StatementsTable in this Form 10-K annual report may be “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are based on current expectations, estimates and projections about our business based, in part, on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may, and probably will, differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those described above and those risks discussed from time to time in the Form 10-K annual report, including the risks described under “Risks Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in other documents which we file with the Securities and Exchange Commission. In addition, such statements could be affected by risks and uncertainties related to our financial condition, as well as general market conditions and growth rates, and general economic conditions. Any forward-looking statements speak only as of the date on which they are made, and we do not undertake any obligation to update any forward-looking statements to reflect events or circumstances after the date of this Form 10-K. Contents

AlanTable D.of Bloom has been Senior Vice President, Secretary and General Counsel to the Company since July 1987. Mr. Bloom joined the Company as General Counsel in 1981. Contents

c.Table Derivativeof Action Contents

e.Table Consultingof Agreement Contents

WeTable have not paid any cash dividends on our Common Stock and have no intention of doing so in the near future. Contents

8 Table of Contents

WeTable are exploring possible strategies to realize any possible value remaining in the Company. Any such strategy may include the ultimate liquidation of Health Care Assurance Company, Ltd.; however, because of our financial condition and the claims of our creditors, we may seek protection under the Bankruptcy Code. Contents

OnTable May 25, 2001, the California Department of Managed Health Care issued an order appointing a conservator for the California HMO. Also on that date the California HMO filed for Chapter 11 bankruptcy protection. Effective June 5, 2001, the California HMO and the California Department of Managed Health Care reached an agreement allowing the California HMO’s bankruptcy filing to remain in effect. Effective August 31, 2001, the California HMO terminated its Medicare product. Effective November 30, 2001 the California HMO completed the assignment of its Medi-Cal contracts to other health care providers, effectively terminating the California HMO’s Medi-Cal line of business. Effective December 31, 2001, all commercial membership was transferred to other health plans, leaving the California HMO with no operations. On December 31, 2001 the California HMO surrendered its California HMO license. On February 26, 2003 the California HMO’s Liquidating Plan of Reorganization was confirmed in the United States Bankruptcy Court. It is unlikely that we will receive any distribution of assets from the California HMO. Contents

YearTable Endedof December 31, 2002 Compared to Year Ended December 31, 2001 Contents

AsTable of December 31, 2002, we did not have any outstanding bank borrowings or debt obligations. Contents

InTable our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Maxicare Health Plans, Inc. at December 31, 2002 and 2001, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. Contents

NOTESTable TOof CONSOLIDATED FINANCIAL STATEMENTS Contents

AtTable December 31, 2002 we had a consolidated working capital deficiency of approximately $7.5 million, and a deficiency in shareholders’ equity of approximately $9.6 million. Furthermore, of our total cash and cash equivalents of $2.6 million at December 31, 2002, all but $183,000 was held at subsidiaries where the transfer of cash to MHP requires the approval of regulatory authorities. As noted above, we had no continuing business activities after March 15, 2002. We are in the process of evaluating the ultimate disposition of MHP and its surviving subsidiaries. Contents

WeTable consider all highly liquid investments that are both readily convertible into known amounts of cash and mature within 90 days from their date of purchase to be cash equivalents. Contents

OtherTable Currentof Liabilities Contents

EffectiveTable August 1, 2000, we obtained insurance for medical malpractice claims. Prior to August 1, 2000 we were self-insured for such claims. Effective June 1, 2000 through May 31, 2001 we obtained reinsurance for medical claims in excess of $500,000 per member with an aggregate limit per member of $1.0 million per year and $2.0 million per lifetime for our commercial membership. Prior to June 1, 2000 and subsequent to May 31, 2001 we were self-insured for such claims. Maxicare Life and Health Insurance Company, Inc. (through May 3, 2001) and Health Care Assurance Company, Ltd., (through December 31, 2001) provided various reinsurance and medical malpractice coverage to the affiliated HMOs of the Company. Contents

TheTable Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because our employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. Contents

ThroughTable December 31, 2000, our HMOs and Maxicare Life and Health Insurance Company, Inc. paid monthly fees to MHP pursuant to administrative services agreements for various management, financial, legal, computer and telecommunications services. As a result of a corporate reorganization and simplification implemented on December 31, 2000, certain employees performing functions in support of the administrative service agreements were transferred from MHP to the California HMO. For the period January 1, 2001 to April 30, 2001 the Indiana HMO and Maxicare Life and Health Insurance Company, Inc. paid monthly fees to the California HMO for the services previously provided to them by MHP. Contents

26 Table of Contents

theTable MLH shares by the Company to Maxicare Indiana, Inc. is null and void. The Company intends to present its position to the Missouri Department of Insurance at the appropriate time. Contents

28 Table of Contents

TheTable Rights initially attached to our Common Stock and will not be exercisable until a shareholder, or group of shareholders acting together, without the approval of the Board, announce their intent to become a 15% or more owner in our Common Stock. At that time, certificates evidencing the Rights shall be distributed to shareholders (the “Distribution Date”) and the Rights shall detach from the Common Stock and shall become exercisable. When such buyer acquires 15% or more of our Common Stock, all Rights holders, except the non-approved buyer, will be entitled to acquire an amount of the Preferred Fraction at a rate equal to twice the Exercise Price divided by the then market price of the Common Stock. In addition, if we are acquired in a non-approved merger, after such an acquisition, all Rights holders, except the aforementioned 15% or more buyer, will be entitled to acquire stock in the surviving corporation at a 50% discount in accordance with the Rights Plan. The Rights attached to all common shares held by our shareholders of record as of the close of business on March 16, 1998. Shares of Common Stock newly-issued after that date will also carry Rights until the Rights become detached from the Common Stock. The Rights will expire on February 23, 2008. We may redeem the Rights for $.01 each at any time before a non-approved buyer acquires 15% or more of the Company’s Common Stock. Any current holder that has previously advised us of owning an amount in excess of 15% of our Common Stock as of the date hereof has been “grandfathered” with respect to their current position, including allowance for certain small incremental additions thereto. Contents

InTable July 1996, we approved the Outside Directors 1996 Formula Stock Option Plan (the “Formula Plan”). Under the terms of the Formula Plan, we may issue up to an aggregate of 125,000 nonqualified stock options to directors who are not employees or officers of the Company (the “Outside Directors”). On the date the Formula Plan was adopted, each Outside Director received a grant of stock options to purchase 5,000 shares of Common Stock (before giving effect to the subsequent one-for-five reverse stock split). Commencing January 2, 1997, and each January 2nd thereafter, each Outside Director then serving on the Board shall receive a grant of stock options to purchase 5,000 shares of Common Stock (before giving effect to the subsequent one-for-five reverse stock split). Options granted under the Formula Plan are at an exercise price equal to the fair market value of the stock at the date of grant, vest six months from the date of grant and expire 10 years from the date of grant. No options have been granted under the Formula Plan subsequent to January 1999. Contents

(a)Table The weighted-average fair value of options granted during 2000 was $3.80. No options were granted in 2002 or 2001.Contents

OnTable February 18, 1997 we entered into recourse loan agreements with Peter J. Ratican and Eugene L. Froelich, who at that date served as Chief Executive Officer and Chief Financial Officer of the Company, respectively (collectively the “Executives” and individually the “Executive”), whereby we loaned to each Executive $2,229,028 in connection with the exercise of certain stock options granted to the Executives on February 25, 1992 (individually the “1997 Ratican Note” and the “1997 Froelich Note”, respectively). The 1997 Ratican Note and the 1997 Froelich Note are evidenced by a secured Promissory Note which provides for interest compounding monthly at the one year London Interbank Offered Rate plus 50 basis points. All principal and accrued interest were due at the maturity date of April 1, 2001 or upon an event of default. Contents

InTable 2002 we recognized a gain of $671,000 in connection with the settlement of a former executive’s claim under our Supplemental Executive Retirement Plan. This gain was recognized in conjunction with the previously discussed collection of a note issued by the same executive. Please see “Note 5 — Notes Receivable From Shareholders”. Additionally in 2002 we recorded $880,000 in legal reserves in connection with a contract we had previously entered into for the benefit of our subsidiaries. In the fourth quarter of 2000, we recorded charges of $785,000 for employee severance costs and $725,000 in litigation reserves for costs associated with the defense and settlement of various legal actions. Contents

Item 9.Table Changesof in and Disagreements with Accountants on Accounting and Financial Disclosures Contents

ConsolidatedTable Statements of Changes in Shareholders’ Equity — Years ended December 31, 2002, 2001 and 2000 Contents

None. Table of Contents

PursuantTable to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Contents

i.Table Designed such disclosure controls and procedures to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to them by others within those entities, particularly during the period in which the periodic reports are being prepared; ii. Evaluated the effectiveness of the issuer’s disclosure controls and procedures as of a date within 90 days prior to the filing date of the report (the “Evaluation Date”); and iii. Presented in the report their conclusions about the effectiveness of the disclosure controls and procedures based on the required evaluation as of the Evaluation DateContents

MAXICARETable HEALTHof PLANS, INC. Contents

MAXICARETable HEALTHof PLANS, INC. Contents

MAXICARETable HEALTHof PLANS, INC. Contents

WeTable have operating leases, some of which provide for initial free rent and all of which provide for subsequent rent increases. Rental expense is recognized on a straight-line basis with rental expense of $.1 million, $.8 million and $2.5 million reported for the years ended December 31, 2002, 2001 and 2000, respectively. Contents

InTable 2002 we recognized a gain of $671,000 in connection with the settlement of a former executive’s claim under our Supplemental Executive Retirement Plan. Additionally in 2002 we recorded $880,000 in legal reserves in connection with a contract we had previously entered into for the benefit of our subsidiaries. Contents

(1)Table Decrease in allowance, net of retroactive billing adjustment write-offs, is due to the deconsolidation of the Indiana HMO, Maxicare Life and Health Insurance Company and the California HMO as a result of their placement into rehabilitation (the Indiana HMO and Maxicare Life and Health Insurance Company) or bankruptcy (the California HMO).Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One) ~~x ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

~~For~~[X] ~~the~~ANNUAL ~~fiscal~~REPORT ~~year~~UNDER ~~ended~~SECTION ~~December 31,~~13 ~~2002~~ OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2003

o[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 0-12024

Maxicare Health Plans, Inc.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization) 95-3615709 (IRS Employer Identification No.)


Delaware		95-3615709
(State or other jurisdiction of		(IRS Employer
incorporation or organization)		Identification No.)

11231 South La Cienega Boulevard, Los Angeles, California		90045
(Address of principal executive offices)		(Zip Code)

~~11231~~Registrant’s ~~South~~telephone ~~La Cienega Boulevard~~number, ~~Los~~including ~~Angeles,~~area ~~California~~code: (~~Address of principal executive offices~~310) ~~90045 (Zip Code)~~ 665-9861

Registrant’s telephone number, including area code: (310) 649-7166

Securities registered pursuant to Section 12(b) of the Act:


Title of each class		Name of each exchange

None		None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value (Title of Class)

Indicate by check mark whether the Registrant (~~Title~~1) has filed all reports required to be filed by Section 13 or 15(d) of ~~Class~~the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark ~~whether~~if ~~the~~disclosure ~~Registrant~~of ~~(1) has~~delinquent ~~filed~~filers ~~all~~pursuant ~~reports required~~ to beItem 405 ~~filed~~of ~~by Section~~Regulation 13S-K oris ~~15(d)~~not ofcontained ~~the~~herein, ~~Securities~~and ~~Exchange~~will ~~Act~~not ~~of 1934~~be ~~during~~contained, to the ~~preceding~~best ~~12 months~~of ~~(or~~Registrant’s ~~for~~knowledge, ~~such~~in ~~shorter~~definitive ~~period~~proxy ~~that~~or ~~the~~information ~~registrant~~statements ~~was~~incorporated ~~required~~by toreference ~~file~~in ~~such~~Part III ~~reports),~~of ~~and~~this ~~(2) has~~Form ~~been~~10-K ~~subject~~or ~~to such~~any ~~filing~~amendment ~~requirements~~to ~~for~~this ~~the~~Form ~~past 90 days~~10-K. ~~Yes x No o~~[X]

Indicate by check mark ifwhether ~~disclosure~~the ofregistrant ~~delinquent~~is ~~filers~~an ~~pursuant~~accelerated tofiler ~~Item~~(as ~~405~~defined ofin ~~Regulation~~Rule S12b-K2 isof ~~not contained herein, and will not be contained, to~~ the ~~best~~Securities ofExchange ~~Registrant’s~~Act ~~knowledge, in definitive proxy or information statements incorporated by reference in Part III~~ of ~~this~~1934). ~~Form 10-K~~o orYes ~~any amendment to this Form 10-K.~~ x No

The aggregate market value of the voting stock held by non-affiliates of ~~the~~ the registrant as of April 109, ~~2003~~2004.

Common Stock, $.01 par value — $382,~~965~~054,165

The number of shares outstanding of each of the issuer’s classes of ~~capital~~ capital stock, as of April 1012, ~~2003~~2004.

Common Stock, $.01 par value — 9,~~741~~991,926 shares

DOCUMENTS INCORPORATED BY REFERENCE

Part III is incorporated by reference from the registrant’s definitive proxy statement in connection with its 2003 Annual Meeting of Shareholders to be filed within 120 days of the close of the registrant’s fiscal yearNone.

TABLE OF CONTENTS

PART I
	Item 1. Business
	Item 2. Properties
	Item 3. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders
PART II
	Item 5. Market for the Registrant’s Common Stock and Related Shareholder Matters
	Item 6. Selected Financial Data
NOTES TO SELECTED FINANCIAL DATA
	Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 7a. Quantitative and Qualitative Disclosures About Market Risk
	Item 8. Controls and Procedures
	Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT AUDITORS
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
	Item 9A. Controls and Procedures
PART III
	Items 10, 11, 12, and 13.
	Item 10. Directors and Executive Officers of the Registrant
	Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
	Item 11. Executive Compensation
	Item 12. Security Ownership of Certain Beneficial Owners and Management
	Item 13. Certain Relationships and Related Transactions
	Item 14. Principal Accounting Services and Fees
PART IV
	Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
SIGNATURES
CERTIFICATION OF CHIEF EXECUTIVE AND FINANCIAL OFFICERS
EXHIBIT 14
SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF REGISTRANT
SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF REGISTRANT
SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF REGISTRANT
SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF REGISTRANT
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
EXHIBIT 23.1
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

PART I

Item 1. Business

General

Since ~~January~~March 115, 2002 we have not been engaged in any active business and we have no reasonable prospects of obtaining or generating any ongoing business. At December 31, ~~2002~~2003 we had a substantial capital deficiency.

As noted above, we have no continuing business activities. We are in the process of exploring possible strategies to realize any possible value remaining in the Company. It is likely, however, that it will be necessary for us to liquidate. We cannot give assurance that any liquidation would provide any value to our shareholders.

We are a Delaware Corporation, organized on January 5, 1981. Our executive offices are located at 11231 South La Cienega Boulevard, Los Angeles, California 90045 and our telephone number is (310) ~~649~~665-~~7166~~9861.

Disposition of Subsidiaries

Through our wholly-owned subsidiaries, we formerly operated health ~~maintenance~~ maintenance organizations (“HMOs”) in California (through May 25, 2001) and ~~Indiana~~ Indiana (through May 3, 2001). Maxicare Life and Health Insurance Company, our ~~licensed~~ licensed insurance company, operated preferred provider organizations (“PPOs”) in in California (through December 31, 2001) and Indiana (through May 3, 2001) in conjunction with the HMO products of Maxicare (our California HMO) and Maxicare Indiana, Inc. (our Indiana HMO). As of January 1, 2002 our operations were substantially terminated.

On ~~May~~March 2514, 2001, the California Department of Managed Health Care issued an order appointing a conservator for the California HMO. Also on that date the California HMO filed for Chapter 11 bankruptcy protection. Effective June 5, 2001, the California HMO and the California Department of Managed Health Care reached an agreement allowing the California HMO’s bankruptcy filing to remain in effect. Effective August 31, 2001, the California HMO terminated its Medicare product. Effective November 30, 2001 the California HMO completed the assignment of its Medi-Cal contracts to other health care providers, effectively terminating the California HMO’s Medi-Cal line of business. Effective December 31, 2001, all commercial membership was transferred to other health plans, leaving the California HMO with no operations. On December 31, 2001 the California HMO surrendered its California HMO license. On February 26, 2003 the California HMO’s Liquidating Plan of Reorganization was confirmed in the United States Bankruptcy Court. ItWe ~~is unlikely that we~~ will not receive any distribution of assets from the California HMO.

The Indiana HMO is incorporated under the laws of the state of Indiana and is primarily regulated by the Indiana Department of Insurance. On May 4, 2001, the Indiana Department of Insurance placed the Indiana HMO into rehabilitation. The effect of this action was ~~to terminate the ongoing operations of the Indiana HMO as of that date. The Indiana HMO was~~ formally placed into liquidation on July 3, 2001. On that date the Indiana Commissioner of Insurance was appointed as Liquidator. It is very unlikely that we will receive any distribution of assets from the Indiana HMO.

~~Maxicare Life and Health Insurance Company, Inc. is incorporated under the laws of the state of Missouri and is primarily regulated by the Missouri Department of Insurance.~~ On May 24, 2001 the Missouri Department of Insurance placed Maxicare Life and Health Insurance Company, Inc. under administrative supervision. Maxicare Life and Health Insurance Company, Inc. ceased offering all products effective December 31, 2001, effectively ceasing all operations. On January 28, 2002 the Missouri Department of Insurance placed Maxicare ~~Life~~ Life and Health Insurance Company, Inc. into rehabilitation. . On March 4, 2003 ~~the~~ the Board of Directors of Maxicare Life and Health Insurance Company agreed to ~~its~~ its liquidation. ItWe iscannot ~~unlikely~~say ~~that~~at this time whether we will receive any distribution of assets from Maxicare Life and Health Insurance Company.

We also own and operate Health Care Assurance Company, Ltd., a captive insurer that provided certain insurance coverage to us and our subsidiaries. Effective January 31, 2002, Health Care Assurance Company, Ltd. ceased ~~providing~~ providing all such insurance. ~~We also served as administrator of the California Access~~ ~~for Infants and Mothers program (“AIM”) program through another of our~~ ~~subsidiaries. Administration of the AIM program was transferred to another~~ ~~health care provider effective March 15, 2002.~~

2Forward Looking Statements

~~Table~~ Statements in this Form 10-K annual report may be “forward looking statements” within the meaning of ~~Contents~~the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are based on current expectations, estimates and projections about our business based, in part, on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may, and probably will, differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those described above and those risks discussed from time to time in this Form 10-K annual report, including the risks described under “Risks Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in other documents which we file with the Securities and Exchange Commission. In addition, such statements could be affected by risks and uncertainties related to our financial condition, as well as general market conditions and growth rates, and general economic conditions. Any forward-looking statements speak only as of the date on which they are made, and we do not undertake any obligation to update any forward-looking statements to reflect events or circumstances after the date of this Form 10-K.

~~Forward Looking Statements~~2

Risk Factors

Because we have no ongoing operations and no prospects of generating funds, we may not be able to continue in existence.

At December 31, ~~2002~~2003:

• We had a consolidated working capital deficiency of approximately $71.5 million. • We had a deficiency in shareholders’ equity of approximately $93.65 million. • ~~Only~~Of ~~$183,000 of~~ our total cash and cash equivalents of $25.64 million ~~was~~at ~~immediately~~December ~~available~~31, to2003, ~~us;~~$2.5 ~~the~~million ~~remainder of our cash and cash equivalents~~ was held at ~~subsidiaries~~Health ~~where~~Care ~~the~~Assurance Company, Ltd. The transfer of cash to usMHP ~~requires~~from ~~the~~Health ~~approval~~Care ofAssurance ~~regulatory authorities~~Company, ~~which we may not receive~~Ltd. ~~Subsequent~~requires tothe ~~December~~approval ~~31, 2002, we were able to transfer $100,000 from one~~ of ~~our~~regulatory ~~subsidiaries to MHP~~authorities. • We had no means of generating cash or working capital. • WeThe ~~had substantial contingent liabilities, including a claim by the~~ Commissioner of the Indiana Department of Insurance ~~seeking~~has atmade ~~least~~claims ~~$3.5~~against ~~million~~us inthat ~~money~~may ~~damages,~~exceed a$48.0 ~~claim~~million ~~under~~and aare ~~management~~far ~~information~~in ~~services~~excess ~~agreement~~ of upliabilities toaccrued ~~$12.0~~by ~~million,~~us ~~an undetermined liability~~ in connection with athe ~~building~~claims. weAdditionally, ~~lease~~substantial ~~that~~claims ~~must~~may be ~~returned~~made toagainst ~~its~~us ~~original~~in ~~condition~~connection ~~upon~~with ~~termination~~the lease of a building that the ~~lease,~~landlord ~~and~~contends anrequires ~~undetermined~~substantial ~~amount~~restoration ~~due~~at ~~under~~our expense and a pharmacy services agreement.

As a result, we cannot give any assurance that it will not be necessary for us to seek protection under the Bankruptcy Code or liquidate without paying any consideration to our shareholders.

