PHC, INC.

200 Lake Street
Suite 102
Peabody, Massachusetts 01960

November 25, 2002

Dear Stockholder:

You are cordially invited to attend the Annual Meeting of Stockholders of
PHC, Inc., which will be held on Thursday, December 19, 2002, at 2:00 PM, at the
corporate offices of PHC, Inc., 200 Lake Street, Suite 102, Peabody,
Massachusetts 01960.

The following Notice of Annual Meeting of Stockholders and Proxy Statement
describes the items to be considered by the stockholders and contains certain
information about PHC, Inc.'s officers and directors.

Please sign and return the enclosed proxy card as soon as possible in the
envelope provided so that your shares can be voted at the meeting in accordance
with your instructions. Even if you plan to attend the meeting, we urge you to
sign and promptly return the enclosed proxy. You can revoke it at any time prior
to the meeting, or vote your shares personally if you attend the meeting. We
look forward to seeing you.

Sincerely,

/s/ Bruce A. Shear
President

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PHC, INC.

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 19, 2002

The Annual Meeting of Stockholders of PHC, Inc. (the "Company") will be
held at our corporate offices at 200 Lake Street, Suite 102, Peabody,
Massachusetts, on Thursday, December 19, 2002, at 2:00 PM, for the following
purposes:

1. To elect six directors (two to be elected by the holders of the Company's
Class A Common Stock and four to be elected by the holders of the Company's
Class B Common Stock) to hold office until the annual meeting next
following their election and until their successors are duly elected and
qualified;

2. To consider and vote upon a proposed amendment to increase the number of
shares of Class A Common Stock available for issuance under the 1993 Stock
Purchase and Option Plan from 1,750,000 shares to 2,000,000 shares;

3. To consider and vote upon a proposed amendment to increase the number of
shares of Class A Common Stock available for issuance under the 1995
Employee Stock Purchase Plan from 250,000 shares to 500,000 shares;

4. To consider and vote upon a proposed amendment to increase the number of
shares of Class A Common Stock available for issuance under the 1995
Non-Employee Director Stock Option Plan from 250,000 shares to 350,000
shares;

5. To ratify the selection by the Board of Directors of BDO Seidman, LLP as
the Company's independent auditors; and

6. To transact such other business as may properly come before the meeting or
any adjournment thereof.

The Board of Directors has fixed the close of business on November 8, 2002
as the record date for determination of stockholders entitled to notice of, and
to vote at the annual meeting and at any adjournment thereof.

All stockholders are cordially invited to attend the meeting.

By order of the Board of Directors

/s/ Paula C. Wurts, Assistant Clerk

Peabody, Massachusetts
November 25, 2002

WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN
THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER TO
ASSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE AFFIXED IF MAILED IN
THE UNITED STATES.

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PHC, INC.

200 Lake Street
Suite 102
Peabody, Massachusetts 01960
(978) 536-2777

PROXY STATEMENT FOR THE
ANNUAL MEETING OF STOCKHOLDERS

This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of PHC, Inc. (the "Company") for use at the
Annual Meeting of Stockholders to be held at the Corporate offices of the
Company at 200 Lake Street, Suite 102, Peabody, Massachusetts on December 19,
2002 at 2:00 PM (Boston time), and at any adjournment of that meeting (the
"Annual Meeting"). Each proxy will be voted in accordance with the instructions
specified, and if no instruction is specified, the proxy will be voted in favor
of the proposals set forth in the Notice of Annual Meeting. A stockholder may
revoke any proxy at any time before it is exercised by filing a later dated
proxy or written notice of revocation with Paula C. Wurts, Assistant Clerk of
the Company, or by voting in person at the Annual Meeting.

The Company's Annual Report on Form 10-KSB for the year ended June 30, 2002
is being mailed to stockholders together with this Proxy Statement. The Company
will furnish any exhibit to the Company's Annual Report on Form 10-KSB upon the
payment of a processing fee of ten cents per page plus mailing costs. The date
of mailing of this Proxy Statement is expected to be on or about November 27,
2002.

The Board of Directors has fixed November 8, 2002 as the record date for
the determination of stockholders entitled to vote at the Annual Meeting (the
"Record Date"). On that date there were outstanding and entitled to vote
13,349,544 shares of Class A Common Stock and 726,991 shares of Class B Common
Stock of the Company (the shares of Class A Common Stock and Class B Common
Stock are referred to collectively herein as the "Shares"). Each share of Class
A Common Stock is entitled to one vote and each share of Class B Common Stock is
entitled to five votes. The holders of the Company's Class A Common Stock are
entitled to elect two members of the Company's Board of Directors (the "Class A
Directors") and holders of the Company's Class B Common Stock are entitled to
elect all the remaining members of the Company's Board of Directors (the "Class
B Directors"). Holders of Class A Common Stock will receive proxy cards, which
will be different from those received by the holders of Class B Common Stock.
The proxy cards received by the holders of Class A Common Stock will contain a
proposal relating to the election of the two members of the Board of Directors
to be elected by the holders of the Class A Common Stock, in addition to any
other proposals to be voted upon during the General Session. Holders of Class B
Common Stock will receive proxy cards, which will contain a proposal relating to
the election of the four members of the Board of Directors to be elected by the
holders of the Class B Common Stock, in addition to any other proposals to be
voted upon during the General Session. Except for the election of directors, the
holders of class A Common Stock and Class B Common Stock vote as one class.

