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, 2000
[ ] 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
Incorporation or organization)                              Identification No.)


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

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

              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, 2000 were $20,378,760.

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  September  15, 2000,  was  $4,421,446.  (See
definition of affiliate in Rule 12b-2 of Exchange Act).

At September 15, 2000, 7,494,602 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


<PAGE>
PART I

ITEM 1.           DESCRIPTION OF BUSINESS

INTRODUCTION

     Our company is a national health care company,  which provides  psychiatric
services primarily to individuals who have alcohol and drug dependency,  related
disorders and to  individuals  in the gaming and trucking  industry.  We operate
substance  abuse  treatment  facilities  in Utah and Virginia,  four  outpatient
psychiatric  facilities in Michigan,  two outpatient  psychiatric  facilities in
Nevada,  one  outpatient   psychiatric  facility  in  Kansas  and  an  inpatient
psychiatric facility in Michigan.  We also provide management and administrative
services to psychotherapy and psychological  practices in New York and operate a
website,  Behavioralhealthonline.com,  which  provides  education,  training and
materials to behavioral health professionals.

     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,  oil and gas exploration,  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.

                                     - 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.

                                     - 3 -
<PAGE>

     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,  minority  groups  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
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 prior to termination of employment.

     Although  the company does not 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 34-bed,  freestanding alcohol and drug
treatment  hospital,  which the company has been operating since 1984. It is the
oldest  facility  dedicated  to  substance  abuse  in  Utah.  Highland  Ridge is
accredited by the Joint Commission on Accreditation of Healthcare  Organizations
("JCAHO") and is licensed by the Utah  Department of Health.  Highland  Ridge is
recognized nationally for its excellence in treating substance abuse disorders.


                                     - 4 -
<PAGE>

     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.

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

     In the  spring of 1994,  the  company  began to  operate  a crisis  hotline
service under contract with a major transportation client. The hotline,  Pioneer
Development  Support  Services,  or PDS2  ("PDS2"),  shown as  Contract  support
services on the accompanying income statement, is a national,  24-hour telephone
service,  which  supplements  the  services  provided by the  client's  Employee
Assistance  Programs.   The  services  provided  include   information,   crisis
intervention,  critical  incidents  coordination,  employee  counselor  support,
client monitoring,  case management and health promotion. The hotline is staffed
by counselors who refer callers to the  appropriate  professional  resources for
assistance  with  personal  problems.   Four  major   transportation   companies
subscribed to these  services as of June 30, 2000.  This operation is physically
located in Highland Ridge  Hospital,  but a staff dedicated to PDS2 provides the
services. PDS2 is currently operated by the parent entity, PHC, Inc.

     MOUNT  REGIS - Mount  Regis  is a  25-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, a freestanding  outpatient
clinic. 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.

                                     - 5 -
<PAGE>

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

General Psychiatric Facilities

Introduction

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

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

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

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

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

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

                                     - 6 -
<PAGE>

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

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

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

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

     BSC-NY,  INC - BSC  provides  management  and  administrative  services  to
psychotherapy  and  psychological   practices  in  the  greater  New  York  City
metropolitan area.

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

Internet Operations

     BEHAVIORAL  HEALTH ON LINE, INC. - BHO designs,  develops and maintains the
company's  web  site,  Behavioralhealthonline.com.   The  web  site  when  fully
operational will provide  behavioral health  professionals  with the educational
tools required to keep them abreast of behavioral health  breakthroughs and keep
individuals informed of current issues in behavioral health of interest to them.
The original  site,  Behavioralhealthonline.com,  was launched in May 1999.  The
company  launched  its new updated  site  Wellplace.com  in  September  2000 and
anticipates sales from its website to develop during the current fiscal year.

                                     - 7 -
<PAGE>
Operating Statistics

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

                                    Year Ended June 30,

                                   2000            1999
        Inpatient
        Net patient service
        revenues                 $11,768,434    $10,491,517
        Net revenues per
        patient day (1)                 $403           $400
        Average occupancy
        rate (2)                       65.1%          58.4%
        Total number of
        licensed beds
        at end of period                 123            123
        Source of Revenues:
           Private (3)                 81.9%          81.5%
           Government (4)              18.1%          18.5%
        Partial
        Hospitalization
        and
        Outpatient
        Net Revenues:*
           Individual             $5,027,238     $ 5,356,008
           Contract               $1,880,168     $ 1,682,453
        Sources of revenues:
           Private                     97.6%           98.9%
           Government                   2.4%            1.1%
        Other Psychiatric
        Services:
                       PDS2 (5)   $  653,930     $   942,637
        Practice Management (6)   $1,048,990     $   666,881
                                  __________      ___________

* Net revenue for the Year ended June 30, 1999 includes revenue of $537,688 from
Pioneer Counseling of Virginia, which was closed in January 1999.

(1)  Net revenues per patient day equals net patient service revenues divided by
     total patient days.
(2)  Average  occupancy  rates were  obtained  by dividing  the total  number of
     patient days in each period by the number of beds available in such period.
(3)  Private pay percentage is the percentage of total patient  revenue  derived
     from all payors other than Medicare and Medicaid.
(4)  Government  pay  percentage  is the  percentage  of total  patient  revenue
     derived from the Medicare and Medicaid programs.
(5)  PDS2, Pioneer Development and Support Services,  provides clinical support,
     referrals  management  and  professional  services  for  a  number  of  the
     company's national contracts.
(6)  Practice Management revenue is produced through BSC-NY and PHC, Inc.

                                     - 8 -
<PAGE>
Business Strategy

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

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

 Marketing and Customers

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

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

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

     The company has been  successful in securing a number of national  accounts
with a variety of corporations  including:  Boyd Gaming, Canadian Rail, 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  launched its
web  site,  Wellplace.com  formerly  Behavioralhealthonline.com,  in  May  1999.
Although  many of the articles  published on the web site are of interest to the
general  public,  the company's  primary target market is the behavioral  health
professional.  When fully operational the site will not only provide information
and products to the behavioral health professional, but will also provide a time
and cost effective alternative for acquiring the professional  educational units
required each year. Through its strategic alliance with  Therapyrightnow.com the
company intends to provide online  self-assessment tools for individuals seeking


                                        - 9 -
<PAGE>

the anonymity of the web. 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.

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,
employees and treatment facilities.

     The  company's  Internet  company  competes  with other  medical  web sites
internationally.  Initial results of market research the company has done in the
area of behavioral health on the internet has indicated an overall receptiveness
and  willingness to pay for the services the company  intends to provide and the
methods  the  company  intends  employ  to  provide  its  internet  services  to
behavioral health professionals and the general public.

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. 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.

                                     - 10 -
<PAGE>

Quality Assurance and Utilization Review

     The company has established comprehensive quality assurance programs at all
of its  facilities.  These  programs are  designed to ensure that each  facility
maintains  standards that meet or exceed  requirements  imposed upon the company
with the objective of providing  high-quality  specialized treatment services to
its patients.  To this end, the Joint  Commission on Accreditation of Healthcare
Organizations  ("JCAHO") survey and accredit the company's inpatient  facilities
and the company's  outpatient  facilities  comply with the standards of National
Commission  Quality  Assurance  ("NCQA")  although the  facilities  are not NCQA
certified.  The  company's  professional  staff,  including  physicians,  social
workers, psychologists, nurses, dietitians, therapists and counselors, must meet
the minimal requirements of licensure related to their specific  discipline,  in
addition to each facility's own internal quality assurance criteria. The company
participates in the federally  mandated National  Practitioners Data Bank, which
monitors professional accreditation nationally.

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

Government Regulation

     The company's  business and the  development and operation of the company's
facilities  are  subject  to  extensive  federal,  state  and  local  government
regulation.  In recent years, an increasing number of legislative proposals have
been  introduced  at both the  national and state levels that would effect 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.  In  addition,  many  states,   including  the  Commonwealth  of
Massachusetts  and the State of Michigan,  are  considering  reductions in state
Medicaid budgets.

Health Planning Requirements

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

                                     - 11 -
<PAGE>

Licensure and Certification

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

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

Medicare Reimbursement

     Currently  the  only  facility  of  the  company  that  receives   Medicare
reimbursement  is Harbor Oaks. For the fiscal year ended June 30, 2000 13.16% of
revenues for Harbor Oaks were derived from Medicare programs.

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

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

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

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.

                                     - 12 -
<PAGE>
     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.

Employees

     As of  September  15, 2000,  the company had 315  employees of which 6 were
dedicated to marketing,  88 (25 part time) to finance and administration and 221
(110 part time) to patient  care.  All of the company's 315 employees are leased
from  Inovis,  formerly  International  Personnel  Resources,  LTD.  ("IPR"),  a
national  employee-leasing  firm. The company has elected to lease its employees
to provide more favorable  employee  health benefits at lower cost than would be
available  to  the  company  as a  single  employer  and  to  eliminate  certain
administrative  tasks which  otherwise would be imposed on the management of the
company. The agreement provides that Inovis will administer payroll, provide for
compliance with workers'  compensation laws,  including  procurement of workers'
compensation  insurance  and  administering  claims,  and  procure  and  provide
designated  employee  benefits.  The  company  retains  the right to reject  the
services of any leased employee and Inovis has the right to increase its fees at
any time upon thirty days' written  notice or  immediately  upon any increase in
payroll taxes, workers' compensation  insurance premiums or the cost of employee
benefits provided to the leased employees.

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

Insurance

     Each of the company's facilities maintains separate professional  liability
insurance policies. Mount Regis, Harbor Oaks, Harmony Healthcare, Total Concept,
NPP and BSC  have  coverage  of  $1,000,000  per  claim  and  $3,000,000  in the
aggregate. In addition to this coverage Harbor Oaks maintains 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.

                                     - 13 -
<PAGE>

ITEM 2.           DESCRIPTION OF PROPERTY

Executive Offices

     The company's executive offices are located in Peabody, Massachusetts.  The
company's new lease agreement in Peabody covers  approximately 4,800 square feet
for a 60-month  term,  which  expires  September  17, 2004.  The current  annual
payment  under the lease is $76,800 and  increases to $88,896 in the final year.
The company  believes  that this  facility will be adequate to satisfy its needs
for the foreseeable future.

Behavioral Health Online, Inc.

   The  Internet  company's  offices  are  located  adjacent  to  the  company's
executive  offices  in  Peabody,  Massachusetts.   The  lease  agreement  covers
approximately 2,400 square feet for a 54-month term, which expires September 17,
2004.  The current  annual  payment  under the lease is $38,400 and increases to
$44,448 in the final  year.  The company  believes  that this  facility  will be
adequate to satisfy its needs for the foreseeable future.

Highland Ridge Hospital

     The Highland Ridge premises consist of approximately  24,000 square feet of
space  occupying  the majority of first floor of a two-story  hospital  owned by
Valley Mental Health. The lease is for a five-year agreement, which provides for
monthly rental payments of approximately  $15,750,  which included  housekeeping
and maintenance  provided by the landlord for the first six months, and includes
changes in rental payments each year based on increases or decreases in the CPI.
In July 1999 the facility began paying approximately $6,500 additional per month
each month for housekeeping and maintenance. The lease in its current form would
expire December 31, 2004, and includes an option to renew for an additional five
years. The company believes that these premises are adequate for its current and
anticipated needs.

Mount Regis Center

    The company owns the Mount Regis  facility,  which consists of a three-story
wooden  building  located on an  approximately  two-acre  site in a  residential
neighborhood. The building consists of over 14,000 square feet and is subject to
a mortgage in the approximate amount of $445,000.  The facility is used for both
inpatient and outpatient services.  The company believes that these premises are
adequate for its current and anticipated needs.

Psychiatric Facilities

      The  company  owns  or  leases   premises  for  each  of  its  psychiatric
facilities.  Harmony,  Total Concept, NPP and BSC each 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
$2,752,000  mortgage on this property.  The company believes that these premises
are adequate for its current and anticipated needs.

                                     - 14 -
<PAGE>
ITEM 3.     LEGAL PROCEEDINGS.

     As a consequence of Franvale's  bankruptcy and subsequent  receivership,  a
number of claims  have been  asserted  against  the  Company or may be  asserted
against the Company in the future. To date, such claims are as follows:

     The  Commonwealth of  Massachusetts  named Franvale,  the Company and Bruce
Shear as party  defendants in the  Commonwealth  receivership  action,  C.A. No.
98-2783 in the Superior Court,  Suffolk  County.  On June 28, 1999, the Superior
Court entered a judgment of dismissal, dismissing the case without prejudice and
without  costs,  as of September  16,  1998.  The Company  understands  that the
facility has been closed,  all patients  transferred  and that the  Commonwealth
receiver has resigned.

     The Commonwealth of Massachusetts  may institute a claim seeking to recover
any expenses  incurred but not recovered by the Commonwealth as a consequence of
Franvale's receivership. The Commonwealth has a receivership statute that allows
the  Commonwealth  to  seek  indemnification  for  receivership   expenses  from
"licensee[s],  persons  responsible  for the  affairs  of the  licensee,  or the
owner." Under  Commonwealth law, the Commonwealth could seek to hold the Company
liable as a "licensee" or "a person  responsible for the affairs of the licensee
[Franvale]."  Management  believes that there are defenses to any such claim. At
this time the potential claim does not appear to be a material  issue,  however,
the Company understands that Franvale's  collectible accounts receivable are far
in excess of the operating  expenses and the receiver's  fees that were incurred
during the receivership.

     On  or  about  September  14,  1998,  the  Company  and  its  wholly  owned
subsidiary,  Franvale,  were each served with  document  subpoenas in connection
with an on-going  investigation of Franvale being conducted by the Massachusetts
Medicaid  Fraud Control Unit. The focus of the  investigation  appears to be the
quality of patient  care  provided by  Franvale  during the period of early 1997
until the facility was placed into  receivership  in June 1998.  The Company has
cooperated fully with the  investigation  including the production of documents.
While no specific dollar demand has yet been asserted by the state, the Attorney
General's  office has  indicated  that a payment will be required to settle this
action.  Preliminary  negotiations  between  the Company and the State are under
way.

     On or about May 15,  2000,  the  company  was served with a subpoena by the
United  States  Attorney  for  the  District  of  Massachusetts.   The  subpoena
requested,  inter  alia,  patient  and  financial  records  relating to Franvale
Nursing  and  Rehabilitation  Center for the period of 1995  through  1998.  The
company is fully  cooperating with the investigation and currently is engaged in
collecting the requested documents for production to the Government.



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, 2000.


PART II

ITEM 5.     MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The  company's  Units,  Class A Common Stock and Class A Warrants have been
traded on the NASDAQ  National  Market  under the  symbols  "PIHCU,"  "PIHC" and
"PIHCW,"  respectively,  since the company's  initial public  offering which was
declared  effective on March 3, 1994.  There is no public trading market for the
company's Class B Common Stock.  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.


1999
        First Quarter                      $ 2              $   .625
        Second Quarter                     $ 1.0625         $   .5625
        Third Quarter                      $ 1.75           $   .8125
        Fourth Quarter                     $ 1.46875        $   .8125

2000
        First Quarter                      $ 1.3125         $   .3125
        Second Quarter                     $ 1.3125         $   .5625
        Third Quarter                      $ 3.50           $   .688
        Fourth Quarter                     $ 2.094          $  1.00

  2001
       First Quarter (through              $ 1.375          $   .625
       September 15, 2000)

      On September 15, 2000,  the last reported sale price of the Class A Common
Stock was $.66.  On  September  15, 2000 there were 444 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.  While
there are currently no restrictions  on the company's  ability to pay dividends,
the company anticipates that in the future,  earnings,  if any, will be retained
for  use  in  the  business  or  for  other  corporate  purposes,  and it is not
anticipated  that cash  dividends in respect of 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  and  financial  position of the company and
such other factors as the company's Board of Directors, in its discretion, deems
relevant.

                                     - 15 -
<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, 2000 and 1999.
It should be read in conjunction with the consolidated  financial statements and
notes  thereto  appearing  elsewhere  herein.  During  fiscal year 1999  Pioneer
Counseling of Virginia,  Inc. was closed.  See  "Psychiatric  Service Industry -
Operating Statistics" in Part One, Item One of this report for further detail.

Overview

   The company  presently  provides  health care services  through two substance
abuse treatment centers, a psychiatric hospital and seven outpatient psychiatric
centers (collectively called "treatment facilities").  The company's revenue for
providing  behavioral  health services  through these facilities is derived from
contracts  with managed care  companies,  Medicare,  Medicaid,  state  agencies,
railroads,   gaming   industry   corporations   and  individual   clients.   The
profitability of the company is largely dependent on the level of patient census
and the payor mix at these treatment  facilities.  Patient census is measured by
the number of days a client  remains  overnight at an inpatient  facility or the
number of visits or encounters with clients at out patient clinics. Payor mix is
determined  by the  source of  payment  to be  received  for each  client  being
provided billable services.  The company's  administrative  expenses do not vary
greatly as a percentage  of total revenue but the  percentage  tends to decrease
slightly as revenue  increases.  The company's most recent addition,  Behavioral
Health  Online,  Inc.,  is a  provider  of  behavioral  health  information  and
education  through its web site.  Revenues  from the web site are expected to be
derived from behavioral  health  professionals for educational units required by
professional  standards,  sponsorships  and  advertising  for behavioral  health
suppliers and the sale of books, tapes and other behavioral health related items
to behavioral  health  professionals  and other consumers.  The company signed a
letter of intent with an e-health company in September 2000, which if completed,
will bring with it  advanced  technology  and proven  wellness  programs  to the
company's website.

     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 ongoing 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.
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
reduced payment for services.

Results of Operations

Years Ended June 30, 2000 and 1999

     The company  experienced an increase in  profitability  from its continuing
operations.  Gross revenues  increased by 6.5% to $20,378,760 for the year ended
June 30, 2000 from  $19,139,496  for the year ended June 30, 1999. This increase
in total revenue  resulted in an increase in income from  operations of $818,048
for the year ended June 30, 2000 over the year ended June 30, 1999.  The company
experienced  continued progress on its return to profitability for its operating
facilities  excluding the Internet company,  which is still in the startup phase
of operations and incurred  expenses of $483,004.  The company  increased income
from operations excluding the Internet company by $1,291,489 to $749,314 for the
year ended June 30, 2000 compared to a loss from  operations of $542,175 for the
year ended June 30, 1999. The company  reduced its net loss before  dividends by
$741,415 for the fiscal year ended June 30, 2000 compared to June 30, 1999.  The
company also continued to divest itself of operations and contracts operating at


                                     - 16 -
<PAGE>

a loss. The company  reduced rent expense by  approximately  $70,000 and related
insurance  expense by an  additional  $25,000  through the closing of two clinic
locations in Michigan and changing  locations to less  expensive  more appealing
sites for the Utah and New York operations.

     Patient  care  expenses  increased  by  approximately  $180,000  due to the
increase in patient  census at our inpatient  facilities for the year ended June
30, 2000.  Pharmacy costs increased  approximately  25% to $245,300 for the year
ended June 30, 2000 from  $196,300 for the year ended June 30, 1999;  laboratory
fees expense increased approximately 64% to $218,800 for the year ended June 30,
2000 from $133,000 for the year ended June 30, 1999; and food expense  increased
approximately 30% to $289,700 for the year ended June 30, 2000 from $300,600 for
the year ended June 30,  1999.  We continue to closely  monitor the  ordering of
hospital supplies,  laboratory  services 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).

     Total  administrative   expenses  for  all  facilities  increased  3.6%  to
$8,144,582  for the year ended June 30, 2000 from  $7,865,013 for the year ended
June 30, 1999.  This  increase in  administrative  expense is due largely to the
startup costs related to the Internet  Company.  Excluding the Internet company,
total  consultant fees decreased  approximately  $299,000 while payroll expenses
increased $240,000 as a result of the more efficient use of salaried  employees'
time and the  reduction in the use of  non-employee  consultants  for  services.
Although administrative expenses increased 3.6% to $8,144,582 for the year ended
June 30,  2000 from  $7,865,013  for the year ended June 30,  1999,  this amount
includes BHO expenses,  which increased to  approximately  $483,000 for the year
ended June 30, 2000 from  $9,500  for the year ended June 30,  1999.  All of the
costs  related to the  Internet  company will be  administrative  costs since no
direct patient care services will be provided. The company continues to evaluate
operations  looking for less expensive  alternatives to provide the same quality
service.

     Interest  expense  decreased  33.4% to $837,706 for the year ended June 30,
2000 from $1,258,314 for the year ended June 30, 1999. Primarily due to interest
expense incurred on debt of the management  company to the former owners and the
value of warrants  issued with debt  renewal in the year ended June 30 1999 with
no corresponding interest expense in the year ended June 30, 2000.



                                     - 17 -
<PAGE>

     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.  In  response  to  today's  healthcare  environment,  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  also seek  assistance  through every legal means,  including the
State insurance commissioner's office, when appropriate, to collect claims. This
early concentration on claim collection allows facility staff to become aware of
minor  billing  errors early and correct them before the claim can be denied for
timely and accurate submission. Any valid claims denied due to billing errors on
the part of the company which require  write-off are charged to bad debt expense
in the period the account is written off. Any invalid  claims result in a charge
against revenue not reserves. An amount is recorded as a contractual  adjustment
only if an agreement with the insurance carrier is on file before the patient is
admitted.  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.  Changing  conditions  in  healthcare  required the
company to reevaluate its methods for determining collectability.  The growth of
managed  care  has  negatively  impacted  reimbursement  for  behavioral  health
services with a higher rate of denials requiring higher reserves. The collection
difficulties  experienced  are  due  to the  denial  of  claims  that  had  been
previously  approved.  Managed care companies  frequently  deny claims  although
authorization  for  treatment  is on file.  The company  has limited  success in
challenging  these  denials.   Accordingly,  the  company  has  adopted  a  more
aggressive  reserve  policy to reserve  amounts sooner to address these changing
conditions in the healthcare environment.

     Total net patient  care  revenue  from all  facilities,  increased  6.5% to
$18,675,840 for the year ended June 30, 2000 from $17,529,978 for the year ended
June 30,  1999.  This  increase in revenue is due  primarily  to the increase in
census at our inpatient facilities.  Net inpatient care revenue from psychiatric
services  increased 12% to  $11,768,434  for the fiscal year ended June 30, 2000
compared  to  $10,491,517  for the  year  ended  June 30,  1999 and net  partial
hospitalization  and outpatient care revenue  decreased 2% to $6,907,406 for the
year  ended June 30,  2000 from  $7,038,461  for the year  ended June 30,  1999.
Revenues from Practice  Management and Pioneer  Development and Support Services
("PDS2")  increased  5.8% to  $1,702,920  for the year ended June 30,  2000 from
$1,609,518 for the year ended June 30, 1999. All revenues  reported above and in
the accompanying  statement of operations are shown net of estimated contractual
adjustments and charity care provided.  When payment is made, if the contractual
adjustment  is  found  to  have  been  understated  or  overstated   appropriate
adjustments  are made in the period the payment is received in  accordance  with
the AICPA Audit and Accounting Guide for Health Care Organizations.

Liquidity and Capital Resources

     The company used cash in operations of $720,377 for the year ended June 30,
2000.  Expenses  related  to a  decrease  in  net  liabilities  of  discontinued
operations  of $537,860,  an increase in accounts  receivable  of $146,037 and a
decrease  in accounts  payable  accounted  for the  majority of the cash used in
operations.  During  the year the  company  also used cash in  investing  in the
website  development  and the  purchase  of  furniture  and  equipment  totaling
$149,357.  The  company  met these cash flow needs and the prior years cash flow
needs  through  accounts  receivable  financing  and by issuing  debt and equity
securities as follows:



                                     - 18 -
<PAGE>

 DATE  TRANSACTION       NUMBER   PROCEEDS  MATURITY    TERMS      STATUS
       TYPE              OF                   DATE
                         SHARES
_______________________________________________________________________________
 8/98  Note  Payable -            $100,000  on demand   12%         outstanding
       Related Party                                    annual
                                                        interest
                                                        rate
 12/98 Convertible                $500,000  12/02/2004  12%         outstanding
       Debentures                                       annual
                                                        interest
                                                        convertible
                                                        at $2.00
                                                        in
                                                        $1,000
                                                        increments
 8/99  Extension of               $310,000  12/31/99    $45,000 on  outstanding
       existing over                                    signing
       line Note                                        plus prime
       Payable                                          plus 2.25%
                                                        annual
                                                        interest
                                                        rate
 11/99 Revolving term             $979,000  11/30/2001  prime plus  outstanding
       Note maximum               ($579,000             5% annual
       advance                    paid off              interest
       $1,000,000.                existing              rate plus
       Secured by a               debt                  1% annual
       Restated                   and                   commitment
       Mortgage on the            $400,000              fee
       Michigan                   advanced
       property and               for
       Guarantees of              working
       the Parent                 capital)
       Company and its
       Chief Executive
       Officer.
 05/00 Term Note                 $500,000  05/26/2002   prime       outstanding
       $500,000                                         plus 5%
       Secured by a                                     annual
       restated                                         interest
       mortgage on                                      rate
       the Michigan                                     plus 1%
       property and                                     annual
       guarantees of                                    commitment
       the parent                                       fee
       company and
       its Chief
       Executive
       officer
 06/00 Issue series C    136,000 $1,000,000 06/28/2003  8%         outstanding
       preferred stock                                  dividend
                                                        paid
                                                        semi-annually



                                     - 19 -
<PAGE>
     The company  also met certain  obligations  through the  issuance of stock,
stock options and warrants totaling  approximately $194,000 and $280,000 for the
year ended June 30, 2000 and 1999, respectively.

     The  company  is in the  process  of  negotiating  an equity  placement  of
$5,000,000  for the  Internet  company to  supplement  cash flow and support the
growth of the Internet company. There can be no assurances that the company will
be  successful  with its  endeavors  to raise this  equity.  Without this equity
placement the company will need to curtail or delay the Internet company growth.

     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 remained  relatively stable
at $6,286,490 on June 30, 2000 from  $6,343,227 at June 30, 1999. This stability
in  accounts  receivable  is due to  increased  staff,  standardization  of some
procedures for collecting  receivables and a more aggressive  collection policy.
The increased  staff has allowed the company to concentrate on current  accounts
receivable and resolve any problem issues before they become uncollectable.  The
company's  collection  policy calls for earlier contact with insurance  carriers
with regard to payment,  use of fax and registered mail to follow-up or resubmit
claims and earlier employment of collection agencies to assist in the collection
process.  Our collectors  will also seek  assistance  through every legal means,
including  the State  insurance  commissioner's  office,  when  appropriate,  to
collect  claims.  At the same time,  the company  continues  to closely  monitor
reserves for bad debt based on potential  insurance  denials and past difficulty
in  collections.  In February 2000 the company  renewed its accounts  receivable
funding  revolving  credit  agreement with Heller  Healthcare  Finance,  Inc. on
behalf of three of its  subsidiaries.  This agreement  provides funding of up to
$2,500,000  based on outstanding  receivables.  The outstanding  balance on this
receivables financing on June 30, 2000 was approximately $1,555,000. The company
also  has  an   outstanding   mortgage  with  Heller   Healthcare   Finance  for
approximately  $1,300,000,  which has a balloon  payment of the  balance  due in
March 2001. The company intends to renew this loan.

     The company believes that it has sufficient  financing available to sustain
existing  operations  for the  foreseeable  future.  The company also intends to
renew the  expansion of its existing  operations  through new product  lines and
expansion  of  contracts.  The  company  will also  expand  through its web site
operations offering the behavioral health professional goods and services unique
and specific to their needs for a fee.

     The  liquidation of the assets and  liabilities of Franvale may result in a
non-cash  financial  statement  gain. In the quarter ended December 31, 1998 the
company  was  relieved  of the HUD  mortgage  of  approximately  $6,741,000  and
surrendered the underlying  assets  amounting to approximately  $4,329,000.  The
recognition  of the  gain  has  been  deferred  until  final  resolution  of all
contingent liabilities.

                                     - 20 -
<PAGE>

ITEM 7.           FINANCIAL STATEMENTS.
                                                              AT PAGE

Index                                                           F-1
Report of independent certified public accountants              F-2
Consolidated balance sheets                                     F-3
Consolidated statements of operations                           F-4
Consolidated statements of changes in stockholders' equity      F-5
Consolidated statements of cash flows                           F-6, F-7
Notes to consolidated financial statements                      F-8 - F27






                                                                             F-1



                                     - 21 -
<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,  2000  and  1999  and  the  related  consolidated
statements of operations,  changes in stockholders'  equity,  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  generally   accepted  auditing
standards.  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,  2000 and  1999  and the  results  of their
operations  and their cash flows for the years  then  ended in  conformity  with
generally accepted accounting principles.

As  explained  in Note  A, the  company  changed its  method of  accounting  for
organization costs in the year ended June 30, 2000.





                                                BDO Seidman, LLP

Boston, Massachusetts
September 15, 2000

                                     - 22 -
<PAGE>

PHC, INC.  AND SUBSIDIARIES

Consolidated Balance Sheets


                                                               June 30,
                                                           2000         1999
                                                       ________________________
ASSETS (Notes C and D) Current assets:
    Cash and cash equivalents                           $ 551,713    $ 381,170
   Accounts receivable, net of allowance
     for doubtful accounts of $2,850,470
     and $3,647,848 at June 30, 2000 and 1999,
     respectively (Note A)                              6,286,490    6,343,227
   Prepaid expenses                                       120,481      101,865
   Other receivables and advances                         148,554      334,155
   Deferred income tax asset (Note F)                     459,280      459,280
   Other receivables, related party                        77,500       53,517
                                                       __________    __________
       Total current assets                             7,644,018    7,673,214

Accounts receivable, noncurrent                           642,000      595,000
Other receivables, noncurrent, related party, net of
    allowance for doubtful accounts of $1,125,054
    and $782,000 at June 30, 2000 and
    1999, respectively  (Notes A and K)                 3,239,456    2,908,113
Other receivables (Note A)                                 95,214      109,165
Property and equipment, net (Notes A, B and D)          1,327,630    1,483,319
Deferred income tax asset (Note F)                        154,700      154,700
Deferred financing costs, net of amortization of
    $87,555 and $64,041 at June 30, 2000 and
    1999, respectively                                     46,554       45,067
Goodwill, net of accumulated amortization of
    $296,907 and $116,900 at June 30, 2000 and
    1999, respectively (Note A)                         2,588,834    1,761,075
Other assets (Note A)                                     149,403       78,338
                                                       __________    __________
      Total assets                                    $15,887,809  $14,807,991
                                                       __________    __________
LIABILITIES
Current liabilities:
   Accounts payable                                    $1,717,362   $1,832,750
   Notes payable - related parties (Note E)               200,000      200,000
   Current maturities of long-term debt (Note C)        1,622,239    1,286,318
   Revolving credit note (Note C)                       1,555,149    1,669,830
   Current portion of obligations under capital
     leases(Note D)                                        45,482       60,815
   Accrued payroll, payroll taxes and benefits            416,111      333,955
   Accrued expenses and other liabilities (Note K)      1,798,400    1,459,290
   Net liabilities of discontinued operations
      (Notes A and I)                                   1,884,234    2,422,094
                                                       __________    __________
           Total current liabilities                    9,238,977    9,265,052

Long-term debt, less current maturities (Note C)        2,508,715    1,730,230
Obligations under capital leases (Note D)                  12,808       51,657
Convertible debentures (Note C and J)                     500,000      500,000
                                                      ____________ __ __________
           Total liabilities                          $12,260,500  $11,546,939

Commitments and contingent liabilities
  (Notes  D, G, H, I, J and K)

STOCKHOLDERS' EQUITY (Notes C, H, J and K)
Convertible Preferred stock, $.01 par value;
      1,000,000 shares authorized:
   Series B 813
     shares issued and outstanding June 30, 1999,
     stated value $1,000 per share, liquidation
     preference, $813,000                                      --            8
   Series C 136,000 shares issued and outstanding
     June 30, 2000, stated value $10
     per share, liquidation preference, $1,360,000          1,360           --
Class A common stock, $.01 par value; 20,000,000
     shares authorized, 7,019,608 and
      5,612,930 shares issued June 30,2000 and 1999,
      respectively                                         70,196       56,129
Class B common stock, $.01 par value; 2,000,000 shares
      authorized, 726,991 and 727,210
      issued and outstanding  June 30, 2000 and 1999,
      respectively, convertible into one share
      of Class A common stock                               7,270        7,272
Additional paid-in capital                             17,895,162   15,967,176
Treasury stock, 2,776 common shares at cost
     June 30, 2000 and 1999                               (12,122)     (12,122)
Accumulated deficit                                   (14,334,557) (12,757,411)
                                                      ____________ ____________
      Total stockholders' equity                        3,627,309    3,261,052
      Total liabilities and stockholde$s' equity      $15,887,809  $14,807,991
                                                      ____________ ____________

See accompanying notes to consolidated financial statements                F-3

                                     - 23 -
<PAGE>
PHC, INC.  AND SUBSIDIARIES

Consolidated Statements of Operations
                                                 For the Year Ended June 30,
                                                     2000             1999
                                                  ___________________________
Revenues:
   Patient care, net (Note A)                     $18,675,840     $17,529,978
   Management fees (Note K)                         1,048,990         666,881
   Contract support services                          653,930         942,637
                                                  ____________     ___________
      Total revenues                               20,378,760      19,139,496

Operating expenses:
   Patient care expenses                            9,293,499       9,113,572
   Cost of contract support services                  545,176         529,510
   Provision for doubtful accounts                  2,129,193       2,183,139
   Administrative expenses                          8,144,582       7,865,013
                                                 ____________     ___________
      Total operating expenses                     20,112,450      19,691,234
                                                 ____________     ___________
Income (loss) from operations                         266,310        (551,738)
                                                 ____________     ___________
Other income (expense):
   Interest income                                     18,853         451,271
   Interest expense                                  (837,706)     (1,258,314)
   Other income, net                                   91,712          64,129
                                                 ____________     ___________
              Total other expense, net               (727,141)       (742,914)
                                                 ____________     ___________
Loss before income taxes and change in
      accounting principle                           (460,831)     (1,294,652)
Income taxes (Note F)                                  79,390          59,434
                                                 ____________     ___________
Loss before change in accounting principle           (540,221)     (1,354,086)

Change in accounting principle (Note A)               (72,450)             --
                                                 ____________     ___________
             Net loss                                (612,671)     (1,354,086)

Dividends (Note J)                                   (964,474)       (142,110)
                                                 ____________     ___________
Loss applicable to common shareholders            $(1,577,145)    $(1,496,196)

Basic and diluted loss per common share (Note A):
    Loss before change in accounting principle          $(.22)          $(.25)
    Change in accounting principle                       (.01)             --
       Net Loss                                         $(.23)          $(.25)
                                                 ____________     ___________
Basic and diluted weighted average
  number of shares outstanding                      6,916,598       6,008,263
                                                 ____________     ___________

 See accompanying notes to consolidated financial statements                F-4

                                     - 24 -
<PAGE>
PHC, INC.  AND SUBSIDIARIES

Consolidated  Statements of Changes In Stockholders'  Equity (See Notes A, C, H,
J, K and N)

                         Class       A        Class        B
                        Common     Stock      Common     Stock  Preferred Stock
                        Shares     Amount     Shares     Amount Shares    Amount

Balance -June 30,
  1998                 4,935,267  $49,353    727,328    $7,273     950     $10

Costs related to
  private placement
Conversion of
  preferred stock        248,129    2,481                         (190)     (3)
Price guarantee shares   304,097    3,041
Issuance of warrants
  for services
Issuance of shares
  with consulting
  agreement               56,470      564
Issuance of shares
  with earn out
  agreement               53,374      534
Issuance of employee
  stock purchase
  plan shares             15,475      155
Issuance of warrants
  for financing
Conversion from class
  B to class A               118        1       (118)               (1)
Dividends on preferred
  stock                                                             53       1
Net Loss- year ended
  June 30, 1999        ________________________________________________________
Balance June 30, 1999  5,612,930   56,129    727,210     7,272     813       8

Costs related to
  private placements
Issuance of preferred
  stock in lieu of
  cash dividends                                                    18       0
Conversion of
  preferred stock
  and related
  dividends            1,295,732   12,957                         (831)     (8)
Shares issued for
  employee bonuses        20,450      205
Issuance of warrants
  for services
Issuance of shares
  with consulting
  agreement               68,572      686
Issuance of employee
  stock purchase
  plan shares             12,330      123
Issuance of warrants
  for debt and equity
  financings
Conversion from class
  B to class A               219        2        (219)      (2)
Dividends on
preferred stock
Issuance of shares on
  exercise of employee
  options                  9,375       94
Issuance of series C
  preferred stock at
  a discount                                                   136,000   1,360
Net Loss - year ended
  June 30, 2000      __________________________________________________________
Balance June 30, 2000  7,019,608  $70,196     726,991   $7,270 136,000  $1,360

See accompanying notes to consolidated financial statements.

                                     - 25 -
<PAGE>
PHC, INC.  AND SUBSIDIARIES (con't)

Consolidated  Statements of Changes In Stockholders'  Equity (See Notes A, C, H,
J, K and N)

                         Additional
                         Paid-in      Treasury  Shares   Accumulated
                         Capital       Shares   Amount    Deficit      Total
                         ______________________________________________________

Balance - June 30, 1998  $15,485,895  2,776  $(12,122) $(11,261,215) $4,269,194

Costs related to
  private placement          (56,565)                                   (56,565)
Conversion of
  preferred stock             91,959                         (92,569)     1,868
Price guarantee shares       117,076                                    120,117
Issuance of warrants for
  services                   108,354                                    108,354
Issuance of shares
  with consulting
  agreement                   38,436                                     39,000
Issuance of shares
  with earn out
  agreement                   59,513                                     60,047
Issuance of employee
  stock purchase plan
  shares                      18,261                                     18,415
Issuance of warrants for
  financing                   51,248                                     51,248
Conversion from class
  B to class A
  Dividends on
  preferred stock             52,999                       (49,541)       3,460
Net Loss-year ended
  June 30, 1999                                         (1,354,086)  (1,354,086)
                         ______________________________________________________
Balance - June 30,
1999                      15,967,176   2,776   (12,122)  (12,757,411) 3,261,052
Costs related to
  private placements        (210,689)                                  (210,689)
Issuance of preferred
  stock in lieu of
  cash dividends              18,000                         (18,000)         0
Conversion of
  preferred stock
  and related
  dividends                  553,755                        (566,703)         0
Shares issued for
  employee bonuses            25,491                                     25,696
Issuance of warrants for
  services                    69,775                                     69,775
Issuance of shares
  with consulting
  agreement                   38,314                                     39,000
Issuance of employee
  stock purchase plan
  shares                      13,947                                     14,071
Issuance of warrants for
  debt and equity
  financings                  49,128                         (14,963)     34,165
Conversion from class
  B to class A                                                                0
Dividends on
  preferred stock                                             (4,809)    (4,809)
Issuance of shares on
  exercise of employee
     Options                  11,625                                     11,719
Issuance of series C
  preferred stock at a
  discount                 1,358,640                        (360,000) 1,000,000
Net Loss - year ended
  June 30, 2000                                             (612,671)  (612,671)
                    ___________________________________________________________

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

See accompanying notes to consolidated financial statements
                                                                            F-5

                                     - 26 -
<PAGE>
PHC, INC.  AND SUBSIDIARIES

Consolidated Statements of Cash Flows
                                                 For the Year Ended June 30,
                                                    2000              1999
                                               _______________________________
Cash flows from operating activities:
   Net loss                                       $(612,671)     $(1,354,086)
   Adjustments to reconcile net loss to net
       cash provided by (used in) operating
       activities:
      Depreciation and amortization                 429,091          325,764
      Compensatory stock options and stock
         and warrants issued for obligations        182,707          279,719

      Changes in:
         Accounts receivable                       (146,037)       1,188,745
         Prepaid expenses and other current
           assets                                   (18,616)        (141,713)
         Other assets                               (25,369)         912,718
         Accounts payable                          (115,388)        (513,463)
         Accrued expenses and other liabilities     123,766           59,288
         Net liabilities of discontinued
           operations                              (537,860)        (219,443)
                                                  ____________     ____________
            Net cash(used in) provided by
              operating activities                 (720,377)         537,529

 Cash flows from investing activities:
    Acquisition of property and equipment
      and intangibles                              (103,661)        (115,254)
    Website Development costs                       (45,696)              --
                                                  ____________     ____________
            Net cash used in investing
              activities                           (149,357)        (115,254)
                                                  ____________     ____________
Cash flows from financing activities:
    Borrowing (repayment) revolving debt, net      (114,681)          13,628
          Proceeds from borrowings                1,870,050          485,829
          Principal payments on long-term
            debt                                 (1,509,826)      (1,274,969)
     Deferred financing costs                        (1,487)              --
     Preferred stock dividends                       (4,809)          (7,681)
     Issuance of preferred stock at a
       discount                                   1,000,000           15,011
    Cost related to preferred stock issuance       (210,689)              --
    Issuance of Commpn Stock                         11,719               --
    Convertible debt                                     --          500,000
                                                  ____________     ____________
              Net cash provided by (used in)
                financing activities              1,040,277         (268,182)

Net increase in cash and cash equivalents           170,543          154,093
Cash and cash equivalents, beginning of year        381,170          227,077

Cash and cash equivalents, end of year             $551,713         $381,170

Supplemental cash flow information: Cash paid during the period for:
        Interest                                  $ 852,421       $1,227,628
        Income taxes                              $ 114,890         $189,027

See accompanying notes to consolidated financial statements               F-6

                                     - 27 -
<PAGE>
Supplemental disclosures of noncash investing
  and financing activities:
    Debt incurred in earn-out agreement            $997,500         $     --
    Conversion of preferred stock                   831,000          190,000
    Preferred stock discount                        360,000               --
    Issuance of Preferred Stock in lieu of cash for
      dividends due                                  18,000           53,000
    Dividend on conversion of preferred stock  to
      common stock                                  566,703           81,429
    Stock issued for acquisitions and earn-out
      agreement                                         --            60,047
    Capital leases                                      --            25,010
    Warrant Valuations                                  --           159,602


See accompanying notes to consolidated financial statements               F-7

                                     - 28 -
<PAGE>

PHC, INC.  AND SUBSIDIARIES

Notes to Consolidated Financial Statements
June 30, 2000 and 1999

NOTE A - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation and consolidation:

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

1.   Behavioral  health  treatment  services,   including  two  substance  abuse
     treatment facilities:  Highland Ridge Hospital,  located in Salt Lake City,
     Utah;  and  Mount  Regis  Center,  located  in Salem  Virginia,  and  eight
     psychiatric  treatment  locations  which include  Harbor Oaks  Hospital,  a
     64-bed  psychiatric  hospital located in New Baltimore,  Michigan and seven
     outpatient  behavioral health locations (two in Las Vegas, Nevada operating
     as Harmony  Healthcare,  one in Shawnee Mission,  Kansas operating as Total
     Concept and four locations  operating as Pioneer  Counseling  Center in the
     Detroit, Michigan metropolitan area);
2.   Behavioral   health   administrative   services,   including   delivery  of
     management,  administrative  and help line  services.  PHC,  Inc.  provides
     management and administrative  services for its behavioral health treatment
     subsidiaries  and  BSC-NY,  Inc.,  a  subsidiary  of  PHC,  Inc.,  provides
     management   services  on  behalf  of  physician  owned  behavioral  health
     practices  in  the  greater  New  York  City  metropolitan   area.  Pioneer
     Development  and Support  Services  ("PDSS")  provides  help line  services
     primarily  through contracts with major railroads.  Pioneer  Pharmaceutical
     Research,  Inc. facilitates drug studies under contract with pharmaceutical
     manufacturers; and
3.   Behavioral  health  online  services,   which  includes  behavioral  health
     education,  training and products for the behavioral  health  professional,
     through     its     website     wellplace.com     formerly     known     as
     behavioralhealthonline.com.

Until January 1999, the company operated Pioneer  Counseling of Virginia,  Inc.
("PCV'),  an 80% owned subsidiary which provided  outpatient  services through a
physicians  practice.  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.
All financial information for Franvale is reported in the accompanying financial
statements  as  discontinued  operations.  The  liquidation  of the  assets  and
liabilities of Franvale may result in a non-cash  financial  statement gain. Net
liabilities of  discontinued  operations  were $1,884,234 and $2,422,094 at June
30, 2000 and June 30, 1999,  respectively.  This amount decreased in 2000 due to
payment of legal costs related to the closure.  The  recognition of the gain has
been deferred until final resolution of all contingent liabilities.

Reclassifications

Certain amounts in the June 30, 1999 consolidated financial statements have been
reclassified to conform with the June 30, 2000 presentation.
                                                                           F-8

                                     - 29 -
<PAGE>
PHC, INC.  AND SUBSIDIARIES

Notes to Consolidated Financial Statements
June 30, 2000 and 1999

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

Revenues and accounts receivable:

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

Medicaid  reimbursements  are currently based on established  rates depending on
the  level  of  care   provided   and  are  adjusted   prospectively.   Medicare
reimbursements  are  currently  based on  provisional  rates  that are  adjusted
retroactively  based on annual cost reports filed by the company with  Medicare.
The company's cost reports to Medicare are routinely audited on an annual basis.
The company  periodically reviews its provisional billing rates and provides for
estimated Medicare adjustments. The company believes that adequate provision has
been made in the financial statements for any adjustments that might result from
the outcome of Medicare audits.

Long-term assets include accounts receivable non current, other receivables, non
current, related party and other receivables.  Accounts receivable,  non current
consists of amounts due from former patients for service. This amount represents
amounts  collectable  under  supplemental  payment  agreements,  arranged by the
company's 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. Other receivables
non  current-related  party  is  the  amount  due  from a  related  professional
corporation  net of the related  allowance  for doubtful  accounts.  This amount
consists of the balance due of funds  advanced to the  professional  corporation
for  acquisition  costs,  management  fees,  working capital and interest on the
advanced funds (see discussion regarding BSC-NY, Inc. in Note K).

Charity care amounted to approximately $149,000 and $242,000 for the years ended
June 30,  2000 and 1999,  respectively.  Patient  care  revenue is stated net of
charity care in the accompanying statements of operations.

Estimates and assumptions:

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

Cash equivalents:

Cash  equivalents are short-term  highly liquid  investments  with maturities of
less than three months, when purchased.
                                                                          F-9
                                     - 30 -
<PAGE>
PHC, INC.  AND SUBSIDIARIES

Notes to Consolidated Financial Statements
June 30, 2000 and 1999

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

Property and equipment:

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

                                             Estimated
                Assets                       Useful Life
                _________________________________________

                Buildings                    39 years
                Furniture and equipment       3 through 10 years
                Motor vehicles                5 years
                Leasehold improvements        Term of lease

Other assets:

Other assets are primarily deposits and deferred expenses.

Organization Costs (Change in accounting principle)

During 2000, all  unamortized  organization  costs related to the acquisition of
businesses  have been  written  off as  required by the  American  Institute  of
Certified  Public  Accounts  Statement of Position 98-2  "Reporting the Costs of
Start-up Activities".

Goodwill, net of accumulated amortization:

The  excess of the  purchase  price  over the fair  market  value of net  assets
acquired is being amortized on a straightline basis over twenty years.

Impairment of long-lived assets:

During the year ended June 30, 1999 the company wrote off the carrying  value of
goodwill for Pioneer Counseling of Virginia,  Inc.,  approximately $305,000, and
wrote down the  remaining  balance of accounts  receivable  for the  facility of
approximately  $43,000.  The above write-downs were considered  necessary due to
the closing of facilities.  The assets had no ongoing value or were written-down
to their net realizable value. Write-downs in the carrying value of goodwill and
property and equipment are charged to  depreciation  and  amortization  expense,
which is included in  administrative  expenses in the  company's  statements  of
operations. Write-downs in accounts receivable were charged to the provision for
doubtful accounts in the accompanying statements of operations.

In accordance  with Statement of Financial  Accounting  Standard (SFAS) No. 121,
long-lived  assets are reviewed  for  impairment  whenever  events or changes in
circumstances  indicate  that  the  carrying  amount  of an  asset  may  not  be
recoverable. For purposes of evaluating the recoverability of long-lived assets,
the  recoverability  test is performed using undiscounted net cash flows related
to the  long-lived  assets.  The amount of the impairment  losses  recognized is
measured  as the amount by which the  carrying  amount of the asset  exceeds the
fair value of the asset.

                                                                            F-10

                                     - 31 -
<PAGE>
PHC, INC.  AND SUBSIDIARIES

Notes to Consolidated Financial Statements
June 30, 2000 and 1999

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

Basic and diluted loss per share:

The loss per  share is  computed  by  dividing  the loss  applicable  to  common
shareholders,  net of dividends  charged directly to retained  earnings,  by the
weighted  average number of shares of common stock  outstanding  for each fiscal
year.  No common stock  equivalents  have been  included in the  calculation  of
diluted loss per share because their effect would be anti-dilutive.

Net liabilities of discontinued operations

Net liabilities of discontinued  operations  relates to the Franvale  closure in
1998 and consists of the following:

                                                             June 30,
                                                          2000      1999
                                                     _________________________

         Debt forgiveness and reserve for
             contingencies                           $2,641,537     $2,641,537
         Less legal and other expenses incurred
             to date                                   757,303         219,443

         Net liabilities of discontinued
             operations                              $1,884,234     $2,422,094

The recognition of gain, if any, has been deferred until final resolution of all
contingent liabilities related to the discontinued operations.

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.





                                                                            F-11

                                     - 32 -
<PAGE>
PHC, INC.  AND SUBSIDIARIES

Notes to Consolidated Financial Statements
June 30, 2000 and 1999

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

Stock-based compensation:

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

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

Income tax:

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
liabilitites.  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.

NOTE B - PROPERTY AND EQUIPMENT

Property and equipment is comprised of the following:
                                                             June 30,
                                                        2000       1999
                                                    __________________________

              Land                                  $   69,259     $   69,259
              Buildings                              1,136,963      1,136,963
              Furniture and equipment                  929,762        868,722
              Motor vehicles                            62,292         41,444
              Leasehold improvements                   379,981        358,207
                                                    ___________    ___________
                                                     2,578,257      2,474,595
              Less accumulated depreciation and
                amortization                         1,250,627        991,276
                                                    ___________    ___________
                                                    $1,327,630     $1,483,319
                                                    ___________    ___________

                                                                           F-12

                                     - 34 -
<PAGE>

PHC, INC.  AND SUBSIDIARIES

Notes to Consolidated Financial Statements
June 30, 2000 and 1999

NOTE C - NOTES PAYABLE AND LONG-TERM DEBT

Long-term debt is summarized as follows:
                                                                  June 30,
                                                              2000       1999
                                                             __________________
Note payable with interest at 9% requiring monthly
  payments of $1,150 through May 2001.                       $ 11,323   $23,509
9% mortgage note due in monthly installments of $4,850,
   including interest through July 1, 2012, when the
   remaining principal balance is payable.                    445,567   462,814
Term mortgage note payable with interest only payments
   through March 1998 principal due in monthly principal
   installments of $13,333 through February 2001.
   A balloon payment of approximately $1,300,000 plus
   interest is due March 2001, interest at prime plus
   5%(14.5% at June 30, 2000) collateralized by all
   assets of PHC of Michigan, Inc. (PHM)                    1,273,333 1,433,333
Term mortgage  note payable with interest only payments
   through October 2000 principal due in monthly
   installments of $10,000 beginning November 2000
   through October 2002. The note bears interest at
   prime plus 5% (14.5% at June 30, 2000) collateralized
   by all assets of PHC of  Michigan, Inc. and may be
   renewed at the end of two years.                           978,657        --
Term mortgage  note payable with interest only payments
   through October 2001 principal due in monthly
  installments of $41,667 beginning November 2001
   through September 2002. The final principal payment
   of approximately $42,000 is due October 2002. The
   note bears interest at prime plus 5%(14.5% at June 30,
   2000)collateralized by all assets of PHM and may
   be renewed at the end of two years.                        500,000        --
Note Payable issued in conjunction with the final earn-out
   on the BSC-NY, Inc. acquisition due in monthly
   installments of $11,567 including interest at 11%
   through July 2005 (see Note K).                            532,000        --
Note Payable issued in conjunction with the final earn-out
   on the BSC-NY, Inc. acquisition due in monthly
   installments of $3,653 including interest at 11% through
   July 2005 (see Note K).                                    168,000        --
Note Payable due in monthly installments of $7,192 including
   interest at 9% through through March 2001.                  62,363        --
Note Payable due in monthly installments of $429
   including interest at 8.69% through through May 2004.       17,248        --
Note Payable due in monthly installments of $5,088
   including interest at 9% through through October 2002.     142,463        --


                                                                           F-13

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

Notes to Consolidated Financial Statements
June 30, 2000 and 1999

NOTE C - NOTES PAYABLE AND LONG-TERM DEBT (CON'T)

Long-term debt is summarized as follows (continued):
                                                                      June 30,
                                                                  2000     1999
                                                                 ______________
Note payable bearing interest at prime plus 3.5%, paid
   in full November 1999                                          --    324,730
Note payable due in monthly installments of $7,633, paid
   in full October 1999                                           --     29,785
Note payable due in monthly installments of $2,378, paid
   in full October 1999                                           --      9,278
Note payable due in monthly installments of $21,506, paid
   in full June 2000                                              --    261,802
Note payable due in monthly installments of $26,131, paid
   in full June 2000                                              --    471,297
                                                         ___________  __________
                                   Total                   4,130,954  3,016,548

Less current maturities                                    1,622,239  1,286,318
                                                         ___________  __________
Noncurrent maturities                                     $2,508,715 $1,730,230
                                                         ___________  __________

Maturities of long-term debt are as follows as of June 30, 2000:

                  Year Ending
                  June 30,                                   Amount
                  ____________                           __________

                  2001                                    $1,622,239
                  2002                                     1,597,439
                  2003                                       184,583
                  2004                                       182,167
                  2005                                       197,642
                  Thereafter                                 346,884
                                                         ____________
                                                          $4,130,954
                                                         ___________

The company has a revolving  credit note under which a maximum of $2,500,000 may
be  outstanding  at any  time.  At June 30,  2000 the  outstanding  balance  was
$1,555,149.  Advances are made based on a percentage of accounts  receivable and
principal  is payable  upon  receipt of  proceeds  of the  accounts  receivable.
Interest is payable  monthly at prime plus 2.25% (11.75% at June 30, 2000).  The
agreement is automatically  renewable for one-year periods unless  terminated by
either party. Upon expiration,  all remaining principal and interest is due. The
notes are  collateralized  by  substantially  all of the assets of the company's
subsidiaries and guaranteed by PHC.

