside the  verdict or to declare a  mistrial.
Plaintiff  could also  appeal the Court's  reduction  of the jury  verdict.  The
Company  believes that  substantial  error was committed at trial and intends to
appeal  any  adverse  judgment  if and when  entered.  However,  a bond or other
marketable  collateral  would be required to be posted in an amount equal to one
and one-half times the current value of any judgment when entered.

     The  Company's  subsidiary,  North  Point-Pioneer,   Inc.,  is  covered  by
malpractice insurance in the amount of $1 million provided by Frontier Insurance
Company,  which is insolvent and is being administered by the State of New York,
with the result that  Frontier's  ability to pay any  judgment  is  unknown.  If
Frontier  formally goes into  liquidation,  the Company may have a claim against
the Michigan  Property and Casualty  Guaranty Fund,  which could avail itself of
defenses  available to Frontier and to Michigan statutory  defenses.  The entity
whose assets were acquired by the Company's  subsidiary also carried malpractice
insurance  in the amount of $1  million.  Such  carrier  has,  however,  refused
coverage and filed an action in Michigan  seeking a declaratory  judgment to the
effect that it is not liable under such policy.  The Company will take all steps
available to require this carrier to meet its obligations under such policy.

     To date, there have been no meaningful settlement discussions.  In December
2002,  Plaintiff's  counsel  demanded the payment of $1,000,000  within 10 days,
which demand was not met. At a meeting on September 3, 2003,  representatives of
Frontier's receiver  acknowledged to the Company,  Frontier's  obligations under
the policy but  acknowledged  that payment of such obligations is subject to the
unresolved  insolvency  proceedings referred to above. The Company may recover a
portion of the legal fees expended to date on this matter. ITEM 4. SUBMISSION OF
MATTERS TO A VOTE OF SECURITY HOLDERS

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, 2003.



                                    -- 15 --
<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. 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 Bulletin Board.

                                                    HIGH             LOW
                                                ______________________________

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

2003
        First Quarter                            $    .89         $    .56
        Second Quarter                           $    .85         $    .65
        Third Quarter                            $    .95         $    .69
        Fourth Quarter                           $    .94         $    .72

2004
        First Quarter (through August 1, 2003)   $    .91         $    .72



     On August 1, 2003, the last reported sale price of the Class A Common Stock
was $.82.  On August 1, 2003,  there were 696 holders of record of the Company's
Class A Common Stock and 311 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 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. 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.




                                    -- 16 --
<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, 2003 and 2002.
It should be read in conjunction with the consolidated  financial statements and
notes thereto appearing elsewhere herein.

Overview

     The Company presently provides  behavioral health care services through two
substance abuse  treatment  centers,  a psychiatric  hospital and six 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 outpatient 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.,
continues 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 25% for the year as the total effect of cost
cuts were realized.  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 Company's 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 in accordance with accounting
principles  generally  accepted  in  the  United  States  of  America,  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  and  goodwill.  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.



                                    -- 17 --
<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.  Amounts due as a result of cost report  settlements is recorded and
listed  separately on the  consolidated  balance  sheets as "Other  receivables,
third party". 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.

     The Company  currently has one "at-risk"  contract.  The contract calls for
the  Company to  provide  for all of the in patient  and  outpatient  behavioral
health needs of the insurance  carrier's enrollees in Nevada for a fixed monthly
fee per member per month.  Revenues are recorded  monthly  based on this formula
and the expenses  related to  providing  the  services  under this  contract are
recorded as incurred.  The Company provides most of the outpatient care directly
and,  through  utilization  review,  monitors  closely,  and pre-approves all in
patient  and  outpatient  services  not  provided  directly.   The  contract  is
considered "at-risk" because the payments to third-party  providers for services
rendered could equal or exceed the total amount of the revenue recorded.

     Pharmaceutical  study  revenue is  recognized  only after a  pharmaceutical
study  contract has been awarded and the patient has been  selected and accepted
based on study  criteria and  billable  units of service are  provided.  Where a
contract  requires  completion  of the  study  by the  patient,  no  revenue  is
recognized until the patient completes the study program.

     Contract  support service revenue is a result of fixed contracts to provide
telephone  support.  Revenue for these  services is recognized  ratably over the
service period, as there is no contingency for a change in the contracted amount
based on services provided.

Allowance for doubtful accounts:

     The provision for bad debt is calculated based on a percentage of each aged
accounts   receivable  category  beginning  at  0-5%  on  current  accounts  and
increasing  incrementally  for  each  additional  30 days  the  account  remains
outstanding  until the account is over 360 days  outstanding,  at which time the
provision  is 60-100% of the  outstanding  balance.  These  percentages  vary by
facility based on each facility's  experience in collecting  older  receivables.
The Company compares this required reserve amount to the current  "Allowance for
doubtful  accounts" to  determine  the required bad debt expense for the period.
This method of determining  the required  "Allowance for doubtful  accounts" has
historically resulted in an allowance for doubtful accounts of 30% or greater of
the total outstanding receivables balance.




                                    -- 18 --
<PAGE>
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.

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, 2003 and 2002

     The Company's profitability from its ongoing operations remained relatively
stable during the fiscal year ended June 30, 2003 despite less favorable overall
economic  conditions and some  decreases in coverage  choices made by employers.
Total revenues  increased  5.0% to $23,833,323  for the year ended June 30, 2003
from $22,698,268 for the year ended June 30, 2002.  General economic  conditions
and increases in some operating expenses,  resulted in a decrease in income from
operations  of 18.1%  to  $1,445,689  for the year  ended  June  30,  2003  from
$1,764,274  for the year ended June 30,  2002 and a  decrease  in income  before
taxes and  dividends  of 6.1% to  $1,031,976  for the fiscal year ended June 30,
2003 from  $1,099,341  for the fiscal year ended June 30, 2002.  The Company has
recorded its tenth consecutive  profitable  quarter from ongoing operations with
the quarter ended June 30, 2003.

     Total net patient  care revenue from all  facilities,  remained  relatively
stable  at  $21,243,177  for  the  year  ended  June  30,  2003 as  compared  to
$21,109,104  for the year ended June 30, 2002.  Although  patient census and net
revenue per patient day increased as shown in "Operating  Statistics"  on page 7
of this report,  increased  expenses  resulted in lower net income from our core
business.  Net  inpatient  care  revenue  from  inpatient  psychiatric  services
increased 2.1% to $14,430,069 for the year ended June 30, 2003 from  $14,130,471
for the  fiscal  year ended  June 30,  2002.  Net  partial  hospitalization  and
outpatient care revenue decreased 2.4% to $6,813,108 for the year ended June 30,
2003 from  $6,978,633 for the year ended June 30, 2002.  This decrease is due in
part to the  decrease  in the number of  employees  covered  under our  Employee
Assistance  Program ("EAP")  contracts and our behavioral  healthcare carve out,
which  provide  for a fixed fee per  employee  per month to  provide  behavioral
healthcare  services.  The highlight of the year was the growth in revenues from
Wellplace,  formerly known as Pioneer Development and Support Services ("PDS2").
Wellplace  revenues  increased  95.8% to $1,649,374  for the year ended June 30,
2003 from $842,345 for the year ended June 30, 2002. This increase in revenue is
due to the inclusion of the Nebraska  smoking  cessation  contract signed in May
2002 and the Wayne County call center  contract,  which began in March 2003. All
revenues  reported in the  accompanying  consolidated  statements  of income 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.

                                    -- 19 --
<PAGE>
     Patient  care  expenses  increased  by  approximately  $433,613  due to the
increase in patient  census at our inpatient  facilities for the year ended June
30, 2003.  Inpatient census increased by approximately 390 patient days, 1%, for
the year ended June 30, 2003  compared to the year ended June 30,  2002.  Direct
patient care payroll and payroll related expenses increased  approximately 2% to
$9,927,554  for the year ended June 30, 2003 from  $9,755,460 for the year ended
June 30, 2002;  pharmacy costs increased  approximately  21% to $426,510 for the
year  ended  June 30,  2003 from  $351,531  for the year  ended  June 30,  2002;
laboratory fees decreased  approximately 14% to $184,810 for the year ended June
30, 2003 from $213,973 for the year ended June 30, 2002;  and hospital  supplies
expense increased  approximately 21% to $39,116 for the year ended June 30, 2003
from $32,474 for the year ended June 30,  2002.  All of these  increases  were a
result of increased  patient census and increased needs of the patients based on
the  severity  of  their  illness.  Other  patient  related  expenses  increased
approximately 45% to $345,907 for the year ended June 30, 2003 from $238,034 for
the  year  ended  June  30,  2002.  This  is  due to the  increase  in  patients
participating in pharmaceutical  research studies through Pioneer Pharmaceutical
Research.  The corresponding revenue increase was approximately  $198,000 or 27%
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  24.6% to $216,827 for the year ended June 30,
2003 from $287,556 for the year ended June 30, 2002. This decrease is due to the
change  in focus of the  internet  Company  to  internal  support  of the  other
operating locations.  We expect Website expenses will remain at this level while
the internet Company's focus remains internal.

     Contract  expenses  related to Wellplace  increased 98.6% to $1,398,602 for
the year ended June 30,  2003 from  $704,363  for the year ended June 30,  2002.
This increase is due to the inclusion of the Nebraska smoking cessation contract
signed in May 2002 and the Wayne  County  call center  contract,  which began in
March 2003. Expenses are expected to increase as a full year of the Wayne County
call center expenses will be included in the fiscal year ended June 30, 2004.

     Total administrative  expenses for all facilities increased less than 1% to
$7,833,908  for the year ended June 30, 2003 from  $7,829,208 for the year ended
June 30, 2002. This minimal increase in  administrative  expense is attributable
to many  offsetting  changes  in  expenses.  There was a non-cash  equity  based
compensation charge of approximately  $264,000 recorded in fiscal 2002 which was
offset by various increases.  As part of the change in administrative  expenses,
legal fees  increased  308.2% to $143,276  for the year ended June 30, 2003 from
$35,096  for the year ended June 30,  2002.  This is a result of the  litigation
described in "Legal Proceedings" on page 13 of this report.  Increased marketing
efforts  resulted in a 25.8%  increase in travel and  entertainment  expenses to
$179,840 for the year ended June 30, 2003 from  $143,009 for the year ended June
30, 2002.  Marketing expense increased 61.4% to $295,043 for the year ended June
30,  2003 from  $182,753  for the year ended June 30,  2002;  and meals  expense
increased 16.8% to $67,690 for the year ended June 30, 2003 from $57,969 for the
year ended June 30, 2002.  Insurance expense increased 25.2% to $284,465 for the
year ended June 30, 2003 from  $227,247  for the year ended June 30, 2002 due to
general  increases in property and liability  insurance.  Accounting fees, which
includes  non-audit  accounting  services,  including  but not  limited  to cost
reports and individual  contract audits,  provided by firms other than our audit
firm, increased 68.8% to $198,815 for the year ended June 30, 2003 from $117,783
for the year ended June 30, 2002.

     Interest  expense  decreased  31.4% to $542,269 for the year ended June 30,
2003 from $790,955 for the year ended June 30, 2002. This decrease is due to the
decrease in prime rate,  which dictates the interest rate on the majority of the
Company's long-term debt and the decrease in outstanding debt.