The Annual Meeting will comprise three related but separate sessions: (i) a
special session of the holders of Class A Common Stock, during which session
only holders of Class A Common Stock are entitled to vote, for the separate
election by such holders of two directors, and no other business may properly
come before the meeting; (ii) a special session of the holders of Class B Common
Stock, during which session only holders of Class B Common Stock are entitled to
vote, for the separate election by such holders of four directors, and no other
business may properly come before the meeting; and (iii) a general session of
the holders of the Class A Common Stock and the Class B Common Stock for the

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approval and ratification of an amendment to the 1993 Stock Purchase and Option
Plan to increase the number of shares of Class A Common Stock available for
issuance under the plan from 1,750,000 shares to 2,000,000 shares, for approval
and ratification of an amendment to the 1995 Employee Stock Purchase Plan to
increase the number of shares of Class A Common Stock available for issuance
under the plan from 250,000 shares to 500,000 shares, for approval and
ratification of an amendment to the 1995 Non-Employee Director Stock Option Plan
to increase the number of shares of Class A Common Stock available for issuance
under the plan from 250,000 shares to 350,000 shares, ratification of the
selection of independent auditors and for the conduct of such other business as
may properly come before the Annual Meeting (the "General Session"). The
presence in person or by proxy of holders of shares of Class A Common Stock and
Class B Common Stock outstanding as of the Record Date which, combined, have the
right to cast a majority of the votes which may be cast with respect to matters
arising during the General Session will constitute a quorum for the conduct of
business at the General Session. The presence in person or by proxy of holders
of shares of Class A Common Stock and Class B Common Stock outstanding as of the
Record Date which have the right to cast a majority of the votes which may be
cast with respect to matters arising during the Class A Session and the Class B
Session, respectively, will constitute a quorum for purposes of the Class A
Session and the Class B Session, respectively.

The affirmative vote of the holders of a plurality of the shares of each of
Class A Common Stock and Class B Common Stock represented at the meeting is
required for the election of the Class A Directors and the Class B Directors,
respectively. Approval of each of the other matters that is before the meeting
will require the affirmative vote of the holders of a majority of the Shares
represented at the meeting and voting thereon. No votes may be taken at the
meeting, other than a vote to adjourn, unless the appropriate quorum (as set
forth in the preceding paragraph) has been constituted. Shares voted to abstain
or to withhold as to a particular matter, or as to which a nominee (such as a
broker holding shares in street name for a beneficial owner) has no voting
authority in respect of a particular matter, shall be deemed represented for
quorum purposes. Such shares, however, shall not be deemed to be voting on such
matters, and therefore will not be the equivalent of negative votes as to such
matters. Votes will be tabulated by the Company's transfer agent subject to the
supervision of persons designated by the Board of Directors as inspectors.

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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 voting capital stock of the Company currently outstanding) as of
November 8, 2002, by (i) each person known by the Company to beneficially own
more than 5% of any class of the Company's voting securities, (ii) each director
of the Company, (iii) the Company's Chief Executive Officer, (iv) each of the
Company's four most highly compensated executive officers other than its Chief
Executive Officer who were serving as officers of the Company at the end of the
2002 fiscal year and whose salary and bonus for the 2002 fiscal year exceeded
$100,000 and (v) all directors and officers of the Company as a group (the
individuals specified in subsections (iii) and (iv) hereof collectively are
referred to herein as the "Named Executive Officers"). Unless otherwise
indicated below, to the knowledge of the Company, all persons listed below have
sole voting and investment power with respect to their shares of Common Stock,
except to the extent authority is shared by spouses under applicable law. In
preparing the following table, the Company has relied on the information
furnished by the persons listed below:

Name and Address Amount and Nature Percent of
Title of Class of Beneficial Owner of Beneficial Owner Class (14)
=============================================================================================
Class A Common Stock Gerald M. Perlow 80,500 (1) *
c/o PHC, Inc.
200 Lake Street
Peabody, MA 01960
Donald E. Robar 80,477 (2) *
c/o PHC, Inc.
200 Lake Street
Peabody, MA 01960
Bruce A. Shear 447,245( 3) 3.3%
c/o PHC, Inc.
200 Lake Street
Peabody, MA 01960
Robert H. Boswell 148,197( 4) 1.0%
c/o PHC, Inc.
200 Lake Street
Peabody, MA 01960
Howard W. Phillips 103,375 (5) *
P. O. Box 2047
East Hampton, NY 11937
William F. Grieco 74,500 (6) *
115 Marlborough Street
Boston, MA 02116
Paula C. Wurts 102,394 (7) *
c/o PHC, Inc.
200 Lake Street
Peabody, MA 01960
Michael R. Cornelison 115,554 (8) *
c/o PHC, Inc.
200 Lake Street
Peabody, MA 01960
David E. Dangerfield 5,000 (9) *
5965 South 900 East
Salt Lake City, UT 84121
All Directors and Officers as 1,157,242(10) 8.5%
a Group (9 persons)

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The Shaar Fund Ltd. 1,234,327(11) 9.2%
c/o Citco Funds Services,
Curacao
Kaya Flamboyan 9
Curacao, Netherland Antilles
Peter S. Lynch 671,000 5.0%
82 Devonshire Street, S8A
Boston, MA 02109
Class B Common Stock (12) Bruce A. Shear 671,259(13) 92.3%
c/o PHC, Inc.
200 Lake Street
Peabody, MA 01960
All Directors and Officers as 671,259 92.3%
a Group (9 persons)

* Less than 1%

1. Includes 36,250 shares issuable pursuant to currently exercisable stock
options or stock options which will become exercisable within sixty days,
having an exercise price range of $.22 to $6.63 per share.
2. Includes 39,750 shares issuable pursuant to currently exercisable stock
options or stock options which will become exercisable within sixty days,
having an exercise price range of $.22 to $6.63 per share.
3. Includes 65,250 shares of Class A Common Stock issuable pursuant to
currently exercisable stock options, having an exercise price range of $.25
to $.75 per share.
4. Includes 42,625 shares of Class A Common Stock issuable pursuant to
currently exercisable stock options at an exercise price range of $.25 to
$.75 per share.
5. Includes 41,125 shares issuable pursuant to currently exercisable stock
options having an exercise price range of $.25 to $.75 per share.
6. Includes 35,250 shares of Class A Common Stock issuable pursuant to
currently exercisable stock options, having an exercise price range of $.22
to $3.50 per share.
7. Includes 42,625 shares of Class A Common Stock issuable pursuant to
currently exercisable stock options, having an exercise price range of $.25
to $.75 per share.
8. Includes 37,000 shares of Class A Common Stock issuable pursuant to
currently exercisable stock options, having an exercise price range of $.25
to $.75 per share.
9. Includes 5,000 shares of Class A Common Stock issuable pursuant to
currently exercisable stock options, having an exercise price range of $
.55 to $.75 per share.
10. Includes an aggregate of 344,875 shares issuable pursuant to currently
exercisable stock options. Of those options, 5,500 have an exercise price
of $6.63 per share, 6,000 have an exercise price of $3.50 per share, 6,000
have an exercise price of $2.06 per share, 6,000 have an exercise price of
$1.03 per share, 6,000 have an exercise price of $.81 per share, 41,250
have an exercise price of $.75 per share, 37,000 have an exercise price of
$.55 per share, 7,500 have an exercise price of $.45 per share, 20,000 have
an exercise price of $.35 per share, 199,875 have an exercise price of $.30
per share, 3,750 have an exercise price of $.25 per share and 6,000 have an
exercise price of $.22 per share.
11. Includes 125,000 shares of Class A Common Stock issuable pursuant to
currently exercisable stock warrants, having an exercise price of $3.00.
12. 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.