                                                                          F-14

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

Notes to Consolidated Financial Statements
June 30, 2000 and 1999

NOTE C - LONG-TERM DEBT (CONTINUED)

  On  December  7, 1998 the  company  issued the  principal  sum of  $500,000 of
convertible  debentures  with interest at 12% per annum that are due on December
2, 2004.  Interest is payable quarterly.  The debentures and any unpaid interest
are convertible into shares of common stock at the rate of $1,000 for 500 shares
of common stock,  which  equates to $2.00 per share of common stock.  The traded
market  price of the  company's  common  stock at the  date of  issuance  of the
convertible  debentures  was  $1.188  per  share  and  accordingly  there was no
beneficial  conversion feature.  The holders of the debentures have the right to
put all or any portion of the debentures to the company at the original purchase
price plus unpaid  interest upon 30 days written  notice  beginning  December 3,
2001.  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.

NOTE D - CAPITAL LEASE OBLIGATION

At June 30, 2000,  the company was obligated  under various  capital  leases for
equipment providing for monthly payments of approximately $4,000 for fiscal 2000
and terms expiring from July 2000 through July 2003.

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

                                                            June 30,
                                                      2000         1999
                                                   _______________________

             Equipment and improvements             $167,857    $528,820
             Less accumulated amortization          (100,714)   (259,564)
                                                    __________ __________
                                                    $ 67,143    $269,256
                                                   __________  __________

Future minimum lease  payments  under the terms of the capital lease  agreements
are as follows at June 30, 2000:

        Year Ending
        June 30,
        ____________
        2001                                  $  48,269
        2002                                      9,726
        2003                                      2,821
        2004                                        235
                                              __________
        Total future minimum lease payments      61,051
        Less amount representing interest         2,761
                                              __________
        Present value of future minimum
             lease payments                      58,290

        Less current portion
                                                 45,482
                                             __________
        Long-term obligations under
        capital lease                         $  12,808
                                             __________
                                                                           F-15

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

Notes to Consolidated Financial Statements
June 30, 2000 and 1999

NOTE E - NOTES PAYABLE - RELATED PARTIES

Related party debt is summarized as follows:                     June 30,
                                                            2000        1999
                                                            _________________
Notes payable, Tot Care, Inc., company owned by the
President and principal stockholder, interest at 12%
and payable on demand                                       100,000    100,000
Note payable, President and principal stockholder,
interest at 12% payable on demand                           100,000    100,000
                                                            _______    _______
Total                                                      $200,000   $200,000

NOTE F - INCOME TAXES

The company has the following  deferred tax assets included in the  accompanying
balance sheets:
                                                          Year Ended
                                                           June 30,
                                                     2000            1999
                                                  _________________________
           Temporary differences attributable to:
              Allowance for doubtful accounts     $1,350,000    $1,546,000
              Facility Closing Costs                  17,000       198,000
              Depreciation                           125,000       237,000
              Other                                   22,980        85,980
              Operating loss carryforward          1,874,000     1,542,000
                                                  ___________   ____________
                 Total deferred tax asset          3,388,980     3,608,980
           Less:
               Valuation allowance                (2,775,000)   (2,995,000)
           Subtotal                                  613,980       613,980
               Current portion                      (459,280)     (459,280)
                                                 ___________   ____________
                 Long-term portion                $  154,700    $  154,700

The company had no deferred tax liabilities at June 30, 2000 and 1999.

Income tax expense is as follows:
                                                         Year Ended
                                                           June 30,
                                                     2000            1999
                                                  _________________________
           Current income taxes                   $   79,390    $  59,434
                                                 ___________   ____________

                                                                          F-16

                                     - 38 -
<PAGE>

PHC, INC.  AND SUBSIDIARIES

Notes to Consolidated Financial Statements
June 30, 2000 and 1999

NOTE F - INCOME TAXES (CONTINUED)

Reconciliations  of the statutory  U.S.  Federal income taxes based on a rate of
34% to actual income taxes is as follows:
                                                             Year Ended
                                                               June 30,
                                                         2000          1999
                                                       ________________________
           Income tax benefit at statutory rate      $ (235,300)   $ (440,200)
           State income taxes, net of federal
             benefit                                     52,400        39,000
           Decrease in valuation allowance              220,000       388,000
           Increase due to nondeductible items,
           primarily penalties and travel and
             entertainment expenses                      21,000        37,000
            Other                                        21,290        35,634
                                                     __________   ____________
                                                     $   79,390   $    59,434

At June 30, 2000 the company had a net operating loss carryforward  amounting to
approximately $5,200,000.  The Company's Federal net operating loss carryforward
are subject to review and possible  adjustment by the Internal  Revenue  Service
and are subject to certain limitations in the event of cumulative changes in the
ownership  interest of  significant  stockholders  over a  three-year  period in
excess of 50%. The Federal carryforward expires beginning in 2011 through 2020.

The company  anticipates  that it will have sufficient  taxable income in future
fiscal  years to realize  its net  deferred  tax assets  existing as of June 30,
2000.  During  1999 and 1998,  the  company  has closed  three  facilities  that
contributed the 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  implemented  procedures to improve the
operating efficiency of its remaining centers. The company also anticipates that
it will have a gain on the final  disposition of all  contingent  liabilities of
its closed Franvale facility (see Note I).

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  September 2004. Rent
expense for the years ended June 30,  2000 and 1999 was  approximately  $714,000
and $784,000,  respectively.  Rent expense  includes certain short term rentals.
Minimum future rental  payments under  noncancelable  operating  leases,  having
remaining terms in excess of one year as of June 30, 2000 are as follows:

                            Year Ending
                            June 30,             Amount
                            ___________       _________

                            2001              $ 549,814
                            2002                493,914
                            2003                475,179
                            2004                323,220
                            2005                 62,795
                                             ___________
                                             $1,904,922
                                             __________

                                                                           F-17

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

Notes to Consolidated Financial Statements
June 30, 2000 and 1999

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 are described below.

In September  1998,  the company and Franvale were each served with subpoenas in
connection  with an on-going  investigation  of Franvale being  conducted by the
Attorney General of the Commonwealth of Massachusetts.  The focus is the quality
of patient care  provided by Franvale  during the period of early 1997 until the
facility was placed into  receivership  in June 1998. The company is cooperating
fully with the  investigation  and  currently is engaged in producing  documents
requested  in the  subpoenas.  The company does not believe that it has violated
any laws and does not believe that any monetary  payments required in connection
with this  matter  will be  material  to the  financial  position  or results of
operations of the company.

In addition,  the  Commonwealth of  Massachusetts  may institute a claim against
PHC,  Inc.  to  recover  expenses   incurred  as  a  consequence  of  Franvale's
receivership.  The company believes that it has valid defenses to any such claim
and, in any event, it believes that there will be adequate  assets  remaining in
Franvale to satisfy any receivership expenses.

On or about May 15,  2000,  the company was served with a subpoena by the United
States Attorney for the District of Massachusetts. The subpoena requested, inter
alia,  patient  and  financial   records   relating  to  Franvale   Nursing  and
Rehabilitation  Center for the period of 1995 through 1998. The Company is fully
cooperating  with the  investigation  and currently is engaged in collecting the
requested documents for production to the Government.

NOTE H - STOCK PLANS

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

      The stock option plan  provides for the issuance of a maximum of 1,000,000
      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 150,000
      shares may be issued under this plan.
                                                                           F-18

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

Notes to Consolidated Financial Statements
June 30, 2000 and 1999

NOTE H - STOCK PLANS (CONTINUED)

      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, 2000,  options for 29,500  shares
      were  granted  under this plan.  A maximum of 50,000  shares may be issued
      under this plan.  Each  outside  director is granted an option to purchase
      2,000  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.

      In  February  1997,  all 95,375  shares  underlying  the then  outstanding
      employee  stock options were repriced to the current  market price,  using
      the existing exercise durations. In September 1998, all 21,875 options due
      to expire,  were extended for an additional five years.  Also in September
      1998, all 183,875 shares  underlying the then  outstanding  employee stock
      options  were  repriced to the current  market  price,  using the existing
      exercise durations.

      Under the above plans, at June 30, 2000, 320,250 shares were available for
      future grant or purchase.

      The  company had the  following  activity  in its stock  option  plans for
      fiscal 2000 and 1999:
                                                                    Weighted-
                                                     Number         Average
                                                       of        Exercise Price
                                                     Shares       Per Share
                                                    ________     ______________
                     Option plans:
                        Balance - June 30, 1998     375,375            $3.32
                        Granted                     218,500            $1.21
                        Cancelled                   (71,000)           $1.95
                        Repriced Options
                             Original              (183,875)           $2.96
                             Repriced               183,875            $1.25
                                                   _________       __________
                        Balance - June 30, 1999     522,875            $2.02
                        Granted                     271,000            $1.23
                        Cancelled                    (2,000)           $1.25
                        Exercised                    (9,375)           $1.25
                                                  _________       __________
                        Balance - June 30, 2000     782,500            $1.46
                                                  _________       __________
[2]  Stock-based compensation:

     Options for 448,750 shares were exercisable as of June 30, 2000 at exercise
     prices ranging from $.81 to $6.63 and a weighted  average exercise price of
     approximately   $1.58  per  share   with  a  weighted   average   remaining
     contractual life of approximately  three years.  Options for 252,000 shares
     were exercisable as of June 30, 1999 at exercise  prices ranging from $1.03
     to $6.63 and a weighted-average exercise price of approximately  $1.73  per
     share, with a weighted-average  remaining contractual life of approximately
     three years.

                                                                            F-19

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

Notes to Consolidated Financial Statements
June 30, 2000 and 1999

NOTE H - STOCK PLANS (CONTINUED)

      Options  to  purchase   782,500  shares  of  class  A  common  stock  were
      outstanding at June 30, 2000 at exercise prices ranging from $.81 to $6.63
      per  share and have a  weighted-average  exercise  price of  approximately
      $1.46 per share,  with a  weighted-average  remaining  contractual life of
      approximately four years.

      The company has adopted the  disclosure  only  provisions of SFAS No. 123,
      but  applies  Accounting  Principles  Board  Opinion  No.  25 and  related
      interpretations  in accounting  for its plans.  There was no  compensation
      expense  recognized  in  2000 or  1999.  If the  company  had  elected  to
      recognize  compensation  cost for the plans based on the fair value at the
      grant date for awards granted,  consistent  with the method  prescribed by
      SFAS No.  123,  loss per share  would  have been  changed to the pro forma
      amounts indicated below:

                                                         Year Ended
                                                           June 30,
                                                      2000            1999
                                               ________________________________

        Net loss applicable
           to common
           shareholders         As reported     $ (1,577,145)     $(1,496,196)

                                Pro forma         (1,727,259)      (1,595,475)

        Net loss per share      As reported             (.23)            (.25)

                                Pro forma               (.25)            (.27)

The fair value of the company's stock options used to compute pro forma loss and
loss per share  disclosures  is the estimated  present value at grant date using
the  Black-Scholes  option-pricing  model  with the  following  weighted-average
assumptions for 2000 and 1999: dividend yield of 0%; expected volatility of 30%;
a risk-free interest rate of 9.5% and 6.5% respectively; and an expected holding
period of five years.

The per share weighed  average grant date fair value of options  granted  during
the years ended June 30, 2000 and 1999 was $.55 and $.48, respectively.

                                                                           F-20



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

Notes to Consolidated Financial Statements
June 30, 2000 and 1999

NOTE I - DISCONTINUED OPERATIONS

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

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

Although  the full  extent  of the  financial  impact  on PHC,  Inc.  cannot  be
determined at this time,  the  management of PHC, Inc. does not believe that the
liquidation  of  the  assets  and  liabilities  of  Quality  Care  will  have  a
substantial  negative  impact on PHC's  financial  position  or the  results  of
operations.  The  company was subject to a  guarantee  signed by PHC,  Inc.  for
furniture and  equipment  purchased by Quality Care during the fiscal year ended
June 30, 1996. The company has come to an agreement with the leasing company and
is currently making monthly payments of $5,088,  which includes  interest of 9%,
in settlement of this obligation.  The liquidation of the assets and liabilities
of Franvale may result in a non-cash  financial  statement  gain. In the quarter
ended  December  31, 1998, the  company  was  relieved  of the HUD  mortgage  of
approximately  $6,741,000 and  surrendered  the underlying  assets  amounting to
approximately  $4,329,000.   The  net  liabilities  of  discontinued  operations
amounted to $1,884,234 at June 30, 2000.  The  recognition  of the gain has been
deferred until final  resolution of all contingent  liabilities.  As of June 30,
2000  and  1999  the  company  paid   approximately   $538,000   and   $220,000,
respectively, in costs related to record transfer and litigation surrounding the
close  of  Franvale.  As of June  30,  2000  the  bankruptcy  remains  open  and
management cannot predict a final date of closure at this time.

NOTE J - CERTAIN CAPITAL TRANSACTIONS

In addition to the outstanding options under the company's stock plans (Note H),
the company has the following options and warrants outstanding at June 30, 2000:

 Date of                                      Number of  Exercise   Expiration
Issuance                   Description         Shares     Price        Date
_______________________________________________________________________________
03/10/1994  IPO Warrants
            Equity transaction                1,792,862   $5.73 per  March 2001
                                              shares       share
11/01/1996  Warrant for debt placement
            service $125,000 value charged
            to interest interest
            expense over term of debt            25,000   $2.00 per  October
                                              shares      share      2001
02/18/1997  Warrant for investor relation
            services $1.210 value passed as       3,559   $1.39 per  February
            an adjustment                     shares      share      2002


                                                                       F-21

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

Notes to Consolidated Financial Statements
June 30, 2000 and 1999

NOTE J - CERTAIN CAPITAL TRANSACTIONS (CONTINUED)

 Date of                                     Number of   Exercise    Expiration
Issuance                   Description         Shares      Price        Date
_______________________________________________________________________________
3/03/1997   Consultant warrant for investor
            relations $16,306 value passed as    40,000   $1.00 per  March 2002
            an adjustment                     shares      share
09/17/1998  Consultant warrant for investor
            relations $12,776 value passed as    40,000   $1.00 per  March 2002
            an adjustment                     shares      share
03/31/1997  Warrants issued as registration
            penalty on Convertible debenture
            $46,375 value charged to interest   150,000   $2.00 per  March 2002
            expense over term of debentures   shares      share
06/04/1997  Warrants issued with preferred
            stock placement.  Equity             50,000   $2.75 per  June 2000
            transaction                       shares      share
06/01/1997  Warrants issued for investment
            banker services $193,748 value      150,000   $2.08 per  May 2002
            charged to professional fees      shares      share
09/19/1997  Private Placement warrants with
            common stock issuance. Equity        86,207   $2.90 per  Sept 2002
            transaction                       shares      share
03/10/1998  Warrants issued as a penalty
            for late registration of private
            placement shares.  Equity             3,000   $2.90 per  March 2003
            transaction                       shares      share
03/10/1998  Warrants issued as additional
            interest on debt $48,809 value
            charged to interest expense          52,500   $2.00 per  March 2003
            over term of loan                 shares      share
03/19/1998  Warrants issued with preferred
            stock private placement Equity       49,990   $2.31 per  March 2001
            transaction                       shares      share
07/10/1998  Warrants  issued with  extension
            of debt $28,740 value charged to
            interest expense over term           52,500   $1.56 per  July 2003
            of loan                           shares      share
07/10/1998  Warrants issued with extension
            of debt as price guarantee $14,779
            value charged to interest expense    20,000   $1.32 per  July 2003
            over term of loan                 shares      share
12/31/1998  Warrants issued with convertible
            debenture $9,240  value charged to
            professional fees over term of       25,000   $.93 per   Dec  2004
            debentures                        shares      share
12/31/1998  Warrants issued for convertible
            debentures finders fee $25,873 value
            charged to professional fees over    60,000   $.93 per   Dec  2003
            term of debentures                shares      share
12/31/1998  Warrants issued for convertible
            debentures finders fee $3,696
            value  charged to professional       10,000   $1.71 per  Dec 2003
            fees over term of debentures      shares    share
12/31/1998  Warrants issued for convertible
            debentures finders fee $3,246
            value charged to professional        15,000   $1.32 per  Dec 2003
            fees over term  of debentures     shares      share
12/01/1998  Warrants issued for convertible
            debentures finders fee $1,302
            value charged to professional        10,000   $.93 per   Dec 2003
            fees over term of debentures      shares      share
01/01/1999  Warrants issued for convertible
            debentures finders fee $3,696
            value charged to  professional       10,000   $.93 per   Jan 2004
            fees over term of debentures      shares      share
02/01/1999  Warrants issued for convertible
            debentures finders fee 3,696
            value charged to  professional       10,000   $.93 per   Feb 2004
            fees over term of debentures      shares      share
03/01/1999  Warrants issued for convertible
            debentures finders fee $3,696
            value charged to  professional       10,000   $.93 per    Mar 2004
            fees over term of debentures      shares      share
04/01/1999  Warrants issued for convertible
            debentures finders fee $3,696
            value charged to  professional       10,000   $.93 per   Apr 2004
            fees over term of debentures      shares      share
05/01/1999  Warrants issued for convertible
            debentures finders fee $3,696
            value charged to professional        10,000   $.93 per   May 2004
            fees over term of debentures      shares      share
06/01/1999  Warrants issued for convertible
            debentures finders fee $3,696
            value charged to professional        10,000   $.93 per   June 2004
            fees over term of debentures      shares      share
01/05/1999  Warrants issued for investment
            banker services $18,100 value
            charged to professional fees         37,500   $1.28 per  Jan 2004
            over service  period              shares      share
04/05/1999  Warrants issued for investment
            banker services $18,100 value
            charged to professional fees         37,500   $1.29 per  Apr 2004
            over service period               shares      share

                                                                            F-22

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

Notes to Consolidated Financial Statements
June 30, 2000 and 1999

NOTE J - CERTAIN CAPITAL TRANSACTIONS (CONTINUED)

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

02/23/1999  Consultant warrant for investor
            relations $1,307 value charged to     3,000   $1.09 per  Feb 2004
            professional fees                  shares     share
04/21/1999  Consultant warrant for web site
            development services $1,547 value     5,000   $1.50 per  Apr 2004
            charged to professional fees       shares     share
05/18/1999  Consultant warrant for web site
            advisory services $1,848 value        5,000   $. 93 per  Apr 2004
            charged to professional fees       shares     share
04/21/1999  Warrant issued for management
            consultant services $1,547 value      5,000   $.93 per   Apr 2004
            charged to professional fees       shares     share
05/18/1999  Warrant issued for management
            consultant services $370 value        1,000   $.93 per   May 2004
            charged to professional fees       shares     share
07/01/1999  Warrants issued for convertible
            debentures finders fee $5,745
            value charged to professionalfees    10,000   $.93 per   July 2004
            over term of debentures           shares      share
08/01/1999  Warrants issued for convertible
            debentures finders fee $4,187
            value charged to professional        10,000   $.93 per   Aug 2004
            fees over term of debentures      shares      share
07/05/1999  Warrants for investment banker
            services $12,944 value charged to
            professional fees over service       37,500   $1.30 per  July 2004
            period                            shares      share
10/05/1999  Warrants for investment banker
            services $6,042 value charged to
            professional fees over service       37,500   $1.30 per  Oct 2004
            period                            shares      share
03/31/2000  Warrants issued for services
            $10,000 value charged to website     10,000   $1.50 per  Mar 2005
            development                       shares      share
05/26/2000  Warrants issued as additional
            interest on debt $33,264 value       60,000   $1.50 per  May 2005
            charged to interest expense       shares      share
06/28/2000  Warrants issued with preferred
            stock placement.  Equity            125,000   $3.00 per  June 2005
            transaction                      shares       share
06/28/2000  Warrants issued with preferred
            stock placement.  Equity             85,499   $1.60 per  June 2005
            transaction                      shares       share

Warrants issued for services or in connection with debt are valued at fair value
at grant date using the  Black-Scholes  pricing  model and charged to operations
consistent  with the  underlying  reason the warrants  were  issued.  Charges to
operations in connection with these warrants  amounted to approximately  $72,000
and $160,000 in fiscal 2000 and 1999 respectively.

In February 1998, the company received  $950,000 in exchange for the issuance of
Series B convertible  preferred  stock and warrants to purchase 49,990 shares of
Class A common stock. The warrants are exercisable at $2.31 per share and expire
in 2001.  The number of shares of Class A common stock into which the  preferred
stock may be  converted  is equal to 80% of the closing bid price of the Class A
common  stock as  reported  by  NASDAQ  for the five  trading  days  immediately
preceding  the  conversion  which  resulted in a deemed  dividend of $190,000 in
fiscal 1998. Cumulative preferred dividends are at the rate of $60 per share per
year, payable quarterly. Dividends are payable in cash or in shares of preferred
stock at $1,000 per share.  For the year ended June 30, 2000 and 1999  dividends
on the series B preferred  stock  amounted to $22,809 and $42,110  respectively.
During the fiscal year ended June 30, 2000 and 1999 the company issued 18 and 53
shares of series B preferred stock,

                                                                            F-23

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

Notes to Consolidated Financial Statements
June 30, 2000 and 1999

NOTE J - CERTAIN CAPITAL TRANSACTIONS (CONTINUED)

respectively,  in payment of dividends in lieu of cash. The series B convertible
preferred  stock  agreement  carries with it a $2.00  minimum  conversion  price
guarantee.  If the actual  computed  conversion  price is lower than the minimum
conversion price, the company was originally required to issue a promissory note
for the  difference  between the market  value of the shares to be issued at the
conversion price and at the minimum conversion price. Subsequent to the issuance
of the preferred stock, the company obtained the right to issue either shares of
common stock or promissory notes for the "price guarantee"  differential.  As of
June 30, 2000 all series B convertible  preferred has been converted into shares
of class A common stock which resulted in a dividend  charge of $566,703 for the
year ended June 30, 2000.

In December 1998, the company issued $500,000 in 12%  convertible  debentures to
private investors.  These debentures require quarterly interest payments and are
convertible  in $1,000  increments  for 500 shares of PHC,  Inc.  class A common
stock.  In conjunction  with this debt placement the company has issued warrants
to purchase  10,000 shares of PHC, Inc. class A common stock at $2.00 per share,
15,000 shares of PHC,  Inc.  class A common stock at $1.50 per share and 175,000
shares of PHC, Inc. class A common stock at $1.00 per share.

On March 26, 1998 the company  issued  227,347  shares of the company's  Class A
Common Stock to the former owners of Behavioral Stress Centers, Inc. now BSC-NY,
Inc. in full  payment for the earn-out due to be paid to them for the year ended
October 31, 1997 resulting in additional goodwill.  Of the 227,347 shares issued
127,924  were issued in lieu of cash and were  subject to a price  guarantee  of
$2.35,  payable in  shares.  Under the price  guarantee  the  company  issued an
additional  304,097  shares of Common  Stock in the quarter  ended  December 31,
1998. The value of the guarantee shares issued was recorded as interest expense.

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

Each share of preferred stock may be converted at any time, in whole or in part,
for the number of shares of common stock calculated by multiplying the number of
shares of preferred  stock to be  converted by the stated value of $10.00,  plus
accrued and unpaid dividends and divided by the applicable conversion price. The
conversion price is equal to the lesser of 125% of the closing bid price for the
Common Stock on the closing date of the agreement (subject to adjustment for any
stock-split  or stock  combination to occur after the date of the agreement) and
97% of the market  price (the  arithmetic  mean of the closing bid prices of the
common  stock as reported  on Nasdaq for the five  consecutive  trading  days on
which the lowest closing bid prices are reported during any valuation period) on
the date of conversion;  provided that any unconverted preferred stock remaining
211 days after the closing date may be converted at a conversion price per share
of common stock equal to 94% of the market price;  provided,  further,  that any
unconverted  preferred  stock  remaining  271 days after the closing date may be
converted  at a  conversion  price per share of common stock equal to 91% of the
market price; and provided, further, that if the  common stock is delisted   off

                                                                           F-24

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

Notes to Consolidated Financial Statements
June 30, 2000 and 1999

NOTE J - CERTAIN CAPITAL TRANSACTIONS (CONTINUED)

Nasdaq for any reason,  then any remaining  unconverted  preferred  stock may be
converted  at a  conversion  price per share of common stock equal to 50% of the
market  price.  At the  company's  option,  the  amount of  accrued  and  unpaid
dividends  as of the date of a  conversion  (whether or not earned or  declared,
whether or not there were funds  legally  available for the payment of dividends
and  whether  or not a dividend  payment  due date has  occurred  since the last
dividend  payment) shall not be subject to conversion but instead may be paid in
cash as of the  conversion  date; if the company elects to convert the amount of
such accrued and unpaid  dividends at the conversion date into common stock, the
common stock issued to the investor shall be valued at the applicable conversion
price.

Under  existing  dilution  agreements  with other  stockholders  the issuance of
common stock under  agreements other than the employee stock purchase and option
plans will  increase  the number of shares  issuable  and  decrease the exercise
price of certain of the above warrant agreements based on the difference between
the then  current  market  price and the price at which the new common  stock is
being  issued.  The dilutive  effect of  transactions  through June 30, 2000 are
reflected in the table above.


NOTE K - ACQUISITIONS

In  September  1996,  the  company  purchased  the  assets  of seven  outpatient
behavioral  health  centers  located  in  Michigan  ("NPP").  The  centers  were
purchased  for $532,559 and 15,000  shares of Class A common stock of PHC,  Inc.
valued at $5.04 per share. The company borrowed $900,000 (see Note C) to finance
the purchase  and to provide  working  capital for the centers.  As of June 2000
this note has been paid in full.

On  November 1, 1996,  BSC-NY,  Inc.  ("BSC"),  merged  with  Behavioral  Stress
Centers,  Inc.,  a  provider  of  management  and  administrative   services  to
psychotherapy  and  psychological   practices  in  the  greater  New  York  City
Metropolitan  Area. In connection with the merger,  the company advanced 150,000
shares  of PHC,  Inc.  Class A common  stock and  funds to  Rubenfaer  Physician
Services,  P.C.  formerly  Shliselberg  Physician  Services,  P.C., and formerly
Perlow Physicians, P.C., ("Rubenfaer"),  which were in turn issued to the former
owners of Behavioral  Stress Centers,  Inc. to acquire the assets of the medical
practices  previously  serviced  by BSC.  At June 30,  2000  Rubenfaer  owed the
company  $4,364,510  which includes some  acquisition  costs,  management  fees,
working capital  advances and interest on the advances net of repayments.  Total
interest  charged to  Rubenfaer  by the company was  $378,768 for the year ended
June 30, 1999. No interest was charged  during the year ended June 30, 2000. The
company expects these amounts to be paid in full;  however,  in consideration of
the period of time expected for repayment,  the level of  Rubenfaer's  cash flow
and the  changing  healthcare  environment,  the  company  established  reserves
related to these  receivables.  During  fiscal  1998 the company  established  a
reserve against this receivable in the amount of $382,000. The company increased
the reserve to $782,000 in the fiscal year ended June 30, 1999 and approximately
$1,125,000  in the  fiscal  year  ended  June  30,  2000.  It is  expected  that
collections will be received over the next several years and accordingly,  these
amounts have been  classified as noncurrent  related  party  receivables  on the
company's balance sheet. The company has no ownership interest in Rubenfaer.

                                                                            F-25

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

Notes to Consolidated Financial Statements
June 30, 2000 and 1999

NOTE K - ACQUISITIONS (CONTINUED)

The merger agreement requires additional purchase price to be paid by BSC to the
former owners of Behavioral  Stress Centers,  Inc. for the three years following
the merger date.  The  additional  purchase  price is based on the income of BSC
before taxes and is to be paid in PHC stock,  at market value up to $200,000 and
the  balance,  if any, in cash.  On March 26, 1998 the  company  issued  227,347
shares of the company's  Class A Common Stock to the former owners of Behavioral
Stress Centers, Inc. now BSC-NY, Inc. in full payment for the earn-out due to be
paid to them for the  year  ended  October  31,  1997  resulting  in  additional
goodwill.  Of the 227,347  shares issued 127,924 were issued in lieu of cash and
were subject to a price guarantee of $2.35,  payable in shares.  Under the price
guarantee the company issued an additional 304,097 shares of Common Stock in the
fiscal year ended June 30, 1999.  The value of the  guarantee  shares issued was
recorded as interest expense.

In August 2000 the company  reached an agreement  with the former  owners on the
terms and amount of the final earn out  payment.  This  payment  was made in the
form of Notes  totaling  $700,000  and 414,815  shares of class A common  stock,
valued at $297,500,  which was recorded as additional  goodwill.  This agreement
was  effective  May  2000  and is  reflected  in the  accompanying  consolidated
financial statements. Accrued expenses includes $297,500 at June 30, 2000, which
reflects the obligation for the 414,815 shares issued in August 2000.

BSC also entered into a management  agreement with Rubenfaer whereby  management
fees are required of Rubenfaer on a monthly  basis over a five-year  period with
an automatic renewal for an additional  five-year period. The management fee was
calculated  at 25% of the total  monthly  expenses of  Rubenfaer  and  effective
November  1,  1999  the  management  agreement  was  amended  to  provide  for a
management fee equal to the expenses of BSC-NY, Inc. plus $10,000 per month.

Summary,  unaudited  financial  information for Rubenfaer as of and for the year
ended June 30, 2000 is as follows:

                   Total assets                  $  3,531,721
                   Stockholder's deficit         $ (1,125,054)
                   Net revenue                   $  3,139,254
                   Net loss                      $   (343,141)

NOTE L - FOURTH QUARTER ADJUSTMENTS

The company  reversed  approximately  $405,000 in the fourth quarter of interest
income charged to Rubenfaer Physician Services,  P. C. due to the P.C.'s limited
available cash flow.

                                                                            F-26

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

Notes to Consolidated Financial Statements
June 30, 2000 and 1999

NOTE M - BUSINESS SEGMENT INFORMATION

   The company's  behavioral  health  treatment  services have similar  economic
   characteristics,  services, patients and clients. Accordingly, all behavioral
   health  treatment  services  are  reported  on an  aggregate  basis under one
   segment.  The  company's  segments are more fully  described in Note A above.
   Residual  Income and  expenses  from closed  facilities  are  included in the
   administrative  services  segment.  The  following  summarizes  the company's
   segment data:
<TABLE>
<S>                    <C>         <C>             <C>          <C>            <C>
                                        BEHAVIORAL HEALTH
                       TREATMENT   ADMINISTRATIVE   ONLINE
                       SERVICES       SERVICES     SERVICES    ELIMINATIONS    TOTAL
                      ________________________________________________________
      2000
 Revenues - external
   customers           $18,675,840  $ 1,702,920            0                0   $20,378,760
 Revenues -
   intersegment                  0  $ 1,819,000    $   9,669     $ (1,828,669)            0
 Segment profit (loss) $ 1,690,314  $(1,818,723)   $(484,262)              0   $   (612,671)
 Total assets          $ 9,524,005  $27,608,700    $  63,200     $(21,308,096) $ 15,887,809
 Capital expenditures  $    41,593  $    38,785    $  68,979                0  $    149,357
  Depreciation  &
   amortization        $   233,064  $   114,082    $   9,495                0  $    356,641
 Change in
   accounting principle
  (amortization)       $    54,700  $    16,418    $   1,332                0  $     72,450

         1999
 Revenues - external
   customers           $16,992,290  $ 2,147,206            0                0  $ 19,139,496
 Revenues -
   intersegment                  0  $ 1,716,000            0     $ (1,716,000)            0
 Segment profit
   (loss)              $   742,798  $(2,087,321)   $  (9,563)               0  $(1,354,086)
 Total assets          $10,062,022  $23,862,255            0     $(19,116,286) $ 14,807,991

 Capital expenditures  $   101,384  $    13,870            0                0  $    115,254
  Depreciation  &
   amortization        $   219,426  $   106,338            0                0  $    325,764
</TABLE>

NOTE N - SUBSEQUENT EVENTS

On August 24, 2000 the company  entered into a letter of  agreement  through its
Internet subsidiary, Behavioral Health Online, Inc. (BHO) to purchase all of the
outstanding stock of  TherapyRightNow.com  in exchange for a minority  ownership
interest in Behavioral  Health Online,  Inc. This transaction is set to occur no
later   than   October   31,   2000   if   certain    contingencies   are   met.
TherapyRightNow.com  is an internet company with proven  technology and wellness
programs  which  will  be  used  on  the  BHO  website  upon  completion  of the
transaction.
                                                                            F-27

                                     - 49 -
<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,  2000 are as
follows:

            Name                  Age                   Position
            ____                  ___                   ________
Bruce A. Shear                     45  Director, President and Chief Executive
                                         Officer
Robert H. Boswell                  51  Senior Vice President
Paula C. Wurts                     51  Controller, Treasurer and Assistant Clerk
Gerald M. Perlow, M.D. (1)(2)      62  Director and Clerk
Donald E. Robar (1)(2)             63  Director
Howard W. Phillips                 70  Director
William F. Grieco (1)              46  Director

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

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

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

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

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

     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.

                                     - 50 -
<PAGE>
     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.  From October 30, 1996 to March 1, 1997, Dr. Perlow served
as President and Director of Rubenfaer Physician Services,  P.C. formerly Perlow
Physicians,  P.C. which has a management contract with BSC. Dr. Perlow currently
holds no ownership  interest in Rubenfaer  Physician  Services,  P.C. Dr. Perlow
received  compensation  of  $8,333  for  the  period.  Dr.  Perlow  served  as a
consultant to Wellplace.com, formerly Behavioralhealthonline.com, in fiscal year
2000 and has been a  contributing  journalist to  Wellplace.com  since 1999. Dr.
Perlow  received a B.A.  from  Harvard  College  in 1959 and an M.D.  from Tufts
University School of Medicine in 1963.

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

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

     WILLIAM F. GRIECO has served as a Director of the  company  since  February
18, 1997. Since August 1999 Mr. Grieco has been a self-employed  law consultant.
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.  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.

Compliance With Section 16(A) Of The Exchange Act

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

ITEM 10.    Executive compensation.  Employment agreements

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

Executive Compensation

     Three executive  officers of the company received  compensation in the 2000
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 2000, 1999 and 1998:

                                     - 51 -
<PAGE>
<TABLE>
<S>                  <C>       <C>        <C>     <C>        <C>          <C>
                           Summary Compensation Table
                                                              Long Term
                               Annual Compensation            Compensation
                                                              Awards
 (a)                     (b)     (c)      (d)     (e)            (g)
Name and                                         Other        Securities       (i)
Principal                                        Annual       Underlying    All Other
Position                 Year  Salary    Bonus   Compensation Options/SARs  Compensation
                                ($)        ($)     ($)            (#)         ($)
___________________________________________________________________________________________
Bruce A. Shear          2000    $300,195(1)   --     $10,159(2)    50,000      $22,517
 President and          1999    $300,195(1)   --     $ 7,940(3)    50,000      $21,622
 Chief Executive        1998    $309,167(1)   --     $ 9,813(4)    50,000      $51,256
 Officer

Robert H. Boswell       2000    $116,000  $32,200    $12,846(5)    26,666      $14,261
 Senior Vice            1999    $111,083  $   800    $ 7,955(6)    65,000      $29,753
 President              1998    $102,750      --     $ 7,836(7)    15,000      $14,149

Paula C. Wurts          2000    $ 90,800  $13,500    $ 9,642(8)    33,334      $17,263
 Controller, Treasurer  1999    $ 85,883       --    $ 8,950(9)    20,000      $ 9,055
 And Assistant Clerk    1998    $ 77,700       --    $ 8,547(10)   10,000      $ 9,720
</TABLE>

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

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

(3)This amount  represents  $2,791 contributed  by the company to the company's
   Executive  Employee  Benefit Plan on behalf of Mr. Shear,  $2,792 in premiums
   paid by the company  with  respect to life  insurance  for the benefit of Mr.
   Shear and $2,357 personal use of a company car held by Mr. Shear.

(4)This amount  represents  $2,791  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, and $2,254 personal use of a company car held by Mr. Shear.

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

(6)This amount  represents a $6,000  automobile  allowance,  $357 contributed by
   the company to the company's Executive Employee Benefit Plan on behalf of Mr.
   Boswell,  $704 in other benefits paid by the company on behalf of Mr. Boswell
   and $894 in benefit  derived from the purchase of shares through the employee
   stock purchase plan.

(7)This amount  represents a $6,000  automobile  allowance,  $408 contributed by
   the company to the company's Executive Employee Benefit Plan on behalf of Mr.
   Boswell,  $408 in other benefits paid by the company on behalf of Mr. Boswell
   $115 in Class A Common Stock issued to employees and $905 in benefit  derived
   from the purchase of shares through the employee stock purchase plan.

(8)This amount represents a $4,800 automobile  allowance,  $3,878 contributed by
                                     - 52 -
<PAGE>
   the company to the company's Executive Employee Benefit Plan on behalf of Ms.
   Wurts and $964 in benefit  derived  from the  purchase of shares  through the
   employee stock purchase plan.

(9)This amount represents a $4,800 automobile  allowance,  $3,940 contributed by
   the company to the company's Executive Employee Benefit Plan on behalf of Ms.
   Wurts and $210 in benefit  derived  from the  purchase of shares  through the
   employee stock purchase plan.

(10) This amount represents a $4,650 automobile allowance, $3,250 contributed by
   the company to the company's Executive Employee Benefit Plan on behalf of Ms.
   Wurts,  $115 in Class A Common Stock issued to employees  and $532 in benefit
   derived from the purchase of shares through the employee stock purchase plan.

COMPENSATION OF DIRECTORS

Directors who are employees of the company receive no compensation  for services
as members of the Board.  Directors who are not employees of the company receive
$2,500  stipend  per year and $1,000  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

The Compensation  Committee  consists of Mr. Donald Robar and Dr. Gerald Perlow.
The  compensation  Committee  met once during  fiscal  2000.  Mr. Shear does not
participate in discussions concerning, or vote to approve, his salary.

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.  The
Stock Plan provides for the issuance of a maximum of 300,000 shares of the Class
A Common Stock of the company  pursuant to the grant of incentive  stock options
to employees and the grant of nonqualified  stock options or restricted stock to
employees, directors,  consultants and others whose efforts are important to the
success of the company.

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

                                     - 53 -
<PAGE>

During  the fiscal  year ended June 30,  2000,  the  company  issued  additional
options to purchase  271,000 shares of Class A Common Stock under the 1993 Stock
Plan at a price per share  ranging  from $.81 to $1.50.  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. One hundred thousand of the options issued during the current fiscal year
were issued with immediate vesting of 50% and the balance vested in year five of
the ten year life of the options.

A total of 9,375  options  were  exercised  at $1.25 each during the fiscal year
ended June 30, 2000. No options were exercised during the fiscal year ended June
30, 1999.

On November 17, 1997 the Board of  Directors  voted to amend the 1993 Stock Plan
to increase the number of shares of Class A Common Stock  available for issuance
under the plan from 300,000 shares to 400,000 shares. The Stockholders  approved
this amendment at the annual meeting on December 26, 1997. On September 15, 1998
the Board of Directors voted to amend the 1993 Stock Plan to increase the number
of shares of Class A Common Stock  available  for  issuance  under the plan from
400,000 shares to 1,000,000 shares. The Stockholders  approved this amendment at
the annual meeting on December 23, 1998.

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.  A total of 52,000  shares of class A common
stock have been issued under this plan since the first  offering  which began on
February 1, 1997 through the latest  completed  offering  which ended in January
2000.  Eighteen employees are participating in the current offering period under
the plan, which began on February 1, 2000 and will end on January 31, 2001.

On November 17, 1997 the Board of Directors  voted to amend The Plan to increase
the number of shares of Class A Common Stock  available  for issuance  under the
plan from 100,000  shares to 150,000  shares.  The  Stockholders  approved  this
amendment to the plan at the annual meeting on December 26, 1997.

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.  Non-qualified  options to purchase a
total of 30,000 shares of Class A Common Stock are available for issuance  under
the Director Plan.

The Board of  Directors  or a committee  of the Board  administers  the Director
Plan.  Under the Director Plan,  each director of the company who was a director
at the time of adoption of the Director Plan and who was not a current or former
employee of the company  received an option to purchase that number of shares of
Class A Common  Stock as equals 500  multiplied  by the years of service of such
director  as of the date of the  grant.  At the  first  meeting  of the Board of
Directors  subsequent to each annual meeting of stockholders,  each non-employee
director is granted under the Director  Plan an option to purchase  2,000 shares
of the Class A Common Stock of the  company.  The 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


                                     - 54 -
<PAGE>
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. As of June
30, 2000, none of the options issued had been exercised.

On November 17, 1997 the Board of Directors  voted to amend the Director Plan to
increase  the number of shares of Class A Common  Stock  available  for issuance
under the plan from 30,000 shares to 50,000 shares.  The  Stockholders  approved
the amendment to the plan at the annual meeting on December 26, 1997.

                                     - 55 -
<PAGE>

The following  table  provides  information  about options  granted to the named
executive  officers during fiscal 2000 under the company's Stock Plan,  Employee
Stock Purchase Plan and Non-Employee Director Stock Plan.


                    Individual Grants
(a)                 (b)            (c)                 (d)             (e)
                    Number of      % of
                    Securities     Total
                    Underlying     Options/SARs   Exercise or
                    Options/SARs   Granted        Base          Expiration
Name                Granted (#)    to             Price           Date
                                   Employees      ($/Share)
                                   in Fiscal
                                   Year
_______________________________________________________________________________
Bruce A. Shear          50,000        18.5%        $1.00        2/10/2010
Robert H. Boswell       16,666         6.1%        $1.00        2/10/2010
                        10,000         3.7%        $1.50        4/25/2005
Paula C. Wurts          23,334         8.6%        $1.00        2/10/2010
                        10,000         3.7%        $1.50        4/25/2005
All Directors and
 Officers as a
 group (7 Persons)     158,000        58.3%        $.81-$1.50   12/23/2004-
                                                                2/10/2010
   The following table provides information about options exercised by the named
executive  officers  during fiscal 1999 and the number and value of options held
at the end of fiscal 1999.

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

Bruce A. Shear              --        --     87,500/62,500    $5,250/$5,250
Robert H. Boswell           --        --     88,583/51,483    $1,583/$1,583
Paula C. Wurts              --        --     49,417/31,667    $2,216/$2,216
All Directors and
Officers as a
group (7 persons)           --        --     312,000/206,650  $10,450/$11,970

In February 1997, all 95,375 shares  underlying  the then  outstanding  employee
stock  options were  repriced to the current  market  price,  using the existing
exercise  durations.  In September 1998, all 21,875 options due to expire,  were
extended  for an  additional  five years.  Also in September  1998,  all 183,875
shares  underlying the then outstanding  employee stock options were repriced to
the current market price, using the existing exercise durations.




                                     - 56 -
<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 31,
2000 by each person known by the company to beneficially own more than 5% of any
class of the company's voting securities,  each director of the company, each of
the  named  executive  officers  as  defined  in 17 CFR  228.402(a)(2)  and  all
directors  and officers of the company as a group.  Unless  otherwise  indicated
below,  to the  knowledge  of the  company,  all persons  listed below have sole
voting and investment power with respect to their shares of Common Stock, except
to the extent  authority is shared by spouses under applicable law. In preparing
the following table, the company has relied on the information  furnished by the
persons listed below:


                             Name and Address      Amount and       Percent
                            of Beneficial Owner    Nature            of
    Title of Class                                 of Beneficial    Class
                                                   Owner            (11)
_______________________________________________________________________________
Class A Common Stock    Gerald M. Perlow           43,553(1)         *
                        c/o PHC, Inc.
                        200 Lake Street
                        Peabody, MA   01960

                        Donald E. Robar            40,053(2)         *
                        c/o PHC, Inc.
                        200 Lake Street
                        Peabody, MA   01960

                        Bruce A. Shear            111,533(3)         1.5%
                        c/o PHC, Inc.
                        200 Lake Street
                        Peabody, MA   01960

                        Robert H. Boswell         120,191(4)         1.6%
                        c/o PHC, Inc.
                        200 Lake Street
                        Peabody, MA   01960

                        Howard W. Phillips         28,053(5)         *
                        P. O. Box 2047
                        East Hampton, NY 11937

                        William F. Grieco          38,053(6)         *
                        115 Marlborough Street
                        Boston, MA   02116

                        Paula C. Wurts             67,868(7)         *
                        c/o PHC, Inc.
                        200 Lake Street
                        Peabody, MA   01960

                        All Directors and         449,304(8)         6.0%
                        Officers  as a
                        Group
                        (7 persons)


                                     - 57 -
<PAGE>
                            Name and Address      Amount and       Percent
                            of Beneficial Owner    Nature            of
    Title of Class                                 of Beneficial    Class
                                                   Owner            (11)
_______________________________________________________________________________
Class B Common Stock
(9)                     Bruce A. Shear          671,259(10)      92.3%
                        c/o PHC, Inc.
                        200 Lake Street
                        Peabody, MA   01960

                        All Directors and         671,259        92.3%
                        Officers as a Group
                        (7 persons)
* Less than 1%.
1.   Includes 26,000 shares  issuable  pursuant to currently  exercisable  stock
     options or stock options which will become  exercisable  within sixty days,
     having an  exercise  price  range of $.81 to $6.63 per share.
2.   Includes 29,500 shares  issuable  pursuant to currently  exercisable  stock
     options or stock options which will become  exercisable  within sixty days,
     having an exercise price range of $.81 to $6.63 per share.
3.   Includes  100,000  shares  of Class A Common  Stock  issuable  pursuant  to
     currently  exercisable  stock  options,  having an exercise  price range of
     $1.00 to $2.63 per share.
4.   Includes an  aggregate of 103,583  shares of Class A Common Stock  issuable
     pursuant to currently  exercisable stock options at an exercise price range
     of $1.00 to $1.50 per share.
5.   Includes 20,500 shares  issuable  pursuant to currently  exercisable  stock
     options having an exercise price range of $.81 to $3.50 per  share.
6.   Includes  20,500  shares  of  Class A Common  Stock  issuable  pursuant  to
     currently exercisable stock options, having an exercise price range of $.81
     to $3.50 per share.
7.   Includes  54,417  shares  of  Class A Common  Stock  issuable  pursuant  to
     currently  exercisable  stock  options,  having an exercise  price range of
     $1.00 to $1.50 per share.
8.   Includes an  aggregate  of 354,500  shares  issuable  pursuant to currently
     exercisable stock options.  Of those options,  5,500 have an exercise price
     of $6.63 per  share,  10,000  have an  exercise  price of $5.00 per  share,
     26,000 have an exercise  price of $3.50 per share,  50,000 have an exercise
     price of $2.63 per share,  4,500 have an exercise price of $2.06 per share,
     10,000 have an exercise price of $1.50 per share,  160,000 have an exercise
     price of $1.25 per share, 12,500 have an exercise price of $1.20 per share,
     25,000  have an exercise  price of $1.17 per share,  4,000 have an exercise
     price of $1.03 per share,  45,000 have an exercise price of $1.00 per share
     and 2,000 have an exercise price of $.81 per share.
9.   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.
10.  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.
11.  Represents percentage of equity of class, based on numbers of shares listed
     under the column headed "Amount and Nature of Beneficial  Ownership".  Each
     share of Class A Common  Stock is  entitled  to one vote per share and each
     share of Class B Common  Stock is  entitled  to five votes per share on all
     matters on which  stockholders  may vote  (except  that the  holders of the
     Class A Common  Stock are  entitled to elect two  members of the  company's
     Board of Directors  and holders of the Class B Common Stock are entitled to
     elect all the remaining members of the company's Board of Directors).

                                     - 58 -
<PAGE>

     By  virtue of the fact that  class B  shareholders  have the right to elect
three of the five  members of the Board of  Directors  and Mr. Shear owns 92% of
the class B shares,  Mr. Shear has the right to elect the nominees and therefore
control the Board of Directors.

     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 31, 2000:

                  Bruce A. Shear ............................30.96%
                  All Directors and Officers as a Group
                     (7 persons).............................33.23%

ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS.

Related Party Indebtedness

     For approximately the last twelve 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, 2000,  the company
owed an aggregate of $200,000 to related parties.

     During the period  ended June 30,  2000,  the  company  paid Mr.  Shear and
affiliates approximately $28,500 in principal and accrued interest under various
notes.  As of June 30,  2000,  the  company  owed Bruce A. Shear  $100,000  on a
promissory  note,  which is dated August 13, 1998, bears interest at the rate of
12% per year and is payable on demand and Tot Care,  Inc., an affiliate of Bruce
A. Shear, $100,000 on promissory notes dated May 28, 1998 and June 9, 1998 which
bear interest at the rate of 12% per year and are payable on demand.