Because our shares are not listed on a stock exchange, our shares are subject to the penny stock rules, which make it difficult to purchase or sell our shares.

Our common stock is subject to the SEC’s penny-stock rules, which impose additional sales practice requirements on broker-dealers who sell our stock to persons other than established customers and institutional accredited investors. These rules may affect the ability of broker-dealers to sell our common stock and may affect the ability of our shareholders to sell any common stock they may own.

Employees

As of March 31, ~~2003~~2004 we had no full-time employees. Certain employees of ~~our~~the California HMO work for us on a part time basis. We reimburse the California HMO for the cost of their time under an established agreement.

3Our Executive Officers

~~Table~~ Our ofexecutive ~~Contents~~officers at March 31, 2004 were as follows:

Our Executive Officers

~~Our~~Paul ~~executive~~R. ~~officers~~Dupee, atJr. ~~March~~was appointed Chairman of the Board of Directors in June 311999 and Chief Executive Officer of the Company in August 1999. For more than five years prior hereto, ~~2003~~Mr. Dupee ~~were~~has been a private investor. From 1996 through 2000, he served as ~~follows:~~a Director of the Lynton Group, Inc. serving as Chairman from 1998 to 2000. From 1986 through 1996, Mr. Dupee was Director and Vice Chairman of the Boston Celtics Limited Partnership, which owns the National Basketball Association team, the Boston Celtics. Mr. Dupee has been a director of the Company since May 1998.

Name	Age		Position
Paul R. Dupee, Jr.		59	Chairman of the Board of Directors, Chief Executive Officer
Alan D. Bloom		57	Senior Vice President, Secretary and General Counsel
Patricia A Fitzpatrick		51	Treasurer
Joseph W. White		44	Chief Financial Officer, Director

Alan D. Bloom has been Senior Vice President, Secretary and General Counsel to the Company since July 1987. Mr. Bloom joined the Company as General Counsel in 1981.

~~Paul R. Dupee, Jr. was appointed Chairman of the Board of Directors in~~3 June 1999 and Chief Executive Officer of the Company in August 1999. For more than five years prior hereto, Mr. Dupee has been a private investor. From 1996 through 2000, he served as a Director of the Lynton Group, Inc. serving as Chairman from 1998 to 2000. From 1986 through 1996, Mr. Dupee was Director and Vice Chairman of the Boston Celtics Limited Partnership, which owns the National Basketball Association team, the Boston Celtics. Mr. Dupee has been a director of the Company since May 1998.

Patricia A. Fitzpatrick has served as Treasurer of the Company since July 1998. Previously, Ms. Fitzpatrick served as Assistant Treasurer of the Company from July 1988 to July 1998.

Joseph W. White has served as Chief Financial Officer of the Company since November 2001. Prior to November 2001 Mr. White served as Controller and Interim Chief Financial Officer since February 2001. Mr. White was named a Director of the Company in March 2002 and has served in various financial positions with the Company since March 1987. Mr. White ishas served as Vice President, Accounting of Molina Healthcare, Inc. since June 2003. Mr. White is a certified public accountant.

Item 2. Properties

We lease space at ~~three~~two locations in California. ~~All~~Both of these leases ~~have~~ ~~remaining~~terminate ~~terms~~in ~~of less than two years~~2004. Our executive offices are located at 11231 South La Cienega Boulevard, Los Angeles, California 90045, pursuant to a lease expiring in May 2004. Under the terms of this lease, we pay a monthly rental of approximately $19,500, plus a percentage of operating costs and annual increases. Through March 31, ~~2003~~2004, the California HMO ~~and~~was ~~Maxicare Life and Health Insurance Company were~~ sharing space with us and paying a substantial portion of our lease costs, and may continue to do so.

Item 3. Legal Proceedings

a. ~~Promissory~~Indiana ~~Note~~Department of Insurance

AtOn ~~April~~or about June 125, 2001, athe ~~note~~Commissioner ~~held~~of bythe ~~MHP~~Indiana inDepartment of Insurance (the ~~approximate~~“Commissioner”), ~~amount~~as the rehabilitator of $2Maxicare Indiana, Inc.9, ~~million~~our ~~(including~~Indiana ~~accrued~~HMO, ~~interest)~~filed ~~became~~a ~~due.~~complaint ~~The~~(the ~~note,~~“Complaint”) ~~issued~~in bythe ~~Eugene~~Marion County ~~Froelich,~~Circuit aCourt ~~shareholder~~of Indiana against us and ~~former~~the ~~executive~~five ~~officer~~directors of ~~MHP,~~the ~~was~~Indiana ~~not paid~~HMO, ~~and~~ weone ~~commenced~~of anwhom ~~action~~was ina ~~California~~director ~~state~~of ~~court~~the toCompany. ~~collect~~The onCommissioner amended the Complaint ~~note.~~on ~~On October~~February 181, ~~2001~~2002. The Complaint, as amended, alleges, in substance, that: (1) the ~~court~~directors ~~granted~~of ~~summary~~the ~~adjudication~~Indiana ~~and~~HMO ~~judgment~~breached ~~was~~their fiduciary ~~entered~~duty inby ~~our~~failing ~~favor.~~to Onmaintain ~~November 14,~~a ~~2002,~~plan ~~the~~providing ~~California~~for ~~Court~~continuation of ~~Appeals~~care benefits ~~affirmed~~in the ~~judgment.~~event Onthat orthe ~~about~~Indiana ~~March 14,~~HMO ~~2003~~was placed in receivership, ~~Mr. Froelich~~and ~~satisfied~~that the ~~judgment~~Company inis also liable for such failure; (2) the ~~net~~Company ~~stipulated~~fraudulently ~~amount~~concealed the financial condition of $the Indiana HMO; (3~~.41~~) ~~million~~the byCompany ~~paying~~manipulated ~~$2.583 million~~the tofinances ~~MHP~~of ~~and~~the byIndiana ~~paying~~HMO ~~over~~for the ~~balance~~Company’s ofown ~~$.767 million~~benefit; toand (4) the ~~Sheriff pursuant~~Company toreceived anpreferential ~~attachment~~and/or byfraudulent ~~Peter~~transfers Jof money from the Indiana HMO. ~~Ratican,~~While asthe ~~more~~amended ~~fully~~Complaint ~~set~~requests ~~forth~~money ~~below.~~damages ~~Offset~~in largely unspecified ~~against~~amounts, we understand the ~~judgment~~Commissioner’s ofclaims ~~$3.41 million~~against ~~was~~us to be in excess of $48.060 million. ~~that~~All ~~Mr.~~defendants answered the amended Complaint on April ~~Froelich~~5, ~~agreed~~2002. toPre-trial ~~accept~~discovery inhas ~~full~~not ~~settlement~~been ofcompleted. ~~his~~We ~~claim~~believe ~~against~~that the ~~Company~~claims ~~in connection~~against ~~with~~us ~~his~~are ~~benefits~~without ~~under~~merit ~~our~~and ~~Supplemental~~intend ~~Executive~~to ~~Retirement~~vigorously ~~Plan~~defend the suit.

b. ~~Indiana~~Consulting ~~Department of Insurance~~Agreement

On or about ~~June~~February 2510, ~~2001~~2003, ~~the~~Peter ~~Commissioner~~J. ofRatican, ~~the~~a ~~Indiana~~shareholder ~~Department~~and offormer ~~Insurance~~executive ~~(the~~officer ~~“Commissioner”),~~and asdirector ~~the rehabilitator~~ of ~~Maxicare Indiana~~MHP, ~~Inc., the~~commenced ~~Company’s~~an ~~Indiana~~action ~~HMO,~~against ~~filed~~us ~~a complaint (the “Complaint”)~~ in the ~~Marion~~ ~~County~~Superior ~~Circuit~~ Court of ~~Indiana against~~ the ~~Company~~State ~~and the five directors~~ of ~~the~~ ~~Indiana HMO~~California, ~~one~~alleging ofthat ~~whom~~we ~~was~~had abreached ~~director~~his consulting ofagreement ~~the~~with ~~Company.~~us ~~The~~and ~~Commissioner amended~~claiming ~~the~~damages. ~~Complaint~~On ~~on February~~March 111, ~~2002~~2003, Mr. Ratican ~~The~~obtained ~~Complaint,~~an asattachment ~~amended, alleges,~~ in ~~substance, that: (1)~~ the ~~directors~~amount of ~~the~~$767,000 ~~Indiana~~against ~~HMO~~us ~~breached their~~in ~~fiduciary~~connection ~~duty~~with byhis ~~failing~~claim. toIn ~~maintain~~February 2004, awe ~~plan~~entered ~~providing~~into ~~for~~a ~~continuation~~Settlement Agreement ofand ~~care benefits~~Mutual inRelease ~~the~~with ~~event~~Mr. Ratican ~~that~~under the ~~Indiana~~terms ~~HMO~~of ~~was~~which ~~placed~~we inpaid Mr. Ratican ~~receivership~~$550,000 ~~and~~in ~~that the~~addition ~~Company~~to isthe ~~also~~amount ~~liable~~already attached, for ~~such~~a ~~failure;~~total ~~(2) the~~payment ~~Company~~of ~~fraudulently~~$1,317,000.

4c. Back Office Services Agreement

~~Table~~ Effective February 2, 2000, we entered into a Services Agreement for Back Office Administration with Nichols TXEN Corporation calling for Nichols TXEN to provided certain claims adjudication services to certain of ~~Contents~~our subsidiaries in exchange for a predetermined per member per month fee. Subsequently, CSC Healthcare Inc. (“CSC”), the successor in interest to Nichols TXEN, commenced an arbitration (the “Arbitration”) in Atlanta against us before the American Arbitration Association, claiming our breach of the parties’ Service Agreement for Back Office Administration and contract damages of approximately $1.3 million. On December 1, 2003, the Arbitration and a related case brought by CSC against us in Alabama State court were settled and all claims and counterclaims dismissed. Pursuant to such settlement, we paid CSC $300,000.

~~concealed the financial condition of the Indiana HMO; (3) the Company manipulated the finances of the Indiana HMO for the Company’s own benefit; and (~~4~~) the Company received preferential and/or fraudulent transfers of money from~~ the Indiana HMO. The amended Complaint requests money damages but does not specify the amount of damages sought, except that it seeks approximately $3.5 million respecting the alleged preferential and/or fraudulent transfers. All defendants answered the amended Complaint on April 5, 2002. Pre-trial discovery is proceeding but is not yet completed. The Company believes that the claims against it are without merit and intends to vigorously defend the suit.

OnItem ~~or about June 6, 2002, Mr~~4. ~~Froelich~~ ~~commenced~~Submission ~~a purported derivative action in the Superior Court~~ of ~~the~~Matters ~~State~~to ~~of California, Los Angeles County, on behalf of the Company against certain of its former and current officers and directors. The complaint, which names the Company as~~ a ~~nominal~~Vote ~~defendant, alleges, in substance, that the officers and directors breached their fiduciary duty to the Company in that they flagrantly mismanaged company affairs. The action seeks compensatory damages~~ of ~~not~~Security less than $10 million, together with an unspecified amount of punitive damages. On November 14, 2002 the Court dismissed the complaint with leave to replead. By order dated February 4, 2003, the action was dismissed without prejudice. Holders

d. No ~~Executive~~matter ~~Retirement~~was submitted to a vote of security holders during the three months ended December 31, 2003.

~~On or about July 1, 2002, Mr. Froelich commenced an action in the Superior~~5 Court of the State of California, County of Los Angeles, against the Company and certain unnamed Company officers/directors. The complaint alleges that defendants’ denial of a lump sum payment to Mr. Froelich under the Company’s Supplemental Executive Retirement Program and the suspension of payments to him under such Program for one year constituted breaches of contract, breaches of fiduciary duty and violations of the Employee Retirement Income Security Act. The action seeks compensatory damages of no less than $1.0 million, punitive damages in an amount to be determined and an award of attorneys’ fees. On July 23, 2002, defendants served an answer to the complaint, and on July 26, 2002, defendants removed the case from California state court to the United States District Court for the Central District of California. On January 31, 2003, the District Court granted summary judgment in favor of the Company dismissing the action, and Mr. Froelich’s time to appeal has now expired. On March 14, 2003 the Company satisfied its liability to Mr. Froelich under the Supplemental Executive Retirement Plan in conjunction with the settlement of a judgment against Mr. Froelich (see “Item 3. Legal Proceedings, a. Promissory Note”).

OnPART ~~or about February 10, 2003, Peter J. Ratican, a shareholder and former~~II ~~executive officer and director of MHP, commenced an action against the Company~~ ~~in the Superior Court of the State of California, alleging that the Company had~~ ~~breached his consulting agreement with it and claiming damages in excess of~~ $700,000. On March 11, 2003, Mr. Ratican obtained an attachment in the amount of $767,000 against the Company in connection with his claim. There has been no pre-trial discovery to date in the case. The Company intends to defend the action and to assert offsets and counterclaims against Mr. Ratican.

fItem 5. ~~Business~~Market ~~Services~~for ~~Agreement~~ the Registrant’s Common Stock and Related Shareholder Matters

~~On September 1, 2000 the Company entered into an Application and Business Services Agreement~~ (~~the “Trizetto Agreement”~~a) ~~with~~Market ~~the Trizetto Group, Inc.~~Information ~~(“TZG”). The Trizetto Agreement called for TZG to provide a full range of~~ ~~management information services to us over a period of seven years in exchange~~ ~~for monthly payments. It also called for a termination payment to be made by~~ us under certain circumstances. In March 2001, the Company assigned the Trizetto Agreement to Maxicare, the Company’s California HMO. The California Department of Managed Health Care and the Committee of Creditors Holding Unsecured Claims in the California HMO’s bankruptcy proceeding have questioned the validity of that assignment. The California HMO has continued to pay TZG for post-petition services at a monthly amount less than that contemplated in the Trizetto Agreement while TZG has provided services at a lower level than that contemplated in the Trizetto Agreement. TZG has asserted various pre- and post-petition claims in the California bankruptcy proceeding in connection with the Trizetto Agreement. On or about March 13, 2003, TZG sued the Company in California state court, alleging breach of the Trizetto Agreement and claiming over $12 million in damages. There have been no further proceedings to date in this case.

5 Our Common Stock trades on the Over the Counter Bulletin Board under the trading symbol MAXIQ.

~~Table~~ The following table sets forth the high and low sale prices per share of our ~~Contents~~common stock. The quotations are interdealer prices without retail mark-ups, markdowns, or commissions, and may not represent actual transactions.

g.Common ~~Office of Personnel Management~~Stock

In or about November 1999, in substance, MHP, on its own behalf and also on behalf of various closed and then operating subsidiaries, commenced an action in the United States Court of Federal Claims against the United States, seeking to recover approximately $9 million for the underpayment of amounts due for health care coverage provided to employees of the United States Office of Personnel Management. The parties are engaged in settlement discussions. We cannot give any assurances as to the ultimate collection of amounts associated with this action.


	Sale Price
	High		Low
2003
First Quarter.	$	.01	$	.01
Second Quarter	$	.05	$	.01
Third Quarter.	$	.18	$	.01
Fourth Quarter	$	.47	$	.11
2002
First Quarter.	$	.02	$	.01
Second Quarter	$	.01	$	.01
Third Quarter.	$	.01	$	.01
Fourth Quarter	$	.01	$	.01

h Our common stock is subject to the SEC’s penny-stock rules, which impose additional sales practice requirements on broker-dealers who sell our stock to persons other than established customers and institutional accredited investors. ~~Back~~These ~~Office~~rules ~~Services~~may ~~Agreement~~affect the ability of broker-dealers to sell our common stock and may affect the ability of our shareholders to sell any common stock they may own.

Effective February 2, 2000, the Company entered into a Services Agreement for Back Office Administration with Nichols TXEN Corporation calling for Nichols TXEN to provided certain claims adjudication services to certain of our subsidiaries in exchange for a predetermined per member per month fee. On September 18, 2002 CSC Healthcare, Inc. (~~“CSC”~~b), ~~the successor in interest to~~Holders ~~Nichols TXEN, filed a complaint in the Circuit Court of Jefferson County,~~ ~~Alabama seeking approximately $880,000 plus interest from the Company under the~~ ~~contract. This action has been stayed and the claim is now being heard in~~ arbitration, which is in a preliminary stage. The Company believes that the claim against it is without merit and intends to vigorously defend the arbitration. The Company has asserted counterclaims against CSC in the arbitration alleging that it was fraudulently induced to enter into the contract and that CSC failed to perform under the contract, thereby causing damages to the Company in an amount not less than $5 million.

i. There ~~Other~~were ~~Litigation~~915 holders of record of our Common Stock as of December 31, 2003.

We(c) ~~are also involved in other legal actions in the normal course of~~Dividends ~~business. We do not believe that any ultimate liability in excess of amounts~~ ~~accrued which would likely arise from these actions would materially affect our~~ ~~consolidated financial position, results of operations or cash flows, except~~ ~~that the matters described above involving the Indiana Department of Insurance and TZG, as well as certain other matters described in Item 8 of Part II hereof, may have such effect.~~

6 We have not paid any cash dividends on our Common Stock and have no intention of doing so in the near future.

~~Table~~ Additionally, of ~~Contents~~our total cash and cash equivalents of $5.4 million at December 31, 2003, $2.5 million was held at Health Care Assurance Company, Ltd. The transfer of cash to MHP from Health Care Assurance Company, Ltd. requires the approval of regulatory authorities, potentially limiting our ability to pay dividends.

~~Item 4.~~(d) ~~Submission~~Sales of ~~Matters~~Unregistered toEquity ~~a Vote of~~ Security ~~Holders~~

NoDuring ~~matter~~2003 ~~was~~we ~~submitted~~had tono asales ~~vote~~of unregistered equity securities. We issued 250,000 shares of ~~security~~unregistered ~~holders~~common ~~during~~stock ~~the~~as ~~three~~part of an agreement settling ~~months~~certain ~~ended~~litigation ~~December~~in the third quarter of 2003. Please see “Item ~~31,~~8. ~~2002~~Financial Statements and Supplementary Data — Note 2 to our Consolidated Financial Statements”.

~~PART~~(e) IISecurities Authorized for Issuance Under Equity Compensation Plans

~~Item 5.~~ No ~~Market~~securities ~~for~~were ~~the~~authorized ~~Registrant’s~~for ~~Common~~issuance ~~Stock~~during ~~and~~2003 ~~Related~~pursuant ~~Shareholder~~to ~~Matters~~equity compensation plans.

Securities Authorized for Issuance Under Equity Compensation Plans (~~a) Market~~as ~~Information~~of December 31, 2003)

~~Our~~The ~~Common~~following ~~Stock~~table ~~trades~~sets onforth ~~the~~information ~~Over~~concerning ~~the~~shares ~~Counter~~available ~~Bulletin~~for issuance ~~Board~~pursuant ~~under~~to ~~the trading~~equity ~~symbol~~compensation ~~MAXIQ~~plans.

The following table sets forth the high and low sale prices per share of our common stock. The quotations are interdealer prices without retail mark-ups, markdowns, or commissions, and may not represent actual transactions.

Number of shares

remaining available for

future issuance under

Number of shares to be

Weighted average

equity compensation

issued upon exercise of

exercise price of

plans (excluding

outstanding options,

securities reflected in

warrants and rights

column (a)

Plan Category

(a)

(b)

(c)

Equity compensation plans approved by security holders

207,120

(1)

16.86

1,118,133

(2)

On March 27, 2001 we effected a one-for-five reverse split of our common stock. All share and per share information in this Annual Report on Form 10-K retroactively reflect the reverse split as if it had been in effect from the beginning of the periods covered.

(1)		Options to purchase shares of our common stock issued under the 1995 Stock Option Plan, the 1999 Stock Option Plan, the 2000 Stock Option Plan, the Outside Directors 1996 Formula Stock Option Plan and Senior Executive 1996 Stock Option Plan. All options were vested as of December 31, 2003.

(2)		Includes shares issuable under the 1995 Stock Option Plan, the 1999 Stock Option Plan, the 2000 Stock Option Plan, the Outside Directors 1996 Formula Stock Option Plan and Senior Executive 1996 Stock Option Plan.

