10-K 1 w50794e10-k.txt 10-K FOR PHYSICIANS HEALTHCARE FOR 12/31/2000 1 U.S. Securities and Exchange Commission Washington, D.C. 20549 FORM 10-KSB (Mark One) [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 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 000-22719 PHYSICIAN HEALTHCARE PLAN OF NEW JERSEY, INC. (Name of small business issuer in its charter) New Jersey 22-3273637 (State or other jurisdiction of (I.R.S.Employer or incorporation organization) IdentificationNo.) c/o The Pace Group, Inc., 202 Courtney Lane, McKinney, Texas 75070 (formerly 2828 N. Haskell, B5 F6, Dallas, TX 75204) ----------------------------------------------------------------------- (Address of principal executive offices) (zip code) Issuer's telephone number: (972) 562-3979 (formerly (972) 887-7947) Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: Common Stock, no par value. Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the 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 [ ] No [X] Check if there was no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosures 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. [X] State issuer's revenues for the most recent fiscal year: $304,000 1 2 There is no current market for this stock. However, the aggregate value of voting stock held by non-affiliates as of December 31, 2000, computed by reference to the book value as of December 31, 2000, was approximately $4,356,000. As of December 31, 2000, there were 4,629 shares of Common Stock outstanding. Transitional Small Business Disclosure Format (Check one): Yes [ ] N[X] DOCUMENTS INCORPORATED BY REFERENCE None 2 3 PART I ITEM 1. DESCRIPTION OF BUSINESS Overview Physician Healthcare Plan of New Jersey, Inc. (the "Company") is a New Jersey corporation, formed on January 10, 1994,under the sponsorship of private practicing physicians for the purpose of developing a statewide physician-owned and directed health maintenance organization ("HMO"). The Company's HMO and preferred provider organization ("PPO") operations were sold on December 19, 1997, as described below. Beginning in December 1998, the Company initiated the process of seeking approval from state regulators to surrender its Certificate of Authority ("COA"). In May 2000, after discussions between the Company and its regulators, the New Jersey Department of Banking and Insurance (the "Department")required among other things, a Custody Agreement in the amount of $350,000 be established for the payment of future liabilities, if any, as a condition of surrender of the COA. The Company's Board of Directors approved the Custody Agreement on November 15, 2000, along with a Plan of Dissolution subject to the Department's approval of the surrender of the COA. The Custody Agreement was established on February 26, 2001 and on March 7, 2001 the surrender of the COA was approved. The Company intends to proceed with dissolution in 2001. In December 1994, the Company filed an application for a COA to operate as an HMO in five counties in New Jersey, which application was approved effective August 28, 1995. The Company was not permitted to solicit business until a Certificate of Authority was obtained. The Company commenced marketing its HMO plans to persons living in the five county area and issued its first policy in November 1995. In September 1995, the Company filed an application to amend its COA to expand its service area to cover the entire State of New Jersey. The amendment was approved effective January 29, 1996. The Company received federal trademark registration for its name, for the acronym PHPNJ and for the stylized "P" logo which contains a cutout in the shape of New Jersey. The Company devoted substantial efforts to developing and credentialing its health care delivery network, and health plans particularly for the small employer marketplace in New Jersey. The Company had entered into approximately 1,400 Physician Participation Agreements with physicians who had been credentialed, and 81 contracts with inpatient care facilities. In addition, the Company had negotiated contracts for the provision of certain ancillary services such as prescription benefits. The Company had developed HMO, PPO and point-of-service ("POS") products. Management Since inception, the Company had no employees. As such, the Company had engaged a management company to provide substantially all management and administrative services, including but not limited to, financial services, member and provider support services, provider credentialing, and claims processing. Until July 1997, the Company was managed by Medical Group Management, Inc. ("MGM"), a subsidiary of the New Jersey State Medical Underwriters, Inc., which in turn was a 3 4 subsidiary of the Medical Society of New Jersey. That arrangement with MGM terminated in July 1997 and the Company entered into a Management Agreement with Medigroup of New Jersey, Inc. ("Horizon" or the "Purchaser") effective July 1, 1997. Horizon managed the Company's operations until December 19, 1997, when it purchased the Company's HMO and PPO operations pursuant to an Agreement dated as of June 26, 1997 (the "Agreement"). Currently, Horizon provides limited management services on an hourly basis, and the Company has a contract with The Pace Group, Inc. ("Pace") to provide management transition services and certain corporate financial and reporting assistance not otherwise provided by the Purchaser, such as assistance in making required filings with state insurance regulators and with the Securities and Exchange Commission. Strategic Initiatives and Sale of Operations By April 1996, the Company's leadership recognized the impact of changing market conditions, coupled with attendant network, pricing and product issues, and acknowledged that membership goals were not being met and that expenses were being incurred in excess of the Company's revenues. The Company developed a three-part strategy to improve operating results. The components of that strategy were: (a) capital preservation, (b) marketing and sales, and (c) new product initiatives. To preserve capital, the Company implemented a new staffing model which reduced monthly salaries and compensation expenses. Beginning in September, 1996 staffing was reduced and sales efforts were shifted from a staff of sales employees to a broker-driven sales effort. In addition, the Company reduced the amount of space it leased, effective October 1, 1996, and cut its monthly advertising budget by approximately two-thirds. The Company proposed to develop special marketing arrangements with local medical communities, and marketed one of its existing products under a marketing arrangement called "Skyland Select". Notwithstanding the implementation of this strategy, the Company continued to incur losses. Early in 1997, the Company's leadership