                                     - 59 -
<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).
         3.2 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 Vote of Directors  establishing a Series of a Class
             of stock. (Filed with the SB-2/A dated June 3, 1997.
         4.1 Form of Warrant  Agreement.  (Filed as exhibit 4.1 to the company's
             Registration Statement on March 2, 1994).
         4.2 Form  of  Unit  Purchase  Option.  (Filed  as  exhibit  4.4  to the
             company's Registration Statement on March 2, 1994).
         4.3 Warrant  issued  to  Robert  A.  Naify,  Marshall  Naify,  Sarah M.
             Hassanein  and  Whitney  Gettinger.  (Filed as  exhibit  4.6 to the
             company's  Registration  Statement  on Form 3 dated March 12, 1996.
             Commission file number 333-71418).
         4.5 Warrant  Agreement  issued  to Alpine  Capital  Partners,  Inc.  to
             purchase 25,000 Class A Common shares dated October 7, 1996. (Filed
             as exhibit 4.15 to the company's  Current Report on Form 8-K, filed
             with the  Securities  and  Exchange  Commission  November  5, 1996.
             Commission file number 0-22916).
         4.6 Warrant  Agreement  issued  to  Barrow  Street  Research,  Inc.  to
             purchase  3,000 Class A Common  shares  dated  February  18,  1997.
             (Filed as exhibit 4.17 to the company's  Registration  Statement on
             Form SB-2 dated April 15, 1997. Commission file number 333-25231).
         4.7 Consultant Warrant Agreement by and between PHC, Inc., and C.C.R.I.
             Corporation  dated March 3, 1997 to purchase 160,000 shares Class A
             Common Stock.  (Filed as an exhibit to the  company's  Registration
             Statement on Form SB-2 dated April 15, 1997. Commission file number
             333-25231).
         4.8 Warrant  Agreement by and between PHC, Inc. and ProFutures  Special
             Equities  Fund,  L.P.  for  50,000  shares of Class A Common  Stock
             dated   6/4/97.   (Filed   as   exhibit   4.22  to  the   company's
             Registration   Statement   on  Form  SB-2  dated  April  15,  1997.
             Commission file number 333-25231).
         4.9 Warrant  Agreement by and between PHC, Inc. and ProFutures  Special
             Equities Fund, L.P. for up to 86,207 shares of Class A Common Stock
             dated 09/19/97.  (Filed as exhibit 4.25 to the company's  report on
             Form 10-KSB,  filed with the Securities and Exchange  Commission on
             October 14, 1997. Commission file number 0-22916).
        4.10 Transfer  from  Seacrest  Capital   Securities  of  PHC,  Inc.  and
             securities  to Summit  Capital  Limited dated  12/19/97.  (Filed as
             exhibit 4.26 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).
        4.11 Warrant  Agreement by and between PHC, Inc. and ProFutures  Special
             Equities Fund, LP for 3,000 shares of Class A Common Stock.  (Filed
             as exhibit 4.27 to the company's  Current Report on Form 8-K, filed
             with the  Securities  and  Exchange  Commission  on April 29, 1998.
             Commission file number 0-22916).

                                     - 60 -
<PAGE>
Exhibit No.                              Description

        4.12 Subscription  Agreements  and  Warrants  for  Series B  Convertible
             Preferred Shares and Warrants by and between PHC, Inc.,  ProFutures
             Special Equities Fund,  L.P., Gary D. Halbert,  John F. Mauldin and
             Augustine Fund,  L.P. dated March 16, 1998.  (Filed as exhibit 4.28
             to the  company's  Current  Report  on Form  8-K,  filed  with  the
             Securities  and Exchange  Commission on April 29, 1998.  Commission
             file number 0-22916).
        4.13 Warrant to purchase up to 52,500  shares of Class A Common Stock by
             and between PHC,  Inc.,  and HealthCare  Financial  Partners,  Inc.
             dated  March 10,  1998.  (Filed as  exhibit  4.16 to the  company's
             Registration   Statement   on  Form  SB-2  dated  July  24,   1998.
             Commission file number 333-59927).
        4.14 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  4.15 to the  company's
             Registration   Statement   on  Form  SB-2  dated  July  24,   1998.
             Commission file number 333-59927).
        4.15 Warrant Agreement by and between Joan Finsilver and PHC, Inc. dated
             07/31/98 for 60,000 shares common stock.  (Filed as exhibit 4.16 to
             the  company's  report  on 10-KSB  filed  with the  Securities  and
             Exchange  Commission  on October 13, 1998.  Commission  file number
             0-22916.  Replaces  exhibit  4.23 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).
        4.16 Warrant  Agreement by and between Brean Murray and Company and PHC,
             Inc.  dated  07/31/98 for 90,000  shares  common  stock.  (Filed as
             exhibit  4.17 to the  company's  report  on 10-KSB  filed  with the
             Securities  and Exchange  Commission on October 13, 1998.  Replaces
             exhibit 4.23 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).
        4.17 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 4.18 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).
        4.18 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).
        4.19 12%  Convertible  Debenture  by and between PHC,  Inc.,  and Dean &
             Co.,  dated  December 3, 1998 in the amount of $500,000.  (Filed as
             exhibit 4.20 to the company's  report on Form 10-QSB dated February
             12, 1999.  Commission file number 0-22916).
        4.20 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).
        4.21 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).


                                     - 61 -
<PAGE>
Exhibit No.                              Description

        4.22 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).
        4.23 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).
        4.24 Warrant  Agreement  by and between  PHC,  Inc.,  and Barrow  Street
             Research for 3,000  shares of Class A Common  Stock dated  February
             23,  1999.  (Filed as exhibit  4.24 to the  company's  Registration
             Statement on Form S-3 dated April 13, 1999.  Commission file number
             333-76137).
        4.25 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).
        4.26 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 April 13, 1999. Commission file number 333-76137).
        4.27 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).
        4.28 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 to the  company's  report on Form  10-KSB  dated
             October 13, 1999. Commission file number 0-22916).
        4.29 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 to the  company's  report on Form  10-KSB  dated
             October 13, 1999. Commission file number 0-22916).
        4.30 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 to the  company's  report on Form  10-KSB  dated
             October 13, 1999. Commission file number 0-22916).
        4.31 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 to the  company's  report on Form
             10-KSB dated October 13, 1999. Commission file number 0-22916).
        4.32 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  to the  company's  report on Form
             10-KSB dated October 13, 1999. Commission file number 0-22916).
        4.33 Subscription  Agreement and Warrants Series B Convertible Preferred
             Shares and Warrants by and between PHC,  Inc.,  ProFutures  Special
             Equities  Fund,  L.P.,  Gary  D.  Halbert,   John  F.  Mauldin  and
             Augustine  Fund,  L.P.  dated March 16, 1998.  (Filed as exhibit to
             the  company's  report  on Form  10-KSB  dated  October  13,  1999.
             Commission file number 0-22916).

                                     - 62 -
<PAGE>
Exhibit No.                              Description

        4.34 Warrant to purchase  40,000  shares of Class A Common  Stock by and
             between  PHC,  Inc. and CCRI,  Inc. and Warrant to purchase  40,000
             shares of Class A Common  Stock by and between  PHC,  Inc.  and M&K
             Partners both dated  3/3/97;  replaces  warrant for 160,000  shares
             dated 3/3/97 by and between  PHC,  Inc.  and CCRI,  Inc.  (Filed as
             exhibit  to the  company's  report on Form  10-QSB  filed  with the
             Securities and Exchange Commission on May 11, 2000. Commission file
             0-22916).0-22916).
        4.35 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 to the  company's  Registration
             Statement on Form S-3 dated July 14, 2000.  Commission  file number
             333-41494).
        4.36 Common  Stock  Purchase  Warrant by and between  PHC,  Inc. and The
             Shaar  Fund Ltd.  dated  June 28,  2000.  (Filed as  exhibit to the
             company's  Registration  Statement on Form S-3 dated July 14, 2000.
             Commission file number 333-41494).
       *4.37 Common Stock  Purchase  Warrant by and between PHC, Inc. and Heller
             Healthcare  Finance,  Inc.  for  60,000  shares  of  Class A Common
             Stock.
        10.1 1993  Stock  Purchase  and  Option  Plan of PHC,  Inc.,  as amended
             December  26,  1997.  (Filed  as  exhibit  10.1  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).
        10.2 Warrant   Agreement  for  Bridge  financing  with  List  of  bridge
             investors holding warrant  agreements and corresponding  numbers of
             bridge units for which  warrant is  exercisable.  (Filed as exhibit
             10.6 to the  company's  Registration  Statement  on Form SB-2 dated
             March 2, 1994. Commission file number 33-71418).
        10.3 Lease Agreement between Palmer-Wells Enterprises and AIHS, Inc. and
             Edwin G. Brown, dated September 23, 1983, with Addendum dated March
             23, 1989,  and Renewal of Addendum  dated April 7, 1992.  (Filed as
             exhibit 10.14 to the company's  Registration Statement on Form SB-2
             dated March 2, 1994. Commission file number 33-71418).
        10.4 Note of PHC of  Virginia,  Inc.  in favor of  Himanshu S. Patel and
             Anna H.  Patel,  dated  April 1, 1995,  in the  amount of  $10,000.
             (Filed as  exhibit  10.29 to the  company's  annual  report on Form
             10-KSB.  Filed  with the  Securities  and  Exchange  on  October 2,
             1995.  Commission file number 0-22916).
        10.5 Note of PHC of  Virginia,  Inc.  in favor of  Mukesh  P.  Patel and
             Falguni M. Patel,  dated  April 1, 1993,  in the amount of $10,000.
             (Filed as exhibit 10.30 to the company's  Registration Statement on
             Form SB-2 dated March 2, 1994.  Commission file number 333-71418).
        10.6 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).
        10.7 Security Agreement Note of PHC of Virginia,  Inc. in favor of Mount
             Regis Center,  Inc., dated July 28, 1987, in the amount of $90,000,
             guaranteed  by PHC,  Inc.,  with  Security  Agreement,  dated  July
             1987.  (Filed  as  exhibit  10.34  to  the  company's  Registration
             Statement  on Form  SB-2  dated  March  2,  1994.  Commission  file
             number 333-71418).

                                     - 63 -
<PAGE>
Exhibit No.                              Description

        10.8 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).
        10.9 Lease  Agreement  by and between  Conestoga  Corp.  and PHC,  Inc.,
             dated  July 11,  1994.  (Filed as  exhibit  10.69 to the  company's
             annual  report  on Form  10-KSB,  filed  with  the  Securities  and
             Exchange  Commission on September 28, 1994.  Commission file number
             0-22916).
       10.10 Renewal of Lease Addendum between Palmer Wells  Enterprises and PHC
             of Utah,  Inc.,  executed  February  20,  1995.  (Filed as  exhibit
             10.73 to the  company's  annual  report on Form 10-KSB,  filed with
             the  Securities  and Exchange on October 2, 1995.  Commission  file
             number 0-22916)
       10.11 1995 Employee Stock  Purchase Plan.  (Filed as exhibit 10.74 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.
             As  amended  on Form S-8 dated  March  12,  1999.  Commission  File
             number 333-74373).
       10.12 1995 Employee Stock  Purchase Plan.  (Filed as exhibit 10.74 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.
             As  amended  on Form S-8 dated  March  12,  1999.  Commission  File
             number 333-74373).
       10.13 1995  Non-Employee  Director  Stock Option Plan.  (Filed as exhibit
             10.75 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.  As
             amended on Form S-8 dated March 12,  1999.  Commission  File number
             333-74373).
       10.14 Loan and  Security  Agreement of PHC of Nevada,  Inc.,  in favor of
             LINC Anthem Corporation,  dated November 7, 1995. (Filed as exhibit
             10.76 to the company's  Form 10-KSB,  filed with the Securities and
             Exchange Commission on October 4, 1996.)
       10.15 Secured  Promissory  Note in the amount of  $750,000 by and between
             PHC of Nevada,  Inc. and LINC Anthem Corp.  (Filed as exhibit 10.77
             to the  company's  Form  10-KSB,  filed  with  the  Securities  and
             Exchange Commission on October 4, 1996.)
       10.16 Stock   Pledge  by  and   between   PHC,   Inc.   and  Linc  Anthem
             Corporation.  (Filed as exhibit  10.81 to the  company's  report on
             Form 10-KSB,  filed with the Securities and Exchange  Commission on
             September 28, 1994. )
       10.17 Custodial Agreement by and between LINC Anthem Corporation and PHC,
             Inc. and Choate,  Hall and Stewart  dated July 25, 1996.  (Filed as
             exhibit  10.85 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).
       10.18 Loan and Security Agreement by and between  Northpoint-Pioneer Inc.
             and LINC Anthem  Corporation dated July 25, 1996. (Filed as exhibit
             10.86 to the company's quarterly report on Form 10-QSB,  filed with
             the  Securities  and  Exchange  Commission  on  December  5,  1996.
             Commission file number 0-22916).


                                     - 64 -
<PAGE>
Exhibit No.                              Description

       10.19 Corporate Guaranty by PHC, Inc., PHC of Rhode Island,  Inc., PHC of
             Virginia,  Inc.,  PHC of Nevada,  Inc. and LINC Anthem  Corporation
             dated  July 25,  1996  for  North  Point-Pioneer,  Inc.  (Filed  as
             exhibit  10.87 to the  company's  quarterly  report on Form 10-QSB,
             filed with the  Securities  and Exchange  Commission on December 5,
             1996. Commission file number 0-22916).
       10.20 Stock  Pledge and Security  Agreement by and between PHC,  Inc. and
             LINC Anthem  Corporation.  (Filed as exhibit 10.88 to the company's
             quarterly  report on Form  10-QSB,  filed with the  Securities  and
             Exchange  Commission  on December 5, 1996.  Commission  file number
             0-22916).
       10.21 Secured  Promissory Note of North  Point-Pioneer,  Inc. in favor of
             LINC  Anthem  Corporation  dated  July 25,  1996 in the  amount  of
             $500,000. (Filed as exhibit 10.89 to the company's quarterly report
             on Form 10-QSB,  filed with the Securities and Exchange  Commission
             on December 5, 1996. Commission file number 0-22916).
       10.22 Lease Agreement by and between PHC, Inc. and 94-19 Associates dated
             October 31, 1996 for BSC-NY,  Inc.  (Filed as exhibit  10.90 to the
             company's   quarterly  report  on  Form  10-QSB,   filed  with  the
             Securities and Exchange Commission on December 5, 1996.  Commission
             file number 0-22916).
       10.23 Note by and  between PHC Inc.  and Yakov  Burstein in the amount of
             $180,000. (Filed as exhibit 10.91 to the company's quarterly report
             on Form 10-QSB,  filed with the Securities and Exchange  Commission
             on December 5, 1996. Commission file number 0-22916).
       10.24 Note by and between PHC,  Inc. and Irwin  Mansdorf in the amount of
             $570,000. (Filed as exhibit 10.92 to the company's quarterly report
             on Form 10-QSB,  filed with the Securities and Exchange  Commission
             on December 5, 1996. Commission file number 0-22916).
       10.25 Employment Agreement by and between BSC-NY, Inc. and Yakov Burstein
             dated  November 1, 1996.  (Filed as exhibit  10.93 to the company's
             quarterly  report on Form  10-QSB,  filed with the  Securities  and
             Exchange  Commission  on December 5, 1996.  Commission  file number
             0-22916).
       10.26 Consulting Agreement by and between BSC-NY, Inc. and Irwin Mansdorf
             dated  November 1, 1996.  (Filed as exhibit  10.94 to the company's
             quarterly  report on Form  10-QSB,  filed with the  Securities  and
             Exchange  Commission  on December 5, 1996.  Commission  file number
             0-22916).
       10.27 Agreement and Plan of Merger by and among PHC, Inc., BSC-NY,  Inc.,
             Behavioral  Stress  Centers,   Inc.,  Irwin  Mansdorf,   and  Yakov
             Burstein  dated  October 31, 1996.  (Filed as exhibit  10.95 to the
             company's   quarterly  report  on  Form  10-QSB,   filed  with  the
             Securities and Exchange Commission on December 5, 1996.  Commission
             file number 0-22916).
       10.28 Employment  Agreement by and between  Perlow  Physicians,  P.C. and
             Yakov Burstein  dated November 1, 1996.  (Filed as exhibit 10.98 to
             the  company's  quarterly  report on Form  10-QSB,  filed  with the
             Securities and Exchange Commission on December 5, 1996.  Commission
             file number 0-22916).
       10.29 Agreement  for Purchase and Sale of Assets by and between  Clinical
             Associates and Clinical  Diagnostics and PHC, Inc.,  BSC-NY,  Inc.,
             Perlow Physicians,  P.C., Irwin Mansdorf,  and Yakov Burstein dated
             October  31,  1996.  (Filed  as  exhibit  10.99  to  the  company's
             quarterly  report on Form  10-QSB,  filed with the  Securities  and
             Exchange  Commission  on December 5, 1996.  Commission  file number
             0-22916).


                                     - 65 -
<PAGE>
Exhibit No.                              Description

       10.30 Consulting  Agreement  by and between Perlow  Physicians,  P.C. and
             Irwin Mansdorf dated November 1, 1996.  (Filed as exhibit 10.100 to
             the  company's  quarterly  report on Form  10-QSB,  filed  with the
             Securities and Exchange Commission on December 5, 1996.  Commission
             file number 0-22916).
      10.31 Mortgage by and between PHC of Michigan, Inc. and HCFP Funding Inc.
             dated  January  13,  1997 in the  amount of  $2,000,000.  (Filed as
             exhibit  10.106 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).
       10.32 Employment  Agreement for Dr. Himanshu Patel;  Employment Agreement
             for Dr. Mukesh Patel;  and Fringe  Benefit  Exhibit for both of the
             Patels'  Employment  Agreements.  (Filed as  exhibit  10.107 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).
       10.33 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).
       10.34 Amendment  number 1 to Loan and  Security  Agreement  dated May 21,
             1996 by and between PHC  of Utah,  Inc. and HCFP Funding  providing
             collateral  for  the  PHC  of  Michigan,  Inc.  Loan  and  Security
             Agreement.  (Filed as  exhibit  10.113 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).
       10.35 Employment  Agreement  by and between  Perlow  Physicians  P.C. and
             Nissan  Shliselberg,  M.D.  dated  March,  1997.  (Filed as exhibit
             10.114 to the company's  Registration  Statement on Form SB-2 dated
             April 15, 1997.  Commission file number 333-25231).
       10.36 Option and Indemnity  Agreement by and between PHC, Inc. and Nissan
             Shliselberg,  M.D. dated February,  1997.  (Filed as exhibit 10.115
             to the  company's  Registration  Statement on Form SB-2 dated April
             15, 1997.  Commission file number 333-25231).
       10.37 Secured  Term  Note  by and  between  PHC  of  Michigan,  Inc.  and
             Healthcare  Financial  Partners - Funding II, L.P. in the amount of
             $1,100,000  dated  March,  1997.  (Filed as  exhibit  10.116 to the
             company's  Registration  Statement  on Form  SB-2  dated  April 15,
             1997.  Commission file number 333-25231).
       10.38 Mortgage  between PHC of Michigan,  Inc. and  Healthcare  Financial
             Partners  - Funding  II,  L.P.  in the amount of  $1,100,000  dated
             March,  1997 for  Secured  Term Note.  (Filed as exhibit  10.117 to
             the company's  Registration  Statement on Form SB-2 dated April 15,
             1997.  Commission file number 333-25231).
       10.39 Submission of Lease  between PHC,  Inc. and  Conestoga  Corporation
             dated 11/09/95 for space at 200 Lake Street,  Suite 101b,  Peabody,
             MA 01960.  (Filed as exhibit  10.119 to the company's  Registration
             Statement on Form SB-2 dated April 15, 1997. Commission file number
             333-25231).
       10.40 Master  Equipment Lease Agreement by and between PHC, Inc. and LINC
             Capital  Partners  dated March 18, 1997 in the amount of  $200,000.
             (Filed as exhibit 10.121 to the company's Registration Statement on
             Form SB-2 dated April 15, 1997. Commission file number 333-25231).
       10.41 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)


                                     - 66 -
<PAGE>
Exhibit No.                              Description

       10.42 Master  Contract  by and  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,  filed  with the
             Securities and Exchange Commission on October 14, 1997.
             Commission file number 0-22916)
       10.43 Deed,  Deed of Trust and Deed Trust Note in the amount of  $540,000
             by and between Dillon and Dillon Associates and Pioneer  Counseling
             of Virginia,  Inc. (Filed as exhibit 10.124 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)
       10.44 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)
       10.45 Secured Term Note;  Mortgage;  Environmental  Indemnity;  Agreement
             Guaranty  by PHC,  Inc.;  and  Amendment  No. 2 Loan  and  Security
             Agreement by and between Healthcare Financial; and PHC of Michigan,
             Inc.  dated  December, 1997.  (Filed  as  exhibit   10.129  to  the
             company's Registration  Statement  on  Form  SB-2  dated January 8,
             1997.  Commission file number 333-25231).
       10.46 First Amendment to Sale and Purchase  Agreement by and between LINC
             Financial  Services,  Inc., LINC Finance Corporation VII and PHC of
             Rhode Island dated January 20, 1995 and Sale and Purchase Agreement
             dated  March 6,  1995.  (Filed as exhibit  10.132 to the  company's
             10-QSB dated February 17, 1998).
       10.47 Agreement by and between PHC,  Inc.,  and Irwin  Mansdorf and Yakov
             Burstein  dated  March 2,  1998.  (Filed as  exhibit  10.135 to the
             company's Current Report on Form 8-K, filed with the Securities and
             Exchange  Commission.  Commission  file number 0-22916 on April 29,
             1998).
       10.48 Secured  Bridge Loan to be made to PHC,  Inc.  by HCFP  Funding II,
             Inc. in the amount of  $350,000  dated  March 10,  1998.  (Filed as
             exhibit  10.136 to the company's  Current Report on Form 8-K, filed
             with  the  Securities  and  Exchange  Commission.  Commission  file
             number 0-22916 on April 29, 1998).
       10.49 First Amendment to Mortgage between PHC of Michigan,  Inc. and HCFP
             Funding,  Inc.  (Filed as Exhibit  10.137 to the  company's  10-QSB
             filed on May 15, 1998.  Commission file number 0-22916).
       10.50 Secured  Unconditional  Guaranty of Payment and  performance by and
             between  BSC-NY,  Inc.  and HCFP  Funding II, Inc. in the amount of
             $350,000.  (Filed as exhibit  10.58 to the  company's  Registration
             Statement  on Form  SB-2  dated  July  24,  1998.  Commission  file
             number 333-59927).
       10.51 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  10.59 to
             the  company's  Registration  Statement on Form SB-2 dated July 24,
             1998.  Commission file number 333-59927).
       10.52 Credit  Line Deed of Trust by and between  PHC of  Virginia,  Inc.,
             and HCFP  Funding II,  Inc.  dated  July,  1998.  (Filed as exhibit
             10.60 to the  company's  Registration  Statement on Form SB-2 dated
             July 24, 1998.  Commission file number 333-59927).
       10.53 Amendment  No. 1 to Secured  Bridge Note dated July 10, 1998 by and
             between  PHC,  Inc.  and HCFP  Funding II,  Inc.  (Filed as exhibit
             10.61 to the  company's  Registration  Statement on Form SB-2 dated
             July 24, 1998.  Commission file number 333-59927).


                                     - 67 -
<PAGE>
Exhibit No.                              Description

       10.54 Promissory  Note for $50,000 dated May 18, 1998 by and between PHC,
             Inc. and Tot Care,  Inc.  (Filed as exhibit  10.62 to the company's
             Registration   Statement   on  Form  SB-2  dated  July  24,   1998.
             Commission file number 333-59927).
       10.55 Promissory  Note for $50,000 dated June 9, 1998 by and between PHC,
             Inc. and Tot Care,  Inc.  (Filed as exhibit  10.63 to the company's
             Registration   Statement   on  Form  SB-2  dated  July  24,   1998.
             Commission file number 333-59927).
      10.56 Letter Agreement dated May 31, 1998 by and between NMI Realty, Inc.
             and PHC of Rhode  Island,  Inc. to  terminate  the Lease and Option
             Agreement  entered into March 16, 1994.  (Filed as exhibit 10.64 to
             the  company's  Registration  Statement on Form SB-2 dated July 24,
             1998. Commission file number 333-59927).
       10.57 Amendment  No. 1 to Loan and  Security  Agreement  in the amount of
             $4,000,000.00  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  10.65 to the company's
             report on Form 10-KSB  dated  October  13,  1998.  Commission  file
             number 0-22916).
       10.58 Promissory  Note by and between PHC,  Inc. and Bruce A. Shear dated
             August  13,  1998,  in the  amount of  $100,000.  (Filed as exhibit
             10.66 to the  company's  report on Form  10-QSB  dated  November 3,
             1998.  Commission file number 0-22916).
       10.59 Amendment  to Overline  Letter  Agreement  pursuant to the 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
             June 8, 1998  extending the maturity date from November 10, 1998 to
             May 10, 1999.  (Filed as exhibit 10.67 to the  company's  report on
             Form 10-QSB filed with the  Securities  and Exchange  Commission on
             February 12, 1999.  Commission file number 0-22916).
       10.60 The  Overline  Letter  agreement  pursuant to the 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  extending  the maturity  date from  November 10,
             1998 to May 10,  1999.  (Filed as  exhibit  10.68 to the  company's
             Registration  Statement on Form 10-QSB  dated 12, 1999.  Commission
             file number 0-22916).
       10.61 Financial   Advisory  and  Consultant   Agreement  by  and  between
             National  Securities  Corporation  and  PHC,  Inc.  dated  01/05/99
             (Filed as  exhibit  10.69 to the  company's  report on Form  10-QSB
             dated February 12, 1999.  Commission file number 0-22916).
       10.62 Agreement for Purchase and Sale of Pioneer  Counseling of Virginia,
             Inc. to Dr. Mukesh Patel and Dr.  Himanshu Patel dated February 15,
             1999.  (Filed  as  exhibit  10.62  to  the  company's  Registration
             Statement  on Form 10-QSB  filed with the  Securities  and Exchange
             Commission on May 14, 1999. Commission file number 0-22916).
       10.63 This  amendment no. 2 to secured bridge note (the  "Amendment")  is
             hereby  entered  into as of the 10th  day of May 1999 by and  among
             PHC,  INC.,  a  Massachusetts  corporation  ("Borrower"),  and HCFP
             FUNDING II, INC., a Delaware corporation  ("Lender").  (Filed as an
             exhibit to the  company's  report on Form 10-KSB dated  October 13,
             1999.  Commission file number 0-22916).



                                     - 68 -
<PAGE>
Exhibit No.                              Description

       10.64 Seller's  Settlement  Statement  related  to the  sale of the  real
             estate owned by Pioneer  Counseling of Virginia,  Inc.  dated March
             15, 1999.  (Filed as exhibit 10.64 to the company's  report on Form
             10-QSB filed with the Securities and Exchange Commission on May 14,
             1999. Commission file number 0-22916).
       10.65 This  amendment no. 2 to secured bridge note (the  "Amendment")  is
             hereby  entered  into as of the 10th  day of May 1999 by and  among
             PHC,  INC.,  a  Massachusetts  corporation  ("Borrower"),  and HCFP
             FUNDING II, INC., a Delaware corporation  ("Lender").  (Filed as an
             exhibit to the  company's  report on Form 10-KSB dated  October 13,
             1999.  Commission file number 0-22916).
       10.66 Loan  and  Security  Agreement  by and  between  Heller  Healthcare
             Finance,  Inc. f/k/a 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 August 11, 1999.
             (Filed as an exhibit to the  company's  report on Form 10-KSB dated
             October 13, 1999.  Commission file number 0-22916).
       10.67 Amendment number 3 to Secured Bridge Note dated May 10, 1999 by and
             between  PHC,  Inc.  and HCFP  (Filed as exhibit  to the  company's
             report on Form  10-KSB,  filed  with the  Securities  and  Exchange
             Commission on October 13, 1999. Commission file number 0-22916).
       10.68 Promissory  Note by and  between  PHC,  Inc.  and Mellon US Leasing
             Corporation dated November, 1999, in the amount of $160,000. (Filed
             as  exhibit  10.68 to the  company's  report on Form  10-QSB  dated
             November 15, 1999.
       10.69 Secured  Term Loan for  $1,000,000  by and between PHC of Michigan,
             Inc and Heller  Finance,  Inc.,  which  includes  Secured Term Note
             from  Borrower;  Restated  Mortgage  by and  between  Borrower  and
             Lender;  Guaranty of Term Loan by PHC,  Inc.;  Secured  Guaranty of
             Term Loan by BSC-NY,  Inc.; Guaranty of Term Loan by Bruce A. Shear
             and Letter  Agreement.  (Filed as exhibit to the  company's  report
             on Form 10-QSB,  filed with the Securities and Exchange  Commission
             on February 14, 2000. Commission file 0-22916).
       10.70 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
             to the  company's  report on Form 10-QSB filed with the  Securities
             and Exchange Commission on May 11, 2000.  Commission file 0-22916).
       10.71 Secured Term Note by and between PHC of  Michigan,  Inc. and Heller
             Healthcare  Finance,  Inc. in the amount of $500,000  dated May 26,
             2000.  (Filed as exhibit to the  company's  Registration  Statement
             on  Form  S-3  dated  July  14,   2000.   Commission   file  number
             333-41494).
       10.72 Registration  Rights  Agreement  by and between  PHC,  Inc. and The
             Shaar  Fund Ltd.  Dated  June 28,  2000.  (Filed as  exhibit to the
             company's  Registration  Statement on Form S-3 dated July 14, 2000.
             Commission file number 333-41494).
       10.73 Release  Notice by and between  PHC,  Inc.  and The Shaar Fund Ltd.
             Dated  June  28,   2000.   (Filed  as  exhibit  to  the   company's
             Registration   Statement   on  Form  S-3  dated   July  14,   2000.
             Commission file number 333-41494).


                                     - 69 -
<PAGE>
Exhibit No.                              Description

       10.74 Escrow  Instruction  by and between PHC,  Inc.; The Shaar Fund Ltd.
             And Cadwalader,  Wickersham & Taft (an Escrow Agent) dated June 28,
             2000.  (Filed as exhibit to the  company's  Registration  Statement
             on  Form  S-3  dated  July  14,   2000.   Commission   file  number
             333-41494).
       10.75 Securities  Purchase  Agreement  by and between  PHC,  Inc. and The
             Shaar Fund Ltd.  Dated June 28, 2000 to purchase  125,000 shares of
             Class  A  Common   Stock.   (Filed  as  exhibit  to  the  company's
             Registration   Statement   on  Form  S-3  dated   July  14,   2000.
             Commission file number 333-41494).
      *10.76 Promissory  Note for  $532,000  dated May 30,  2000 by and  between
             PHC, Inc. and Irwin J. Mansdorf, Ph.D.
      *10.77 Promissory  Note for  $168,000  dated May 30,  2000 by and  between
             PHC, Inc. and Yakov Burstein, Ph.D.
      *10.78 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.
      *10.79 Restated  mortgage for  $3,100,000  by and between PHC of Michigan,
             Inc.   and   Heller   Finance,   Inc.,   which   includes   Secured
             Unconditional  Guaranty of Payment and  Performance  by PHC,  Inc.;
             Secured  Unconditional  Guaranty  of  Payment  and  Performance  by
             BSC-NY,  Inc.;  Secured  Unconditional   Guaranty  of  Payment  and
             Performance   by  Bruce  A.   Shear  and   Amended   and   Restated
             Cross-Collateralization  and  Cross-Default  Agreement By and Among
             PHC of Michigan,  Inc., PHC of Utah,  Inc.,  PHC of Virginia,  Inc.
             PHC of Rhode Island, Inc. and Pioneer Counseling of Virginia,  Inc.
             (Collectively,  "Borrower")  And Heller  Healthcare  Finance,  Inc.
             ("Lender").
        16.1 Letter on Change in Independent  Public  Accountants.  (Filed as an
             exhibit  to the  company's  report on Form  10-KSB,  filed with the
             Securities  and Exchange  Commission  on September  28, 1994 and as
             exhibit 16.1 in the  company's  Current  Report on Form 8-K,  filed
             with the  Securities  and  Exchange  Commission.  (Commission  file
             number 0-22916 on April 29, 1998).
        21.1 List  of  Subsidiaries.  (Filed  as an  exhibit  to  the  company's
             Registration Statement on Form SB-2 dated July 24, 1998. Commission
             file number 333-59927).
        23.1 Consent of Independent Auditors.

        * Filed herewith

(b) REPORTS ON FORM 8-K.

      The company filed no reports on Form 8-K during the quarter ended June 30,
2000.

                                     - 70 -
<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 29, 2000                          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 Executive
Bruce A. Shear              Officer and Director            September 29, 2000
                            (principal executive
                            officer)

/s/  Paula C. Wurts         Controller and
Paula C. Wurts              Treasurer (principal
                            financial                       September 29, 2000
                            and accounting officer)

/s/  Gerald M. Perlow
Gerald M. Perlow            Director                        September 29, 2000

/s/  Donald E. Robar
Donald E. Robar             Director                        September 29, 2000

/s/  Howard Phillips
Howard Phillips             Director                        September 29, 2000

/s/  William F. Grieco
William F. Grieco           Director                        September 29, 2000


                                     - 71 -
<PAGE>


Exhibit 4.37


THIS COMMON STOCK PURCHASE  WARRANT AND THE SECURITIES  REPRESENTED  HEREBY HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
TRANSFERRED  IN VIOLATION OF SUCH ACT, THE RULES AND  REGULATIONS  THEREUNDER OR
THE PROVISIONS OF THIS COMMON STOCK PURCHASE WARRANT.


                    Number of Shares of Common Stock: 60,000



                      CLASS A COMMON STOCK PURCHASE WARRANT


                       To Purchase Class A Common Stock of


                                    PHC, Inc.

            THIS  IS  TO  CERTIFY  THAT  Heller  Healthcare  Finance,  Inc.,  or
registered  assigns,  is  entitled,  at any  time  from  the  Closing  Date  (as
hereinafter  defined)  to the  Expiration  Date  (as  hereinafter  defined),  to
purchase from PHC, Inc., a Massachusetts  corporation  (the  "COMPANY"),  60,000
shares of Common  Stock (as  hereinafter  defined and subject to  adjustment  as
provided  herein),  in whole or in part, at a purchase  price per share equal to
$1.50, subject to adjustment as provided herein, all on the terms and conditions
and pursuant to the provisions hereinafter set forth.
1.    DEFINITIONS

            As  used in  this  Class  A  Common  Stock  Purchase  Warrant  (this
"WARRANT"),  the following  terms shall have the  respective  meanings set forth
below:

            "BUSINESS  DAY" shall mean any day that is not a Saturday  or Sunday
or a day  on  which  banks  are  required  or  permitted  to be  closed  in  the
Commonwealth of Massachusetts.

            "CLOSING DATE" is May 26, 2000.

            "COMMISSION"  shall mean the Securities  and Exchange  Commission or
any other federal agency then administering the Securities Act and other federal
securities laws.

            "COMMON  STOCK"  shall  mean  (except  where the  context  otherwise
indicates) the Class A Common Stock, par value $.01 per share, of the Company as
constituted  on the Closing  Date,  and any capital stock into which such Common
Stock may thereafter be changed, and shall also include (i) capital stock of the
Company of any other class (regardless of how denominated) issued to the holders
of shares of Common Stock upon any  reclassification  thereof  which is also not
preferred as to dividends or assets over any other class of stock of the Company
and which is not subject to  redemption  and (ii) shares of common  stock of any
successor or acquiring  corporation received by or distributed to the holders of
Common Stock of the Company in the circumstances contemplated by Section 4.2.

            "CURRENT MARKET PRICE" shall mean on any date of  determination  the
closing bid price of a Common Stock on such day as reported on Nasdaq; PROVIDED,
if such security bid is not listed or admitted to trading on the Nasdaq National
Market  ("NASDAQ"),  as reported on the principal  national security exchange or
quotation  system on which  such  security  is quoted or listed or  admitted  to
trading,  or, if not quoted or listed or  admitted  to  trading on any  national
securities  exchange or quotation system, the closing bid price of such security
on the  over-the-counter  market on the day in question as reported by Bloomberg
LP, or a similar generally accepted reporting service, as the case may be.

            "CURRENT  WARRANT PRICE" shall mean, in respect of a share of Common
Stock at any date herein  specified,  the price at which a share of Common Stock
may be  purchased  pursuant  to this  Warrant on such date,  as set forth in the
first paragraph hereof.

            "EXCHANGE  ACT" shall mean the  Securities  Exchange Act of 1934, as
amended, or any successor federal statute,  and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.

            "EXERCISE PERIOD" shall mean the period during which this Warrant is
exercisable pursuant to Section 2.1.

            "EXPIRATION DATE" shall mean May 25, 2005.

            "FUNDAMENTAL  CORPORATE  CHANGE" shall have the meaning set forth in
Section 4.2.

            "HOLDER"  shall mean the Person in whose name the Warrant or Warrant
Stock set forth herein is registered on the books of the Company  maintained for
such purpose.

            "MARKET PRICE" per Common Stock means the average of the closing bid
prices of the Common Stock as reported on the Nasdaq for the twenty trading days
immediately preceding the date on which this Warrant is exercised.

            "OTHER  PROPERTY"  shall have the meaning set forth in Section  4.2.
 "PERSON" shall mean any individual, sole proprietorship, partnership, joint
venture, trust, incorporated  organization,  association,  corporation,  limited
liability company, institution, public benefit corporation, entity or government
(whether  federal,  state,  county,  city,  municipal or  otherwise,  including,
without limitation,  any instrumentality,  division,  agency, body or department
thereof).

             "RESTRICTED  COMMON  STOCK" shall mean shares of Common Stock which
are, or which upon their  issuance on their  exercise of this Warrant  would be,
evidenced by a certificate  bearing the restrictive  legend set forth in Section
9.1.

            "SECURITIES  ACT" shall mean the Securities Act of 1933, as amended,
or  any  successor  federal  statute,  and  the  rules  and  regulations  of the
Commission thereunder, all as the same shall be in effect at the time.

             "TRANSFER"  shall mean any  disposition  of any  Warrant or Warrant
Stock or of any  interest  in either  thereof,  which  would  constitute  a sale
thereof within the meaning of the Securities Act.

            "TRANSFER NOTICE" shall have the meaning set forth in Section 9.2.

            "WARRANT  PRICE"  shall  mean an amount  equal to (i) the  number of
shares of Common Stock being purchased upon exercise of this Warrant pursuant to
Section 2.1, multiplied by (ii) the Current Warrant Price.

            "WARRANT  STOCK" shall mean the shares of Common Stock  purchased by
the holders of the Warrants upon the exercise thereof.

            "WARRANTS"  shall mean this  Warrant  and all  warrants  issued upon
transfer,  division or combination of, or in substitution for, any thereof.  All
Warrants  shall at all times be identical as to terms and  conditions  and date,
except  as to the  number of  shares  of  Common  Stock  for  which  they may be
exercised.

2.    EXERCISE OF WARRANT
2.1   MANNER OF EXERCISE

            From and after the Closing Date and until 5:00 p.m.,  New York time,
on the Expiration Date,  Holder may exercise this Warrant,  on any Business Day,
for all or any  part  of the  number  of  shares  of  Common  Stock  purchasable
hereunder.

     In order to  exercise  this  Warrant,  in  whole or in part,  Holder  shall
deliver to the Company at its  principal  office at 200 Lake Street,  Suite 102,
Peabody, MA 01960, or at the office or agency designated by the Company pursuant
to Section  12, (i) a written  notice of  Holder's  election  to  exercise  this
Warrant,  which notice shall  specify the number of shares of Common Stock to be
purchased,  (ii) to the extent  such  exercise is not being  effected  through a
Cashless  Exercise,  payment of the  Warrant  Price in cash or wire  transfer or
cashier's  check  drawn on a United  States  bank and (iii) this  Warrant.  Such
notice shall be substantially in the form of the subscription  form appearing at
the end of this  Warrant as EXHIBIT A, duly  executed  by Holder or its agent or
attorney.  Upon receipt of the items  referred to in clauses (i), (ii) and (iii)
above,  the Company shall, as promptly as  practicable,  and in any event within
five  Business Days  thereafter,  execute or cause to be executed and deliver or
cause to be delivered to Holder a certificate or certificates  representing  the
aggregate number of full shares of Common Stock issuable upon such exercise. The
stock certificate or certificates so delivered shall be, to the extent possible,
in such  denomination or denominations as Holder shall request in the notice and
shall be registered  in the name of Holder or,  subject to Section 9, such other
name as shall be designated in the notice.  This Warrant shall be deemed to have
been exercised and such certificate or certificates shall be deemed to have been
issued,  and Holder or any other Person so  designated to be named therein shall
be deemed to have become a holder of record of such shares for all purposes,  as
of the date the  notice,  together  with  the cash or check or  checks  and this
Warrant, is received by the Company as described above and all taxes required to
be paid by Holder, if any, pursuant to Section 2.2 prior to the issuance of such
shares have been paid.  If this Warrant shall have been  exercised in part,  the
Company  shall,  at the time of  delivery  of the  certificate  or  certificates
representing  Warrant  Stock,  deliver to Holder a new  Warrant  evidencing  the
rights of Holder to purchase the  unpurchased  shares of Common Stock called for
by this Warrant, which new Warrant shall in all other respects be identical with
this Warrant, or, at the request of Holder,  appropriate notation may be made on
this  Warrant and the same  returned to Holder.  Notwithstanding  any  provision
herein to the contrary,  the Company shall not be required to register shares in
the name of any Person who acquired this Warrant (or part hereof) or any Warrant
Stock otherwise than in accordance with this Warrant.

     Simultaneously  with the exercise of this  Warrant,  payment in full of the
Warrant Price shall be made, at the option of the Holder,  (i) by payment of the
Warrant Price in cash or by wire  transfer or cashier's  check drawn on a United
States bank, (ii) through a net exercise without payment of the Warrant Price in
cash by providing  notice to the Company of the  Holder's  election to receive a
number of shares of Common Stock in a Cashless  Exercise equal to the product of
(1) the number of shares for which such Warrant is  exercisable  with payment in
cash of the Warrant  Price and (2) the Cashless  Exercise  Ratio or (iii) by any
combination of clauses (i) and (ii). For purposes of this Warrant, the "CASHLESS
EXERCISE  RATIO" shall equal a fraction,  the  numerator of which is the Current
Market  Price per share of the Common  Stock on the date of  exercise,  less the
Current  Warrant Price as of the date of exercise,  and the denominator of which
is the  Current  Market  Price  per  share  of the  Common  Stock on the date of
exercise.  An  exercise  of a Warrant in  accordance  with  clause (ii) above is
herein called a "CASHLESS EXERCISE." Following a Cashless Exercise, this Warrant
shall be  canceled  in all  respects  with regard to (a) the number of shares of
Common Stock issued in accordance with the Cashless Exercise PLUS (b) the number
of shares used as consideration for the Cashless Exercise.  2.2 PAYMENT OF TAXES
AND CHARGES

     All shares of Common  Stock  issuable  upon the  exercise  of this  Warrant
pursuant  to  the  terms  hereof  shall  be  validly  issued,   fully  paid  and
nonassessable,  freely tradable and without any preemptive  rights.  The Company
shall pay all expenses in connection with, and all taxes and other  governmental
charges that may be imposed  with respect to, the issuance or delivery  thereof,
unless  such tax or charge is  imposed  by law upon  Holder,  in which case such
taxes or charges  shall be paid by Holder.  The Company  shall not be  required,
however,  to pay any tax or other charge imposed in connection with any transfer
involved in the issuance of any  certificate for shares of Common Stock issuable
upon exercise of this Warrant in any name other than that of Holder, and in such
case the Company shall not be required to issue or deliver any stock certificate
until such tax or other charge has been paid or it has been  established  to the
satisfaction of the Company that no such tax or other charge is due.

2.3   FRACTIONAL SHARES

     The Company  shall not be required  to issue a  fractional  share of Common
Stock upon  exercise of any Warrant.  As to any fraction of a share which Holder
would otherwise be entitled to purchase upon such exercise,  such fraction shall
be adjusted to a full share of Common Stock.

2.4   CONTINUED VALIDITY

     A holder of  shares  of  Common  Stock  issued  upon the  exercise  of this
Warrant, in whole or in part (other than a holder who acquires such shares after
the same have been publicly sold pursuant to a Registration  Statement under the
Securities  Act or sold pursuant to Rule 144  thereunder)  shall  continue to be
entitled  with  respect to such shares to all rights to which it would have been
entitled  as Holder  under  Sections 9, 10 and 14 of this  Warrant.  The Company
will,  at the time of exercise of this  Warrant,  in whole or in part,  upon the
request of Holder,  acknowledge in writing,  in form reasonably  satisfactory to
Holder,  its continuing  obligation to afford Holder all such rights;  PROVIDED,
HOWEVER,  that if Holder shall fail to make any such request, such failure shall
not affect the continuing obligation of the Company to afford to Holder all such
rights.

3.    TRANSFER, DIVISION AND COMBINATION
3.1   TRANSFER

     Subject to  compliance  with  Section 9,  transfer of this  Warrant and all
rights  hereunder,  in whole or in part, shall be registered on the books of the
Company to be maintained for such purpose, upon surrender of this Warrant at the
principal  office of the  Company  referred  to in Section  2.1 or the office or
agency designated by the Company pursuant to Section 12, together with a written
assignment  of this Warrant  substantially  in the form of EXHIBIT B hereto duly
executed  by Holder or its agent or  attorney  and funds  sufficient  to pay any
transfer  taxes payable upon the making of such  transfer.  Upon such  surrender
and, if required, such payment, the Company shall, subject to Section 9, execute
and deliver a new Warrant or Warrants in the name of the  assignee or  assignees
and in the  denomination  specified in such instrument of assignment,  and shall
issue to the assignor a new Warrant  evidencing  the portion of this Warrant not
so assigned, and this Warrant shall promptly be canceled. A Warrant, if properly
assigned in compliance  with Section 9, may be exercised by a new Holder for the
purchase of shares of Common Stock without having a new warrant issued.

3.2   DIVISION AND COMBINATION

     Subject to Section 9, this  Warrant may be divided or  combined  with other
Warrants  upon  presentation  thereof at the  aforesaid  office or agency of the
Company,  together with a written notice  specifying the names and denominations
in which  new  Warrants  are to be  issued,  signed  by  Holder  or its agent or
attorney.  Subject to  compliance  with  Sections  3.1 and 9, as to any transfer
which may be involved in such division or combination, the Company shall execute
and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to
be divided or combined in accordance with such notice.

3.3   EXPENSES

     The Company shall prepare, issue and deliver at its own expense (other than
transfer  taxes)  the new  Warrants  or  Warrants  under  this  Section  3.  3.4
MAINTENANCE OF BOOKS

     The Company agrees to maintain,  at its aforesaid  office or agency,  books
for the registration and the registration of transfer of the Warrants.

4.    ADJUSTMENTS

4.1   ADJUSTMENT BASED ON CURRENT MARKET PRICE

     In the event that on the date on which the Holder  exercises  this  Warrant
the Current Market Price of the Common Stock is less than $2.50 per share,  such
holder shall have the right to receive an additional  number of shares of Common
Stock  under this  Warrant  equal to a number  not less than the  product of (1)
60,000,  or if the Warrant is exercised in part,  the number of shares for which
such Warrant is exercised on the date of exercise, and (2) the Adjustment Ratio.
For purposes of this Warrant, the "ADJUSTMENT RATIO" shall equal a fraction, the
numerator of which is $2.50 less the Market Price,  and the denominator of which
is the Market Price per share of the Common Stock on the date of exercise.

4.2 REORGANIZATION,  RECLASSIFICATION,  MERGER,  CONSOLIDATION OR DISPOSITION OF
ASSETS

     In case the Company shall  reorganize  its capital,  reclassify its capital
stock,  consolidate  or merge with or into another  Person (where the Company is
not the survivor or where there is a change in or  distribution  with respect to
the Common Stock of the Company), or sell, convey, transfer or otherwise dispose
of all or substantially all its property,  assets or business to another Person,
or effectuate a transaction or series of related transactions in which more than
50% of the voting  power of the  Company is disposed  of (each,  a  "FUNDAMENTAL
CORPORATE  CHANGE")  and,  pursuant to the terms of such  Fundamental  Corporate
Change, shares of common stock of the successor or acquiring corporation, or any
cash,  shares of stock or other securities or property of any nature  whatsoever
(including  warrants or other subscription or purchase rights) in addition to or
in lieu of  common  stock of the  successor  or  acquiring  corporation  ("OTHER
PROPERTY"),  are to be received by or distributed to the holders of Common Stock
of the Company,  then Holder shall have the right  thereafter  to receive,  upon
exercise of the Warrant,  such number of shares of common stock of the successor
or acquiring corporation or of the Company, if it is the surviving  corporation,
and Other  Property  as is  receivable  upon or as a result of such  Fundamental
Corporate  Change by a holder of the number of shares of Common  Stock for which
this Warrant is  exercisable  immediately  prior to such  Fundamental  Corporate
Change.  In case of any such  Fundamental  Corporate  Change,  the  successor or
acquiring corporation (if other than the Company) shall expressly assume the due
and punctual observance and performance of each and every covenant and condition
of  this  Warrant  to be  performed  and  observed  by the  Company  and all the
obligations and liabilities  hereunder,  subject to such modifications as may be
deemed appropriate (as determined by resolution of the Board of Directors of the
Company) in order to provide for adjustments of shares of Common Stock for which
this Warrant is exercisable  which shall be as nearly  equivalent as practicable
to the adjustments  provided for in this Section 4. For purposes of this Section
4.2,  "COMMON  STOCK OF THE  SUCCESSOR OR ACQUIRING  CORPORATION"  shall include
stock of such corporation of any class which is not preferred as to dividends or
assets  over any  other  class of stock  of such  corporation  and  which is not
subject to  redemption  and shall also include any  evidences  of  indebtedness,
shares of stock or other  securities  which are convertible into or exchangeable
for any such stock,  either  immediately or upon the arrival of a specified date
or the  happening  of a  specified  event and any  warrants  or other  rights to
subscribe  for or purchase  any such stock.  The  foregoing  provisions  of this
Section 4.2 shall similarly apply to successive Fundamental Corporate Change.

5.    NOTICES TO HOLDER
5.1   NOTICE OF ADJUSTMENTS

     Whenever  the number of shares of Common  Stock for which  this  Warrant is
exercisable  shall be  adjusted  pursuant  to Section  4.2,  the  Company  shall
forthwith prepare a certificate to be executed by the chief financial officer of
the Company  setting  forth,  in  reasonable  detail,  the event  requiring  the
adjustment and the method by which such  adjustment was  calculated,  specifying
the number of shares of Common Stock for which this Warrant is  exercisable  and
describing  the number and kind of any other  shares of stock or Other  Property
for which this Warrant is  exercisable,  and any change in the purchase price or
prices thereof,  after giving effect to such  adjustment or change.  The Company
shall  promptly  cause a signed copy of such  certificate to be delivered to the
Holder in accordance  with Section 14.2. The Company shall keep at its office or
agency  designated  pursuant to Section 12 copies of all such  certificates  and
cause the same to be  available  for  inspection  at said office  during  normal
business  hours  by  the  Holder  or  any  prospective  purchaser  of a  Warrant
designated by Holder. 5.2 NOTICE OF CORPORATE ACTION

     If at any time:  (a) the Company  shall take a record of the holders of its
Common  Stock for the purpose of  entitling  them to receive a dividend or other
distribution,  or any right to subscribe  for or purchase  any  evidences of its
indebtedness,  any  shares  of stock of any  class or any  other  securities  or
property,  or to receive  any other  right;  or (b) there  shall be any  capital
reorganization of the Company,  any  reclassification or recapitalization of the
capital stock of the Company or any consolidation or merger of the Company with,
or any sale,  transfer  or other  disposition  of all or  substantially  all the
property,  assets or business of the Company  to,  another  corporation;  or (c)
there shall be a voluntary or involuntary dissolution, liquidation or winding up
of the Company;

then, in any one or more of such cases,  the Company shall give to Holder (i) at
least 30 days' prior written  notice of the date on which a record date shall be
selected for such dividend,  distribution or right or for determining  rights to
vote  in  respect  of  any  such   reorganization,   reclassification,   merger,
consolidation, sale, transfer, disposition,  dissolution, liquidation or winding
up, and (ii) in the case of any such reorganization,  reclassification,  merger,
consolidation, sale, transfer, disposition,  dissolution, liquidation or winding
up, at least 30 days' prior written  notice of the date when the same shall take
place.  Such notice in accordance  with the foregoing  clause also shall specify
(i) the date on which any such  record is to be taken  for the  purpose  of such
dividend,  distribution or right,  the date on which the holders of Common Stock
shall be entitled to any such dividend,  distribution  or right,  and the amount
and  character  thereof,  and (ii) the  date on which  any such  reorganization,
reclassification,    merger,   consolidation,   sale,   transfer,   disposition,
dissolution,  liquidation  or winding  up is to take place and the time,  if any
such  time is to be fixed,  as of which the  holders  of Common  Stock  shall be
entitled  to  exchange  their  shares of Common  Stock for  securities  or other
property  deliverable  upon  such  reorganization,   reclassification,   merger,
consolidation, sale, transfer, disposition,  dissolution, liquidation or winding
up. Each such written notice shall be sufficiently  given if addressed to Holder
at the  last  address  of  Holder  appearing  on the  books of the  Company  and
delivered in accordance with Section 14.2.