~~Common Stock~~7

	Sale Price
	High		Low
2002
First Quarter	$	.02	$	.01
Second Quarter	$	.01	$	.01
Third Quarter	$	.01	$	.01
Fourth Quarter	$	.01	$	.01
2001
First Quarter	$	5.00	$	2.03
Second Quarter	$	2.19	$	.01
Third Quarter	$	.05	$	.01
Fourth Quarter	$	.03	$	.01

~~Our~~Item common stock is subject to the SEC’s penny-stock rules, which impose additional sales practice requirements on broker-dealers who sell our stock to persons other than established customers and institutional accredited investors6. ~~These~~Selected ~~rules~~Financial ~~may affect the ability of broker-dealers to sell our common stock and may affect the ability of our shareholders to sell any common stock they may own.~~ Data

(b) Holders


	For the Years Ended December 31,
	2003			2002			2001			2000			1999
	(Amounts in thousands except per share and membership data)
Continuing operations(1):
Revenues
Premiums	$	—		$	—		$	1,819		$	2,343		$	1,928
Investment income(2)		33			569			239			529			288
Inter-company service agreement income		—			—			—			11,599			13,035
Other income		3,471			268			971			398			4,103

Total revenues		3,504			837			3,029			14,869			19,354

Expenses
Health care expenses (credits)		(1,146	)		(312	)		582			2,615			866
Salary, general and administrative expenses		1,833			1,062			4,998			23,147			13,339
Depreciation and amortization		—			120			704			962			916
Impairment of leased assets		—			1,036			—			—			—
Charges for litigation and management settlements(3)		75			209			—			1,510			5,500

Total expenses		762			2,115			6,284			28,234			20,621

Income (loss) from continuing operations before income taxes		2,742			(1,278	)		(3,255	)		(13,365	)		(1,267	)
Income tax provision		—			—						(18,229	)		—

Income (loss) from continuing operations		2,742			(1,278	)		(3,255	)		(31,594	)		(1,267	)

Discontinued operations:
Loss from discontinued operations (4)		—			—			(28,095	)		(33,352	)		(10,997	)
Write-off of excess of rehabilitated and bankrupt subsidiaries’ liabilities over assets (5)		—			—			16,423			—			—

Loss from discontinued operations		0			0			(11,672	)		(33,352	)		(10,997	)

Net income (loss)	$	2,742		$	(1,278	)	$	(14,927	)	$	(64,946	)	$	(12,264	)

Net income (loss) per common share:
Basic:(6)
Basic income (loss) per common share from continuing operations	$	.28		$	(.13	)	$	(.33	)	$	(6.46	)	$	(.35	)

Basic loss per common share from discontinued operations	$	—		$	—		$	(1.20	)	$	(6.81	)	$	(3.07	)

Weighted average number of common shares outstanding		9,867			9,742			9,742			4,894			3,585

Diluted:(6)
Diluted income (loss) per common share from continuing operations	$	.28		$	(.13	)	$	(.33	)	$	(6.46	)	$	(.35	)

Diluted loss per common share from discontinued operations	$	—		$	—		$	(1.20	)	$	(6.81	)	$	(3.07	)

Weighted average number of common and common dilutive potential shares outstanding		9,867			9,742			9,742			4,894			3,585

There were 896 holders of record of our Common Stock as of December 31, 2002.


	At December 31,
	2003			2002			2001			2000		1999
Balance Sheet Data:
Assets of continuing operations	$	5,386		$	2,643		$	5,136		$	13,198	$	29,151
Indebtedness of continuing operations(7)	$	8,843		$	12,250		$	12,942		$	17,099	$	19,931
Net assets of discontinued operations(1)	$	—		$	—		$	—		$	11,042	$	33,936
Shareholders’ equity (deficit)	$	(3,457	)	$	(9,607	)	$	(7,806	)	$	7,141	$	43,156

~~(c) Dividends~~8

~~(d) Sales~~NOTES ofTO ~~Unregistered~~SELECTED ~~Equity~~FINANCIAL ~~Security~~DATA

~~During~~The ~~2002~~selected wefinancial ~~had~~data noshould ~~sales~~be read in conjunction with “Item 7. Management’s Discussion and Analysis of ~~unregistered~~Financial ~~equity~~Condition ~~securities~~and Results of Operations” and “Item 8. Financial Statements and Supplementary Data.”

(e) Securities Authorized for Issuance Under Equity Compensation Plans

(1)		The placement of our Indiana HMO into rehabilitation on May 4, 2001 and the bankruptcy filing of our California HMO on May 25, 2001 have effectively ended our involvement in the managed care industry. As a result, we have treated our HMO subsidiaries as discontinued operations in the preparation of these financial statements. Although our remaining operations (parent, Health Care Assurance Company, Ltd., and the AIM program) are insignificant and financially dependent upon our HMOs, they represent services not intrinsically linked to the managed care industry and have been treated as continuing operations. (See “Item 8. Financial Statements and Supplementary Data — Note 2 to our Consolidated Financial Statements”.)

(2)		In 2002 we recorded investment income of $521,000 in connection with the March, 2003 collection of a note that had been issued by a former executive officer of the Company. (See “Item 8. Financial Statements and Supplementary Data — Note 5 to our Consolidated Financial Statements”.)

(3)		In 2003 we recognized a gain of $580,000 in connection with the settlement of a dispute regarding a Services Agreement for Back Office Administration that we had previously entered into for the benefit of our subsidiaries. In 2003 we recognized expense of $250,000 in connection with the settlement of a dispute involving an information services contract that we had previously entered into; and we recognized expense of $405,000 in connection with the settlement of an action brought by a former executive. In 2002 we recognized a gain of $671,000 in connection with the settlement of a former executive’s benefits under our Supplemental Executive Retirement Plan. In 2002 we also accrued litigation-related expense of $880,000 in connection with the previously noted Services Agreement for Back Office Administration. (See “Item 8. Financial Statements and Supplementary Data — Note 2 to our Consolidated Financial Statements”.) In 2000 we recorded charges of $785,000 for employee severance costs and $725,000 in litigation reserves for costs associated with the defense and settlement of various legal actions. A $5.5 million charge for management settlement costs was recorded in 1999.

(4)		The loss from discontinued operations in 2000 includes charges of $4.9 million, for losses associated with certain of our capitated provider arrangements. The loss from discontinued operations for 1999 includes a $3.0 million charge for loss contracts related to the Carolinas commercial line of business.

(5)		The results of discontinued operations for the year ended December 31, 2001 include a gain of $16.4 million realized by MHP in the second quarter of 2001 upon the placement of the Indiana HMO into rehabilitation, the subsequent disposition of Maxicare Life and Health Insurance Company, and the placement of the California HMO into Chapter 11 bankruptcy. This gain represents the extent to which consolidated losses of those entities through May 3, 2001 (the Indiana HMO and Maxicare Life and Health Insurance Company, Inc.) and May 24, 2001 (the California HMO) exceeded MHP’s investment in those subsidiaries. (See “Item 8. Financial Statements and Supplementary Data — Note 2 to our Consolidated Financial Statements”.)

(6)		All share and per share amounts have been retroactively restated to reflect the one for five reverse stock split completed on March 27, 2001.

(7)		Includes long-term liabilities of $1.9 million, $2.1 million, $3.8 million, $5.1 million and $1.2 million, in 2003, 2002, 2001, 2000 and 1999, respectively.

~~No securities were authorized for issuance during 2002 pursuant to equity~~9 ~~compensation plans.~~

~~Table~~Item 7. Management’s Discussion and Analysis of ~~Contents~~Financial Condition and Results of Operations

~~Item 6.~~Current ~~Selected Financial Data~~Status

						For the Years Ended December 31,
			2002			2001			2000			1999			1998
					(Amounts in thousands except per share and membership data)
Continuing operations(1):
Revenues
Premiums			$	—		$	1,819		$	2,343		$	1,928		$	1,798
	Investment income(2)			569			239			529			288			888
	Inter-company service agreement income			—			—			11,599			13,035			11,848
	Other income			268			971			398			4,103			1,734
		Total revenues		837			3,029			14,869			19,354			16,268
Expenses
Health care expenses (credits)				(312	)		582			2,615			866			521
	Salary, general and administrative expenses			1,062			4,998			23,147			13,339			16,822
	Depreciation and amortization			120			704			962			916			548
	Impairment of leased assets			1,036			—			—			—			—
	Charges for litigation and management settlements(3)			209			—			1,510			5,500			250
		Total expenses		2,115			6,284			28,234			20,621			18,141
Loss from continuing operations before income taxes				(1,278	)		(3,255	)		(13,365	)		(1,267	)		(1,873	)
Income tax provision				—						(18,229	)		—			—
Net loss from continuing operations				(1,278	)		(3,255	)		(31,594	)		(1,267	)		(1,873	)
Discontinued operations:
	Loss from discontinued operations (4)			—			(28,095	)		(33,352	)		(10,997	)		(25,660	)
	Write-off of excess of rehabilitated and bankrupt subsidiaries’ liabilities over assets (5)			—			16,423			—			—			—
Loss from discontinued operations				0			(11,672	)		(33,352	)		(10,997	)		(25,660	)
Net Loss			$	(1,278	)	$	(14,927	)	$	(64,946	)	$	(12,264	)	$	(27,533	)
Net loss per common share:
Basic:(6)
Basic loss per common share from continuing operations			$	(.13	)	$	(.33	)	$	(6.46	)	$	(.35	)	$	(.52	)
	Basic loss per common share from discontinued operations		$	—		$	(1.20	)	$	(6.81	)	$	(3.07	)	$	(7.16	)
	Weighted average number of common shares outstanding			9,742			9,742			4,894			3,585			3,586
Diluted:(6)
Diluted loss per common share from continuing operations			$	(.13	)	$	(.33	)	$	(6.46	)	$	(.35	)	$	(.52	)
	Diluted loss per common share from discontinued operations		$	—		$	(1.20	)	$	(6.81	)	$	(3.07	)	$	(7.16	)
	Weighted average number of common and common dilutive potential shares outstanding			9,742			9,742			4,894			3,585			3,586

We have had no active business since March 15, 2002 and have no reasonable prospects of obtaining or generating any active business. We have no means of generating additional cash.

							At December 31,
	2002			2001			2000		1999		1998
Balance Sheet Data:
Assets of continuing operations	$	2,643		$	5,136		$	13,198	$	29,151	$	32,181
Indebtedness of continuing operations(7)	$	12,250		$	12,942		$	17,099	$	19,931	$	10,557
Net assets of discontinued operations(1)	$	—		$	—		$	11,042	$	33,936	$	31,332
Shareholders’ equity (deficit)	$	(9,607	)	$	(7,806	)	$	7,141	$	43,156	$	52,956
Membership Data:
Number of members		0			0			416,000		466,600		512,000

We are exploring possible strategies to realize any possible value remaining in the Company. Any such strategy may include the ultimate liquidation of Health Care Assurance Company, Ltd.; however, because of our financial condition and the claims of our creditors, we may seek protection under the Bankruptcy Code.

9Liquidity/ Working Capital Deficiency

~~Table~~ As noted above, we have terminated all operations. At December 31, 2003, we had a consolidated working capital deficiency of ~~Contents~~approximately $1.5 million and a deficiency in shareholders’ equity of approximately $3.5 million. Furthermore, of our total cash and cash equivalents of $5.4 million at December 31, 2003, $2.5 million was held at Health Care Assurance Company, Ltd. The transfer of cash to MHP from Health Care Assurance Company, Ltd. requires the approval of regulatory authorities.

~~NOTES~~ In TOFebruary 2004 ~~SELECTED~~we ~~FINANCIAL~~paid ~~DATA~~$550,000 in settlement of a claim by a former executive. See “Item 8, Note 2 – Charges for Litigation and Management Settlements” to our Consolidated Financial Statements.

~~The~~MHP ~~selected~~has ~~financial~~certain ~~data~~contractual ~~should~~undertakings for which it may be ~~read~~liable inand there ~~conjunction~~are ~~with~~various ~~“Item 7.~~alleged claims that may be asserted against it, including, ~~Management’s~~among ~~Discussion~~others, undertakings to and/or ~~Analysis~~purported ofclaims ~~Financial~~against ~~Condition~~it by vendors and former ~~Results~~employees of ~~Operations”~~ ~~and~~its ~~“Item 8.~~subsidiaries ~~Financial~~who ~~Statements~~have ~~and~~provided ~~Supplementary~~goods ~~Data~~or services to those subsidiaries.”

(1)		The placement of our Indiana HMO into rehabilitation on May 4, 2001 and the bankruptcy filing of our California HMO on May 25, 2001 have effectively ended our involvement in the managed care industry. As a result, we have treated our HMO subsidiaries as discontinued operations in the preparation of these financial statements. (See “Item 8. Financial Statements and Supplementary Data — Notes 2 and 10 to our Consolidated Financial Statements”.)
(2)		In 2002 we recorded investment income of $521,000 in connection with the March, 2003 collection of a note that had been issued by a former executive officer of the Company. (See “Item 8. Financial Statements and Supplementary Data — Note 5 to our Consolidated Financial Statements”.)
(3)		In 2002 we recognized a gain of $671,000 in connection with the settlement of a former executive’s benefits under our Supplemental Executive Retirement Plan. Additionally in 2002 we recorded $880,000 in legal reserves in connection with a contract we had previously entered into for the benefit of our subsidiaries. In 2000 we recorded charges of $785,000 for employee severance costs and $725,000 in litigation reserves for costs associated with the defense and settlement of various legal actions. A $5.5 million charge for management settlement costs was recorded in 1999. A $250,000 charge for litigation costs was recorded in 1998. (See “Item 8. Financial Statements and Supplementary Data — Note 9 to our Consolidated Financial Statements”.)
(4)		The loss from discontinued operations in 2000 includes charges of $4.9 million, for losses associated with certain of our capitated provider arrangements. The loss from discontinued operations for 1999 includes a $3.0 million charge for loss contracts related to the Carolinas commercial line of business. The loss from discontinued operations for 1998 includes a $10 million charge for loss contracts and divestiture costs and a $6.25 million charge for litigation, provider insolvency/impairment, and an increase to the loss contracts and divestiture costs reserve. (See “Item 8. Financial Statements and Supplementary Data — Note 10 to our Consolidated Financial Statements”.)
(5)		The results of discontinued operations for the year ended December 31, 2001 include a gain of $16.4 million realized by MHP in the second quarter of 2001 upon the placement of the Indiana HMO into rehabilitation, the subsequent disposition of Maxicare Life and Health Insurance Company, and the placement of the California HMO into Chapter 11 bankruptcy. This gain represents the extent to which consolidated losses of those entities through May 3, 2001 (the Indiana HMO and Maxicare Life and Health Insurance Company, Inc.) and May 24, 2001 (the California HMO) exceeded MHP’s investment in those subsidiaries. (See “Item 8. Financial Statements and Supplementary Data — Note 2 to our Consolidated Financial Statements”.)
(6)		All share and per share amounts have been retroactively restated to reflect the one for five reverse stock split completed on March 27, 2001.
(7)		Includes long-term liabilities of $2.1 million, $3.8 million, $5.1 million, $1.2 million and $.1 million, in 2002, 2001, 2000, 1999, and 1998, respectively.

We are involved in various legal actions brought against us in the normal course of business, some of which seek damages in amounts that exceed those accrued in our consolidated balance sheets. The ultimate liability for these legal actions cannot be determined and could materially affect our consolidated financial position, results of operations or cash flows, if resolved unfavorably. See “Item 8, Note 3 – Commitments and Contingencies” to our Consolidated Financial Statements.

10Disposition of Subsidiaries

~~Table~~ The California and Indiana HMOs and Maxicare Life and Health Insurance Company, Inc. are currently in liquidation. We will receive no distribution of assets ~~Contents~~from the California HMO, are unlikely to receive any distribution from the Indiana HMO, and may or may not receive a distribution from Maxicare Life and Health Insurance Company. Any distribution from Maxicare Life and Health Insurance Company, Inc. if assets ultimately are available for distribution, will require regulatory approval.

~~Item 7. Management’s Discussion and Analysis of Financial Condition and~~ Results of Operations

~~Current~~Year ~~Status~~Ended December 31, 2003 Compared to Year Ended December 31, 2002

We ~~have~~reported nonet ~~active~~income ~~business~~of approximately $2.7 million ($.28 per share basic and nodiluted) ~~reasonable~~for ~~prospects~~the year ended December 31, 2003 compared to a loss of approximately ~~obtaining~~$1.3 million or($.13 per share basic and diluted) for the year ~~generating~~ended ~~any~~December 31, ~~active~~2002. ~~business~~During the second quarter of 2003 we recognized other income in the amount of $3.4 million in connection with a settlement recovering the underpayment of amounts due to us for health care coverage provided to employees of the United States Office of Personnel Management. Also during the second quarter of 2003 we recognized approximately $1.15 million of income, reflected as negative health care expense, in connection with the expiration of notice periods in connection with certain insurance provided by our Health Care Assurance Company, Ltd. subsidiary. In the second quarter of 2003 we also accrued additional expenses of $250,000 in regards to the settlement of certain litigation involving an information services contract. In the fourth quarter of 2003 we recorded expense of $405,000 in connection with the settlement of an action brought by a former executive for consulting fees he was due. Also in the fourth quarter of 2003 we recognized a gain of $580,000 in connection with the settlement of a dispute involving a Services Agreement for Back Office Administration that we had previously entered into for the benefit of our subsidiaries. See “Item 8, Note 2 – Charges for Litigation and Management Settlements” to our Consolidated Financial Statements.

~~On December 31, 2001, we effectively ceased all operations. On that date,~~10 our California HMO and PPO terminated all membership. Our remaining operations at December 31, 2001 consisted of Health Care Assurance Company, Ltd., a captive insurer that provided certain insurance coverage to us and our subsidiaries, and our administration of the California Access for Infants and Mothers (“AIM”) program through another of our subsidiaries. The activities of Health Care Assurance Company, Ltd., essentially ended with the termination of our HMO and PPO business. Our involvement with the AIM program ended on March 15, 2002.

~~Liquidity/~~Year ~~Working~~Ended ~~Capital~~December 31, ~~Deficiency~~2002 Compared to Year Ended December 31, 2001

AsWe ~~noted~~reported ~~above,~~a wenet ~~have~~loss ~~terminated~~of ~~all~~$1.3 million ~~operations~~($.13 Atper share basic and diluted) for the year ended December 31, 2002~~, we~~. ~~had~~We reported a ~~consolidated~~net ~~working~~loss ~~capital deficiency~~ of ~~approximately~~ $714.59 million, ~~and~~($1.53 aper ~~deficiency~~share inbasic ~~shareholders’~~and ~~equity~~diluted) offor ~~approximately~~the ~~$9.6~~year ended December ~~million. Furthermore~~31, of2001. ~~our~~Net income ~~total~~for ~~cash~~the ~~and~~year ~~cash~~ended ~~equivalents of $2.6 million at~~ December 31, 2002, ~~all~~included ~~but~~investment income of $~~183~~521,000 ~~was~~recorded ~~held~~in atconnection ~~subsidiaries~~with ~~where~~ the ~~transfer~~collection of ~~cash~~a note that had been toissued ~~MHP~~by ~~requires~~a ~~the~~former ~~approval~~executive officer of ~~regulatory~~the ~~authorities~~Company. ~~Subsequent~~In ~~to December 31,~~ 2002, we ~~were~~also recognized ~~able~~a togain ~~transfer~~of $~~100~~671,000 ~~from~~in ~~one~~connection with the settlement of a former executive’s benefits under our ~~subsidiaries~~Supplemental ~~to MHP.~~Executive WeRetirement ~~may~~Plan. ~~not~~In be2002 we ~~able~~also toaccrued ~~transfer~~litigation-related ~~any~~expense ~~more~~of ~~funds~~$880,000 ~~from~~in ~~our~~connection ~~subsidiaries~~with tothe ~~MHP.~~previously ~~MHP~~noted ~~has~~Services ~~certain~~Agreement ~~contractual~~for ~~undertakings~~Back Office Administration. Losses from continuing operations for ~~which~~the ityear ~~may~~ended beDecember 31, ~~liable~~2001 ~~and~~were $3.2 ~~there~~million; ~~are~~losses ~~various~~from ~~alleged~~discontinued ~~claims~~operations ~~that~~for ~~may~~the beyear ~~asserted~~ended ~~against it~~December 31, 2001 ~~including~~were $11.7 million, which included a gain of $16.4 million realized by MHP ~~among~~upon ~~others,~~the ~~undertakings~~placement of our Indiana HMO (to which MHP had contributed the capital stock of Maxicare Life and~~/or~~ ~~purported~~Health ~~claims~~Insurance ~~against~~Company iton byMarch 9, ~~vendors~~2001) into rehabilitation and the bankruptcy of our California HMO. This gain represents ~~former~~the ~~employees~~extent to which liabilities of ~~its~~those subsidiaries ~~who~~exceeded ~~have~~their ~~provided~~assets ~~goods~~at May 3, or2001 ~~services~~(the toIndiana HMO and Maxicare Life and Health Insurance Company) or ~~those~~May 25, ~~subsidiaries~~2001 (the California HMO).

AtContractual ~~April 1, 2001, a note held by MHP in the approximate amount of $2.9~~Obligations ~~million (including accrued interest) became due. The note, issued by a~~ ~~shareholder and former executive officer of MHP, was not paid, and we commenced~~ ~~an action in California state court to collect on the note. On October 18,~~ 2001, the court granted summary adjudication in our favor. On November 14, 2002 the California Court of Appeal affirmed the summary adjudication. On March 14, 2003, the former executive satisfied the judgment in the net stipulated amount of $3.41 million by paying $2.583 million to MHP and by paying over the balance of $.767 million to the Sheriff pursuant to an attachment by another former executive. Offset against the judgment of $3.41 million was $.06 million that the former executive agreed to accept in full settlement of his claim against the Company in connection with his benefits under our Supplemental Executive Retirement Plan. The note is presented as a reduction in shareholders’ equity in the consolidated balance sheets at December 31, 2002 and 2001.