charged the Board of Directors' Due Diligence Committee with identifying strategic options and recommending a course of action that would be most beneficial to the Company and its stockholders, ultimately resulting in the negotiation of the Agreement and Management Services Agreement with Horizon. In addition, the Company has sold most of its fixed assets to MGM, sold certain equipment to Horizon and sold its automobiles to other parties. On December 19, 1997 the Company consummated the transfer and assignment of certain provider and subscriber contracts constituting its HMO and PPO operations to Horizon, the HMO affiliated with Blue Cross Blue Shield of New Jersey, Inc. The Company received a cash payment of $1,839,300 as consideration for the transfer and assignment. As of the date of closing, the Management Services Agreement dated as of June 26, 1997 between the Company and Horizon terminated and the parties entered into a new Management Services Agreement pursuant to which Horizon provided certain limited management services through March 1, 1999. The Company has agreed to pay Horizon an hourly fee of $75 for services provided under that agreement. In early 1999 the Company and Horizon renegotiated an extension of this agreement from March 1, 1999 forward. The agreement can be terminated by either PHPNJ 4 5 or Horizon, with or without cause, provided that the terminating party has furnished not less than thirty (30) days prior written notice of such termination to the other party. Horizon currently continues to provide services to the Company as described above. Although the Company sold its operations to Horizon, the Company remained responsible for the payment of claims incurred prior to the December 19, 1997 date of the closing of the transaction with Horizon. This liability is limited to those claims asserted by a claimant on or before December 19, 1998, and previously acknowledged or otherwise known to the Company. In early 1999, the Company completed payment of claims incurred prior to December 19, 1997. The Company continued to fulfill the reporting requirements of regulatory agencies through its contracts with The Pace Group and Horizon. During 1999 and 2000 the Company had ongoing discussions with the New Jersey insurance regulators to reach agreement on the most expeditious way to surrender the COA. The New Jersey Department of Banking and Insurance required a Custody Agreement in the amount of $350,000 be established for the benefit of any future liabilities as a condition of surrender of the COA. Subsequent to December 31, 2000 the Company established the Custody Agreement and on March 7, 2001 the New Jersey insurance regulators approved the surrender of the COA. It is expected that sometime during 2001 the Company will be dissolved and any assets remaining after satisfaction of the Company's liabilities will be distributed to stockholders. Amounts distributed in respect of each outstanding share of the Company's common stock are expected to be substantially lower than the purchase price paid for such shares. However, the Company is unable to estimate the amount, if any, that would be available for distribution. Dissolution requires additional stockholder action. ITEM 2. DESCRIPTION OF PROPERTY The Company has no leased or owned real property. ITEM 3. LEGAL PROCEEDINGS The Company was a defendant in an action entitled Benjamin Levine, M.D. v. Physician Healthcare Plan of New Jersey, docket number DC-2841-98, filed in Superior Court of New Jersey Law Division, Special Civil Part, Mercer County. The Plaintiff sought to recover $10,000 together with interest and litigation costs from the Defendants for redemption of stock. On August 14, 1998, the Court issued a summary judgement to dismiss the action. In November 1998, the Plaintiff filed an appeal. The court held a hearing on April 4, 2000 and issued a decision on May 15, 2000 denying Dr. Levine's appeal. On May 18, 2000 Dr. Levine submitted a Motion for Reconsideration. On May 24, 2000 the Company filed an Order denying the Notice of Motion filed by Dr. Levine. On June 2, 2000 the Court rejected Dr. Levine's Motion for Reconsideration. On June 6, 2000 Dr. Levine filed a Notice of Petition for Certification to the New Jersey Supreme Court and subsequently on July 14, 2000 submitted a brief requesting a hearing. The Company filed a brief in opposition to Dr. Levine's request that the New Jersey Supreme Court hear the appeal. Although not entitled to a reply under the current procedure, on July 29, 2000 Dr. Levine submitted a letter brief in response to the Company's brief in opposition. The Supreme 5 6 Court denied Dr. Levine's Petition for Certification on September 26, 2000. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No meetings for shareholders were held in 2000 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS There is no public market for the common stock of the Company. At December 31, 2000, the Company had 4,629 shareholders. The Company's shares could only be purchased by eligible purchasers (4,629), which were physicians who were licensed to practice medicine and surgery in New Jersey and who were actively practicing. Each eligible purchaser is limited to one share. The By-Laws of the Company prohibit the transfer of stock to any person or entity to ensure that only physicians participating in the network maintained ownership in the Company. However, the By-Laws do provide for mandatory redemption by the Company in Exchange for the book value of the stock upon the occurrence of certain events, such as death, retirement, disability, loss of medical license, cessation of practice in New Jersey and termination of an effective Physician Participation Agreement. Discretionary redemption by the Board of Directors is also permitted. The Company is not permitted to redeem a share if the Company is insolvent or if doing so would cause the Company to be in a precarious financial condition, as determined by the Board of Directors. In November 1996, the Board of Directors adopted a resolution to the effect that discretionary redemptions would not be made for a period of 12 months after the adoption of such resolution. In July 1997, the Board of Directors adopted a resolution that placed a moratorium on all redemptions, for any reason, to prevent a potentially large redemption obligation from causing the Company to be in precarious financial condition. The Company has not paid any dividends and does not intend to pay dividends in the future. Earnings, if any, have been retained for use in the operation and expansion of the Company's business. Additionally, the Company must obtain approval from the New Jersey Department of Banking and Insurance prior to declaring any dividends. ITEM 6. MANAGEMENT'S PLAN OF OPERATIONS The Company is a New Jersey corporation, formed