                                    -- 20 --
<PAGE>
     The Company's  income taxes of $54,234 and $15,446 for the years ended June
30, 2003 and June 30, 2002,  respectively,  are significantly  below the Federal
statutory  rate of 34% primarily due to the  availability  of net operating loss
carry-forwards.  Total  income tax expense  for fiscal 2003 and 2002  represents
state income taxes for certain subsidiaries with no available net operating loss
carry-forwards.  The  Company has  provided a  significant  valuation  allowance
against its deferred tax asset due to the uncertainty of its full recoverability
given the Company's  history of operating  losses and  potential  changes in IRS
rules that may limit the accessibility of the loss carry-forwards.

     Provision  for doubtful  accounts  increased  54.7% to  $1,108,498  for the
fiscal year ended June 30, 2003 from $716,681 for the fiscal year ended June 30,
2002.  This  increase  is the result of an  increase  in the age of  outstanding
accounts receivable with many insurance carriers delaying payment as much as 180
days.

     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 $1,406,694 for
the year ended June 30, 2003 compared to $1,576,109  for the year ended June 30,
2002. Cash flow from operations in fiscal 2003 consists  primarily of net income
of $977,742 plus depreciation and amortization of $198,695, decrease in accounts
receivable  of $513,193 and non-cash  equity based  charges of $25,871 less cash
used for net changes in other operating assets and liabilities of $308,807.

     Cash used in investing  activities in fiscal 2003  consisted of $226,100 in
capital  expenditures  compared to $124,362  in capital  expenditures  in fiscal
2002.

     Cash used in financing  activities  in fiscal 2003  primarily  consisted of
$914,985 in net debt  repayments,  $8,000 in deferred  financing  cost,  $65,421
received  from the  issuance of common  stock,  $41,391  paid in the purchase of
treasury stock and $7,212 in costs related to the issuance of common stock.

     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 11%
to $4,945,301 on June 30, 2003 from  $5,553,601 on June 30, 2002.  This decrease
is a result of better  accounts  receivable  management due to increased  staff,
standardization  of  some  procedures  for  collecting  receivables  and a  more
aggressive  collection  policy.  The increased  staff has allowed the Company to
concentrate on current accounts receivable and resolve any problem issues before
they become  uncollectable.  The Company's  collection  policy calls for earlier
contact  with  insurance  carriers  with  regard  to  payment,  use of  fax  and
registered  mail to  follow-up  or  resubmit  claims and earlier  employment  of
collection  agencies to assist in the collection  process.  Our collectors  will
also seek assistance through every legal means, including the State Insurance


                                    -- 21 --
<PAGE>
     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 2003,  in order to provide  start up cash for the Wayne  County call
center,  the Company  increased  its  borrowing  capacity  by  $500,000  with GE
Healthcare Finance,  formerly Heller Healthcare  Finance,  Inc. As of August 15,
2003,  the  Company  has not been  required  to  utilize  the  additional  funds
available. The outstanding balance on the accounts receivables financing on June
30, 2003 was $1,103,561,  reflecting a $365,083  decrease from June 30, 2002. 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.
Principal  payments on long-term debt totaled $1,359,983 in fiscal 2003 compared
to $1,219,314 in fiscal 2002.

     The Company's future minimum payments under contractual obligations related
to capital  leases,  operating  leases and term notes as of June 30, 2003 are as
follows:

  Year Ending               Term         Capital    Operating
   June 30,                 Notes         Leases     Leases           Total
_______________________  _____________  ___________  ____________  ___________
  2004                    $  883,659      $55,954    $   845,972    $1,785,585
  2005                     1,680,415       18,832        745,767     2,445,014
  2006                        47,598       12,825        499,244       559,667
  2007                        32,306        7,788        437,680       477,774
  2008                        35,337          649        326,396       362,382
  Thereafter                 234,629           --        142,913       377,542
                         _____________  ___________  ____________  ___________
  Total minimum payments  $2,913,944      $96,048     $2,997,972    $6,007,964
                          ===========    ==========  ===========    ===========

     In  addition  to the above term notes,  the  Company  also has  $275,000 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.  In July  2002,  the  holders  of the  debentures
exercised  the  put  provision  in the  agreement  as to 50% of the  outstanding
debentures of which $225,000 was paid during the fiscal year ended June 30, 2003
and the remainder was paid as of July 31, 2003.

     The Company also has $100,000 in an outstanding  related party debt,  which
bears  interest  at 12% per  annum  and is  payable  upon  demand.  This debt is
currently being extinguished as cash flow permits.

     The Company  believes that, with 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 plans to expand its core business through increased  capacity at its
current facilities and potential  acquisitions and its  pharmaceutical  research
operations through additional contracts and acquisitions.  Any acquisitions will
be funded through acquisition specific financing instruments.

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



                                    -- 22 --
<PAGE>
New accounting standards

     In April 2002, the Financial  Accounting  Standards  Board ("FASB")  issued
Statement of Financial  Accounting Standard ("SFAS") No. 145, Rescission of FASB
SFAS  Nos.  4,44  and 64,  and  Amendment  of FASB  SFAS  No.  13 and  Technical
Corrections.  SFAS No. 145 rescinds SFAS No. 4, Reporting  Gains and Losses from
Extinguishments of Debt and SFAS No. 64, Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements. SFAS No. 145 also rescinds SFAS No. 44 Accounting for
intangible Assets of Motor Carriers.  In addition,  SFAS 145 amends SFAS No. 13,
Accounting  for Leases,  to  eliminate  an  inconsistency  between the  required
accounting  for  sale-leaseback  transaction  and the  required  accounting  for
certain  lease   modifications   that  have   economic   effects  that  existing
authoritative  pronouncements  to make various  technical  corrections,  clarify
meanings or describe their applicability under changed conditions. The provision
of SFAS No. 145 related to the  rescission  of SFAS No. 4 is effective in fiscal
years  beginning  after May 15, 2002.  The provisions of SFAS No. 145 related to
SFAS No. 13 are to be applied to transactions  occurring after May 15, 2002. The
adoption  of SFAS No.  145 did not have an impact on the  Company's  results  of
operations, financial position or cash flows.

     In June  2002,  the  FASB  issued  SFAS  No.  146,  "Accounting  for  Costs
Associated with Exit or Disposal  Activities"  ("SFAS No. 146"), which addresses
financial  accounting and reporting for costs  associated  with exit or disposal
activities  and supersedes  Emerging  Issues Task Force ("EITF") Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity  (including  Certain  Costs  Incurred in a  Restructuring)".
Under this  statement,  a liability or a cost associated with a disposal or exit
activity is recognized at fair value when the liability is incurred  rather than
at the date of the entity's  commitment  to an exit plan as required  under EITF
94-3. The  provisions of SFAS 146 are effective for exit or disposal  activities
initiated  after  December 31, 2002,  with earlier  application  permitted.  The
adoption  of  SFAS  146 did  not  have a  significant  effect  on the  Company's
operations, financial position or cash flows.

     In November  2002,  the FASB  issued FIN 45,  "Guarantor's  Accounting  and
Disclosure  Requirements  for  Guarantees,   Including  Indirect  Guarantees  of
Indebtedness  of Others."  Among other  things,  FIN 45 requires  guarantors  to
recognize,  at fair value,  their  obligations  to stand ready to perform  under
certain guarantees.  FIN 45 is effective for guarantees issued or modified on or
after January 1, 2003. The adoption of FIN 45 did not have a material  effect on
its financial position or results of operations.

     On  December  31,  2002,  the FASB issued  SFAS No.  148,  "Accounting  for
Stock-Based  Compensation - Transition and Disclosure." SFAS No. 148 amends SFAS
No. 123, Accounting for Stock-Based Compensation, to provide alternative methods
of transition to SFAS No. 123's fair value method of accounting for  stock-based
employee  compensation in the event companies adopt SFAS No. 123 and account for
stock  options  under  the fair  value  method.  SFAS No.  148 also  amends  the
disclosure  provisions  of SFAS 123 and APB  Opinion No. 28,  Interim  Financial
Reporting  (APB  28),  to  require  disclosure  in the  summary  of  significant
accounting policies of the effects of an entity's accounting policy with respect
to  stock-based  employee  compensation  on reported net income and earnings per
share in annual and interim financial  statements.  While the Statement does not
amend SFAS No. 123 to require  companies to account for employee  stock  options
using the fair  value  method,  the  disclosure  provisions  of SFAS No. 148 are
applicable to all companies with stock-based employee  compensation,  regardless
of whether  they  account for that  compensation  using the fair value method of
SFAS No. 123 or the intrinsic  value method of APB Opinion No. 25 Accounting for
Stock  Issued to  Employees  (APB 25).  The Company  has adopted the  disclosure
requirements of SFAS No. 148.



                                    -- 23 --
<PAGE>
     In  January  2003,  the FASB  issued  FIN 46,  "Consolidation  of  Variable
Interest  Entities."  FIN 46's  consolidation  criteria are based on analysis of
risks and  rewards,  not  control,  and  represent  a  significant  and  complex
modification of previous accounting principles.  FIN 46 represents an accounting
change,  not a change in the  underlying  economics  of asset  sales.  FIN 46 is
effective for consolidated  financial statements issued after June 30, 2003. The
Company does not believe that the adoption of FIN 46 will have any effect on its
financial position or future results of operations.

     In May  2003,  the  FASB  issued  SFAS No.  150,  "Accounting  for  Certain
Financial Instruments with Characteristics of Both Liabilities and Equity." SFAS
No. 150 is the first phase of the FASB's project on liabilities and equity. SFAS
No. 150  provides  guidance on how an entity  classifies  and  measures  certain
financial  instruments with  characteristics of both liabilities and equity. For
publicly held  companies,  SFAS No. 150 is effective  for financial  instruments
entered into or modified after May 31, 2003. SFAS No. 150 requires  companies to
record the cumulative effect of financial  instruments  existing at the adoption
date.  The  adoption  of SFAS  150  did not  have a  significant  effect  on the
Company's operations, financial position or cash flows.

     In November  2002, the EITF reached  consensus on EITF No. 00-21,  "Revenue
Arrangements  with Multiple  Deliverables."  Revenue  arrangements with multiple
deliverables  include  arrangements that provide for the delivery or performance
of multiple products, services and/or rights to use assets where performance may
occur at  different  points  in time or over  different  periods  of  time.  The
adoption of EITF No. 00-21 did not have a  significant  effect on the  Company's
operations, financial position or cash flows.




                                    -- 24 --
<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 income                                  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-25







































                                                                           F-1



                                    -- 25 --
<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,  2003  and  2002,  and the  related  consolidated
statements of income, 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,  2003 and 2002,  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.