- 6 -

13. Includes 56,369 shares of class B common stock pledged to Steven J. Shear
of 2 Addison Avenue, Lynn, Massachusetts 01902, Bruce A. Shear's brother,
to secure the purchase price obligation of Bruce A. Shear in connection
with his purchase of his brother's stock in the company in December 1988.
In the absence of any default under this obligation, Bruce A. Shear retains
full voting power with respect to these shares.
14. Represents percentage of equity of class, based on numbers of shares listed
under the column headed "Amount and Nature of Beneficial Ownership". Each
share of Class A Common Stock is entitled to one vote per share and each
share of Class B Common Stock is entitled to five votes per share on all
matters on which stockholders may vote (except that the holders of the
Class A Common Stock are entitled to elect two members of the company's
Board of Directors and holders of the Class B Common Stock are entitled to
elect all the remaining members of the company's Board of Directors).

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

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

Bruce A. Shear............................22.31%
All Directors and Officers as a Group
(9 persons).............................26.04%

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ELECTION OF DIRECTORS

The members of the Board of Directors elected at the Annual Meeting will be
classified into two classes of directors. Two directors will be elected by the
holders of the Company's Class A Common Stock and the balance of the directors
will be elected by the holders of the Company's Class B Common Stock. The terms
of the present directors expire at the Annual Meeting or when the successors are
chosen and qualified, if later. The Board of Directors has fixed at six the
number of directors to be elected at the Annual Meeting.

The nominees for Class A Directors for election at the Annual Meeting are
Donald E. Robar and Gerald M. Perlow. The nominees for Class B Directors for
election at the Annual Meeting are Bruce A. Shear, Howard W. Phillips, William
F. Grieco and David E. Dangerfield. The proxy for holders of Class A Common
Stock will be voted to elect as Class A Directors the two nominees (Donald E.
Robar and Gerald M. Perlow), unless authority to vote for the election of
directors is withheld by marking the proxy to that effect or the proxy is marked
with the names of directors as to whom authority to vote is withheld. The proxy
for holders of Class B Common Stock will be voted to elect as Class B Directors
the four nominees (Bruce A. Shear, Howard W. Phillips, William F. Grieco and
David E. Dangerfield), unless authority to vote for the election of directors is
withheld by marking the proxy to that effect. Donald E. Robar, Gerald M. Perlow,
Bruce A. Shear, Howard W. Phillips, William F. Grieco and David E. Dangerfield
are presently directors of the Company and have consented to serve if reelected.

Name Age Position
===============================================================================
Bruce A. Shear. 47 Director since 1980, President and CEO
Gerald M. Perlow, M.D. (1)(2) 65 Director since 1993 and Clerk
Donald E. Robar (1)(2) 65 Director since 1985
Howard W. Phillips 72 Director since 1996
William F. Grieco (1) 49 Director since 1997
David E. Dangerfield 61 Director since 2001

(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 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.

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, emeritus,
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

- 8 -

cardiovascular disease) and a Fellow of the American Heart Association, the
American College of Cardiology and the American College of Physicians. From 1987
to 1990, Dr. Perlow served as the Director, Division of Cardiology, at
AtlantiCare Medical Center in Lynn, Massachusetts. Dr. Perlow served as a
consultant to Wellplace.com, formerly Behavioralhealthonline.com, in fiscal year
2000 and has been a contributing journalist to Wellplace.com since 1999. Dr.
Perlow received a B.A. from Harvard College in 1959 and an M.D. from Tufts
University School of Medicine in 1963.

DONALD E. ROBAR has served as a Director of the company since 1985 and as
the Treasurer from February 1996 until April 2000. He served as the Clerk of the
company from 1992 to 1996. Dr. Robar has been a professor of Psychology since
1961, most recently at Colby-Sawyer College in New London, New Hampshire, where
he retired in 1997. 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 an employee of the company serving as a public relations
specialist since August 1, 1995. From 1982 until October 31, 1995, Mr. Phillips
was the Director of Corporate Finance for D.H. Blair Investment Corp. From 1969
until 1981, Mr. Phillips was associated with Oppenheimer & Co. where he was a
partner and Director of Corporate Finance.

WILLIAM F. GRIECO has served as a Director of the company since February
18, 1997. From November 2001 to November 2002, Mr. Grieco served as the Senior
Vice President and General Counsel of IDX Systems Corporation, a healthcare
information technology company. From August 1999 to October 2001 Mr. Grieco was
a Managing Director of Arcadia Strategies, LLC, a legal and business consulting
organization. From November 1995 to July 1999 he served as Senior Vice President
and General Counsel for Fresenius Medical Care North America. From 1989 until
November of 1995, Mr. Grieco was a partner at Choate, Hall & Stewart, a general
service law firm. Mr. Grieco received a BS from Boston College in 1975, an MS in
Health Policy and Management from Harvard University in 1978 and a JD from
Boston College Law School in 1981.

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

THE BOARD RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR.

NON-DIRECTOR EXECUTIVE OFFICERS

Robert H. Boswell 54 Senior Vice President
Michael R. Cornelison 53 Executive Vice President
Paula C. Wurts 53 Controller, Treasurer and Assistant Clerk

- 9 -

Information with respect to the business experience and affiliations of the
non-director executive officers of the company is set forth below.