on January 10, 1994, under the sponsorship of private practicing physicians for the purpose of developing a statewide, physician-owned HMO. The Company sold its operations to the Purchaser on December 19, 1997, following the December 9, 1997 shareholder meeting at which the sale was approved, and has continued efforts through 1998 year to date to wind down operations. As a result, effective December 31, 1997,the Company changed its basis of accounting from a going-concern basis to a liquidation basis. During the year ended December 31, 2000, management activities have been limited to continuing the Company's payment of existing liabilities, stewardship of remaining assets, maintaining 6 7 compliance as appropriate in reporting to applicable regulatory agencies and working with applicable regulatory agencies to gain approval to surrender its COA and dissolve. Although the Company has sold its operations to Horizon, the Company remained responsible for the payment of claims incurred prior to the December 19, 1997 date of the closing of the transaction with Horizon. The Company's liability for claims payment after December 19, 1998, the first anniversary of the transaction, is limited to claims asserted by a claimant for services prior to December 19, 1997 and previously acknowledged or otherwise known to the Company no later than December 19, 1998. As of December 31, 1999 that liability had been fully paid out. Any claims for services provided after December 19, 1997 or any claims for services provided prior to December 19, 1997 but first discovered after December 18, 1998 are the responsibility of Horizon. In early 2000, Horizon notified the Company that it believes the Company is responsible for approximately $30,000 of claims because they were incurred prior to December 19, 1997. The Company believes it has no responsibility for these claims because they were reported to the Company after December 19, 1998 and that they are Horizon's responsibility pursuant to the agreements entered into in connection with the transaction. No further communications have taken place with Horizon regarding this matter since early 2000. During 1999 and 2000 the Company had ongoing discussions with the New Jersey insurance regulators to reach agreement on the most expeditious way to surrender the COA. The New Jersey Department of Banking and Insurance required a Custody Agreement in the amount of $350,000 be established for the payment of any future liabilities as a condition of surrender of the COA. Subsequent to December 31, 2000 the Company established the Custody Agreement and on March 7, 2001 the New Jersey insurance regulators approved the surrender of the COA. It is expected that sometime during 2001 the Company will be dissolved, and after approval by the stockholders, any assets remaining after satisfaction of the Company's liabilities will be distributed to stockholders. Amounts distributed in respect of each outstanding share of the Company's common stock are expected to be substantially lower than the purchase price paid for such shares. However, the Company is unable to estimate the amount, if any, that would be available for distribution. Dissolution requires additional stockholder action. Changes in Net Assets The decrease in net assets in liquidation for the year ended December 31, 2000 was approximately $19,000, which represents total return on investments of approximately $304,000, offset by a state insurance department assessment of approximately $26,000 and by general and administrative expenses of approximately $297,000. For the year ended December 31, 2000, the Company incurred general and administrative costs of approximately $297,000. In 2000, such costs and expenses relate to the management activities of the Company including, but not limited to, costs and expenses incurred due to management fees, legal fees, accounting and audit fees and insurance. During 2000, an assessment of approximately $26,000 was paid to the New Jersey Individual Health Coverage Program. The assessment was based on a reconciliation of net earned premium reported for calendar year 1998. 7 8 Investment income was $243,000 in 2000 compared to $286,000 in 1999. The decrease of $43,000 relates to a slight decline in invested assets and a declining interest rate environment as compared to the prior year. Unrealized gains of $85,000 were generated during 2000 due to the Company's investments in debt securities in a declining interest rate environment. This compares to unrealized losses of $103,000 generated during 1999, which was a result of an increasing interest rate environment. The State of New Jersey Small Employer Health Benefit Plan assessments of $26,000 and $211,000 in 2000 and 1999 respectively represented an original assessment based on a previous year's premiums collected and an adjustment to that assessment. Future assessments, if any, are not currently estimable. General and administrative expenses have declined by $316,000 from $613,000 in 1999 to $297,000 during 2000. The decline is a result of reduced costs associated with administering the Company as it nears ultimate dissolution. Financial Condition Cash and invested assets: Total investments, including cash and short term investments were approximately $4,596,000 at December 31, 2000 and $4,643,000 at December 31, 1999. The decrease in invested assets between December 31, 2000 and December 31, 1999 resulted primarily from cash outflow from payment of general and administrative expenses. The Company's investments on December 31,2000 were in debt securities comprised of investment grade securities, with the highest ratings assigned by Standard & Poor's (AAA) or Moody's (Aaa;P-1), respectively. Net assets in liquidation: Total net assets in liquidation were approximately $4,356,000 at December 31, 2000 and approximately $4,375,000 at December 31, 1999. The decrease is primarily due to general and administrative expenses in excess of total return on investments. ITEM 7. FINANCIAL STATEMENTS The financial statements of the Company as required by this item are submitted as a separate section of this report. Reference is made to the Index of Financial Statements hereafter contained on page F-1. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE No change in accountant and/or disagreements on any matter of accounting principles or financial statement disclosures have occurred within the last two years. 8 9 ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT Directors of the Registrant The following table lists the Company's current Board of Directors and their ages. The Company has no executive officers other than its Chairman and President. Employees of Pace, with whom the Company contracts for certain management services, serve as acting Chief Executive Officer and Principal Accounting Officer.