                                                 /s/ BDO Seidman, LLP

Boston, Massachusetts
August 8, 2003


                                                                           F-2




                                    -- 26 --
<PAGE>
PHC, INC.  AND SUBSIDIARIES
Consolidated Balance Sheets
                                                             June 30,
                                                       2003            2002
                                                  ____________________________
ASSETS
 Current assets: (Note C)
     Cash and cash equivalents (Note A)            $  494,991        $ 204,564
    Accounts receivable, net of allowance for
          doubtful accounts of $2,348,445
          and $2,715,760 at June 30, 2003
          and 2002, respectively  (Note A)          4,345,301        4,863,601
    Prepaid expenses                                   69,541           66,652
    Other receivables and advances                    255,006          137,032
    Deferred income tax asset (Note F)                808,607          766,793
    Other receivables, third party (Note A)           172,043          214,818
                                                   ____________   ____________
         Total current assets                       6,145,489        6,253,460

Accounts receivable, non-current (Note A)             600,000          690,000
Other receivables (Note A)                            111,976           92,068
Property and equipment, net (Notes A, B and D)      1,295,113        1,259,648
Deferred financing costs, net of amortization of
   $130,109 and $122,109 at June 30, 2003
   and 2002, respectively                               4,000           12,000
Goodwill (Note A)                                      969,099         969,099
Other assets (Note A)                                  286,046         197,340
                                                    ____________   ____________
      Total assets                                  $9,411,723      $9,473,615
                                                   ============     ===========
LIABILITIES
Current liabilities:
    Accounts payable                                 $ 860,952      $1,283,389
    Notes payable - related parties (Note E)           100,000         200,000
    Current maturities of long-term debt (Note C)      883,659         765,415
    Revolving credit note (Note C)                   1,103,561       1,468,644
    Deferred revenue                                   160,720         129,258
    Current portion of obligations under capital
      leases (Note D)                                   50,805          11,020
    Accrued payroll, payroll taxes and benefits      1,016,088       1,143,569
    Accrued expenses and other liabilities (Note K)    958,527         906,250
       Convertible debentures (Notes C)                275,000         500,000
                                                    ____________   ____________
         Total current liabilities                   5,409,312       6,407,545

Long-term debt, less current maturities (Note C)     2,030,285       2,428,945
Obligations under capital leases (Note D)               36,869          21,140
                                                    ____________   ____________
         Total liabilities                           7,476,466       8,857,630
                                                    ____________   ____________
Commitments and contingent liabilities (Notes D,
   G, H and I)

STOCKHOLDERS' EQUITY (Notes A, G, H and I) Class A
   common stock, $.01 par value; 20,000,000
   shares authorized, 13,437,067 and 12,919,042 shares
   issued at June 30, 2003 and 2002, respectively.     134,371         129,190
Class  B common stock, $.01 par value; 2,000,000
   shares authorized, 726,991 issued and outstanding
   at June 30, 2003 and 2002, each convertible into
   one share of Class A common stock.                    7,270           7,270
Additional paid-in capital                          19,147,604      18,769,863


                                    -- 27 --
<PAGE>
PHC, INC.  AND SUBSIDIARIES
Consolidated Balance Sheets (con't)
                                                             June 30,
                                                       2003            2002
                                                    ___________________________
Treasury stock, 97,804 and 38,126 common shares at
   cost at June 30, 2003 and  2002, respectively.      (72,380)        (30,988)
Notes receivable - common stock                        (80,000)        (80,000)
Accumulated deficit                                (17,201,608)    (18,179,350)
                                                   ____________   _____________
         Total stockholders' equity                  1,935,257         615,985
                                                  ____________   _____________

         Total liabilities and stockholders'
            equity                                 $ 9,411,723     $ 9,473,615
                                                   ============    ============

See accompanying notes to consolidated financial statements                F-3


                                    -- 28 --
<PAGE>
PHC, INC.  AND SUBSIDIARIES
Consolidated Statements of Income
                                              For the Year Ended June 30,
                                                2003                2002
                                           ____________________________________
Revenues:
     Patient care, net (Note A)             $21,243,177            $21,109,104
     Pharmaceutical study                       940,772                742,380
     Website services                                --                  4,439
     Contract support services                1,649,374                842,345
                                           ______________         _____________
         Total revenues                      23,833,323             22,698,268
                                           ______________         _____________
Operating expenses:
     Patient care expenses                   11,829,799             11,396,186
     Cost of contract support services        1,398,602                704,363
     Provision for doubtful accounts          1,108,498                716,681
     Website expenses                           216,827                287,556
     Administrative expenses                  7,833,908              7,829,208
                                           ______________         _____________
         Total operating expenses            22,387,634             20,933,994
                                           ______________         _____________
Income from operations                        1,445,689              1,764,274
                                           ______________         _____________
Other income (expense):
     Interest income                             13,133                 10,852
     Interest expense                          (542,269)              (790,955)
     Other income, net                          115,423                115,170
                                           ______________         _____________
              Total other expense, net         (413,713)              (664,933)
                                           ______________         _____________
Income before income taxes                     1,031,976             1,099,341
Provision for income taxes (Notes A and F)        54,234                15,446
                                           ______________         _____________
              Net income                         977,742             1,083,895
Dividends (Note I)                                    --               (98,411)
                                           ______________         _____________
Income applicable to common shareholders    $    977,742           $   985,484
                                           ==============         =============
Basic income per common share (Note A)      $        .07           $       .10
                                           ==============         =============
Basic weighted average number of shares
   outstanding (Note A)                       13,944,047            10,232,286
                                           ==============         =============
Fully diluted income per common share
   (Note A)                                 $        .07           $       .09
                                           ==============         =============
Fully diluted weighted average number of
   shares outstanding (Note A)                14,564,078            11,012,861
                                           ==============         =============
See accompanying notes to consolidated financial statements                 F-4


                                    -- 29 --
<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, 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
Net income-year ended June 30,
2002
                                 _________________________________________________________________
Balance - June 30, 2002          12,919,042  $129,190    726,991    $ 7,270          0    $     0

                                    -- 30 --
<PAGE>
PHC, INC.  AND SUBSIDIARIES
Consolidated  Statements of Changes In Stockholders' Equity (Deficit) (See Notes
A, C, H, J and K)(con't)
                                 Class          A       Class         B
                                 Common       Stock     Common      Stock    Preferred    Stock
                                 Shares       Amount    Shares      Amount     Shares     Amount
                                 _________________________________________________________________
Costs related to private
  placements
Issuance of shares for options
  exercised                         408,025     4,081
Issuance of warrants for services
Shares issued for employee
  bonuses                            28,623       286
Issuance of shares for warrants
  exercised                          62,363       624
Issuance of employee stock
  purchase plan shares               19,014       190
Purchase of shares from former
  employee
Net income-year ended June 30,
  2003
                                 _________________________________________________________________
Balance - June 30, 2003          13,437,067  $134,371    726,991    $ 7,270          0       $  0
                                ==================================================================
</TABLE>
See accompanying notes to consolidated financial statements.


                                    -- 31 --
<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      Treasury     Stock        Stock      Accumulated
                                Capital       Shares      Amount      Purchase      Deficit         Total
                              ______________________________________________________________________________
Balance - June 30, 2001         $18,696,779   22,926     $(24,894)   $(80,000)   $(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
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   38,126      (30,988)    (80,000)    (18,179,350)       615,985

                                    -- 32 --
<PAGE>
PHC, INC.  AND SUBSIDIARIES (con't)
Consolidated  Statements of Changes In Stockholders' Equity (Deficit) (See Notes
A, C, H, J and K)

Costs related to private
  placements                         (7,212)                                                          (7,212)
Issuance of shares for
  options exercised                 346,060                                                          350,140
Issuance of warrants for
  services                            3,185                                                            3,185
Shares issued for employee
  bonuses                            18,726                                                           19,012
Issuance of shares for
  warrants excerised                  9,376                                                           10,000
Issuance of employee stock
  purchase plan shares                7,606                                                            7,796
Purchase of shares from
  former employee                             59,678      (41,391)                                  (41,391)
Net income-year ended June
  30,2003                                                                             977,742        977,742
                              ______________________________________________________________________________
Balance - June 30, 2003        $ 19,147,604   97,804     $(72,380)   $(80,000)  $ (17,201,608)   $ 1,935,257
                              ===============================================================================
See accompanying notes to consolidated financial statements                F-5
</TABLE>

                                    -- 33 --
<PAGE>
PHC, INC.  AND SUBSIDIARIES
Consolidated Statements of Cash Flows
                                                    For the Year Ended June 30,
                                                      2003             2002
                                                    ___________________________
Cash flows from operating activities:
  Net income                                          $ 977,742     $1,083,895
  Adjustments to reconcile net income to net cash
       provided by operating activities:
     Depreciation and amortization                      198,695        210,836
     Deferred income taxes                              (41,814)      (152,813)
     Compensatory stock options and stock issued         20,181         72,745
     Warrants issued for services                         3,185             --
     Equity based compensation charge                     2,505        264,000
     Changes in operating assets and liabilities:
        Accounts receivable                             513,193        440,638
        Prepaid expenses and other current assets        (2,889)        (2,712)
        Other assets                                    (96,766)        31,078
        Accounts payable                               (422,437)      (462,580)
        Accrued expenses and other liabilities          255,099        247,528
        Net liabilities of discontinued operations           --       (156,506)
                                                      ___________   ___________

          Net cash provided by operating activities   1,406,694      1,576,109
                                                      ___________   ___________
  Cash flows from investing activities:
      Acquisition of property and equipment            (226,100)      (124,362)
                                                      ___________   ___________
          Net cash used in investing activities        (226,100)      (124,362)
                                                      ___________   ___________
Cash flows from financing activities:
      Repayment revolving debt, net                    (365,083)      (642,942)
          Proceeds from borrowings                      810,081        748,912
          Principal payments on long-term debt       (1,359,983)    (1,219,314)
       Deferred financing costs                           8,000          8,000
      Cost related to common stock issuance              (7,212)            --
      Cost related to preferred stock issuance               --       (198,149)
      Purchase of treasury stock                        (41,391)        (6,094)
      Proceeds from issuance of common stock             65,421         18,672
                                                      ___________   ___________

          Net cash used in financing activities        (890,167)    (1,290,915)
                                                      ___________   ___________
Net increase in cash and cash equivalents               290,427        160,832
Cash and cash equivalents, beginning of year            204,564         43,732
                                                      ___________   ___________
Cash and cash equivalents, end of year                $ 494,991      $ 204,564
                                                      ===========    ==========

Supplemental cash flow information: Cash paid
     during the period for:
           Interest                                   $ 506,909      $ 782,416
           Income taxes                               $ 121,323      $  25,164

See accompanying notes to consolidated financial statements
                                                                           F-6

                                    -- 34 --
<PAGE>
PHC, INC.  AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
                                                     For the Year Ended June 30,
                                                       2003              2002
                                                    ___________________________
  Supplemental disclosures of non-cash investing
    and financing activities:
      Issuance of common stock in cashless
         exercise of options                            $134,866    $       --
      Issuance of common stock in cashless
         exercise of warrants                                424            --
      Conversion of preferred stock at stated value           --     1,507,000

      Issuance of stock in lieu of cash for dividends
         due                                                  --       218,762
      Accrued dividends on series C preferred stock           --        98,411
      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






See accompanying notes to consolidated financial statements               F-7


                                    -- 35 --
<PAGE>
PHC, INC.  AND SUBSIDIARIES

Notes to Consolidated Financial Statements
June 30, 2003 and 2002

NOTE A - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Operations and business segments:

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

     (1)  Behavioral  health treatment  services,  including two substance abuse
          treatment  facilities:  Highland Ridge Hospital,  located in Salt Lake
          City, Utah, which also treats  psychiatric  patients,  and Mount Regis
          Center,  located in Salem,  Virginia,  and eight psychiatric treatment
          locations  which include  Harbor Oaks Hospital,  a 64-bed  psychiatric
          hospital  located  in New  Baltimore,  Michigan  and seven  outpatient
          behavioral  health  locations (two in Las Vegas,  Nevada  operating as
          Harmony Healthcare,  one in Shawnee Mission, Kansas operating as Total
          Concept and three locations  operating as Pioneer Counseling Center in
          the Detroit, Michigan metropolitan area);

     (2)  Behavioral  health  administrative  services,  including  delivery  of
          management,  administrative and help line services. PHC, Inc. provides
          management  and  administrative  services  for its  behavioral  health
          treatment  subsidiaries.  Pioneer  Development  and Support  Services,
          which  does  business  as  Wellplace,   provides  help  line  services
          primarily through contracts with major railroads,  a smoking cessation
          contract  with the State of Nebraska and a call center  contract  with
          the  State  of  Michigan.  Pioneer  Pharmaceutical  Research  conducts
          studies of the effects of psychiatric  pharmaceuticals on a controlled
          population  through  contracts  with  major   manufacturers  of  these
          pharmaceuticals; and

     (3)  Behavioral  health online services,  are provided  through  Behavioral
          Health Online, Inc., the Company's internet subsidiary, which provides
          internet  support  services for all other  subsidiaries of the Company
          and provides  behavioral health  education,  training and products for
          the behavioral health professional, through its website Wellplace.com.