6.    NO IMPAIRMENT

     The  Company  shall  not  by any  action,  including,  without  limitation,
amending  its  certificate  of  incorporation  or  through  any  reorganization,
transfer  of assets,  consolidation,  merger,  dissolution,  issuance or sale of
securities or other voluntary  action,  avoid or seek to avoid the observance or
performance  of any of the terms of this Warrant,  but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be  necessary  or  appropriate  to  protect  the rights of Holder
against  impairment.  Without  limiting the  generality  of the  foregoing,  the
Company  will (a) take all such action as may be  necessary  or  appropriate  in
order  that  the  Company   may  validly  and  legally   issue  fully  paid  and
nonassessable  shares of Common Stock upon the exercise of this Warrant, and (b)
use its best efforts to obtain all such  authorizations,  exemptions or consents
from any public regulatory body having jurisdiction  thereof as may be necessary
to enable the Company to perform its obligations under this Warrant.

     Upon the request of Holder,  the Company will at any time during the period
this Warrant is outstanding  acknowledge  in writing,  in form  satisfactory  to
Holder,  the  continuing  validity of this  Warrant and the  obligations  of the
Company hereunder.

7. RESERVATION AND AUTHORIZATION OF COMMON STOCK

     From and after the Closing Date, the Company shall at all times reserve and
keep  available  for issuance  upon the exercise of Warrants  such number of its
authorized  but unissued  shares of Common Stock as will be sufficient to permit
the  exercise in full of all  outstanding  Warrants.  All shares of Common Stock
which shall be so issuable, when issued upon exercise of any Warrant and payment
therefor in accordance with the terms of such Warrant, shall be duly and validly
issued and fully paid and nonassessable and not subject to preemptive rights.

     Before  taking any action which would result in an adjustment in the number
of shares of Common  Stock for which this  Warrant is  exercisable,  the Company
shall obtain all such authorizations or exemptions thereof, or consents thereto,
as  may  be  necessary  from  any  public   regulatory  body  or  bodies  having
jurisdiction thereof.

8.    TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS

     The Company will not at any time, except upon  dissolution,  liquidation or
winding up of the Company,  close its stock transfer  books or Warrant  transfer
books so as to result in  preventing or delaying the exercise or transfer of any
Warrant.

9.    RESTRICTIONS ON TRANSFERABILITY

     The Warrants and the Warrant Stock shall not be  transferred,  hypothecated
or assigned before  satisfaction of the conditions  specified in this Section 9,
which  conditions are intended to ensure  compliance  with the provisions of the
Securities Act with respect to the Transfer of any Warrant or any Warrant Stock.
Holder,  by acceptance of this Warrant,  agrees to be bound by the provisions of
this Section 9. 9.1 RESTRICTIVE LEGEND (a) Holder, by accepting this Warrant and
any Warrant Stock agrees that this Warrant and the Warrant  Stock  issuable upon
exercise  hereof may not be assigned or otherwise  transferred  unless and until
(i) the  Company  has  received  an  opinion of  counsel  for  Holder  that such
securities  may be sold  pursuant to an exemption  from  registration  under the
Securities Act or (ii) a registration  statement relating to such securities has
been filed by the Company and declared effective by the Commission.

     Each  certificate for Warrant Stock issuable  hereunder shall bear a legend
as  follows  until  such  securities  have been sold  pursuant  to an  effective
registration statement under the Securities Act:

     "THESE  SECURITIES  HAVE NOT BEEN  REGISTERED  UNDER THE  SECURITIES ACT OF
     1933, AS AMENDED (THE  "SECURITIES  ACT"),  OR THE  SECURITIES  LAWS OF ANY
     STATE,  AND ARE BEING  OFFERED AND SOLD  PURSUANT TO AN EXEMPTION  FROM THE
     REGISTRATION  REQUIREMENTS  OF THE  SECURITIES  ACT AND  SUCH  LAWS.  THESE
     SECURITIES MAY NOT BE SOLD OR TRANSFERRED  EXCEPT  PURSUANT TO AN EFFECTIVE
     REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
     EXEMPTION FROM THE REGISTRATION  REQUIREMENTS OF THE SECURITIES ACT OR SUCH
     OTHER LAWS."

(b) Except as otherwise provided in this Section 9, the Warrant shall be stamped
or otherwise imprinted with a legend in substantially the following form:

     "THIS CLASS A COMMON STOCK PURCHASE WARRANT AND THE SECURITIES  REPRESENTED
     HEREBY  HAVE NOT BEEN  REGISTERED  UNDER  THE  SECURITIES  ACT OF 1933,  AS
     AMENDED, AND MAY NOT BE TRANSFERRED IN VIOLATION OF SUCH ACT, THE RULES AND
     REGULATIONS  THEREUNDER  OR THE  PROVISIONS  OF THIS  CLASS A COMMON  STOCK
     PURCHASE WARRANT."

9.2   NOTICE OF PROPOSED TRANSFERS

     Prior to any Transfer or  attempted  Transfer of any Warrants or any shares
of Restricted Common Stock, the Holder shall give ten days' prior written notice
(a  "TRANSFER  NOTICE")  to the  Company of  Holder's  intention  to effect such
Transfer,  describing the manner and circumstances of the proposed Transfer, and
obtain  from  counsel  to Holder  who shall be  reasonably  satisfactory  to the
Company,  an  opinion  that  the  proposed  Transfer  of such  Warrants  or such
Restricted  Common  Stock  may  be  effected  without   registration  under  the
Securities  Act. After receipt of the Transfer  Notice and opinion,  the Company
shall, within five days thereof, notify the Holder as to whether such opinion is
reasonably  satisfactory  and, if so, such holder shall thereupon be entitled to
Transfer such Warrants or such  Restricted  Common Stock, in accordance with the
terms of the Transfer Notice.  Each certificate,  if any, evidencing such shares
of Restricted  Common Stock issued upon such Transfer shall bear the restrictive
legend set forth in Section  9.1(a),  and the Warrant  issued upon such Transfer
shall bear the  restrictive  legend set forth in Section  9.1(b),  unless in the
opinion  of such  counsel  such  legend  is not  required  in  order  to  ensure
compliance  with the  Securities  Act.  Holder shall not be entitled to Transfer
such Warrants or such  Restricted  Common Stock until receipt of notice from the
Company under this Section 9.2 that such opinion is reasonably satisfactory.

9.3   REGISTRATION OF SHARES.

     From and after  the first  public  sale of shares of the  Company's  Common
Stock pursuant to an effective  registration statement under the Securities Act,
after the expiration of any applicable  underwriter  lock-up period,  the Holder
shall have the right to have the Warrant Stock  registered  for resale on a Form
S-3  Registration  Statement in the event the Company is eligible to file a Form
S-3 (or any successor form).

9.4   TERMINATION OF RESTRICTIONS

     Notwithstanding  the foregoing  provisions  of Section 9, the  restrictions
imposed by this Section upon the  transferability  of the Warrant  Stock and the
Restricted  Common  Stock  and the  legend  requirements  of  Section  9.1 shall
terminate as to any particular Warrant Stock or Restricted Common Stock (i) when
and so long as such security shall have been  effectively  registered  under the
Securities  Act and disposed of pursuant  thereto or (ii) when the Company shall
have  received  an opinion of counsel  reasonably  satisfactory  to it that such
shares may be transferred without registration thereof under the Securities Act.

     Whenever the restrictions imposed by this Section shall terminate as to any
share of Restricted  Common Stock, as hereinabove  provided,  the holder thereof
shall be entitled to receive from the Company,  at the Company's  expense, a new
certificate  representing  such Common Stock not bearing the restrictive  legend
set forth in Section 9.1(a). 9.5 LISTING ON SECURITIES EXCHANGE

     If the  Company  shall  list any shares of Common  Stock on any  securities
exchange or quotation  system, it will, at its expense,  list thereon,  maintain
and, when necessary, increase such listing of, all shares of Common Stock issued
or, to the extent  permissible under the applicable  securities  exchange rules,
issuable upon the exercise of this Warrant so long as any shares of Common Stock
shall be so listed during the Exercise Period.

10.   SUPPLYING INFORMATION

     The Company shall  cooperate with Holder in supplying  such  information as
may be  reasonably  necessary  for Holder to complete  and file any  information
reporting forms presently or hereafter required by the Commission as a condition
to the  availability of an exemption from the Securities Act for the sale of any
Warrant or Restricted Common Stock.

11.   LOSS OR MUTILATION

     Upon receipt by the Company from Holder of evidence reasonably satisfactory
to it of the ownership of and the loss, theft, destruction or mutilation of this
Warrant and indemnity  reasonably  satisfactory to it (it being  understood that
the written agreement of the Holder shall be sufficient indemnity),  and in case
of mutilation upon surrender and cancellation  hereof,  the Company will execute
and deliver in lieu hereof a new Warrant of like tenor to Holder;  PROVIDED,  in
the case of  mutilation  no  indemnity  shall be  required  if this  Warrant  in
identifiable form is surrendered to the Company for cancellation.

12.   OFFICE OF THE COMPANY

     As  long as any of the  Warrants  remain  outstanding,  the  Company  shall
maintain an office or agency  (which may be the principal  executive  offices of
the Company) where the Warrants may be presented for exercise,  registration  of
transfer, division or combination as provided in this Warrant.

13.   LIMITATION OF LIABILITY

     No  provision  hereof,  in the absence of  affirmative  action by Holder to
purchase  shares of Common  Stock,  and no  enumeration  herein of the rights or
privileges of Holder hereof,  shall give rise to any liability of Holder for the
purchase price of any Common Stock or as a stockholder  of the Company,  whether
such liability is asserted by the Company or by creditors of the Company.

14.   MISCELLANEOUS
14.1  NONWAIVER AND EXPENSES

     No  course  of  dealing  or any  delay or  failure  to  exercise  any right
hereunder  on the part of Holder  shall  operate  as a waiver  of such  right or
otherwise prejudice Holder's rights, powers or remedies. If the Company fails to
make, when due, any payments provided for hereunder, or fails to comply with any
other provision of this Warrant, the Company shall pay to Holder such amounts as
shall  be  sufficient  to  cover  any  costs  and  expenses  including,  without
limitation,   reasonable   attorneys'   fees,   including   those  of  appellate
proceedings, incurred by Holder in collecting any amounts due pursuant hereto or
in otherwise enforcing any of its rights, powers or remedies hereunder.

14.2  NOTICE GENERALLY

     Except  as  may  be  otherwise   provided  herein,   any  notice  or  other
communication  or delivery  required or permitted  hereunder shall be in writing
and shall be delivered personally or sent by certified mail, postage prepaid, or
by a nationally  recognized overnight courier service, and shall be deemed given
when so delivered  personally or by overnight  courier  service,  or, if mailed,
three days after the date of deposit in the United States mails, as follows:

            (a)   if to the Company, to:

                  PHC, Inc.
                  200 Lake Street, Suite 102
                  Peabody, MA 01960
                  Attention:  Bruce A. Shear
                  (978) 536-2777
                  (978) 536-2677 (fax)

                  with a copy to:

                  Arnold R. Westerman, Esquire
                  Arent Fox Kintner Plotkin & Kahn, PLLC
                  1050 Connecticut Avenue, NW
                  Washington, DC 20036
                  (202) 857-6243
                  (202) 857-6395 (fax)



<PAGE>

            (b)   if to the Holder, to:
                  Heller Healthcare Finance, Inc.
                  2 Wisconsin Circle, 4th floor
                  Chevy Chase, MD  20815
                  Attention:  Keith Reuben
                  (301) 347-3138
                  (301) 664-9860 (Fax)

                  with a copy to:
                  Heller Healthcare Finance, Inc.
                  2 Wisconsin Circle, 4th Floor
                  Chevy Chase, MD  20815
                  Attention:  Richard Dine
                  (301) 664-9877
                  (301) 664-9860 (fax)

     The Company or the Holder may change the foregoing  address by notice given
pursuant to this Section 14.2. 14.3 REMEDIES.

     Holder in addition to being entitled to exercise all rights granted by law,
including recovery of damages,  will be entitled to specific  performance of its
rights under Section 9 of this Warrant. The Company agrees that monetary damages
would not be adequate  compensation  for any loss incurred by reason of a breach
by it of the  provisions of Section 9 of this Warrant and hereby agrees to waive
the defense in any action for specific performance that a remedy at law would be
adequate. 14.4 SUCCESSORS AND ASSIGNS

     Subject to the  provisions  of  Sections  3.1 and 9, this  Warrant  and the
rights  evidenced  hereby  shall inure to the benefit of and be binding upon the
Holder and the  successors  of the  Company  and the  successors  and assigns of
Holder. The provisions of this Warrant are intended to be for the benefit of all
Holders from time to time of this Warrant and, with respect to Section 9 hereof,
holders of Warrant Stock,  and shall be enforceable by any such Holder or holder
of Warrant Stock. 14.5 AMENDMENT

     This  Warrant  and all other  Warrants  may be  modified  or amended or the
provisions hereof waived with the written consent of the Company and Holder.
14.6 SEVERABILITY

     Wherever  possible,  each provision of this Warrant shall be interpreted in
such  manner as to be  effective  and valid  under  applicable  law,  but if any
provision of this Warrant shall be  prohibited  by or invalid  under  applicable
law, such provision shall only be ineffective to the extent of such  prohibition
or  invalidity,  without  invalidating  the  remainder of such  provision or the
remaining provisions of this Warrant. 14.7 HEADINGS

     The headings used in this Warrant are for the convenience of reference only
and shall not, for any purpose, be deemed a part of this Warrant. 14.8 GOVERNING
LAW

     This  Warrant  shall  be  governed  by  the  laws  of the  Commonwealth  of
Massachusetts, without regard to the provisions thereof relating to conflicts of
law.

                            [SIGNATURE PAGE FOLLOWS.]
<PAGE>

     IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
and its corporate  seal to be impressed  hereon and attested by its Secretary or
an Assistant Secretary.

Dated:  June 9, 2000


                                       PHC, INC.

                                       By:____________________________________
                                          /s/  Bruce A. Shear_________________
                                          Name:  Bruce A. Shear
                                          Title:  Chief Executive Officer

Attest:




 By:  /s/  Paula C. Wurts              _______________________________________
    Name:  Paula C. Wurts
    Title: Assistant Secretary



<PAGE>
                                                                       EXHIBIT A

                                SUBSCRIPTION FORM

                 [To be executed only upon exercise of Warrant]

     The undersigned registered owner of this Warrant irrevocably exercises this
Warrant for the  purchase of  __________  shares of Class A Common Stock of PHC,
Inc. and herewith makes payment therefor,  all at the price and on the terms and
conditions  specified  in this Warrant and requests  that  certificates  for the
shares of Class A Common Stock hereby  purchased  (and any  securities  or other
property issuable upon such exercise) be issued in the name of and delivered to

whose address is

and, if such shares of Class A Common  Stock shall not include all of the shares
of Class A Common Stock issuable as provided in this Warrant, that a new Warrant
of like tenor and date for the  balance  of the  shares of Class A Common  Stock
issuable hereunder be delivered to the undersigned.

                                             (Name of Registered Owner)

                                           (Signature of Registered Owner)

                                                 (Street Address)

                                   -------------------------------------------
                                         (City)         (State)    (Zip Code)


                                       NOTICE:    The    signature    on    this
                                       subscription  must  correspond  with  the
                                       name  as  written  upon  the  face of the
                                       within   Warrant  in  every   particular,
                                       without  alteration or enlargement or any
                                       change whatsoever.


<PAGE>
                                                                       EXHIBIT B

                                 ASSIGNMENT FORM


     FOR VALUE RECEIVED the undersigned  registered owner of this Warrant hereby
sells,  assigns and transfers unto the Assignee named below all of the rights of
the  undersigned  under this  Warrant,  with  respect to the number of shares of
Class A Common Stock set forth below:

                                                     No. of Shares of
NAME AND ADDRESS OF ASSIGNEE                         CLASS A COMMON
                                                          STOCK


and does hereby irrevocably constitute and appoint


attorney-in-fact  to  register  such  transfer  on  the  books  of  PHC,  Inc.
maintained for the purpose, with full power of substitution in the premises.

Dated:
                                        -----------------------------------
                                                    (Print Name)
                                        -----------------------------------
                                                   (Signature)

                                        -----------------------------------
                                               (Print Name of Witness)

                                        -----------------------------------
                                                (Witness's Signature)


                                       NOTICE:  The signature on this assignment
                                       must  correspond with the name as written
                                       upon the face of the  within  Warrant  in
                                       every particular,  without  alteration or
                                       enlargement or any change whatsoever.

<PAGE>
Exhibit 10.76



                                RESTATED MORTGAGE

                                  $3,100,000.00



            MORTGAGOR:   PHC OF MICHIGAN, INC.

            MORTGAGEE:    HELLER HEALTHCARE FINANCE, INC.



                                  May 26, 2000


                                  Prepared by and after  recording,  return to:
                                  Stephen L. Burlingame, Esq.
                                  Fraser Trebilcock Davis & Foster, P.C.
                                  1000 Michigan National Tower
                                Lansing, MI 48933


<PAGE>
                                RESTATED MORTGAGE

     THIS  INSTRUMENT  ("MORTGAGE")  WITNESSES:  That PHC OF  MICHIGAN,  INC., a
Massachusetts  corporation  having its  principal  place of business at 200 Lake
Street,  Suite 102,  Peabody,  Massachusetts  01960, as "MORTGAGOR",  and HELLER
HEALTHCARE FINANCE,  INC., a Delaware corporation having its principal office at
2 Wisconsin Circle, 4th Floor, Chevy Chase, Maryland 20815, as "MORTGAGEE".


                                R E C I T A L S

A. This  Mortgage  amends and  restates in its entirety  that  certain  Restated
Mortgage  made by  Mortgagor  in favor of  Mortgagee,  which was recorded in the
official records of the Macomb County, Michigan registrar of deeds at Liber Page
on , 1999 (the "ORIGINAL  MORTGAGE").  The Mortgage  secures the  obligations of
Mortgagor  (i) under that certain  Secured  Term Note in the original  principal
amount of One Million One Hundred  Thousand and No/100  Dollars  ($1,100,000.00)
made by  Mortgagor  in favor of  Mortgagee's  predecessor-in-interest  and dated
March 12, 1997 (the "MARCH TERM  NOTE");  (ii) under that  certain  Secured Term
Note in the  original  principal  amount of Five  Hundred  Thousand  and  No/100
Dollars    ($500,000)    made   by   Mortgagor    in   favor   of    Mortgagee's
predecessor-in-interest  and dated  December 9, 1997 (the "DECEMBER TERM NOTE");
and (iii) under that  certain  Secured  Term Note made by  Mortgagor in favor of
Mortgagee  dated as  November  , 1999 in an  original  principal  amount  of One
Million  and  No/100  Dollars  ($1,000,000.00)  (the  "NOVEMBER  TERM  NOTE" and
collectively  with the March Term Note and the December Term Note, the "ORIGINAL
TERM NOTES").  The Original Term Notes are still outstanding.  The succession of
Mortgagee is described in the recitals of the Original Mortgage.

B. Mortgagor is executing a Secured Term Note in favor of Mortgagee  dated as of
even date with this  Mortgage in an original  principal  amount of Five  Hundred
Thousand and No/100 Dollars  ($500,000.00) (the "MAY TERM NOTE" and collectively
with the Original Term Notes,  the "TERM  NOTES").  Mortgagee  requires that the
obligations of Mortgagor  under the May Term Note be secured by the premises (as
defined  below) and  Mortgagor  has agreed to execute this  Mortgage to evidence
Mortgagee's security interest.

     NOW,  THEREFORE,  for value received,  Mortgagor  mortgages and warrants to
Mortgagee the property situated in the City of New Baltimore,  County of Macomb,
and  State of  Michigan,  with a street  address  of  35031  23 Mile  Road,  New
Baltimore,  Michigan  48047,  and  legally  described  as shown on the  attached
EXHIBIT "A"; together with the easements,  rights-of-way,  licenses, privileges,
hereditaments,  and appurtenances  belonging to the property, and all the rents,
issues,  leases, and profits, the interest of Mortgagor in the property,  either
at law or in  equity,  all  buildings,  structures,  and  improvements,  and all
fixtures  located  in,  on, or affixed  to the  property,  and used or usable in
connection with the operation of the property (all of the above-stated  property
are collectively referred to in this Mortgage as the "premises").

      This Mortgage is given to secure the following:

(a)  payment of the indebtedness evidenced by the March Term Note;

(b)  payment of the indebtedness evidenced by the December Term Note;

(c)  payment of the indebtedness evidenced by the November Term Note;

(d)  payment of the indebtedness evidenced by the May Term Note

(e)  payment by  Mortgagor  to  Mortgagee  of all sums  expended  or advanced by
     Mortgagee pursuant to any term or provision of this Mortgage;

(f)  performance of the covenants,  conditions, and agreements contained in this
     Mortgage  and in the Term  Notes and in any other  documents  securing  the
     indebtedness shown above;

(g)  all  other   indebtedness   and  obligations  of  Mortgagor   currently  or
     subsequently  owing to  Mortgagee,  including but not limited to all future
     advances  under  this  Mortgage  or on the  Term  Notes,  loan  agreements,
     security agreements,  pledge agreements,  assignments,  mortgages,  leases,
     guarantees, and any other agreements,  instruments, or documents previously
     or  subsequently   signed  by  Mortgagor,   whether  the   indebtedness  or
     obligations  are direct or  indirect,  absolute or  contingent,  primary or
     secondary,  or related or unrelated to the premises or the  transaction  of
     which this Mortgage is a part,  and any and all partial or full  extensions
     or renewals of this indebtedness or other indebtedness and obligations (all
     of the foregoing are collectively referred to as the "INDEBTEDNESS").

      Mortgagor warrants, covenants, and agrees that:

1.   TITLE.  Mortgagor is seized of the premises,  in fee simple.  Mortgagor had
     the right and power to mortgage  and  warrant the  premises as set forth in
     this Mortgage. The premises are free from all liens and encumbrances except
     easements and restrictions of record disclosed in __________________  Title
     Commitment  No.  _______  dated  ______________,  relating to the premises.
     Mortgagor will defend the premises against all claims and demands.

2.   PAYMENT OF  INDEBTEDNESS.  Mortgagor  will pay all  indebtedness  when due,
     including the principal and interest, as provided in the Term Notes.

3.   TAXES AND ASSESSMENTS. Until the indebtedness is fully satisfied, Mortgagor
     will pay all taxes, assessments, and other similar charges and encumbrances
     levied on the premises  before they become  delinquent,  and will  promptly
     deliver to Mortgagee, without demand, receipts showing the payment.

4.   TAX AND INSURANCE ESCROW. On request, at the option of Mortgagee, Mortgagor
     will pay to Mortgagee monthly, in addition to each monthly payment required
     by this Mortgage or under the Term Notes,  a sum  equivalent to one-twelfth
     of the amount  estimated by Mortgagee to be sufficient to enable  Mortgagee
     to pay, at least 30 days before  they become due,  all taxes,  assessments,
     and other similar  charges levied  against the premises,  and all insurance
     premiums on any policy or policies of insurance  required by this Mortgage.
     The  additional  payments  may be  commingled  with  the  general  funds of
     Mortgagee, and no interest shall be payable on those payments. On demand by
     Mortgagee,  Mortgagor will deliver and pay over to Mortgagee any additional
     sums necessary to make up any deficiency in the amount  necessary to enable
     Mortgagee to fully pay when due any of the preceding items. In the event of
     any default by Mortgagor in performing  any of the terms of this  Mortgage,
     Mortgagee may apply against the indebtedness,  in the manner that Mortgagee
     may  determine,  any funds of Mortgagor  then held by Mortgagee  under this
     paragraph.

5.   CHANGE  OF LAW.  If,  after  the  date of this  Mortgage,  any  statute  or
     ordinance  is passed that  changes in any way the laws now in force for the
     taxation of mortgages or mortgaged debts or the manner in which those taxes
     are collected,  so as to affect this Mortgage or the interest of Mortgagee,
     the whole of the principal sum secured by this Mortgage,  with all interest
     and  charges,  if any,  at the option of  Mortgagee,  shall  become due and
     payable.

6.   INSURANCE. Mortgagor will procure, deliver to, and maintain for the benefit
     of Mortgagee during the term of this Mortgage:

      (a)   a  policy  of  hazard  insurance,  providing  an  all-risk  extended
            coverage endorsement,  in an amount equal to the highest replacement
            value of the premises;

      (b)   a  policy  of  comprehensive  public  liability  insurance  insuring
            against bodily injury, with a coverage limit of at least $3,000,000,
            and  against  property  damage,  with a  coverage  limit of at least
            $3,000,000,  from any  accident or  occurrence  with  respect to the
            premises.

            All policies of insurance  required by this paragraph  shall be in a
      form, with companies,  and in amounts  acceptable to Mortgagee,  and shall
      contain a mortgagee endorsement clause acceptable to Mortgagee,  with loss
      payable to  Mortgagee.  Mortgagor  will pay when due the  premiums  on any
      policy of insurance  required by Mortgagee,  and will deliver to Mortgagee
      renewals of all policies at least 10 days before their expiration date(s).
      Duplicates of all policies shall be delivered to Mortgagee.

            In the event of any loss or damage to the premises,  Mortgagor  will
      give immediate  written  notice to Mortgagee,  and Mortgagee may then make
      proof of the loss or damage, if it is not promptly made by Mortgagor.  All
      proceeds of  insurance  shall be payable to  Mortgagee,  and any  affected
      insurance  company is authorized and directed to make payment  directly to
      Mortgagee.  Mortgagee is authorized to settle,  adjust,  or compromise any
      claims for loss, damage, or destruction under any policy of insurance.

7.   MAINTENANCE  AND REPAIR.  Mortgagor will not cause or permit the commission
     of waste on the premises and will keep the premises in good  condition  and
     repair.  No building or other improvement on the premises shall be removed,
     demolished,  or materially  altered  without the prior  written  consent of
     Mortgagee.  Mortgagor will comply with all laws,  ordinances,  regulations,
     and orders of all public authorities having jurisdiction over the premises.
     If the premises,  in the sole judgment of Mortgagee,  require inspection or
     repair, Mortgagee may enter upon the premises and inspect and/or repair the
     premises as  Mortgagee  may deem  advisable,  and may take other  action as
     Mortgagee may deem appropriate to preserve the premises. Mortgagor will pay
     when due all charges for utilities or services contracted for by Mortgagor.

8.   ENVIRONMENTAL MATTERS. No use, exposure, release, generation,  manufacture,
     storage,  treatment,  transportation or disposal of Hazardous  Material (as
     defined)  has  occurred  or is  occurring  on or  from  the  property.  All
     Hazardous Material used, treated, stored, transported to or from, generated
     or handled on the property  has been  disposed of on or off the property by
     or on behalf  of  Borrower  in a lawful  manner.  There are no  underground
     storage  tanks present on or under the  property.  No other  environmental,
     public  health  or safety  hazards  exist  with  respect  to the  property.
     "Hazardous   Material"  means  any  substances  defined  or  designated  as
     hazardous or toxic waste,  hazardous or toxic material,  hazardous or toxic
     substance,   or  similar  term,  by  any  environmental  statute,  rule  or
     regulation or any federal, state or local governmental authority.

9.   WASTE.  The failure of Mortgagor to meet its maintenance  obligations or to
     pay any taxes  assessed  against the premises or any  insurance  premium on
     policies  covering any property  located on the premises  shall  constitute
     waste as  provided  by MCLA  600.2927,  MSA  27A.2927,  and  shall  entitle
     Mortgagee  to  appoint  a  receiver  of the  property  for the  purpose  of
     preventing  the waste.  The  receiver may collect the rents and income from
     the premises.

10.  CONDEMNATION.  If the premises,  or any part,  are taken under the power of
     eminent domain,  the entire award, to the full extent of the  indebtedness,
     shall be paid to Mortgagee. Mortgagee is empowered in the name of Mortgagor
     to  receive  and give  acquittance  for any  award,  whether it is joint or
     several.  However,  Mortgagee shall not be held  responsible for failing to
     collect any award.

11.  MORTGAGEE EXPENSES. If Mortgagor fails to meet any of its obligations under
     this mortgage,  Mortgagee shall have the right, but not the obligation,  to
     perform in the place of Mortgagor. If Mortgagee incurs or expends any sums,
     including  reasonable  attorney fees, whether or not in connection with any
     action or  proceeding,  to (a)  sustain  the lien of this  Mortgage  or its
     priority, (b) protect or enforce any of Mortgagee's rights, (c) recover any
     part of the  indebtedness,  (d) meet an obligation of Mortgagor  under this
     mortgage,  or (e) collect  insurance or condemnation  proceeds,  then those
     sums shall become immediately due and payable by Mortgagor with interest at
     the default  rate set forth in the Term Notes from the date of  Mortgagee's
     payment  until  paid by  Mortgagor.  The sums  expended  in this  manner by
     Mortgagee  shall be secured by this  Mortgage and be a lien on the premises
     prior to any  right,  title,  or  interest  on the  premises  attaching  or
     accruing subsequent to the lien of this Mortgage.

12.  ASSIGNMENT OF CONTRACTS AND LICENSES.  Mortgagor  assigns to Mortgagee,  as
     further security for payment of the indebtedness,  Mortgagor's  interest in
     all agreements, contracts (including any contracts for the lease or sale of
     the premises), licenses, and permits affecting the premises. The assignment
     shall  not be  construed  as a  consent  by  Mortgagee  to  any  agreement,
     contract,  license or permit so assigned,  or to impose any  obligations on
     Mortgagee. Mortgagor shall not cancel, amend, permit, or cause a default or
     termination of any of the agreements, contracts, licenses, and permits used
     in  conjunction  with the  operation  of the  premises  without the written
     approval of Mortgagee.

13.  ASSIGNMENT OF RENTS AND LEASES.  As additional  security for the payment of
     the indebtedness, Mortgagor assigns and transfers to Mortgagee, pursuant to
     1953  PA 210,  as  amended  by  1966 PA 151  (MCLA  554.231  et  seq.,  MSA
     26.1137(1) et seq.), all the rents,  profits,  and income under all leases,
     occupancy  agreements,  or  arrangements  upon or  affecting  the  premises
     (including any  extensions or  amendments)  now in existence or coming into
     existence  during the period this  Mortgage is in effect.  This  assignment
     shall  run with the land and be good and  valid as  against  Mortgagor  and
     those claiming under or through  Mortgagor.  This assignment shall continue
     to be operative during foreclosure or any other proceedings to enforce this
     Mortgage.  If a foreclosure  sale results in a deficiency,  this assignment
     shall stand as security during the redemption period for the payment of the
     deficiency.  This assignment is given only as collateral security and shall
     not be construed as obligating Mortgagee to perform any of the covenants or
     undertakings required to be performed by Mortgagor in any leases.

            In the event of  default  in any of the terms or  covenants  of this
      Mortgage, Mortgagee shall be entitled to all of the rights and benefits of
      MCLA 554.231B.233, MSA 26.1137(1)B(3) and 1966 PA 151, and Mortgagee shall
      be entitled to collect the rents and income from the premises,  to rent or
      lease the  premises  on the terms that it may deem best,  and to  maintain
      proceedings to recover rents or possession of the premises from any tenant
      or trespasser.

            Mortgagee shall be entitled to enter the premises for the purpose of
      delivering  notices or other  communications to the tenants and occupants.
      Mortgagee  shall have no liability to Mortgagor as a result of those acts.
      Mortgagee  may deliver all of the notices and  communications  by ordinary
      first-class U.S. mail.

            If Mortgagor obstructs Mortgagee in its efforts to collect the rents
      and income from the premises or unreasonably refuses or neglects to assist
      Mortgagee in collecting the rent and income,  Mortgagee  shall be entitled
      to appoint a receiver for the premises and the income, rents, and profits,
      with powers that the court making the appointment may confer.

            Mortgagor  shall at no time  collect  advance  rent in excess of one
      month under any lease pertaining to the premises,  and Mortgagee shall not
      be bound by any rent  prepayment  made or  received in  violation  of this
      paragraph.  Mortgagee  shall not have any obligation to collect rent or to
      enforce any other obligations of any tenant or occupant of the premises to
      Mortgagor.  No action taken by Mortgagee  under this paragraph shall cause
      Mortgagee to become a "mortgagee in possession."

14.   PERFORMANCE OF LEASES. Mortgagor shall observe and perform all obligations
      contained in any lease affecting the premises. Mortgagor shall not default
      in performing  any of the  obligations  imposed on Mortgagor by any lease;
      such a default gives the lessee the right to terminate or cancel the lease
      or offset  against  rentals.  Upon  request,  Mortgagor  shall  furnish to
      Mortgagee  a  statement,  in any  reasonable  detail  that  Mortgagee  may
      request, of all leases relating to the premises and executed  counterparts
      of any and all leases.

15.  RECORDS.  With respect to the premises and its operations,  Mortgagor shall
     keep  proper  books  in  accordance  with  generally  accepted   accounting
     principles consistently applied.  Mortgagee shall have the right to examine
     the  books at  reasonable  times as  Mortgagee  may  elect.  Upon  request,
     Mortgagor  shall furnish to Mortgagee  within sixty (60) days after the end
     of each calendar year, a financial  statement of Mortgagor for the calendar
     year, in reasonable  detail and stating in comparative  form the figures as
     of the end of the previous  calendar year,  including  statements of income
     and  expense  relating  to  operations  of the  premises,  certified  by an
     independent  certified  public  accountant  acceptable  to  Mortgagee.   In
     addition,  Mortgagor  shall furnish to Mortgagee,  in a form  acceptable to
     Mortgagee,   interim  financial  statements  that  Mortgagee  may  request,
     certified by Mortgagor.

16.  WAIVER.  If Mortgagee  (a) grants any extension of time with respect to the
     payment  of any part of the  indebtedness,  (b) takes  other or  additional
     security  for the  payment  of the  indebtedness,  (c)  waives  or fails to
     exercise any right granted by this  Mortgage or the Term Notes,  (d) grants
     any  release  on any  part of the  security  held  for the  payment  of the
     indebtedness,  or (e)  amends  any of the  terms  and  provisions  of  this
     Mortgage  or the  Term  Notes,  that  act or  omission  shall  not  release
     Mortgagor  under any  covenant  of this  Mortgage  or the Term  Notes,  nor
     preclude  Mortgagee from exercising any right or power granted,  nor impair
     the lien or priority of this Mortgage.

17.  USE OF PREMISES.  Mortgagor  shall not make,  or permit,  without the prior
     written  consent of Mortgagee,  (a) any use of the premises for any purpose
     other than that for which  they are now used;  (b) any  alterations  of the
     buildings,  improvements,  and fixtures  located on the  premises;  (c) any
     purchase,  lease  of, or  agreement  for any  fixtures  to be placed on the
     premises  under which title is  reserved  in the  vendor.  Mortgagor  shall
     execute and deliver documents that may be requested by Mortgagee to confirm
     the lien of this Mortgage on any fixtures, machinery, and equipment.

18.   EVENTS OF DEFAULT.  The occurrences listed below shall be deemed events of
      default and shall  entitle  Mortgagee,  at its option and  without  notice
      except as  required  by law, to  exercise  any one or any  combination  of
      remedies under this Mortgage or permitted by law:

     (a)  the failure by  Mortgagor  to (i) make any payment  when due under the
          Term Notes, or (ii) to perform any of the other terms,  covenants,  or
          conditions  of this  Mortgage  within a period of ten (10) days  after
          written  notice from  Mortgagee of  Mortgagor's  failure to perform an
          obligation;

     (b)  the  institution of  foreclosure  or other  proceedings to enforce any
          junior lien or encumbrance on the premises;

     (c)  the  appointment  by a court of a receiver or trustee of  Mortgagor or
          for any property of Mortgagor;

     (d)  a decree by a court adjudicating Mortgagor a bankrupt or insolvent, or
            for the sequestration of any of Mortgagor's property;

     (e)  the filing of a petition in bankruptcy by or against  Mortgagor  under
          the federal Bankruptcy Code or any similar statute that is in effect;

     (f)  an  assignment  by Mortgagor for the benefit of creditors or a written
          admission by Mortgagor of the inability to pay debts generally as they
          become due;

     (g)  the  failure  to comply  with all of the terms  and  covenants  of any
          leases  or  other  agreements,  documents,  or  restrictions  that now
          encumber, affect, or pertain to the premises;

     (h)  Mortgagor,  without the written consent of Mortgagee,  sells, conveys,
          or transfers the premises,  any interest in the premises, or any rents
          or profits from the premises, or causes or allows any mortgage,  lien,
          or  other  encumbrance,  or  any  writ  of  attachment,   garnishment,
          execution, or other legal process to be placed on the premises, or any
          part of the premises is transferred by operation of law;

     (i)  all or any part of the  premises  is damaged or  destroyed  by fire or
          other casualty, regardless of insurance coverage, or is taken by power
          of eminent domain.

19.  DEFAULT  REMEDIES.  Upon the  occurrence  of any event of  default  of this
     mortgage,  Mortgagee shall have the option,  in addition to and not in lieu
     of all other rights and  remedies  provided by law, to do any or all of the
     following:

     (a)  Without  notice,  except as expressly  required by law, to declare the
          principal sum secured by the Mortgage,  together with all interest and
          all other sums secured by this  mortgage,  to be  immediately  due and
          payable;  to demand any installment  payment due under the Term Notes;
          and to institute any  proceedings  that Mortgagee  deems  necessary to
          collect and  otherwise  to enforce the  indebtedness  and  obligations
          secured by this Mortgage and to protect the lien of this Mortgage.

     (b)  Commence  foreclosure  proceedings  against the  premises  pursuant to
          applicable laws.  Mortgagee's  commencement of a foreclosure  shall be
          deemed an exercise by  Mortgagee of its option to  accelerate  the due
          date  of all  sums  secured  by this  Mortgage.  Mortgagor  grants  to
          Mortgagee,  in the event of the occurrence of an event of default, the
          power to sell the premises at public auction by advertisement, without
          notice or hearing, except as required by Michigan statutes.

     (c)  To enter into peaceful  possession  of the premises  and/or to receive
          the rent, income,  and profits,  and to apply those in accordance with
          paragraph 13.

            Mortgagor  acknowledges  having been advised that Mortgagee believes
            that  the  value  of  the  security  covered  by  this  Mortgage  is
            inextricably  intertwined with the  effectiveness of the management,
            maintenance,  and  general  operation  of  the  premises,  and  that
            Mortgagee would not make the loan secured by this Mortgage unless it
            could be assured that it would have the right to take  possession of
            the premises in order to manage,  control management,  and enjoy the
            income,  rents, and profits,  immediately upon default by Mortgagor,
            notwithstanding  that  foreclosure  proceedings  may not  have  been
            instituted,  or are pending,  or that the redemption  period may not
            have  expired.  Accordingly,  Mortgagor  knowingly  and  voluntarily
            waives all right to  possession  of the premises  from and after the
            date of default, upon demand for possession by Mortgagee.

20.  SALE OF PREMISES AS A WHOLE OR IN PARCELS. Upon any foreclosure sale of the
     premises,  the  premises  may be sold either as a whole or in  parcels,  as
     Mortgagee  may elect,  and if in parcels,  to be divided as  Mortgagee  may
     elect, or, at the election of Mortgagee,  the premises may be offered first
     in parcels and then as a whole,  with the offer producing the highest price
     for the entire property to prevail.

21.  ASSIGNMENT.  Mortgagor  shall not make a conveyance  of any interest in the
     premises.  A  "conveyance"  of  Mortgagor's  interest in the premises shall
     include  without  limitation  any voluntary or  involuntary  disposition or
     dilution of legal or  beneficial  title to the  premises  by any means.  If
     ownership of the premises,  or any part,  becomes  vested in a person other
     than  Mortgagor  (with or  without  Mortgagee's  consent),  Mortgagee  may,
     without  notice to  Mortgagor,  deal with the  successors  in interest with
     reference to this  Mortgage or the Term Notes  without in any way releasing
     or  otherwise  affecting  Mortgagor's  liability  under the Term  Notes and
     Mortgage.

22.  APPLICATION OF PROCEEDS. In the event of the payment to Mortgagee, pursuant
     to this mortgage,  of any rents or profits, or proceeds of any insurance or
     condemnation  award,  or  proceeds  from  the  sale  of the  premises  upon
     foreclosure, Mortgagee shall have the right to apply the rents, profits, or
     proceeds,  in amounts and  proportions  that Mortgagee  shall,  in its sole
     discretion,  determine, against the cost and expenses incurred by Mortgagee
     in exercising its rights under this  mortgage,  payment of the interest and
     principal  due under the Term  Notes,  payment of any other  portion of the
     indebtedness,  and payment of expenses incurred in preserving the premises.
     Application  by  Mortgagee  of  any  proceeds   toward  the  last  maturing
     installments  of principal  and interest to become due under the Term Notes
     shall not excuse Mortgagor from making the regularly scheduled payments due
     under the Term Notes and this mortgage,  nor shall the  application  reduce
     the amount of the  payments.  In the event of the  payment of proceeds as a
     result of an  insurance or  condemnation  award,  Mortgagee  shall have the
     right,  but not the  obligation,  to require all or part of the proceeds of
     any insurance or  condemnation  award to be used to restore any part of the
     premises  damaged or taken by reason of the  occurrence  which gave rise to
     the payment of the proceeds.

            CAUTION:    PARAGRAPH 23 CONTAINS A WAIVER OF
                        IMPORTANT LEGAL RIGHTS

23.  WAIVER OF RIGHTS.  This  Mortgage  contains  a power of sale which  permits
     Mortgagee  to cause  the  premises  to be sold in the  event of a  default.
     Mortgagee  may  elect to cause  the  premises  to be sold by  advertisement
     rather  than  pursuant  to court  action,  and  Mortgagor  voluntarily  and
     knowingly  waives any right  Mortgagor may have by virtue of any applicable
     constitutional provision or statute to any notice or court hearing prior to
     the exercise of the power of sale,  except as may be expressly  required by
     the Michigan statute governing foreclosures by advertisement.  In addition,
     Mortgagor  knowingly and voluntarily waives any right Mortgagor may have to
     remain in  possession  of the  premises  or to collect  any rents or income
     therefrom during the pendency of any foreclosure proceedings and during any
     applicable  redemption  period.  Also,  paragraphs  18 and 21 above entitle
     Mortgagee to require  immediate  payment of the balance of the indebtedness
     in full if the premises are sold or otherwise transferred.  By execution of
     this mortgage,  Mortgagor  represents and acknowledges that the meaning and
     consequences of these paragraphs have been discussed as fully as desired by
     Mortgagor with Mortgagor's legal counsel.

24.  ENVIRONMENTAL MATTERS. Mortgagor agrees to indemnify Mortgagee against, and
     hold it harmless  from, all  obligations  and  liabilities  relating to the
     premises  arising  out of claims made or suits  brought for  investigation,
     study, remedial work, monitoring,  or other costs and expenses arising from
     or associated with response to any environmental matters, including but not
     limited to any (a) water pollution,  air pollution,  noise,  odor,  spills,
     leaks,  or  inadvertent   discharges,   emissions,   or  releases,  or  the
     generation, transportation, storage, treatment, or disposal of solid waste,
     including   hazardous   waste,   hazardous   substances,   pollutants   and
     contaminants; (b) injury, sickness, disease, or death of any person; or (c)
     damage to any  property,  regardless  of whether the cause of the injury or
     damage  occurred  before  or  after  the date of this  Mortgage.  Mortgagor
     further agrees that Mortgagee shall have no liability for any environmental
     contamination  associated with  Mortgagor's  business or the premises,  and
     that any involvement of Mortgagee with Mortgagor's  business to protect its
     security  interest in the  premises  shall not  constitute  Mortgagor as an
     "owner or operator"  of  Mortgagor's  business for purposes of  determining
     environmental  liability.  In any event, if Mortgagee becomes obligated, by
     judicial or  administrative  judgment or settlement of a claim,  to pay any
     amounts  for  response to any  environmental  contamination  associated  or
     connected  with  Mortgagor's  business  or the  premises,  any  payment  by
     Mortgagee shall be deemed  additional  indebtedness  secured by the lien of
     this mortgage, shall be immediately due and payable to Mortgagee, and shall
     bear interest until paid at the default interest rate specified in the Term
     Notes.

25.  COVENANTS  RUN WITH LAND.  All of the terms and  covenants of this Mortgage
     shall run with the land and shall be binding on and inure to the benefit of
     the respective legal representatives and successors of the parties.

26.  RELEASE OF MORTGAGE.  If Mortgagor  pays to Mortgagee the money required by
     the Term Notes,  in the manner and at the times provided in the Term Notes,
     and all other sums of the  indebtedness  payable by Mortgagor to Mortgagee,
     and keeps and performs the terms,  covenants,  and  agreements of Mortgagor
     with Mortgagee,  then this Mortgage shall be satisfied, and Mortgagee shall
     release the Mortgage.

27.  NOTICE.  All notices,  demands,  and  requests  required or permitted to be
     given to Mortgagor or by law shall be deemed  delivered  when  deposited in
     the United  States mail,  with postage  prepaid,  addressed to Mortgagor or
     Mortgagee at their last known addresses.

28.  SEVERABILITY.  If any  provision of this  Mortgage is in conflict  with any
     statute  or  rule  of  law  of  the  State  of  Michigan  or  is  otherwise
     unenforceable for any reason,  then that provision shall be deemed null and
     void to the extent of the conflict or unenforceability, but shall be deemed
     separable  from and  shall  not  invalidate  any  other  provision  of this
     Mortgage.

29.  VENUE AND  JURISDICTION.  All provisions of this Mortgage shall be governed
     by and  construed  in  accordance  with the laws of the State of  Michigan.
     Venue  shall be in Macomb  County,  Michigan  for any action  brought  with
     regard to this Mortgage.  Mortgagor consents to personal  jurisdiction over
     it by any Michigan courts to the extent that personal  jurisdiction  may be
     necessary to enforce any of the provisions of this Mortgage.


                               [SIGNATURES FOLLOW]

<PAGE>

Signed on the date set forth above.

                                   MORTGAGOR:

WITNESSES:                         PHC OF MICHIGAN, INC.,
                                   a Massachusetts corporation


                                   By:  /s/  Bruce A. Shear
                                   Name: Bruce A. Shear
                                         President

/s/  T. A. Bates
     Name:


                                 ACKNOWLEDGMENT


STATE OF MASSACHUSETTS  )
COUNTY OF ESSEX         )


     The foregoing instrument was acknowledged before me on ____________,  2000,
by Bruce A. Shear,  the  President  of PHC of Michigan,  Inc.,  a  Massachusetts
corporation, on behalf of the corporation.


/s/  Paula C. Wurts
Notary Public, Essex County

My commission expires November 29, 2002


                                     <PAGE>
                                   EXHIBIT "A"

                                LEGAL DESCRIPTION



<PAGE>
                  THIS GUARANTY CONTAINS PROVISIONS FOR WAIVER
                                  OF JURY TRIAL

            SECURED UNCONDITIONAL GUARANTY OF PAYMENT AND PERFORMANCE


      THIS  SECURED  UNCONDITIONAL  GUARANTY  OF PAYMENT  AND  PERFORMANCE  (the
"Guaranty") is dated as of May 26, 2000 and is made by BSC--NY, INC., a New York
corporation  ("GUARANTOR"),  in favor of  HELLER  HEALTHCARE  FINANCE,  INC.,  a
Delaware corporation ("LENDER").

                                 R E C I T A L S

1.  Pursuant to a certain  Secured Term Note of even date with this Guaranty (as
the note may from time to time be amended,  modified or supplemented,  the "TERM
Note")  made in  favor of  Lender  by PHC of  Michigan,  Inc.,  a  Massachusetts
corporation ("BORROWER") that is an affiliate of Guarantor, Lender has agreed to
make  available  to  Borrower  a  secured  term  loan in the  maximum  aggregate
principal amount of Five Hundred Thousand and No/100 Dollars  ($500,000.00) (the
"LOAN").

B.  Lender  is  willing  to make the Loan  under the Term Note but only upon the
condition,  among others,  that  Guarantor  shall have executed and delivered to
Lender this Guaranty.

      NOW,  THEREFORE,  in  consideration  of the  premises  and  of the  mutual
covenants   contained  in  this   Guaranty  and  for  other  good  and  valuable
consideration, the receipt of which is hereby acknowledged, the parties agree as
follows:

      1. All capitalized  terms used but not defined in this Guaranty shall have
the respective meanings given them in the Term Note.

      2. To induce  Lender to make the Loan  upon the terms and  conditions  set
forth  in  the  Term  Note,  and  in  consideration  thereof,  Guarantor  hereby
unconditionally  and  irrevocably  guaranties to Lender,  and to its successors,
endorsees,  transferees and assigns, Borrower's prompt and complete payment when
due,  whether at the stated  maturity,  by acceleration or otherwise,  of all of
Borrower's  obligations under the Term Note  (collectively,  the "OBLIGATIONS"),
and Borrower's  prompt and complete  performance of all of its other  covenants,
obligations and agreements contained in the Term Note.

      3. As security for Guarantor's obligations under this Guaranty,  Guarantor
hereby  assigns and grants to Lender a continuing  priority lien on and security
interest in, upon, and to the following property:

     a. All of Guarantor's now-owned and hereafter acquired or arising Accounts,
accounts receivable and rights to payment of every kind and description, and any
contract rights, chattel paper, documents and instruments with respect thereto;

     b. All of Guarantor's now or hereafter acquired deposit accounts into which
Accounts are deposited, including the Concentration Account;

     c. All of  Guarantor's  right,  title and interest,  and all of Guarantor's
rights,  remedies,  security and liens,  in, to and in respect of the  Accounts,
including,  without  limitation,   rights  of  stoppage  in  transit,  replevin,
repossession  and reclamation and other rights and remedies of an unpaid vendor,
lienor or secured  party,  guaranties  or other  contracts  of  suretyship  with
respect to the Accounts,  deposits or other  security for the  obligation of any
Account debtor, and credit and other insurance;

     d. All of  Guarantor's  right,  title and interest in, to and in respect of
all goods relating to, or which by sale have resulted in,  Accounts,  including,
without  limitation,  all goods  described  in  invoices or other  documents  or
instruments  with  respect to, or  otherwise  representing  or  evidencing,  any
Account, and all returned, reclaimed or repossessed goods;

     e. All deposit accounts, as such term is defined in the UCC;

     f. All books, records,  ledger cards, computer programs and information and
other property at any time evidencing or relating to the Accounts; and

     g. The proceeds (including, without limitation,  insurance proceeds) of all
of the foregoing.

     4. Guarantor hereby waives notice of the acceptance of this Guaranty and of
the  extending of credit as above  specified  and the state of  indebtedness  of
Borrower  at  any  time,  and  expressly  agrees  to any  extensions,  renewals,
accelerations  or  modifications  of such  credit  or any of the  terms  of such
credit, and waives diligence, presentment, demand of payment, protest or notice,
whether of  non-payment,  dishonor,  protest or  otherwise,  of any  document or
documents  and notice of any  extension,  renewal,  modification  or default and
assent to the release,  substitution  or variation of any collateral that may at
any time be held as security for any credit  extended to  Borrower,  all without
relieving  Guarantor of any liability  under this Guaranty.  The  obligations of
Guarantor  under this  Guaranty  shall be an  unconditional  obligation  to make
prompt  payment  and  performance  to Lender  irrespective  of the  genuineness,
validity,  regularity  or  enforceability  of any  indebtedness  or  evidence of
indebtedness  of  Borrower  to  Lender  or of  other  circumstances  that  might
otherwise  under the laws of any  jurisdiction  constitute  a legal or equitable
discharge of a surety or a guarantor or a bar (in the nature of a moratorium  or
otherwise) to the enforcement of Lender's rights either (i) against  Borrower on
all or any part of its Obligations or (ii) under this Guaranty.

     5.  Notwithstanding  any payment or payments  made by Guarantor  under this
Guaranty or any setoff or application of funds of Guarantor by Lender, Guarantor
shall not be entitled to be  subrogated  to any of the rights of Lender  against
Borrower  or any  collateral  security or  guarantee  or right of offset held by
Lender for the payment or performance of the  Obligations,  nor shall  Guarantor
seek any  reimbursement  from  Borrower in respect of payments made by Guarantor
under this Guaranty, until all amounts then owing and any other performance then
due to Lender by  Borrower  for or on  account of the  Obligations  are paid and
satisfied in full. Upon such payment and  satisfaction in full,  Guarantor shall
be  subrogated  to all  rights  of Lender  against  Borrower  or any  collateral
security  or  guarantee  or right of offset  held by Lender for the  payment and
performance of the Obligations.