* Will serve until successor is elected and qualified. The Company did not hold an annual meeting in 1997, 1998,1999 or 2000. 9 10 JOSEPH BILLOTTI, M.D., has conducted a private medical practice in Orthopedic Surgery in Bergen County, New Jersey since 1978. Dr. Billotti is a Diplomate of the American Board of Orthopedic Surgery, Fellow of the American Academy of Orthopedic Surgeons, and is a Fellow of the American and International College of Surgeons. Dr. Billotti is a member of the Federal Health Care Financing Administration Advisory Committee. He served as a Delegate for the State of New Jersey Medical Society, and was a member of the Board of Directors of the New Jersey State Orthopedic Society. Dr. Billotti was the Medical Director of the Valley Regional Medical Center and a Clinical Assistant Professor of Orthopedic Surgery at the University of Medicine and Dentistry of New Jersey. Dr. Billotti is a member of the Bergen County Medical Society, the American Medical Association, the Eastern Orthopaedic Society and the American College of Managed Care, Inc. BESSIE SULLIVAN, M.D., has conducted a private medical practice in Rheumatology, Allergy and Immunology in Central New Jersey since 1974. She is a Diplomate of the American Boards of Internal Medicine, Rheumatology, and Allergy and Immunology. Dr. Sullivan is a Clinical Associate Professor of Medicine at the University of Medicine and Dentistry of New Jersey. She is also a founding Fellow of the American Rheumatology Association. She served as Vice President of the New Jersey Chapter of the Arthritis Foundation, was a member of its Executive Committee, and continues to serve on its Board of Governors and its Medical and Scientific Committee, and she has served as Chairperson of several of the Chapter's other committees. Dr. Sullivan served as President of the Medical Staff at Muhlenberg Regional Medical Center from 1992-1993, has served as Chairperson of Muhlenberg's Medical Records Committee, and as a member of its Executive Committee and the Planning Committee of its Board of Trustees. She was the Chairperson of the Legislative Council of the New Jersey Medical Society and is currently a member of its House of Delegates, Consultant to the Board of Trustees, and the Board's Strategic Planning Committee. From 1990-1991, she served as President of the Union County Medical Society. Dr. Sullivan is a member of the Board of Directors of The MIIX Group, Incorporated. STANLEY BLOOM, M.D., has conducted a private medical practice in Urology in Essex County, New Jersey since 1970. He is a Board Certified Urologist and a Fellow of the American College of Surgeons. Dr. Bloom is a member of the Essex County Medical Society, the American Urological Association and the Society of Endolaparoscopic Surgeons. He is also past Chairman of the Department of Surgery at East Orange General Hospital and of the Departments of Urology at St. Barnabas Medical Center and East Orange General Hospital. WILLIAM F. BRENNAN, D.O., Board Certified in Family Practice by the American Osteopathic College of Family Practice, has conducted a private medical practice in Family Medicine in Gloucester County since 1980. In addition to his private practice, he currently serves as a Student Health Physician for Rowan College. Dr. Brennan is also a Delegate to the New Jersey Osteopathic House of Delegates. In 1995, he was appointed Clinical Associate Professor of Family Practice at the University of Medicine and Dentistry of New Jersey - School of Osteopathic Medicine. Previously, in addition to his private practice, 10 11 Dr. Brennan served as Medical Director of the Gloucester County Sheriff's Medical Department, school physician for the Cherry Hill School District and as a medical officer in the United States Navy. LEE HINDIN, M.D., conducted a private practice in psychiatry in Essex County from 1982-1995. Since 1995 his practice has been in Passaic County. Prior to that, he was an instructor at the University of Medicine and Dentistry of New Jersey. He is Board Certified in Psychiatry by the American Board of Psychiatry and Neurology. He is a member of the American Psychiatric Association, the New Jersey Psychiatric Associates, American Society of Addiction Medicine, and American Academy of Psychiatrists in Alcoholism and Addictions. He is founder and Medical Director of Creative Intervention for Mental Health and Chemical Dependency. He has been the Associate Medical Director of the Department of Psychiatry, Medical Director of the Division of Drug and Alcohol Services and is currently on the Medical Board of St. Barnabas Medical Center. ALEXANDER R. HOROWITZ, M.D., has conducted a private practice in Pediatrics in Madison, New Jersey since 1977. Dr. Horowitz is a Diplomate of the American Board of Pediatrics and the American Board of Quality Assurance and Utilization Review Physicians. He is past Chairman of the Pediatric Audit Committee at Overlook Hospital and the Joint Patient Care Committee at Morristown Memorial Hospital. He has served as a utilization reviewer at both institutions. He is an Instructor of Clinical Pediatrics at the College of Physicians and Surgeons, Columbia University, New York. He holds and has held multiple positions in the Morris-Somerset IPA. LOUIS KEELER, M.D., has conducted a private practice in Urology in Camden County since 1967. He is Board Certified and a member of the American Urologic Association. He is immediate past President of the Medical Society of New Jersey. Dr. Keeler is a Clinical Associate Professor of Urology at Thomas Jefferson University in Philadelphia. He has been President of the Camden County Medical Society and President of the Medical Staff of Our Lady of Lourdes Medical Center in Camden, New Jersey. LINDA KORMAN, M.D., has conducted a private practice in Internal Medicine in Central New Jersey since 1985. She practices Internal Medicine in Edison with an emphasis on preventative medicine. She is Board Certified in Internal Medicine by the American Board of Internal Medicine. She served on the Board of Trustees of the Middlesex County Medical Society. Dr. Korman was recently appointed Vice President of their Public Relations Committee. She is a member of the American Medical Association and the American Board of Internal Medicine. The SUNY Health Science Center appointed Dr. Korman as Clinical Assistant Professor of Medicine. She is Medical Director of Family Medical Group and has also been Medical Director and Consultant for several wellness programs. MARK LEVEY, M.D., has conducted a private medical practice in Otolaryngology in Essex County, New Jersey since 1969. Dr. Levey is a Fellow of the American Academy of Facial, Plastic and Reconstructive Surgery, the American Academy of Ophthalmology and Otolaryngology, the American College of Surgeons, and the American Society for Head and Neck Surgery. He is currently an Associate Clinical Professor of 11 12 Surgery at the Robert Wood Johnson Medical School. Dr. Levey has served as Treasurer of the Medical Staff at