     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.

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.

                                                                           F-8
                                    -- 36 --
<PAGE>
PHC, INC.  AND SUBSIDIARIES

Notes to Consolidated Financial Statements
June 30, 2003 and 2002

NOTE A - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Revenues and accounts receivable:

     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.
Activity and cost report  expense  differences  are reviewed on an interim basis
and adjustments are made to the net expected  collectable  revenue  accordingly.
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 16% and 15% of the Company's total revenue is derived from
Medicare  and  Medicaid  payors  for the  years  ended  June 30,  2003 and 2002,
respectively.   Differences   between  the  amounts   provided  and   subsequent
settlements are recorded in operations in the year of the  settlement.  To date,
settlement adjustments have not been material.

     Patient care revenue is recognized as services are provided, provided there
exists persuasive  evidence of an arrangement,  the fee is fixed or determinable
and  collectability  of  the  related  receivable  is  reasonably  assured.  Pre
-admission  screening of  financial  responsibility  of the  patient,  insurance
carrier or other  contractually  obligated  payor,  provides the Company the net
expected  collectable  patient  revenue  to be  recorded  based  on  contractual
arrangements  with  the  payor or  pre-admission  agreements  with the  patient.
Revenue is not  recognized  for  emergency  provision  of services  for indigent
patients.  As of June 30, 2003,  the Company has $172,043 in other  receivables,
third party, due as a result of cost report settlements.

     Pharmaceutical  study  revenue is  recognized  only after a  pharmaceutical
study  contract has been awarded and the patient has been  selected and accepted
based on study  criteria  and  billable  units of service  are  provided.  Where
contracts  require  completion  of the  study  by the  patient,  no  revenue  is
recognized until the patient completes the study program.

     Contract  support service revenue is a result of fixed contracts to provide
telephone  support.  Revenue for these  services is recognized  ratably over the
service period, as there is no contingency for a change in the contracted amount
based on services provided.

     Long-term assets include accounts receivable non-current, other receivables
and other assets. 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 or
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.
Other receivables  included as long-term assets include the non-current  portion
of loans provided to employees and amounts due on a contractual agreement.

     Charity care amounted to  approximately  $54,263 and $415,700 for the years
ended June 30, 2003 and June 30,  2002,  respectively.  Patient  care revenue is
stated  net of  charity  care in the  accompanying  consolidated  statements  of
income.
                                                                           F-9

                                    -- 37 --
<PAGE>
PHC, INC.  AND SUBSIDIARIES

Notes to Consolidated Financial Statements
June 30, 2003 and 2002

NOTE A - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Estimates and assumptions:

     The  preparation  of financial  statements  in conformity  with  accounting
principles  generally  accepted  in  the  United  States  of  America,  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.

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, advances and web development costs.

Long-lived assets:

     In accordance with Statement of Financial Accounting Standards ("SFAS") No.
144,  "Accounting  for the  impairment  or Disposal of Long-Lived  Assets",  the
Company  reviews  the  carrying  values of its  long-lived  assets for  possible
impairment  whenever  events  or  changes  in  circumstances  indicate  that the
carrying  amounts of the assets may not be  recoverable.  Any long-lived  assets
held for disposal are  reported at the lower of their  carrying  amounts or fair
value less costs to sell.  The Company  believes that the carrying  value of its
long-lived assets is fully realizable at June 30, 2003.

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.

     The Company  adopted SFAS 142 in the first quarter of fiscal 2002. SFAS No.
142 requires,  among other things,  that companies no longer amortize  goodwill,
but  instead test  goodwill for impairment at least annually. In  addition, SFAS

                                                                          F-10


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

Notes to Consolidated Financial Statements
June 30, 2003 and 2002

NOTE A - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Goodwill (continued):

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  goodwill of $969,099  relating  to the  treatment  services
reporting  unit of the Company was  evaluated  under SFAS No. 142 as of June 30,
2003. As a result of the evaluation,  the Company  determined that no impairment
exists.  The Company  will  continue to test  goodwill for  impairment  at least
annually in accordance with the guidelines of SFAS 142.

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 per share:

     Income per share is computed by dividing  the income  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,
2003 and  2002.  As of June 30,  2003 and June 30,  2002,  the  number of shares
outstanding  increased by 620,031 and 780,575 dilutive common stock equivalents,
respectively.

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

                                                      Years Ended June 30,
                                                     2003              2002
                                                  _____________________________
     Denominator for basic earnings per share-
         weighted average shares                   13,944,047       10,232,286

     Effect of dilutive securities:
         Employee stock options                       377,741          439,431
         Warrants                                     242,290           91,144
        Convertible debentures                             --          250,000
                                                   ___________     ____________
     Denominator for diluted earnings per share-
         adjusted weighted average shares and
         assumed conversions                       14,564,078       11,012,861
                                                   ===========      ===========


                                                                          F-11

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

Notes to Consolidated Financial Statements
June 30, 2003 and 2002

NOTE A - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     The following table summarizes securities which were outstanding as of June
30, 2003 and 2002 but not  included in the  calculation  of diluted net earnings
per share because such shares are antidilutive:

                                                      Years Ended June 30,
                                                      2003              2002
                                                   ____________________________

          Employee stock options                      29,500          191,500
          Warrants                                   327,500        1,013,800
          Convertible debentures                     125,000               --

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 bases 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.

Comprehensive Income:

     SFAS No. 130,  "Reporting  Comprehensive  Income",  requires  companies  to
classify  items  of  other  comprehensive   income  in  a  financial  statement.
Comprehensive income is defined as the change in equity of a business enterprise
during a period  from  transactions  and other  events  and  circumstances  from
non-owner  sources.  The Company's  comprehensive net income is equal to its net
income for all periods presented.

Stock-based compensation:

     Until January 1, 2003,  all of the Company's  employees were employed under
leasing  arrangements.  The Company  believes that,  although its employees were
leased, they met the common law definition of employee and therefore,  qualified
as employees for purposes of applying SFAS No.123 prior to January 1, 2003.  The
Company's employee leasing arrangement met the employee definition  requirements
under FASB  Interpretation  ("FIN") No.44  "Accounting for Certain  Transactions
Involving Stock Compensation". The Company elected to discontinue the use of the
employee leasing Company and begin using a more traditional  payroll service and
providing  more  employee  services  internally  when it believed the benefit of
using a leasing Company began to diminish.

     For all periods  presented in the accompanying  financial  statements,  the
Company accounted for its employee stock-based  compensation  arrangements using
the  intrinsic  value  method  under  the  provisions  of APB  Opinion  No.  25,
"Accounting  for Stock  Issued to  Employees",  and FIN No. 44. The  Company has
elected to use the disclosure-only  provisions of SFAS No. 123,  "Accounting for
Stock-Based   Compensation,   and  SFAS  No.  148,  Accounting  for  Stock-Based
Compensation-Transition  and  Disclosure."  Had  compensation  expense for stock
option grants to employees been determined based on the fair value method at the


                                    -- 40 --
<PAGE>
     grant dates for awards  under the stock option  plans  consistent  with the
method prescribed by SFAS No. 123, the Company's net income would have decreased
to the pro forma amounts indicated as follows:



                                                                          F-12


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

Notes to Consolidated Financial Statements
June 30, 2003 and 2002

NOTE A - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Stock-based compensation (continued):
                                                            Year Ended
                                                             June 30,
                                                         2003            2002
                                                      _________________________

   Net income, as reported                             $  977,742    $ 985,484

   Add:  Stock-based employee compensation
    expense included in reported net income,
    net of related tax effects                             22,686      336,745

   Deduct:  Total stock-based employee compensation
    expense determined under fair value based
    method for all awards, net of related taxes          ( 78,575)    (391,599)
                                                       _____________ ___________

   Pro forma net income                                $  921,853    $  930,630
                                                       =============  ==========

   Earnings per share:
    Basic - as reported                                $     0.07    $   0.10
                                                       _____________ ___________
   Basic - pro forma                                   $     0.07    $   0.09
                                                       _____________ ___________
   Diluted - as reported                               $     0.07    $   0.09
                                                        _____________ __________
   Diluted - pro forma                                 $     0.06    $   0.09
                                                       _____________ ___________

     The  Company  has  computed  the pro forma  disclosures  for stock  options
granted to employees using the Black-Scholes  option pricing model prescribed by
SFAS No. 123. The  assumptions  used during each of the two years ended June 30,
2003 were as follows:
                                                                June 30,
                                                           2003          2002
                                                         __________   _________

   Risk free interest rate                                   6.00%       6.00%
   Expected dividend yield                                      --          --
   Expected lives                                          5 years     5 years
   Expected volatility                                         30%         30%
   Weighted average value of grants per share                 $.29        $.16
   Weighted average remaining contractual life of
     options outstanding (years)                              3.76         3.4

Reclassifications:

     Certain June 30, 2002 amounts have been  reclassified to be consistent with
the June 30, 2003 presentation.

                                                                          F-13


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

Notes to Consolidated Financial Statements
June 30, 2003 and 2002

NOTE A - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

New accounting standards:

     In April 2002, the Financial  Accounting  Standards  Board ("FASB")  issued
Statement of Financial  Accouting Standards ("SFAS") No. 145, Rescission of FASB
SFAS  Nos.  4,44  and 64,  and  Amendment  of FASB  SFAS  No.  13 and  Technical
Corrections.  SFAS No. 145 rescinds SFAS No. 4, Reporting  Gains and Losses from
Extinguishments of Debt and SFAS No. 64, Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements. SFAS No. 145 also rescinds SFAS No. 44 Accounting for
intangible Assets of Motor Carriers.  In addition,  SFAS 145 amends SFAS No. 13,
Accounting  for Leases,  to  eliminate  an  inconsistency  between the  required
accounting  for  sale-leaseback  transaction  and the  required  accounting  for
certain  lease   modifications   that  have   economic   effects  that  existing
authoritative  pronouncements  to make various  technical  corrections,  clarify
meanings or describe their applicability under changed conditions. The provision
of SFAS No. 145 related to the  rescission  of SFAS No. 4 is effective in fiscal
years  beginning  after May 15, 2002.  The provisions of SFAS No. 145 related to
SFAS No. 13 are to be applied to transactions  occurring after May 15, 2002. The
adoption  of SFAS No.  145 did not have an impact on the  Company's  results  of
operations, financial position or cash flows.

     In June 2002, FASB issued SFAS No. 146,  "Accounting  for Costs  Associated
with Exit or Disposal  Activities" ("SFAS No. 146"),  which addresses  financial
accounting and reporting for costs  associated with exit or disposal  activities
and supersedes  Emerging  Issues Task Force ("EITF") Issue No. 94-3,  "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity  (including  Certain Costs  Incurred in a  Restructuring)".  Under this
statement,  a liability or a cost associated with a disposal or exit activity is
recognized at fair value when the liability is incurred  rather than at the date
of the  entity's  commitment  to an exit plan as required  under EITF 94-3.  The
provisions of SFAS 146 are effective for exit or disposal  activities  initiated
after December 31, 2002,  with earlier  application  permitted.  The adoption of
SFAS  146  did  not  have a  significant  effect  on the  Company's  operations,
financial position or cash flows.