     6.  Any  indebtedness  of  Borrower  now or  hereafter  owed  to or held by
Guarantor is hereby  subordinated to the indebtedness of Borrower to Lender; and
such  indebtedness  of Borrower  to  Guarantor  if Lender so  requests  shall be
collected,  enforced and received by Guarantor as trustee for Lender and be paid
over to Lender on account of the  indebtedness of Borrower to Lender but without
reducing or affecting in any manner the  liability of Guarantor  under the other
provisions of this Guaranty.

     7. This is intended to be and shall be construed  as a continuing  guaranty
and shall  remain in full force and  effect  and shall be binding in  accordance
with and to the extent of its terms upon  Guarantor and  Guarantor's  successors
and  assigns,  and shall  inure to the  benefit of Lender,  and its  successors,
endorsees, transferees and assigns.

     8. If all or any part of the Obligations of Borrower to Lender are not paid
when due, Guarantor hereby guaranties that it will pay the same to Lender,  upon
demand,  without set-off or counterclaim and without  reduction by reason of any
taxes, levies, imposts, charges and withholdings,  restrictions or conditions of
any nature that are now or may  hereafter be imposed,  levied or assessed by any
country, political subdivision or taxing authority, all of which will be for the
account of and paid by Guarantor, and Lender need not first proceed to preserve,
utilize or  exhaust  any other  right or remedy  against  Borrower  or any other
guarantor or any security  that Lender may have to obtain  payment.  The payment
shall be made in immediately  available  funds to Lender's office at 2 Wisconsin
Circle, Fourth Floor, Chevy Chase, Maryland 20815, Attention:  Steven M. Curwin,
Deputy  General  Counsel,  or at such  other  place as Lender may  designate  in
writing.

     9. No  failure  to  exercise  and no  delay in  exercising,  on the part of
Lender,  any right,  power or privilege  under this Guaranty  shall operate as a
waiver  of the  right,  power or  privilege,  nor shall  any  single or  partial
exercise of any right, power or privilege preclude any other or further exercise
of the right,  power or privilege,  or the exercise of any other power or right.
The rights  and  remedies  provided  in this  Guaranty  are  cumulative  and not
exclusive of any rights or remedies provided by law.

      10.  Notice or demand to the  parties  shall be  sufficiently  given if in
writing and  personally  delivered,  or mailed by registered or certified  first
class mail,  postage prepaid,  return receipt  requested,  or sent by commercial
courier  against  receipt,  or by  telecopier  (with a  confirming  copy sent by
regular  mail) to the party  intended and at the address or addresses  specified
below:

                  GUARANTOR:  200 Lake Street, Suite 102
                  Peabody, Massachusetts 01960
                  Telephone:  (978) 536-2777
                  Telecopier: (978) 536-2677
                  Attention:  Bruce A. Shear, President

                  LENDER:     2 Wisconsin Circle, 4th Floor
                  Chevy Chase, Maryland 20815
                  Telephone:  (301) 961-1640
                  Telecopier: (301) 664-9866
                  Attention: Steven M. Curwin, Deputy General Counsel

Any party may  designate  a change of  address by notice in writing to the other
parties,  such notice to be effective ten (10) days after mailing or delivery as
provided in this Section 10.

     11. Guarantor hereby represents, warrants, and covenants to Lender that:

     a. It is a  corporation  duly  incorporated,  validly  existing and in good
standing under the laws of the  jurisdiction of its  incorporation,  and has the
corporate  power and authority to own its property,  conduct its business as now
being  conducted  and to make and perform  this  Guaranty  and the  transactions
contemplated  by this  Guaranty,  and is duly qualified to do business and is in
good standing as a foreign corporation in each jurisdiction where the nature and
extent of the business  conducted by it, or property owned by it, and applicable
law require such qualification, except where the failure so to qualify would not
have a material adverse effect on the business, operations or financial position
of Guarantor.

     b. The execution,  delivery and performance of this Guaranty have been duly
authorized by all necessary  corporate action and will not violate any provision
of law or any order of any court or  governmental  agency or the  certificate of
incorporation  or other  incorporating  documents  or  bylaws of  Guarantor,  or
conflict  with, or result in a breach of, or constitute  (with or without notice
or lapse of time or both) a default  under,  or result  in the  creation  of any
security  interest,  lien,  charge or encumbrance upon any property or assets of
Guarantor, pursuant to any agreement,  indenture or other instrument to which it
is a party or by which it may be bound.

     c. Except as disclosed to Lender in writing  prior to the execution of this
Guaranty, no action, suit, investigation or proceeding is pending or known to be
threatened against or affecting Guarantor that, if adversely  determined,  would
have a material adverse effect upon its financial condition or operations.

     d.  Guarantor is not in default under any provision of its  certificate  of
incorporation or other incorporating  documents,  bylaws or stock provisions (or
any  amendment  to such  documents or  provisions),  any  indenture  relating to
borrowed  money,  any  agreement to which it is a party or by which it is bound,
any other indenture, or any order, regulation,  ruling or requirement of a court
or public body or authority  by which it is bound,  which  default  would have a
material  adverse  effect on the business,  operations or financial  position of
Guarantor.

     e. No license,  consent or approval  of, or filing with,  any  governmental
body or other  regulatory  authority is required for the making and  performance
of, or any instrument or transaction  contemplated by, this Guaranty.  Guarantor
holds all  certificates  and  authorizations  of all  governmental  agencies and
authorities  required  by law to enable it to engage in the  business  currently
transacted by it, except those  certificates and  authorizations as to which the
failure to so hold would not, in the aggregate,  have a material  adverse effect
on Guarantor.

     f. No provision of this Guaranty shall be waived,  amended or  supplemented
except by a written instrument executed by Lender.

     12. The obligations of Guarantor under this Guaranty shall continue in full
force and  effect and shall  remain in  operation  until all of the  Obligations
shall have been paid in full or otherwise  fully  satisfied,  and continue to be
effective or be reinstated,  as the case may be, if at any time payment or other
satisfaction  of any of the  Obligations  is  rescinded  or  must  otherwise  be
restored or returned  upon the  bankruptcy,  insolvency,  or  reorganization  of
Borrower,  or  otherwise,  as  though  such  payment  had not been made or other
satisfaction occurred. No invalidity, irregularity or unenforceability by reason
of applicable  bankruptcy  laws or any other similar law, or any law or order of
any  government or government  agency  purporting to reduce,  amend or otherwise
affect, the Obligations,  shall impair, affect, be a defense to or claim against
the obligations of Guarantor under this Guaranty.

     13. In addition to its guarantee of Borrower's  payment of the  Obligations
and  Borrower's  performance  of  all  covenants,   obligations  and  agreements
contained  in the Loan  Documents,  Guarantor  shall  pay all  actual  costs and
expenses  (including  reasonable  attorney's fees) paid or incurred by Lender in
connection with the enforcement of this Guaranty.

     14.  Guarantor  hereby  agrees to execute  any and all  further  documents,
agreements,  and instruments,  and take all further  actions,  that Lender shall
reasonably  request to  effectuate  or further  preserve,  evidence,  perfect or
protect  the  rights  purported  to be  created  in favor of Lender  under  this
Guaranty.

     15. Guarantor hereby assumes  responsibility for keeping itself informed of
the  financial  condition of Borrower,  and any and all  endorsers  and/or other
guarantors  of any  instrument  or  document  evidencing  all or any part of the
Obligations,  and of all other circumstances bearing upon the risk of nonpayment
of the Obligations, or any part of the Obligations,  that diligent inquiry would
reveal,  and  Guarantor  hereby  agrees that Lender shall have no duty to advise
Guarantor of  information  known to Lender  regarding such condition or any such
circumstances. If Lender, in its sole discretion, undertakes at any time or from
time to time to provide any such information to Guarantor, Lender shall be under
no  obligation  (i) to  undertake  any  investigation  not a part of its regular
business routine, (ii) to disclose any information that, pursuant to accepted or
reasonable commercial finance practices, Lender wishes to maintain confidential,
or (iii) to make any  other or future  disclosures  of such  information  or any
other information to Guarantor.

     16. This Guaranty may be executed in one or more counterpart  copies,  each
of which shall be an original and all of which together shall constitute one and
the same instrument, and it is not necessary that all parties' signatures appear
on each counterpart.

     17. If any term, covenant or condition of this Guaranty, or the application
of such term, covenant or condition to any party or circumstance, shall be found
by a  court  of  competent  jurisdiction  to  be,  to  any  extent,  invalid  or
unenforceable,  the remainder of this Guaranty and the application of such term,
covenant,  or condition to parties or circumstances other than those as to which
it is held invalid or  unenforceable,  shall not be affected  thereby,  and each
term,  covenant or condition  shall be valid and enforced to the fullest  extent
permitted by law. Upon determination  that any such term is invalid,  illegal or
unenforceable,  the parties to this Guaranty  shall amend this Guaranty so as to
effect  the  original  intent  of the  parties  as  closely  as  possible  in an
acceptable manner.

     18. THIS GUARANTY  SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE  WITH,
THE LAWS OF THE STATE OF MARYLAND,  WITHOUT  REGARD TO ANY OTHERWISE  APPLICABLE
PRINCIPLES OF CONFLICTS OF LAWS.  IF ANY ACTION  ARISING OUT OF THIS GUARANTY IS
COMMENCED  BY LENDER IN THE STATE COURTS OF THE STATE OF MARYLAND OR IN THE U.S.
DISTRICT COURT FOR THE DISTRICT OF MARYLAND,  GUARANTOR  HEREBY  CONSENTS TO THE
JURISDICTION  OF ANY SUCH COURT IN ANY SUCH ACTION AND TO THE LAYING OF VENUE IN
THE STATE OF  MARYLAND.  ANY PROCESS IN ANY SUCH ACTION  SHALL BE DULY SERVED IF
MAILED BY  REGISTERED  MAIL,  POSTAGE  PREPAID,  TO GUARANTOR AT ITS ADDRESS SET
FORTH IN SECTION 10 OF THIS GUARANTY.

     19.  GUARANTOR HEREBY (A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY
OF ANY ISSUE  TRIABLE  OF RIGHT BY A JURY,  AND (B) WAIVES ANY RIGHT TO TRIAL BY
JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST.  THIS
WAIVER OF RIGHT TO TRIAL BY JURY IS SEPARATELY GIVEN, KNOWINGLY AND VOLUNTARILY,
BY  GUARANTOR,  AND THIS  WAIVER IS  INTENDED  TO  ENCOMPASS  INDIVIDUALLY  EACH
INSTANCE  AND EACH ISSUE AS TO WHICH THE RIGHT TO A JURY TRIAL  WOULD  OTHERWISE
ACCRUE. LENDER IS HEREBY AUTHORIZED AND REQUESTED TO SUBMIT THIS GUARANTY TO ANY
COURT HAVING  JURISDICTION OVER THE SUBJECT MATTER AND THE PARTIES HERETO, SO AS
TO SERVE AS  CONCLUSIVE  EVIDENCE  OF  GUARANTOR'S  WAIVER  OF THE RIGHT TO JURY
TRIAL.  FURTHER,  GUARANTOR HEREBY CERTIFIES THAT NO  REPRESENTATIVE OR AGENT OF
LENDER (INCLUDING LENDER'S COUNSEL) HAS REPRESENTED,  EXPRESSLY OR OTHERWISE, TO
GUARANTOR  THAT  LENDER  WILL NOT SEEK TO ENFORCE  THIS  WAIVER OF RIGHT TO JURY
TRIAL PROVISION.

     20. GUARANTOR AUTHORIZES ANY ATTORNEY ADMITTED TO PRACTICE BEFORE ANY COURT
OF RECORD IN THE UNITED STATES OR THE CLERK OF SUCH COURT TO APPEAR ON BEHALF OF
GUARANTOR IN ANY COURT IN ONE OR MORE  PROCEEDINGS,  OR BEFORE ANY CLERK THEREOF
OF  PROTHONOTARY  OR OTHER  COURT  OFFICIAL,  AND TO  CONFESS  JUDGMENT  AGAINST
GUARANTOR IN FAVOR OF LENDER IN THE FULL AMOUNT DUE ON THIS GUARANTY  (INCLUDING
PRINCIPAL,  ACCRUED  INTEREST  AND ANY AND ALL  CHARGES,  FEES AND  COSTS)  PLUS
ATTORNEYS'  FEES EQUAL TO FIFTEEN  PERCENT  (15%) OF THE AMOUNT DUE,  PLUS COURT
COSTS,  ALL WITHOUT PRIOR NOTICE OR  OPPORTUNITY  OF BORROWER FOR PRIOR HEARING.
GUARANTOR AGREES AND CONSENTS THAT VENUE AND JURISDICTION SHALL BE PROPER IN THE
CIRCUIT  COURT OF ANY  COUNTY OF THE STATE OF  MARYLAND  OR OF  BALTIMORE  CITY,
MARYLAND,  OR IN THE UNITED STATES  DISTRICT COURT FOR THE DISTRICT OF MARYLAND.
GUARANTOR  WAIVES THE BENEFIT OF ANY AND EVERY  STATUTE,  ORDINANCE,  OR RULE OF
COURT  WHICH MAY BE  LAWFULLY  WAIVED  CONFERRING  UPON  GUARANTOR  ANY RIGHT OR
PRIVILEGE OF EXEMPTION,  HOMESTEAD RIGHTS,  STAY OF EXECUTION,  OR SUPPLEMENTARY
PROCEEDINGS,  OR OTHER RELIEF FROM THE ENFORCEMENT OR IMMEDIATE ENFORCEMENT OF A
JUDGMENT OR RELATED PROCEEDINGS ON A JUDGMENT. THE AUTHORITY AND POWER TO APPEAR
FOR AND ENTER JUDGMENT  AGAINST  GUARANTOR SHALL NOT BE EXHAUSTED BY ONE OR MORE
EXERCISES  THEREOF,  OR BY ANY  IMPERFECT  EXERCISE  THEREOF,  AND  SHALL NOT BE
EXTINGUISHED BY ANY JUDGMENT ENTERED PURSUANT THERETO;  SUCH AUTHORITY AND POWER
MAY BE  EXERCISED  ON ONE OR MORE  OCCASIONS  FROM TIME TO TIME,  IN THE SAME OR
DIFFERENT JURISDICTIONS, AS OFTEN AS LENDER SHALL DEEM NECESSARY, CONVENIENT, OR
PROPER.

     21. In any  litigation,  trial,  arbitration  or other  dispute  resolution
proceeding  relating to this  Guaranty or any of the other Loan  Documents,  all
directors,  officers,  employees  and agents of Guarantor  or of its  Affiliates
shall be deemed to be employees or managing  agents of Guarantor for purposes of
all  applicable  law or court rules  regarding  the  production  of witnesses by
notice for testimony (whether in a deposition, at trial or otherwise). Guarantor
agrees that  Lender's  counsel in any such  dispute  resolution  proceeding  may
examine  any of these  individuals  as if under  cross-examination  and that any
discovery deposition of any of them may be used in that proceeding as if it were
an  evidence  deposition.  Guarantor  in any  event  will  use all  commercially
reasonable efforts to produce in any such dispute resolution proceeding,  at the
time and in the manner requested by Lender,  all Persons,  documents (whether in
tangible,  electronic  or other  form) or other  things  under its  control  and
relating  to the  dispute  in any  jurisdiction  that  recognizes  that  (or any
similar) distinction.

                               [SIGNATURES FOLLOW]


<PAGE>


IN WITNESS WHEREOF,  Guarantor has caused this Guaranty to be executed as of the
date first written above.

ATTEST:                                   BSC-NY, INC.
                                          a New York corporation


                                          By: /s/  Bruce A. Shear
                                          Name:  Bruce A. Shear
                                          Title: President


<PAGE>

                  THIS GUARANTY CONTAINS PROVISIONS FOR WAIVER
                                  OF JURY TRIAL

                UNCONDITIONAL GUARANTY OF PAYMENT AND PERFORMANCE


     THIS UNCONDITIONAL  GUARANTY OF PAYMENT AND PERFORMANCE (the "GUARANTY") is
dated as of May 26, 2000 and is made by PHC, INC., a  Massachusetts  corporation
("GUARANTOR"),   in  favor  of  HELLER  HEALTHCARE  FINANCE,  INC.,  a  Delaware
corporation ("LENDER").

                                 R E C I T A L S

     1. Pursuant to a certain  Secured Term Note of even date with this Guaranty
(as the note may from time to time be  amended,  modified or  supplemented,  the
"TERM NOTE") made in favor of Lender by PHC of Michigan,  Inc., a  Massachusetts
corporation ("BORROWER") that is a wholly owned subsidiary of Guarantor,  Lender
has agreed to make  available  to  Borrower a secured  term loan in the  maximum
aggregate   principal  amount  of  Five  Hundred  Thousand  and  No/100  Dollars
($500,000.00) (the "LOAN").

     B. Lender is willing to make the Loan under the Term Note but only upon the
condition,  among others,  that  Guarantor  shall have executed and delivered to
Lender this Guaranty.

     NOW,  THEREFORE,  in  consideration  of the  premises  and  of  the  mutual
covenants   contained  in  this   Guaranty  and  for  other  good  and  valuable
consideration, the receipt of which is hereby acknowledged, the parties agree as
follows:

     1. All  capitalized  terms used but not defined in this Guaranty shall have
the respective meanings given them in the Term Note.

     2. To induce  Lender to make the Loan  upon the  terms and  conditions  set
forth  in  the  Term  Note,  and  in  consideration  thereof,  Guarantor  hereby
unconditionally  and  irrevocably  guaranties to Lender,  and to its successors,
endorsees,  transferees and assigns, Borrower's prompt and complete payment when
due,  whether at the stated  maturity,  by acceleration or otherwise,  of all of
Borrower's  obligations under the Term Note  (collectively,  the "OBLIGATIONS"),
and Borrower's  prompt and complete  performance of all of its other  covenants,
obligations and agreements contained in the Term Note.

     3. Guarantor hereby waives notice of the acceptance of this Guaranty and of
the  extending of credit as above  specified  and the state of  indebtedness  of
Borrower  at  any  time,  and  expressly  agrees  to any  extensions,  renewals,
accelerations  or  modifications  of such  credit  or any of the  terms  of such
credit, and waives diligence, presentment, demand of payment, protest or notice,
whether of  non-payment,  dishonor,  protest or  otherwise,  of any  document or
documents  and notice of any  extension,  renewal,  modification  or default and
assent to the release,  substitution  or variation of any collateral that may at
any time be held as security for any credit  extended to  Borrower,  all without
relieving  Guarantor of any liability  under this Guaranty.  The  obligations of
Guarantor  under this  Guaranty  shall be an  unconditional  obligation  to make
prompt  payment  and  performance  to Lender  irrespective  of the  genuineness,
validity,  regularity  or  enforceability  of any  indebtedness  or  evidence of
indebtedness  of  Borrower  to  Lender  or of  other  circumstances  that  might
otherwise  under the laws of any  jurisdiction  constitute  a legal or equitable
discharge of a surety or a guarantor or a bar (in the nature of a moratorium  or
otherwise) to the enforcement of Lender's rights either (i) against  Borrower on
all or any part of its Obligations or (ii) under this Guaranty.

     4.  Notwithstanding  any payment or payments  made by Guarantor  under this
Guaranty or any setoff or application of funds of Guarantor by Lender, Guarantor
shall not be entitled to be  subrogated  to any of the rights of Lender  against
Borrower  or any  collateral  security or  guarantee  or right of offset held by
Lender for the payment or performance of the  Obligations,  nor shall  Guarantor
seek any  reimbursement  from  Borrower in respect of payments made by Guarantor
under this Guaranty, until all amounts then owing and any other performance then
due to Lender by  Borrower  for or on  account of the  Obligations  are paid and
satisfied in full. Upon such payment and  satisfaction in full,  Guarantor shall
be  subrogated  to all  rights  of Lender  against  Borrower  or any  collateral
security  or  guarantee  or right of offset  held by Lender for the  payment and
performance of the Obligations.

     5.  Any  indebtedness  of  Borrower  now or  hereafter  owed  to or held by
Guarantor is hereby  subordinated to the indebtedness of Borrower to Lender; and
such  indebtedness  of Borrower  to  Guarantor  if Lender so  requests  shall be
collected,  enforced and received by Guarantor as trustee for Lender and be paid
over to Lender on account of the  indebtedness of Borrower to Lender but without
reducing or affecting in any manner the  liability of Guarantor  under the other
provisions of this Guaranty.

     6. This is intended to be and shall be construed  as a continuing  guaranty
and shall  remain in full force and  effect  and shall be binding in  accordance
with and to the extent of its terms upon  Guarantor and  Guarantor's  successors
and  assigns,  and shall  inure to the  benefit of Lender,  and its  successors,
endorsees, transferees and assigns.

     7. If all or any part of the Obligations of Borrower to Lender are not paid
when due, Guarantor hereby guaranties that it will pay the same to Lender,  upon
demand,  without set-off or counterclaim and without  reduction by reason of any
taxes, levies, imposts, charges and withholdings,  restrictions or conditions of
any nature that are now or may  hereafter be imposed,  levied or assessed by any
country, political subdivision or taxing authority, all of which will be for the
account of and paid by Guarantor, and Lender need not first proceed to preserve,
utilize or  exhaust  any other  right or remedy  against  Borrower  or any other
guarantor or any security  that Lender may have to obtain  payment.  The payment
shall be made in immediately  available  funds to Lender's office at 2 Wisconsin
Circle, Fourth Floor, Chevy Chase, Maryland 20815, Attention:  Steven M. Curwin,
Deputy  General  Counsel,  or at such  other  place as Lender may  designate  in
writing.

     8. No  failure  to  exercise  and no  delay in  exercising,  on the part of
Lender,  any right,  power or privilege  under this Guaranty  shall operate as a
waiver  of the  right,  power or  privilege,  nor shall  any  single or  partial
exercise of any right, power or privilege preclude any other or further exercise
of the right,  power or privilege,  or the exercise of any other power or right.
The rights  and  remedies  provided  in this  Guaranty  are  cumulative  and not
exclusive of any rights or remedies provided by law.

     9.  Notice or  demand  to the  parties  shall be  sufficiently  given if in
writing and  personally  delivered,  or mailed by registered or certified  first
class mail,  postage prepaid,  return receipt  requested,  or sent by commercial
courier  against  receipt,  or by  telecopier  (with a  confirming  copy sent by
regular  mail) to the party  intended and at the address or addresses  specified
below:

            GUARANTOR:  200 Lake Street, Suite 102
                          Peabody, Massachusetts 01960
                        Telephone:  (978) 536-2777
                        Telecopier: (978) 536-2677
                      Attention: Bruce A. Shear, President

            LENDER:     2 Wisconsin Circle, 4th Floor
                        Chevy Chase, Maryland 20815
                        Telephone:  (301) 961-1640
                        Telecopier: (301) 664-9866
                        Attention: Steven M. Curwin, Deputy General Counsel

     Any party may  designate  a change of  address  by notice in writing to the
other  parties,  such  notice to be  effective  ten (10) days  after  mailing or
delivery as provided in this Section 9.

     10. Guarantor hereby represents, warrants, and covenants to Lender that:

     (a) It is a corporation  duly  incorporated,  validly  existing and in good
standing under the laws of the  jurisdiction of its  incorporation,  and has the
corporate  power and authority to own its property,  conduct its business as now
being  conducted  and to make and perform  this  Guaranty  and the  transactions
contemplated  by this  Guaranty,  and is duly qualified to do business and is in
good standing as a foreign corporation in each jurisdiction where the nature and
extent of the business  conducted by it, or property owned by it, and applicable
law require such qualification, except where the failure so to qualify would not
have a material adverse effect on the business, operations or financial position
of Guarantor.

     (b) The execution, delivery and performance of this Guaranty have been duly
authorized by all necessary  corporate action and will not violate any provision
of law or any order of any court or  governmental  agency or the  certificate of
incorporation  or other  incorporating  documents  or  bylaws of  Guarantor,  or
conflict  with, or result in a breach of, or constitute  (with or without notice
or lapse of time or both) a default  under,  or result  in the  creation  of any
security  interest,  lien,  charge or encumbrance upon any property or assets of
Guarantor, pursuant to any agreement,  indenture or other instrument to which it
is a party or by which it may be bound.

     (c) Except as disclosed to Lender in writing prior to the execution of this
Guaranty, no action, suit, investigation or proceeding is pending or known to be
threatened against or affecting Guarantor that, if adversely  determined,  would
have a material adverse effect upon its financial condition or operations.

     (d) Guarantor is not in default under any provision of its  certificate  of
incorporation or other incorporating  documents,  bylaws or stock provisions (or
any  amendment  to such  documents or  provisions),  any  indenture  relating to
borrowed  money,  any  agreement to which it is a party or by which it is bound,
any other indenture, or any order, regulation,  ruling or requirement of a court
or public body or authority  by which it is bound,  which  default  would have a
material  adverse  effect on the business,  operations or financial  position of
Guarantor.

     (e) No license,  consent or approval of, or filing with,  any  governmental
body or other  regulatory  authority is required for the making and  performance
of, or any instrument or transaction  contemplated by, this Guaranty.  Guarantor
holds all  certificates  and  authorizations  of all  governmental  agencies and
authorities  required  by law to enable it to engage in the  business  currently
transacted by it, except those  certificates and  authorizations as to which the
failure to so hold would not, in the aggregate,  have a material  adverse effect
on Guarantor.

     11. No provision of this Guaranty shall be waived,  amended or supplemented
except by a written instrument executed by Lender.

     12. The obligations of Guarantor under this Guaranty shall continue in full
force and  effect and shall  remain in  operation  until all of the  Obligations
shall have been paid in full or otherwise  fully  satisfied,  and continue to be
effective or be reinstated,  as the case may be, if at any time payment or other
satisfaction  of any of the  Obligations  is  rescinded  or  must  otherwise  be
restored or returned  upon the  bankruptcy,  insolvency,  or  reorganization  of
Borrower,  or  otherwise,  as  though  such  payment  had not been made or other
satisfaction occurred. No invalidity, irregularity or unenforceability by reason
of applicable  bankruptcy  laws or any other similar law, or any law or order of
any  government or government  agency  purporting to reduce,  amend or otherwise
affect, the Obligations,  shall impair, affect, be a defense to or claim against
the obligations of Guarantor under this Guaranty.

     13. In addition to its guarantee of Borrower's  payment of the  Obligations
and  Borrower's  performance  of  all  covenants,   obligations  and  agreements
contained  in the Loan  Documents,  Guarantor  shall  pay all  actual  costs and
expenses  (including  reasonable  attorney's fees) paid or incurred by Lender in
connection with the enforcement of this Guaranty.

     14.  Guarantor  hereby  agrees to execute  any and all  further  documents,
agreements,  and instruments,  and take all further  actions,  that Lender shall
reasonably  request to  effectuate  or further  preserve,  evidence,  perfect or
protect  the  rights  purported  to be  created  in favor of Lender  under  this
Guaranty.

     15. Guarantor hereby assumes  responsibility for keeping itself informed of
the  financial  condition of Borrower,  and any and all  endorsers  and/or other
guarantors  of any  instrument  or  document  evidencing  all or any part of the
Obligations,  and of all other circumstances bearing upon the risk of nonpayment
of the Obligations, or any part of the Obligations,  that diligent inquiry would
reveal,  and  Guarantor  hereby  agrees that Lender shall have no duty to advise
Guarantor of  information  known to Lender  regarding such condition or any such
circumstances. If Lender, in its sole discretion, undertakes at any time or from
time to time to provide any such information to Guarantor, Lender shall be under
no  obligation  (i) to  undertake  any  investigation  not a part of its regular
business routine, (ii) to disclose any information that, pursuant to accepted or
reasonable commercial finance practices, Lender wishes to maintain confidential,
or (iii) to make any  other or future  disclosures  of such  information  or any
other information to Guarantor.

     16. This Guaranty may be executed in one or more counterpart  copies,  each
of which shall be an original and all of which together shall constitute one and
the same instrument, and it is not necessary that all parties' signatures appear
on each counterpart.

     17. If any term, covenant or condition of this Guaranty, or the application
of such term, covenant or condition to any party or circumstance, shall be found
by a  court  of  competent  jurisdiction  to  be,  to  any  extent,  invalid  or
unenforceable,  the remainder of this Guaranty and the application of such term,
covenant,  or condition to parties or circumstances other than those as to which
it is held invalid or  unenforceable,  shall not be affected  thereby,  and each
term,  covenant or condition  shall be valid and enforced to the fullest  extent
permitted by law. Upon determination  that any such term is invalid,  illegal or
unenforceable,  the parties to this Guaranty  shall amend this Guaranty so as to
effect  the  original  intent  of the  parties  as  closely  as  possible  in an
acceptable manner.

     18. THIS GUARANTY  SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE  WITH,
THE LAWS OF THE STATE OF MARYLAND,  WITHOUT  REGARD TO ANY OTHERWISE  APPLICABLE
PRINCIPLES OF CONFLICTS OF LAWS.  IF ANY ACTION  ARISING OUT OF THIS GUARANTY IS
COMMENCED  BY LENDER IN THE STATE COURTS OF THE STATE OF MARYLAND OR IN THE U.S.
DISTRICT COURT FOR THE DISTRICT OF MARYLAND,  GUARANTOR  HEREBY  CONSENTS TO THE
JURISDICTION  OF ANY SUCH COURT IN ANY SUCH ACTION AND TO THE LAYING OF VENUE IN
THE STATE OF  MARYLAND.  ANY PROCESS IN ANY SUCH ACTION  SHALL BE DULY SERVED IF
MAILED BY  REGISTERED  MAIL,  POSTAGE  PREPAID,  TO GUARANTOR AT ITS ADDRESS SET
FORTH IN SECTION 9 OF THIS GUARANTY.

     19.  GUARANTOR HEREBY (A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY
OF ANY ISSUE  TRIABLE  OF RIGHT BY A JURY,  AND (B) WAIVES ANY RIGHT TO TRIAL BY
JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST.  THIS
WAIVER OF RIGHT TO TRIAL BY JURY IS SEPARATELY GIVEN, KNOWINGLY AND VOLUNTARILY,
BY  GUARANTOR,  AND THIS  WAIVER IS  INTENDED  TO  ENCOMPASS  INDIVIDUALLY  EACH
INSTANCE  AND EACH ISSUE AS TO WHICH THE RIGHT TO A JURY TRIAL  WOULD  OTHERWISE
ACCRUE. LENDER IS HEREBY AUTHORIZED AND REQUESTED TO SUBMIT THIS GUARANTY TO ANY
COURT HAVING  JURISDICTION OVER THE SUBJECT MATTER AND THE PARTIES HERETO, SO AS
TO SERVE AS  CONCLUSIVE  EVIDENCE  OF  GUARANTOR'S  WAIVER  OF THE RIGHT TO JURY
TRIAL.  FURTHER,  GUARANTOR HEREBY CERTIFIES THAT NO  REPRESENTATIVE OR AGENT OF
LENDER (INCLUDING LENDER'S COUNSEL) HAS REPRESENTED,  EXPRESSLY OR OTHERWISE, TO
GUARANTOR  THAT  LENDER  WILL NOT SEEK TO ENFORCE  THIS  WAIVER OF RIGHT TO JURY
TRIAL PROVISION.

     20. GUARANTOR AUTHORIZES ANY ATTORNEY ADMITTED TO PRACTICE BEFORE ANY COURT
OF RECORD IN THE UNITED STATES OR THE CLERK OF SUCH COURT TO APPEAR ON BEHALF OF
GUARANTOR IN ANY COURT IN ONE OR MORE  PROCEEDINGS,  OR BEFORE ANY CLERK THEREOF
OF  PROTHONOTARY  OR OTHER  COURT  OFFICIAL,  AND TO  CONFESS  JUDGMENT  AGAINST
GUARANTOR IN FAVOR OF LENDER IN THE FULL AMOUNT DUE ON THIS GUARANTY  (INCLUDING
PRINCIPAL,  ACCRUED  INTEREST  AND ANY AND ALL  CHARGES,  FEES AND  COSTS)  PLUS
ATTORNEYS'  FEES EQUAL TO FIFTEEN  PERCENT  (15%) OF THE AMOUNT DUE,  PLUS COURT
COSTS,  ALL WITHOUT PRIOR NOTICE OR  OPPORTUNITY  OF BORROWER FOR PRIOR HEARING.
GUARANTOR AGREES AND CONSENTS THAT VENUE AND JURISDICTION SHALL BE PROPER IN THE
CIRCUIT  COURT OF ANY  COUNTY OF THE STATE OF  MARYLAND  OR OF  BALTIMORE  CITY,
MARYLAND,  OR IN THE UNITED STATES  DISTRICT COURT FOR THE DISTRICT OF MARYLAND.
GUARANTOR  WAIVES THE BENEFIT OF ANY AND EVERY  STATUTE,  ORDINANCE,  OR RULE OF
COURT  WHICH MAY BE  LAWFULLY  WAIVED  CONFERRING  UPON  GUARANTOR  ANY RIGHT OR
PRIVILEGE OF EXEMPTION,  HOMESTEAD RIGHTS,  STAY OF EXECUTION,  OR SUPPLEMENTARY
PROCEEDINGS,  OR OTHER RELIEF FROM THE ENFORCEMENT OR IMMEDIATE ENFORCEMENT OF A
JUDGMENT OR RELATED PROCEEDINGS ON A JUDGMENT. THE AUTHORITY AND POWER TO APPEAR
FOR AND ENTER JUDGMENT  AGAINST  GUARANTOR SHALL NOT BE EXHAUSTED BY ONE OR MORE
EXERCISES  THEREOF,  OR BY ANY  IMPERFECT  EXERCISE  THEREOF,  AND  SHALL NOT BE
EXTINGUISHED BY ANY JUDGMENT ENTERED PURSUANT THERETO;  SUCH AUTHORITY AND POWER
MAY BE  EXERCISED  ON ONE OR MORE  OCCASIONS  FROM TIME TO TIME,  IN THE SAME OR
DIFFERENT JURISDICTIONS, AS OFTEN AS LENDER SHALL DEEM NECESSARY, CONVENIENT, OR
PROPER.

     21. In any  litigation,  trial,  arbitration  or other  dispute  resolution
proceeding  relating to this  Guaranty or any of the other Loan  Documents,  all
directors,  officers,  employees  and agents of Guarantor  or of its  Affiliates
shall be deemed to be employees or managing  agents of Guarantor for purposes of
all  applicable  law or court rules  regarding  the  production  of witnesses by
notice for testimony (whether in a deposition, at trial or otherwise). Guarantor
agrees that  Lender's  counsel in any such  dispute  resolution  proceeding  may
examine  any of these  individuals  as if under  cross-examination  and that any
discovery deposition of any of them may be used in that proceeding as if it were
an  evidence  deposition.  Guarantor  in any  event  will  use all  commercially
reasonable efforts to produce in any such dispute resolution proceeding,  at the
time and in the manner requested by Lender,  all Persons,  documents (whether in
tangible,  electronic  or other  form) or other  things  under its  control  and
relating  to the  dispute  in any  jurisdiction  that  recognizes  that  (or any
similar) distinction.

                               [SIGNATURES FOLLOW]

<PAGE>

IN WITNESS WHEREOF,  Guarantor has caused this Guaranty to be executed as of the
date first written above.

ATTEST:                             PHC, INC.
                                    a Massachusetts corporation


                                    By: /s/  Bruce A. Shear
                                    Name: Bruce A. Shear
                                          President


<PAGE>
                  THIS GUARANTY CONTAINS PROVISIONS FOR WAIVER
                                  OF JURY TRIAL

                UNCONDITIONAL GUARANTY OF PAYMENT AND PERFORMANCE


      THIS UNCONDITIONAL GUARANTY OF PAYMENT AND PERFORMANCE (the "GUARANTY") is
dated  as of May  26,  2000  and is  made  by  BRUCE  A.  SHEAR,  an  individual
("Guarantor"),   in  favor  of  HELLER  HEALTHCARE  FINANCE,  INC.,  a  Delaware
corporation ("LENDER").

                                 R E C I T A L S

     A. Pursuant to a certain  Secured Term Note of even date with this Guaranty
(as the note may from time to time be  amended,  modified or  supplemented,  the
"TERM  NOTE")  made  by PHC  of  Michigan,  Inc.,  a  Massachusetts  corporation
("BORROWER"),  in favor of  Lender,  Lender  has  agreed  to make  available  to
Borrower a secured term loan in the maximum  aggregate  principal amount of Five
Hundred Thousand and No/100 Dollars ($500,000.00) (the "LOAN").

     B. Lender is willing to make the Loan under the Term Note but only upon the
condition,  among others,  that  Guarantor  shall have executed and delivered to
Lender this Guaranty.

     NOW,  THEREFORE,  in  consideration  of the  premises  and  of  the  mutual
covenants   contained  in  this   Guaranty  and  for  other  good  and  valuable
consideration, the receipt of which is hereby acknowledged, the parties agree as
follows:

     1. All  capitalized  terms used but not defined in this Guaranty shall have
the respective meanings given them in the Term Note.

     2. To induce  Lender to make the Loan  upon the  terms and  conditions  set
forth  in  the  Term  Note,  and  in  consideration  thereof,  Guarantor  hereby
unconditionally  and  irrevocably  guaranties to Lender,  and to its successors,
endorsees,  transferees and assigns, Borrower's prompt and complete payment when
due,  whether at the stated  maturity,  by acceleration or otherwise,  of all of
Borrower's  obligations under the Term Note  (collectively,  the "OBLIGATIONS"),
and Borrower's  prompt and complete  performance of all of its other  covenants,
obligations  and agreements  contained in the Term Note. .  Notwithstanding  the
foregoing, Guarantor's aggregate obligations under this Guaranty (in addition to
the  Guaranty  of  Guarantor  under that  certain  Guaranty  between  Lender and
Guarantor  dated as of  November  , 1999)  shall be limited to the amount of One
Hundred Fifty Thousand and No/100 Dollars ($150,000.00).

     3. Guarantor hereby waives notice of the acceptance of this Guaranty and of
the  extending of credit as above  specified  and the state of  indebtedness  of
Borrower  at  any  time,  and  expressly  agrees  to any  extensions,  renewals,
accelerations  or  modifications  of such  credit  or any of the  terms  of such
credit, and waives diligence, presentment, demand of payment, protest or notice,
whether of  non-payment,  dishonor,  protest or  otherwise,  of any  document or
documents  and notice of any  extension,  renewal,  modification  or default and
assent to the release,  substitution  or variation of any collateral that may at
any time be held as security for any credit  extended to  Borrower,  all without
relieving  Guarantor of any liability  under this Guaranty.  The  obligations of
Guarantor  under this  Guaranty  shall be an  unconditional  obligation  to make
prompt  payment  and  performance  to Lender  irrespective  of the  genuineness,
validity,  regularity  or  enforceability  of any  indebtedness  or  evidence of
indebtedness  of  Borrower  to  Lender  or of  other  circumstances  that  might
otherwise  under the laws of any  jurisdiction  constitute  a legal or equitable
discharge of a surety or a guarantor or a bar (in the nature of a moratorium  or
otherwise) to the enforcement of Lender's rights either (i) against  Borrower on
all or any part of its Obligations or (ii) under this Guaranty.

     4.  Notwithstanding  any payment or payments  made by Guarantor  under this
Guaranty or any setoff or application of funds of Guarantor by Lender, Guarantor
shall not be entitled to be  subrogated  to any of the rights of Lender  against
Borrower  or any  collateral  security or  guarantee  or right of offset held by
Lender for the payment or performance of the  Obligations,  nor shall  Guarantor
seek any  reimbursement  from  Borrower in respect of payments made by Guarantor
under this Guaranty, until all amounts then owing and any other performance then
due to Lender by  Borrower  for or on  account of the  Obligations  are paid and
satisfied in full. Upon such payment and  satisfaction in full,  Guarantor shall
be  subrogated  to all  rights  of Lender  against  Borrower  or any  collateral
security  or  guarantee  or right of offset  held by Lender for the  payment and
performance of the Obligations.

     5.  Any  indebtedness  of  Borrower  now or  hereafter  owed  to or held by
Guarantor is hereby  subordinated to the indebtedness of Borrower to Lender; and
such  indebtedness  of Borrower  to  Guarantor  if Lender so  requests  shall be
collected,  enforced and received by Guarantor as trustee for Lender and be paid
over to Lender on account of the  indebtedness of Borrower to Lender but without
reducing or affecting in any manner the  liability of Guarantor  under the other
provisions of this Guaranty.

     6. This is intended to be and shall be construed  as a continuing  guaranty
and shall  remain in full force and  effect  and shall be binding in  accordance
with and to the extent of its terms upon  Guarantor  and  Guarantor's  heirs and
assigns,  and  shall  inure  to the  benefit  of  Lender,  and  its  successors,
endorsees, transferees and assigns.

     7. If all or any part of the Obligations of Borrower to Lender are not paid
when due, Guarantor hereby guaranties that he will pay the same to Lender,  upon
demand,  without set-off or counterclaim and without  reduction by reason of any
taxes, levies, imposts, charges and withholdings,  restrictions or conditions of
any nature that are now or may  hereafter be imposed,  levied or assessed by any
country, political subdivision or taxing authority, all of which will be for the
account of and paid by Guarantor, and Lender need not first proceed to preserve,
utilize or  exhaust  any other  right or remedy  against  Borrower  or any other
guarantor or any security  that Lender may have to obtain  payment.  The payment
shall be made in immediately  available  funds to Lender's office at 2 Wisconsin
Circle, Fourth Floor, Chevy Chase, Maryland 20815, Attention:  Steven M. Curwin,
Deputy  General  Counsel,  or at such  other  place as Lender may  designate  in
writing.

     8. No  failure  to  exercise  and no  delay in  exercising,  on the part of
Lender,  any right,  power or privilege  under this Guaranty  shall operate as a
waiver  of the  right,  power or  privilege,  nor shall  any  single or  partial
exercise of any right, power or privilege preclude any other or further exercise
of the right,  power or privilege,  or the exercise of any other power or right.
The rights  and  remedies  provided  in this  Guaranty  are  cumulative  and not
exclusive of any rights or remedies provided by law.

      9.  Notice or  demand to the  parties  shall be  sufficiently  given if in
writing and  personally  delivered,  or mailed by registered or certified  first
class mail,  postage prepaid,  return receipt  requested,  or sent by commercial
courier  against  receipt,  or by  telecopier  (with a  confirming  copy sent by
regular  mail) to the party  intended and at the address or addresses  specified
below:

            GUARANTOR:  c/o PHC of Michigan, Inc.
                        200 Lake Street, Suite 102
                        Peabody, Massachusetts 01960
                        Telephone:  (978) 536-2777
                        Telecopier: (978) 536-2677

            LENDER:     2 Wisconsin Circle
                        Fourth Floor
                        Chevy Chase, Maryland 20815
                        Telephone:  (301) 961-1640
                        Telecopier: (301) 664-9866
                        Attention: Steven M. Curwin, Deputy General Counsel

     Any party may  designate  a change of  address  by notice in writing to the
other  parties,  such  notice to be  effective  ten (10) days  after  mailing or
delivery as provided in this Section 9.

     10. Guarantor hereby represents, warrants, and covenants to Lender:

     a.  Guarantor  has the full right,  power and  authority to enter into this
Guaranty.

     b. The  execution,  delivery  and  performance  of this  Guaranty  will not
violate any provision of law or any order of any court or governmental agency or
conflict  with, or result in a breach of, or constitute  (with or without notice
or lapse of time or both) a default  under,  or result  in the  creation  of any
security  interest,  lien,  charge or encumbrance upon any property or assets of
Guarantor, pursuant to any agreement,  indenture or other instrument to which he
is a party or by which he may be bound.

     c. Except as disclosed to Lender in writing  prior to the execution of this
Guaranty, no action, suit, investigation or proceeding is pending or known to be
threatened against or affecting Guarantor that, if adversely  determined,  would
have a material adverse effect upon his financial condition.

     d. The financial statements of Guarantor previously delivered to Lender are
true,  correct and  complete  and fairly  present  the  financial  condition  of
Guarantor  as  of  the  date  thereof.  There  are  no  material  unrealized  or
anticipated liabilities,  direct or indirect, fixed or contingent,  of Guarantor
as of the dates of such financial  statements which are not reflected therein or
in the notes thereto. There has been no material adverse change in the financial
condition of Guarantor since the date of such financial  statements of Guarantor
delivered to Lender.

     e. No license,  consent or approval  of, or filing with,  any  governmental
body or other  regulatory  authority is required for the making and  performance
of, or any instrument or transaction  contemplated by, this Guaranty.  Guarantor
holds all  certificates  and  authorizations  of all  governmental  agencies and
authorities  required by law to enable him to engage in the  business  currently
transacted by it, except those  certificates and  authorizations as to which the
failure to so hold would not, in the aggregate,  have a material  adverse effect
on Guarantor.

     11. No provision of this Guaranty shall be waived,  amended or supplemented
except by a written instrument executed by Lender.

     12. The obligations of Guarantor under this Guaranty shall continue in full
force and  effect and shall  remain in  operation  until all of the  Obligations
shall have been paid in full or otherwise  fully  satisfied,  and continue to be
effective or be reinstated,  as the case may be, if at any time payment or other
satisfaction  of any of the  Obligations  is  rescinded  or  must  otherwise  be
restored or returned  upon the  bankruptcy,  insolvency,  or  reorganization  of
Borrower,  or  otherwise,  as  though  such  payment  had not been made or other
satisfaction occurred. No invalidity, irregularity or unenforceability by reason
of applicable  bankruptcy  laws or any other similar law, or any law or order of
any government or governmental  agency purporting to reduce,  amend or otherwise
affect, the Obligations,  shall impair, affect, be a defense to or claim against
the obligations of Guarantor under this Guaranty.

     13. In addition to his guaranty of  Borrower's  payment of the  Obligations
and  Borrower's  performance  of  all  covenants,   obligations  and  agreements
contained  in the Term Note,  Guarantor  shall pay all actual costs and expenses
(including  reasonable attorney's fees) paid or incurred by Lender in connection
with the enforcement of this Guaranty.

     14.  Guarantor  hereby  agrees to execute  any and all  further  documents,
agreements,  and instruments,  and take all further  actions,  that Lender shall
reasonably  request to  effectuate  or further  preserve,  evidence,  perfect or
protect  the  rights  purported  to be  created  in favor of Lender  under  this
Guaranty.

     15. Guarantor hereby assumes responsibility for keeping himself informed of
the  financial  condition of Borrower,  and any and all  endorsers  and/or other
guarantors  of any  instrument  or  document  evidencing  all or any part of the
Obligations,  and of all other circumstances bearing upon the risk of nonpayment
of the Obligations, or any part of the Obligations,  that diligent inquiry would
reveal,  and  Guarantor  hereby  agrees that Lender shall have no duty to advise
Guarantor of  information  known to Lender  regarding such condition or any such
circumstances. If Lender, in its sole discretion, undertakes at any time or from
time to time to provide any such information to Guarantor, Lender shall be under
no  obligation  (i) to  undertake  any  investigation  not a part of its regular
business routine, (ii) to disclose any information that, pursuant to accepted or
reasonable commercial finance practices, Lender wishes to maintain confidential,
or (iii) to make any  other or future  disclosures  of such  information  or any
other information to Guarantor.

     16. This Guaranty may be executed in one or more counterpart  copies,  each
of which shall be an original and all of which together shall constitute one and
the same instrument, and it is not necessary that all parties' signatures appear
on each counterpart.

     17. If any term, covenant or condition of this Guaranty, or the application
of such term, covenant or condition to any party or circumstance, shall be found
by a  court  of  competent  jurisdiction  to  be,  to  any  extent,  invalid  or
unenforceable,  the remainder of this Guaranty and the application of such term,
covenant,  or condition to parties or circumstances other than those as to which
it is held invalid or  unenforceable,  shall not be affected  thereby,  and each
term,  covenant or condition  shall be valid and enforced to the fullest  extent
permitted by law. Upon determination  that any such term is invalid,  illegal or
unenforceable,  the parties to this Guaranty  shall amend this Guaranty so as to
effect  the  original  intent  of the  parties  as  closely  as  possible  in an
acceptable manner.

     18. THIS GUARANTY  SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE  WITH,
THE LAWS OF THE STATE OF MARYLAND,  WITHOUT  REGARD TO ANY OTHERWISE  APPLICABLE
PRINCIPLES OF CONFLICTS OF LAWS.  IF ANY ACTION  ARISING OUT OF THIS GUARANTY IS
COMMENCED  BY LENDER IN THE STATE COURTS OF THE STATE OF MARYLAND OR IN THE U.S.
DISTRICT COURT FOR THE DISTRICT OF MARYLAND,  GUARANTOR  HEREBY  CONSENTS TO THE
JURISDICTION  OF ANY SUCH COURT IN ANY SUCH ACTION AND TO THE LAYING OF VENUE IN
THE STATE OF  MARYLAND.  ANY PROCESS IN ANY SUCH ACTION  SHALL BE DULY SERVED IF
MAILED BY  REGISTERED  MAIL,  POSTAGE  PREPAID,  TO GUARANTOR AT HIS ADDRESS SET
FORTH IN SECTION 9 OF THIS GUARANTY.

     19.  GUARANTOR HEREBY (A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY
OF ANY ISSUE  TRIABLE  OF RIGHT BY A JURY,  AND (B) WAIVES ANY RIGHT TO TRIAL BY
JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST.  THIS
WAIVER OF RIGHT TO TRIAL BY JURY IS SEPARATELY GIVEN, KNOWINGLY AND VOLUNTARILY,
BY  GUARANTOR,  AND THIS  WAIVER IS  INTENDED  TO  ENCOMPASS  INDIVIDUALLY  EACH
INSTANCE  AND EACH ISSUE AS TO WHICH THE RIGHT TO A JURY TRIAL  WOULD  OTHERWISE
ACCRUE. LENDER IS HEREBY AUTHORIZED AND REQUESTED TO SUBMIT THIS GUARANTY TO ANY
COURT HAVING  JURISDICTION OVER THE SUBJECT MATTER AND THE PARTIES HERETO, SO AS
TO SERVE AS  CONCLUSIVE  EVIDENCE  OF  GUARANTOR'S  WAIVER  OF THE RIGHT TO JURY
TRIAL.  FURTHER,  GUARANTOR HEREBY CERTIFIES THAT NO  REPRESENTATIVE OR AGENT OF
LENDER (INCLUDING LENDER'S COUNSEL) HAS REPRESENTED,  EXPRESSLY OR OTHERWISE, TO
GUARANTOR  THAT  LENDER  WILL NOT SEEK TO ENFORCE  THIS  WAIVER OF RIGHT TO JURY
TRIAL PROVISION.

     20. GUARANTOR AUTHORIZES ANY ATTORNEY ADMITTED TO PRACTICE BEFORE ANY COURT
OF RECORD IN THE UNITED STATES OR THE CLERK OF SUCH COURT TO APPEAR ON BEHALF OF
GUARANTOR IN ANY COURT IN ONE OR MORE  PROCEEDINGS,  OR BEFORE ANY CLERK THEREOF
OF  PROTHONOTARY  OR OTHER  COURT  OFFICIAL,  AND TO  CONFESS  JUDGMENT  AGAINST
GUARANTOR IN FAVOR OF LENDER IN THE FULL AMOUNT DUE ON THIS GUARANTY  (INCLUDING
PRINCIPAL,  ACCRUED  INTEREST  AND ANY AND ALL  CHARGES,  FEES AND  COSTS)  PLUS
ATTORNEYS'  FEES EQUAL TO FIFTEEN  PERCENT  (15%) OF THE AMOUNT DUE,  PLUS COURT
COSTS,  ALL WITHOUT PRIOR NOTICE OR  OPPORTUNITY  OF BORROWER FOR PRIOR HEARING.
GUARANTOR AGREES AND CONSENTS THAT VENUE AND JURISDICTION SHALL BE PROPER IN THE
CIRCUIT  COURT OF ANY  COUNTY OF THE STATE OF  MARYLAND  OR OF  BALTIMORE  CITY,
MARYLAND,  OR IN THE UNITED STATES  DISTRICT COURT FOR THE DISTRICT OF MARYLAND.
GUARANTOR  WAIVES THE BENEFIT OF ANY AND EVERY  STATUTE,  ORDINANCE,  OR RULE OF
COURT  WHICH MAY BE  LAWFULLY  WAIVED  CONFERRING  UPON  GUARANTOR  ANY RIGHT OR
PRIVILEGE OF EXEMPTION,  HOMESTEAD RIGHTS,  STAY OF EXECUTION,  OR SUPPLEMENTARY
PROCEEDINGS,  OR OTHER RELIEF FROM THE ENFORCEMENT OR IMMEDIATE ENFORCEMENT OF A
JUDGMENT OR RELATED PROCEEDINGS ON A JUDGMENT. THE AUTHORITY AND POWER TO APPEAR
FOR AND ENTER JUDGMENT  AGAINST  GUARANTOR SHALL NOT BE EXHAUSTED BY ONE OR MORE
EXERCISES  THEREOF,  OR BY ANY  IMPERFECT  EXERCISE  THEREOF,  AND  SHALL NOT BE
EXTINGUISHED BY ANY JUDGMENT ENTERED PURSUANT THERETO;  SUCH AUTHORITY AND POWER
MAY BE  EXERCISED  ON ONE OR MORE  OCCASIONS  FROM TIME TO TIME,  IN THE SAME OR
DIFFERENT JURISDICTIONS, AS OFTEN AS LENDER SHALL DEEM NECESSARY, CONVENIENT, OR
PROPER.