In orthe ~~about~~table ~~November 1999~~below, inwe ~~substance,~~set ~~MHP,~~forth onour ~~its~~contractual ~~own~~obligations ~~behalf~~as ~~and also~~of onDecember 31, ~~behalf~~2003. Some of ~~various~~the ~~closed~~figures ~~and~~we ~~then~~include ~~operating~~in ~~subsidiaries,~~this ~~commenced~~table anare based on ~~action~~management’s inestimates ~~the~~and ~~United~~assumptions ~~States~~about ~~Court~~these obligations, including their duration, the possibility of ~~Federal~~renewal, ~~Claims~~anticipated ~~against~~actions ~~the~~by ~~United~~third ~~States~~parties, and ~~seeking~~other tofactors. ~~recover~~Because ~~approximately~~these ~~$9 million~~estimates ~~for~~and ~~the~~assumptions ~~underpayment~~are ofnecessarily subjective, ~~amounts~~the ~~due for~~contractual ~~health~~obligations ~~care~~we ~~coverage~~will ~~provided~~actually topay ~~employees~~in offuture ~~the~~periods may ~~United~~vary ~~States~~from ~~Office~~those ~~of Personnel~~reflected ~~Management~~in the table. ~~This~~Amounts ~~action~~are ~~remains~~in ~~pending~~thousands.

MHP has defaulted in making the monthly payments due a former executive under his consulting agreement since October of 2001. The total amount due the former executive for the period of October 2001 through December 2002 is approximately $645,000. Under that agreement, the former executive may elect to receive the present value of the remaining consulting fees due to him through June 30, 2003, which is estimated at no more than $950,000. On March 11, 2003, the former executive obtained an attachment in the amount of approximately $767,000 against the Company in connection with his claim.


			2005 and
	2004		beyond
Operating lease obligations (1)	$	205	$	31
Capital lease obligations (2)		193		96
Supplemental executive retirement plan obligations(3)		48		1,845

Total contractual obligations	$	446	$	1,972

We(1) ~~are~~The ~~involved~~California inHMO ~~various~~continues ~~legal~~to ~~actions~~contribute ~~brought~~to ~~against~~the uspayment inof the ~~normal course~~operating oflease ~~business,~~obligations ~~some~~ of ~~which~~MHP. ~~seek~~Although ~~damages~~there incan ~~amounts~~be no assurance that ~~exceed~~such ~~those accrued~~payments inwill ~~our~~continue, ~~consolidated~~management ~~balance~~believes ~~sheets.~~it ~~The~~likely ~~ultimate~~that ~~liability~~the ~~for~~California ~~these legal~~HMO ~~actions~~will ~~cannot~~contribute beapproximately ~~determined~~$49,000 ~~and~~to ~~could~~the ~~materially~~payment ~~affect~~of ~~our~~operating ~~consolidated financial~~lease ~~position,~~obligations ~~results~~in of2004. ~~operations~~Such orpayments ~~cash~~by ~~flows,~~the ifCalifornia ~~resolved unfavorably.~~HMO ~~See~~are ~~“Item 8~~unlikely ~~Note~~to 3continue –after ~~Commitments~~May ~~and~~31, ~~Contingencies”~~2004.

11 (2) We have made no payments to the lessor in connection with the leased assets since the first quarter of 2002. The liability associated with these leased assets remains on our consolidated balance sheets.

~~Table~~(3) Amount of ~~Contents~~benefits owed and payment periods are dependent upon a number of factors, among them the life expectancies of the participants.

~~Disposition of Subsidiaries~~11

OnForward ~~May 24,~~Looking ~~2001 the Missouri Department of Insurance placed our~~Information ~~subsidiary, Maxicare Life and Health Insurance Company, Inc., under~~ ~~administrative supervision. Maxicare Life and Health Insurance Company, Inc.~~ ~~ceased offering all products effective December 31, 2001, effectively ceasing~~ all operations. On January 28, 2002 the Missouri Department of Insurance placed Maxicare Life and Health Insurance Company, Inc. into rehabilitation. On March 4, 2003 the Board of Directors of Maxicare Life and Health Insurance Company agreed to its liquidation. It is unlikely that we will receive any distribution of assets from Maxicare Life and Health Insurance Company.

OnStatements ~~May 4,~~in ~~2001,~~this ~~the~~Form ~~Indiana~~10-K ~~Department~~annual ofreport ~~Insurance~~may ~~placed~~be “forward-looking statements” within the ~~Indiana~~meaning ~~HMO~~of the Private Securities Litigation Reform Act ~~into~~of ~~rehabilitation~~1995. ~~The~~Forward-looking ~~effect~~statements ofinclude, ~~this~~but ~~action~~are ~~was~~not limited to, ~~terminate~~statements that ~~the~~express ~~ongoing~~our intentions, beliefs, expectations, strategies, predictions or ~~operations~~any ofother ~~the~~statements ~~Indiana~~relating ~~HMO~~to asour offuture ~~that~~activities ~~date~~or other future events or conditions. ~~The~~These ~~Indiana~~statements ~~HMO~~are ~~was~~based ~~formally~~on current expectations, estimates ~~placed~~and ~~into~~projections ~~liquidation~~about onour ~~July 3~~business based, ~~2001~~in part, on assumptions made by management. OnThese statements are not guarantees of future performance and involve risks, uncertainties and assumptions that ~~date~~are difficult to predict. Therefore, actual outcomes and results may, and probably will, differ materially from what is expressed or forecasted in the ~~Indiana~~forward-looking statements ~~Commissioner~~due to numerous factors, including those described above and those risks discussed from time to time in this Form 10-K annual report, including the risks described under “Risk Factors” and “Management’s Discussion and Analysis of ~~Insurance~~Financial ~~was~~Condition ~~appointed~~and Results of Operations” and in other documents which we file with the Securities and Exchange Commission. In addition, such statements could be affected by risks and uncertainties related to our financial condition, as ~~Liquidator~~well as general market conditions and growth rates, and general economic conditions. ItAny isforward-looking ~~unlikely~~statements ~~that~~speak only as of the date on which they are made, and we ~~will~~do ~~receive~~not undertake any obligation to update any ~~distribution~~forward-looking ofstatement ~~assets~~to ~~from~~reflect events or circumstances after the ~~Indiana~~date ~~HMO~~of this Form 10-K.

AsItem ~~a result of these events, results for the year ended December 31, 2001 include the Indiana HMO only through May 3, 2001~~7a. ~~The~~Quantitative ~~financial results of Maxicare Life~~ and ~~Health~~Qualitative ~~Insurance~~Disclosures ~~Company~~About ~~are~~Market also included in the 2001 results only through May 3, 2001, due to the contribution of the capital stock of Maxicare Life and Health Insurance Company to the Indiana HMO effective December 31, 2000. The results of the California HMO are included in our results only through May 24, 2001. Risk

~~Discontinued~~ As ~~Operations~~of December 31, 2003, we had approximately $5.4 million in cash and cash equivalents, no marketable securities and no restricted investments. Our investment policies emphasize return of principal and liquidity and are focused on fixed returns that limit volatility and risk of principal. Because of our investment policies, the primary market risk associated with our portfolio is interest rate risk.

~~The placement of the Indiana HMO into rehabilitation and the bankruptcy filing of the California HMO have effectively ended our involvement in the managed care industry.~~ As ~~a result, we have treated our HMO subsidiaries and Maxicare Life and Health Insurance Company, Inc. as discontinued operations in the preparation~~ of ~~our financial statements. Although our remaining operations (parent~~December 31, ~~Health Care Assurance Company~~2003, ~~Ltd.,~~we ~~and~~did ~~the AIM program through March 15, 2002) are insignificant in size, financially dependent upon our California and Indiana HMOs, and may also be terminated, they represent services~~ not ~~intrinsically~~ ~~linked to the managed care industry and~~ have ~~been~~any ~~treated~~outstanding asbank borrowings ~~continuing~~or ~~operations~~debt obligations.

~~Results of Operations~~12

WeItem ~~reported a net loss of $1~~8.~~3 million~~ ~~($.13~~Financial ~~per~~Statements ~~share basic~~ and ~~diluted)~~Supplementary for the year ended December 31, 2002. We reported a net loss of $14.9 million ($1.53 per share basic and diluted) for the year ended December 31, 2001. Net income for the year ended December 31, 2002 included investment income of $521,000 recorded in connection with the previously mentioned collection of a note that had been issued by a former executive officer of the Company. In 2002 we also recognized a gain of $671,000 in connection with the settlement of a former executive’s benefits under our Supplemental Executive Retirement Plan and $880,000 in legal reserves in connection with a contract we had previously entered into for the benefit of our subsidiaries. Losses from continuing operations for the year ended December 31, 2001 were $3.3 million; losses from discontinued operations for the year ended December 31, 2001 were $11.7 million, which included a gain of $16.4 million realized by MHP upon the placement of our Indiana HMO (to which MHP had contributed the capital stock of Maxicare Life and Health Insurance Company effective December 31, 2000) into rehabilitation and the bankruptcy of our California HMO. This gain represents the extent to which liabilities of those subsidiaries exceeded their assets at May 3, 2001 (the Indiana HMO and Maxicare Life and Health Insurance Company) or May 25, 2001 (the California HMO). Data

12REPORT OF INDEPENDENT AUDITORS

~~Table~~The Board of ~~Contents~~Directors and Shareholders

~~Year~~Maxicare ~~Ended~~Health ~~December 31~~Plans, ~~2001 Compared to Year Ended December 31, 2000~~Inc.

We ~~reported~~have aaudited ~~net~~the ~~loss~~accompanying consolidated balance sheets of $3Maxicare Health Plans, Inc.3 as of December ~~million~~31, or2003 ~~$.33~~and ~~per~~2002, ~~share~~and ~~(basic~~the ~~and~~related ~~diluted),~~consolidated ~~from~~statements ~~continuing~~of operations, changes in shareholders’ equity (deficit) and cash flows for each of the ~~year~~three ~~ended~~years in the period ended December 31, ~~2001~~2003. ~~We sustained~~Our aaudits ~~loss~~also ofincluded ~~$31.6 million,~~the orinformation ~~$6.46~~with ~~per~~respect ~~share~~to ~~(basic~~the financial ~~and~~statement ~~diluted~~schedules listed in the index at Item 14(a),. ~~from~~These ~~continuing~~financial ~~operations~~statements ~~for~~and schedules are the ~~year~~responsibility ~~ended~~of ~~December 31,~~the ~~2000~~Company’s management. ~~Year~~Our ~~2000~~responsibility ~~results from~~is ~~continuing~~to ~~operations~~express ~~included~~ an ~~$18.2 million~~opinion ~~non-cash~~on ~~charge~~these ~~associated~~financial ~~with~~statements ~~the~~and ~~write~~schedules ~~off~~based ofon ~~deferred~~our ~~tax assets~~audits.

~~Revenues~~We ~~from~~conducted ~~continuing~~our ~~operations~~audits ~~decreased by $11.8 million~~ in ~~2001 when~~accordance ~~compared~~with toauditing ~~2000~~standards ~~due to the assumption of MHP’s inter-entity service~~generally ~~agreements~~accepted byin the ~~California~~United ~~HMO effective January 1, 2001~~States. ~~Through~~Those ~~December 31,~~standards ~~2000,~~require ~~our~~that ~~HMOs~~we ~~and~~plan ~~Maxicare Life~~ and ~~Health Insurance Company, Inc. paid~~perform ~~monthly~~the ~~fees~~audit to ~~MHP~~obtain ~~pursuant~~reasonable toassurance ~~administrative~~about ~~services~~whether ~~agreements~~the ~~for~~financial ~~various~~statements ~~management,~~are ~~financial,~~free ~~legal,~~of ~~computer~~material ~~and telecommunications services~~misstatement. AsAn ~~a result~~audit ofincludes aexamining, ~~corporate reorganization and simplification implemented~~ on ~~December~~a test 31basis, ~~2000,~~evidence ~~certain~~supporting ~~employees performing functions in support of~~ the ~~administrative~~ ~~service~~amounts ~~agreements~~and ~~were~~disclosures ~~transferred~~in ~~from MHP to~~ the ~~California~~financial ~~HMO~~statements. ~~For~~An ~~the~~audit ~~period~~also ~~January 1,~~includes ~~2001~~assessing ~~to April 30, 2001~~ the ~~Indiana~~accounting ~~HMO~~principles ~~and Maxicare~~used ~~Life~~ and ~~Health Insurance Company, Inc. paid monthly fees to the~~ ~~California~~significant ~~HMO~~estimates ~~for~~made ~~the services previously provided to them~~ by ~~MHP.~~management, ~~Prior~~as ~~to the~~well ~~reclassification of our HMO activities~~ as ~~discontinued~~evaluating ~~operations,~~ the ~~service~~ ~~agreement income and related expense were eliminated in consolidation.~~overall ~~Salary,~~financial ~~general~~statement ~~and administrative expenses of continuing operations declined from $23~~presentation.~~1 million~~ inWe ~~2000~~believe tothat ~~$5.0 million~~our inaudits ~~2001,~~provide ~~principally due to decreased salary costs as~~ a ~~result of the transfer of employees from MHP to the~~ ~~California~~reasonable ~~HMO~~basis ~~($5.1 million);~~for ~~reserves~~our ~~taken against certain prepaid items and accounts receivable in 2000 ($4~~opinion.~~0 million); and higher consulting costs in 2000~~ ~~associated with various infrastructure enhancements ($5.9 million).~~

~~Results~~In ofour ~~discontinued~~opinion, ~~operations for~~ the ~~year~~financial ~~ended~~statements ~~December 31,~~referred ~~2001 include~~to aabove ~~gain~~present ~~of $16.4 million realized by MHP upon the placement of our~~fairly, ~~Indiana~~in ~~HMO~~all ~~(to~~material ~~which~~respects, ~~MHP had contributed~~ the ~~capital~~consolidated ~~stock~~financial position of Maxicare ~~Life~~ ~~and~~ Health ~~Insurance~~Plans, ~~Company~~Inc. ~~effective~~at December 31, ~~2000),~~2003 ~~into rehabilitation~~ and ~~the~~2002, ~~bankruptcy~~and ~~of our California HMO. This gain represents~~ the ~~extent~~consolidated toresults ~~which liabilities~~ of ~~those~~its ~~subsidiaries~~operations ~~exceeded~~and ~~their~~its ~~assets~~cash atflows ~~the~~for ~~date~~each of ~~rehabilitation~~ orthe ~~bankruptcy.~~three ~~Loss~~years ~~from~~in ~~discontinued~~the ~~operations before~~period ~~adjustment~~ended ~~for this gain was $28.1~~December ~~million~~31, 2003 in ~~2001~~conformity ~~compared~~with toaccounting ~~$33.4 million~~principles ingenerally ~~2000.~~accepted ~~The~~in ~~accelerating~~the ~~losses~~United ~~from~~States. ~~discontinued~~Also, ~~operations~~ in ~~2001~~our ~~(results~~opinion, ~~for 2001~~the ~~are~~related ~~only~~financial statement ~~through May 3~~schedules, ~~2001~~when ~~for~~considered ~~Indiana~~in ~~and~~relation ~~Maxicare~~to ~~Life~~the ~~and~~basic ~~Health~~financial ~~Insurance~~statements ~~Company,~~taken ~~Inc.~~as ~~and~~a ~~May 25~~whole, ~~2001~~present ~~for~~fairly ~~California) stem from rapidly deteriorating operating performance~~ in ~~the~~all ~~first~~material ~~quarter~~respects ~~of 2001 and additional~~the ~~claims~~information ~~liabilities~~set offorth ~~the Indiana HMO relating to dates of service prior to December 31, 2000~~therein.

~~Forward~~ The ~~Looking~~accompanying ~~Information~~financial statements have been prepared assuming that Maxicare Health Plans, Inc. will continue as a going concern. As more fully described in Note 1, the Company has incurred recurring operating losses and deficiencies in working capital and shareholders’ equity. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from this uncertainty.

Statements in this Form 10-K annual report may be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are based on current expectations, estimates and projections about our business based, in part, on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may, and probably will, differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those described above and those risks discussed from time to time in this Form 10-K annual report, including the risks described under “Risk Factors” and “Management’/s/ ~~Discussion~~ERNST ~~and Analysis~~& ofYOUNG Financial Condition and Results of Operations” and in other documents which we file with the Securities and Exchange Commission. In addition, such statements could be affected by risks and uncertainties related to our financial condition, as well as general market conditions and growth rates, and general economic conditions. Any forward-looking statements speak only as of the date on which they are made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this Form 10-K. LLP

~~Item 7a.~~Los ~~Quantitative~~Angeles, ~~and~~California April 2, ~~Qualitative Disclosures About Market Risk~~2004

~~As of December 31, 2002, we had approximately $2.6 million in cash and~~13 cash equivalents, no marketable securities and no restricted investments. Our investment policies emphasize return of principal and liquidity and are focused on fixed returns that limit volatility and risk of principal. Because of our investment policies, the primary market risk associated with our portfolio is interest rate risk.

13MAXICARE HEALTH PLANS, INC.

~~Table~~CONSOLIDATED ofBALANCE ~~Contents~~SHEETS

Item 8. Controls and Procedures


	December 31,
	2003			2002
	(Amounts in thousands
	except par value)
Current Assets
Cash and cash equivalents	$	5,361		$	2,636
Other current assets		25			7

Total Assets	$	5,386		$	2,643

Current Liabilities
Estimated claims and other health care costs payable	$	—		$	736
Accounts payable		—			76
Accrued salary expense		91			328
Other current liabilities		6,814			9,019

Total Current Liabilities		6,905			10,159
Long-Term Liabilities		1,938			2,091

Total Liabilities		8,843			12,250

Commitments and Contingencies
Shareholders’ Equity (Deficit)
Common stock, $.01 par value — 80,000 shares authorized, 9,992 (2003) and 9,742 (2002) shares issued and outstanding		98			98
Additional paid-in capital		283,466			283,466
Notes receivable from shareholders		—			(3,408	)
Accumulated deficit		(287,021	)		(289,763	)

Total Shareholders’ Deficit		(3,457	)		(9,607	)

Total Liabilities and Shareholders’ Equity	$	5,386		$	2,643

~~Our~~See ~~chief~~notes ~~executive~~to ~~officer~~consolidated ~~and chief~~ financial officer have supervised and participated in an evaluation of the effectiveness of our disclosure controls and procedures as of a date within 90 days of the date of this report, and, based on their evaluations, they believe that our disclosure controls and procedures (as defined in Rule 13a-14(c) of the Securities Exchange Act of 1934, as amended) are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and formsstatements. ~~As a result of~~ ~~the evaluation, there were no significant changes in our internal controls or~~ ~~in other factors that could significantly affect these controls subsequent to~~ ~~the date of their evaluation.~~

~~Item 8.~~MAXICARE ~~Financial~~HEALTH ~~Statements~~PLANS, ~~and Supplementary Data~~INC.

~~REPORT~~CONSOLIDATED STATEMENTS OF ~~INDEPENDENT AUDITORS~~OPERATIONS

The Board of Directors and Shareholders Maxicare Health Plans, Inc.


	Years Ended December 31,
	2003			2002			2001
	(Amounts in thousands
	except per share data)
Revenues
Premiums	$	—		$	—		$	1,819
Investment income		33			569			239
Other income		3,471			268			971

Total Revenues		3,504			837			3,029

Expenses
Health care expenses (credits)		(1,146	)		(312	)		582
Salary, general and administrative expenses		1,833			1,062			4,998
Depreciation and amortization		—			120			704
Impairment of capital assets		—			1,036			—
Charges for litigation and management settlements		75			209			—

Total Expenses		762			2,115			6,284

Income (loss) from continuing operations before income taxes		2,742			(1,278	)		(3,255	)
Income tax provision		—			—			—

Income (loss) from continuing operations		2,742			(1,278	)		(3,255	)

Discontinued operations
Loss from discontinued operations		—			—			(28,095	)
Write-off of excess of rehabilitated and bankrupt subsidiaries’ liabilities over assets		—			—			16,423

Loss from discontinued operations		0			0			(11,672	)

Net income (loss)	$	2,742		$	(1,278	)	$	(14,927	)

Net income (loss) per common share:
Basic income (loss) per common share:
Continuing operations	$	.28		$	(.13	)	$	(.33	)
Discontinued operations	$	—		$	—		$	(1.20	)

Basic income (loss) per common share	$	.28		$	(.13	)	$	(1.53	)

Weighted average number of common shares outstanding		9,867			9,742			9,742

Diluted income (loss) per common share:
Continuing operations	$	.28		$	(.13	)	$	(.33	)
Discontinued operations	$	—		$	—		$	(1.20	)

Diluted income (loss) per common share	$	.28		$	(.13	)	$	(1.53	)

Weighted average number of common and common dilutive potential shares outstanding		9,867			9,742			9,742

WeSee ~~have~~notes ~~audited~~to ~~the accompanying~~ consolidated balance sheets of Maxicare Health Plans, Inc. as of December 31, 2002 and 2001, and the related consolidated statements of operations, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2002. Our audits also included the information with respect to the financial ~~statement schedules listed in the index at Item 14(a). These financial~~ statements ~~and schedules are the responsibility of the Company’s management~~. ~~Our~~ ~~responsibility is to express an opinion on these financial statements and~~ ~~schedules based on our audits.~~

~~We conducted our audits in accordance with auditing standards generally~~15 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.