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. From 1981
until 1989, he served as the Associate Administrator at the Prevention Education
Outpatient Treatment Program--the Cottage Program, International. Mr. Boswell
graduated from Fresno State University in 1975 and from 1976 until 1978 attended
Rice University's doctoral program in philosophy. Mr. Boswell is a Board Member
of the National Foundation for Responsible Gaming and the Chair for the National
Center for Responsible Gaming.

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

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

MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS

The Board held four meetings during the fiscal year 2002. During fiscal
year 2002, each director attended 100% of the total number of meetings of the
Board (held during the period for which he was a director) and the total number
of meetings held by all Board committees on which such director served (during
the periods that he served as a member). The Board has a standing audit
committee (the "Audit Committee") and a standing compensation committee, but
does not have a standing nominating committee.

The Audit Committee is composed of Dr. Perlow, Mr. Robar and Mr. Grieco.
Mr. Robar and Mr. Grieco are both independent with respect to the Company, while
Dr. Perlow is not independent under Rule 4200 (a)(14) of the NASD's listing as
he also serves as the Clerk of the Company and has provided consultant services
to a wholly owned subsidiary of the Company. There have been no changes to the
audit committee charter adopted during the April 2000 Board of Directors meeting
and filed with the fiscal year 2000 proxy statement. The Audit Committee assists
the Board of Directors in fulfilling its responsibilities to stockholders
concerning the Company's financial reporting and internal controls, and
facilitates open communication among the Audit Committee, Board of Directors,
outside auditors and management. The Audit Committee discusses with management
and the outside auditors the financial information developed by the Company, the
Company's system of internal controls and the Company's audit process. The Audit

- 10 -

Committee selects the independent auditors who will audit the books of the
Company for that year and approves the fees to be charged for the audit and tax
filings for the fiscal year ended June 30, 2003. The independent auditors meet
with the Audit Committee both with and without the presence of the Company's
management to review and discuss various matters pertaining to the audit,
including the Company's financial statements, the report of the independent
auditors on the results, scope and terms of their work and their recommendations
concerning the financial practices, controls, procedures and policies employed
by the Company. The audit committee met twice during fiscal year 2002.

The compensation committee is composed of Dr. Perlow and Mr. Robar. The
compensation committee held one meeting during fiscal year 2002. The principal
functions of the compensation committee are to review and make recommendations
to the Board on all compensation and hiring issues that relate to officers and
senior staff members.

- 11 -

Audit Committee Report

The Audit Committee has reviewed and discussed the Company's audited
financial statements for the fiscal year ended June 30, 2002 with the Company's
Independent Auditors and management. The Audit Committee has discussed with BDO
Seidman, LLP, the Company's independent auditors, the matters required to be
discussed by Statement on Auditing Standards No. 61. The Audit Committee has
received the written disclosures and the letter from BDO Seidman required by
Independence Standards Board Standard No. 1 and has discussed with BDO Seidman
its independence. The discussions that the Audit Committee had with BDO Seidman,
LLP regarding the matters described above occurred after the filing with the SEC
of the Company's Annual Report on form 10-KSB for fiscal 2002.

AUDIT COMMITTEE
Gerald M. Perlow, M.D.
Donald E. Robar
William F. Grieco

- 12 -

COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS

Employment Agreements

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

Executive Compensation

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

Summary Compensation Table
Long Term
Compensation
Annual Compensation Awards
_______________________________________________________________________________________________________________
(a) (b) (c) (d) (e) (g) (i)
Securities
Name and Other Annual Underlying All Other
Principal Year Salary Bonus Compensation Options/SARs Compensation
Position ($) ($) ($) (#) ($)
===============================================================================================================
Bruce A. Shear 2002 $310,000 $37,500 $71,390 (2) 20,000 $ 3,400
President and Chief 2001 $310,000 -- $19,571 (3) 67,000 $ 6,285
Executive Officer 2000 $300,195(1) -- $10,159 (4) 50,000 $22,517

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

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

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

(1) Although the Board of Director authorized base salary effective July 1,
1995 is $310,000 base salary was drawn as listed above.
- 13 -

(2) This amount represents $3,983 contributed by the company to the company's
Executive Employee Benefit Plan on behalf of Mr. Shear, $4,768 in premiums
paid by the company with respect to life insurance for the benefit of Mr.
Shear, $336 in club membership dues paid by the company for the benefit of
Mr. Shear, $2,678 personal use of a company car held by Mr. Shear and
$59,625 based on the intrinsic value of the repricing of options held by
Mr. Shear.
(3) This amount represents $3,799 contributed by the company to the company's
Executive Employee Benefit Plan on behalf of Mr. Shear, $4,768 in premiums
paid by the company with respect to life insurance for the benefit of Mr.
Shear, $208 in club membership dues paid by the company for the benefit of
Mr. Shear, $2,921 personal use of a company car held by Mr. Shear and
$7,875 based on the intrinsic value of the repricing of options held by Mr.
Shear.
(4) This amount represents $3,383 contributed by the company to the company's
Executive Employee Benefit Plan on behalf of Mr. Shear, $4,837 in premiums
paid by the company with respect to life insurance for the benefit of Mr.
Shear and $1,938 personal use of a company car held by Mr. Shear.

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

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

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

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

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

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

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

- 14 -

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

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

Stock Option Grants

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

INDIVIDUAL GRANTS
(b) (c) (d) (e)
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees Base Price Expiration
Name Granted (#) in Fiscal Year ($/Share) Date
======================================================================================================
Bruce A. Shear 20,000 8.2% $ .55 04/18/2007
Robert H. Boswell 7,500 3.1% $ .45 12/19/2006
10,000 4.1% $ .55 04/18/2007
7,500 3.1% $ .55 04/18/2007
Michael R. Cornelison 10,000 4.1% $ .55 04/18/2007
Paula C. Wurts 7,500 3.1% $ .45 12/19/2006
10,000 4.1% $ .55 04/18/2007
7,500 3.1% $ .55 04/18/2007

All Directors and Officers 12/19/2006-04/18/2007
as a group (9 Persons) 203,000 82.8% $.35-$.55