                               [SIGNATURES FOLLOW]


<PAGE>
IN WITNESS WHEREOF,  Guarantor has caused this Guaranty to be executed as of the
date first written above.


WITNESS:                            GUARANTOR:


/s/  T. A. Bates                    /s/  Bruce A.Shear
     Name:                               Bruce A. Shear




<PAGE>
                  AMENDED AND RESTATED CROSS-COLLATERALIZATION
                           AND CROSS-DEFAULT AGREEMENT


                                  BY AND AMONG

                             PHC OF MICHIGAN, INC.,
                               PHC OF UTAH, INC.,
                              PHC OF VIRGINIA, INC.
                            PHC OF RHODE ISLAND, INC.
                      PIONEER COUNSELING OF VIRGINIA, INC.
                           (COLLECTIVELY, "BORROWER")

                                       AND

                         HELLER HEALTHCARE FINANCE, INC.
                                   ("LENDER")

                                  May 26, 2000


                                    Prepared by and after recording, return to:
                                    Stephen L. Burlingame, Esq.
                                    Fraser Trebilcock Davis & Foster, P.C.
                                    1000 Michigan National Tower
                                    Lansing, MI 48933


<PAGE>
                  AMENDED AND RESTATED CROSS-COLLATERALIZATION
                           AND CROSS-DEFAULT AGREEMENT

     THIS  AMENDED  AND  RESTATED   CROSS-COLLATERALIZATION   AND  CROSS-DEFAULT
AGREEMENT (the "Agreement") made as of the 26th day of May, 2000, is executed by
and among PHC, INC., a Massachusetts corporation ("PHC"), PHC OF MICHIGAN, INC.,
a Massachusetts  corporation  having its principal place of business at 200 Lake
Street, Suite 102, Peabody,  Massachusetts 01960 ("PHCM"),  PHC OF UTAH, INC., a
Massachusetts  corporation  ("PHCU"),  PHC OF VIRGINIA,  INC.,  a  Massachusetts
corporation  ("PHCVA"),  PHC OF RHODE ISLAND, INC., a Massachusetts  corporation
("PHCRI"), and PIONEER COUNSELING OF VIRGINIA, INC., a Massachusetts corporation
("Pioneer," and  collectively  with PHC, PHCM, PHCU,  PHCVA,  PHCRI and Pioneer,
"Borrower"),  and HELLER HEALTHCARE FINANCE, INC., a Delaware corporation having
its principal office at 2 Wisconsin  Circle,  4th Floor,  Chevy Chase,  Maryland
20815 and formerly known as HCFP FUNDING,  INC. ("HHF"), that is the assignee of
HCFP FUNDING II, INC. ("HCFPII") (HHF and HHF as assignee of HCFPII are referred
to as "Lender").

                                    RECITALS:

     A.  Borrower and Lender  entered into that certain  Cross-Collateralization
and Cross-Default Agreement (the "Agreement") dated as of July 13, 1998, wherein
Borrower agreed, among other things, to  cross-collateralize  the Loans with one
another  and to provide  for the  cross-default  of the Loans with one  another.
Because certain  additional loans were made by Lender to Borrower,  Borrower and
Lender have agreed to execute this Agreement.

     B.  Borrower  is  currently  indebted to Lender  pursuant to the  following
existing loans (collectively, the "Existing Loans"):

          THE  "REVOLVING  LOAN":  A revolving  loan from Lender to PHCM,  PHCU,
          PHCVA,  PHCRI,  and Pioneer  ("Revolver  Borrowers")  in the  original
          maximum  aggregate  principal  sum of Four Million and No/100  Dollars
          ($4,000,000.00),  which loan is evidenced by that certain  amended and
          restated  Revolving Credit Note made by Revolver  Borrowers payable to
          Lender,  dated as of February 20, 1998,  and that certain  amended and
          restated  Loan and  Security  Agreement  dated as of February 20, 1998
          between Revolver  Borrowers and Lender, and which loan is secured by a
          third priority Mortgage dated as of March 12, 1997 and recorded on May
          5, 1997 in the Macomb County Records at Liber 07442 Pages 186-196,  as
          amended by that certain First  Amendment to Mortgage dated as of April
          30, 1998 and recorded on _______, 1998 in the Macomb County Records at
          Liber ______ Pages__________ (collectively,  the "Revolver Mortgage");
          and

          THE "FIRST TERM LOAN": A term loan from Lender to PHCM in the original
          principal sum of One Million One Hundred  Thousand and No/100  Dollars
          ($1,100,000.00),  which loan is evidenced by that certain Secured Term
          Note of PHCM payable to Lender,  dated as of March 12, 1997, and which
          loan is secured by the Restated  Mortgage  dated as of November , 1999
          and  recorded  on in the  Macomb  County  Records  at Liber  Pages (as
          amended,  modified,  supplemented  or restated from time to time,  the
          "Restated Term Mortgage").

          THE  "SECOND  TERM  LOAN":  A term  loan  from  Lender  to PHCM in the
          original  principal  sum of Five Hundred  Thousand and No/100  Dollars
          ($500,000.00),  which loan is evidenced  by that certain  Secured Term
          Note of PHCM  payable to Lender,  dated as of  December  9, 1997,  and
          which  loan is  secured  by a  second  priority  Mortgage  dated as of
          December  9, 1997 and  recorded  on  January  9, 1998 in the  Official
          Records of Macomb  County,  Michigan  at Liber  07804 Pages 73-85 (the
          "Second Term  Mortgage").  (The Revolver Loan, the First Term Loan and
          the Second Term Loan are  sometimes  collectively  referred to in this
          Agreement as the "Existing Loans.")

     C. PHCM has  requested  and  received  (i) an  additional  term loan of One
Million and No/100  Dollars  ($1,000,000.00)  from Lender dated  November , 1999
(the "November  Loan") and (ii) an additional term loan of Five Hundred Thousand
and No/100 Dollars ($500,000) from Lender dated May 26, 2000 (the "May Loan" and
collectively  with the November Loan, the "New Loans" and sometimes  referred to
collectively with the Existing Loans as the "New Loans").

     D. As security  for the New Loans,  PHCM has  executed  and  delivered  the
Restated  Mortgage to provide for,  among other things,  the securing of the New
Loans with a lien on the PHCM property.

     E. As additional  security for the New Loans, Lender has agreed to make the
New Loans,  provided  that (1) the New Loans are  cross-collateralized  with the
Existing   Loans  and  with  one  another  and  (2)  the   Existing   Loans  are
cross-defaulted  with one  another  AND with the New Loans and (3) the New Loans
are cross-defaulted with one another and with the Existing Loans.

     F. The entities  comprising  Borrower  are all  affiliated  entities  under
common  control and  ownership  (except  that PHC is a public  company) and will
receive direct and indirect  benefits from the New Loans and the continuation of
the financing  arrangements  represented by the Existing Loans,  which benefits,
among  others,  provide  adequate  consideration  for  them to enter  into  this
Agreement.

                                    AGREEMENT

     NOW,  THEREFORE,  in  consideration  of the foregoing  Recitals,  to induce
Lender to extend the New Loans to Borrower and to continue the  financing  under
the  Loan  Documents  (as  defined  below)  and  for  other  good  and  valuable
consideration,  the receipt and  sufficiency  of which are hereby  acknowledged,
Borrower agrees with Lender and Lender agrees with Borrower, as follows:

     1. DESCRIPTION OF NEW LOAN. The New Loans are evidenced by (i) that certain
Secured  Term Note dated as of  November , 1999 in the amount of One Million and
No/100 Dollars  ($1,000,000)  from PHCM to Lender and (ii) that certain  Secured
Term Note dated as of May 26, 2000 in the amount of Five  Hundred  Thousand  and
No/100 Dollars ($500,000) from PHCM to Lender.

     2. LOAN  DOCUMENTS.  As used in this Agreement,  the term "Loan  Documents"
shall mean any and all Loan Documents evidencing or securing the Revolving Loan,
the First Term Loan, the Second Term Loan,  and the New Loans.  The term "Loans"
shall mean,  collectively,  the Revolving  Loan, the First Term Loan, the Second
Term Loan, the November Loan and the May Loan.

     3.    CROSS-COLLATERALIZATION.    The    Existing    Loans    are    hereby
cross-collateralized with each other and with the New Loans, and Borrower agrees
that the collateral  described in the respective Loan Documents shall secure, in
addition to such  respective  Existing  Loans,  the  obligations of PHC (and any
other applicable  Borrower) under the New Loans and Loan Documents in respect of
the  New  Loans,  including,  without  limitation,  (a)  PHC's  (and  any  other
Borrower's or Affiliate's) obligation, if any, to pay the principal and interest
on the New Loans,  as the same may  hereafter be renewed,  modified,  amended or
extended,  and to pay all other  indebtedness  and other  agreed  charges and to
perform all of the terms and  conditions  under the Loan Documents in respect of
the New Loans, and (b) the real property encumbered by the Restated Mortgage and
the Second Term Mortgage  (collectively,  the "Mortgages")  securing each of the
applicable Loans.

     4.  CROSS-DEFAULT.  The  Existing  Loans  and  the  New  Loans  are  hereby
cross-defaulted  with one another, and Borrower agrees that the occurrence of an
Event of Default as defined in, and pursuant to any of the Loan Documents, which
Event of Default is not cured within the applicable  grace or curative  periods,
shall  constitute an immediate  Event of Default  (without need of notice or the
expiration  of any  additional  cure period other than as specified in such Loan
Documents) under all other Loan Documents."

     5. SEVERABILITY.  In case any provision of this Agreement shall be invalid,
illegal, or unenforceable,  such provision shall be deemed to have been modified
to the extent necessary to make it valid,  legal and enforceable.  The validity,
legality and enforceability of the remaining  provisions shall not in any way be
affected or impaired thereby.

     6. NO MODIFICATION  EXCEPT IN WRITING.  None of the terms of this Agreement
may be waived, altered,  amended or otherwise changed except by an instrument in
writing duly executed by all of the parties hereto.

     7. FURTHER  ASSURANCES.  Each entity comprising  Borrower shall execute and
deliver  such  further  instruments  and  perform  such  further  acts as may be
requested  by  Lender  from  time to  time to  confirm  the  provisions  of this
Agreement and the Loan Documents,  to carry out more effectively the purposes of
this  Agreement and the Loan  Documents,  or to confirm the priority of any lien
created by any of the Loan Documents.

     8. ENFORCEABILITY.  Each entity comprising Borrower represents and warrants
to Lender that this Agreement and the other Loan Documents are the legal,  valid
and  binding  obligations  of each  entity  constituting  Borrower,  jointly and
severally, enforceable against each such entity in accordance with their terms.

      9.    MISCELLANEOUS

     (a) This  Agreement  will be  recorded  in the  Official  Records of Macomb
County,  Michigan  and the City of  Salem,  Virginia.  Upon the  filing  of this
Agreement, all necessary recording,  intangible, or documentary stamp taxes will
be duly  paid by the  Borrower.  THIS  AGREEMENT  IS BEING  GIVEN AS  ADDITIONAL
COLLATERAL  TO SECURE THE  OBLIGATIONS  OF THE  RESPECTIVE  ENTITIES  COMPRISING
BORROWER UNDER THEIR RESPECTIVE LOAN DOCUMENTS.

     (b) This  Agreement  shall be binding  upon and inure to the benefit of the
parties  hereto  and their  respective  heirs,  administrators,  successors  and
assigns.

     10.  CONTROLLING  LAW. This Agreement  shall be governed by the laws of the
State of Maryland (without reference to conflicts of laws).

     11. RELEASE. Except for Lender's obligations, if any, to Borrower under the
Loan Documents,  each entity  comprising  Borrower,  on behalf of itself and its
partners,  affiliates,  successors  and assigns  (collectively,  the  "Releasing
Parties"), hereby releases and forever discharges Lender and each of its parent,
subsidiary and affiliated  corporations and partnerships (including the partners
therein and  thereof),  and the  partners,  partners of partners,  subsidiaries,
divisions, affiliates, officers, directors,  shareholders,  trustees, employees,
agents,  attorneys  and  advisors  of each of the  foregoing,  and each of their
respective heirs, successors and assigns (collectively,  the "Released Parties",
all of whom are intended to be the  beneficiaries  of this release) from any and
all claims and causes of action of whatever  kind and nature  based upon acts or
omissions  by any of them,  whether  such  claims,  causes  of  action,  acts or
omissions  are or were known or unknown,  suspected  or  unsuspected,  which the
Releasing  Parties  or any of them  may have or have  had,  in whole or in part,
prior to the date of this Agreement.

     8. WAIVER OF JURY TRIAL. EACH ENTITY COMPRISING  BORROWER HEREBY WAIVES ANY
RIGHT TO A TRIAL BY JURY ON ANY CLAIM,  COUNTERCLAIM,  SETOFF, DEMAND, ACTION OR
CAUSE OF ACTION (A) ARISING OUT OF OR IN ANY WAY  RELATED TO THIS  AGREEMENT  OR
THE  LOANS,  OR (B) IN ANY WAY  CONNECTED  WITH OR  PERTAINING  OR RELATED TO OR
INCIDENTAL  TO ANY DEALINGS OF LENDER  AND/OR  BORROWER WITH RESPECT TO THE LOAN
DOCUMENTS OR IN  CONNECTION  WITH THIS  AGREEMENT OR THE EXERCISE OF ANY PARTY=S
RIGHTS AND REMEDIES  UNDER THIS  AGREEMENT OR  OTHERWISE,  OR THE CONDUCT OR THE
RELATIONSHIP  OF THE PARTIES  HERETO,  IN ALL OF THE FOREGOING CASES WHETHER NOW
EXISTING  OR  HEREAFTER  ARISING  AND  WHETHER  SOUNDING  IN  CONTRACT,  TORT OR
OTHERWISE. EACH ENTITY COMPRISING BORROWER AGREES THAT LENDER MAY FILE A COPY OF
THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY, AND
BARGAINED  AGREEMENT OF BORROWER  IRREVOCABLY  TO WAIVE THEIR RIGHTS TO TRIAL BY
JURY,  AND THAT,  TO THE EXTENT  PERMITTED  BY  APPLICABLE  LAW,  ANY DISPUTE OR
CONTROVERSY  WHATSOEVER  (WHETHER OR NOT MODIFIED  HEREIN) BETWEEN  BORROWER AND
LENDER SHALL  INSTEAD BE TRIED IN A COURT OF COMPETENT  JURISDICTION  BY A JUDGE
SITTING WITHOUT A JURY.

                         [SIGNATURES ON FOLLOWING PAGE]


<PAGE>
     IN WITNESS  WHEREOF,  each  entity  comprising  Borrower  has  caused  this
Agreement to be properly  executed on the date of the  notarial  acknowledgments
below.

                                    BORROWER:

WITNESS:                            PHC, INC.
                                    a Massachusetts corporation
/s/  T. A. Bates
     Name:

/s/  Barbara Faustino               By:  /s/  Bruce A. Shear
     Name:                               Bruce A. Shear
                                    President

WITNESS:                            PHC OF MICHIGAN, INC.
                                    a Massachusetts corporation
/s/  T. A. Bates
     Name:

/s/  Barbara Faustino               By:  /s/  Bruce A. Shear
     Name:                               Bruce A. Shear
                                         President

WITNESS:                            PHC OF UTAH, INC.
                                    a Massachusetts corporation
/s/  T. A. Bates
     Name:

/s/  Barbara Faustino               By:  /s/  Bruce A. Shear
     Name:                               Bruce A. Shear
                                         President

WITNESS:                            PHC OF VIRGINIA, INC.
                                    a Massachusetts corporation
/s/  T. A. Bates
     Name:

/s/  Barbara Faustino               By:  /s/  Bruce A. Shear
     Name:                               Bruce A. Shear
                                         President

                             [SIGNATURES CONTINUED]



<PAGE>
WITNESS:                            PHC OF RHODE ISLAND, INC.
                                    a Massachusetts corporation
/s/  T. A. Bates
     Name:

/s/  Barbara Faustino               By:  /s/  Bruce A. Shear
     Name:                               Bruce A. Shear
                                         President


WITNESS:                            PIONEER COUNSELING OF VIRGINIA, INC. a
                                    Massachusetts corporation
/s/  T. A. Bates
     Name:

/s/  Barbara Faustino               By:  /s/  Bruce A. Shear
     Name:                               Bruce A. Shear
                                         President

                                     LENDER:

                                    HELLER HEALTHCARE FINANCE, INC.
                                    a Delaware corporation
                                    f/k/a HCFP Funding, Inc. and as assignee of
WITNESS:                            HCFP Funding II, Inc.

-------------------------------
Name:

_______________________________     By: ______________________________
Name:                                   Name:
                                        Title:



<PAGE>
                              NOTARY ACKNOWLEDGMENT

STATE OF MASSACHUSETTS)

COUNTY OF ESSEX)


     Before me, a Notary  Public in and for said  County and State,  on this day
personally appeared  __________________ known to me (or proved to me on the oath
of  ____________)  to be the person whose name is  subscribed  to the  foregoing
instrument,  and  known  to me  to be  the  managing  member  of  PHC,  INC.,  a
Massachusetts  corporation,  and  acknowledged  to  me  that  he  executed  said
instrument for the purposes and consideration  therein expressed,  as the act of
said corporation.

     Given under my hand and seal this 3rd day of August, 2000.


/s/ Paula C. Wurts
    Notary Public

My Commission Expires:  November 29, 2002



<PAGE>
                              NOTARY ACKNOWLEDGMENT


STATE OF MASSACHUSETTS)

COUNTY OF ESSEX)


      Before me, a Notary  Public in and for said County and State,  on this day
personally appeared  __________________ known to me (or proved to me on the oath
of  ____________)  to be the person whose name is  subscribed  to the  foregoing
instrument, and known to me to be the managing member of PHC OF MICHIGAN, INC.,
     a Massachusetts  corporation,  and acknowledged to me that he executed said
instrument for the purposes and consideration  therein expressed,  as the act of
said corporation.

     Given under my hand and seal this 3rd day of August, 2000.


/s/ Paula C. Wurts
    Notary Public

My Commission Expires:  November 29, 2002


<PAGE>
                              NOTARY ACKNOWLEDGMENT

STATE OF _____________________)

COUNTY OF ___________________)

     Before me, a Notary  Public in and for said  County and State,  on this day
personally appeared  __________________ known to me (or proved to me on the oath
of  ____________)  to be the person whose name is  subscribed  to the  foregoing
instrument,  and known to me to be the managing  member of PHC OF UTAH,  INC., a
Massachusetts  corporation,  and  acknowledged  to  me  that  he  executed  said
instrument for the purposes and consideration  therein expressed,  as the act of
said corporation.

     Given under my hand and seal this 3rd day of August, 2000.


/s/ Paula C. Wurts
    Notary Public

My Commission Expires:  November 29, 2002


<PAGE>

                              NOTARY ACKNOWLEDGMENT

STATE OF MASSACHUSETTS)

COUNTY OF ESSEX)


     Before me, a Notary  Public in and for said  County and State,  on this day
personally appeared  __________________ known to me (or proved to me on the oath
of  ____________)  to be the person whose name is  subscribed  to the  foregoing
instrument,  and known to me to be the managing member of PHC OF VIRGINIA, INC.,
a  Massachusetts  corporation,  and  acknowledged  to me that he  executed  said
instrument for the purposes and consideration  therein expressed,  as the act of
said corporation.

     Given under my hand and seal this 3rd day of August, 2000.


/s/ Paula C. Wurts
    Notary Public

My Commission Expires:  November 29, 2002


<PAGE>
                              NOTARY ACKNOWLEDGMENT

STATE OF MASSACHUSETTS)

COUNTY OF ESSEX)


     Before me, a Notary  Public in and for said  County and State,  on this day
personally appeared  __________________ known to me (or proved to me on the oath
of  ____________)  to be the person whose name is  subscribed  to the  foregoing
instrument,  and known to me to be the managing  member of PHC OF RHODE  ISLAND,
INC., a Massachusetts corporation,  and acknowledged to me that he executed said
instrument for the purposes and consideration  therein expressed,  as the act of
said corporation.

      Given under my hand and seal this 3rd day of August, 2000.



/s/ Paula C. Wurts
    Notary Public

My Commission Expires:  November 29, 2002

<PAGE>
                              NOTARY ACKNOWLEDGMENT

STATE OF MASSACHUSETTS)

COUNTY OF ESSEX)


      Before me, a Notary  Public in and for said County and State,  on this day
personally appeared  __________________ known to me (or proved to me on the oath
of  ____________)  to be the person whose name is  subscribed  to the  foregoing
instrument,  and known to me to be the managing member of PIONEER  COUNSELING OF
VIRGINIA,  INC., a  Massachusetts  corporation,  and  acknowledged to me that he
executed said instrument for the purposes and consideration  therein  expressed,
as the act of said corporation.

      Given under my hand and seal this 3rd day of August, 2000.


                               /s/ Paula C. Wurts
                                  Notary Public
My Commission Expires:  November 29, 2002


<PAGE>
                              NOTARY ACKNOWLEDGMENT

STATE OF MASSACHUSETTS)

COUNTY OF ESSEX)

      Before me, a Notary  Public in and for said County and State,  on this day
personally appeared  __________________ known to me (or proved to me on the oath
of  ____________)  to be the person whose name is  subscribed  to the  foregoing
instrument,  and known to me to be the of HELLER  HEALTHCARE  FINANCE,  INC.,  a
Delaware  corporation,  and  acknowledged to me that he executed said instrument
for  the  purposes  and  consideration  therein  expressed,  as the  act of said
corporation.

      Given under my hand and seal this 3rd day of August, 2000.


/s/ Paula C. Wurts
    Notary Public

My Commission Expires:  November 29, 2002

<PAGE>

This Instrument prepared by, and upon recording should be returned to:

Stephen L. Burlingame, Esq.
Fraser Trebilcock Davis & Foster
1000 Michigan National Tower
Lansing, Michigan 48933

<PAGE>
Exhibit 10.77

                                 Promissory Note


USD:  $168,000.00                                     Dated: May 30, 2000


     FOR VALUE RECEIVED,  PHC, INC., a Massachusetts  corporation located at 200
Lake Street, Peabody,  Massachusetts 01960 (the "BORROWER"),  PROMISES TO PAY TO
THE ORDER OF Yakov Burstein, Ph.D. (the "LENDER"), or his registered assigns, in
lawful money of the United States of America and in immediately available funds,
the principal amount of One Hundred Sixty-eight Thousand Dollars  ($168,000.00),
payable in Sixty (60) equal;  monthly  installments  of principal  and interest,
each to be mailed on or before the  seventeenth  (17th) day of each  month.  The
BORROWER  further  agrees to pay  interest at an annual  rate of Eleven  Percent
(11%)  calculated on a Three Hundred  Sixty-five (365) day year and based on the
actual  number of days elapsed.  The initial  payment will be remitted on August
17, 2000, or within three days of the  execution of this  Promissory  Note,  and
will consist of the first  installment plus all accrued and unpaid interest from
May 30, 2000 to date, in the total amount of Six Thousand One Hundred Twelve and
50/100 Dollars ($6,112.50). The second through fifty-ninth installments shall be
equal  installments  each in the amount of Three Thousand Six Hundred  Fifty-two
and 73/100 Dollars  ($3,652.73).  The sixtieth (60th) and final installment,  in
the  amount  of  Three  Thousand  Six  Hundred   Fifty-two  and  52/100  Dollars
($3,652.52), will be remitted on July 17, 2005.

     A payment  shall be deemed to have been made on the business  date after it
is sent via recognized overnight service procuring a signed receipt or three (3)
business  days after it is  postmarked  and  deposited in an official  U.S. Post
Office receptacle.

     In accepting the terms  evidenced by this Note the BORROWER and LENDER each
acknowledge that this Note is being granted in consideration  for the Settlement
Agreement  and Mutual  Releases,  entered by and  between the  BORROWER  and the
LENDER with an Effective  Date of May 30, 2000,  the relevant terms of which are
expressly incorporated herein and made a part hereof.

     All  amounts  paid  hereunder  shall be  credited  first to the  payment of
accrued and unpaid interest and then to outstanding principal. If LENDER has not
received the full amount of principal or interest due  hereunder by the 25th day
of the month, BORROWER shall pay a late charge to LENDER in an amount equal to 1
percent of such  payment then due, to be paid along with and in addition to such
overdue  payment  and any accrued  and unpaid  interest  due as a result of such
overdue payment.

     Any or all interest or principal  outstanding  hereunder  may be prepaid at
any time and from time to time  without  penalty.  Any  partial  prepayments  of
principal  shall be applied  against  installments  of  principal in the inverse
order of maturity.  All payments and  prepayments  on this Note shall be made to
the LENDER at the following  address:  184-63 Aberdeen Road,  Jamaica,  New York
11432.  The holder of this Note is  authorized  to record the date and amount of
each payment or prepayment or principal  hereof on the schedule  annexed  hereto
and  made a part  hereof,  and any such  recordation,  absent  other  definitive
evidence of payment, shall constitute prima facie evidence of the information so
recorded,  provided  that the  failure  of the  holder of this Note to make such
recordation (or any error in such recordation)  shall not affect the obligations
of the BORROWER hereunder.

     If any payment  under this Note is due on a day other than a Business  Day,
such  payment  shall be made on the last  Business  Day  preceding  such day.  A
"Business Day" shall mean any day other than a Saturday,  Sunday or other day on
which  commercial banks are required or authorized to be closed in New York, New
York.

     Upon the occurrence of any of the following  events of default,  the entire
indebtedness evidenced by this Note, including principal, interest, late charges
and  expenses  of  collection  (including  reasonable  attorneys'  fees),  shall
immediately become due and payable without notice, presentation or demand:

     (a) the failure to pay to the LENDER  principal or interest  due  hereunder
within three (3) days after receipt by the BORROWER of written notice specifying
the  amount  overdue;  provided,  however,  that full  payment of all unpaid and
overdue  amounts  within  three (3) days after  receipt by the  BORROWER of such
written notice specifying the amount overdue, or acceptance without protest of a
payment  after the said three (3) day period,  shall be deemed to have cured the
default;

     (b)  the  insolvency  of  BORROWER;   the  appointment  of  a  receiver  or
liquidator,  whether  voluntary  or  involuntary,  for  BORROWER;  the filing by
BORROWER of a petition under the provisions of any state  insolvency law, or the
Bankruptcy  Code,  as now in effect or  hereafter  amended;  the filing  against
BORROWER of a petition under the provisions of any state  insolvency law, or the
Bankruptcy  Code, as now in effect or hereafter  amended,  which petition is not
dismissed  within 30 days  after  its  filing;  the  making  by  BORROWER  of an
assignment for the benefit of his creditors;  the institution by BORROWER of any
other type of  insolvency  proceeding  (under  bankruptcy  laws or otherwise) or
proceeding for the settlement of claims against it; or the  institution  against
BORROWER of any other type of insolvency  proceeding  (under  bankruptcy laws or
otherwise)  or  proceeding  for the  settlement  of  claims  against  it,  which
proceeding is not dismissed within 30 days after its filing;

     (c) any  representation  or  warranty  or  certificate  made or deemed made
herein  shall  prove to have  been  false or  misleading  as of the time made or
furnished in any material respect.

     In case of any one (1) or more uncured  default  hereunder shall happen and
be  continuing,  BORROWER shall pay to LENDER,  immediately  upon written demand
therefor,  any amounts  reasonably  expended or incurred by LENDER in connection
with this Note,  including,  without limitation,  reasonably attorney's fees and
costs and  interest on all such amounts  from the date  demanded  until the date
paid at the rate of Eleven Percent (11%) per annum.

     This Note (a) may not be changed,  waived,  discharged or terminated except
by an instrument  in writing  signed by the LENDER and (b) shall be binding upon
BORROWER,  its successors and assigns,  and shall inure to the benefit of and be
enforceable   by  LENDER,   its   successors   and   assigns.   No  promises  or
representations  have  been  made by LENDER  in  connection  herewith  except as
expressly set forth herein. BORROWER hereby waives presentment, demand, protest,
notice of dishonor and all other  notices and demands,  except as expressly  set
forth herein.

     BY THEIR  SIGNATURE  THE  UNDERSIGNED  ACKNOWLEDGE  THAT  THEY  HAVE  READ,
UNDERSTAND AND UNCONDITIONALLY AGREE TO THE PROVISIONS OF THIS PROMISSORY NOTE.

BORROWER                            LENDER
PHC, Inc.                           Yakov Burstein, Ph.D.

By:_______________________________        _________________________________
Bruce A. Shear, President

Date:  August 17, 2000                    Date:  August 17, 2000


<PAGE>
Exhibit 10.78

                    Settlement Agreement and Mutual Releases

     This Settlement  Agreement and Mutual Releases (the "Agreement") is entered
into as of the 30th day of May, 2000 between PHC, Inc.  (referred to hereinafter
as "PHC"), a Massachusetts  corporation,  and Yakov Burstein, Ph.D. and Irwin J.
Mansdorf,  Ph.D.  (who are referred to  hereinafter  as "BURSTEIN  and MANSDORF"
respectively).

Recitals:

     Whereas,  PHC and BURSTEIN and MANSDORF and other entities  entered into an
Agreement  and Plan of Merger (the  "Merger  Agreement")  and an  Agreement  for
Purchase and Sale of Assets  ("Asset  Sale  Agreement")  both dated  October 31,
1996; and

     Whereas,  PHC and BURSTEIN  and  MANSDORF  have agreed to settle all claims
with respect to the Merger Agreement and the Asset Sale Agreement, including any
claims related to the earn-out  provisions of the Merger Agreement and the Asset
Sale Agreement.

     Now, Therefore, in consideration, of the mutual covenants contained herein,
and other good and valuable consideration,  the receipt and adequacy of which is
hereby acknowledged,  the parties hereto,  intending to be legally bound, hereby
agree as follows:

1.   Payments to BURSTEIN and MANSDORF

     In exchange for the releases set forth in paragraphs 2 and 3 and other good
and  valuable  consideration,  the  receipt and  sufficiency  of which is hereby
acknowledged, PHC shall deliver to BURSTEIN and MANSDORF the following:

     (A) Promissory Notes: PHC agrees to pay BURSTEIN and MANSDORF Seven Hundred
Thousand  and No/100  Dollars  ($700,000.00)  by  execution  and  delivery  of a
Promissory  Note in favor of BURSTEIN and a Promissory Note in favor of MANSDORF
to be  executed  and  delivered  on the date this  Agreement  is  executed  (the
"Promissory  Notes"). The Promissory Notes shall be dated as of May 30, 2000 and
shall bear the following terms:

     (i) One  Promissory  Note with a  principal  in the amount of Five  Hundred
     Thirty-two  Thousand and No/100 Dollars  ($532,000.00)  payable to MANSDORF
     (the "MANSDORF  Promissory  Note), and one Promissory Note with a principal
     amount of One Hundred Sixty-eight Thousand and No/100 Dollars ($168,000.00)
     payable to BURSTEIN (the BURSTEIN Promissory Note), and

     (ii)  Both  Promissory  Notes  shall  bear  interest  at the rate of eleven
     percent  (11%) per annum over a five (5) year  term,  with  computation  of
     interest beginninppg May 30, 2000, and

     (iii) Both  Promissory  Notes  shall be paid in sixty  (60)  equal  monthly
     payments of principal and interest,  the first of which is due on or before
     August 20, 2000,  and the second  through  sixtieth of which are due on the
     20th day of each month from  September,  2000 through and  including  July,
     2005.

     All payments  described  herein for the MANSDORF  Promissory  Note shall be
forwarded to Ross P.  Lanzafame,  Esq. as attorney for MANSDORF at the following
address:  Harter,  Secrest & Emery LLP, 700 Midtown Tower,  Rochester,  New York
14604. All payments  described herein for the BURSTEIN  Promissory Note shall be
forwarded to Yakov  Burstein at the following  address:  184-63  Aberdeen  Road,
Jamaica,  New York  11432.  A  payment  shall be deemed to have been made on the
business  date after it is sent via  recognized  overnight  service  procuring a
signed receipt or three (3) business days after it is postmarked if sent postage
prepaid by U.S. Domestic 1st class mail, provided such payment has been received
by the 30th day of the month in which it is due.

     (B) PHC Stock:  PHC shall issue to BURSTEIN  and  MANSDORF  common stock of
PHC. as follows:  414,815 shares of common stock of PHC, or such other amount so
as to assure a total market value of no less than Three Hundred  Fifty  Thousand
and No/100 Dollars ($350,000.00) valued as of the closed of business on the date
this  Agreement is executed.  180,148 of such shares shall be issued to Irwin J.
Mansdorf,  Ph.D.  and 56,889 of such shares  shall be issued to Yakov  Burstein,
Ph.D as  unrestricted  and freely  tradable  stock with a combined  total market
value of no less than Two  Hundred  Thousand  and No/100  Dollars  ($200,000.00)
valued  as of the close of  business  on the date this  Agreement  is  executed.
149,333 of such shares shall be issued to Irwin J. Mansdorf, Ph.D. and 28,445 of
such shares shall be issued to Yakov Burstein,  Ph.D.,  subject to the filing of
any required registration  statement with the Securities and Exchange Commission
with a combined  total market value of no less than One Hundred  Fifty  Thousand
and No/100 Dollars  ($150,000.00) valued as of the close of business on the date
this Agreement is executed,  which registration  statement shall be filed by PHC
within thirty (30) days of the execution of this Agreement.

     All shares of common  stock issued to BURSTEIN and MANSDORF by PHC pursuant
to this Agreement (the "Shares") shall be duly authorized, validly issued, fully
paid and non-assessable,  and free and clear of any lien,  encumbrance,  option,
pre-emptive  right, or claim of any kind whatsoever.  PHC hereby  represents and
warrants  to  BURSTEIN  and  MANSDORF,  and  PHC  acknowledges  that  each  such
representation  and  warranty is material  and that  BURSTEIN  and  MANSDORF are
relying upon each of such  representations  and  warranties,  regardless  of any
investigation  that  each of them  may  have  performed:  All of the  documents,
including,   without  limitation,   registration  statements,  Form  10-Qs,  (or
10-QSBs),  Form  10-Ks  (or  10-KSBs),  and  Form  8-Ks,  filed  by PHC with the
Securities and Exchange Commission are true as of the date hereof and as amended
and do not contain any statement that are false or misleading  with respect to a
material  fact,  and do not omit to state a material fact  necessary in order to
make the statements  therein under the  circumstance  in which they are made not
false or misleading in any material  respect.  As of the date this  Agreement is
executed,  other  than  as  previously  disclosed  in its  public  filings,  PHC
represents  and warrants  that it has not been notified of an action being taken
regarding  delisting  and  that  PHC is not  aware  of any  material  non-public
information  that could be  construed  by a  reasonable  investor  as having the
potential to affect  adversely  the market price of the common stock of PHC. PHC
shall  instruct the PHC Transfer  Agent,  within three days of the  execution of
this  Agreement,  with a copy of such  notification  delivered  to MANSDORF  and
BURSTEIN, to immediately issue and deliver to Harter,  Secrest & Emery LLP stock
certificates R/N/O Irwin Mansdorf/Yakov  Burstein for the Shares. PHC shall bear
all costs,  taxes and fees  incurred in the  issuance and delivery of the Shares
and the certificates therefor.

     BURSTEIN  and MANSDORF  warrant that they will not trade,  in any manner or
method, whether in their name, street name or otherwise, any shares of PHC, Inc.
between Monday, August 14, 2000 and Thursday, August 17, 2000.

     (C)  Attorneys'  Fees:  PHC  shall pay  BURSTEIN  and  MANSDORF  Twenty-one
Thousand Five Hundred and No/100 Dollars  ($21,500.00)  in full  satisfaction of
all  attorneys'  fees and costs  incurred in  connection  with the  negotiation,
preparation and execution of this Agreement,  to be mailed within three (3) days
of the execution of this  Agreement.  PHC shall issue the attorneys' fee payment
in two (2) checks as follows:

     (i)  Ten Thousand  Seven  Hundred Fifty and No/100  Dollars  ($10,750.00)
     payable  to  "Harter,  Secrest  & Emery  LLP as  Attorney  for  Irwin  J.
     Mansdorf,  Ph.D." and shall be  forwarded to Ross P.  Lanzafame,  Esq. at
     the following  address:  Harter,  Secrest & Emery LLP, 700 Midtown Tower,
     Rochester, New York 14604, and

     (ii) Ten Thousand  Seven  Hundred Fifty and No/100  Dollars  ($10,750.00)
     payable to "Akabas & Cohen as  Attorney  for Yakov  Burstein,  Ph.D." and
     shall  be  forwarded  to Seth  Akabas,  Esq.  at the  following  address:
     Akabas & Cohen, 488 Madison Avenue, 11th Floor, New York, New York 10022.

2.   Release of PHC by BURSTEIN and MANSDORF

     For and in consideration of the payments described in paragraph 1 and other
good and valuable consideration,  the receipt and sufficiency of which is hereby
acknowledged,   BURSTEIN  and  MANSDORF,   for  themselves  and  their  personal
representatives, successors and assigns, (collectively referred to in paragraphs
2 and 3 as the  "BURSTEIN  and  MANSDORF  Group")  remises,  releases  and fully
discharges  all  claims  any of them ever had,  has  claimed  to have or now has
against PHC, its shareholders,  employees, agents,  representatives,  directors,
attorneys,  trustees,  managers,  affiliates,   subsidiaries,  related  parties,
successors  and  assigns,  (the "PHC  Group")  relating to or arising out of the
Merger  Agreement  and/or the Asset Sale  Agreement,  and any other  claim which
could have been asserted by BURSTEIN and MANSDORF prior to the execution of this
Agreement.  Notwithstanding  the  foregoing,  the Employment  Agreement  between
BURSTEIN  and  BSC-NY  and  the  Employment   Agreement   between  BURSTEIN  and
Shliselberg Physician Services, P.C., each with an effective date of November 1,
1999,  including the Restrictive  Covenants  contained therein,  shall remain in
full force and effect and is not in any way altered, amended or affected by this
Agreement and no claim thereunder, regardless of when it may have accrued, shall
be covered  by, or  released,  removed or  discharged,  by this  paragraph  2 or
paragraph 3 below.

3.   Release of BURSTEIN and MANSDORF by PHC

     For and in consideration of the release  described in paragraph 2 and other
good and valuable consideration,  the receipt and sufficiency of which is hereby
acknowledged,  the PHC Group remises,  releases and fully  discharges all claims
any of them ever had,  has claimed to have or now has against the  BURSTEIN  and
MANSDORF Group or any of them relating to or arising out of the Merger Agreement
and/or the Asset  Sale  Agreement,  and any other  claim  which  could have been
asserted by the PHC Group or any of them against the BURSTEIN and MANSDORF Group
or any of them prior to the  execution of this  Agreement.  Notwithstanding  the
foregoing,  the  Employment  Agreement  between  BURSTEIN  and  BSC-NY  and  the
Employment Agreement between BURSTEIN and Shliselberg Physician Services,  P.C.,
each with an  effective  date of November  1, 1999,  including  the  Restrictive
Covenants contained therein, shall remain in full force and effect and is not in
any way altered,  amended or affected by this Agreement and no claim thereunder,
regardless  of when it may have  accrued,  shall be  covered  by,  or  released,
removed or discharged, by paragraph 2 above or this paragraph 3.

4.    Termination of all Arrangements

     All   agreements   and   arrangements   between  PHC,  its  affiliates  and
subsidiaries, on the one hand and BURSTEIN and/or MANSDORF on the other, whether
oral or written, including but not limited to the Merger Agreement and the Asset
Sale  Agreement,  other  than this  Agreement  are hereby  terminated,  and this
Agreement supersedes all previous representations, understandings or agreements,
oral or written. This Agreement,  together with the Promissory Notes referred to
in  paragraph 1 above,  embody the entire  understanding  and  agreement  of the
parties hereto  concerning  the subject  matter of the Merger  Agreement and the
Asset Sale  Agreement.  Each party to this  Agreement  hereby  represents to the
other  parties  that he/it is not aware that any other  person or entity has any
claim against any party in connection with or arising from or as a result of the
Merger Agreement and/or the Asset Sale Agreement. Notwithstanding the foregoing,
the  Employment  Agreement  between  BURSTEIN  and  BSC-NY  and  the  Employment
Agreement between BURSTEIN and Shliselberg  Physician Services,  P.C., each with
an  effective  date of November 1, 1999,  including  the  Restrictive  Covenants
contained  therein,  shall remain in full force and effect and is not in any way
altered,  amended  or  affected  by  this  Agreement  and no  claim  thereunder,
regardless  of when it may have  accrued,  shall be  covered  by,  or  released,
removed or discharged,  by paragraph 2 above or paragraph 3 above.  Further, the
Covenant  Not To Compete,  as applies to BURSTEIN  and  MANSDORF,  appearing  in
Article X of the Merger  Agreement  and  Section 7 of the Asset Sale  Agreement,
shall remain in full force and effect until October 31, 2000.

5.   General

     5.1  This  Agreement  shall be governed by and  construed  and  enforced in
          accordance with the laws of the State of New York, irrespective of the
          conflict  of law rules of New York  State and  jurisdiction  and venue
          shall be New York County with respect to any proceeding arising out of
          or in connection with this Agreement or the Promissory Notes.

     5.2  Each party hereby  represents  to the other that he/it has signed this
          Agreement   or  caused  it  to  be  signed  by  the  duly   authorized
          representative  of  such  party  with  full  authority  to  sign  this
          Agreement and that he/it has not assigned or transferred any claims or
          rights arising from the Merger  Agreement or the Asset Sale Agreement.
          By entering into this Agreement,  each party represents that he/it has
          carefully read and understood  the terms of this  Agreement,  and that
          those terms are fully  understood  and accepted by him/it.  Each party
          has made such  investigation of the facts pertaining to this Agreement
          and of all other matters as he/it deems necessary.

     5.3  This  Agreement  and the covenants  contained  herein shall be binding
          upon and shall inure to the  benefit of the  parties  hereto and their
          successors,  assigns,  subsidiaries,  affiliates,  agents,  employees,
          representatives, officers, managers, trustees, and directors.

     5.4  In  consideration of the foregoing  release and payments,  the parties
          expressly agree to hold the terms of this Agreement  confidential  and
          agree that,  with the exception of  consultations  with legal counsel,
          accountants,  and as  may be  required  by  law,  the  terms  of  this
          Agreement  shall not be  disclosed  by the  parties,  their  officers,
          shareholders,  agents,  employees,  directors or trustees to any third
          party, except in connection with the enforcement of this Agreement.

     5.5  This Agreement and any discussions pertaining to the settlement of the
          dispute  between the parties  shall not be deemed or  construed  to be
          evidence of or an admission or  concession of liability on the part of
          BURSTEIN and MANSDORF, or PHC to each other or to any third party.

     5.6  This Agreement may be executed in counterparts,  each of which when so
          executed  and  delivered  shall be deemed to be an original and all of
          which taken together shall constitute but one and the same instrument.

5.7       No waivers,  changes,  alterations  or  modifications  hereto shall be
          effective  unless  in  writing  and  signed  by or by  the  authorized
          representative of each of the hereto parties.  The headings to various
          clauses of this Agreement have been inserted for convenience  only and
          shall not be used to  interpret  or construe  the meaning of the terms
          and provisions hereof.

5.8   In the event that any party  hereunder  breaches  this  Agreement or the
          Promissory  Notes,  then such defaulting party shall pay immediately
          upon  request  all  of  the  costs,   including  without  limitation
          reasonable  attorneys'  fees  incurred by each of the other  parties
          hereto to enforce this Agreement or the  Promissory  Notes and/or to
          effect  or  induce  the  defaulting  party to  effect a cure of such
          breach, whether by court order or settlement agreement.

     In Witness  Whereof,  each of the parties has  executed  this  Agreement or
caused this Agreement to be executed by its duly authorized  representatives  as
of the day and the year set forth above.


PHC, Inc.                                   Yakov Burstein, Ph.D.
                                            /s/  Yakov Burstein

By:   /s/ Bruce Shear
Name:     Bruce Shear
Title:    President
                                            Irwin J. Mansdorf, Ph.D
                                            /s/  Irwin J. Mansdorf



Date:  August 17, 2000

<PAGE>

Exhibit 10.79

                                RESTATED MORTGAGE


                                  $3,100,000.00



            MORTGAGOR:   PHC OF MICHIGAN, INC.

            MORTGAGEE:    HELLER HEALTHCARE FINANCE, INC.






                                  May 26, 2000




                                             Prepared by and after  recording,
      return to:
                                             Stephen L. Burlingame, Esq.
                                             Fraser    Trebilcock    Davis   &
      Foster, P.C.
                                             1000 Michigan National Tower
                                             Lansing, MI 48933


<PAGE>
                                RESTATED MORTGAGE

      THIS INSTRUMENT  ("Mortgage") WITNESSES:  That PHC OF MICHIGAN,  INC., a
Massachusetts  corporation  having its principal place of business at 200 Lake
Street, Suite 102, Peabody,  Massachusetts  01960, as "Mortgagor",  and HELLER
HEALTHCARE FINANCE,  INC., a Delaware  corporation having its principal office
at  2  Wisconsin  Circle,   4th  Floor,   Chevy  Chase,   Maryland  20815,  as
"Mortgagee".

                                 R E C I T A L S

     A. This Mortgage amends and restates in its entirety that certain  Restated
Mortgage  made by  Mortgagor  in favor of  Mortgagee,  which was recorded in the
official records of the Macomb County, Michigan registrar of deeds at Liber Page
_______ on _______ , 1999 (the "Original  Mortgage").  The Mortgage  secures the
obligations  of  Mortgagor  (i)  under  that  certain  Secured  Term Note in the
original principal amount of One Million One Hundred Thousand and No/100 Dollars
($1,100,000.00)     made    by    Mortgagor    in    favor    of     Mortgagee's
predecessor-in-interest  and dated March 12, 1997 (the "March Term Note");  (ii)
under that certain  Secured Term Note in the original  principal  amount of Five
Hundred  Thousand and No/100  Dollars  ($500,000)  made by Mortgagor in favor of
Mortgagee's  predecessor-in-interest  and dated  December 9, 1997 (the "December
Term Note"); and (iii) under that certain Secured Term Note made by Mortgagor in
favor of Mortgagee dated as November , 1999 in an original  principal  amount of
One Million and No/100  Dollars  ($1,000,000.00)  (the  "November Term Note" and
collectively  with the March Term Note and the December Term Note, the "Original
Term Notes").  The Original Term Notes are still outstanding.  The succession of
Mortgagee is described in the recitals of the Original Mortgage.

     B.  Mortgagor is executing a Secured Term Note in favor of Mortgagee  dated
as of even date with  this  Mortgage  in an  original  principal  amount of Five
Hundred  Thousand  and  No/100  Dollars  ($500,000.00)  (the "May Term Note" and
collectively with the Original Term Notes, the "Term Notes"). Mortgagee requires
that the  obligations  of  Mortgagor  under the May Term Note be  secured by the
premises (as defined below) and Mortgagor has agreed to execute this Mortgage to
evidence Mortgagee's security interest.

     NOW,  THEREFORE,  for value received,  Mortgagor  mortgages and warrants to
Mortgagee the property situated in the City of New Baltimore,  County of Macomb,
and  State of  Michigan,  with a street  address  of  35031  23 Mile  Road,  New
Baltimore,  Michigan  48047,  and  legally  described  as shown on the  attached
Exhibit A"; together with the easements,  rights-of-way,  licenses,  privileges,
hereditaments,  and appurtenances  belonging to the property, and all the rents,
issues,  leases, and profits, the interest of Mortgagor in the property,  either
at law or in  equity,  all  buildings,  structures,  and  improvements,  and all
fixtures  located  in,  on, or affixed  to the  property,  and used or usable in
connection with the operation of the property (all of the above-stated  property
are collectively referred to in this Mortgage as the "premises").

      This Mortgage is given to secure the following:

(a)   payment of the indebtedness evidenced by the March Term Note;

(b)   payment of the indebtedness evidenced by the December Term Note;

(c)   payment of the indebtedness evidenced by the November Term Note;

(d)   payment of the indebtedness evidenced by the May Term Note

(e)   payment by Mortgagor  to  Mortgagee of all sums  expended or advanced by
      Mortgagee pursuant to any term or provision of this Mortgage;

(f)   performance of the covenants, conditions, and agreements contained in this
      Mortgage  and in the Term Notes and in any other  documents  securing  the
      indebtedness shown above;

(g)   all  other  indebtedness  and  obligations  of  Mortgagor  currently  or
      subsequently  owing  to  Mortgagee,  including  but not  limited  to all
      future  advances  under  this  Mortgage  or  on  the  Term  Notes,  loan
      agreements,   security  agreements,   pledge  agreements,   assignments,
      mortgages,  leases, guarantees,  and any other agreements,  instruments,
      or documents  previously or  subsequently  signed by Mortgagor,  whether
      the  indebtedness  or  obligations  are direct or indirect,  absolute or
      contingent,  primary  or  secondary,  or  related  or  unrelated  to the
      premises or the  transaction  of which this Mortgage is a part,  and any
      and all partial or full  extensions or renewals of this  indebtedness or
      other   indebtedness   and   obligations   (all  of  the  foregoing  are
      collectively referred to as the "indebtedness").

      Mortgagor warrants, covenants, and agrees that:

1.    Title.      Mortgagor  is  seized  of   the  premises,   in  fee  simple.
      Mortgagor  had the right and power to mortgage  and  warrant the premises
      as set forth in this Mortgage.  The premises are free from  all liens and
      encumbrances  except  easements and  restrictions of record  disclosed in
      ___________________ Title   Commitment No. ____ dated  ________, relating
      to the premises.  Mortgagor will defend the premises against  all claims
      and demands.

2.    Payment of Indebtedness.  Mortgagor will pay all indebtedness  when due,
      including the principal and interest, as provided in the Term Notes.

3.    Taxes  and  Assessments.   Until  the  indebtedness  is  fully  satisfied,
      Mortgagor will pay all taxes,  assessments,  and other similar charges and
      encumbrances  levied on the premises  before they become  delinquent,  and
      will promptly deliver to Mortgagee,  without demand,  receipts showing the
      payment.

4.    Tax and  Insurance  Escrow.  On  request,  at the  option of  Mortgagee,
      Mortgagor  will pay to  Mortgagee  monthly,  in addition to each monthly
      payment  required  by this  Mortgage  or  under  the Term  Notes,  a sum
      equivalent  to  one-twelfth  of the amount  estimated by Mortgagee to be
      sufficient  to enable  Mortgagee  to pay,  at least 30 days  before they
      become due, all taxes,  assessments,  and other similar  charges  levied
      against  the  premises,  and all  insurance  premiums  on any  policy or
      policies  of  insurance  required  by  this  Mortgage.   The  additional
      payments may be commingled  with the general funds of Mortgagee,  and no
      interest  shall be payable on those  payments.  On demand by  Mortgagee,
      Mortgagor  will deliver and pay over to Mortgagee  any  additional  sums
      necessary to make up any  deficiency  in the amount  necessary to enable
      Mortgagee  to  fully  pay when due any of the  preceding  items.  In the
      event of any  default by  Mortgagor  in  performing  any of the terms of
      this  Mortgage,  Mortgagee  may apply against the  indebtedness,  in the
      manner that  Mortgagee may  determine,  any funds of Mortgagor then held
      by Mortgagee under this paragraph.