~~The~~MAXICARE ~~accompanying~~HEALTH ~~financial statements have been prepared assuming that Maxicare Health Plans~~PLANS, ~~Inc~~INC. ~~will continue as a going concern. As more fully~~ ~~described in Note 1, the Company has incurred recurring operating losses and~~ ~~deficiencies in working capital and shareholders’ equity. These conditions~~ raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from this uncertainty.

~~ERNST~~CONSOLIDATED &STATEMENTS ~~YOUNG~~OF ~~LLP~~CHANGES ~~Los~~IN ~~Angeles,~~SHAREHOLDERS’ ~~California~~EQUITY ~~March 14, 2003~~(DEFICIT)

15(Amounts in thousands)


							Notes						Accumulated
	Number of				Additional		Receivable						Other
	Common		Common		Paid-in		from			Accumulated			Comprehensive
	Shares		Stock		Capital		Shareholders			Deficit			Income			Total
Balances at December 31, 2000		9,742	$	98	$	283,442	$	(2,842	)	$	(273,558	)	$	1		$	7,141
Comprehensive income (loss):
Net loss											(14,927	)					(14,927	)
Other comprehensive income, net of tax, related to unrealized gains on marketable securities														1			1

Comprehensive loss																	(14,926	)
Interest earned on notes receivable from shareholder								(45	)								(45	)
Warrants issued in connection with professional services contract						24											24

Balances at December 31, 2001		9,742		98		283,466		(2,887	)		(288,485	)		2			(7,806	)
Comprehensive income (loss):
Net loss											(1,278	)					(1,278	)
Other comprehensive income, net of tax, related to unrealized gains on marketable securities														(2	)		(2	)

Comprehensive loss																	(1,280	)
Interest earned on note receivable from shareholder								(521	)								(521	)

Balances at December 31, 2002		9,742		98		283,466		(3,408	)		(289,763	)					(9,607	)
Comprehensive income (loss):
Net income											2,742						2,742

Comprehensive income																	2,742
Common shares issued to settle litigation		250
Collection of note from shareholder								3,408									3,408

Balances at December 31, 2003		9,992	$	98	$	283,466	$	0		$	(287,021	)	$	0		$	(3,457	)

~~MAXICARE~~See ~~HEALTH~~notes ~~PLANS,~~to ~~INC~~consolidated financial statements.

~~CONSOLIDATED BALANCE SHEETS~~16

			December 31,
			2002			2001
			(Amounts in thousands
			except par value)
Current Assets
	Cash and cash equivalents		$	2,636		$	3,426
	Marketable securities			—			306
	Other current assets			7			248
		Total Current Assets		2,643			3,980
Furniture and Equipment
	Furniture and equipment			—			2,462
		Less accumulated depreciation and amortization		—			1,306
		Net Property and Equipment		0			1,156
		Total Assets	$	2,643		$	5,136
Current Liabilities
	Estimated claims and other health care costs payable		$	736		$	1,050
	Accounts payable			76			54
	Deferred income			—			113
	Accrued salary expense			328			247
	Other current liabilities			9,019			7,663
		Total Current Liabilities		10,159			9,127
Long-Term Liabilities				2,091			3,815
		Total Liabilities		12,250			12,942
Commitments and Contingencies
	Shareholders’ Equity (Deficit)
	Common stock, $.01 par value — 80,000 shares authorized, 9,742 shares issued and outstanding			98			98
	Additional paid-in capital			283,466			283,466
	Notes receivable from shareholders			(3,408	)		(2,887	)
	Accumulated deficit			(289,763	)		(288,485	)
	Accumulated other comprehensive income			—			2
		Total Shareholders’ Deficit		(9,607	)		(7,806	)
		Total Liabilities and Shareholders’ Equity	$	2,643		$	5,136

~~See~~MAXICARE ~~notes~~HEALTH toPLANS, ~~consolidated financial statements~~INC.

16CONSOLIDATED STATEMENTS OF CASH FLOWS


	Years Ended December 31,
	2003			2002			2001
	(Amounts in thousands)
Cash Flows from Operating Activities:
Net income (loss)	$	2,742		$	(1,278	)	$	(14,927	)
Adjustments to reconcile net income (loss) to net cash used for operating activities:
Depreciation and amortization		—			120			1,305
Impairment of capital assets		—			1,036			—
Write-off of rehabilitated and bankrupt subsidiaries’ liabilities over assets		—			—			(16,423	)
Charges for litigation and management settlements		75			209			—
Changes in assets and liabilities (net of effect of rehabilitation and bankruptcy of subsidiaries):
Decrease in accounts receivable		—			—			8,403
Decrease in estimated claims and other health care costs payable		(736	)		(314	)		(5,969	)
Decrease in deferred income		—			(113	)		(5,789	)
Changes in other miscellaneous assets and liabilities		(2,764	)		(233	)		2,161

Net cash used for operating activities		(683	)		(573	)		(31,239	)

Cash Flows from Investing Activities:
Cash surrendered in rehabilitation and bankruptcy of subsidiaries		—			—			(42,040	)
Purchases of property and equipment and intangible assets		—			—			(5,256	)
Decrease in restricted investments		—			—			708
Loan to shareholder		3,408			(521	)		—
Proceeds from sales and maturities of marketable securities		—			304			1,231
Purchases of marketable securities		—			—			(299	)

Net cash provided by (used for) investing activities		3,408			(217	)		(45,656	)

Cash Flows from Financing Activities:
Payments on capital lease obligations		—			—			(372	)

Net cash used for financing activities		0			0			(372	)

Net increase (decrease) in cash and cash equivalents		2,725			(790	)		(77,267	)
Cash and cash equivalents at beginning of year		2,636			3,426			80,693

Cash and cash equivalents at end of year	$	5,361		$	2,636		$	3,426

Supplemental disclosures of cash flow information:
Cash paid during the year for — Interest							$	98
Supplemental schedule of non-cash investing activities:
Capital lease obligations incurred for purchase of property and equipment and intangible assets							$	114
Liabilities of rehabilitated and bankrupt subsidiaries							$	101,405
Assets of rehabilitated and bankrupt subsidiaries excluding cash								42,942

Net liabilities of rehabilitated and bankrupt subsidiaries excluding cash								58,463
Cash of rehabilitated and bankrupt subsidiaries surrendered								42,040

Write-off of rehabilitated and bankrupt subsidiaries’ liabilities in excess of assets							$	(16,423	)

~~MAXICARE~~See ~~HEALTH~~notes ~~PLANS,~~to ~~INC~~consolidated financial statements.

~~CONSOLIDATED STATEMENTS OF OPERATIONS~~17

				Years Ended December 31,
				2002			2001			2000
						(Amounts in thousands
						except per share data)
Revenues
	Premiums			$	—		$	1,819		$	2,343
	Investment income				569			239			529
	Inter-company service agreement income				—			—			11,599
	Other income				268			971			398
			Total Revenues		837			3,029			14,869
Expenses
	Health care expenses (credits)				(312	)		582			2,615
	Salary, general and administrative expenses				1,062			4,998			23,147
	Depreciation and amortization				120			704			962
	Impairment of capital assets				1,036			—			—
	Charges for litigation and management settlements				209			—			1,510
			Total Expenses		2,115			6,284			28,234
Loss from continuing operations before income taxes					(1,278	)		(3,255	)		(13,365	)
Income tax provision											(18,229	)
Loss from continuing operations					(1,278	)		(3,255	)		(31,594	)
Discontinued operations
	Loss from discontinued operations				—			(28,095	)		(33,352	)
	Write-off of excess of rehabilitated and bankrupt subsidiaries’ liabilities over assets				—			16,423			—
Loss from discontinued operations					0			(11,672	)		(33,352	)
Net Loss				$	(1,278	)	$	(14,927	)	$	(64,946	)
Net Loss Per Common Share:
Basic loss per common share:
		Continuing operations		$	(.13	)	$	(.33	)	$	(6.46	)
		Discontinued operations		$	—		$	(1.20	)	$	(6.81	)
		Basic loss per common share		$	(.13	)	$	(1.53	)	$	(13.27	)
		Weighted average number of common shares outstanding			9,742			9,742			4,894
Diluted loss per common share:
		Continuing operations		$	(.13	)	$	(.33	)	$	(6.46	)
		Discontinued operations		$	—		$	(1.20	)	$	(6.81	)
		Diluted loss per common share		$	(.13	)	$	(1.53	)	$	(13.27	)
		Weighted average number of common and common dilutive potential shares outstanding			9,742			9,742			4,894

~~See~~MAXICARE ~~notes~~HEALTH toPLANS, ~~consolidated financial statements~~INC.

17NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~Table~~December 31, ~~of Contents~~2003

~~MAXICARE~~Note ~~HEALTH~~1 ~~PLANS,~~— ~~INC.~~Business Description

~~CONSOLIDATED~~ Maxicare ~~STATEMENTS~~Health OFPlans, ~~CHANGES~~Inc., INa ~~SHAREHOLDERS’~~Delaware ~~EQUITY~~corporation (~~DEFICIT~~“MHP” or “the Company”), is a holding company that formerly operated health maintenance ~~(Amounts~~organizations and other subsidiaries, primarily in ~~thousands)~~the field of managed care. As of March 15, 2002 all operations of MHP and its subsidiaries were terminated. MHP and its subsidiaries have not engaged in any business activities since that date. At December 31, 2003 we had negative net worth of $3.5 million and a working capital deficiency of $1.5 million. See “Liquidity and Going Concern” below.

															Accumulated
			Number of				Additional								Other
			Common		Common		Paid-in					Accumulated			Comprehensive
			Shares		Stock		Capital		Other			Deficit			Income			Total
Balances at December 31, 1999				3,579	$	36	$	254,393	$	(2,651	)	$	(208,612	)	$	(10	)	$	43,156
	Comprehensive income (loss): Net loss												(64,946	)					(64,946	)
		Other comprehensive income, net of tax, related to unrealized gains on marketable securities														11			11
		Comprehensive loss																	(64,935	)
		Issuance of common stock		6,163		62		28,991											29,053
		Notes receivable from shareholder								(191	)								(191	)
		Warrants issued in connection with professional services contract						58											58
Balances at December 31, 2000				9,742		98		283,442		(2,842	)		(273,558	)		1			7,141
	Comprehensive income (loss): Net loss												(14,927	)					(14,927	)
		Other comprehensive income, net of tax, related to unrealized gains on marketable securities														1			1
		Comprehensive loss																	(14,926	)
		Notes receivable from shareholder								(45	)								(45	)
		Warrants issued in connection with professional services contract						24											24
Balances at December 31, 2001				9,742		98		283,466		(2,887	)		(288,485	)		2			(7,806	)
	Comprehensive income (loss): Net loss												(1,278	)					(1,278	)
		Other comprehensive income, net of tax, related to unrealized gains on marketable securities														(2	)		(2	)
		Comprehensive loss																	(1,280	)
		Interest earned on note receivable from shareholder								(521	)								(521	)
Balances at December 31, 2002				9,742	$	98	$	283,466	$	(3,408	)	$	(289,763	)	$	0		$	(9,607	)

All significant subsidiaries formally operated by MHP (the California and Indiana HMOs and Maxicare Life and Health Insurance Company, Inc.) were placed into bankruptcy, rehabilitation and administrative supervision, respectively, in May of 2001 and are currently in liquidation. We will receive no distribution of assets from the California HMO, are unlikely to receive any distribution of assets from the Indiana HMO, and cannot determine whether or not we will receive a distribution of assets from Maxicare Life and Health Insurance Company, Inc. Any distribution from Maxicare Life and Health Insurance Company, Inc., if assets ultimately are available for distribution, will require regulatory approval.

~~See~~ We ~~notes~~own Health Care Assurance Company, Ltd., a captive insurer that provided certain insurance coverage to ~~consolidated~~MHP ~~financial~~and ~~statements~~its subsidiaries. Effective January 31, 2002 all policies underwritten by Health Care Assurance Company, Ltd., have terminated or expired. We also served as administrator of the California Access for Infants and Mothers (“AIM”) program through another of our subsidiaries. Administration of the AIM program was transferred to another health care provider effective March 15, 2002.

18Reverse Stock Split

~~Table~~ On March 27, 2001, we effected a one-for-five reverse split of ~~Contents~~our common stock. All share and per share information included in this Report on Form 10-K have been retroactively adjusted to reflect the reverse stock split.

~~MAXICARE~~Liquidity ~~HEALTH~~and ~~PLANS,~~Going ~~INC.~~Concern

~~CONSOLIDATED~~ At ~~STATEMENTS~~December 31, OF2003 ~~CASH~~we ~~FLOWS~~had a consolidated working capital deficiency of approximately $1.5 million, and a deficiency in shareholders’ equity of approximately $3.5 million. Furthermore, of our total cash and cash equivalents of $5.4 million at December 31, 2003, $2.5 million was held at Health Care Assurance Company, Ltd. The transfer of cash to MHP from Health Care Assurance Company, Ltd. requires the approval of regulatory authorities.

				Years Ended December 31,
				2002			2001			2000
				(Amounts in thousands)
Cash Flows from Operating Activities:
Net loss				$	(1,278	)	$	(14,927	)	$	(64,946	)
Adjustments to reconcile net loss to net cash used for operating activities:
	Depreciation and amortization				120			1,305			1,527
	Impairment of capital assets				1,036			—			—
	Provision for deferred income taxes				—			—			18,229
	Write-off of rehabilitated and bankrupt subsidiaries’ liabilities over assets				—			(16,423	)		—
	Charges for litigation and management settlements				209			—			1,959
	Changes in assets and liabilities (net of effect of rehabilitation and bankruptcy of subsidiaries):
		(Increase) decrease in accounts receivable			—			8,403			(7,216	)
		Increase (decrease) in estimated claims and other health care costs payable			(314	)		(5,969	)		31,337
		Decrease in deferred income			(113	)		(5,789	)		(3,177	)
		Changes in other miscellaneous assets and liabilities			(233	)		2,161			6,874
			Net cash used for operating activities		(573	)		(31,239	)		(15,413	)
Cash Flows from Investing Activities:
	Cash surrendered in rehabilitation and bankruptcy of subsidiaries				—			(42,040	)		—
	Purchases of property and equipment and intangible assets				—			(5,256	)		(3,276	)
	Decrease in restricted investments				—			708			1,957
	Increase in long-term receivables				—			—			(497	)
	Loans to shareholders				(521	)		—			—
	Proceeds from sales and maturities of marketable securities				304			1,231			4,620
	Purchases of marketable securities				—			(299	)		(4,535	)
			Net cash used for investing activities		(217	)		(45,656	)		(1,731	)
Cash Flows from Financing Activities:
	Issuance of common stock				—			—			29,053
	Payments on capital lease obligations				—			(372	)		(333	)
Net cash provided by (used for) financing activities					0			(372	)		28,720
Net (decrease) increase in cash and cash equivalents					(790	)		(77,267	)		11,576
Cash and cash equivalents at beginning of year					3,426			80,693			69,117
Cash and cash equivalents at end of year				$	2,636		$	3,426		$	80,693
Supplemental disclosures of cash flow information:
	Cash paid during the year for — Interest						$	98		$	107
Supplemental schedule of non-cash investing activities:
		Capital lease obligations incurred for purchase of property and equipment and intangible assets					$	114		$	813
	Liabilities of rehabilitated and bankrupt subsidiaries						$	101,405
	Assets of rehabilitated and bankrupt subsidiaries excluding cash							42,942
	Net liabilities of rehabilitated and bankrupt subsidiaries excluding cash							58,463
	Cash of rehabilitated and bankrupt subsidiaries surrendered							42,040
	Write-off of rehabilitated and bankrupt subsidiaries’ liabilities over assets						$	(16,423	)

In February 2004 we paid $550,000 in settlement of a claim by a former executive. See “Note 2 — Litigation and Management Settlement Charges”.

~~See~~ As ~~notes~~noted above, we had no continuing business activities after March 15, 2002. We have no access to ~~consolidated~~cash ~~financial~~that ~~statements~~is held at Health Care Assurance Company except to the extent regulatory authorities approve the transfer of cash to MHP. As set forth below in Note 3 “Commitments and Contingencies”, substantial claims have been or may be asserted against us. Such claims, when resolved, may be far in excess of liabilities reported in the Consolidated Balance Sheets.

19 These conditions raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of these uncertainties.

~~Table~~ Management ofis ~~Contents~~exploring possible strategies to realize any possible value remaining in the Company; however, given our financial condition, our stock price and the claims against us, it is very possible that management will not be successful in these efforts, and we may seek protection under the Bankruptcy Code.

~~MAXICARE HEALTH PLANS, INC.~~18

~~December 31,~~Note ~~2002~~2 — Significant Accounting Policies

~~Note~~Basis 1of —Consolidation ~~Business~~and ~~Description~~Gain on Disposition of Subsidiaries

~~Maxicare~~The ~~Health~~accompanying ~~Plans,~~consolidated ~~Inc~~financial statements include the accounts of the Company and its subsidiaries., As a ~~Delaware~~result ~~corporation~~of ~~(“MHP”),~~the isplacement aof ~~holding~~the Indiana ~~company~~HMO ~~that~~into ~~owns~~rehabilitation ~~various~~on ~~subsidiaries~~May 4, ~~primarily~~2001, inthe consolidated financial statements include the ~~field~~operations and accounts of ~~managed~~the ~~care.~~Indiana HMO and Maxicare Life and AsHealth Insurance Company, Inc (the outstanding shares of ~~January~~which were transferred to the Indiana HMO on March 19, ~~2002~~2001) ~~substantially~~only ~~all~~through ~~operations~~May 3, 2001. As a result of the ~~MHP~~California ~~and~~HMO’s ~~its~~bankruptcy ~~subsidiaries~~on May 25, 2001 the consolidated financial ~~were~~statements ~~terminated.~~include ~~Additionally~~its operations and accounts only through May 24, as2001. The Consolidated Statements of Operations for the year ended December 31, ~~2002~~2001 include wea ~~were~~gain ~~operating~~of ~~with~~$16.4 million arealized by MHP in the second quarter of 2001 ~~substantial~~upon ~~capital~~the ~~deficiency~~occurrence ~~(see~~of ~~“Liquidity”~~these ~~below)~~events. This gain represents the extent to which liabilities of the aforementioned subsidiaries exceeded their assets at their respective disposition dates.

WeAll ~~operated~~significant anintercompany ~~HMO~~balances in California (the “California HMO”) prior to May 25, 2001. On May 25, 2001, the California Department of Managed Health Care issued an order appointing a conservator for the California HMO. Also on that date the California HMO filed for Chapter 11 bankruptcy protection. Effective June 5, 2001, the California HMO and ~~the~~transactions ~~California~~have ~~Department of Managed~~been ~~Health Care reached an agreement allowing the California HMO’s bankruptcy filing to remain in effect~~eliminated. ~~All operations of the California HMO were~~ ~~terminated December 31, 2001. On February 26, 2003 the California HMO’s~~ ~~Liquidating Plan of Reorganization was confirmed in the United States~~ ~~Bankruptcy Court. It is unlikely that we will receive any distribution of assets from the California HMO.~~

WeDiscontinued ~~operated an HMO in Indiana (the “Indiana HMO”) prior to May 4, 2001. On~~Operations ~~May 4, 2001, the Indiana Department of Insurance placed the Indiana HMO into~~ ~~rehabilitation. The effect of this action was to terminate the ongoing~~ ~~operations of the Indiana HMO as of May 4, 2001. The Indiana HMO was formally~~ placed into liquidation on July 3, 2001. On that date the Indiana Commissioner of Insurance was appointed as Liquidator. It is unlikely that we will receive any distribution of assets from the Indiana HMO.