- 15 -

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

(a) (b) (c) (d) (e)
Shares Number of Securities
Acquired Underlying Unexercised Value of Unexercised
on Value Options/SARs at In-the-Money Options/SARs at
Exercise Realized FY-End (#) FY-End ($)
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
===============================================================================================================
Bruce A. Shear -- -- 237,000/163,500 $118,630/$85,115
Robert H. Boswell -- -- 196,666/146,583 $97,650/$76,567
Michael R. Cornelison -- -- 161,000/130,500 $82,140/$68,820
Paula C. Wurts -- -- 137,084/83,667 $65,475/$42,593
All Directors and
Officers as a
group (9 persons) -- -- 1,079,750/718,250 $502,650/$353,343

COMPENSATION OF DIRECTORS

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

AMENDMENT
TO THE 1993 STOCK PURCHASE AND OPTION PLAN

On September 30, 2002, the Board of Directors of the Company adopted an
amendment to the 1993 Stock Purchase and Option Plan (the "Stock Plan") to
increase the maximum number of shares of Common Stock available for issuance
under the plan from 1,750,000 to 2,000,000 shares. As of November 18, 2002 the
company had 316,250 options available for issue under this plan. The purpose of
the increase is to permit the continuing grant of stock options to employees,
officers, directors and consultants which the Board of Directors believes is
necessary to continue to attract and retain such persons, particularly in view
of the fact that the Company's business is dependent upon its human resources.

- 16 -

The executive officers and directors of the Company are eligible to receive
options and restricted stock under the Stock Plan and will therefore benefit
from such approval. The Company plans to register the additional shares to be
issued under the stock plan on form S-8 to be filed by the Company under the
Securities Act of 1933.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE AMENDMENT TO THE 1993 STOCK PURCHASE AND OPTION PLAN

Description of the Company's 1993 Stock Plan

General. The Company's Stock Plan, originally adopted by the Board of
Directors in 1993 and approved by stockholders in 1993, was amended on several
occasions and as amended currently authorizes the grant of options to purchase a
maximum of 1,750,000 shares of Class A Common Stock, subject to adjustment for
stock splits and similar capital changes.

The Board of Directors administers the Stock Plan. Under the Stock Plan,
the Board of Directors has the authority to select the recipients of options or
restricted stock 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 fair market value of the Class A Common Stock on the
date of grant); (iv) the 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 incentive
stock option may be exercised more than 60 days following termination of
employment. In the event that termination is due to death or disability,
however, the option is exercisable for a period of one year following such
termination. Options granted to date generally become exercisable in equal
installments over a three-year period on the first, second and third
anniversaries of the grant date and expire on the fifth anniversary of the grant
date; however, 95,000 of the options issued in January, 2000 were issued with a
ten year term, immediate vesting as to 50% and 100% vesting at five years. All
of these options were issued as follows: 16,666 to Robert Boswell, 5,000 to
Michael Cornelison, 50,000 to Bruce Shear and 23,334 to Paula Wurts. These
options originally had an exercise price of $l.00 and as repriced in February
2001 have an exercise price of $.25 per share which was higher than the then
fair market value of the stock.

Employee Stock Purchase and Option Plan Federal Income Tax Information. Set
forth below is a general summary of the federal income tax consequences to the
Company and to recipients who receive options or restricted stock under the
Stock Plan. The following summary is not intended to be exhaustive, does not
address certain special federal tax provisions, and does not address state,
municipal or foreign tax laws.

Tax Treatment of Non-Qualified Stock Options. Under Section 83 of the Code,
optionees realize no taxable income when a non-qualified stock option ("NSO") is
granted. Instead, the difference between the fair market value of the stock and
the option price paid is taxed as ordinary compensation income, on or after the
date on which the option is exercised. The difference is measured and taxed as
of the date of exercise if the stock is not subject at that time to a
"substantial risk of forfeiture," as defined in Section 83. To the extent that
the stock is subject to a substantial risk of forfeiture, the difference is
measured as of the date or dates on which the risk terminates. The Stock Plan
permits the Compensation Committee to impose repurchase rights on stock acquired
upon exercise of options that would constitute such a "substantial risk of

- 17 -

forfeiture." If such repurchase rights are imposed, the optionee would recognize
taxable income and incur a tax liability, and the optionee's holding period for
tax purposes would commence, in the year or years that the substantial risk of
forfeiture terminates with respect to the stock.

Alternatively, an optionee holding an NSO may elect, within thirty days
after the option is exercised, in accordance with Section 83(b), to be taxed on
the difference between the option exercise price and the fair market value of
the stock on the date of exercise even though the stock acquired is subject to a
substantial risk of forfeiture. If the optionee makes this election, subsequent
changes in the value of the Common Stock at the time the forfeiture provisions
lapse will not result in ordinary compensation income to the optionee.

The Company receives no tax deduction on the grant of an NSO, but is
entitled to a tax deduction when the optionee recognizes taxable income on or
after exercise of the option, in the same amount as the income recognized by the
optionee.

Tax Treatment of Incentive Stock Options. Under Section 422 of the Code, an
optionee incurs no federal income tax liability on either the grant or exercise
of an incentive stock option ("ISO"). Provided that the stock is held for at
least one year after the date of exercise of the option and at least two years
after its date of grant, any gain realized on the subsequent sale of stock will
be taxed as long-term or short-term capital gain depending on the holding period
since the date of exercise. If the stock is disposed of within a shorter period,
the optionee will be taxed, with respect to the gain realized, as if he or she
had then received ordinary compensation income in an amount equal to the
difference between the fair market value of the stock on the date of exercise of
the option and its fair market value on the date on which the option was
granted. The balance of the gain realized will be taxed as capital gain,
long-term or short-term depending on the holding period since the date of
exercise.

The Company receives no tax deduction on the grant or exercise of an ISO,
but is entitled to a tax deduction if the optionee recognizes ordinary
compensation income on account of a premature disposition of ISO stock in the
same amount and at the same time as the optionee's recognition of income.