     In November  2002,  the FASB  issued FIN 45,  "Guarantor's  Accounting  and
Disclosure  Requirements  for  Guarantees,   Including  Indirect  Guarantees  of
Indebtedness  of Others."  Among other  things,  FIN 45 requires  guarantors  to
recognize,  at fair value,  their  obligations  to stand ready to perform  under
certain guarantees.  FIN 45 is effective for guarantees issued or modified on or
after January 1, 2003. The adoption of FIN 45 did not have a material  effect on
the Company's financial position or results of operations.

     On  December  31,  2002,  the FASB issued  SFAS No.  148,  "Accounting  for
Stock-Based  Compensation - Transition and Disclosure." SFAS No. 148 amends SFAS
No. 123, Accounting for Stock-Based Compensation, to provide alternative methods
of transition to SFAS No. 123's fair value method of accounting for  stock-based
employee  compensation in the event companies adopt SFAS No. 123 and account for
stock  options  under  the fair  value  method.  SFAS No.  148 also  amends  the
disclosure  provisions  of SFAS 123 and APB  Opinion No. 28,  Interim  Financial
Reporting  (APB  28),  to  require  disclosure  in the  summary  of  significant
accounting policies of the effects of an entity's accounting policy with respect
to  stock-based  employee  compensation  on reported net income and earnings per
share in annual and interim financial  statements.  While the Statement does not
amend SFAS No. 123 to require  companies to account for employee  stock  options
using the fair value method, the disclosure provisions of SFAS No. 148 are


                                    -- 43 --
<PAGE>
applicable to all companies with stock-based employee  compensation,  regardless
of whether  they  account for that  compensation  using the fair value method of
SFAS No. 123 or the intrinsic  value method of APB Opinion No. 25 Accounting for
Stock  Issued to  Employees  (APB 25).  The Company  has adopted the  disclosure
requirements of SFAS No. 148.












                                                                          F-14


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

Notes to Consolidated Financial Statements
June 30, 2003 and 2002

NOTE A - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

New accounting standards (continued):

     In  January  2003,  the FASB  issued  FIN 46,  "Consolidation  of  Variable
Interest  Entities."  FIN 46's  consolidation  criteria are based on analysis of
risks and  rewards,  not  control,  and  represent  a  significant  and  complex
modification of previous accounting principles.  FIN 46 represents an accounting
change,  not a change in the  underlying  economics  of asset  sales.  FIN 46 is
effective for consolidated  financial statements issued after June 30, 2003. The
Company does not believe that the adoption of FIN 46 will have any effect on its
financial position or future results of operations.

     In May  2003,  the  FASB  issued  SFAS No.  150,  "Accounting  for  Certain
Financial Instruments with Characteristics of Both Liabilities and Equity." SFAS
No. 150 is the first phase of the FASB's project on liabilities and equity. SFAS
No. 150  provides  guidance on how an entity  classifies  and  measures  certain
financial  instruments with  characteristics of both liabilities and equity. For
publicly-held  companies,  SFAS No. 150 is effective for  financial  instruments
entered into or modified after May 31, 2003. SFAS No. 150 requires  companies to
record the cumulative effect of financial  instruments  existing at the adoption
date.  The  adoption  of SFAS  150  did not  have a  significant  effect  on the
Company's operations, financial position or cash flows.

     In November  2002, the EITF reached  consensus on EITF No. 00-21,  "Revenue
Arrangements  with Multiple  Deliverables."  Revenue  arrangements with multiple
deliverables  include  arrangements that provide for the delivery or performance
of multiple products, services and/or rights to use assets where performance may
occur at  different  points  in time or over  different  periods  of  time.  The
adoption of EITF No. 00-21 did not have a  significant  effect on the  Company's
operations, financial position or cash flows.

NOTE B - PROPERTY AND EQUIPMENT

Property and equipment is comprised of the following:
                                                             June 30,
                                                       2003            2002
                                                    __________________________

          Land                                     $   69,259       $   69,259
          Buildings                                 1,136,963        1,136,963
          Furniture and equipment                   1,284,646        1,123,258
          Motor vehicles                               92,871           92,871
          Leasehold improvements                      508,441          443,733
                                                   ____________    ____________
                                                    3,092,180        2,866,084
          Less accumulated depreciation and
            amortization                            1,797,067        1,606,436
                                                   ____________    ____________

          Property and equipment, net              $1,295,113       $1,259,648
                                                   ===========      ===========

                                                                          F-15
                                    -- 45 --
<PAGE>
PHC, INC.  AND SUBSIDIARIES

Notes to Consolidated Financial Statements
June 30, 2003 and 2002

                   NOTE C - NOTES PAYABLE AND LONG-TERM DEBT

Long-term debt is summarized as follows:                       June 30,
                                                         2003          2002
                                                       ________________________
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.           $383,498      $406,068
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.                     257,384       361,564
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.                               81,279       114,178
Note payable due in monthly installments of $429
   including interest at 8.69% through May 2004.            4,536         9,119
Note payable due in monthly installments of $5,088
   including interest at 9% through October 2002.              --        20,352
Note payable due in monthly installments of $665
   including interest at 10.8% through November 2005.      16,705        22,538
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
   becomes due. The note bears interest at prime
   (4.0% at June 30, 2003)plus 3.5% is collateralized
   by all assets of PHC of Michigan, Inc., guaranteed
   by PHC, Inc. and may be renewed at maturity. In May
   2003, $500,000 was paid on the revolving credit note
   through an increase in this note. At that time the
   payments were increased by $5,000 each month but all
   other terms and conditions of the original note
   remain in effect.                                    2,170,542     2,260,541
                                                        ___________   _________

                        Total                           2,913,944     3,194,360
Less current maturities                                   883,659       765,415
                                                      ___________     _________
Long-term portion                                      $2,030,285    $2,428,945
                                                      ===========    ==========
Maturities of long-term debt are as follows as of June 30, 2003:

                 Year Ending
                 June 30,                                Amount
               ____________________________________________________
                   2004                                $  883,659
                   2005                                 1,680,415
                   2006                                    47,598
                   2007                                    32,306
                   2008                                    35,337
                   Thereafter                             234,629
                                                       __________
                                                       $2,913,944
                                                       ===========
                                                                          F-16
                                    -- 46 --
<PAGE>
PHC, INC.  AND SUBSIDIARIES

Notes to Consolidated Financial Statements
June 30, 2003 and 2002

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,  2003 and 2002,  the  outstanding
balance was  $1,103,561  and  $1,468,644,  respectively.  Advances are available
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  (4.0% at June 30,  2003)  plus  2.25%.  The  agreement  is  automatically
renewable  for  one-year  periods  unless   terminated  by  either  party.  Upon
expiration,  all remaining  principal and interest are due. The revolving credit
note is  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 class A 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  debt  is  classified  as a  current  liability  on the
accompanying  consolidated balance sheets. 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 exercised the put provision in the agreement
as to 50% of the outstanding  debentures,  of which $225,000 was paid during the
year ended June 30, 2003 and the remainder was paid as of July 31, 2003.

NOTE D - CAPITAL LEASE OBLIGATION

     At June 30, 2003,  the Company was obligated  under various  capital leases
for equipment providing for monthly payments of approximately  $4,500 and $1,100
for  fiscal  2003 and  2002,  respectively,  and terms  expiring  from July 2003
through July 2007.

     The carrying value of assets under capital leases  included in property and
equipment is as follows:
                                                                 June 30,
                                                           2003          2002
                                                         ______________________

        Equipment and improvements                      $141,998      $ 50,271
        Less accumulated amortization                    (69,322)      (33,108)
                                                        __________    _________
                                                        $ 72,676      $ 17,163
                                                        ==========    ==========

                                                                            F-17

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

Notes to Consolidated Financial Statements
June 30, 2003 and 2002

NOTE D - CAPITAL LEASE OBLIGATION (CONTINUED)

Future minimum lease payments under the terms of the capital lease agreements
are as follows at June 30, 2003:

      Year Ending
      June 30,
      ____________
      2004                                         $ 55,954
      2005                                           18,832
      2006                                           12,825
      2007                                            7,788
      2008                                              649
                                                  __________
      Total future minimum lease payments             96,048
      Less amount representing interest                8,374
                                                  __________
      Present value of future minimum
           lease payments                             87,674

      Less current portion                            50,805
                                                  __________

      Long-term obligations under capital leases   $  36,869
                                                   ==========

NOTE E - NOTES PAYABLE - RELATED PARTIES

Related party debt is summarized as follows:
                                                                 June 30,
                                                           2003         2002
                                                      _________________________
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
                                                        __________   __________
Total                                                    $100,000     $200,000
                                                        ==========   ==========




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

Notes to Consolidated Financial Statements
June 30, 2003 and 2002

NOTE F - INCOME TAXES

     The  Company  has  the  following  deferred  tax  assets  included  in  the
accompanying balance sheets:
                                                            Year Ended
                                                             June 30,
                                                        2003            2002
                                                     __________________________
   Temporary differences attributable to:
     Allowance for doubtful accounts                  $  939,000    $1,086,000
     Depreciation                                         68,000        72,000
     Reserves not currently deductible and other         201,000       173,000
     Operating loss carryforward                       3,628,000     3,734,000
                                                      ___________   ___________
           Total deferred tax asset                    4,836,000     5,065,000
   Less:
     Valuation allowance                              (4,027,393)   (4,298,207)
                                                     ___________   ___________
   Subtotal                                              808,607       766,793
     Current portion                                    (808,607)     (766,793)
                                                     ___________   ___________
          Long-term portion                           $       --    $       --
                                                      ==========    ===========

                                                                         F-18

                                    -- 49 --
<PAGE>
     The Company had no deferred tax  liabilities at June 30, 2003 and 2002. The
Company anticipates that it will have sufficient taxable income in future fiscal
years to realize its net deferred tax asset. The Company 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.

     The  components of the Income tax  provisions  for the years ended June 30,
2003 and 2002 are as follows:
                                                    2003              2002
                                                _______________________________
           Current
               Federal                           $      --         $     --
               State                                96,048           25,164
                                                 __________        _________
                                                    96,048           25,164
           Deferred
               Federal                             (35,542)          (8,260)
               State                               ( 6,272)          (1,458)
                                                 __________        __________
                                                   (41,814)          (9,718)
                                                 __________        __________
                   Income tax provision          $  54,234        $  15,446
                                                ===========        ==========

     A reconciliation of the federal  statutory rate to the Company's  effective
tax rate for the years ended June 30, 2003 and 2002 is as follows:

                                                       2003           2002
                                                      ________________________

Income tax provision at federal statutory rate         34.0%           34.0%
Increase (decrease) in tax resulting from
   State tax provision, net of federal benefit          4.5%            4.5%
   Non-deductible expenses                              1.3%            0.9%
   Other, net                                          (0.5%)          (4.0%)
   Valuation allowance                                (34.0%)         (34.0%)
   Effective income tax rate                            5.3%            1.4%
                                                      ========       =========



                                    -- 50 --
<PAGE>


     At June 30, 2003 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 2023.