Saint Barnabas Medical Center and currently serves as Director of MetroWest IPA. MARTIN S. LEVINE, D.O., has conducted a Family and Sports Medicine practice in Jersey City, New Jersey since 1983. Dr. Levine is past President of the New Jersey Association of Osteopathic Physicians and Surgeons. He is the past National and New Jersey Delegate of the American College of Osteopathic Family Practitioners. Dr. Levine is the Assistant Clinical Professor of the Department of Family Practice at the University of Medicine and Dentistry of New Jersey School of Osteopathic Medicine. NANCY L. MUELLER, M.D., has conducted a private medical practice in Neurology in Englewood, New Jersey since 1982. Dr. Mueller is Board Certified by the American Board of Quality Assurance and Utilization Review Physicians and is Board eligible with the American Board of Psychiatry and Neurology. She has been an active member of the utilization Review Committee of the Englewood Hospital since 1983. She is currently President-Elect of the Bergen County Medical Society and has been a member of its Board of Trustees since 1990. She has been a delegate to the Medical Society of New Jersey since 1988. She was appointed to the Transition Committee for the State of New Jersey Department of Health. She is a member of the State Medical Service Committee, as well as a reviewer and expert for the Professional Review Organization of New Jersey. She is a member of the American Academy of Neurology, the American College of Physicians and the American Women's Medical Association. She has been part of the National Health Care Advisory Board and is currently working as a bipartisan member of the Committee on National Healthcare for the Democratic National Committee. Dr. Mueller is presently serving on the Executive Board of Princeton Preferred. MARK T. OLESNICKY, M.D., has conducted a private practice in Internal Medicine in Essex County, New Jersey since 1975. He is currently President of the Medical Staff of Saint Barnabas Medical Center, Livingston, New Jersey. He also serves as Trustee of the Medical Society of New Jersey as well as an Alternate Delegate to the American Medical Association. He is a Diplomate of the American Board of Quality Assurance and Utilization Review Physicians. Dr. Olesnicky has also served as President of the Essex County Medical Society and President of the Essex County Health Organization. EMMONS G. PAINE, M.D., has conducted a private medical practice in Cardiology in Camden County, New Jersey since 1962. He has been past-president of the Camden County Medical Society, and has served on its Executive Committee for several years. Dr. Paine is a Diplomate of the American Board of Internal Medicine and is a Fellow of the American College of Cardiology. Dr. Paine has served on the Governor's Committee for Mobile Intensive Care Units from 1972 to 1975. He recently ended an eleven-year period as Chief of Cardiology of the West Jersey Health System and he served as Chairman of West Jersey Hospital's Medical Subcommittee for Quality Assurance for nine years. Dr. Paine has also served on the Board of Trustees of West Jersey Hospital. He is presently Chief of Staff of West Jersey Hospital. 12 13 FRED M. PALACE, M.D., is an Attending Radiologist at Morristown Memorial Hospital, Morristown, New Jersey. He is Board Certified by the National Board of Medical Examiners, the American Board of Radiology and the American Board of Nuclear Medicine. He is a Fellow of the American College of Radiology and the American College of Nuclear Physicians. Dr. Palace is a former President of the Radiology Society of New Jersey. He is a past-President of the Medical Society of New Jersey. He is also a member of the Board of Directors of The MIIX Group, Incorporated. BARRY PRYSTOWSKY, M.D., has conducted a private practice in Pediatrics in Nutley, New Jersey since 1984. Dr. Prystowsky is a Diplomate of the American Board of Pediatrics. Dr. Prystowsky is President of the New Jersey Pediatrics Society. He is on the Council of the American Academy of Pediatrics, New Jersey Chapter. Dr. Prystowsky has served as the Chairman of the New Jersey Medical Society Subcommittee on Violence Prevention and Chairman of the New Jersey Academy of Pediatrics Practice Management Committee. Dr. Prystowsky served on the Pediatric Clinical Advisory Committee at the New Jersey Department of Health. Dr. Prystowsky served on the medical advisory committee for Blue Cross Blue Shield, First Option and Prucare. In addition, he currently serves on the Credential Committee for Horizon and the pharmacy and therapeutic committee for Horizon Blue. He is Secretary of the Primary Care Physician of NJ IPA and President of the Quality Physicians Network of America. Dr. Prystowsky is one of the cofounders and current Secretary/Treasurer of the Children's Emergency Medical Fund of New Jersey. Dr. Prystowsky served on the health advisory committees for Governor Whitman and Senator Rice, and was the health chairman for Senator Rice's mayoral election team in Newark, New Jersey. Dr. Prystowsky was the principal health advisor for Senator Bradley's bill on women's mandatory 48 hour hospital stay after giving birth. Dr. Prystowksy also serves as a Clinical Assistant Professor of Pediatrics at the University of Medicine and Dentistry of New Jersey and has been appointed to the Governor's Task Force on Child Abuse. THOMAS R.C. REUTTER, JR., D.O., has conducted a Family and Sports Medicine Practice in Gloucester County, New Jersey since 1969. He is a past President of the New Jersey Association of Osteopathic Physicians and Surgeons and of the American Academy of Family Practice of New Jersey in Osteopathic Medicine. He sits on the Board of Executive Peer Review of New Jersey. He is a Fellow of the Academy of Family Practice and a Board member of the Southern New Jersey Individual Practice Association. Dr. Reutter is a Clinical Assistant Professor in Family Practice at the University of Medicine and Dentistry of New Jersey School of Osteopathic Medicine. He is also the physician for Logan Township and Westville schools. In addition, Dr. Reutter is the team physician for Rowan College. DAVID L. SIROTA, D.O., has conducted a private medical practice in General Practice in Passaic and Essex Counties in New Jersey since 1972. He is currently Medical Director of the Out-Patient Department and Occupational Health Services at Holy Name Hospital. Dr. Sirota is a past President of the New Jersey Association of Osteopathic Physicians and Surgeons. He is an active member of the American Osteopathic Association and the New Jersey Association of Osteopathic Physicians and Surgeons. He was Director of Medical Education at Saddlebrook Hospital and is active in peer review activities. 