~~Maxicare~~The ~~Life~~placement ~~and~~of ~~Health~~the ~~Insurance~~Indiana ~~Company,~~HMO ~~the~~(to ~~indemnity~~which ~~provider~~MHP ~~that~~ had ~~underwritten~~contributed the ~~preferred provider organization (“PPO”), point of service~~capital ~~(“POS”)~~stock ~~and life insurance products offered by both our Indiana (PPO only) and California HMOs, is incorporated under the laws~~ of ~~the~~Maxicare ~~state~~Life ~~of Missouri~~ and ~~is primarily~~Health ~~regulated~~Insurance byCompany, ~~the Missouri Department of Insurance~~Inc.) Byinto ~~order dated~~rehabilitation ~~March~~on May 94, 2001, ~~the~~and ~~Missouri Department of Insurance approved~~ the ~~transfer~~bankruptcy ~~of all~~filing of the ~~outstanding~~California ~~shares~~HMO ofon ~~Maxicare~~May 25, ~~Life and Health Insurance Company~~2001 ~~from~~have ~~the~~effectively ~~Company~~ended toour ~~Maxicare~~involvement ~~Indiana,~~in ~~Inc., on~~ the ~~condition~~managed ~~that~~care ~~control of Maxicare Life and Health Insurance Company LH remain with the Company~~industry. OnAs ~~May~~a 24result, ~~2001~~we ~~the~~have ~~Missouri~~treated ~~Department~~our ofHMO ~~Insurance~~subsidiaries ~~placed~~and Maxicare Life and Health Insurance Company, Inc. ~~under~~as ~~administrative~~discontinued ~~supervision.~~operations ~~Maxicare~~in ~~Life~~the ~~and Health~~preparation ~~Insurance~~of ~~Company, Inc. ceased offering all products effective December~~these ~~31,~~financial ~~2001~~statements. ~~The~~Our ~~effect~~remaining ~~of these actions was to terminate the ongoing~~ operations of ~~Maxicare~~(parent, ~~Life and~~ Health ~~Insurance~~Care Assurance Company, ~~Inc~~Ltd. ~~as of December 31~~, ~~2001. On~~and ~~January 28, 2002~~ the ~~Missouri~~AIM ~~Department~~program) ofare ~~Insurance~~insignificant. ~~placed~~Although ~~Maxicare Life~~these ~~and~~operations ~~Health~~are ~~Insurance~~dependent ~~Company,~~upon ~~Inc.~~the ~~into~~California ~~rehabilitation.~~and OnIndiana ~~March 4~~HMOs, ~~2003~~they ~~the~~represent ~~Board~~services ofnot ~~Directors~~intrinsically oflinked ~~Maxicare Life and Health Insurance Company agreed~~ to ~~its liquidation.~~the Itmanaged iscare ~~unlikely~~industry ~~that~~and wehave ~~will receive any distribution of assets~~been ~~from~~treated ~~Maxicare~~as ~~Life~~continuing ~~and Health Insurance Company~~operations.

WeThe ~~also~~operating ~~own~~results ~~and~~of ~~operate~~the ~~Health~~discontinued ~~Care~~operations ~~Assurance~~for ~~Company,~~the ~~Ltd.,~~year ~~a captive~~ended ~~insurer that provided certain insurance coverage to MHP and its subsidiaries. Effective January~~December 31, ~~2002~~2001 ~~Health~~are ~~Care~~summarized ~~Assurance Company, Ltd., ceased providing all such insurance. We also served~~ as ~~administrator~~follows of(amounts ~~the~~are ~~California~~in ~~Access for Infants and Mothers (“AIM”~~thousands) ~~program through another of our~~: ~~subsidiaries. Administration of the AIM program was transferred to another~~ ~~health care provider effective March 15, 2002.~~

Reverse Stock Split


Revenues	$	237,243
Expenses		265,338

Loss from discontinued operations		(28,095	)
Write-off of excess of rehabilitated and bankrupt subsidiaries’ liabilities over assets — Note 2		16,423

Loss from discontinued operations	$	(11,672	)

OnThere ~~March 27,~~were ~~2001,~~no wenet ~~effected~~assets aor ~~one-for-five~~liabilities ~~reverse split~~ of ~~our~~discontinued ~~common stock.~~operations ~~All~~as ~~share and per share information included in this Report on Form 10-K~~of ~~have~~December 31, ~~been~~2003 ~~retroactively~~or ~~adjusted to reflect the reverse stock split~~2002.

20Use of Estimates

~~Table~~ The preparation of ~~Contents~~the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from these estimates.

~~Liquidity and Going Concern~~19

WeCash are involved in various legal actions brought against us in the normal course of business, some of which seek damages in amounts that exceed those accrued in our consolidated balance sheets. The ultimate liability for these legal actions cannot be determined and ~~could~~Cash ~~materially affect our consolidated~~Equivalents ~~financial position, results of operations or cash flows, if resolved~~ ~~unfavorably. See “Note 3 – Commitments and Contingencies”.~~

InWe orconsider ~~about~~all ~~November~~highly ~~1999,~~liquid ininvestments ~~substance,~~that ~~MHP,~~are onboth ~~its~~readily convertible ~~own~~into ~~behalf~~known ~~and~~amounts ~~also on behalf~~ of ~~various~~cash ~~closed~~ and ~~then~~mature ~~operating~~within ~~subsidiaries, commenced an action in the United States Court of Federal Claims against the United States, seeking to recover approximately $9~~90 ~~million~~days ~~for~~from ~~the underpayment of amounts due~~their ~~for~~date ~~health care coverage provided to employees~~ of ~~the~~purchase ~~United States Office of Personnel Management. The parties are engaged in settlement discussions. We cannot give any assurances as~~ to ~~the~~be ~~ultimate~~cash ~~collection of amounts associated with this action~~equivalents.

~~These~~Cash conditions raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and ~~classification~~cash ~~of assets~~equivalents orconsist ~~the amounts and classifications~~ of ~~liabilities that may result from~~ the ~~outcome~~following ofat ~~these uncertainties.~~December 31:

Management is exploring possible strategies to realize any possible value remaining in the Company; however, given our financial condition and the claims against us, it is very possible that management will not be successful in these efforts, and we may seek protection under the Bankruptcy Code.


	2003		2002
	(Amounts in
	thousands)
Cash	$	26	$	259
Certificates of deposit		—		15
Money market funds		5,335		2,362

	$	5,361	$	2,636

~~Note~~Furniture 2and ~~— Significant Accounting Policies~~Equipment

~~Basis~~ Furniture and equipment are recorded at cost and include assets acquired through capital leases and improvements that significantly add to the productive capacity or extend the useful lives of ~~Consolidation~~the assets. Costs of maintenance and ~~Gain~~repairs are charged to expense as incurred. Depreciation for financial reporting purposes is provided on ~~Disposition~~the straight-line method over the estimated useful lives of ~~Subsidiaries~~the assets. The costs of major remodeling and improvements are capitalized as leasehold improvements and are amortized using the straight-line method over the shorter of the remaining term of the applicable lease or the life of the asset. All furniture and equipment have been depreciated or written off as of December 31, 2002.

~~The~~Other ~~accompanying~~Current ~~consolidated financial statements include the accounts of~~Liabilities ~~the Company and its subsidiaries. As a result of the placement of Maxicare~~ ~~Indiana, Inc. into rehabilitation on May 4, 2001, the consolidated financial~~ ~~statements include the operations and accounts of the Indiana HMO and Maxicare~~ Life and Health Insurance Company, Inc (the outstanding shares of which were transferred to the Indiana HMO on March 9, 2001) only through May 3, 2001. As a result of the California HMO’s bankruptcy on May 24, 2001 the consolidated financial statements include its operations and accounts only through that date. The Consolidated Statements of Operations for the year ended December 31, 2001 include a gain of $16.4 million realized by MHP in the second quarter of 2001 upon the occurrence of these events. The gain represents the extent to which consolidated losses of these subsidiaries through May 3, 2001 (the Indiana HMO and Maxicare Life and Health Insurance Company, Inc.) and May 24, 2001 (the California HMO) exceeded MHP’s investment in them.

~~All~~Other ~~significant~~current ~~intercompany~~liabilities ~~balances~~include estimated liabilities related to litigation and ~~transactions~~contract ~~have~~termination ~~been~~costs and lease obligations (see “Note 3 — ~~eliminated~~Commitments and Contingencies”).

21Revenue Recognition

~~Table~~ Premiums were recorded as revenue in the month for which enrollees were entitled to health care services. Premiums collected in advance were deferred.. Provision was made for estimated retroactive adjustments to the extent the probable outcome of ~~Contents~~such adjustments could be determined. Other revenues are recognized as services are rendered.

~~Discontinued~~Reinsurance ~~Operations~~Ceded

~~The placement of the Indiana HMO (to which MHP had contributed the capital stock of Maxicare Life and~~ Health ~~Insurance~~Care Assurance Company, ~~Inc~~Ltd.), ~~into~~provided ~~rehabilitation on~~excess ~~May 4,~~of ~~2001~~loss ~~and~~health ~~the~~care reinsurance ~~bankruptcy~~coverage ~~filing~~to of the California HMO onthrough ~~May~~November 2530, 2001 for the ~~have~~costs ~~effectively~~of ~~ended~~medical ~~our~~services ~~involvement~~provided into ~~the~~Medi-Cal ~~managed~~enrollees ~~care~~in ~~industry~~California. ~~As a~~From ~~result~~January 1, we1996 ~~have~~through ~~treated~~April 30, ~~our~~2001 ~~HMO subsidiaries and~~ Maxicare Life and Health ~~Insurance~~ Insurance Company, Inc. asassumed ~~discontinued~~90% ~~operations~~of in the ~~preparation~~claims ofrisk ~~these financial~~pursuant ~~statements~~to ~~(see~~this ~~“Note 10 — Discontinued Operations”)~~coverage. ~~Although our~~The ~~remaining~~effect ~~operations~~on ~~(parent,~~ Health Care Assurance Company, Ltd.,’s ~~and~~premiums ~~the~~written ~~AIM program)~~and ~~are~~earned ~~insignificant~~ in ~~size, financially dependent upon the California~~ ~~and~~2001 ~~Indiana~~was ~~HMOs,~~as ~~and~~follows ~~also~~(amounts ~~either~~are ~~terminated~~in ~~or likely to be terminated, they~~thousands): ~~represent services not intrinsically linked to the managed care industry and~~ ~~have been treated as continuing operations.~~

Use of Estimates


	2001
Direct premiums	$	2,877
Ceded premiums		(1,058	)

Net premiums	$	1,819

~~The~~All ~~preparation~~policy ofobligations under the ~~consolidated~~reinsurance ~~financial~~and ~~statements~~retrocession ~~in conformity~~agreements ~~with~~between ~~generally~~Health ~~accepted~~Care ~~accounting~~Assurance ~~principles~~Company, ~~requires~~Ltd., ~~management~~Maxicare toLife ~~make estimates~~ and ~~assumptions~~Health ~~that affect the amounts reported in the consolidated~~Insurance ~~financial~~Company, ~~statements~~Inc. and ~~accompanying~~the ~~notes.~~California ~~Actual~~HMO ~~results~~were ~~could~~fully ~~differ~~settled ~~from these~~during ~~estimates~~2003.

~~Cash and Cash Equivalents~~20

~~Cash~~Health ~~and~~Care ~~cash~~Expense ~~equivalents consist of the following at December 31:~~Recognition

	2002		2001
	(Amounts in
	thousands)
Cash	$	259	$	166
Certificates of deposit		15		105
Money market funds		2,362		3,155
	$	2,636	$	3,426

The cost of health care services was expensed in the period we were obligated to provide such services. We established an accrual for estimated claims payable including claims reported as of the balance sheet date and the estimated (based upon utilization trends and projections of historical developments) costs of health care services rendered but not reported. Estimated claims payable were continually monitored and reviewed and, as settlements are made or accruals adjusted, differences are reflected in current operations.

~~Investments~~ From February 1, 1997 through May 4, 2001, Health Care Assurance Company provided certain reinsurance coverage to Transamerica, a nonaffiliated company, in connection with excess of loss health care claims and continuation of care and insolvency coverage for Medicaid HMO claims arising under coverage provided by Transamerica to the Indiana HMO. This coverage terminated on May 4, 2001, when the Indiana HMO was placed into rehabilitation by the Indiana Department of Insurance. Under the contract, Transamerica was liable only for claims incurred by the Indiana HMO through May 4, 2001 and reported to Transamerica by April 30, 2003. Health Care Assurance Corporation, Ltd.’s contract with Transamerica required it to provide a $600,000 letter of credit to secure its obligations to Transamerica. On October 1, 2001, Transamerica drew down the full amount of the letter based on its estimate of the covered claims payable to the Indiana HMO, and the Company reduced claims liability at December 31, 2001 by the amount of the letter of credit. Through June 30, 2003, Transamerica had paid approximately $190,000 in claims from the proceeds of the letter of credit.

~~Realized~~In ~~gains~~August 2003 ~~and~~Transamerica ~~losses~~refunded ~~and~~to ~~unrealized~~the ~~gains~~Company ~~and~~approximately $410,000, ~~losses~~representing ~~judged~~the tounused ~~be other~~portion ~~than~~of ~~temporary~~the ~~with~~funds ~~respect~~drawn tofrom ~~available-for-sale~~the ~~and~~letter ~~held-to-maturity~~of ~~securities~~credit, ~~are~~to ~~included~~Health inCare Assurance Company. Additionally, the ~~determination~~liquidator of Maxicare ~~net~~Indiana, ~~income~~Inc. ~~The~~reported ~~cost~~to ~~of securities~~Marion ~~sold~~Circuit isCourt ~~based~~in onMarch 2003 ~~the~~that ~~specific~~no claim ~~identification~~on ~~method.~~the ~~Fair~~continuation ~~values~~ of ~~marketable~~ ~~securities~~care ~~are~~/ ~~based~~insolvency onportion ~~published~~of orthe ~~quoted~~coverage ~~market~~was currently ~~prices~~contemplated.

WeSince ~~have~~the ~~designated~~Company ~~our~~has ~~marketable~~satisfied ~~securities~~all ~~included~~obligations inunder ~~current~~policies ~~assets as~~previously ~~available-for-sale.~~written ~~Such~~and ~~securities~~all ~~have~~claims ~~been~~notification ~~recorded~~and atpayment ~~fair~~periods ~~value,~~have ~~and~~expired during ~~unrealized~~2003, ~~holding~~the ~~gains~~Company ~~and~~released ~~losses,~~the ~~net~~remaining ofclaims ~~related~~reserves ~~tax~~of ~~effects~~$736,000 ~~are~~and ~~reported~~the as$410,000 ~~accumulated~~received ~~other~~from ~~comprehensive~~Transamerica into income.. ~~(loss) in~~These ~~the~~amounts ~~Consolidated~~were ~~Statements~~recorded ofas ~~Changes~~negative inhealth ~~Shareholders’~~care ~~Equity~~expense ~~until~~of ~~realized~~$1,146,000 in 2003.

WeStock ~~had~~Based ~~no sales of investments during 2002. During 2001, in response to a~~Compensation ~~draw upon a letter of credit issued by Health Care Assurance Company, Ltd., in~~ ~~connection with its reinsurance of Indiana Medicaid claims, we sold~~ ~~held-to-maturity securities having a book value of $700,000, realizing a net~~ ~~gain of approximately $3,500. During 2000, we sold available-for-sale marketable securities having a book value of $300,000, realizing a net loss of approximately $2,500.~~

WeAt December 31, 2003 we had noseveral ~~investments~~stock-based atemployee ~~December 31,~~compensation plans ~~2002~~as described in Note 4. ~~Investments~~We ataccount ~~December~~for the plans under the recognition and measurement principles (the intrinsic-value method) prescribed in Accounting Principles Board (APB) 31Opinion No. 25, Accounting for Stock Issued ~~2001~~to ~~were~~Employees, ~~comprised~~and ofrelated Uinterpretations.S. ~~Government~~Compensation ~~obligations~~cost ~~with~~for astock ~~carrying~~options is ~~value~~reflected in net income and is measured as the excess of the market price of ~~$304,000~~our ~~and~~stock ~~fair~~at ~~value~~the date of ~~$306,000~~grant ~~(gross~~over ~~unrealized~~the ~~gains~~amount ~~and~~an ~~losses~~employee ~~are~~must pay to acquire ~~immaterial~~the stock. We have adopted the disclosure provisions required by Statement of Financial Accounting Standards (SFAS) No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure.

22 The following table illustrates the effect on net income and earnings per share if we had applied the fair-value recognition provision to stock-based employee compensation.


	Years ended December 31,
	2003		2002			2001
	(Amounts in thousands except per share
	values)
Net income (loss) from continuing operations, as reported	$	2,742	$	(1,278	)	$	(3,255	)
Less stock-based employee compensation expense determined under the fair-value based method		—		—			(26	)

Net income (loss) from continuing operations, as adjusted.	$	2,742	$	(1,278	)	$	(3,281	)

Income (loss) per common share from continuing operations:
Basic as reported	$	.28	$	(.13	)	$	(.33	)
Basic as adjusted	$	.28	$	(.13	)	$	(.34	)
Diluted as reported	$	.28	$	(.13	)	$	(.33	)
Diluted as adjusted	$	.28	$	(.13	)	$	(.34	)

~~Furniture~~ The ~~and~~fair ~~Equipment~~value for the options was estimated at the date of grant using a Black-Scholes option pricing model. No options were granted in 2003, 2002 or 2001.

~~Furniture and equipment are recorded at cost and include assets acquired~~21 through capital leases and improvements that significantly add to the productive capacity or extend the useful lives of the assets. Costs of maintenance and repairs are charged to expense as incurred. Depreciation for financial reporting purposes is provided on the straight-line method over the estimated useful lives of the assets. The costs of major remodeling and improvements are capitalized as leasehold improvements. Leasehold improvements are amortized using the straight-line method over the shorter of the remaining term of the applicable lease or the life of the asset.

~~Other~~The ~~current~~Black-Scholes ~~liabilities~~option ~~include~~valuation ~~estimated~~model ~~liabilities~~was ~~related~~developed tofor use in ~~litigation~~estimating ~~and~~the ~~contract~~fair ~~termination~~value ~~costs~~of traded options that have no vesting restrictions and ~~lease~~are ~~obligations~~fully ~~(see~~transferable. ~~“Note~~In 3addition, —option valuation models require the ~~Commitments~~input of highly subjective assumptions including the expected stock price volatility. Because our employee stock options have characteristics significantly different from those of traded options, and ~~Contingencies”)~~because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

~~Revenue~~Net ~~Recognition~~Income Per Common Share

~~Premiums~~Basic ~~are~~earnings ~~recorded~~per asshare ~~revenue~~are incomputed ~~the~~by ~~month~~dividing ~~for~~net ~~which~~income ~~enrollees are~~(loss) ~~entitled~~available to ~~health~~common ~~care~~shareholders ~~services.~~by ~~Premiums~~the ~~collected~~weighted inaverage ~~advance~~number ~~are~~of ~~deferred~~shares of common stock outstanding. ADiluted earnings per share is computed by dividing ~~portion~~net income (loss) by the weighted average number of ~~premiums~~shares isof ~~subject~~common stock outstanding, after giving effect to ~~possible~~stock ~~retroactive~~options ~~adjustment.~~with ~~Provision~~an exercise price less ~~has~~than ~~been~~the ~~made~~average market price for ~~estimated~~the ~~retroactive~~period. ~~adjustments~~The tofollowing is a reconciliation of the ~~extent~~numerators and denominators used in the ~~probable outcome~~calculation of ~~such~~basic ~~adjustments~~and ~~can~~diluted earnings beper ~~determined.~~share ~~Other~~for ~~revenues~~each ~~are~~period ~~recognized~~presented ~~as services~~in ~~are~~the ~~rendered.~~financial statements:

Reinsurance Ceded


	Years Ended December 31,
	2003		2002			2001
	(Amounts in thousands except per share
	values)
Basic income (loss) per share of common stock:
Continuing operations:
Numerator — net income (loss)	$	2,742	$	(1,278	)	$	(3,255	)

Denominator — Weighted average number of common shares outstanding		9,867		9,742			9,742

Basic income (loss) per common share	$	.28	$	(.13	)	$	(.33	)

Discontinued operations:
Numerator — net loss	$	—	$	—		$	(11,672	)

Denominator — Weighted average number of common shares outstanding		—		—			9,742

Basic loss per common share	$	—	$	—		$	(1.20	)

Diluted income (loss) per share of common stock:
Continuing operations:
Numerator — net income (loss)	$	2,742	$	(1,278	)	$	(3,255	)

Denominator — Weighted average number of common and common dilutive shares outstanding		9,867		9,742			9,742

Diluted income (loss) per common share	$	.28	$	(.13	)	$	(.33	)

Discontinued operations:
Numerator — net loss	$	—	$	—		$	(11,672	)

Denominator — Weighted average number of common and common dilutive shares outstanding		—		—			9,742

Basic loss per common share	$	—	$	—		$	(1.20	)

~~Health~~Stock ~~Care~~options ~~Assurance~~are ~~Company,~~excluded ~~Ltd.,~~from ~~provided~~the ~~excess~~calculation of ~~loss health care reinsurance coverage to~~ the ~~California~~weighted ~~HMO through November 30, 2001 (the date~~average ~~the~~number ~~California~~of ~~HMO’s~~dilutive ~~Medi-Cal~~shares ~~contracts~~outstanding ~~were assigned to other providers)~~ for ~~the~~ ~~costs of medical services provided to Medi-Cal enrollees in California. From January 1~~2003, ~~1996~~2002 ~~through~~and ~~April 30,~~ 2001 ~~Maxicare~~because ~~Life and Health Insurance~~the ~~Company,~~inclusion ~~Inc. assumed 90%~~ of ~~the~~stock ~~claims~~options ~~risk~~would ~~pursuant~~have toan ~~this~~anti-dilutive ~~coverage. The~~ effect ~~on Health Care Assurance Company, Ltd~~.~~’s premiums written and earned in~~ ~~2002, 2001 and 2000 was as follows:~~

					`Years Ended December 31,
		2002				2001			2000
Direct premiums			$	—		$	2,877		$	4,964
Ceded premiums				—			(1,058	)		(2,621	)
	Net premiums		$	0		$	1,819		$	2,343

Restrictions on Fund Transfers

~~Reinsurance ceded contracts do not relieve the~~ Health Care Assurance Company, Ltd., ~~from~~our ~~its~~wholly-owned ~~obligations~~subsidiary, ~~to policyholders~~holds $2.5 million ~~Health~~of ~~Care~~our ~~Assurance Company, Ltd~~cash., ~~remains~~The ~~liable~~transfer toof ~~its~~cash ~~policyholders for the portion reinsured~~ to ~~the~~ ~~extent~~MHP ~~that~~from ~~Maxicare Life and~~ Health ~~Insurance~~Care Assurance Company, ~~Inc~~Ltd. ~~does~~requires ~~not meet~~ the ~~obligations~~approval ~~assumed~~of ~~under~~regulatory ~~the reinsurance agreements~~authorities. ~~Consequently,~~ ~~allowances are established for amounts deemed not collectible. At December 31,~~ ~~2002, there were no significant amounts recoverable from Maxicare Life and~~ ~~Health Insurance Company, Inc.~~

~~Health~~Concentrations ~~Care~~of ~~Expense~~Credit ~~Recognition~~Risk

~~The~~Financial ~~cost~~instruments ofthat ~~health~~potentially ~~care~~subject ~~services~~us isto ~~expensed~~concentrations inof credit ~~the~~risk ~~period~~consist weprimarily ~~are obligated~~of tocash ~~provide such services~~equivalents. WeOur ~~establish~~funds anare ~~accrual~~managed ~~for estimated~~by ~~claims~~internal ~~payable~~investment ~~including~~managers ~~claims~~within ~~reported~~the asguidelines ofestablished by the ~~balance~~board ~~sheet date and~~of ~~estimated~~directors, ~~(based~~which, ~~upon~~as ~~utilization~~a ~~trends~~matter ~~and projections~~ of ~~historical developments)~~policy, ~~costs~~limit ofthe ~~health~~amounts ~~care~~that ~~services~~may ~~rendered~~be ~~but not reported.~~invested ~~Estimated~~in ~~claims~~any ~~payable~~one ~~are~~issuer. ~~continually~~As ~~monitored~~of ~~and~~December 31, ~~reviewed and~~2003, ~~as settlements~~we ~~are~~believe ~~made~~that orwe ~~accruals~~had ~~adjusted,~~no significant ~~differences~~concentrations ~~are~~of ~~reflected~~credit ~~in current operations~~risk.