     The Company has  provided a  significant  valuation  allowance  against its
deferred tax asset at June 30, 2003 and 2002 due to the  uncertainty of its full
recoverability given the Company's history of operating losses.









                                                                          F-19



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

Notes to Consolidated Financial Statements
June 30, 2003 and 2002

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,  2003 and 2002 was  approximately  $899,000  and
$799,000,  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, 2003 are as follows:  Year
Ending June 30, Amount

                          2004              $ 845,972
                          2005                745,767
                          2006                499,244
                          2007                437,680
                          2008                326,396
                          2009                142,913
                                           -----------
                                           $2,997,972
                                           ===========
Notes Receivable:

     In August 2000, the Company  entered into agreements with nine officers and
directors  to provide  each  officer and  director  with  $10,000  with which to
purchase stock. The agreement called for the parties to sign notes,  which would
provide the purchased shares as security, with the Company releasing the shares,
and canceling the officers' and directors'  obligations under the Notes based on
specific PHC stock price targets.  In the event that the stock price targets are
not met, the agreement calls for the  cancellation of the obligation and release
of the  shares  on the  third  anniversary  of the  agreement.  The  notes  were
cancelled  pursuant to these  provisions in August 2003,  which will result in a
compensation  charge of $80,000 during the quarter ended  September 30, 2003. As
of June 30,2003 eight  agreements  are still in effect and  accordingly  will be
terminated as outlined above. Under FIN 44, the shares underlying the notes were
subject to variable  accounting but did not result in any material change in any
period presented.



                                    -- 52 --
<PAGE>
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.

     A medical  malpractice  claim was filed by a former  patient  against North
Point Mental Health Associates,  the Company's subsidiary,  North Point-Pioneer,
Inc.,  and Pioneer  Counseling  Centers in the  Circuit  Court for the County of
Wayne, State of Michigan (Case No.  00-017768-NH,  November 21, 2000),  alleging
sexual abuse by a former  clinical  psychologist.  At trial in December  2002, a
jury returned a verdict in favor of the plaintiff in the amount of approximately
$9 million plus interest and taxable costs and  attorney's  fee for conduct that
first manifested itself prior to the Company's  acquisition of the subsidiary in
1996. The clinical  psychologist  declared bankruptcy and was not a party to the
proceeding.  Although the Court subsequently  reduced the award to $3.2 million,
plus applicable interest and taxable costs and attorney's fee, the Court has not
yet entered a judgment  and is  considering  motions made by the  defendants  to
further  reduce the award,  to set aside the  verdict or to declare a  mistrial.
Plaintiff  could also  appeal the Court's  reduction  of the jury  verdict.  The
Company  believes that  substantial  error was committed at trial and intends to
appeal  any  adverse  judgment  if and when  entered.  However,  a bond or other
marketable  collateral  would be required to be posted in an amount equal to one
and one-half times the current value of any judgment when entered.

     The  Company's  subsidiary,  North  Point-Pioneer,   Inc.,  is  covered  by
malpractice insurance in the amount of $1 million provided by Frontier Insurance
Company,  which is insolvent and is being administered by the State of New York,
with the result that  Frontier's  ability to pay any  judgment  is  unknown.  If
Frontier  formally goes into  liquidation,  the Company may have a claim against
the Michigan  Property and Casualty  Guaranty Fund,  which could avail itself of
defenses  available to Frontier and to Michigan statutory  defenses.  The entity
whose assets were acquired by the Company's  subsidiary also carried malpractice
insurance  in the amount of $1  million.  Such  carrier  has,  however,  refused
coverage and filed an action in Michigan  seeking a declaratory  judgment to the
effect that it is not liable under such policy.  The Company will take all steps
available to require this carrier to meet its obligations under such policy.

     To date, there have been no meaningful settlement discussions.  In December
2002,  Plaintiff's  counsel  demanded the payment of $1,000,000  within 10 days,
which demand was not met. At a meeting on September 3, 2003,  representatives of
Frontier's receiver  acknowledged to the Company,  Frontier's  obligations under
the policy but  acknowledged  that payment of such obligations is subject to the
unresolved  insolvency  proceedings referred to above. The Company may recover a
portion of the legal fees expended to date on this matter.  The Company believes
that any  liability  from thus  litigation  is neither  probable nor  reasonably
estimable and, as a result, no liability has been recorded at June 30, 2003.

                                                                         F-20


                                    -- 53 --
<PAGE>
NOTE H - 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 2,000,000
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 500,000 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, 2003,  options for 95,500 shares were granted under
this  plan.  A maximum of 350,000  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 and expiring ten
years from the grant date.

     Under the above plans, at June 30, 2003, 1,126,551 shares were available
for future grant or purchase.













                                    -- 54 --
<PAGE>
The Company had the following activity in its stock option plans for fiscal 2003
and 2002:
                                                                Weighted-Average
                                                  Number            Exercise
                                                   Of                Price
                                                  Shares            Per Share
                                                _____________________________

       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
       Granted                                       287,500          $0.73
       Exercised                                   (555,000)          $0.25
       Expired                                      (15,500)          $0.52
                                                  ____________
       Balance - June 30, 2003                       992,000          $0.54
                                                 =============

                                                                          F-21




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

Notes to Consolidated Financial Statements
June 30, 2003 and 2002

NOTE H - STOCK PLANS (CONTINUED)

The following tables summarize information about stock options outstanding and
exercisable at June 30, 2003:

                                   Weighted-Average
               Number              Remaining Contractual
 Exercise      Outstanding         Life of Options           Number Exercisable
  Price        At June 30,2003     Outstanding (years)       At June 30, 2003
_______________________________________________________________________________

 $ .19              5,000                  2.5                   3,750
   .22              8,000                  2.5                   6,000
   .25            103,500                 1.35                  43,500
   .30            332,500                 2.75                 249,375
   .35             40,000                 7.25                  20,000
   .45             33,000                  3.5                  16,500
   .55            148,000                    4                  74,000
   .60             20,000                 4.25                   5,000
   .69             32,500                  4.5                   8,125
   .70             25,000                  4.5                  25,000
   .74             40,000                  9.5                  10,000
   .75            175,000                  4.5                  46,250
   .81              6,000                  6.5                   6,000
  1.03              6,000                  5.5                   6,000
  2.06              6,000                  4.5                   6,000
  3.50              6,000                  3.5                   6,000
  6.63              5,500                  2.5                   5,500
_______         ___________               _____                ________
 $ .54            992,000                 3.76                 537,000
=======         ===========               =====                ========

     The Company  re-priced options to purchase 791,500 shares of class A common
stock in January  2001.  During the fiscal year ended June 30, 2003,  555,000 of
the  repriced  options were  exercised  and 6,500  expired.  As a result of this
modification,  103,500 of the options  remaining at June 30, 2003 are subject to
variable accounting from the date of the modification as they become vested. The
compensation  expense related to the vested re-priced  options was approximately
$2,505 and $264,000 for the year ended June 30, 2003 and 2002, respectively.




                                                                        F-22
                                    -- 56 --
<PAGE>
PHC, INC.  AND SUBSIDIARIES

Notes to Consolidated Financial Statements
June 30, 2003 and 2002

NOTE I - CERTAIN CAPITAL TRANSACTIONS (Con't)

     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, 2003:
<TABLE>
<S>         <C>                                       <C>              <C>                <C>
 Date of                                                  Number of         Exercise         Expiration
 Issuance               Description                        Shares            Price              Date
_________________________________________________________________________________________________________

07/10/1998     Warrants issued with extension of debt
                 $28,740 value  charged to interest
                 expense over term of loan                100,983 shares   $.94 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                                   37,489 shares   $.80 per share     July 2003
12/31/1998     Warrants issued with convertible debenture
                 $9,240 value charged to professional fees
                 over term of debentures                   43,694 shares   $.57 per share     Dec 2004

12/31/1998     Warrants issued for convertible debentures
                 finders fee $25,873 value charged to
                 professional fees over term of
                 debentures                               104,879 shares   $.57 per share     Dec 2003




                                    -- 57 --
<PAGE>
PHC, INC.  AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2003 and 2002

NOTE I - CERTAIN CAPITAL TRANSACTIONS (Con't)

  Date of                                                  Number of         Exercise         Expiration
 Issuance               Description                        Shares            Price              Date
__________________________________________________________________________________________________________
12/31/1998     Warrants issued for convertible
                 debentures finders fee $3,696 value
                 charged to professional fees over term
                 of debentures                             19,358 shares  $1.03 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                                28,032 shares  $ .80 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                                17,478 shares  $ .57 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                                17,478 shares  $ .57 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                                17,396 shares  $ .58 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                                17,420 shares  $ .57 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                                17,420 shares $ .57 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                                17,420 shares  $ .57 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                                17,362 shares  $ .58 per share     June 2004


                                    -- 58 --
<PAGE>
NOTE I- CERTAIN CAPITAL TRANSACTIONS  (CONTINUED)

  Date of                                                  Number of         Exercise         Expiration
 Issuance               Description                        Shares            Price              Date
__________________________________________________________________________________________________________

01/05/1999     Warrants issued for investment banker
                 services $18,100 value charged to
                 professional fees over service
                 period                                    69,747 shares  $ .78 per share     Jan 2004
04/05/1999     Warrants issued for investment banker
                 services $18,100 value charged to
                 professional fees over service
                 period                                    69,188 shares  $ .79 per share     Apr 2004
02/23/1999     Consultant warrant for investor relations
                 $1,307 value charged to professional
                 fees                                       5,388 shares  $ .67 per share     Feb 2004
04/21/1999     Consultant warrant for web site development
                 services $1,547 value charged to
                 professional fees                          8,710 shares  $ .57 per share     Apr 2004
05/18/1999     Consultant warrant for web site advisory
                 services $1,848 value charged to
                 professional fees                          8,684 shares  $ .58 per share     Apr 2004
05/18/1999     Warrant issued for management consultant
                 services $370 value charged to
                 professional fees                          1,737 shares  $ .58 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                                17,281 shares  $ .58 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                                17,362 shares  $ .58 per share     Aug 2004
07/05/1999     Warrants for investment banker services
                 $12,944 value charged to professional
                 fees over service period                  68,744 shares  $ .79 per share     July 2004
10/05/1999     Warrants for investment banker services
                 $6,042 value charged to professional fees
                 over service period                       68,744 shares  $ .79 per share     Oct 2004
03/31/2000     Warrants issued for services $10,000
                 value charged to website development      16,483 shares  $ .91 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


                                    -- 59 --
<PAGE>
NOTE I- CERTAIN CAPITAL TRANSACTIONS  (CONTINUED)

  Date of                                                  Number of         Exercise         Expiration
 Issuance               Description                        Shares            Price              Date
_________________________________________________________________________________________________________

12/20/2000     Warrants issued for investment banker
                 services $1,938 value charged to
                 professional fees                         28,573 shares  $ .15 per share     Dec 2005
04/15/2001     Warrants issued for investor relations
                 consulting services $1,136 value charged
                 to professional fees                      10,000 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
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  $ .50 per share     Feb 2007
03/01/2002     Warrants issued for investor relations
                 consulting services $1,476 charged to
                 professional fees                         34,874 shares  $ .36 per share     Mar 2007
03/01/2002     Warrants issued for investor relations
                 consulting services $398 charged to
                 professional fees                         23,709 shares  $ .63 per share     Mar 2007
03/01/2002     Warrants issued for investor relations
                 consulting services $310 charged to
                 professional fees                          3,000 shares  $ .50 per share     Mar 2007
04/01/2002     Warrants issued for investor relations
                 consulting services $310 value charged
                 to professional fees                       3,000 shares  $ .50 per share     Apr 2007
05/01/2002     Warrants issued for investor relations
                  consulting services $790 charged to
                  professional fees                         3,000 shares  $ .50 per share     May 2007
05/07/2002     Warrants issued as a finders fee in
                  connection with preferred stock
                  conversion.  Equity transaction.        151,783 shares  $ .45 per share     May 2005
05/07/2002     Warrants issued as a finders fee in
                  connection with preferred stock
                  conversion.  Equity transaction.         50,594 shares  $ .50 per share     May 2005
04/01/2003     Warrants issued for consulting services
                  $3,185 charged to professional fees.     10,000 shares  $1.00 per share     April 2008
</TABLE>
                                                                          F-23
                             -- 60 --
<PAGE>
     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 were $3,185 and $5,461
in fiscal 2003 and 2002, 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.  During the  fiscal  year ended June 30,  2002,  the  remaining  series C
preferred stock were converted into 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. During the fiscal year ended June 30, 2003, no
preferred stock was outstanding and no dividend obligation existed.