5.    Change  of Law.  If,  after  the date of this  Mortgage,  any  statute  or
      ordinance  is passed that changes in any way the laws now in force for the
      taxation  of  mortgages  or  mortgaged  debts or the manner in which those
      taxes are  collected,  so as to affect this  Mortgage  or the  interest of
      Mortgagee,  the whole of the principal sum secured by this Mortgage,  with
      all interest and charges, if any, at the option of Mortgagee, shall become
      due and payable.

6.    Insurance.  Mortgagor  will  procure,  deliver to, and  maintain for the
      benefit of Mortgagee during the term of this Mortgage:

      (a)   a  policy  of  hazard  insurance,  providing  an  all-risk  extended
            coverage endorsement,  in an amount equal to the highest replacement
            value of the premises;

      (b)   a  policy  of  comprehensive  public  liability  insurance  insuring
            against bodily injury, with a coverage limit of at least $3,000,000,
            and  against  property  damage,  with a  coverage  limit of at least
            $3,000,000,  from any  accident or  occurrence  with  respect to the
            premises.

            All policies of insurance  required by this paragraph  shall be in a
      form, with companies,  and in amounts  acceptable to Mortgagee,  and shall
      contain a mortgagee endorsement clause acceptable to Mortgagee,  with loss
      payable to  Mortgagee.  Mortgagor  will pay when due the  premiums  on any
      policy of insurance  required by Mortgagee,  and will deliver to Mortgagee
      renewals of all policies at least 10 days before their expiration date(s).
      Duplicates of all policies shall be delivered to Mortgagee.

            In the event of any loss or damage to the premises,  Mortgagor  will
      give immediate  written  notice to Mortgagee,  and Mortgagee may then make
      proof of the loss or damage, if it is not promptly made by Mortgagor.  All
      proceeds of  insurance  shall be payable to  Mortgagee,  and any  affected
      insurance  company is authorized and directed to make payment  directly to
      Mortgagee.  Mortgagee is authorized to settle,  adjust,  or compromise any
      claims for loss, damage, or destruction under any policy of insurance.

7.    Maintenance  and  Repair.   Mortgagor  will  not  cause  or  permit  the
      commission  of waste on the  premises and will keep the premises in good
      condition and repair.  No building or other  improvement on the premises
      shall be removed,  demolished,  or materially  altered without the prior
      written  consent of  Mortgagee.  Mortgagor  will  comply  with all laws,
      ordinances,  regulations,  and orders of all public  authorities  having
      jurisdiction  over the premises.  If the premises,  in the sole judgment
      of Mortgagee,  require  inspection  or repair,  Mortgagee may enter upon
      the premises  and inspect  and/or  repair the premises as Mortgagee  may
      deem  advisable,  and may  take  other  action  as  Mortgagee  may  deem
      appropriate  to preserve the premises.  Mortgagor  will pay when due all
      charges for utilities or services contracted for by Mortgagor.

8.    Environmental   Matters.   No  use,   exposure,   release,   generation,
      manufacture,   storage,   treatment,   transportation   or  disposal  of
      Hazardous  Material (as defined) has occurred or is occurring on or from
      the   property.   All  Hazardous   Material   used,   treated,   stored,
      transported  to or from,  generated  or handled on the property has been
      disposed  of on or off the  property  by or on behalf of  Borrower  in a
      lawful  manner.  There are no  underground  storage  tanks present on or
      under the  property.  No other  environmental,  public  health or safety
      hazards exist with respect to the property.  "Hazardous  Material" means
      any  substances  defined or  designated  as  hazardous  or toxic  waste,
      hazardous or toxic material,  hazardous or toxic  substance,  or similar
      term, by any environmental  statute,  rule or regulation or any federal,
      state or local governmental authority.

9.    Waste. The failure of Mortgagor to meet its maintenance  obligations or to
      pay any taxes  assessed  against the premises or any insurance  premium on
      policies  covering any property  located on the premises shall  constitute
      waste as  provided  by MCLA  600.2927,  MSA  27A.2927,  and shall  entitle
      Mortgagee  to  appoint a  receiver  of the  property  for the  purpose  of
      preventing  the waste.  The receiver may collect the rents and income from
      the premises.

10.   Condemnation.  If the premises,  or any part, are taken under the power of
      eminent domain,  the entire award, to the full extent of the indebtedness,
      shall  be  paid  to  Mortgagee.  Mortgagee  is  empowered  in the  name of
      Mortgagor  to receive and give  acquittance  for any award,  whether it is
      joint or several.  However,  Mortgagee  shall not be held  responsible for
      failing to collect any award.

11.   Mortgagee  Expenses.  If Mortgagor  fails to meet any of its obligations
      under  this  mortgage,  Mortgagee  shall  have  the  right,  but not the
      obligation,  to perform in the place of Mortgagor.  If Mortgagee  incurs
      or expends any sums,  including reasonable attorney fees, whether or not
      in connection with any action or proceeding,  to (a) sustain the lien of
      this  Mortgage  or  its   priority,   (b)  protect  or  enforce  any  of
      Mortgagee's  rights, (c) recover any part of the indebtedness,  (d) meet
      an  obligation  of  Mortgagor  under  this  mortgage,   or  (e)  collect
      insurance  or  condemnation  proceeds,  then  those  sums  shall  become
      immediately  due and payable by Mortgagor  with  interest at the default
      rate set forth in the Term  Notes from the date of  Mortgagee's  payment
      until paid by  Mortgagor.  The sums expended in this manner by Mortgagee
      shall be secured by this  Mortgage and be a lien on the  premises  prior
      to any right,  title, or interest on the premises  attaching or accruing
      subsequent to the lien of this Mortgage.

12.   Assignment of Contracts and  Licenses.  Mortgagor  assigns to Mortgagee,
      as  further  security  for  payment  of  the  indebtedness,  Mortgagor's
      interest in all agreements,  contracts  (including any contracts for the
      lease or sale of the  premises),  licenses,  and permits  affecting  the
      premises.  The  assignment  shall  not  be  construed  as a  consent  by
      Mortgagee to any agreement,  contract, license or permit so assigned, or
      to impose any  obligations  on  Mortgagee.  Mortgagor  shall not cancel,
      amend,  permit,  or  cause  a  default  or  termination  of  any  of the
      agreements,  contracts,  licenses,  and permits used in conjunction with
      the operation of the premises without the written approval of Mortgagee.

13.   Assignment of Rents and Leases.  As additional  security for the payment
      of the  indebtedness,  Mortgagor  assigns and  transfers  to  Mortgagee,
      pursuant  to 1953 PA 210,  as  amended  by 1966 PA 151 (MCLA  554.231 et
      seq., MSA 26.1137(1) et seq.), all the rents,  profits, and income under
      all leases, occupancy agreements,  or arrangements upon or affecting the
      premises  (including any  extensions or amendments)  now in existence or
      coming  into  existence  during the period  this  Mortgage is in effect.
      This  assignment  shall  run with  the  land  and be good  and  valid as
      against  Mortgagor and those claiming under or through  Mortgagor.  This
      assignment  shall  continue to be operative  during  foreclosure  or any
      other  proceedings  to enforce  this  Mortgage.  If a  foreclosure  sale
      results in a deficiency,  this assignment shall stand as security during
      the  redemption   period  for  the  payment  of  the  deficiency.   This
      assignment  is  given  only as  collateral  security  and  shall  not be
      construed as  obligating  Mortgagee  to perform any of the  covenants or
      undertakings required to be performed by Mortgagor in any leases.

            In the event of  default  in any of the terms or  covenants  of this
      Mortgage, Mortgagee shall be entitled to all of the rights and benefits of
      MCLA 554.231B.233, MSA 26.1137(1)B(3) and 1966 PA 151, and Mortgagee shall
      be entitled to collect the rents and income from the premises,  to rent or
      lease the  premises  on the terms that it may deem best,  and to  maintain
      proceedings to recover rents or possession of the premises from any tenant
      or trespasser.

            Mortgagee shall be entitled to enter the premises for the purpose of
      delivering  notices or other  communications to the tenants and occupants.
      Mortgagee  shall have no liability to Mortgagor as a result of those acts.
      Mortgagee  may deliver all of the notices and  communications  by ordinary
      first-class U.S. mail.

            If Mortgagor obstructs Mortgagee in its efforts to collect the rents
      and income from the premises or unreasonably refuses or neglects to assist
      Mortgagee in collecting the rent and income,  Mortgagee  shall be entitled
      to appoint a receiver for the premises and the income, rents, and profits,
      with powers that the court making the appointment may confer.

            Mortgagor  shall at no time  collect  advance  rent in excess of one
      month under any lease pertaining to the premises,  and Mortgagee shall not
      be bound by any rent  prepayment  made or  received in  violation  of this
      paragraph.  Mortgagee  shall not have any obligation to collect rent or to
      enforce any other obligations of any tenant or occupant of the premises to
      Mortgagor.  No action taken by Mortgagee  under this paragraph shall cause
      Mortgagee to become a "mortgagee in possession."

14.   Performance  of  Leases.   Mortgagor   shall  observe  and  perform  all
      obligations  contained in any lease  affecting the  premises.  Mortgagor
      shall not  default  in  performing  any of the  obligations  imposed  on
      Mortgagor  by any  lease;  such a default  gives the lessee the right to
      terminate or cancel the lease or offset against  rentals.  Upon request,
      Mortgagor  shall  furnish to  Mortgagee a statement,  in any  reasonable
      detail  that  Mortgagee  may  request,  of all  leases  relating  to the
      premises and executed counterparts of any and all leases.

15.   Records.  With  respect to the premises  and its  operations,  Mortgagor
      shall  keep  proper  books  in  accordance   with   generally   accepted
      accounting  principles  consistently  applied.  Mortgagee shall have the
      right to examine the books at  reasonable  times as Mortgagee may elect.
      Upon request,  Mortgagor  shall  furnish to Mortgagee  within sixty (60)
      days after the end of each  calendar  year,  a  financial  statement  of
      Mortgagor for the calendar  year,  in  reasonable  detail and stating in
      comparative  form the  figures  as of the end of the  previous  calendar
      year,  including statements of income and expense relating to operations
      of  the  premises,   certified  by  an  independent   certified   public
      accountant  acceptable  to  Mortgagee.  In  addition,   Mortgagor  shall
      furnish  to  Mortgagee,  in a  form  acceptable  to  Mortgagee,  interim
      financial statements that Mortgagee may request, certified by Mortgagor.

16.   Waiver.  If Mortgagee  (a) grants any  extension of time with respect to
      the  payment  of any  part  of the  indebtedness,  (b)  takes  other  or
      additional  security for the payment of the indebtedness,  (c) waives or
      fails to exercise any right  granted by this Mortgage or the Term Notes,
      (d) grants any release on any part of the security  held for the payment
      of the  indebtedness,  or (e) amends any of the terms and  provisions of
      this Mortgage or the Term Notes,  that act or omission shall not release
      Mortgagor  under any  covenant of this  Mortgage or the Term Notes,  nor
      preclude  Mortgagee  from  exercising  any right or power  granted,  nor
      impair the lien or priority of this Mortgage.

17.   Use of Premises.  Mortgagor shall not make, or permit, without the prior
      written  consent  of  Mortgagee,  (a)  any use of the  premises  for any
      purpose  other  than  that  for  which  they  are  now  used;   (b)  any
      alterations of the buildings,  improvements, and fixtures located on the
      premises;  (c) any purchase,  lease of, or agreement for any fixtures to
      be placed on the  premises  under which title is reserved in the vendor.
      Mortgagor  shall execute and deliver  documents that may be requested by
      Mortgagee  to  confirm  the  lien  of  this  Mortgage  on any  fixtures,
      machinery, and equipment.

18.   Events of Default.  The occurrences listed below shall be deemed events of
      default and shall  entitle  Mortgagee,  at its option and  without  notice
      except as  required  by law, to  exercise  any one or any  combination  of
      remedies under this Mortgage or permitted by law:

      (a)   the failure by  Mortgagor to (i) make any payment when due under the
            Term Notes, or (ii) to perform any of the other terms, covenants, or
            conditions of this  Mortgage  within a period of ten (10) days after
            written notice from  Mortgagee of Mortgagor's  failure to perform an
            obligation;

      (b)   the  institution of  foreclosure  or other  proceedings to enforce
            any junior lien or encumbrance on the premises;

      (c)   the  appointment  by a court of a receiver or trustee of Mortgagor
            or for any property of Mortgagor;

      (d)   a  decree  by  a  court  adjudicating   Mortgagor  a  bankrupt  or
            insolvent,   or  for  the  sequestration  of  any  of  Mortgagor's
            property;

      (e)   the filing of a petition  in  bankruptcy  by or against  Mortgagor
            under the federal  Bankruptcy  Code or any similar statute that is
            in effect;

      (f)   an  assignment  by  Mortgagor  for the benefit of  creditors  or a
            written  admission  by  Mortgagor  of the  inability  to pay debts
            generally as they become due;

      (g)   the  failure to comply  with all of the terms and  covenants  of any
            leases or other  agreements,  documents,  or  restrictions  that now
            encumber, affect, or pertain to the premises;

      (h)   Mortgagor, without the written consent of Mortgagee, sells, conveys,
            or transfers  the  premises,  any interest in the  premises,  or any
            rents  or  profits  from the  premises,  or  causes  or  allows  any
            mortgage,  lien, or other  encumbrance,  or any writ of  attachment,
            garnishment,  execution,  or other legal process to be placed on the
            premises, or any part of the premises is transferred by operation of
            law;

      (i)   all or any part of the  premises is damaged or  destroyed by fire or
            other  casualty,  regardless of insurance  coverage,  or is taken by
            power of eminent domain.

19.   Default  Remedies.  Upon the  occurrence of any event of default of this
      mortgage,  Mortgagee  shall have the  option,  in addition to and not in
      lieu of all other rights and remedies  provided by law, to do any or all
      of the following:

      (a)   Without  notice,  except as expressly  required by law, to declare
            the  principal  sum  secured by the  Mortgage,  together  with all
            interest  and all  other  sums  secured  by this  mortgage,  to be
            immediately  due and payable;  to demand any  installment  payment
            due under the Term Notes;  and to institute any  proceedings  that
            Mortgagee  deems necessary to collect and otherwise to enforce the
            indebtedness  and  obligations  secured  by this  Mortgage  and to
            protect the lien of this Mortgage.

      (b)   Commence  foreclosure  proceedings  against the premises  pursuant
            to  applicable  laws.  Mortgagee's  commencement  of a foreclosure
            shall  be  deemed  an  exercise  by  Mortgagee  of its  option  to
            accelerate  the due date of all  sums  secured  by this  Mortgage.
            Mortgagor  grants to Mortgagee,  in the event of the occurrence of
            an event of  default,  the  power to sell the  premises  at public
            auction by  advertisement,  without  notice or hearing,  except as
            required by Michigan statutes.

      (c)   To enter into peaceful  possession of the premises and/or to receive
            the rent, income, and profits, and to apply those in accordance with
            paragraph 13.

            Mortgagor  acknowledges  having been advised that Mortgagee believes
            that  the  value  of  the  security  covered  by  this  Mortgage  is
            inextricably  intertwined with the  effectiveness of the management,
            maintenance,  and  general  operation  of  the  premises,  and  that
            Mortgagee would not make the loan secured by this Mortgage unless it
            could be assured that it would have the right to take  possession of
            the premises in order to manage,  control management,  and enjoy the
            income,  rents, and profits,  immediately upon default by Mortgagor,
            notwithstanding  that  foreclosure  proceedings  may not  have  been
            instituted,  or are pending,  or that the redemption  period may not
            have  expired.  Accordingly,  Mortgagor  knowingly  and  voluntarily
            waives all right to  possession  of the premises  from and after the
            date of default, upon demand for possession by Mortgagee.

20.   Sale of Premises as a Whole or in Parcels.  Upon any  foreclosure  sale of
      the premises, the premises may be sold either as a whole or in parcels, as
      Mortgagee  may elect,  and if in parcels,  to be divided as Mortgagee  may
      elect, or, at the election of Mortgagee, the premises may be offered first
      in parcels and then as a whole, with the offer producing the highest price
      for the entire property to prevail.

21.   Assignment.  Mortgagor  shall not make a  conveyance  of any interest in
      the premises.  A "conveyance"  of  Mortgagor's  interest in the premises
      shall  include   without   limitation   any  voluntary  or   involuntary
      disposition or dilution of legal or beneficial  title to the premises by
      any means. If ownership of the premises,  or any part, becomes vested in
      a person other than  Mortgagor  (with or without  Mortgagee's  consent),
      Mortgagee may, without notice to Mortgagor,  deal with the successors in
      interest  with  reference to this  Mortgage or the Term Notes without in
      any way releasing or otherwise  affecting  Mortgagor's  liability  under
      the Term Notes and Mortgage.

22.   Application  of  Proceeds.  In the event of the  payment  to  Mortgagee,
      pursuant to this mortgage,  of any rents or profits,  or proceeds of any
      insurance  or  condemnation  award,  or  proceeds  from  the sale of the
      premises upon  foreclosure,  Mortgagee shall have the right to apply the
      rents,  profits, or proceeds,  in amounts and proportions that Mortgagee
      shall, in its sole discretion,  determine, against the cost and expenses
      incurred by Mortgagee  in  exercising  its rights  under this  mortgage,
      payment of the interest and principal due under the Term Notes,  payment
      of any other  portion  of the  indebtedness,  and  payment  of  expenses
      incurred in  preserving  the premises.  Application  by Mortgagee of any
      proceeds  toward  the  last  maturing   installments  of  principal  and
      interest to become due under the Term Notes  shall not excuse  Mortgagor
      from making the  regularly  scheduled  payments due under the Term Notes
      and this mortgage,  nor shall the  application  reduce the amount of the
      payments.  In the event of the  payment  of  proceeds  as a result of an
      insurance or condemnation  award,  Mortgagee  shall have the right,  but
      not the  obligation,  to  require  all or part  of the  proceeds  of any
      insurance  or  condemnation  award to be used to restore any part of the
      premises  damaged or taken by reason of the  occurrence  which gave rise
      to the payment of the proceeds.

            CAUTION:    PARAGRAPH 23 CONTAINS A WAIVER OF
                        IMPORTANT LEGAL RIGHTS

23.   Waiver of Rights.  This Mortgage  contains a power of sale which permits
      Mortgagee  to cause the  premises  to be sold in the event of a default.
      Mortgagee  may elect to cause the  premises to be sold by  advertisement
      rather than pursuant to court  action,  and  Mortgagor  voluntarily  and
      knowingly  waives  any  right  Mortgagor  may  have  by  virtue  of  any
      applicable  constitutional  provision  or statute to any notice or court
      hearing  prior to the  exercise  of the power of sale,  except as may be
      expressly  required by the Michigan  statute  governing  foreclosures by
      advertisement.  In addition,  Mortgagor knowingly and voluntarily waives
      any right  Mortgagor may have to remain in possession of the premises or
      to collect  any rents or income  therefrom  during the  pendency  of any
      foreclosure  proceedings  and during any applicable  redemption  period.
      Also,  paragraphs 18 and 21 above entitle Mortgagee to require immediate
      payment of the balance of the  indebtedness  in full if the premises are
      sold or otherwise transferred. By execution of this mortgage,  Mortgagor
      represents and  acknowledges  that the meaning and consequences of these
      paragraphs  have been  discussed as fully as desired by  Mortgagor  with
      Mortgagor's legal counsel.

24.   Environmental Matters.  Mortgagor agrees to indemnify Mortgagee against,
      and hold it harmless from, all obligations  and liabilities  relating to
      the  premises   arising  out  of  claims  made  or  suits   brought  for
      investigation,  study,  remedial  work,  monitoring,  or other costs and
      expenses  arising from or associated with response to any  environmental
      matters,  including  but not  limited  to any (a) water  pollution,  air
      pollution,  noise,  odor,  spills,  leaks,  or  inadvertent  discharges,
      emissions,  or releases,  or the  generation,  transportation,  storage,
      treatment,  or  disposal  of solid  waste,  including  hazardous  waste,
      hazardous   substances,   pollutants  and   contaminants;   (b)  injury,
      sickness,  disease,  or  death  of  any  person;  or (c)  damage  to any
      property,  regardless  of  whether  the  cause of the  injury  or damage
      occurred  before or after the date of this Mortgage.  Mortgagor  further
      agrees that  Mortgagee  shall have no  liability  for any  environmental
      contamination  associated with Mortgagor's business or the premises, and
      that any involvement of Mortgagee with  Mortgagor's  business to protect
      its security interest in the premises shall not constitute  Mortgagor as
      an  "owner  or  operator"  of  Mortgagor's   business  for  purposes  of
      determining  environmental liability. In any event, if Mortgagee becomes
      obligated,  by judicial or  administrative  judgment or  settlement of a
      claim,   to  pay  any   amounts  for   response  to  any   environmental
      contamination  associated or connected with Mortgagor's  business or the
      premises,   any  payment  by  Mortgagee   shall  be  deemed   additional
      indebtedness secured by the lien of this mortgage,  shall be immediately
      due and payable to Mortgagee,  and shall bear interest until paid at the
      default interest rate specified in the Term Notes.

25.   Covenants  Run  with  Land.  All of the  terms  and  covenants  of  this
      Mortgage  shall run with the land and shall be  binding  on and inure to
      the benefit of the respective  legal  representatives  and successors of
      the parties.

26.   Release of Mortgage.  If Mortgagor pays to Mortgagee the money required by
      the Term Notes, in the manner and at the times provided in the Term Notes,
      and all other sums of the indebtedness  payable by Mortgagor to Mortgagee,
      and keeps and performs the terms,  covenants,  and agreements of Mortgagor
      with Mortgagee, then this Mortgage shall be satisfied, and Mortgagee shall
      release the Mortgage.

27.   Notice.  All notices,  demands,  and requests  required or permitted to be
      given to Mortgagor or by law shall be deemed  delivered  when deposited in
      the United States mail,  with postage  prepaid,  addressed to Mortgagor or
      Mortgagee at their last known addresses.

28.   Severability.  If any  provision of this  Mortgage is in conflict with any
      statute  or  rule  of  law  of  the  State  of  Michigan  or is  otherwise
      unenforceable for any reason, then that provision shall be deemed null and
      void to the  extent  of the  conflict  or  unenforceability,  but shall be
      deemed separable from and shall not invalidate any other provision of this
      Mortgage.

29.   Venue and Jurisdiction.  All provisions of this Mortgage shall be governed
      by and  construed  in  accordance  with the laws of the State of Michigan.
      Venue shall be in Macomb  County,  Michigan  for any action  brought  with
      regard to this Mortgage.  Mortgagor consents to personal jurisdiction over
      it by any Michigan courts to the extent that personal  jurisdiction may be
      necessary to enforce any of the provisions of this Mortgage.




                             [SIGNATURES FOLLOW]
<PAGE>

Signed on the date set forth above.

                                   MORTGAGOR:

WITNESSES:                          PHC OF MICHIGAN, INC.,
                                    a Massachusetts corporation


                                    By:   /s/  Bruce A. Shear
                                    Name: Bruce A. Shear
                                          President

/s/  T. A. Bates
       Name:


                                 ACKNOWLEDGMENT


STATE OF MASSACHUSETTS  )
COUNTY OF ESSEX         )


     The foregoing  instrument  was  acknowledged  before me on _____,  2000, by
Bruce  A.  Shear,  the  President  of PHC of  Michigan,  Inc.,  a  Massachusetts
corporation, on behalf of the corporation.


Paula C. Wurts
Notary Public, Essex County

My commission expires November 29, 2002.










<PAGE>


                                   Exhibit "A"

                                Legal Description



<PAGE>

                  THIS GUARANTY CONTAINS PROVISIONS FOR WAIVER
                                  OF JURY TRIAL

            SECURED UNCONDITIONAL GUARANTY OF PAYMENT AND PERFORMANCE


      THIS  SECURED  UNCONDITIONAL  GUARANTY  OF PAYMENT  AND  PERFORMANCE  (the
"Guaranty") is dated as of May 26, 2000 and is made by BSC--NY, INC., a New York
corporation  ("Guarantor"),  in favor of  HELLER  HEALTHCARE  FINANCE,  INC.,  a
Delaware corporation ("Lender").

                                R E C I T A L S

1.  Pursuant to a certain  Secured Term Note of even date with this Guaranty (as
the note may from time to time be amended,  modified or supplemented,  the "Term
Note")  made in  favor of  Lender  by PHC of  Michigan,  Inc.,  a  Massachusetts
corporation ("Borrower") that is an affiliate of Guarantor, Lender has agreed to
make  available  to  Borrower  a  secured  term  loan in the  maximum  aggregate
principal amount of Five Hundred Thousand and No/100 Dollars  ($500,000.00) (the
"Loan").

B.  Lender  is  willing  to make the Loan  under the Term Note but only upon the
condition,  among others,  that  Guarantor  shall have executed and delivered to
Lender this Guaranty.

      NOW,  THEREFORE,  in  consideration  of the  premises  and  of the  mutual
covenants   contained  in  this   Guaranty  and  for  other  good  and  valuable
consideration, the receipt of which is hereby acknowledged, the parties agree as
follows:

      1. All capitalized  terms used but not defined in this Guaranty shall have
the respective meanings given them in the Term Note.

      2. To induce  Lender to make the Loan  upon the terms and  conditions  set
forth  in  the  Term  Note,  and  in  consideration  thereof,  Guarantor  hereby
unconditionally  and  irrevocably  guaranties to Lender,  and to its successors,
endorsees,  transferees and assigns, Borrower's prompt and complete payment when
due,  whether at the stated  maturity,  by acceleration or otherwise,  of all of
Borrower's  obligations under the Term Note  (collectively,  the "Obligations"),
and Borrower's  prompt and complete  performance of all of its other  covenants,
obligations and agreements contained in the Term Note.

      3. As security for Guarantor's obligations under this Guaranty,  Guarantor
hereby  assigns and grants to Lender a continuing  priority lien on and security
interest in, upon, and to the following property:

            a. All of  Guarantor's  now-owned and hereafter  acquired or arising
Accounts,   accounts  receivable  and  rights  to  payment  of  every  kind  and
description,  and any contract rights,  chattel paper, documents and instruments
with respect thereto;

            b.    All  of  Guarantor's  now  or  hereafter   acquired  deposit
accounts  into which  Accounts  are  deposited,  including  the  Concentration
Account;

            c.  All  of  Guarantor's  right,  title  and  interest,  and  all of
Guarantor's rights,  remedies,  security and liens, in, to and in respect of the
Accounts,   including,  without  limitation,  rights  of  stoppage  in  transit,
replevin,  repossession  and  reclamation  and other  rights and  remedies of an
unpaid  vendor,  lienor or  secured  party,  guaranties  or other  contracts  of
suretyship  with  respect to the  Accounts,  deposits or other  security for the
obligation of any Account debtor, and credit and other insurance;

            d. All of  Guarantor's  right,  title  and  interest  in,  to and in
respect of all goods  relating to, or which by sale have resulted in,  Accounts,
including,  without  limitation,  all  goods  described  in  invoices  or  other
documents  or  instruments  with  respect  to,  or  otherwise   representing  or
evidencing, any Account, and all returned, reclaimed or repossessed goods;

            e.    All deposit accounts, as such term is defined in the UCC;

            f.    All books,  records,  ledger  cards,  computer  programs and
information  and other  property  at any time  evidencing  or  relating to the
Accounts; and

            g.    The  proceeds  (including,  without  limitation,   insurance
proceeds) of all of the foregoing.

      4.  Guarantor  hereby waives notice of the acceptance of this Guaranty and
of the extending of credit as above  specified and the state of  indebtedness of
Borrower  at  any  time,  and  expressly  agrees  to any  extensions,  renewals,
accelerations  or  modifications  of such  credit  or any of the  terms  of such
credit, and waives diligence, presentment, demand of payment, protest or notice,
whether of  non-payment,  dishonor,  protest or  otherwise,  of any  document or
documents  and notice of any  extension,  renewal,  modification  or default and
assent to the release,  substitution  or variation of any collateral that may at
any time be held as security for any credit  extended to  Borrower,  all without
relieving  Guarantor of any liability  under this Guaranty.  The  obligations of
Guarantor  under this  Guaranty  shall be an  unconditional  obligation  to make
prompt  payment  and  performance  to Lender  irrespective  of the  genuineness,
validity,  regularity  or  enforceability  of any  indebtedness  or  evidence of
indebtedness  of  Borrower  to  Lender  or of  other  circumstances  that  might
otherwise  under the laws of any  jurisdiction  constitute  a legal or equitable
discharge of a surety or a guarantor or a bar (in the nature of a moratorium  or
otherwise) to the enforcement of Lender's rights either (i) against  Borrower on
all or any part of its Obligations or (ii) under this Guaranty.

      5.  Notwithstanding  any payment or payments made by Guarantor  under this
Guaranty or any setoff or application of funds of Guarantor by Lender, Guarantor
shall not be entitled to be  subrogated  to any of the rights of Lender  against
Borrower  or any  collateral  security or  guarantee  or right of offset held by
Lender for the payment or performance of the  Obligations,  nor shall  Guarantor
seek any  reimbursement  from  Borrower in respect of payments made by Guarantor
under this Guaranty, until all amounts then owing and any other performance then
due to Lender by  Borrower  for or on  account of the  Obligations  are paid and
satisfied in full. Upon such payment and  satisfaction in full,  Guarantor shall
be  subrogated  to all  rights  of Lender  against  Borrower  or any  collateral
security  or  guarantee  or right of offset  held by Lender for the  payment and
performance of the Obligations.

      6.  Any  indebtedness  of  Borrower  now or  hereafter  owed to or held by
Guarantor is hereby  subordinated to the indebtedness of Borrower to Lender; and
such  indebtedness  of Borrower  to  Guarantor  if Lender so  requests  shall be
collected,  enforced and received by Guarantor as trustee for Lender and be paid
over to Lender on account of the  indebtedness of Borrower to Lender but without
reducing or affecting in any manner the  liability of Guarantor  under the other
provisions of this Guaranty.

      7. This is intended to be and shall be construed as a continuing  guaranty
and shall  remain in full force and  effect  and shall be binding in  accordance
with and to the extent of its terms upon  Guarantor and  Guarantor's  successors
and  assigns,  and shall  inure to the  benefit of Lender,  and its  successors,
endorsees, transferees and assigns.

      8. If all or any part of the  Obligations  of  Borrower  to Lender are not
paid when due,  Guarantor hereby guaranties that it will pay the same to Lender,
upon demand,  without set-off or counterclaim and without reduction by reason of
any taxes, levies, imposts, charges and withholdings, restrictions or conditions
of any nature that are now or may  hereafter  be imposed,  levied or assessed by
any country, political subdivision or taxing authority, all of which will be for
the  account  of and paid by  Guarantor,  and Lender  need not first  proceed to
preserve,  utilize or exhaust any other right or remedy against  Borrower or any
other  guarantor or any  security  that Lender may have to obtain  payment.  The
payment shall be made in  immediately  available  funds to Lender's  office at 2
Wisconsin Circle, Fourth Floor, Chevy Chase, Maryland 20815,  Attention:  Steven
M.  Curwin,  Deputy  General  Counsel,  or at such  other  place as  Lender  may
designate in writing.

      9. No  failure  to  exercise  and no delay in  exercising,  on the part of
Lender,  any right,  power or privilege  under this Guaranty  shall operate as a
waiver  of the  right,  power or  privilege,  nor shall  any  single or  partial
exercise of any right, power or privilege preclude any other or further exercise
of the right,  power or privilege,  or the exercise of any other power or right.
The rights  and  remedies  provided  in this  Guaranty  are  cumulative  and not
exclusive of any rights or remedies provided by law.

      10.  Notice or demand to the  parties  shall be  sufficiently  given if in
writing and  personally  delivered,  or mailed by registered or certified  first
class mail,  postage prepaid,  return receipt  requested,  or sent by commercial
courier  against  receipt,  or by  telecopier  (with a  confirming  copy sent by
regular  mail) to the party  intended and at the address or addresses  specified
below:

                  Guarantor:  200 Lake Street, Suite 102
                  Peabody, Massachusetts 01960
                  Telephone:  (978) 536-2777
                  Telecopier: (978) 536-2677
                  Attention:  Bruce A. Shear, President

                  Lender:     2 Wisconsin Circle, 4th Floor
                  Chevy Chase, Maryland 20815
                  Telephone:  (301) 961-1640
                  Telecopier: (301) 664-9866
                  Attention: Steven M. Curwin, Deputy General Counsel

Any party may  designate  a change of  address by notice in writing to the other
parties,  such notice to be effective ten (10) days after mailing or delivery as
provided in this Section 10.

      11.   Guarantor hereby represents, warrants, and covenants to Lender
that:

            a. It is a corporation  duly  incorporated,  validly existing and in
good standing under the laws of the jurisdiction of its  incorporation,  and has
the corporate  power and authority to own its property,  conduct its business as
now being  conducted and to make and perform this Guaranty and the  transactions
contemplated  by this  Guaranty,  and is duly qualified to do business and is in
good standing as a foreign corporation in each jurisdiction where the nature and
extent of the business  conducted by it, or property owned by it, and applicable
law require such qualification, except where the failure so to qualify would not
have a material adverse effect on the business, operations or financial position
of Guarantor.

            b. The  execution,  delivery and  performance  of this Guaranty have
been duly authorized by all necessary  corporate action and will not violate any
provision  of law or any  order  of any  court  or  governmental  agency  or the
certificate  of  incorporation  or other  incorporating  documents  or bylaws of
Guarantor,  or conflict  with, or result in a breach of, or constitute  (with or
without  notice  or lapse of time or both) a  default  under,  or  result in the
creation of any security interest, lien, charge or encumbrance upon any property
or assets of Guarantor, pursuant to any agreement, indenture or other instrument
to which it is a party or by which it may be bound.

            c. Except as disclosed to Lender in writing  prior to the  execution
of this Guaranty,  no action,  suit,  investigation  or proceeding is pending or
known to be  threatened  against  or  affecting  Guarantor  that,  if  adversely
determined, would have a material adverse effect upon its financial condition or
operations.

            d.   Guarantor  is  not  in  default  under  any  provision  of  its
certificate of incorporation or other incorporating  documents,  bylaws or stock
provisions  (or any amendment to such  documents or  provisions),  any indenture
relating to borrowed money,  any agreement to which it is a party or by which it
is bound, any other indenture, or any order,  regulation,  ruling or requirement
of a court or public body or authority by which it is bound, which default would
have a material adverse effect on the business, operations or financial position
of Guarantor.

            e.  No  license,  consent  or  approval  of,  or  filing  with,  any
governmental  body or other regulatory  authority is required for the making and
performance of, or any instrument or transaction contemplated by, this Guaranty.
Guarantor holds all certificates and authorizations of all governmental agencies
and authorities required by law to enable it to engage in the business currently
transacted by it, except those  certificates and  authorizations as to which the
failure to so hold would not, in the aggregate,  have a material  adverse effect
on Guarantor.

            f.    No provision of this  Guaranty  shall be waived,  amended or
supplemented except by a written instrument executed by Lender.

      12. The  obligations  of Guarantor  under this Guaranty  shall continue in
full force and effect and shall remain in operation until all of the Obligations
shall have been paid in full or otherwise  fully  satisfied,  and continue to be
effective or be reinstated,  as the case may be, if at any time payment or other
satisfaction  of any of the  Obligations  is  rescinded  or  must  otherwise  be
restored or returned  upon the  bankruptcy,  insolvency,  or  reorganization  of
Borrower,  or  otherwise,  as  though  such  payment  had not been made or other
satisfaction occurred. No invalidity, irregularity or unenforceability by reason
of applicable  bankruptcy  laws or any other similar law, or any law or order of
any  government or government  agency  purporting to reduce,  amend or otherwise
affect, the Obligations,  shall impair, affect, be a defense to or claim against
the obligations of Guarantor under this Guaranty.

      13. In addition to its guarantee of Borrower's  payment of the Obligations
and  Borrower's  performance  of  all  covenants,   obligations  and  agreements
contained  in the Loan  Documents,  Guarantor  shall  pay all  actual  costs and
expenses  (including  reasonable  attorney's fees) paid or incurred by Lender in
connection with the enforcement of this Guaranty.

      14.  Guarantor  hereby  agrees to execute any and all  further  documents,
agreements,  and instruments,  and take all further  actions,  that Lender shall
reasonably  request to  effectuate  or further  preserve,  evidence,  perfect or
protect  the  rights  purported  to be  created  in favor of Lender  under  this
Guaranty.

      15. Guarantor hereby assumes responsibility for keeping itself informed of
the  financial  condition of Borrower,  and any and all  endorsers  and/or other
guarantors  of any  instrument  or  document  evidencing  all or any part of the
Obligations,  and of all other circumstances bearing upon the risk of nonpayment
of the Obligations, or any part of the Obligations,  that diligent inquiry would
reveal,  and  Guarantor  hereby  agrees that Lender shall have no duty to advise
Guarantor of  information  known to Lender  regarding such condition or any such
circumstances. If Lender, in its sole discretion, undertakes at any time or from
time to time to provide any such information to Guarantor, Lender shall be under
no  obligation  (i) to  undertake  any  investigation  not a part of its regular
business routine, (ii) to disclose any information that, pursuant to accepted or
reasonable commercial finance practices, Lender wishes to maintain confidential,
or (iii) to make any  other or future  disclosures  of such  information  or any
other information to Guarantor.

      16. This Guaranty may be executed in one or more counterpart  copies, each
of which shall be an original and all of which together shall constitute one and
the same instrument, and it is not necessary that all parties' signatures appear
on each counterpart.

      17.  If  any  term,  covenant  or  condition  of  this  Guaranty,  or  the
application  of such term,  covenant or condition to any party or  circumstance,
shall be  found  by a court of  competent  jurisdiction  to be,  to any  extent,
invalid or unenforceable,  the remainder of this Guaranty and the application of
such term,  covenant,  or condition to parties or circumstances other than those
as to which it is held invalid or unenforceable,  shall not be affected thereby,
and each term,  covenant or condition shall be valid and enforced to the fullest
extent  permitted  by law.  Upon  determination  that any such term is  invalid,
illegal or unenforceable, the parties to this Guaranty shall amend this Guaranty
so as to effect the original  intent of the parties as closely as possible in an
acceptable manner.

      18. THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE  WITH,
THE LAWS OF THE STATE OF MARYLAND,  WITHOUT  REGARD TO ANY OTHERWISE  APPLICABLE
PRINCIPLES OF CONFLICTS OF LAWS.  IF ANY ACTION  ARISING OUT OF THIS GUARANTY IS
COMMENCED  BY LENDER IN THE STATE COURTS OF THE STATE OF MARYLAND OR IN THE U.S.
DISTRICT COURT FOR THE DISTRICT OF MARYLAND,  GUARANTOR  HEREBY  CONSENTS TO THE
JURISDICTION  OF ANY SUCH COURT IN ANY SUCH ACTION AND TO THE LAYING OF VENUE IN
THE STATE OF  MARYLAND.  ANY PROCESS IN ANY SUCH ACTION  SHALL BE DULY SERVED IF
MAILED BY  REGISTERED  MAIL,  POSTAGE  PREPAID,  TO GUARANTOR AT ITS ADDRESS SET
FORTH IN SECTION 10 OF THIS GUARANTY.

      19. GUARANTOR HEREBY (A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY
OF ANY ISSUE  TRIABLE  OF RIGHT BY A JURY,  AND (B) WAIVES ANY RIGHT TO TRIAL BY
JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST.  THIS
WAIVER OF RIGHT TO TRIAL BY JURY IS SEPARATELY GIVEN, KNOWINGLY AND VOLUNTARILY,
BY  GUARANTOR,  AND THIS  WAIVER IS  INTENDED  TO  ENCOMPASS  INDIVIDUALLY  EACH
INSTANCE  AND EACH ISSUE AS TO WHICH THE RIGHT TO A JURY TRIAL  WOULD  OTHERWISE
ACCRUE. LENDER IS HEREBY AUTHORIZED AND REQUESTED TO SUBMIT THIS GUARANTY TO ANY
COURT HAVING  JURISDICTION OVER THE SUBJECT MATTER AND THE PARTIES HERETO, SO AS
TO SERVE AS  CONCLUSIVE  EVIDENCE  OF  GUARANTOR'S  WAIVER  OF THE RIGHT TO JURY
TRIAL.  FURTHER,  GUARANTOR HEREBY CERTIFIES THAT NO  REPRESENTATIVE OR AGENT OF
LENDER (INCLUDING LENDER'S COUNSEL) HAS REPRESENTED,  EXPRESSLY OR OTHERWISE, TO
GUARANTOR  THAT  LENDER  WILL NOT SEEK TO ENFORCE  THIS  WAIVER OF RIGHT TO JURY
TRIAL PROVISION.

      20.  GUARANTOR  AUTHORIZES  ANY ATTORNEY  ADMITTED TO PRACTICE  BEFORE ANY
COURT OF RECORD  IN THE  UNITED  STATES OR THE CLERK OF SUCH  COURT TO APPEAR ON
BEHALF OF GUARANTOR IN ANY COURT IN ONE OR MORE PROCEEDINGS, OR BEFORE ANY CLERK
THEREOF OF PROTHONOTARY OR OTHER COURT OFFICIAL, AND TO CONFESS JUDGMENT AGAINST
GUARANTOR IN FAVOR OF LENDER IN THE FULL AMOUNT DUE ON THIS GUARANTY  (INCLUDING
PRINCIPAL,  ACCRUED  INTEREST  AND ANY AND ALL  CHARGES,  FEES AND  COSTS)  PLUS
ATTORNEYS'  FEES EQUAL TO FIFTEEN  PERCENT  (15%) OF THE AMOUNT DUE,  PLUS COURT
COSTS,  ALL WITHOUT PRIOR NOTICE OR  OPPORTUNITY  OF BORROWER FOR PRIOR HEARING.
GUARANTOR AGREES AND CONSENTS THAT VENUE AND JURISDICTION SHALL BE PROPER IN THE
CIRCUIT  COURT OF ANY  COUNTY OF THE STATE OF  MARYLAND  OR OF  BALTIMORE  CITY,
MARYLAND,  OR IN THE UNITED STATES  DISTRICT COURT FOR THE DISTRICT OF MARYLAND.
GUARANTOR  WAIVES THE BENEFIT OF ANY AND EVERY  STATUTE,  ORDINANCE,  OR RULE OF
COURT  WHICH MAY BE  LAWFULLY  WAIVED  CONFERRING  UPON  GUARANTOR  ANY RIGHT OR
PRIVILEGE OF EXEMPTION,  HOMESTEAD RIGHTS,  STAY OF EXECUTION,  OR SUPPLEMENTARY
PROCEEDINGS,  OR OTHER RELIEF FROM THE ENFORCEMENT OR IMMEDIATE ENFORCEMENT OF A
JUDGMENT OR RELATED PROCEEDINGS ON A JUDGMENT. THE AUTHORITY AND POWER TO APPEAR
FOR AND ENTER JUDGMENT  AGAINST  GUARANTOR SHALL NOT BE EXHAUSTED BY ONE OR MORE
EXERCISES  THEREOF,  OR BY ANY  IMPERFECT  EXERCISE  THEREOF,  AND  SHALL NOT BE
EXTINGUISHED BY ANY JUDGMENT ENTERED PURSUANT THERETO;  SUCH AUTHORITY AND POWER
MAY BE  EXERCISED  ON ONE OR MORE  OCCASIONS  FROM TIME TO TIME,  IN THE SAME OR
DIFFERENT JURISDICTIONS, AS OFTEN AS LENDER SHALL DEEM NECESSARY, CONVENIENT, OR
PROPER.

      21. In any  litigation,  trial,  arbitration  or other dispute  resolution
proceeding  relating to this  Guaranty or any of the other Loan  Documents,  all
directors,  officers,  employees  and agents of Guarantor  or of its  Affiliates
shall be deemed to be employees or managing  agents of Guarantor for purposes of
all  applicable  law or court rules  regarding  the  production  of witnesses by
notice for testimony (whether in a deposition, at trial or otherwise). Guarantor
agrees that  Lender's  counsel in any such  dispute  resolution  proceeding  may
examine  any of these  individuals  as if under  cross-examination  and that any
discovery deposition of any of them may be used in that proceeding as if it were
an  evidence  deposition.  Guarantor  in any  event  will  use all  commercially
reasonable efforts to produce in any such dispute resolution proceeding,  at the
time and in the manner requested by Lender,  all Persons,  documents (whether in
tangible,  electronic  or other  form) or other  things  under its  control  and
relating  to the  dispute  in any  jurisdiction  that  recognizes  that  (or any
similar) distinction.

                             [SIGNATURES FOLLOW]


<PAGE>
IN WITNESS WHEREOF,  Guarantor has caused this Guaranty to be executed as of the
date first written above.

ATTEST:                                   BSC--NY, INC.
                                          a New York corporation


                                          By:         /s/  Bruce A. Shear
                                          Name: Bruce A. Shear
                                          Title:      President


<PAGE>
                  THIS GUARANTY CONTAINS PROVISIONS FOR WAIVER
                                  OF JURY TRIAL

               UNCONDITIONAL GUARANTY OF PAYMENT AND PERFORMANCE


      THIS UNCONDITIONAL GUARANTY OF PAYMENT AND PERFORMANCE (the "Guaranty") is
dated as of May 26, 2000 and is made by PHC, INC., a  Massachusetts  corporation
("Guarantor"),   in  favor  of  HELLER  HEALTHCARE  FINANCE,  INC.,  a  Delaware
corporation ("Lender").

                                R E C I T A L S

      1. Pursuant to a certain Secured Term Note of even date with this Guaranty
(as the note may from time to time be  amended,  modified or  supplemented,  the
"Term Note") made in favor of Lender by PHC of Michigan,  Inc., a  Massachusetts
corporation ("Borrower") that is a wholly owned subsidiary of Guarantor,  Lender
has agreed to make  available  to  Borrower a secured  term loan in the  maximum
aggregate   principal  amount  of  Five  Hundred  Thousand  and  No/100  Dollars
($500,000.00) (the "Loan").

      B.  Lender is  willing  to make the Loan under the Term Note but only upon
the condition, among others, that Guarantor shall have executed and delivered to
Lender this Guaranty.

      NOW,  THEREFORE,  in  consideration  of the  premises  and  of the  mutual
covenants   contained  in  this   Guaranty  and  for  other  good  and  valuable
consideration, the receipt of which is hereby acknowledged, the parties agree as
follows:

1. All  capitalized  terms used but not defined in this Guaranty  shall have the
respective meanings given them in the Term Note.

      2. To induce  Lender to make the Loan  upon the terms and  conditions  set
forth  in  the  Term  Note,  and  in  consideration  thereof,  Guarantor  hereby
unconditionally  and  irrevocably  guaranties to Lender,  and to its successors,
endorsees,  transferees and assigns, Borrower's prompt and complete payment when
due,  whether at the stated  maturity,  by acceleration or otherwise,  of all of
Borrower's  obligations under the Term Note  (collectively,  the "Obligations"),
and Borrower's  prompt and complete  performance of all of its other  covenants,
obligations and agreements contained in the Term Note.

      3.  Guarantor  hereby waives notice of the acceptance of this Guaranty and
of the extending of credit as above  specified and the state of  indebtedness of
Borrower  at  any  time,  and  expressly  agrees  to any  extensions,  renewals,
accelerations  or  modifications  of such  credit  or any of the  terms  of such
credit, and waives diligence, presentment, demand of payment, protest or notice,
whether of  non-payment,  dishonor,  protest or  otherwise,  of any  document or
documents  and notice of any  extension,  renewal,  modification  or default and
assent to the release,  substitution  or variation of any collateral that may at
any time be held as security for any credit  extended to  Borrower,  all without
relieving  Guarantor of any liability  under this Guaranty.  The  obligations of
Guarantor  under this  Guaranty  shall be an  unconditional  obligation  to make
prompt  payment  and  performance  to Lender  irrespective  of the  genuineness,
validity,  regularity  or  enforceability  of any  indebtedness  or  evidence of
indebtedness  of  Borrower  to  Lender  or of  other  circumstances  that  might
otherwise  under the laws of any  jurisdiction  constitute  a legal or equitable
discharge of a surety or a guarantor or a bar (in the nature of a moratorium  or
otherwise) to the enforcement of Lender's rights either (i) against  Borrower on
all or any part of its Obligations or (ii) under this Guaranty.

      4.  Notwithstanding  any payment or payments made by Guarantor  under this
Guaranty or any setoff or application of funds of Guarantor by Lender, Guarantor
shall not be entitled to be  subrogated  to any of the rights of Lender  against
Borrower  or any  collateral  security or  guarantee  or right of offset held by
Lender for the payment or performance of the  Obligations,  nor shall  Guarantor
seek any  reimbursement  from  Borrower in respect of payments made by Guarantor
under this Guaranty, until all amounts then owing and any other performance then
due to Lender by  Borrower  for or on  account of the  Obligations  are paid and
satisfied in full. Upon such payment and  satisfaction in full,  Guarantor shall
be  subrogated  to all  rights  of Lender  against  Borrower  or any  collateral
security  or  guarantee  or right of offset  held by Lender for the  payment and
performance of the Obligations.

      5.  Any  indebtedness  of  Borrower  now or  hereafter  owed to or held by
Guarantor is hereby  subordinated to the indebtedness of Borrower to Lender; and
such  indebtedness  of Borrower  to  Guarantor  if Lender so  requests  shall be
collected,  enforced and received by Guarantor as trustee for Lender and be paid
over to Lender on account of the  indebtedness of Borrower to Lender but without
reducing or affecting in any manner the  liability of Guarantor  under the other
provisions of this Guaranty.

      6. This is intended to be and shall be construed as a continuing  guaranty
and shall  remain in full force and  effect  and shall be binding in  accordance
with and to the extent of its terms upon  Guarantor and  Guarantor's  successors
and  assigns,  and shall  inure to the  benefit of Lender,  and its  successors,
endorsees, transferees and assigns.

      7. If all or any part of the  Obligations  of  Borrower  to Lender are not
paid when due,  Guarantor hereby guaranties that it will pay the same to Lender,
upon demand,  without set-off or counterclaim and without reduction by reason of
any taxes, levies, imposts, charges and withholdings, restrictions or conditions
of any nature that are now or may  hereafter  be imposed,  levied or assessed by
any country, political subdivision or taxing authority, all of which will be for
the  account  of and paid by  Guarantor,  and Lender  need not first  proceed to
preserve,  utilize or exhaust any other right or remedy against  Borrower or any
other  guarantor or any  security  that Lender may have to obtain  payment.  The
payment shall be made in  immediately  available  funds to Lender's  office at 2
Wisconsin Circle, Fourth Floor, Chevy Chase, Maryland 20815,  Attention:  Steven
M.  Curwin,  Deputy  General  Counsel,  or at such  other  place as  Lender  may
designate in writing.

      8. No  failure  to  exercise  and no delay in  exercising,  on the part of
Lender,  any right,  power or privilege  under this Guaranty  shall operate as a
waiver  of the  right,  power or  privilege,  nor shall  any  single or  partial
exercise of any right, power or privilege preclude any other or further exercise
of the right,  power or privilege,  or the exercise of any other power or right.
The rights  and  remedies  provided  in this  Guaranty  are  cumulative  and not
exclusive of any rights or remedies provided by law.

      9.  Notice or  demand to the  parties  shall be  sufficiently  given if in
writing and  personally  delivered,  or mailed by registered or certified  first
class mail,  postage prepaid,  return receipt  requested,  or sent by commercial
courier  against  receipt,  or by  telecopier  (with a  confirming  copy sent by
regular  mail) to the party  intended and at the address or addresses  specified
below:

            Guarantor:  200 Lake Street, Suite 102
                          Peabody, Massachusetts 01960
                        Telephone:  (978) 536-2777
                        Telecopier: (978) 536-2677
                      Attention: Bruce A. Shear, President

            Lender:     2 Wisconsin Circle, 4th Floor
                        Chevy Chase, Maryland 20815
                        Telephone:  (301) 961-1640
                        Telecopier: (301) 664-9866
                        Attention: Steven M. Curwin, Deputy General Counsel

            Any party may  designate a change of address by notice in writing to
the other  parties,  such notice to be effective  ten (10) days after mailing or
delivery as provided in this Section 9.