Tax Treatment of Purchases of Restricted Stock. An employee or consultant
who receives a grant of restricted stock generally will not recognize taxable
income at the time such stock is received, but will recognize ordinary
compensation income when the transfer and forfeiture restrictions lapse in an
amount equal to the excess of the aggregate fair market value, as of the date
the restrictions lapse, over the amount, if any, paid by the employee or
consultant for the restricted stock. Alternatively, an employee or consultant
receiving restricted stock may elect, in accordance with Section 83(b) of the
Code, to be taxed on the excess of the fair market value of the shares of
restricted stock at the time of grant over the amount, if any, paid by the
employee or consultant, notwithstanding the transfer and forfeiture restrictions
on the stock. All such taxable amounts are deductible by the Company at the time
and in the amount of the ordinary compensation income recognized by the employee
or consultant. The full amount of dividends or other distributions of property
made with respect to restricted stock prior to the lapse of the transfer and
forfeiture restrictions will constitute ordinary compensation income to the
employee or consultant and the Company will be entitled to a deduction at the
same time and in the same amount.

AMENDMENT TO THE COMPANY 'S 1995 EMPLOYEE STOCK PURCHASE PLAN

On September 30, 2002, the Board of Directors of the Company adopted an
amendment to the 1995 Employee Stock Purchase Plan (the "Stock Purchase Plan ")

- 18 -

to increase the number of shares of Class A Common Stock available for issuance
under the plan from 250,000 to 500,000 shares. As of November 18, 2002 the
company has 137,815 shares available under the plan, without giving effect to
the shares that may be issued under the current offering ending January 31,
2003, which could aggregate approximately 26,000 shares. The purpose of the
increase is to provide the employees of the Company with the continued
opportunity to participate in the Company's growth through the purchase of Class
A Common Stock at a discount from market value. The executive officers of the
Company, other than those who own 5% or more of the stock of the Company, are
eligible to participate in this plan and, accordingly, could benefit from such
approval.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE AMENDMENT TO THE 1995 EMPLOYEE STOCK PURCHASE PLAN

Description of the Company's 1995 Employee Stock Purchase Plan

General. The Company's 1995 Employee Stock Purchase Plan (the "Stock
Purchase Plan"), originally adopted by the Board of Directors in 1995 and
approved by the stockholders in 1995 was amended on several occasions and as
amended currently authorizes an aggregate of 250,000 shares of Class A Common
Stock for issuance under the plan. The Board of Directors administers the Stock
Purchase Plan.

All employees of the Company whose customary employment is in excess of 20
hours per week and more than five months per year, other than those employees
who own 5% or more of the stock of the Company, are eligible to participate in
the Stock Purchase Plan. The Stock Purchase Plan is implemented by offerings of
such duration as the Board of Directors determines, provided that no offering
period may be longer than 27 months. An eligible employee participating in an
offering is able to purchase Common Stock at a price equal to the lesser of (i)
85% of its fair market value on the date the right was granted or (ii) 85% of
its fair market value on the date the right was exercised. Payment for Class A
Common Stock purchased under the plan is through regular payroll deduction or
lump sum cash payment, or both, as determined by the Board of Directors. In
offering periods that began on February 1, 1996 through January 31, 2002, an
aggregate of 112,185 shares have been issued under the plan. Currently there is
an offering period in place which began on February 1, 2002 and will end on
January 31, 2003. There are fifteen employees participating in the current
offering under this plan.

Employee Stock Purchase Plan-Federal Income Tax Information. The Stock
Purchase Plan is intended to qualify as an "employee stock purchase plan within
" the meaning of Section 423 of the Code. Section 423 provides that the employee
pays no federal income tax, and the Company is entitled to no deduction, at
either the beginning or end of an offering period. The federal income tax
consequences upon disposition of the shares acquired pursuant to an offering
under the Stock Purchase Plan depend on when such disposition occurs. If the
disposition occurs after the expiration of both (i) two years from the offering
commencement date and (ii) one year from the purchase date, and the fair market
value of the stock on the date of disposition is higher than the price paid for
the stock, the employee will recognize compensation taxable as ordinary income
equal to the lesser of (1) the excess of the fair market value of the stock on
the offering commencement date over the option price; and (2) the excess of the
fair market value of the stock at the time of disposition over the price paid
for it. If the disposition occurs before the expiration of either of the above
two dates, the employee will recognize the excess of the fair market value of
the stock on the date of the purchase over the option price as compensation
taxable as ordinary income even though there may have been no gain on the
disposition of the stock. To the extent of reported ordinary income in such

- 19 -

case, the Company will be allowed a tax deduction in an equal amount. Any gain
recognized in excess of the amount reported as ordinary income will be reported
as long-term or short-term capital gain, depending on how long after the
purchase date the disposition occurs.

AMENDMENT TO THE COMPANY 'S 1995
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN

On September 30, 2002, the Board of Directors of the Company adopted an
amendment to the 1995 Non-Employee Director Stock Option Plan (the "Director
Plan ") to increase the number of shares of Common Stock available from 250,000
to 350,000 shares. At this time the company has 184,500 options available for
issue under this plan. The purpose of the increase is to obtain and retain the
services of qualified persons who are not employees of the Company to serve as
members of its Board of Directors. Non-employee directors of the Company are
eligible to receive options under the Director Plan and will therefore benefit
from such approval.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
AMENDMENT TO THE 1995 NON-EMPLOYEE
DIRECTOR STOCK OPTION PLAN

General. The Company's 1995 Non-Employee Director Plan originally adopted
by the Board of Directors on October 18, 1995 and approved by the Stockholders
on December 15, 1995 was amended on several occasions and as amended currently
authorizes the grant of options to purchase a maximum of 250,000 shares of Class
A Common Stock, subject to adjustment for stock splits and similar capital
changes.

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 a number of shares of
Class A Common Stock equal to 500 multiplied by the years of service of such
director as of the date of the grant. At each annual meeting of the Board of
Directors of the Company following the initial grant described above, or
following their election as a director, each non-employee director is granted
under the Director Plan an option to purchase 10,000 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 the 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 for a
reason other than death or permanent disability, the unexercised portion of the
options, to the extent unvested, immediately terminate, and the unexercised
portion of the options which have vested lapse 180 days after the date the
optionee ceases to serve on the Board. In the event of death or permanent
disability, all unexercised options vest and the optionee or his or her legal
representative has the right to exercise the option for a period of 180 days or
until the expiration of the option, if sooner.