     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  effects of  transactions  through June 30, 2003 are
reflected in the table above.  The value of the additional  shares issuable as a
result of these dilution provisions was not material.

NOTE J - 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:







                                                                          F-24



                                    -- 61 --
<PAGE>
PHC, INC.  AND SUBSIDIARIES

Notes to Consolidated Financial Statements
June 30, 2003 and 2002

NOTE J - BUSINESS SEGMENT INFORMATION (CONTINUED)
<TABLE>
<S>                           <C>         <C>                   <C>         <C>                   <C>

                                                    BEHAVIORAL HEALTH
                                TREATMENT   ADMINISTRATIVE         ONLINE
                                SERVICES       SERVICES           SERVICES      ELIMINATIONS        TOTAL

      For the Year ended
         June 30, 2003
  Revenues - external
    customers                    $21,392,332     $ 2,440,991           $    0   $         0    $ 23,833,323
  Revenues - intersegment            286,200       2,662,224          300,000    (3,248,424)              0
  Segment net income (loss)        3,312,977      (2,118,408)        (216,827)            0         977,742
  Total assets                     7,524,816       1,797,671           89,236             0       9,411,723
  Capital expenditures               214,013           8,783            3,304             0         226,100
   Depreciation  &
    amortization                     149,017          36,526           13,152             0         198,695
  Goodwill                           969,099               0                0             0         969,099
  Interest expense                   402,260         140,009                0             0         542,269
  Income tax expense                  54,234               0                0             0          54,234

      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         210,836
  Goodwill                           969,099                0                0            0         969,099
  Interest expense                   585,884          205,016               55            0         790,955
  Income tax expense                  15,446                0                0            0          15,446

</TABLE>

                                    -- 62 --
<PAGE>
NOTE K - ACCRUED EXPENSES AND OTHER LIABILITIES

   Accrued expenses and other liabilities consist of the following:

                                              June 30, 2003      June 30, 2002

        Accrued professional fees                  683,277            654,883
        Accrued operating expenses                 263,294            232,315
        Income tax payable                          11,956             19,052

                                Total            $ 958,527          $ 906,250



                                                                          F-25










                                    -- 63 --
<PAGE>
ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE

     The  preparation of this annual report on form 10-KSB did not result in any
disagreement  with  our  accountants  on  accounting  and  financial  disclosure
requirements.


ITEM 8A.  CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

     We maintain  disclosure  controls  and  procedures  designed to ensure that
information  required to be  disclosed  in our Exchange Act reports is recorded,
processed,  summarized and reported within the time periods specified within the
SEC's Rules and Forms, and that such information is accumulated and communicated
to our management to allow timely decisions  regarding required  disclosure.  In
designing and evaluating the disclosure controls and procedures,  our management
recognized  that any controls and  procedures,  no matter how well  designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives,  and  management was  necessarily  required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.

     As of the end of the period  covered  by this  report,  we  carried  out an
evaluation,  under  the  supervision  and with the  participation  of our  chief
executive  officer and chief  financial  officer,  of the  effectiveness  of the
design and  operation  of our  disclosure  controls and  procedures  to meet the
criteria referred to above. Based on the foregoing,  our chief executive officer
and  chief  financial  officer  concluded  that  our  disclosure   controls  and
procedures were effective.

Change in Internal Controls

     There were no  significant  changes in our  internal  controls  or in other
factors that could significantly affect these controls subsequent to the date of
their most recent evaluations.














                                    -- 64 --
<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,  2003 are as
follows:

        Name               Age             Position
--------------------------------------------------------------------------------

Bruce A. Shear             48   Director, President and Chief Executive Officer
Robert H. Boswell          55   Senior Vice President
Michael R. Cornelison      53   Executive Vice President
Paula C. Wurts             54   Controller, Treasurer and Assistant Clerk
Gerald M. Perlow, M.D.     65   Director and Clerk
Donald E. Robar (1)(2)     66   Director
Howard W. Phillips         73   Director
William F. Grieco (1)(2)   49   Director
David E. Dangerfield (1)   62   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 fifteen 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.

     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.

                                    -- 65 --
<PAGE>
     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.

     WILLIAM F. GRIECO has served as a Director of the  Company  since  February
18,  1997.  Mr.  Grieco is engaged in the private  practice  of law,  serving as
corporate  counsel for science and technology  companies on an outsourced basis.
From  November 2001 to November  2002, he was 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.

     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.

                                    -- 66 --
<PAGE>
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.








                                    -- 67 --
<PAGE>
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 2003
fiscal  year,  which  exceeded  $100,000.  The  following  table  sets forth the
compensation  paid or accrued by the  Company  for  services  rendered  to these
executives in fiscal year 2003, 2002 and 2001:
<TABLE>
<S>                   <C>       <C>         <C>          <C>             <C>             <C>
                           Summary Compensation Table
                                                                            Long Term
                                                                            Compensation
                              Annual Compensation                           Awards
 (a)                        (b)      (c)        (d)         (e)             (g)             (i)
                                                                            Securities
Name and                                                     Other Annual   Underlying      All Other
Principal                  Year      Salary      Bonus       Compensation   Options/SARs    Compensation
Position                             ($)         ($)         ($)            (#)             ($)
__________________________________________________________________________________________________________

Bruce A. Shear             2003     $306,771     $25,000    $15,730 (1)      40,000        $11,200
 President and Chief       2002     $310,000     $37,500    $71,390 (2)      20,000        $ 3,400
 Executive Officer         2001     $310,000          --    $19,571 (3)      67,000        $ 6,285

Robert H. Boswell          2003     $152,937     $40,147    $12,180 (4)      25,000         $ 7,000
 Senior Vice President     2002     $137,000     $ 7,000    $67,301 (5)      25,000         $ 3,725
                           2001     $126,000     $16,309    $15,521 (6)      41,000         $ 3,864

Michael R. Cornelison      2003     $117,448     $30,000    $ 9,392 (7)      25,000         $ 7,000
 Executive Vice President  2002     $114,333          --    $60,356 (8)      10,000         $ 1,700
                           2001     $ 96,000     $15,910    $14,160 (9)      41,000         $ 3,864

Paula C. Wurts             2003     $116,981     $22,000    $11,270 (10)     25,000         $ 7,000
 Controller, Treasurer     2002     $111,800     $ 2,000    $36,825 (11)     25,000         $ 3,725
 And Assistant Clerk       2001     $100,800     $ 6,414    $13,867 (12)     41,000         $ 3,864
</TABLE>

                                    -- 68 --
<PAGE>
(1)  This amount represents  $4,057  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,  $1,387 in premiums  paid by the Company with respect to  disability
     insurance for the benefit of Mr. Shear, $2,009 in club membership dues paid
     by the Company for the benefit of Mr.  Shear and $3,509  personal  use of a
     Company car held by Mr. Shear.

(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 a $6,000 automobile allowance, $3,212 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,  $617 in benefit  derived from the purchase of shares through
     the employee stock purchase plan,  $401 in club membership dues paid by the
     Company for the benefit of Mr.  Boswell and $1,950  based on the  intrinsic
     value of the repricing of options held by Mr. Boswell

(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 $7,800 automobile allowance, $633 in membership
     dues paid by the Company for the benefit of Mr. Cornelison, $309 in benefit
     derived from the purchase of shares through the employee stock purchase
     plan and $650 based on the intrinsic value of the repricing of options held
     by Mr. Cornelison.

(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.

                                    -- 69 --
<PAGE>
(10) This amount represents a $4,800 automobile allowance, $4,211 contributed by
     the Company to the Company's  Executive  Employee Benefit Plan on behalf of
     Ms. Wurts,  $309 in benefit derived from the purchase of shares through the
     employee stock purchase plan and $1,950 based on the intrinsic value of the
     repricing of options held by Ms. Wurts.

(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.


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").

COMPENSATION COMMITTEE

     During fiscal 2003 the Compensation Committee consisted of Mr. Donald Robar
and Dr. Gerald Perlow. The Compensation  Committee met twice during fiscal 2003.
Mr. Shear does not  participate in discussions  concerning,  or vote to approve,
his salary.  At the June meeting of the Board of directors,  the Board confirmed
Mr. Robar as a Compensation Committee member and appointed Mr. William Grieco as
the second member of the Compensation  Committee.  This  Compensation  Committee
member  change  is in  response  to the  requirement  of the SEC to  provide  an
independent compensation committee.

AUDIT COMMITTEE

     During fiscal 2003 the Audit Committee  consisted of Mr. Donald Robar,  Dr.
Gerald  Perlow  and Mr.  William  Grieco.  At the June  meeting  of the Board of
directors,  the Board  appointed  Dr. David  Dangerfield  as the chairman of the
Audit  Committee and confirmed  the continued  appointment  of Mr. Robar and Mr.
Grieco.  This Audit Committee member change is in response to the requirement of
the SEC to provide an independent  Audit  Committee,  which includes a financial
expert.  The Audit  Committee met four times during  fiscal 2003.  All committee
members  attended  three of the four meetings.  One committee  member was absent
from one of the 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, December 19, 2001 and
December  19,  2002.  The Stock Plan  provides  for the issuance of a maximum of
2,000,000  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


                                    -- 70 --
<PAGE>
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, 2003, the Company  issued  additional
options to purchase  287,500 shares of Class A Common Stock under the 1993 Stock
Plan at a price per share  ranging  from $.60 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 555,000 options were exercised,  364,500 in a cashless  exercise
and 190,500 at $.25 each during the fiscal year ended June 30,  2003. A total of
1,250 options were  exercised at $.25 each during the fiscal year ended June 30,
2002.

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
and December  19, 2002 to allow for a total of 500,000  shares of class A common
stock to be issued under the plan.

     As of June 30, 2003 a total of 131,199  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  2003.  Six
employees are participating in the current offering period under the plan, which
began on February 1, 2003 and will end on January 31, 2004.

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, December 19, 2001 and December 19, 2002. Non-qualified options to purchase
a total of 350,000  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


                                    -- 71 --
<PAGE>
     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. On January 8, 2003
the Company  issued  options to purchase  40,000  shares of class A common stock
under the Director Plan at an exercise  price of $.74 As of June 30, 2003,  none
of the options issued had been exercised.