13 14 VINCENT J. VIVONA, D.O., J.D., has conducted a private medical practice in Cardiology in Ocean County, New Jersey since 1979. Dr. Vivona is a Diplomate of the Board of Internal Medicine (1996). He is also a lawyer currently admitted to the New Jersey and Pennsylvania bars. He is a Fellow of the American College of Legal Medicine and an Adjunct Instructor in Healthcare Law at Ocean County College. The Company presently has no full-time employees. Pace provides certain services pursuant to an agreement with the Company. Its employees serve as acting Chief Executive Officer and Principal Accounting Officer. Notwithstanding these arrangements with Pace, the Company's operations were managed by MGM from January - June 1997 and by Horizon from July - December 1997 pursuant to management agreements. Horizon purchased the Company's operations on December 19, 1997. Pace and Horizon continues to provide certain administrative and corporate services to the Company. There are no familial relationships among the directors of the Company. Section 16(a) Beneficial Ownership Reporting Compliance The Company believes that no reports were required to be filed during the fiscal year ended December 31, 1999 because no transfers of the Company's stock were permitted in 1999. ITEM 10. EXECUTIVE COMPENSATION No director of the Company receives any remuneration for serving as a director. The Company has no employees. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT With the exception of the Class F and G Director(s), each of the directors of the Company owns one share of stock of the Company. As a group, directors own .38% of outstanding stock. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Each shareholder of the Company executed a Physician Participation Agreement for the provision of healthcare services to the Company's Members. Accordingly, a large portion of the claims payable and incurred medical costs were paid to shareholders. On December 19, 1997, the Company consummated the transfer of its provider contracts to the Purchaser as previously described. No shareholder individually received any consideration in connection that transaction. 14 15 ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS Reference is made to the Index of Exhibits hereinafter contained on page E-1. (B) REPORTS ON FORM 8-K The Company has not filed any reports on Form 8-K. SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PHYSICIAN HEALTHCARE PLAN OF NEW JERSEY, INC. ---------------------------------------- BY: /s/JOSEPH BILLOTTI, MD DATE Joseph Billotti, M.D. Chairman and President ----------------------------------- /s/RUSS MOHAWK DATE Russ Mohawk Senior Consultant of The Pace Group, Inc. Acting in the capacity of Principal Accounting Officer and Principal Financial Officer of the Registrant) DATED: June 20, 2001 In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. SIGNATURE TITLE DATE /s/JOSEPH BILLOTTI, M.D. Chairman of the Board and Joseph Billotti, M.D. President /s/BESSIE SULLIVAN, M.D. Treasurer and Director Bessie Sullivan, M.D. /s/STANLEY BLOOM, M.D. Director Stanley Bloom, M.D. /s/WILLIAM F. BRENNAN, D.O. Director William F. Brennan, D.O. 15 16 /s/LEE HINDIN, M.D. Director Lee Hindin, M.D. SIGNATURE TITLE DATE /s/ALEXANDER R. HOROWITZ, M.D. Director Alexander R, Horowitz, M.D. /s/LOUIS KEELER, M.D. Director Louis Keeler, M.D. /s/LINDA KORMAN, M.D. Director Linda Korman, M.D. /s/MARK LEVEY, M.D. Director Mark Levey, M.D. /s/MARTIN S. LEVINE, D.O. Director Martin S. Levine, D.O. /s/NANCY L. MUELLER, M.D. Director Nancy L. Mueller, M.D. /s/MARK T. OLESNICKY, M.D. Director Mark T. Olesnicky, M.D. /s/EMMONS G. PAINE, M.D. Director Emmons G. Paine, M.D. /s/FRED M. PALACE, M.D. Director Fred M. Palace, M.D. /s/BARRY PRYSTOWSKY, M.D. Director Barry Prystowsky, M.D. /s/THOMAS R.C. REUTTER, JR., D.O. Director Thomas R.C. Reutter, Jr., D.O. /s/DAVID L. SIROTA, D.O. Director David L. Sirota, D.O. /s/VINCENT J. VIVONA, D.O., J.D. Director Vincent J. Vivona, D.O., J.D. 16 17 Physician Healthcare Plan of New Jersey, Inc. Financial Statements December 31, 2000 CONTENTS Report of Independent Auditors....................................................F-2 Statements of Net Assets in Liquidation...........................................F-3 Statements of Changes in Net Assets in Liquidation................................F-4 Notes to Financial Statements.....................................................F-5

F-1 18 Report of Independent Auditors The Board of Directors Physician Healthcare Plan of New Jersey, Inc. We have audited the accompanying statements of net assets in liquidation of Physician Healthcare Plan of New Jersey, Inc. as of December 31, 2000 and 1999, and the related statements of changes in net assets in liquidation for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 financial statements referred to above present fairly, in all material respects, the net assets in liquidation of Physician Healthcare Plan of New Jersey, Inc. as of December 31, 2000 and 1999, and the changes in net assets in liquidation for the years then ended, in conformity with accounting principles generally accepted in the United States. June 20, 2001 New York, New York Ernst & Young LLP F-2 19 Physician Healthcare Plan of New Jersey, Inc. Statements of Net Assets in Liquidation (In thousands)

See accompanying notes. F-3 20 Physician Healthcare Plan of New Jersey, Inc. Statements of Changes in Net Assets in Liquidation (In thousands, except per share and share amounts)

See accompanying notes. F-4 21 PHYSICIAN HEALTCARE PLAN OF NEW JERSEY, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 1. ORGANIZATION AND RELATED MATTERS Physician Healthcare Plan of New Jersey, Inc. (the "Company", or "PHPNJ"), a New Jersey corporation, was formed January 10, 1994, under the sponsorship of private practicing physicians for the purpose of developing a statewide, physician-owned Health Maintenance Organization ("HMO"). The Company's Certificate of Authority ("COA") to operate as an HMO throughout New Jersey was approved in 1996. The Board of Directors, comprised solely of shareholders, oversees the activities of the Company. On December 19, 1997, the Company consummated the transfer and assignment of certain provider and subscriber contracts constituting its HMO, POS and PPO operations (the "Transaction") to Horizon Healthcare of New Jersey, Inc. ("Horizon"), the health maintenance organization affiliated with Horizon Blue Cross Blue Shield of New Jersey, Inc. The Company received a cash payment of $1,839,300 as consideration for the transfer and assignment. Although the Company sold its operations to Horizon, the Company remained responsible for the payment of claims incurred prior to the December 19, 1997 date of the closing of the transaction with Horizon. However, in accordance with the Transaction Agreement, claims incurred prior to December 19, 1997, but first reported to the Company after December 19, 1998, are the responsibility of Horizon. In early 2000, Horizon notified the Company that it believes the Company is responsible for approximately $30,000 of claims because they were incurred prior to December 19, 1997. The Company believes it has no responsibility for these claims because they were reported to the Company after December 19, 1998 and