~~Insurance~~22

23Other Income

~~Table~~ In or about November 1999, MHP, on its own behalf and also on behalf of various ~~Contents~~closed and then operating subsidiaries, commenced an action in the United States Court of Federal Claims against the United States, seeking recovery in connection with the underpayment of amounts due for health care coverage provided to employees of the United States Office of Personnel Management.

~~Premium~~ On ~~Deficiencies~~or about June 9, 2003 a settlement with the Office of Personnel Management was approved by the Court. The net settlement amount, after payment of attorneys’ fees and expenses, was approximately $5.3 million. Of this amount, MHP received approximately $3.4 million, which included reimbursement of litigation expenses. The balance of the net settlement amount was payable directly to the liquidators / receivers / debtors in possession of certain subsidiaries. The amount received by MHP of $3.4 million was recorded as Other Income in the Consolidated Statements of Operations for the year ended December 31, 2003.

~~Estimated~~Other ~~future~~income ~~health~~in ~~care~~2002 ~~costs~~ and ~~maintenance~~2001 ~~expenses~~includes ~~under~~revenue afrom ~~group of~~the ~~contracts~~AIM inprogram, ~~excess~~which terminated ofMarch 15, ~~estimated~~2002. ~~future~~Other ~~premiums~~income ~~and~~in ~~reinsurance~~2002 ~~recoveries on~~also ~~those~~includes ~~contracts~~$100,000 ~~are~~received in ~~recorded~~connection aswith athe ~~loss~~sale ~~when~~of ~~determinable.~~certain Nointellectual ~~premium deficiencies~~property ~~existed at December 31, 2002 and 2001~~rights.

~~Stock~~Charges ~~Based~~for ~~Compensation~~Litigation and Management Settlements

AtIn ~~December~~March 312003, ~~2002~~the TriZetto Group, Inc. (“TriZetto”) sued us in California State court, alleging that we ~~had~~breached ~~several~~an ~~stock-based~~information ~~employee~~services ~~compensation~~contract and ~~plans~~claiming asover ~~described~~$12,000,000 in ~~Note~~damages, 4.including Weover ~~account~~$1,000,000 ~~for~~in ~~these~~amounts ~~plans~~ due under the ~~recognition~~ contract and ~~measurement~~$11,000,000 ~~principles~~in ~~(the~~termination ~~intrinsic-value~~fees. ~~method)~~On ~~prescribed~~or inabout June 30, ~~Accounting~~2003, ~~Principles~~this ~~Board~~action ~~(APB) Opinion~~was Nosettled. ~~25,~~ ~~Accounting~~Pursuant ~~for~~to ~~Stock~~the ~~Issued~~settlement agreement, we paid $1,250,000 to ~~Employees~~TriZetto, ~~and~~issued ~~related~~250,000 ~~interpretations.~~shares ~~Compensation~~of ~~cost~~our ~~for~~common stock ~~options~~to TriZetto isand ~~reflected~~returned into ~~net~~TriZetto ~~income~~certain ~~and~~warrants isthat ~~measured~~TriZetto ashad ~~the~~issued ~~excess~~to ofus. The action may be revived in certain circumstances in the ~~market~~event ~~price~~that ofa judgment is ~~the~~obtained ~~Company~~against TriZetto by a third-party based on TriZetto’s ~~stock~~receipt atof the $1,250,000 ~~date~~settlement payment. We recorded a litigation and contract settlement charge of ~~grant~~$250,000 ~~over~~in the ~~amount~~second anquarter ~~employee~~of ~~must~~2003 ~~pay~~ to ~~acquire~~record the ~~stock.~~amount ~~SFAS~~by Nowhich the cash settlement paid Trizetto exceeded amounts previously accrued. ~~123,~~ ~~Accounting~~We issued ~~for~~common ~~Stock-Based~~shares ~~Compensation~~to TriZetto on July 1, ~~established~~ ~~accounting~~2003, ~~and~~but ~~disclosure~~no ~~requirements~~cost ~~using~~was arecorded ~~fair-value-based~~in ~~method~~the Consolidated Statements of ~~accounting~~Operations for ~~stock-based~~the ~~employee~~shares ~~compensation~~issued ~~plans~~to TriZetto since the fair value of the shares was immaterial.

InEffective ~~December~~February 2, ~~2002~~2000, ~~SFAS~~we ~~No. 148,~~entered ~~Accounting~~into a Services Agreement for ~~Stock-Based~~Back ~~Compensation-Transition~~Office ~~and~~Administration ~~Disclosure,~~with ~~was~~Nichols ~~issued.~~TXEN ~~SFAS~~Corporation ~~No. 148~~calling ~~amends~~for ~~SFAS No. 123~~Nichols TXEN to provided ~~provide~~certain ~~alternative~~claims ~~methods~~adjudication ofservices ~~transition~~ to ~~SFAS~~certain ~~No. 123’s~~of ~~fair~~our subsidiaries in ~~value~~exchange ~~method~~for ofa ~~accounting~~predetermined ~~for~~per ~~stock-based~~member ~~employee~~per ~~compensation~~month fee. ItSubsequently, ~~also~~CSC ~~amends~~Healthcare ~~and~~Inc. ~~expands~~(“CSC”), the ~~disclosure~~successor ~~provisions~~in ofinterest ~~SFAS~~to ~~No. 123~~Nichols ~~and~~TXEN, ~~APB Opinion~~commenced ~~No. 28,~~an ~~Interim~~arbitration ~~Financial~~(the ~~Reporting,~~“Arbitration”) toin ~~require~~Atlanta ~~disclosure~~against inus before the ~~summary of~~American ~~significant~~Arbitration ~~accounting~~Association, ~~policies~~claiming ofour ~~the~~breach ~~effects~~ of anthe ~~entity~~parties’s ~~accounting~~Service ~~policy~~Agreement ~~with~~for ~~respect~~Back toOffice ~~stock-based~~Administration ~~employee~~and ~~compensation~~contract ondamages ~~reported~~of ~~net~~approximately ~~income and~~$1,300,000. ~~earnings~~On ~~per~~December 1, ~~share~~2003, inthe ~~annual~~Arbitration and ~~interim~~a ~~financial~~related ~~statements.~~case ~~While~~brought ~~SFAS~~by ~~No.~~CSC ~~148~~against ~~does~~us ~~not~~in ~~require~~Alabama ~~companies~~State tocourt ~~account~~were ~~for~~settled ~~employee~~and ~~stock~~all ~~options~~claims ~~using~~and ~~the~~counterclaims ~~fair-value~~dismissed. ~~method,~~Pursuant ~~the~~to ~~disclosure~~such ~~provisions~~settlement, ofwe ~~SFAS~~paid ~~No. 148~~CSC ~~are~~$300,000 ~~applicable~~and torecognized a ~~all~~gain, ~~companies~~reflected ~~with~~as ~~stock-based~~negative ~~employee~~litigation ~~compensation,~~and ~~regardless~~management ofsettlement ~~whether~~charges, of ~~they~~$580,000 ~~account~~in ~~for that compensation using~~ the ~~fair-value~~fourth ~~method~~quarter of ~~SFAS~~2003, ~~No. 148 or~~for the ~~intrinsic-value~~difference ~~method~~between ofthe liability ~~APB~~previously ~~Opinion~~accrued ~~No. 25.~~in ~~The~~connection ~~Company~~with ~~has~~this ~~adopted the~~matter ~~disclosure~~and ~~requirements~~the ultimate settlement of ~~SFAS No~~$300,000. ~~148.~~

~~The~~On ~~following~~or ~~table~~about ~~illustrates~~February 10, ~~the~~2003, ~~effect~~Peter onJ. ~~net~~Ratican, ~~income~~a shareholder and ~~earnings~~former executive ~~per~~officer and director of MHP, commenced an action against us in the ~~share~~Superior ifCourt of the ~~Company~~State of California, alleging that we had ~~applied~~breached his consulting agreement with us and claiming damages. On March 11, 2003, Mr. Ratican obtained an attachment in the ~~fair-value~~amount ~~recognition~~of ~~provision~~$767,000 against us in connection with his claim. In February 2004, we entered into a Settlement Agreement and Mutual Release with Mr. Ratican under the terms of which we paid Mr. Ratican $550,000 in addition to the amount already attached, ~~stock-based~~for ~~employee~~a ~~compensation~~total payment of $1,317,000. As a result of the Settlement Agreement and Mutual Release we recorded a litigation and management settlement charge of $405,000 in the fourth quarter of 2003 for the amount paid Mr. Ratican in excess of amounts previously accrued.

		Years ended December 31,
		2002			2001			2000
Net loss from continuing operations, as reported		$	(1,278	)	$	(3,255	)	$	(31,594	)
Less stock-based employee compensation expense determined under the fair-value based method			—			(26	)		(3	)
Net loss from continuing operations, as adjusted		$	(1,278	)	$	(3,281	)	$	(31,597	)
Loss per common share from continuing operations:
	Basic as reported	$	(.13	)	$	(.33	)	$	(6.46	)
	Basic as adjusted	$	(.13	)	$	(.34	)	$	(6.46	)
	Diluted as reported	$	(.13	)	$	(.33	)	$	(6.46	)
	Diluted as adjusted	$	(.13	)	$	(.34	)	$	(6.46	)

In 2002 we recognized a gain of $671,000 in connection with the settlement of a former executive’s claim under our Supplemental Executive Retirement Plan. This gain was recognized in conjunction with the collection of a note issued by the same executive. Please see “Note 5 — Notes Receivable From Shareholders”. Also in 2002 we recorded $880,000 in litigation and management settlement charges in connection with the previously discussed Services Agreement for Back Office Administration, which we had previously entered into for the benefit of our subsidiaries.

~~The fair value for the options was estimated at the date of grant using a~~23 Black-Scholes option pricing model with the following weighted-average assumptions for 2000: volatility factor of the expected market price of the Company’s common stock of .59; a weighted-average expected life of the options of 5.0 years; risk-free interest rate of 6.1%, and dividend yield of 0%. No options were granted in 2002 or 2001.

24Note 3 — Commitments and Contingencies

~~Table~~Litigation ofand ~~Contents~~Contract Terminations

~~Net~~ On ~~Income~~or ~~Per~~about ~~Common~~June 25, ~~Share~~2001, the Commissioner of the Indiana Department of Insurance (the “Commissioner”), as the rehabilitator of Maxicare Indiana, Inc., our Indiana HMO, filed a complaint (the “Complaint”) in the Marion County Circuit Court of Indiana against us and the five directors of the Indiana HMO, one of whom was a director of the Company. The Commissioner amended the Complaint on February 1, 2002. The Complaint, as amended, alleges, in substance, that: (1) the directors of the Indiana HMO breached their fiduciary duty by failing to maintain a plan providing for continuation of care benefits in the event that the Indiana HMO was placed in receivership, and that the Company is also liable for such failure; (2) the Company fraudulently concealed the financial condition of the Indiana HMO; (3) the Company manipulated the finances of the Indiana HMO for the Company’s own benefit; and (4) the Company received preferential and/or fraudulent transfers of money from the Indiana HMO. While the amended Complaint requests money damages in largely unspecified amounts, we understand the Commissioner’s claims against us to be in excess of $48.0 million. All defendants answered the amended Complaint on April 5, 2002. Pre-trial discovery has not been completed. We believe that the claims against us are without merit and intend to vigorously defend the suit. The amounts sought by the Commissioner are significantly in excess of liabilities recorded on our Consolidated Balance Sheets. The ultimate resolution of this matter, if unfavorable, could materially affect our consolidated financial position, results of operations and cash flows.

~~Basic~~Effective ~~earnings~~January 1, ~~per~~2001, ~~share~~we ~~are~~entered ~~computed~~into bya ~~dividing~~Pharmacy ~~net~~Benefits ~~income~~Management Agreement (~~loss~~the “PBM Agreement”) with Medimpact Healthcare Systems, Inc. ~~available~~(“Medimpact”). toThe ~~common~~PBM ~~shareholders~~Agreement bycalled ~~the~~for ~~weighted~~Medimpact ~~average~~to ~~number~~process and fill within its network of ~~shares~~contracting pharmacies prescriptions for members of ~~common~~Maxicare ~~stock~~Life ~~outstanding.~~and ~~Diluted~~Health ~~earnings~~Insurance ~~per~~Company, ~~share~~Inc., isthe ~~computed~~California byHMO ~~dividing~~and the ~~net~~Indiana ~~income~~HMO. ~~(loss) by~~The PBM agreement called for the ~~weighted~~Company ~~average~~to ~~number~~reimburse ofMedimpact for ~~shares~~the cost of ~~common~~drugs ~~stock~~dispensed and to pay per transaction administrative fees ~~outstanding,~~on ~~after~~a ~~giving~~bi-weekly ~~effect~~basis. toAs ~~stock~~a ~~options~~result ~~with~~of anthe ~~exercise~~Indiana ~~price~~HMO ~~less~~being placed in ~~than~~rehabilitation and the ~~average~~California ~~market~~HMO’s ~~price~~bankruptcy, Medimpact allegedly has not received reimbursement for ~~the~~certain ~~period.~~prescriptions ~~The~~filled ~~following~~on isbehalf aof ~~reconciliation~~the members of ~~the~~those ~~numerators~~subsidiaries. ~~and~~Although ~~denominators~~it ~~used~~has inyet ~~the~~to ~~calculation~~do ofso, ~~basic~~Medimpact ~~and~~may ~~diluted~~seek ~~earnings~~reimbursement ~~per~~from ~~share~~us for ~~each~~such ~~period~~costs ~~presented~~in an amount not presently known. We, in turn, ~~the~~believe ~~financial~~that ~~statements:~~we have claims against Medimpact for rebates due to us.

	Years Ended December 31,
	2002			2001			2000
Basic loss per share of common stock:
Continuing operations:
Numerator — net loss	$	(1,278	)	$	(3,255	)	$	(31,594	)
Denominator — Weighted average number of common shares outstanding		9,742			9,742			4,894
Basic loss per common share	$	(.13	)	$	(.33	)	$	(6.46	)
Discontinued operations:
Numerator — net loss	$	—		$	(11,672	)	$	(33,352	)
Denominator — Weighted average number of common shares outstanding		—			9,742			4,894
Basic loss per common share	$	—		$	(1.20	)	$	(6.81	)
Diluted loss per share of common stock:
Continuing operations:
Numerator — net loss	$	(1,278	)	$	(3,255	)	$	(31,594	)
Denominator — Weighted average number of common and common dilutive potential shares outstanding		9,742			9,742			4,894
Diluted loss per common share	$	(.13	)	$	(.33	)	$	(6.46	)
Discontinued operations:
Numerator — net loss	$	—		$	(11,672	)	$	(33,352	)
Denominator — Weighted average number of common shares outstanding		—			9,742			4,894
Basic loss per common share	$	—		$	(1.20	)	$	(6.81	)

By order dated March 9, 2001, the Missouri Department of Insurance approved the transfer of all of the outstanding shares of Maxicare Life and Health Insurance Company, Inc. from the Company to Maxicare Indiana, Inc., on the condition that control of MLH remain with the Company. We believe that this condition has not been complied with and that, accordingly, the transfer of the MLH shares by us to Maxicare Indiana, Inc. is null and void. We intend to present our position to the Missouri Department of Insurance at the appropriate time.

~~Stock~~The ~~options~~landlord ~~are~~under ~~excluded from~~ the ~~calculation~~terms of ~~diluted~~a ~~loss~~lease ~~per~~expiring ~~share~~ in May 2004 for ~~2002~~79,000 square ~~2001~~feet ~~and~~of ~~2000~~industrial ~~because~~space in Los Angeles claims that we are obligated to surrender that space in its original condition. We have previously made extensive modifications to the ~~inclusion~~leased premises. The landlord claims that the restoration of ~~stock~~the ~~options~~space ~~would~~may ~~have~~cost an$1.5 million. We believe that the ~~anti-dilutive~~landlord’s ~~effect~~claim is without merit.

~~Restrictions~~ Six former employees of the Indiana HMO have made demand on ~~Fund~~us ~~Transfers~~for the payment of approximately $400,000 in severance payments. We believe these claims are without merit.

~~All of the Company’s consolidated subsidiaries that maintain cash and~~24 investment balances require regulatory approval before transferring cash to MHP. Of the $2.6 million of cash and cash equivalents held by MHP and consolidated subsidiaries at December 31, 2002, approximately $183,000 was held directly by MHP; the remainder was held by subsidiaries requiring approval of regulatory authorities in order to transfer cash to MHP. Subsequent to December 31, 2002, we were able to transfer $100,000 from one of our subsidiaries to MHP.

25 Other than those noted above, no claims have been filed against us by the creditors of Maxicare Life and Health Insurance Company, Inc., the California HMO or the Indiana HMO. However, such creditors may file claims against us in the future.

~~Table of Contents~~Leases

~~Concentrations~~ We have operating leases, some of ~~Credit~~which ~~Risk~~provide for initial free rent and all of which provide for subsequent rent increases. Rental expense is recognized on a straight-line basis and totaled $200,000, $100,000 and $800,000 for the years ended December 31, 2003, 2002 and 2001, respectively.

~~Financial~~In ~~instruments~~the ~~that~~first ~~potentially~~quarter ~~subject~~of us2002 towe ~~concentrations~~determined that the termination of our ~~credit~~business ~~risk~~operations ~~consist~~eliminated ~~primarily~~our ofneed ~~investments~~for incertain ~~marketable~~equipment ~~securities.~~held ~~Our~~under ~~investments~~capital inlease ~~marketable~~agreements ~~securities~~(principally ~~are~~high ~~managed~~volume bycopying ~~internal~~equipment). ~~investment~~We have ~~managers~~returned ~~within~~that equipment to the ~~guidelines~~lessor. ~~established~~We byhave removed the ~~board~~leased ofassets ~~directors,~~from our ~~which,~~balance as sheet via a ~~matter~~$1.0 million ofimpairment ~~policy~~charge in March, ~~limit~~2002. ~~the~~We have ~~amounts~~made ~~that~~no ~~may~~payments beto ~~invested~~the lessor in ~~any~~connection ~~one~~with ~~issuer.~~the leased assets since Asthe offirst ~~December 31,~~quarter of 2002,. weThe ~~believe~~estimated ~~that~~liability weassociated ~~had~~with nothese leased ~~significant~~assets ~~concentrations~~remains on our consolidated balance sheets.. Amortization expense offor ~~credit~~capital ~~risk~~leases is included in depreciation expense.

~~Other~~ Future ~~Income~~minimum lease commitments for noncancelable leases at December 31, 2003 were as follows:

Other income includes revenue recognized in conjunction with our participation in the AIM program, which terminated March 15, 2002. Also recognized as other income in 2002 was $100,000 received in connection with the sale of certain intellectual property rights.