                                    -- 72 --
<PAGE>
     The following table provides information about options granted to the named
executive  officers during fiscal 2003 under the Company's Stock Plan,  Employee
Stock Purchase Plan and Non-Employee Director Stock Plan.
<TABLE>
<S>                     <C>               <C>           <C>          <C>
                           Individual Grants
(a) (b) (c) (d) (e)
                              Number of % of Total
                             Securities Options/SARs
                        Underlying Granted to Exercise or
                  Options/SARs Employees Base Price Expiration
Name                       Granted (#)      in Fiscal      ($/Share)      Date
                                            Year
___________________ ________________________________________________________________
Bruce A. Shear              40,000           13.9%          $ .75       09/30/2007
Robert H. Boswell           25,000            8.7%          $ .75       09/30/2007
Michael R. Cornelison       25,000            8.7%          $ .75       09/30/2007
Paula C. Wurts              25,000            8.7%          $ .75       09/30/2007

All Directors and
Officers as a group (9      205,000          71.3%      $.74-$.75    09/30/2007-01/08/2013
Persons)
</TABLE>
     The following table provides information about options exercised by the
named executive officers during fiscal 2003 and the number and value of options
held at the end of fiscal 2003.
<TABLE>
<S>                    <C>             <C>            <C>             <C>

(a) (b) (c) (d) (e)
                                                        Number of
                                                        Securities         Value of
                                                        Underlying         Unexercised
                                                        Unexercised        In-the-Money
                           Shares                       Options/SARs       Options/SARs
                           Acquired on    Value         at FY-End (#)      at FY-End ($)
Name                       Exercise (#)   Realized ($)  Exercisable/       Exercisable/
                                                        Unexercisable      Unexercisable
_____________________________________________________________________________________________
Bruce A. Shear               125,000      $ 63,750        70,250/81,750     $26,018/$23,673
Robert H. Boswell             73,005        45,263        49,500/49,833     $17,890/$12,713
Michael R. Cornelison         65,645        40,700        39,500/36,500     $14,565/$ 7,655
Paula C. Wurts                35,459        21,985        49,500/53,167     $17,890/$14,447

  All Directors and Officers
   as a group (9 persons)    375,536       $214,672      407,375/375,125   $135,456/$89,519
</TABLE>

                                    -- 73 --
<PAGE>
     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 $2,505 and  $264,000 was charged to salaries in the
fiscal years ended June 30, 2003 and 2002, respectively.



                                    -- 73 --
<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, 2003 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 sp4uses under applicable law. In preparing
the following table, the Company has relied on the information  furnished by the
persons  listed  below:  Percent Name and Address  Amount and Nature of Title of
Class    of    Beneficial    Owner    of    Beneficial    Owner    (13)    Class
------------------------------------------------------------------------------
Class A Common  Stock  Bruce A. Shear  462,245(1)  3.4% c/o PHC,  Inc.  200 Lake
Street Peabody, MA 01960

                       Robert H. Boswell           168,179(2)            1.3%
                       c/o PHC, Inc.
                       200 Lake Street
                       Peabody, MA   01960

                       Michael R.Cornelison        127,732(3)            *
                       c/o PHC, Inc.
                       200 Lake Street
                       Peabody, Ma  01960

                       Paula C. Wurts              118,947(4)            *
                       c/o PHC, Inc.
                       200 Lake Street
                       Peabody, MA   01960

                       Howard W. Phillips          116,500(5)            *
                       P. O. Box 2047
                       East Hampton, NY   11937

                       Gerald M. Perlow             92,375(6)            *
                       c/o PHC, Inc.
                       200 Lake Street
                       Peabody, MA   01960

                       Donald E. Robar              92,352(7)            *
                       c/o PHC, Inc.
                       200 Lake Street
                       Peabody, MA   01960

                       William F. Grieco            86,375(8)            *
                       115 Marlborough Street
                       Boston, MA   02116

                       David E. Dangerfield         10,000(9)            *
                       5965 South 900 East
                       Salt Lake City, UT 84121


                       All  Directors and        1,274,705(10)           9.2%
                         Officers as a Group
                         (9 persons)

                                    -- 75 --
<PAGE>
                                                                         Percent
                       Name and Address        Amount and Nature          of
Title of Class         of Beneficial Owner     of Beneficial Owner (13)  Class
_______________________________________________________________________________
Class A Common Stock   The Shaar Fund Ltd.       1,109,327               8.3%
  (continued)          c/o Citco Funds Services,
                       Curacao
                       Kaya Flamboyan 9
                       Curacao, Netherland Antilles

                       Peter S. Lynch              789,500               5.9%
                       82 Devonshire Street, S8A
                       Boston, MA  02109

Class B Common         Bruce A. Shear              671,259(12)          92.3%
  Stock (11)           c/o PHC, Inc.
                       200 Lake Street
                       Peabody, MA   01960

                       All Directors and Officers  671,259              92.3%
                         as a Group (9 persons)

  *    Less than 1%

1.   Includes  80,250  shares  of  Class A Common  Stock  issuable  pursuant  to
     currently exercisable stock options, having an exercise price range of $.30
     to $.75 per share.
2.   Includes  55,750  shares  of  Class A Common  Stock  issuable  pursuant  to
     currently  exercisable  stock options at an exercise price range of $.25 to
     $.75 per share.
3.   Includes  45,750  shares  of  Class A Common  Stock  issuable  pursuant  to
     currently exercisable stock options, having an exercise price range of $.25
     to $.75 per share.
4.   Includes  55,750  shares  of  Class A Common  Stock  issuable  pursuant  to
     currently exercisable stock options, having an exercise price range of $.25
     to $.75 per share.
5.   Includes 54,250 shares  issuable  pursuant to currently  exercisable  stock
     options having an exercise price range of $.22 to $.75 per share.
6.   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.
7.   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.
8.   Includes  47,125  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.
9.   Includes  10,000  shares  of  Class A Common  Stock  issuable  pursuant  to
     currently  exercisable  stock options,  having an exercise price range of $
     .55 to $ .75 per share.
10.  Includes an  aggregate  of 448,625  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,  6,000 have an  exercise  price of $.81 per share,  82,500
     have an exercise price of $.75 per share,  10,000 have an exercise price of
     $.74 per share, 74,000 have an exercise price of $.55 per share, 7,500 have
     an exercise price of $.45 per share,  20,000 have an exercise price of $.35
     per share, 199,875 have an exercise price of $.30 per share, 19,250 have an
     exercise  price of $.25 per share and 6,000 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.

                                    -- 76 --
<PAGE>
12.  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.
13.  "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, 2003:

                Bruce A. Shear ...................................22.39%
                All Directors and Officers as a Group
                 (9 persons)......................................26.58%

ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS.

Related Party Indebtedness

     For approximately  the last fourteen 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, 2003,  the Company
owed an aggregate of $100,000 to related parties.

     During the period  ended June 30,  2003,  the  Company  paid Mr.  Shear and
affiliates  approximately  $119,647  in  principal  and accrued  interest  under
various unsecured notes to meet short term working capital  requirements.  As of
June 30, 2003, the Company owed 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.




                                    -- 77 --
<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).
    3.1.1 Articles of Amendment filed with the  Commonwealth  of  Massachusetts.
          (Filed with the 10-QSB dated May 1997).
    3.1.2 Restated  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  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).
     4.2  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).
     4.3  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).
     4.4  12%  Convertible  Debenture by and between PHC,  Inc., and Dean & Co.,
          datedDecember  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).
     4.5  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).
     4.6  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).
     4.7  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).
     4.8  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).
     4.9  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).


                                    -- 78 --
<PAGE>
   Exhibit No.                                                 Description

     4.10 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).
     4.11 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).
     4.12 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).
     4.13 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).
     4.14 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).
     4.15 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).
     4.16 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).
     4.17 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).
     4.18 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).
     4.19 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).
     4.20 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).
     4.21 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  January 8,
          2003. (Filed as an exhibit to the Company's  Registration Statement on
          Form S-8 dated January 8, 2003. Commission file number 333-102402).


                                    -- 79 --
<PAGE>
  Exhibit No.                                                 Description

     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).
     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)


                                    -- 80 --
<PAGE>
  Exhibit No.                                                 Description

    10.12 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).
    10.13 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).
    10.14 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).
    10.15 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).
    10.16 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).
    10.17 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).
    10.18 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).
    10.19 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  report  on Form  10-QSB,  filed  with  the  Securities  and
          Exchange  Commission  on February  12,  2002.  Commission  file number
          0-22916).
    10.20 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
          report  on  Form  10-QSB,  filed  with  the  Securities  and  Exchange
          Commission on February 12, 2002. Commission file number 0-22916).
    10.21 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  report  on Form  10-QSB,  filed  with  the  Securities  and
          Exchange  Commission  on February  12,  2002.  Commission  file number
          0-22916).



                                    -- 81 --
<PAGE>
 Exhibit No.                                                 Description

    10.22 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  report  on Form  10-QSB,  filed  with  the  Securities  and
          Exchange  Commission  on February  12,  2002.  Commission  file number
          0-22916).
    10.23 The  Company's  1993  Stock  Purchase  and  Option  Plan,  as  amended
          December 2002. (Filed as exhibit 10.34 to the Company's report on Form
          S-8 dated January 8, 2003. Commission file number 333-102402).
    10.24 The  Company's  1995  Non-Employee  Director  Stock  Option  Plan,  as
          amended December 2002. (Filed as exhibit 10.35 to the Company's report
          on Form S-8 dated January 8, 2003. Commission file number 333-102402).
    10.25 The Company's 1995 Employee  Stock Purchase Plan, as amended  December
          2002.  (Filed as  exhibit  10.36 to the  Company's  report on Form S-8
          dated January 8, 2003. Commission file number 333-102402).
   *10.26 First Amended Consolidating  Amended and Restated Secured Term Note by
          and Between PHC Of Michigan,  Inc. and Heller Healthcare Finance, Inc.
    *21.1 List of Subsidiaries.
    *23.1 Consent of BDO Seidman, LLP (independent auditors).
    *31.1Certification  of Chief Executive  Officer  Pursuant to Section 302 of
          the Sarbanes-Oxley Act of 2002.
   *31.2  Certification of the Chief Financial  Officer Pursuant to Section  302
          of the Sarbanes-Oxley Act of 2002.
   *32.1  Certification  of the Chief  Executive  Officer  and  Chief  Financial
          Officer Pursuant to 18 U.S.C. 1350, as adopted Pursuant to Section 906
          of the Sarbanes-Oxley Act of 2002.

* Filed herewith


(b) REPORTS ON FORM 8-K.

     The Company  filed one report on form 8-K during the quarter ended June 30,
2003. This report provided the same earnings  information to the public as shown
in  the  Company's  quarterly  press  release  as  required  by  Item  12 of the
instructions for form 8-K.








                                    -- 82 --
<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, 2003                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 19, 2003
________________________        Executive Officer and
    Bruce A. Shear              Director  (principal
                                executive officer)

/s/ PAULA C. WURTS              Controller and Treasurer     September 19, 2003
________________________        (principal  financial
    Paula C. Wurts               and accounting officer)

/s/ GERALD M. PERLOW            Director                     September 19, 2003
________________________
    Gerald M. Perlow

/s/ DONALD E. ROBAR             Director                     September 19, 2003
________________________
    Donald E. Robar

/s/ HOWARD PHILLIPS             Director                     September 19, 2003
________________________
    Howard Phillips

 /s/ WILLIAM F. GRIECO          Director                     September 19, 2003
________________________
     William F. Grieco

/S/ DAVID E. DANGERFIELD        Director                     September 19, 2003
________________________
    David E. Dangerfield





                                    -- 83 --