On January 23, 1996 a total of 5,500 options were issued under the Director
Plan at an exercise price of $6.63 per share. 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

- 20 -

the Director Plan at an exercise price of $.81. On January 11, 2001 the company
issued options to purchase 6,000 shares of class A common stock under the
Director Plan at an exercise price of $.22. On December 19, 2001 the company
issued options to purchase 30,000 shares of class A common stock under the
Director Plan at an exercise price of $.35. As of June 30, 2002, none of the
options issued had been exercised.

Non-Employee Stock Option Plan Federal Income Tax Information. Set forth
below is a general summary of the federal income tax consequences to the Company
and to recipients who receive options or restricted stock under the Director
Plan. The following summary is not intended to be exhaustive, does not address
certain special federal tax provisions, and does not address state, municipal or
foreign tax laws.

Under Section 83 of the Code, optionees realize no taxable income when a
non-qualified stock option ("NSO") is granted. Instead, the difference between
the fair market value of the stock and the option price paid is taxed as
ordinary compensation income, on or after the date on which the option is
exercised. The difference is measured and taxed as of the date of exercise if
the stock is not subject at that time to a "substantial risk of forfeiture, " as
defined in Section 83. To the extent that the stock is subject to a substantial
risk of forfeiture, the difference is measured as of the date or dates on which
the risk terminates. The Director Plan permits the Compensation Committee to
impose repurchase rights on stock acquired upon exercise of options that would
constitute such a "substantial risk of forfeiture." If such repurchase rights
are imposed, the optionee would recognize taxable income and incur a tax
liability, and the optionee's holding period for tax purposes would commence, in
the year or years that the substantial risk of forfeiture terminates with
respect to the stock.

APPROVAL OF AUDITORS

The Board has selected the firm of BDO Seidman, LLP, independent certified
public accountants, as auditors of the Company for the fiscal year ending June
30, 2003 and is submitting the selection to stockholders for approval. The Board
recommends a vote "FOR" this proposal. Unless the proxy indicates otherwise, the
shares represented by the enclosed proxy will be voted to approve such
selection.

Although there is no legal requirement that this matter be submitted to a
vote of stockholders, the Board believes that the selection of independent
auditors is of sufficient importance to seek stockholder ratification. In the
event BDO Seidman, LLP is not ratified by the affirmative vote of the holders of
shares representing a majority of the votes cast at the Annual Meeting, the
Board may reconsider its selection. A representative of BDO Seidman, LLP is
expected to attend the Annual Meeting. Such representative will have an
opportunity to make a statement and will be available to respond to appropriate
questions from stockholders.

- 21 -

Independent Auditor Fees

Audit Fees. BDO Seidman, LLP billed the Company an aggregate of $98,884 for
professional services rendered by BDO Seidman in connection with its audit of
the Company's financial statements for the fiscal year ended June 30, 2002 and
its review of the Company's quarterly reports on Form 10-QSB during fiscal 2002.

Financial Information Systems Design and Implementation. During fiscal
2002, BDO Seidman, LLP did not directly or indirectly, operate, or supervise the
operation of, the Company's information systems or manage the Company's local
area network. Nor did BDO Seidman design or implement a hardware or software
system that aggregates source data underlying the financial statements of the
Company or generates information that is significant to the Company's financial
statements taken as a whole.

All Other Fees. BDO Seidman, LLP billed the Company an additional $20,500
for the preparation of State and Federal Income tax returns and $5,000 for other
professional services rendered during fiscal 2002 for services not otherwise
described above. All other fees relate to services traditionally provided by
auditors including work performed in connection with income tax audits and other
services, which are compatible with BDO Seidman's independence.

The Company's Audit Committee considered whether the non-audit services
rendered by BDO Seidman during fiscal 2002, as described under the caption " All
Other Fees" above, and determined that such services were compatible with BDO
Seidman's independence.

THE BOARD RECOMMENDS A VOTE FOR RATIFICATION OF THE ABOVE SELECTION

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.

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Related Party Indebtedness

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

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

- 22 -

STOCKHOLDER PROPOSALS FOR 2003 MEETING

Proposals of stockholders intended to be presented and director nominations
intended to be made at the 2003 Annual Meeting of Stockholders must be received
by the Company at its principal office, 200 Lake Street, Suite 102, Peabody,
Massachusetts 01960, Attention: Paula C. Wurts, Assistant Clerk, not later than
July 22, 2003 for inclusion in the proxy statement for that meeting. Any
proposal of a stockholder to be presented at the Company's annual meeting of
stockholders in 2003, which has not been included in the Company's proxy
material, must be received not later than October 4, 2003 to be considered
timely.

>
OTHER MATTERS

The Board does not know of any other matters that may come before the
Annual Meeting. However, if any other matters are properly presented to the
Annual Meeting, it is the intention of the persons named in the accompanying
proxy to vote, or otherwise to act, in accordance with their judgment on such
matters.

All costs of solicitation of proxies by management will be borne by the
Company. In addition to solicitations by mail, the Company's directors, officers
and regular employees, without additional remuneration, may solicit proxies by
telephone or personal interviews. Brokers, custodians and fiduciaries will be
requested to forward proxy soliciting materials to the beneficial owners of the
Company's stock held in the names of such brokers, custodians and fiduciaries,
and the Company will reimburse them for their out-of-pocket expenses in this
connection.

By order of the Board of Directors

Paula C. Wurts, Assistant Clerk

November 25, 2002

The Board hopes that stockholders will attend the meeting. WHETHER OR NOT
YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN AND RETURN THE
ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. A prompt response will greatly
facilitate arrangements for the meeting, and your cooperation will be
appreciated. Stockholders who attend the meeting may vote their stock personally
even though they have sent in their proxies.

- 23 -

REVOCABLE PROXY - CLASS A COMMON STOCK
PHC, INC.