that they are Horizon's responsibility pursuant to the agreements entered into in connection with the transaction. No further communications have taken place with Horizon regarding this matter since early 2000. During 1999 and 2000 the Company had ongoing discussions with the New Jersey insurance regulators to reach agreement on the most expeditious way to surrender the COA. The New Jersey Department of Banking and Insurance required a Custody Agreement in the amount of $350,000 be established for the benefit of any future liabilities as a condition of surrender of the COA. Subsequent to December 31, 2000 the Company established the Custody Agreement and on March 7, 2001 the New Jersey insurance regulators approved the surrender of the COA. It is expected that sometime during 2001 the Company will be dissolved, and after approval by the stockholders, any assets remaining after satisfaction of the Company's liabilities will be distributed to stockholders. Amounts distributed in respect of each outstanding share of the Company's common stock are expected to be substantially lower than the purchase price paid for such shares. However, the Company is unable to estimate the amount, if any , that would be available for distribution. Dissolution would require additional stockholder action. 2. SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION As a result of the sale of its operations to Horizon on December 19, 1997, the Company implemented a liquidation basis of accounting effective December 31, 1997. The statements of net assets in liquidation at December 31, 2000 and F-5 22 1999 do not distinguish between current and long-term balances as would be reflected if such statements had been prepared on a going-concern basis. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. INVESTMENTS All investments are carried at their fair values, with unrealized gains and losses included in net income. Investment income, net of investment expenses and amortization of bond premium and discount, is recognized in income when earned. Realized gains and losses on sales of investment securities, determined on the specific identification basis, are included in the statements of changes in net assets in liquidation. INCOME TAXES The Company accounts for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. SFAS No. 109 prescribes an asset and liability method for accounting for deferred taxes, the objective of which is to recognize an asset or liability for the expected future tax effects due to temporary differences between financial reporting and tax basis of assets and liabilities, based on enacted tax rates and other provisions of the tax law. The principal item giving rise to such differences are net operating loss carryforwards. Under SFAS No. 109, deferred tax assets are recognized unless it is more likely than not that some portion of the deferred tax assets may not be realized. At December 31, 2000 and 1999, no deferred tax assets have been recognized. Further, for the years ended December 31, 2000 and 1999 or any prior period, no tax benefit has ever been recognized. At December 31, 2000, the total amount of net operating losses carried forward and available to offset future income subject to federal income taxes was approximately $18.5 million. NET INCOME (LOSS) PER COMMON SHARE Net income (loss) per common share is based upon the weighted average number of shares outstanding during the year, in accordance with SFAS No. 128. RECLASSIFICATION Certain 1999 balances have been reclassified to conform to the 2000 presentation. 3. MANAGEMENT AGREEMENTS Pursuant to a Management Services Agreement dated December 19, 1997, and amended on July 16, 1999, the Company has engaged Horizon as its management company to provide a substantial portion of the Company's F-6 23 management and administrative services. The Company pays Horizon an hourly fee of $75 for services rendered to PHPNJ. The agreement can be terminated by either PHPNJ or Horizon, with or without cause, provided that the terminating party has furnished not less than thirty (30) days' prior written notice of such termination to the other party. During 2000 and 1999, the Company incurred fees of $29,275 and $149,363, respectively, related to this arrangement. The Company also has an agreement with The Pace Group, Inc. ("Pace") to provide management services and certain corporate financial and reporting assistance not otherwise provided by Horizon, such as assistance in making required filings with state insurance regulators and with the Securities and Exchange Commission. Pace has provided the Company with an "Acting CEO" and "Acting CFO" since its sale to Horizon. 4. COMMITMENTS AND CONTINGENCIES The Company was a defendant in an action entitled Benjamin Levine, M.D. v. Physician Healthcare Plan of New Jersey, docket number DC-2841-98, filed in Superior Court of New Jersey Law Division, Special Civil Part, Mercer County. The Plaintiff sought to recover $10,000 together with interest and litigation costs from the Defendants for redemption of stock. On August 14, 1998, the Court issued a summary judgement to dismiss the action. In November 1998, the Plaintiff filed an appeal. The court held a hearing on April 4, 2000 and issued a decision on May 15, 2000 denying Dr. Levine's appeal. On May 18, 2000 Dr. Levine submitted a Motion for Reconsideration. On May 24, 2000 the Company filed an Order denying the Notice of Motion filed by Dr. Levine. On June 2, 2000 the Court rejected Dr. Levine's Motion for Reconsideration. On June 6, 2000 Dr. Levine filed a Notice of Petition for Certification to the New Jersey Supreme Court and subsequently on July 14, 2000 submitted a brief requesting a hearing. The Company filed a brief in opposition to Dr. Levine's request that the New Jersey Supreme Court hear the appeal. Although not entitled to a reply under the current procedure, on July 29, 2000 Dr. Levine submitted a letter brief in response to the Company's brief in opposition. The Supreme Court denied Dr. Levine's Petition for Certification on September 26, 2000. As of December 31, 2000, the Company's investments included restricted assets of approximately $316,000, on deposit with the State of New Jersey for solvency protection. In 2000 and 1999 the Company was assessed and paid $26,224 and $211,421, respectively for the Company's portion of a New Jersey State assessment on HMO's. These amounts assessed by the New Jersey Individual Health Coverage Program are subject to adjustment in the future. The Company is currently unable to estimate adjustments to the assessments or future assessments, if any, that may become due to the Company. 