      10.   Guarantor hereby represents, warrants, and covenants to Lender
that:

            (a) It is a corporation duly  incorporated,  validly existing and in
good standing under the laws of the jurisdiction of its  incorporation,  and has
the corporate  power and authority to own its property,  conduct its business as
now being  conducted and to make and perform this Guaranty and the  transactions
contemplated  by this  Guaranty,  and is duly qualified to do business and is in
good standing as a foreign corporation in each jurisdiction where the nature and
extent of the business  conducted by it, or property owned by it, and applicable
law require such qualification, except where the failure so to qualify would not
have a material adverse effect on the business, operations or financial position
of Guarantor.

            (b) The  execution,  delivery and  performance of this Guaranty have
been duly authorized by all necessary  corporate action and will not violate any
provision  of law or any  order  of any  court  or  governmental  agency  or the
certificate  of  incorporation  or other  incorporating  documents  or bylaws of
Guarantor,  or conflict  with, or result in a breach of, or constitute  (with or
without  notice  or lapse of time or both) a  default  under,  or  result in the
creation of any security interest, lien, charge or encumbrance upon any property
or assets of Guarantor, pursuant to any agreement, indenture or other instrument
to which it is a party or by which it may be bound.

            (c) Except as disclosed to Lender in writing  prior to the execution
of this Guaranty,  no action,  suit,  investigation  or proceeding is pending or
known to be  threatened  against  or  affecting  Guarantor  that,  if  adversely
determined, would have a material adverse effect upon its financial condition or
operations.

            (d)  Guarantor  is  not  in  default  under  any  provision  of  its
certificate of incorporation or other incorporating  documents,  bylaws or stock
provisions  (or any amendment to such  documents or  provisions),  any indenture
relating to borrowed money,  any agreement to which it is a party or by which it
is bound, any other indenture, or any order,  regulation,  ruling or requirement
of a court or public body or authority by which it is bound, which default would
have a material adverse effect on the business, operations or financial position
of Guarantor.

            (e) No  license,  consent  or  approval  of,  or  filing  with,  any
governmental  body or other regulatory  authority is required for the making and
performance of, or any instrument or transaction contemplated by, this Guaranty.
Guarantor holds all certificates and authorizations of all governmental agencies
and authorities required by law to enable it to engage in the business currently
transacted by it, except those  certificates and  authorizations as to which the
failure to so hold would not, in the aggregate,  have a material  adverse effect
on Guarantor.

      11. No provision of this Guaranty shall be waived, amended or supplemented
except by a written instrument executed by Lender.

      12. The  obligations  of Guarantor  under this Guaranty  shall continue in
full force and effect and shall remain in operation until all of the Obligations
shall have been paid in full or otherwise  fully  satisfied,  and continue to be
effective or be reinstated,  as the case may be, if at any time payment or other
satisfaction  of any of the  Obligations  is  rescinded  or  must  otherwise  be
restored or returned  upon the  bankruptcy,  insolvency,  or  reorganization  of
Borrower,  or  otherwise,  as  though  such  payment  had not been made or other
satisfaction occurred. No invalidity, irregularity or unenforceability by reason
of applicable  bankruptcy  laws or any other similar law, or any law or order of
any  government or government  agency  purporting to reduce,  amend or otherwise
affect, the Obligations,  shall impair, affect, be a defense to or claim against
the obligations of Guarantor under this Guaranty.

      13. In addition to its guarantee of Borrower's  payment of the Obligations
and  Borrower's  performance  of  all  covenants,   obligations  and  agreements
contained  in the Loan  Documents,  Guarantor  shall  pay all  actual  costs and
expenses  (including  reasonable  attorney's fees) paid or incurred by Lender in
connection with the enforcement of this Guaranty.

      14.  Guarantor  hereby  agrees to execute any and all  further  documents,
agreements,  and instruments,  and take all further  actions,  that Lender shall
reasonably  request to  effectuate  or further  preserve,  evidence,  perfect or
protect  the  rights  purported  to be  created  in favor of Lender  under  this
Guaranty.

      15. Guarantor hereby assumes responsibility for keeping itself informed of
the  financial  condition of Borrower,  and any and all  endorsers  and/or other
guarantors  of any  instrument  or  document  evidencing  all or any part of the
Obligations,  and of all other circumstances bearing upon the risk of nonpayment
of the Obligations, or any part of the Obligations,  that diligent inquiry would
reveal,  and  Guarantor  hereby  agrees that Lender shall have no duty to advise
Guarantor of  information  known to Lender  regarding such condition or any such
circumstances. If Lender, in its sole discretion, undertakes at any time or from
time to time to provide any such information to Guarantor, Lender shall be under
no  obligation  (i) to  undertake  any  investigation  not a part of its regular
business routine, (ii) to disclose any information that, pursuant to accepted or
reasonable commercial finance practices, Lender wishes to maintain confidential,
or (iii) to make any  other or future  disclosures  of such  information  or any
other information to Guarantor.

      16. This Guaranty may be executed in one or more counterpart  copies, each
of which shall be an original and all of which together shall constitute one and
the same instrument, and it is not necessary that all parties' signatures appear
on each counterpart.

      17.  If  any  term,  covenant  or  condition  of  this  Guaranty,  or  the
application  of such term,  covenant or condition to any party or  circumstance,
shall be  found  by a court of  competent  jurisdiction  to be,  to any  extent,
invalid or unenforceable,  the remainder of this Guaranty and the application of
such term,  covenant,  or condition to parties or circumstances other than those
as to which it is held invalid or unenforceable,  shall not be affected thereby,
and each term,  covenant or condition shall be valid and enforced to the fullest
extent  permitted  by law.  Upon  determination  that any such term is  invalid,
illegal or unenforceable, the parties to this Guaranty shall amend this Guaranty
so as to effect the original  intent of the parties as closely as possible in an
acceptable manner.

      18. THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE  WITH,
THE LAWS OF THE STATE OF MARYLAND,  WITHOUT  REGARD TO ANY OTHERWISE  APPLICABLE
PRINCIPLES OF CONFLICTS OF LAWS.  IF ANY ACTION  ARISING OUT OF THIS GUARANTY IS
COMMENCED  BY LENDER IN THE STATE COURTS OF THE STATE OF MARYLAND OR IN THE U.S.
DISTRICT COURT FOR THE DISTRICT OF MARYLAND,  GUARANTOR  HEREBY  CONSENTS TO THE
JURISDICTION  OF ANY SUCH COURT IN ANY SUCH ACTION AND TO THE LAYING OF VENUE IN
THE STATE OF  MARYLAND.  ANY PROCESS IN ANY SUCH ACTION  SHALL BE DULY SERVED IF
MAILED BY  REGISTERED  MAIL,  POSTAGE  PREPAID,  TO GUARANTOR AT ITS ADDRESS SET
FORTH IN SECTION 9 OF THIS GUARANTY.

      19. GUARANTOR HEREBY (A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY
OF ANY ISSUE  TRIABLE  OF RIGHT BY A JURY,  AND (B) WAIVES ANY RIGHT TO TRIAL BY
JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST.  THIS
WAIVER OF RIGHT TO TRIAL BY JURY IS SEPARATELY GIVEN, KNOWINGLY AND VOLUNTARILY,
BY  GUARANTOR,  AND THIS  WAIVER IS  INTENDED  TO  ENCOMPASS  INDIVIDUALLY  EACH
INSTANCE  AND EACH ISSUE AS TO WHICH THE RIGHT TO A JURY TRIAL  WOULD  OTHERWISE
ACCRUE. LENDER IS HEREBY AUTHORIZED AND REQUESTED TO SUBMIT THIS GUARANTY TO ANY
COURT HAVING  JURISDICTION OVER THE SUBJECT MATTER AND THE PARTIES HERETO, SO AS
TO SERVE AS  CONCLUSIVE  EVIDENCE  OF  GUARANTOR'S  WAIVER  OF THE RIGHT TO JURY
TRIAL.  FURTHER,  GUARANTOR HEREBY CERTIFIES THAT NO  REPRESENTATIVE OR AGENT OF
LENDER (INCLUDING LENDER'S COUNSEL) HAS REPRESENTED,  EXPRESSLY OR OTHERWISE, TO
GUARANTOR  THAT  LENDER  WILL NOT SEEK TO ENFORCE  THIS  WAIVER OF RIGHT TO JURY
TRIAL PROVISION.

      20.  GUARANTOR  AUTHORIZES  ANY ATTORNEY  ADMITTED TO PRACTICE  BEFORE ANY
COURT OF RECORD  IN THE  UNITED  STATES OR THE CLERK OF SUCH  COURT TO APPEAR ON
BEHALF OF GUARANTOR IN ANY COURT IN ONE OR MORE PROCEEDINGS, OR BEFORE ANY CLERK
THEREOF OF PROTHONOTARY OR OTHER COURT OFFICIAL, AND TO CONFESS JUDGMENT AGAINST
GUARANTOR IN FAVOR OF LENDER IN THE FULL AMOUNT DUE ON THIS GUARANTY  (INCLUDING
PRINCIPAL,  ACCRUED  INTEREST  AND ANY AND ALL  CHARGES,  FEES AND  COSTS)  PLUS
ATTORNEYS'  FEES EQUAL TO FIFTEEN  PERCENT  (15%) OF THE AMOUNT DUE,  PLUS COURT
COSTS,  ALL WITHOUT PRIOR NOTICE OR  OPPORTUNITY  OF BORROWER FOR PRIOR HEARING.
GUARANTOR AGREES AND CONSENTS THAT VENUE AND JURISDICTION SHALL BE PROPER IN THE
CIRCUIT  COURT OF ANY  COUNTY OF THE STATE OF  MARYLAND  OR OF  BALTIMORE  CITY,
MARYLAND,  OR IN THE UNITED STATES  DISTRICT COURT FOR THE DISTRICT OF MARYLAND.
GUARANTOR  WAIVES THE BENEFIT OF ANY AND EVERY  STATUTE,  ORDINANCE,  OR RULE OF
COURT  WHICH MAY BE  LAWFULLY  WAIVED  CONFERRING  UPON  GUARANTOR  ANY RIGHT OR
PRIVILEGE OF EXEMPTION,  HOMESTEAD RIGHTS,  STAY OF EXECUTION,  OR SUPPLEMENTARY
PROCEEDINGS,  OR OTHER RELIEF FROM THE ENFORCEMENT OR IMMEDIATE ENFORCEMENT OF A
JUDGMENT OR RELATED PROCEEDINGS ON A JUDGMENT. THE AUTHORITY AND POWER TO APPEAR
FOR AND ENTER JUDGMENT  AGAINST  GUARANTOR SHALL NOT BE EXHAUSTED BY ONE OR MORE
EXERCISES  THEREOF,  OR BY ANY  IMPERFECT  EXERCISE  THEREOF,  AND  SHALL NOT BE
EXTINGUISHED BY ANY JUDGMENT ENTERED PURSUANT THERETO;  SUCH AUTHORITY AND POWER
MAY BE  EXERCISED  ON ONE OR MORE  OCCASIONS  FROM TIME TO TIME,  IN THE SAME OR
DIFFERENT JURISDICTIONS, AS OFTEN AS LENDER SHALL DEEM NECESSARY, CONVENIENT, OR
PROPER.

      21. In any  litigation,  trial,  arbitration  or other dispute  resolution
proceeding  relating to this  Guaranty or any of the other Loan  Documents,  all
directors,  officers,  employees  and agents of Guarantor  or of its  Affiliates
shall be deemed to be employees or managing  agents of Guarantor for purposes of
all  applicable  law or court rules  regarding  the  production  of witnesses by
notice for testimony (whether in a deposition, at trial or otherwise). Guarantor
agrees that  Lender's  counsel in any such  dispute  resolution  proceeding  may
examine  any of these  individuals  as if under  cross-examination  and that any
discovery deposition of any of them may be used in that proceeding as if it were
an  evidence  deposition.  Guarantor  in any  event  will  use all  commercially
reasonable efforts to produce in any such dispute resolution proceeding,  at the
time and in the manner requested by Lender,  all Persons,  documents (whether in
tangible,  electronic  or other  form) or other  things  under its  control  and
relating  to the  dispute  in any  jurisdiction  that  recognizes  that  (or any
similar) distinction.



                               [SIGNATURES FOLLOW]


<PAGE>

the date first written above.

ATTEST:                             PHC, INC.
                                    a Massachusetts corporation


                                    By:  /s/  Bruce A. Shear
                                    Name: Bruce A. Shear
                                          President


<PAGE>
                  THIS GUARANTY CONTAINS PROVISIONS FOR WAIVER
                                  OF JURY TRIAL

                UNCONDITIONAL GUARANTY OF PAYMENT AND PERFORMANCE


      THIS UNCONDITIONAL GUARANTY OF PAYMENT AND PERFORMANCE (the "Guaranty") is
dated  as of May  26,  2000  and is  made  by  BRUCE  A.  SHEAR,  an  individual
("Guarantor"),   in  favor  of  HELLER  HEALTHCARE  FINANCE,  INC.,  a  Delaware
corporation ("Lender").

                               R E C I T A L S

      A. Pursuant to a certain Secured Term Note of even date with this Guaranty
(as the note may from time to time be  amended,  modified or  supplemented,  the
"Term  Note")  made  by PHC  of  Michigan,  Inc.,  a  Massachusetts  corporation
("Borrower"),  in favor of  Lender,  Lender  has  agreed  to make  available  to
Borrower a secured term loan in the maximum  aggregate  principal amount of Five
Hundred Thousand and No/100 Dollars ($500,000.00) (the "Loan").

      B.  Lender is  willing  to make the Loan under the Term Note but only upon
the condition, among others, that Guarantor shall have executed and delivered to
Lender this Guaranty.

      NOW,  THEREFORE,  in  consideration  of the  premises  and  of the  mutual
covenants   contained  in  this   Guaranty  and  for  other  good  and  valuable
consideration, the receipt of which is hereby acknowledged, the parties agree as
follows:

      1. All capitalized  terms used but not defined in this Guaranty shall have
the respective meanings given them in the Term Note.

      2. To induce  Lender to make the Loan  upon the terms and  conditions  set
forth  in  the  Term  Note,  and  in  consideration  thereof,  Guarantor  hereby
unconditionally  and  irrevocably  guaranties to Lender,  and to its successors,
endorsees,  transferees and assigns, Borrower's prompt and complete payment when
due,  whether at the stated  maturity,  by acceleration or otherwise,  of all of
Borrower's  obligations under the Term Note  (collectively,  the "Obligations"),
and Borrower's  prompt and complete  performance of all of its other  covenants,
obligations  and agreements  contained in the Term Note. .  Notwithstanding  the
foregoing, Guarantor's aggregate obligations under this Guaranty (in addition to
the  Guaranty  of  Guarantor  under that  certain  Guaranty  between  Lender and
Guarantor  dated as of  November  , 1999)  shall be limited to the amount of One
Hundred Fifty Thousand and No/100 Dollars ($150,000.00).

      3.  Guarantor  hereby waives notice of the acceptance of this Guaranty and
of the extending of credit as above  specified and the state of  indebtedness of
Borrower  at  any  time,  and  expressly  agrees  to any  extensions,  renewals,
accelerations  or  modifications  of such  credit  or any of the  terms  of such
credit, and waives diligence, presentment, demand of payment, protest or notice,
whether of  non-payment,  dishonor,  protest or  otherwise,  of any  document or
documents  and notice of any  extension,  renewal,  modification  or default and
assent to the release,  substitution  or variation of any collateral that may at
any time be held as security for any credit  extended to  Borrower,  all without
relieving  Guarantor of any liability  under this Guaranty.  The  obligations of
Guarantor  under this  Guaranty  shall be an  unconditional  obligation  to make
prompt  payment  and  performance  to Lender  irrespective  of the  genuineness,
validity,  regularity  or  enforceability  of any  indebtedness  or  evidence of
indebtedness  of  Borrower  to  Lender  or of  other  circumstances  that  might
otherwise  under the laws of any  jurisdiction  constitute  a legal or equitable
discharge of a surety or a guarantor or a bar (in the nature of a moratorium  or
otherwise) to the enforcement of Lender's rights either (i) against  Borrower on
all or any part of its Obligations or (ii) under this Guaranty.

      4.  Notwithstanding  any payment or payments made by Guarantor  under this
Guaranty or any setoff or application of funds of Guarantor by Lender, Guarantor
shall not be entitled to be  subrogated  to any of the rights of Lender  against
Borrower  or any  collateral  security or  guarantee  or right of offset held by
Lender for the payment or performance of the  Obligations,  nor shall  Guarantor
seek any  reimbursement  from  Borrower in respect of payments made by Guarantor
under this Guaranty, until all amounts then owing and any other performance then
due to Lender by  Borrower  for or on  account of the  Obligations  are paid and
satisfied in full. Upon such payment and  satisfaction in full,  Guarantor shall
be  subrogated  to all  rights  of Lender  against  Borrower  or any  collateral
security  or  guarantee  or right of offset  held by Lender for the  payment and
performance of the Obligations.

      5.  Any  indebtedness  of  Borrower  now or  hereafter  owed to or held by
Guarantor is hereby  subordinated to the indebtedness of Borrower to Lender; and
such  indebtedness  of Borrower  to  Guarantor  if Lender so  requests  shall be
collected,  enforced and received by Guarantor as trustee for Lender and be paid
over to Lender on account of the  indebtedness of Borrower to Lender but without
reducing or affecting in any manner the  liability of Guarantor  under the other
provisions of this Guaranty.

      6. This is intended to be and shall be construed as a continuing  guaranty
and shall  remain in full force and  effect  and shall be binding in  accordance
with and to the extent of its terms upon  Guarantor  and  Guarantor's  heirs and
assigns,  and  shall  inure  to the  benefit  of  Lender,  and  its  successors,
endorsees, transferees and assigns.

      7. If all or any part of the  Obligations  of  Borrower  to Lender are not
paid when due,  Guarantor hereby guaranties that he will pay the same to Lender,
upon demand,  without set-off or counterclaim and without reduction by reason of
any taxes, levies, imposts, charges and withholdings, restrictions or conditions
of any nature that are now or may  hereafter  be imposed,  levied or assessed by
any country, political subdivision or taxing authority, all of which will be for
the  account  of and paid by  Guarantor,  and Lender  need not first  proceed to
preserve,  utilize or exhaust any other right or remedy against  Borrower or any
other  guarantor or any  security  that Lender may have to obtain  payment.  The
payment shall be made in  immediately  available  funds to Lender's  office at 2
Wisconsin Circle, Fourth Floor, Chevy Chase, Maryland 20815,  Attention:  Steven
M.  Curwin,  Deputy  General  Counsel,  or at such  other  place as  Lender  may
designate in writing.

      8. No  failure  to  exercise  and no delay in  exercising,  on the part of
Lender,  any right,  power or privilege  under this Guaranty  shall operate as a
waiver  of the  right,  power or  privilege,  nor shall  any  single or  partial
exercise of any right, power or privilege preclude any other or further exercise
of the right,  power or privilege,  or the exercise of any other power or right.
The rights  and  remedies  provided  in this  Guaranty  are  cumulative  and not
exclusive of any rights or remedies provided by law.

      9.  Notice or  demand to the  parties  shall be  sufficiently  given if in
writing and  personally  delivered,  or mailed by registered or certified  first
class mail,  postage prepaid,  return receipt  requested,  or sent by commercial
courier  against  receipt,  or by  telecopier  (with a  confirming  copy sent by
regular  mail) to the party  intended and at the address or addresses  specified
below:

            Guarantor:  c/o PHC of Michigan, Inc.
                        200 Lake Street, Suite 102
                        Peabody, Massachusetts 01960
                        Telephone:  (978) 536-2777
                        Telecopier: (978) 536-2677

            Lender:     2 Wisconsin Circle
                        Fourth Floor
                        Chevy Chase, Maryland 20815
                        Telephone:  (301) 961-1640
                        Telecopier: (301) 664-9866
                        Attention: Steven M. Curwin, Deputy General Counsel

            Any party may  designate a change of address by notice in writing to
the other  parties,  such notice to be effective  ten (10) days after mailing or
delivery as provided in this Section 9.

      10.   Guarantor hereby represents, warrants, and covenants to Lender:

            a.    Guarantor has the full right, power and authority to enter
into this Guaranty.

            b. The execution, delivery and performance of this Guaranty will not
violate any provision of law or any order of any court or governmental agency or
conflict  with, or result in a breach of, or constitute  (with or without notice
or lapse of time or both) a default  under,  or result  in the  creation  of any
security  interest,  lien,  charge or encumbrance upon any property or assets of
Guarantor, pursuant to any agreement,  indenture or other instrument to which he
is a party or by which he may be bound.

            c. Except as disclosed to Lender in writing  prior to the  execution
of this Guaranty,  no action,  suit,  investigation  or proceeding is pending or
known to be  threatened  against  or  affecting  Guarantor  that,  if  adversely
determined, would have a material adverse effect upon his financial condition.

            d. The  financial  statements of Guarantor  previously  delivered to
Lender are true, correct and complete and fairly present the financial condition
of  Guarantor  as of the date  thereof.  There  are no  material  unrealized  or
anticipated liabilities,  direct or indirect, fixed or contingent,  of Guarantor
as of the dates of such financial  statements which are not reflected therein or
in the notes thereto. There has been no material adverse change in the financial
condition of Guarantor since the date of such financial  statements of Guarantor
delivered to Lender.

            e.  No  license,  consent  or  approval  of,  or  filing  with,  any
governmental  body or other regulatory  authority is required for the making and
performance of, or any instrument or transaction contemplated by, this Guaranty.
Guarantor holds all certificates and authorizations of all governmental agencies
and  authorities  required  by  law to  enable  him to  engage  in the  business
currently  transacted by it, except those  certificates and authorizations as to
which the  failure  to so hold  would  not,  in the  aggregate,  have a material
adverse effect on Guarantor.

      11. No provision of this Guaranty shall be waived, amended or supplemented
except by a written instrument executed by Lender.

      12. The  obligations  of Guarantor  under this Guaranty  shall continue in
full force and effect and shall remain in operation until all of the Obligations
shall have been paid in full or otherwise  fully  satisfied,  and continue to be
effective or be reinstated,  as the case may be, if at any time payment or other
satisfaction  of any of the  Obligations  is  rescinded  or  must  otherwise  be
restored or returned  upon the  bankruptcy,  insolvency,  or  reorganization  of
Borrower,  or  otherwise,  as  though  such  payment  had not been made or other
satisfaction occurred. No invalidity, irregularity or unenforceability by reason
of applicable  bankruptcy  laws or any other similar law, or any law or order of
any government or governmental  agency purporting to reduce,  amend or otherwise
affect, the Obligations,  shall impair, affect, be a defense to or claim against
the obligations of Guarantor under this Guaranty.

      13. In addition to his guaranty of Borrower's  payment of the  Obligations
and  Borrower's  performance  of  all  covenants,   obligations  and  agreements
contained  in the Term Note,  Guarantor  shall pay all actual costs and expenses
(including  reasonable attorney's fees) paid or incurred by Lender in connection
with the enforcement of this Guaranty.

      14.  Guarantor  hereby  agrees to execute any and all  further  documents,
agreements,  and instruments,  and take all further  actions,  that Lender shall
reasonably  request to  effectuate  or further  preserve,  evidence,  perfect or
protect  the  rights  purported  to be  created  in favor of Lender  under  this
Guaranty.

      15. Guarantor hereby assumes  responsibility  for keeping himself informed
of the financial  condition of Borrower,  and any and all endorsers and/or other
guarantors  of any  instrument  or  document  evidencing  all or any part of the
Obligations,  and of all other circumstances bearing upon the risk of nonpayment
of the Obligations, or any part of the Obligations,  that diligent inquiry would
reveal,  and  Guarantor  hereby  agrees that Lender shall have no duty to advise
Guarantor of  information  known to Lender  regarding such condition or any such
circumstances. If Lender, in its sole discretion, undertakes at any time or from
time to time to provide any such information to Guarantor, Lender shall be under
no  obligation  (i) to  undertake  any  investigation  not a part of its regular
business routine, (ii) to disclose any information that, pursuant to accepted or
reasonable commercial finance practices, Lender wishes to maintain confidential,
or (iii) to make any  other or future  disclosures  of such  information  or any
other information to Guarantor.

      16. This Guaranty may be executed in one or more counterpart  copies, each
of which shall be an original and all of which together shall constitute one and
the same instrument, and it is not necessary that all parties' signatures appear
on each counterpart.

      17.  If  any  term,  covenant  or  condition  of  this  Guaranty,  or  the
application  of such term,  covenant or condition to any party or  circumstance,
shall be  found  by a court of  competent  jurisdiction  to be,  to any  extent,
invalid or unenforceable,  the remainder of this Guaranty and the application of
such term,  covenant,  or condition to parties or circumstances other than those
as to which it is held invalid or unenforceable,  shall not be affected thereby,
and each term,  covenant or condition shall be valid and enforced to the fullest
extent  permitted  by law.  Upon  determination  that any such term is  invalid,
illegal or unenforceable, the parties to this Guaranty shall amend this Guaranty
so as to effect the original  intent of the parties as closely as possible in an
acceptable manner.

      18. THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE  WITH,
THE LAWS OF THE STATE OF MARYLAND,  WITHOUT  REGARD TO ANY OTHERWISE  APPLICABLE
PRINCIPLES OF CONFLICTS OF LAWS.  IF ANY ACTION  ARISING OUT OF THIS GUARANTY IS
COMMENCED  BY LENDER IN THE STATE COURTS OF THE STATE OF MARYLAND OR IN THE U.S.
DISTRICT COURT FOR THE DISTRICT OF MARYLAND,  GUARANTOR  HEREBY  CONSENTS TO THE
JURISDICTION  OF ANY SUCH COURT IN ANY SUCH ACTION AND TO THE LAYING OF VENUE IN
THE STATE OF  MARYLAND.  ANY PROCESS IN ANY SUCH ACTION  SHALL BE DULY SERVED IF
MAILED BY  REGISTERED  MAIL,  POSTAGE  PREPAID,  TO GUARANTOR AT HIS ADDRESS SET
FORTH IN SECTION 9 OF THIS GUARANTY.

      19. GUARANTOR HEREBY (A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY
OF ANY ISSUE  TRIABLE  OF RIGHT BY A JURY,  AND (B) WAIVES ANY RIGHT TO TRIAL BY
JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST.  THIS
WAIVER OF RIGHT TO TRIAL BY JURY IS SEPARATELY GIVEN, KNOWINGLY AND VOLUNTARILY,
BY  GUARANTOR,  AND THIS  WAIVER IS  INTENDED  TO  ENCOMPASS  INDIVIDUALLY  EACH
INSTANCE  AND EACH ISSUE AS TO WHICH THE RIGHT TO A JURY TRIAL  WOULD  OTHERWISE
ACCRUE. LENDER IS HEREBY AUTHORIZED AND REQUESTED TO SUBMIT THIS GUARANTY TO ANY
COURT HAVING  JURISDICTION OVER THE SUBJECT MATTER AND THE PARTIES HERETO, SO AS
TO SERVE AS  CONCLUSIVE  EVIDENCE  OF  GUARANTOR'S  WAIVER  OF THE RIGHT TO JURY
TRIAL.  FURTHER,  GUARANTOR HEREBY CERTIFIES THAT NO  REPRESENTATIVE OR AGENT OF
LENDER (INCLUDING LENDER'S COUNSEL) HAS REPRESENTED,  EXPRESSLY OR OTHERWISE, TO
GUARANTOR  THAT  LENDER  WILL NOT SEEK TO ENFORCE  THIS  WAIVER OF RIGHT TO JURY
TRIAL PROVISION.

      20.  GUARANTOR  AUTHORIZES  ANY ATTORNEY  ADMITTED TO PRACTICE  BEFORE ANY
COURT OF RECORD  IN THE  UNITED  STATES OR THE CLERK OF SUCH  COURT TO APPEAR ON
BEHALF OF GUARANTOR IN ANY COURT IN ONE OR MORE PROCEEDINGS, OR BEFORE ANY CLERK
THEREOF OF PROTHONOTARY OR OTHER COURT OFFICIAL, AND TO CONFESS JUDGMENT AGAINST
GUARANTOR IN FAVOR OF LENDER IN THE FULL AMOUNT DUE ON THIS GUARANTY  (INCLUDING
PRINCIPAL,  ACCRUED  INTEREST  AND ANY AND ALL  CHARGES,  FEES AND  COSTS)  PLUS
ATTORNEYS'  FEES EQUAL TO FIFTEEN  PERCENT  (15%) OF THE AMOUNT DUE,  PLUS COURT
COSTS,  ALL WITHOUT PRIOR NOTICE OR  OPPORTUNITY  OF BORROWER FOR PRIOR HEARING.
GUARANTOR AGREES AND CONSENTS THAT VENUE AND JURISDICTION SHALL BE PROPER IN THE
CIRCUIT  COURT OF ANY  COUNTY OF THE STATE OF  MARYLAND  OR OF  BALTIMORE  CITY,
MARYLAND,  OR IN THE UNITED STATES  DISTRICT COURT FOR THE DISTRICT OF MARYLAND.
GUARANTOR  WAIVES THE BENEFIT OF ANY AND EVERY  STATUTE,  ORDINANCE,  OR RULE OF
COURT  WHICH MAY BE  LAWFULLY  WAIVED  CONFERRING  UPON  GUARANTOR  ANY RIGHT OR
PRIVILEGE OF EXEMPTION,  HOMESTEAD RIGHTS,  STAY OF EXECUTION,  OR SUPPLEMENTARY
PROCEEDINGS,  OR OTHER RELIEF FROM THE ENFORCEMENT OR IMMEDIATE ENFORCEMENT OF A
JUDGMENT OR RELATED PROCEEDINGS ON A JUDGMENT. THE AUTHORITY AND POWER TO APPEAR
FOR AND ENTER JUDGMENT  AGAINST  GUARANTOR SHALL NOT BE EXHAUSTED BY ONE OR MORE
EXERCISES  THEREOF,  OR BY ANY  IMPERFECT  EXERCISE  THEREOF,  AND  SHALL NOT BE
EXTINGUISHED BY ANY JUDGMENT ENTERED PURSUANT THERETO;  SUCH AUTHORITY AND POWER
MAY BE  EXERCISED  ON ONE OR MORE  OCCASIONS  FROM TIME TO TIME,  IN THE SAME OR
DIFFERENT JURISDICTIONS, AS OFTEN AS LENDER SHALL DEEM NECESSARY, CONVENIENT, OR
PROPER.


                             [SIGNATURES FOLLOW]

<PAGE>

IN WITNESS WHEREOF,  Guarantor has caused this Guaranty to be executed as of the
date first written above.


WITNESS:                            GUARANTOR:


/s/  T. A. Bates                                            /s/  Bruce A.
Shear
       Name:                                     Bruce A. Shear




<PAGE>
                  AMENDED AND RESTATED CROSS-COLLATERALIZATION
                           AND CROSS-DEFAULT AGREEMENT


                                  BY AND AMONG



                            PHC OF MICHIGAN, INC.,
                              PHC OF UTAH, INC.,
                            PHC OF VIRGINIA, INC.
                          PHC OF RHODE ISLAND, INC.
                     PIONEER COUNSELING OF VIRGINIA, INC.
                           (collectively, "Borrower")

                                       AND

                       HELLER HEALTHCARE FINANCE, INC.
                                   ("Lender")






                                  May 26, 2000




                                          Prepared  by  and  after  recording,
return to:
                                          Stephen L. Burlingame, Esq.
                                          Fraser  Trebilcock  Davis &  Foster,
P.C.
                                          1000 Michigan National Tower
                                          Lansing, MI 48933


<PAGE>

                  AMENDED AND RESTATED CROSS-COLLATERALIZATION
                           AND CROSS-DEFAULT AGREEMENT

      THIS  AMENDED  AND  RESTATED   CROSS-COLLATERALIZATION  AND  CROSS-DEFAULT
AGREEMENT (the "Agreement") made as of the 26th day of May, 2000, is executed by
and among PHC, INC., a Massachusetts corporation ("PHC"), PHC OF MICHIGAN, INC.,
a Massachusetts  corporation  having its principal place of business at 200 Lake
Street, Suite 102, Peabody,  Massachusetts 01960 ("PHCM"),  PHC OF UTAH, INC., a
Massachusetts  corporation  ("PHCU"),  PHC OF VIRGINIA,  INC.,  a  Massachusetts
corporation  ("PHCVA"),  PHC OF RHODE ISLAND, INC., a Massachusetts  corporation
("PHCRI"), and PIONEER COUNSELING OF VIRGINIA, INC., a Massachusetts corporation
("Pioneer," and  collectively  with PHC, PHCM, PHCU,  PHCVA,  PHCRI and Pioneer,
"Borrower"),  and HELLER HEALTHCARE FINANCE, INC., a Delaware corporation having
its principal office at 2 Wisconsin  Circle,  4th Floor,  Chevy Chase,  Maryland
20815 and formerly known as HCFP Funding,  Inc. ("HHF"), that is the assignee of
HCFP Funding II, Inc. ("HCFPII") (HHF and HHF as assignee of HCFPII are referred
to as "Lender").

                                    RECITALS:

      A. Borrower and Lender  entered into that certain  Cross-Collateralization
and Cross-Default Agreement (the "Agreement") dated as of July 13, 1998, wherein
Borrower agreed, among other things, to  cross-collateralize  the Loans with one
another  and to provide  for the  cross-default  of the Loans with one  another.
Because certain  additional loans were made by Lender to Borrower,  Borrower and
Lender have agreed to execute this Agreement.

      B.    Borrower  is  currently   indebted  to  Lender   pursuant  to  the
following existing loans (collectively, the "Existing Loans"):

     The "Revolving  Loan": A revolving loan from Lender to PHCM,  PHCU,  PHCVA,
PHCRI,  and Pioneer  ("Revolver  Borrowers") in the original  maximum  aggregate
principal sum of Four Million and No/100 Dollars ($4,000,000.00),  which loan is
evidenced by that certain  amended and  restated  Revolving  Credit Note made by
Revolver  Borrowers  payable to Lender,  dated as of February 20, 1998, and that
certain  amended and restated Loan and Security  Agreement  dated as of February
20, 1998 between Revolver  Borrowers and Lender,  and which loan is secured by a
third  priority  Mortgage dated as of March 12, 1997 and recorded on May 5, 1997
in the Macomb County  Records at Liber 07442 Pages  186-196,  as amended by that
certain First  Amendment to Mortgage  dated as of April 30, 1998 and recorded on
_______,  1998 in the  Macomb  County  Records at Liber  ______  Pages__________
(collectively, the "Revolver Mortgage"); and

     The "First  Term  Loan":  A term loan from  Lender to PHCM in the  original
principal  sum  of  One  Million  One  Hundred   Thousand  and  No/100   Dollars
($1,100,000.00),  which loan is evidenced  by that certain  Secured Term Note of
PHCM payable to Lender, dated as of March 12, 1997, and which loan is secured by
the Restated  Mortgage dated as of November _____, 1999 and recorded on ________
in the Macomb  County  Records at Liber  _______  Pages  _________  (as amended,
modified,  supplemented  or  restated  from  time to time,  the  "Restated  Term
Mortgage").

     The  "Second  Term Loan":  A term loan from Lender to PHCM in the  original
principal sum of Five Hundred Thousand and No/100 Dollars  ($500,000.00),  which
loan is evidenced  by that certain  Secured Term Note of PHCM payable to Lender,
dated as of  December  9, 1997,  and which loan is secured by a second  priority
Mortgage  dated as of  December  9, 1997 and  recorded on January 9, 1998 in the
Official  Records of Macomb  County,  Michigan  at Liber  07804 Pages 73-85 (the
"Second Term Mortgage").  (The Revolver Loan, the First Term Loan and the Second
Term  Loan are  sometimes  collectively  referred  to in this  Agreement  as the
"Existing Loans.")

      C. PHCM has  requested  and  received (i) an  additional  term loan of One
Million and No/100  Dollars  ($1,000,000.00)  from Lender dated  November , 1999
(the "November  Loan") and (ii) an additional term loan of Five Hundred Thousand
and No/100 Dollars ($500,000) from Lender dated May 26, 2000 (the "May Loan" and
collectively  with the November Loan, the "New Loans" and sometimes  referred to
collectively with the Existing Loans as the "New Loans").

      D. As security  for the New Loans,  PHCM has executed  and  delivered  the
Restated  Mortgage to provide for,  among other things,  the securing of the New
Loans with a lien on the PHCM property.

      E. As additional security for the New Loans, Lender has agreed to make the
New Loans,  provided  that (1) the New Loans are  cross-collateralized  with the
Existing   Loans  and  with  one  another  and  (2)  the   Existing   Loans  are
cross-defaulted  with one  another  AND with the New Loans and (3) the New Loans
are cross-defaulted with one another and with the Existing Loans.

      F. The entities  comprising  Borrower are all  affiliated  entities  under
common  control and  ownership  (except  that PHC is a public  company) and will
receive direct and indirect  benefits from the New Loans and the continuation of
the financing  arrangements  represented by the Existing Loans,  which benefits,
among  others,  provide  adequate  consideration  for  them to enter  into  this
Agreement.

                                    AGREEMENT

      NOW,  THEREFORE,  in  consideration of the foregoing  Recitals,  to induce
Lender to extend the New Loans to Borrower and to continue the  financing  under
the  Loan  Documents  (as  defined  below)  and  for  other  good  and  valuable
consideration,  the receipt and  sufficiency  of which are hereby  acknowledged,
Borrower agrees with Lender and Lender agrees with Borrower, as follows:

      1.  Description  of New  Loan.  The New Loans  are  evidenced  by (i) that
certain  Secured  Term Note  dated as of  November  , 1999 in the  amount of One
Million  and  No/100  Dollars  ($1,000,000)  from PHCM to  Lender  and (ii) that
certain Secured Term Note dated as of May 26, 2000 in the amount of Five Hundred
Thousand and No/100 Dollars ($500,000) from PHCM to Lender.

      2. Loan Documents.  As used in this Agreement,  the term "Loan  Documents"
shall mean any and all Loan Documents evidencing or securing the Revolving Loan,
the First Term Loan, the Second Term Loan,  and the New Loans.  The term "Loans"
shall mean,  collectively,  the Revolving  Loan, the First Term Loan, the Second
Term Loan, the November Loan and the May Loan.

      3.    Cross-Collateralization.    The    Existing    Loans   are    hereby
cross-collateralized with each other and with the New Loans, and Borrower agrees
that the collateral  described in the respective Loan Documents shall secure, in
addition to such  respective  Existing  Loans,  the  obligations of PHC (and any
other applicable  Borrower) under the New Loans and Loan Documents in respect of
the  New  Loans,  including,  without  limitation,  (a)  PHC's  (and  any  other
Borrower's or Affiliate's) obligation, if any, to pay the principal and interest
on the New Loans,  as the same may  hereafter be renewed,  modified,  amended or
extended,  and to pay all other  indebtedness  and other  agreed  charges and to
perform all of the terms and  conditions  under the Loan Documents in respect of
the New Loans, and (b) the real property encumbered by the Restated Mortgage and
the Second Term Mortgage  (collectively,  the "Mortgages")  securing each of the
applicable Loans.

      4.  Cross-Default.  The  Existing  Loans  and the  New  Loans  are  hereby
cross-defaulted  with one another, and Borrower agrees that the occurrence of an
Event of Default as defined in, and pursuant to any of the Loan Documents, which
Event of Default is not cured within the applicable  grace or curative  periods,
shall  constitute an immediate  Event of Default  (without need of notice or the
expiration  of any  additional  cure period other than as specified in such Loan
Documents) under all other Loan Documents."

      5. Severability. In case any provision of this Agreement shall be invalid,
illegal, or unenforceable,  such provision shall be deemed to have been modified
to the extent necessary to make it valid,  legal and enforceable.  The validity,
legality and enforceability of the remaining  provisions shall not in any way be
affected or impaired thereby.

      6.    No  Modification  Except  in  Writing.  None of the  terms of this
Agreement may be waived,  altered,  amended or otherwise  changed except by an
instrument in writing duly executed by all of the parties hereto.

      7. Further  Assurances.  Each entity comprising Borrower shall execute and
deliver  such  further  instruments  and  perform  such  further  acts as may be
requested  by  Lender  from  time to  time to  confirm  the  provisions  of this
Agreement and the Loan Documents,  to carry out more effectively the purposes of
this  Agreement and the Loan  Documents,  or to confirm the priority of any lien
created by any of the Loan Documents.

      8. Enforceability. Each entity comprising Borrower represents and warrants
to Lender that this Agreement and the other Loan Documents are the legal,  valid
and  binding  obligations  of each  entity  constituting  Borrower,  jointly and
severally, enforceable against each such entity in accordance with their terms.

      9.    Miscellaneous.

            (a) This  Agreement  will be  recorded  in the  Official  Records of
Macomb County, Michigan and the City of Salem, Virginia. Upon the filing of this
Agreement, all necessary recording,  intangible, or documentary stamp taxes will
be duly  paid by the  Borrower.  THIS  AGREEMENT  IS BEING  GIVEN AS  ADDITIONAL
COLLATERAL  TO SECURE THE  OBLIGATIONS  OF THE  RESPECTIVE  ENTITIES  COMPRISING
BORROWER UNDER THEIR RESPECTIVE LOAN DOCUMENTS.

            (b) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective  heirs,  administrators,  successors and
assigns.

      10.   Controlling  Law. This Agreement  shall be governed by the laws of
the State of Maryland (without reference to conflicts of laws).

      11. Release.  Except for Lender's  obligations,  if any, to Borrower under
the Loan Documents, each entity comprising Borrower, on behalf of itself and its
partners,  affiliates,  successors  and assigns  (collectively,  the  "Releasing
Parties"), hereby releases and forever discharges Lender and each of its parent,
subsidiary and affiliated  corporations and partnerships (including the partners
therein and  thereof),  and the  partners,  partners of partners,  subsidiaries,
divisions, affiliates, officers, directors,  shareholders,  trustees, employees,
agents,  attorneys  and  advisors  of each of the  foregoing,  and each of their
respective heirs, successors and assigns (collectively,  the "Released Parties",
all of whom are intended to be the  beneficiaries  of this release) from any and
all claims and causes of action of whatever  kind and nature  based upon acts or
omissions  by any of them,  whether  such  claims,  causes  of  action,  acts or
omissions  are or were known or unknown,  suspected  or  unsuspected,  which the
Releasing  Parties  or any of them  may have or have  had,  in whole or in part,
prior to the date of this Agreement.

      8. WAIVER OF JURY TRIAL. EACH ENTITY COMPRISING BORROWER HEREBY WAIVES ANY
RIGHT TO A TRIAL BY JURY ON ANY CLAIM,  COUNTERCLAIM,  SETOFF, DEMAND, ACTION OR
CAUSE OF ACTION (A) ARISING OUT OF OR IN ANY WAY  RELATED TO THIS  AGREEMENT  OR
THE  LOANS,  OR (B) IN ANY WAY  CONNECTED  WITH OR  PERTAINING  OR RELATED TO OR
INCIDENTAL  TO ANY DEALINGS OF LENDER  AND/OR  BORROWER WITH RESPECT TO THE LOAN
DOCUMENTS OR IN  CONNECTION  WITH THIS  AGREEMENT OR THE EXERCISE OF ANY PARTY=S
RIGHTS AND REMEDIES  UNDER THIS  AGREEMENT OR  OTHERWISE,  OR THE CONDUCT OR THE
RELATIONSHIP  OF THE PARTIES  HERETO,  IN ALL OF THE FOREGOING CASES WHETHER NOW
EXISTING  OR  HEREAFTER  ARISING  AND  WHETHER  SOUNDING  IN  CONTRACT,  TORT OR
OTHERWISE. EACH ENTITY COMPRISING BORROWER AGREES THAT LENDER MAY FILE A COPY OF
THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY, AND
BARGAINED  AGREEMENT OF BORROWER  IRREVOCABLY  TO WAIVE THEIR RIGHTS TO TRIAL BY
JURY,  AND THAT,  TO THE EXTENT  PERMITTED  BY  APPLICABLE  LAW,  ANY DISPUTE OR
CONTROVERSY  WHATSOEVER  (WHETHER OR NOT MODIFIED  HEREIN) BETWEEN  BORROWER AND
LENDER SHALL  INSTEAD BE TRIED IN A COURT OF COMPETENT  JURISDICTION  BY A JUDGE
SITTING WITHOUT A JURY.

                        [SIGNATURES ON FOLLOWING PAGE]


<PAGE>

      IN WITNESS  WHEREOF,  each  entity  comprising  Borrower  has caused  this
Agreement to be properly  executed on the date of the  notarial  acknowledgments
below.

                                    BORROWER:

WITNESS:                            PHC, INC.
                                    a Massachusetts corporation
/s/  T. A. Bates
Name:

/s/  Barbara Faustino                   By:  /s/  Bruce A. Shear
Name:                                   Bruce A. Shear
                                        President

WITNESS:                            PHC OF MICHIGAN, INC.
                                                a Massachusetts corporation
/s/  T. A. Bates
Name:

/s/  Barbara Faustino                   By:  /s/  Bruce A. Shear
Name:                                   Bruce A. Shear
                                        President

WITNESS:                            PHC OF UTAH, INC.
                                                a Massachusetts corporation
T. A. Bates
Name:

/s/  Barbara Faustino                   By:  /s/  Bruce A. Shear
Name:                                   Bruce A. Shear
                                        President

WITNESS:                            PHC OF VIRGINIA, INC.
                                                a Massachusetts corporation
T. A. Bates
Name:

/s/  Barbara Faustino                   By:  /s/  Bruce A. Shear
Name:                                   Bruce A. Shear
                                        President

                            [SIGNATURES CONTINUED]


<PAGE>

WITNESS:                            PHC OF RHODE ISLAND, INC.
                                                a Massachusetts corporation
/s/  T. A. Bates
Name:

/s/  Barbara Faustino                   By:  /s/  Bruce A. Shear
Name:                                   Bruce A. Shear
                                        President


WITNESS:                            PIONEER COUNSELING OF VIRGINIA, INC. a
                                    Massachusetts corporation
/s/  T. A. Bates
Name:

/s/  Barbara Faustino                   By:  /s/  Bruce A. Shear
Name:                                   Bruce A. Shear
                                        President

                                     LENDER:

                                    HELLER HEALTHCARE FINANCE, INC.
                                    a Delaware corporation
                                    f/k/a HCFP Funding, Inc. and as assignee
                                    of
WITNESS:                            HCFP Funding II, Inc.

--------------------------
Name:

__________________________              By: ______________________________
Name:                                       Name:
                                            Title:



<PAGE>


                              NOTARY ACKNOWLEDGMENT

STATE OF MASSACHUSETTS)

COUNTY OF ESSEX)


      Before me, a Notary  Public in and for said County and State,  on this day
personally appeared  __________________ known to me (or proved to me on the oath
of  ____________)  to be the person whose name is  subscribed  to the  foregoing
instrument,  and  known  to me  to be  the  managing  member  of  PHC,  INC.,  a
Massachusetts  corporation,  and  acknowledged  to  me  that  he  executed  said
instrument for the purposes and consideration  therein expressed,  as the act of
said corporation.

      Given under my hand and seal this 3rd day of August, 2000.


                                    /s/  Paula C. Wurts
                                  Notary Public
My Commission Expires:  November 29, 2002



<PAGE>



                              NOTARY ACKNOWLEDGMENT


STATE OF MASSACHUSETTS)

COUNTY OF ESSEX)


     Before me, a Notary  Public in and for said  County and State,  on this day
personally appeared  __________________ known to me (or proved to me on the oath
of  ____________)  to be the person whose name is  subscribed  to the  foregoing
instrument,  and known to me to be the managing member of PHC OF MICHIGAN, INC.,
a  Massachusetts  corporation,  and  acknowledged  to me that he  executed  said
instrument for the purposes and consideration  therein expressed,  as the act of
said corporation.

     Given under my hand and seal this 3rd day of August, 2000.


                                    /s/  Paula C. Wurts
                                  Notary Public
My Commission Expires:  November 29, 2002


<PAGE>

                              NOTARY ACKNOWLEDGMENT

STATE OF _____________________)

COUNTY OF ___________________)

     Before me, a Notary  Public in and for said  County and State,  on this day
personally appeared  __________________ known to me (or proved to me on the oath
of  ____________)  to be the person whose name is  subscribed  to the  foregoing
instrument,  and known to me to be the managing  member of PHC OF UTAH,  INC., a
Massachusetts  corporation,  and  acknowledged  to  me  that  he  executed  said
instrument for the purposes and consideration  therein expressed,  as the act of
said corporation.

     Given under my hand and seal this 3rd day of August, 2000.


                                    /s/  Paula C. Wurts
                                  Notary Public
My Commission Expires:  November 29, 2002


<PAGE>
                              NOTARY ACKNOWLEDGMENT

STATE OF MASSACHUSETTS)

COUNTY OF ESSEX)


     Before me, a Notary  Public in and for said  County and State,  on this day
personally appeared  __________________ known to me (or proved to me on the oath
of  ____________)  to be the person whose name is  subscribed  to the  foregoing
instrument,  and known to me to be the managing member of PHC OF VIRGINIA, INC.,
a  Massachusetts  corporation,  and  acknowledged  to me that he  executed  said
instrument for the purposes and consideration  therein expressed,  as the act of
said corporation.

     Given under my hand and seal this 3rd day of August, 2000.


                                    /s/  Paula C. Wurts
                                  Notary Public
My Commission Expires:  November 29, 2002



                                        1
<PAGE>

                              NOTARY ACKNOWLEDGMENT

STATE OF MASSACHUSETTS)

COUNTY OF ESSEX)


     Before me, a Notary  Public in and for said  County and State,  on this day
personally appeared  __________________ known to me (or proved to me on the oath
of  ____________)  to be the person whose name is  subscribed  to the  foregoing
instrument,  and known to me to be the managing  member of PHC OF RHODE  ISLAND,
INC., a Massachusetts corporation,  and acknowledged to me that he executed said
instrument for the purposes and consideration  therein expressed,  as the act of
said corporation.

      Given under my hand and seal this ___ day of _______, 2000.


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

                                  Notary Public
My Commission Expires:______________


                                        2
<PAGE>
                              NOTARY ACKNOWLEDGMENT

STATE OF MASSACHUSETTS)

COUNTY OF ESSEX)


     Before me, a Notary  Public in and for said  County and State,  on this day
personally appeared  __________________ known to me (or proved to me on the oath
of  ____________)  to be the person whose name is  subscribed  to the  foregoing
instrument,  and known to me to be the managing member of PIONEER  COUNSELING OF
VIRGINIA,  INC., a  Massachusetts  corporation,  and  acknowledged to me that he
executed said instrument for the purposes and consideration  therein  expressed,
as the act of said corporation.

     Given under my hand and seal this 3rd day of August, 2000.


                                    /s/  Paula C. Wurts
                                  Notary Public
My Commission Expires:  November 29, 2002



                                        3
<PAGE>

                              NOTARY ACKNOWLEDGMENT

STATE OF MASSACHUSETTS)

COUNTY OF ESSEX)

     Before me, a Notary  Public in and for said  County and State,  on this day
personally appeared  __________________ known to me (or proved to me on the oath
of  ____________)  to be the person whose name is  subscribed  to the  foregoing
instrument,  and known to me to be the of HELLER  HEALTHCARE  FINANCE,  INC.,  a
Delaware  corporation,  and  acknowledged to me that he executed said instrument
for  the  purposes  and  consideration  therein  expressed,  as the  act of said
corporation.

     Given under my hand and seal this 3rd day of August, 2000.


                                    /s/  Paula C. Wurts
                                  Notary Public
My Commission Expires:  November 29, 2002




                                        4
<PAGE>


This Instrument prepared by, and upon recording should be returned to:

Stephen L. Burlingame, Esq.
Fraser Trebilcock Davis & Foster
1000 Michigan National Tower
Lansing, Michigan 48933




                                        5
<PAGE>