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
2002 ANNUAL MEETING OF STOCKHOLDERS

The undersigned stockholder of PHC, Inc., a Massachusetts corporation, (the
"Company") hereby acknowledges receipt of the Notice of 2002 Annual Meeting of
Stockholders and Annual Report on Form 10-KSB for fiscal year ended June 30,
2002 and hereby appoints Bruce A. Shear and Paula C. Wurts, and both of them, as
proxies, with full power to each of substitution, and hereby authorizes either
of them to represent and to vote, as designated on the reverse side, all the
shares of Class A Common Stock of the Company held of record by the undersigned
on November 8, 2002 at the Annual Meeting of Stockholders to be held at 2:00
p.m. (Boston time), on December 19, 2002 at the Corporate offices of PHC, Inc.,
200 Lake Street, Suite 102, Peabody, Massachusetts 01960, and at any
adjournments or postponements thereof. The undersigned stockholder hereby
revokes any proxy or proxies heretofore given.

THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED, OR IF
NO DIRECTION IS MADE, FOR SUCH PROPOSALS, AND IN ACCORDANCE WITH THE
DETERMINATION OF THE PROXY HOLDERS AS TO OTHER MATTERS. THE UNDERSIGNED
STOCKHOLDER HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL MEETING AND
PROXY STATEMENT.

(Continued And To Be Signed And Dated On Reverse Side)

(BACK)

- 24 -

FORM OF PROXY FOR CLASS A COMMON STOCK SHAREHOLDERS

[X} Please mark your
votes as in this
example.

Nominees:
Donald E. Robar
Gerald M. Perlow

WITHHOLD FOR ABSTAIN
FOR AUTHORITY AGAINST
1. To elect Donald E. Robar [ ] [ ] 2. To approve an [ ] [ ] [ ]
and Gerald M. Perlow [ ] [ ] amendment to the Company's 1993
as the Class A Directors of the company, Stock Purchase and Option Plan
each to hold the office until the annual to increase maximum number of
meeting next following his election: shares which may be issued under
plan from 1,750,000 to 2,000,000
shares
For, all nominees except as noted below 3. To approve an [ ] [ ] [ ]
amendment to the Company's 1995
Stock Purchase Plan to increase
___________________________________________ the maximum number of shares
which may be issued under the
plan from 250,000 to 500,000
shares.
4. To approve an [ ] [ ] [ ]
amendment to the Company's 1995
Non-Employee Director Stock
Option Plan to increase the
maximum number of shares which
may be issued under the plan
from 250,000 to 350,000 shares
5. To ratify the [ ] [ ] [ ]
selection by the Board of
Directors of BDO Seidman, LLP as
the Company's independent
auditors for the 2003 fiscal
year
6. In their discretion, the Proxies
are authorized to vote upon such
other matters as may properly
come before the meeting or any
adjournment or postponement
thereof.

PLEASE MARK, SIGN, DATE AND RETURN
THIS PROXY CARD USING THE ENCLOSED
ENVELOPE.

SIGNATURE DATE DATE
(SIGNATURE IF HELD JOINTLY)
_______________________________________________________________________________

Note: Please sign exactly as name appears on this proxy. All joint owners should
sign. When signing as attorney, executor, administrator, trustee, guardian or
custodian for a minor, please give your full title as such. If a corporation,
please sign full corporate name and indicate signer's office. If a partner sign
in the partnership name.

(FRONT)

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REVOCABLE PROXY - CLASS B COMMON STOCK
PHC, INC.

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
2002 ANNUAL MEETING OF STOCKHOLDERS

The undersigned stockholder of PHC, Inc., a Massachusetts corporation, (the
"Company") hereby acknowledges receipt of the Notice of 2002 Annual Meeting of
Stockholders and Annual Report on Form 10-KSB for fiscal year ended June 30,
2002 and hereby appoints Bruce A. Shear and Paula C. Wurts, and both of them, as
proxies, with full power to each of substitution, and hereby authorizes either
of them to represent and to vote, as designated on the reverse side, all the
shares of Class B Common Stock of the Company held of record by the undersigned
on November 8, 2002 at the Annual Meeting of Stockholders to be held at 2:00
p.m. (Boston time), on December 19, 2002 at the Corporate offices of PHC, Inc.,
200 Lake Street, Suite 102, Peabody, Massachusetts 01960, and at any
adjournments or postponements thereof. The undersigned stockholder hereby
revokes any proxy or proxies heretofore given.

THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED OR IF
NO DIRECTION IS MADE, FOR SUCH PROPOSALS, AND IN ACCORDANCE WITH THE
DETERMINATION OF THE PROXY HOLDERS AS TO OTHER MATTERS. THE UNDERSIGNED
STOCKHOLDER HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL MEETING AND
PROXY STATEMENT.

(Continued And To Be Signed And Dated On Reverse Side)

(BACK)

- 26 -

FORM OF PROXY FOR CLASS B COMMON STOCK SHAREHOLDERS

[X} Please mark your
votes as in this
example.
Nominees:
Bruce A. Shear
Howard W. Phillips
William F. Grieco
David E. Dangerfield

WITHHOLD FOR ABSTAIN
FOR AUTHORITY AGAINST
1. To elect Bruce A. Shear [ ] [ ] 2. To approve an [ ] [ ] [ ]
Howard W. Phillips, amendment to the Company's 1993
William F. Grieco and Stock Purchase and Option Plan
David Dangerfield as the Class B Directors to increase the maximum number
of the Company, each to hold the office of shares which may be issued
until the annual meeting next following under the plan from 1,750,000
his election to 2,000,000 shares.
3. To approve an [ ] [ ] [ ]
amendment to the Company's 1995
For, all nominees except as noted below Stock Purchase Plan to increase
the maximum number of shares
__________________________________________ which may be issued under the
plan from 250,000 to 500,000
shares
4. To approve an [ ] [ ] [ ]
amendment to the Company's 1995
Non-Employee Director Stock
Option Plan to increase the
maximum number of shares which
may be issued under the plan
from 250,000 to 350,000 shares
5. To ratify the [ ] [ ] [ ]
selection by the Board of
Directors of BDO Seidman, LLP as
the Company's annual independent
auditors for the 2003 fiscal
year
6. In their discretion, the Proxies
are authorized to vote upon such
other matters as may properly
come before the meeting or any
adjournment or postponement
thereof.

PLEASE MARK, SIGN, DATE AND RETURN
THIS PROXY CARD USING THE ENCLOSED
ENVELOPE.

SIGNATURE DATE DATE
(SIGNATURE IF HELD JOINTLY)
_______________________________________________________________________________

(FRONT)

- 27 -