5. SHAREHOLDERS' EQUITY AND DIVIDEND RESTRICTIONS On March 4, 1994, the Company sought to raise capital through an initial offering of up to 15,000 shares of stock at a price of $5,000 per share to physicians who were eligible purchasers. Only physicians who both practiced and resided in the State of New Jersey were eligible purchasers. The Company issued 3,569 shares as a result of this offering, representing approximately $17.8 million in initial capital. The Company's registration statement was filed with the SEC and declared effective November 9, 1995. The purpose of the second offering to physicians who practice in the State of New Jersey was to raise additional capital of up to 10,000 shares of stock at a price of $5,500 per share. All shares have the same rights and privileges. In 1996, the Company issued 1,136 shares as a result of this offering, representing approximately $6.3 million of additional capital. F-7 24 In order to ensure the Company operates as a physician-owned HMO whereby shareholders represent participating physicians in the HMO, the Articles of Incorporation and by-laws provide certain restrictions on this stock. It is non-transferable and can only be redeemed by the Company. Circumstances requiring redemption of stock at current book value in order to preserve the integrity of the network include death, retirement, disability, loss of license to practice medicine in New Jersey and termination of an effective Physician Participation Agreement with the Company. In addition, physicians who fail to become credentialed by the Company must redeem their shares at the original purchase price without interest. Physicians who otherwise wish to redeem their shares may do so at the sole discretion of the Board of Directors at current book value. After approval, the Board may take up to six months to redeem such shares. The Company shall not be required to redeem a shareholder's stock if the Company is insolvent, if doing so would cause the Company to become insolvent, or if the Company is, or the redemption would cause the Company to be, in a precarious financial condition. On July 15, 1997, the Board of Directors of the Company approved a resolution to place a moratorium on redemptions of the Company's common stock for any reason, including reasons set forth in the Company's by-laws, because of the prospect that the satisfaction of all prospective redemption obligations could cause the Company to be in "precarious financial condition" as that term is defined in the Company's registration statement on Form SB-2. As a result the Company will not be required to redeem a stockholder's shares of the Company's common stock in the event that the stockholder requests such redemption in connection with an event described in the Company's by-laws, or in connection with the failure of the Company to credential the stockholder as a provider under the Company's health care plans, or for any other reason. Seventy-six shares were redeemed prior to July 15, 1997. The Company is required to file its Annual Statement prepared in accordance with accounting practices prescribed or permitted by the New Jersey State Insurance Department (statutory basis). Such accounting practices vary in certain respects from GAAP. The following is a reconciliation of the 2000 and 1999 net loss and December 31, 2000 and 1999 capital and surplus of the Company as determined in accordance with statutory accounting practices to net income and net assets in liquidation reported in accordance with GAAP:

New Jersey State law provides that dividends or other distributions may be paid only from retained earnings and to the extent statutory capital and surplus is in excess of the minimum net worth requirement of $1,000,000. The Company is unable to pay any dividends or make any other distributions of its capital and surplus without the permission of the New Jersey Department of Banking and Insurance. F-8 25 6. EMPLOYMENT COSTS The Company currently has no employees. All persons providing services on behalf of the Company during 2000 and 1999 were employees of Horizon. In addition, Pace continues to provide certain management services and certain corporate, financial and reporting assistance not otherwise provided by Horizon, as previously described. The costs of the Horizon and Pace services are included in general and administrative expenses on the statement of changes in net assets in liquidation. 7. INVESTMENTS DEBT SECURITIES The following summarizes the amortized cost and the estimated fair value of the Company's investments in debt securities as of December 31, 2000 and 1999. The estimated fair values for the Company's investments in debt securities are based on quoted market prices.

The following summarizes the amortized cost and estimated fair value of the Company's investments in debt securities by contractual maturity as of December 31, 2000:

F-9 26 INDEX TO EXHIBITS EXHIBIT NO. EXHIBIT 3.1 Amended and restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Registrant's Registration Statement on Form SB-2) 3.2 Amended and restated By-Laws (incorporated by reference to Exhibit 3.2 to the Registrant's Registration Statement on Form SB-2) 4.1 Secondary Offering Prospectus, as approved by the Securities Exchange Commission on November 9, 1995, detailing rights of security holders (incorporated by reference to the Registrant's Registration Statement on Form SB-2) 10.8 Assignment and Assumption of Lease Agreement dated February 11, 1997 (incorporated by reference to Exhibit 10.8 in the Registrant's Registration Statement Form 10.9 Agreement between the Registrant and Medigroup of New Jersey, Inc. dated as of June 26, 1997 (incorporated by reference to Exhibit 10.9 to the Registrant's Form 10-QSB for quarter Ended June 30, 1997) 10.10 Management Services Agreement between the Registrant and Medigroup of New Jersey, Inc. dated as of June 26, 1997 (incorporated by reference to Exhibit 10.9 to the Registrant's Form 10-QSB for quarter ended June 30, 1997) 10.11 Termination and Release Agreement by and between Medical Group Management, Inc. and Physician Healthcare Plan of New Jersey, Inc., dated as of July 31, 1997 (incorporated by reference to Exhibit 10.11 to the Registrant's Form 10-QSB for quarter ended September 30, 1997) 10.12 Letter of Agreement between Medigroup of New Jersey, Inc. and Physician Healthcare Plan of New Jersey, dated as of August 26, 1977, relating to the sale of certain fixed assets (incorporated by reference to Exhibit 10.12 to the Registrant's Form 10-QSB for quarter ended September 30, 1997) 10.13 Services Agreement between The Pace Group, Inc. and Physician Healthcare Plan of New Jersey, Inc., dated as of August 1, 1997 (incorporated by reference to Exhibit 10.13 to the Registrant's Form 10-QSB for quarter ended September 30, 1997) E-1 27 10.14 Agreement between Medigroup of New Jersey, Inc. and Physician Healthcare Plan of New Jersey, Inc., dated July 25, 1997, relating to the use of certain computer equipment (incorporated by reference to Exhibit 10.14 to the Registrant's Form 10-QSB for quarter ended September 30, 1997) 10.15 Management Services Agreement dated as of December 19, 1997 between Physician Healthcare Plan of New Jersey, Inc. and Medigroup of New Jersey, Inc. (incorporated by reference to Exhibit 99.3 to the Registrant's Form 8-K filed December 29, 1997) E-2

PHYSICIAN HEALTHCARE PLAN OF NEW JERSEY INC 10-K