	Operating		Capitalized
	Leases		Leases
	(Amounts in thousands)
2004	$	205	$	193
2005		29		96
2006		2		—
2007		—		—
2008		—		—

Total minimum obligations	$	236		289

Amount representing interest				(23	)
Less current obligations				(172	)

Long-term obligations			$	94

~~New~~ The ~~Accounting~~California ~~Pronouncements~~HMO continues to contribute to the payment of the operating lease obligations of MHP. Although there can be no assurance that such payments will continue, management believes it likely that the California HMO will contribute approximately $49,000 to the payment of operating lease obligations in 2004. Such payments are unlikely to continue after May 31, 2004.

InNote ~~May 2002, SFAF No. 145, Rescission of FASB Statements No.~~ 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections as of April 2002, was issued. As a result of the rescission of SFAS No. 4, gains and losses related to the extinguishment of debt should be classified as extraordinary only if they meet the criteria outlined in APB Opinion No. 30, Reporting the Results of Operations — ~~Reporting~~Capital ~~the Effects of Disposal of a Segment of a~~Stock ~~Business, and Extraordinary, Unusual and Infrequently Occurring Events and~~ ~~Transactions. SFAS No. 64, Extinguishments of Debt Made to Satisfy Sinking~~ ~~Fund Requirements, was an amendment of SFAS No. 4 and is no longer necessary.~~ SFAS No. 44, Accounting for the Assets of Motor Carriers, defined accounting requirement for the effects of the transition to the Motor Carrier Act of 1980. The transitions are complete, and SFAS No. 44 is no longer necessary. SFAS No. 145 amends SFAS No. 13, Accounting for Leases, requiring that any capital lease that is modified resulting in an operating lease should be accounted for under the sale-leaseback provision of SFAS No. 98, Accounting for Leases, or SFAS No. 28, Accounting for Sales with Leasebacks, as applicable. SFAS No. 145 is effective for fiscal years beginning after May 15, 2002. The adoption of the provisions of SFAS No. 145 is not expected to have a material impact on the Company’s results of operations, financial position or cash flows.

InWe ~~June~~are ~~2002,~~authorized ~~SFAS~~to ~~No. 146~~issue 80,000,000 ~~Accounting~~shares ~~for~~of ~~Costs~~common ~~Associated~~stock, ~~with~~par ~~Exit or~~value ~~Disposal~~$.01 ~~Activities~~per share, ~~which~~and ~~requires~~5,000,000 ~~that~~shares aof ~~liability~~preferred ~~for~~stock, apar ~~cost~~value ~~associated~~$.01 ~~with~~per anshare. ~~exit~~The orboard ~~disposal~~of ~~activity~~directors behas ~~recognized when~~ the ~~liability~~right isto ~~incurred,~~determine ~~was issued.~~the ~~This statement nullifies Emerging Issues Task Force Issue No~~rights, ~~94-3,~~ ~~Liability~~preferences ~~Recognition for Certain Employee Termination Benefits~~ and ~~Other~~privileges ~~Costs to~~of ~~Exit~~one anor ~~Activity~~more ~~(including~~series ~~Certain~~of ~~Costs~~preferred ~~Incurred~~stock. inAs aof December 31, ~~Restructuring)~~2002, ~~which~~ ~~requires~~the ~~that~~board aof ~~liability~~directors ~~for~~had ancreated ~~exit~~two ~~cost~~series beof ~~recognized upon the~~preferred ~~entity’s~~stock ~~commitment~~— toSeries A anConvertible ~~exit~~Cumulative ~~plan.~~Preferred ~~SFAS~~Stock, ~~No. 146~~consisting isof 2,500,000 ~~effective~~shares, ~~for~~and ~~exit~~Series B ~~or disposal~~Preferred ~~activities~~Stock, ~~that~~consisting ~~are~~of ~~initiated after December 31~~500,000 ~~2002~~shares. ~~The adoption~~ pfAs ~~the provisions~~ of ~~SFAS No.~~December ~~146~~31, is2003, ~~not~~there ~~expected~~were tono ~~have~~shares aof ~~material~~either ~~impact~~series ~~on the Company’s results~~ of ~~operations,~~preferred stock ~~financial position or cash flows~~outstanding.

~~Note~~ At 3December 31, —2003, ~~Commitments~~9,991,926 shares of common stock were issued and outstanding; ~~Contingencies~~207,000 shares were reserved for stock options (all of which had vested); and 107,000 shares were reserved for the fulfillment of warrants. Warrants having an exercise price of $7.50 per share for 81,000 shares expire on November 3, 2007. Warrants having an exercise price of $7.50 per share for 20,000 shares expire on September 12, 2005. Warrants having an exercise price of $6.25 per share for 6,000 shares expire on January 3, 2006.

~~Litigation~~Restrictions ~~and~~on ~~Contract~~Transfers ~~Terminations~~of Common Stock

On ~~or about June~~September 2514, ~~2001,~~2000 ~~the~~our ~~Commissioner~~shareholders ofapproved ~~the~~an ~~Indiana~~amendment ~~Department~~to ofour ~~Insurance~~certificate ~~(the~~of ~~“Commissioner”),~~incorporation asthat ~~the~~would ~~rehabilitator~~prohibit transfer of ~~Maxicare~~our ~~Indiana~~stock, ~~Inc.,~~unless ~~the~~approved ~~Company’s~~by ~~Indiana HMO, filed a complaint (~~the ~~“Complaint”) in the Marion County Circuit Court of Indiana against the Company and the five directors of the Indiana HMO~~Board, ~~one~~to ~~of whom was a director of~~ the ~~Company.~~extent ~~The Commissioner amended~~ the ~~Complaint~~transfer onwould ~~February 1, 2002. The Complaint, as amended, alleges, in substance, that:~~ (1i) cause the ~~directors~~ownership interest of the ~~Indiana~~transferee ~~HMO~~or ~~breached~~any ~~their fiduciary~~other ~~duty~~person ~~by failing~~ to ~~maintain~~equal a5% ~~plan~~or ~~providing~~more ~~for continuation~~ of ~~care benefits in~~ the ~~event that the Indiana HMO was placed in receivership, and that~~our ~~the~~fair ~~Company~~market ~~is also liable for such failure~~value; or (2ii) ~~the~~increase ~~Company fraudulently concealed~~ the ~~financial~~ownership ~~condition~~interest of the ~~Indiana~~transferee ~~HMO; (3) the Company~~or ~~manipulated~~any ~~the~~other ~~finances~~person ofwhere ~~the~~such ~~Indiana HMO for the Company~~transferee’s ~~own benefit; and (4) the Company received preferential and/~~or ~~fraudulent~~other ~~transfers~~person’s ofownership ~~money from~~interest ~~the~~equaled ~~Indiana HMO. The amended Complaint requests money damages but does not specify the amount of damages sought, except that it seeks approximately $3.~~5 ~~million~~% ~~respecting the alleged preferential and/~~or ~~fraudulent~~more ~~transfers.~~of ~~All defendants~~our ~~answered~~fair ~~the~~market ~~amended~~value ~~Complaint~~before ~~on April 5, 2002. Pre-trial discovery is proceeding but is not yet completed. The Company believes that~~ the ~~claims against it are without merit and intends to vigorously defend the suit~~transfer.

~~On or about June 6, 2002, Eugene Froelich, a shareholder and former~~25 ~~executive officer of MHP, commenced a purported derivative action in the Superior Court of the State of California, Los Angeles County, on behalf of the Company against certain of its former~~

~~Table~~Shareholder ofRights ~~Contents~~Plan

~~and~~ On ~~current~~February 24, ~~officers~~1998, ~~and~~our ~~directors.~~Board ~~The~~of ~~complaint,~~Directors ~~which~~(the ~~names~~“Board”) ~~the~~adopted ~~Company~~a asShareholder aRights ~~nominal~~Plan ~~defendant,~~(the ~~alleges,~~“Rights inPlan”) ~~substance,~~designed to assure that in the event ~~officers~~of ~~and~~an ~~directors breached~~unsolicited ~~their~~or ~~fiduciary~~hostile ~~duty~~attempt to acquire the Company, inthe ~~that~~Board would ~~they~~have ~~flagrantly~~the ~~mismanaged company~~opportunity ~~affairs.~~to ~~The~~consider ~~action~~and ~~seeks~~implement ~~compensatory~~a ~~damages~~course of ~~not~~action ~~less than $10~~which ~~million,~~would ~~together~~best ~~with~~maximize anshareholder ~~unspecified~~value. ~~amount~~Additionally, ofon ~~punitive~~February 24, ~~damages. On November 14~~1998, ~~2002~~ the Board ~~Court~~declared ~~dismissed~~a ~~the~~dividend ~~complaint~~distribution ~~with~~of ~~leave~~one topreferred ~~replead.~~share Bypurchase ~~order~~right (a ~~dated~~“Right”) ~~February 4,~~for ~~2003,~~each ~~the~~outstanding ~~action~~share ~~was~~of ~~dismissed~~Common ~~without prejudice~~Stock.

OnThe ordividend ~~about~~was ~~July 1,~~paid ~~2002,~~to ~~Mr. Froelich commenced an action in~~ the ~~Superior Court~~shareholders of ~~the~~record ~~State~~on ~~of California~~March 16, ~~County of Los Angeles~~1998, ~~against the Company~~ and ~~certain unnamed Company officers/directors. The complaint alleges that~~ ~~defendants’~~with ~~denial~~respect ~~of a lump sum payment~~ to ~~Mr. Froelich~~Common ~~under~~Stock ~~the~~issued ~~Company’s Supplemental Executive Retirement Program and the suspension of payments to him under such Program for one year constituted breaches of contract~~thereafter, ~~breaches~~until ~~of fiduciary duty and violations of~~ the ~~Employee~~Distribution ~~Retirement~~Date ~~Income Security Act.~~(as ~~The~~defined ~~action~~below) ~~seeks compensatory damages of no less than $1.0 million~~and, ~~punitive damages~~ in ancertain ~~amount to be determined and an award of attorneys’ fees. On July 23~~circumstances, ~~2002,~~with ~~defendants~~respect ~~served an answer~~ to ~~the~~Common ~~complaint, and on July 26, 2002,~~Stock ~~defendants~~issued ~~removed~~after the ~~case~~Distribution ~~from California state court to the United States District Court for the Central District of California~~Date. ~~On January 31, 2003, the~~ ~~District Court granted summary judgment in favor of the Company dismissing the~~ ~~action, and Mr. Froelich’s time to appeal has expired.~~

OnEach orRight ~~about~~entitled ~~February 10,~~the ~~2003,~~holder ~~Peter~~thereof J.to ~~Ratican,~~purchase a1/500 ~~shareholder~~of ~~and~~a ~~former executive~~share ~~officer and director~~ of ~~MHP, commenced an action against the Company~~our inSeries B ~~the~~Preferred ~~Superior~~Stock ~~Court of~~ (the ~~State~~“Series B ofPreferred”) ~~California,~~for ~~alleging~~$45.00 ~~that~~ (the ~~Company had~~“Exercise ~~breached his consulting agreement with it and claiming damages in excess of $700,000~~Price”). OnEach ~~March 11,~~1/500 ~~2003, Mr.~~Series ~~Ratican~~B ~~obtained~~Preferred an(the ~~attachment~~“Preferred inFraction”) ~~the~~share ~~amount~~shall ofbe ~~$767,000~~entitled ~~against~~to ~~the~~one ~~Company~~vote in ~~connection~~all ~~with~~matters ~~his~~being ~~claim.~~voted ~~There~~on ~~has~~by ~~been no pre-trial discovery to date in~~ the ~~case.~~holders ~~The~~of ~~Company~~Common Stock ~~intends~~and toshall ~~defend~~also ~~the action~~be ~~and~~entitled to ~~assert~~a ~~offsets~~liquidation ~~and~~preference ~~counterclaims~~of ~~against Mr~~$0. ~~Ratican~~20.

OnThe ~~September 1,~~Rights ~~2000,~~initially ~~the~~attached ~~Company~~to ~~entered~~our ~~into~~Common anStock ~~Application~~ and ~~Business~~will not be ~~Services~~exercisable ~~Agreement~~until ~~(the~~a ~~“Trizetto~~shareholder, ~~Agreement”)~~or ~~with~~group ~~the~~of ~~Trizetto~~shareholders ~~Group,~~acting ~~Inc.~~together, ~~(“TZG”).~~without ~~The~~the ~~Trizetto~~approval ~~Agreement~~of ~~called~~the ~~for~~Board, ~~TZG~~announce their intent to ~~provide~~become a ~~full~~15% ~~range~~or more ofowner in our Common Stock. At that time, certificates evidencing the ~~management~~Rights ~~information~~shall ~~services~~be distributed to usshareholders ~~over~~(the a“Distribution ~~period~~Date”) ofand ~~seven~~the Rights ~~years~~shall indetach ~~exchange for~~from ~~monthly~~the ~~payments.~~Common ItStock ~~also~~and ~~called~~shall ~~for~~become aexercisable. ~~termination~~When such ~~payment~~buyer toacquires be15% ~~made~~or bymore ~~us under~~of ~~certain~~our ~~circumstances.~~Common InStock, ~~March~~all ~~2001~~Rights holders, except the ~~Company~~non-approved ~~assigned~~buyer, will be entitled to acquire an amount of the ~~Trizetto~~Preferred ~~Contract~~Fraction at a rate equal to ~~Maxicare,~~twice the ~~Company’s~~Exercise ~~California~~Price ~~HMO.~~divided ~~The~~by ~~California~~the ~~Department~~then market price of ~~Managed~~the ~~Health~~Common ~~Care~~Stock. ~~and~~In ~~the~~addition, ~~Committee~~if ofwe ~~Creditors~~are ~~Holding~~acquired ~~Unsecured Claims~~ in ~~the~~a ~~California~~non-approved merger, ~~HMO’s~~after ~~bankruptcy~~such ~~proceeding~~an ~~have~~acquisition, ~~questioned~~all ~~the~~Rights ~~validity~~holders, ofexcept the ~~that~~aforementioned ~~assignment.~~15% ~~The~~or ~~California~~more ~~HMO~~buyer, ~~has~~will ~~continued~~be entitled to ~~pay~~acquire ~~TZG~~stock ~~for~~in ~~post-petition~~the ~~services~~surviving corporation at a ~~monthly~~50% ~~amount~~discount ~~less~~in ~~than~~accordance ~~that~~with ~~contemplated~~the inRights ~~the~~Plan. ~~Trizetto~~The ~~Agreement~~Rights ~~while~~attached ~~TZG~~to ~~has~~all ~~provided~~common ~~services~~shares atheld aby ~~lower~~our ~~level~~shareholders ~~than~~of ~~that contemplated~~record inas of the ~~Trizetto~~close ~~Agreement~~of business on March 16, 1998. ~~TZG~~Shares ~~has~~of ~~asserted~~Common ~~various~~Stock ~~pre~~newly- ~~and~~issued ~~post-petition~~after ~~claims~~that indate ~~the~~will ~~California~~also ~~bankruptcy~~carry ~~proceeding~~Rights inuntil ~~connection~~the ~~with~~Rights become detached from the ~~Trizetto~~Common ~~Agreement~~Stock. OnThe orRights ~~about~~will ~~March~~expire on February 1323, ~~2003,~~2008. ~~TZG~~We ~~sued~~may redeem the ~~Company~~Rights ~~in California~~for ~~state~~$.01 ~~court,~~each ~~alleging~~at ~~breach~~any time before a non-approved buyer acquires 15% or more of the ~~Trizetto~~Company’s ~~Agreement~~Common ~~and~~Stock. ~~claiming~~Any current holder that had previously ~~over~~advised ~~$12 million~~us of owning an amount in ~~damages.~~excess ~~There~~of ~~have~~15% of our Common Stock as of the date hereof has been no“grandfathered” ~~further~~with ~~proceedings~~respect to ~~date~~their incurrent position, ~~this~~including ~~case~~allowance for certain small incremental additions thereto.

~~Effective~~In ~~January 1,~~order ~~2001,~~to ~~the~~further ~~Company~~protect ~~entered~~our ~~into~~tax aloss ~~Pharmacy~~carryforward, ~~Benefits Management~~from ~~Agreement (~~the ~~“PBM~~impact ~~Agreement”) with Medimpact Healthcare Systems, Inc. (“Medimpact”). The PBM Agreement called for Medimpact to process and fill within its network~~ of ~~contracting pharmacies prescriptions for members of~~ ~~Maxicare~~an ~~Life~~ownership ~~and Health Insurance Company~~change, ~~Inc.,~~ the ~~California~~Board ~~HMO~~on ~~and~~June 6, ~~the Indiana~~2000 ~~HMO.~~voted ~~The~~to ~~PBM~~amend ~~agreement called for~~ the ~~Company~~Rights Plan to ~~reimburse~~provide ~~Medimpact for~~that the ~~cost~~exercisability of ~~drugs~~the ~~dispensed~~Share ~~and~~Purchase toRights ~~pay~~is ~~per~~triggered ~~transaction administrative fees~~in ~~on a bi-weekly basis. As a result of~~ the ~~Indiana~~event ~~HMO~~any ~~being~~party ~~placed~~acquires ~~in rehabilitation~~5% ~~and~~or ~~the~~more ~~California~~of ~~HMO’s~~our ~~bankruptcy,~~Common ~~Medimpact~~Stock ~~allegedly~~or ~~has~~any ~~not~~party which ~~received~~currently ~~reimbursement~~holds ~~for~~5% ~~certain~~or ~~prescriptions~~more ~~filled on behalf~~ of the ~~members~~ ofCommon ~~those~~Stock ~~subsidiaries.~~acquires ~~Although~~additional ~~it has yet to do so~~shares, ~~Medimpact may seek~~ ~~reimbursement~~without ~~from~~ the ~~Company~~approval ~~for~~of ~~such costs in an amount not presently known. The Company, in turn, believes that it has claims against Medimpact for rebates due to~~ the ~~Company~~Board.

~~Effective~~Stock ~~February 2,~~Option ~~2000, the Company entered into a Services Agreement~~Plans ~~for Back Office Administration with Nichols TXEN Corporation calling for~~ ~~Nichols TXEN to provided certain claims adjudication services to certain of our~~ ~~subsidiaries in exchange for a predetermined per member per month fee. On~~ September 18, 2002 CSC Healthcare, Inc. (“CSC”), the successor in interest to Nichols TXEN, filed a complaint in the Circuit Court of Jefferson County, Alabama seeking approximately $880,000 plus interest from the Company under the contract. This action has been stayed and the claim is now being heard in arbitration, which is in a preliminary stage. The Company believes that the claim against it is without merit and intends to vigorously defend the arbitration. The Company has asserted counterclaims against CSC in the arbitration alleging that it was fraudulently induced to enter into the contract and that CSC failed to perform under the contract, thereby causing damages to the Company in an amount not less than $5 million.

ByIn ~~order~~July 1995, ~~dated~~our ~~March 9~~shareholders approved the 1995 Stock Option Plan (the “1995 Plan”). Under the 1995 Plan, ~~2001~~we may issue up to 200,000 ~~the~~nonqualified ~~Missouri~~or incentive ~~Department~~stock ofoptions ~~Insurance~~to directors, officers and other employees. In June 1999, our shareholders approved the ~~transfer~~1999 ofStock ~~all~~Option ofPlan (the ~~outstanding~~“1999 ~~shares~~Plan”). Under ofthe ~~Maxicare~~1999 ~~Life~~Plan, we may issue up to 150,000 nonqualified or incentive stock options to directors, officers and other employees. In September 2000, our ~~Health~~shareholders ~~Insurance~~approved ~~Company~~the ~~from~~2000 Stock Option Plan (the ~~Company~~“2000 toPlan”). ~~Maxicare~~Under ~~Indiana~~2000 Plan, ~~Inc~~we may issue up 800,000 nonqualified or incentive stock options to directors, officers and other employees. Under the 1995 Plan, onthe 1999 Plan and the 2000 Plan, stock options granted to date have been nonqualified stock ~~condition~~options ~~that~~which ~~control~~expire ofno ~~MLH~~later ~~remain~~than ~~with~~10 years from the ~~Company.~~date ~~The~~of ~~Company~~grant. ~~believes~~Stock ~~that~~options ~~this~~granted ~~condition~~to ~~has~~date ~~not~~under ~~been~~the ~~complied~~1995 ~~with~~Plan, the 1999 Plan and ~~that,~~the ~~accordingly,~~2000 Plan have been at an exercise price equal to or greater than the fair market value ~~transfer~~of the stock at the date of grant.

27 In July 1996, our shareholders approved the Outside Directors 1996 Formula Stock Option Plan (the “Formula Plan”). Under the Formula Plan, we may issue up to 25,000 nonqualified stock options to directors who are not employees or officers of the Company (the “Outside Directors”). On the date the Formula Plan was adopted, each Outside Director received a grant of stock options to purchase 1,000 shares of Common Stock. Commencing January 2, 1997 and each January 2nd thereafter, each Outside Director then serving on the Board shall receive a grant of stock options to purchase 1,000 shares of Common Stock. Options granted under the Formula Plan are at an exercise price equal to the fair market value of the stock at the date of grant, vest six months from the date of grant and expire 10 years from the date of grant. No options have been granted under the Formula Plan subsequent to January 1999.

~~Table of Contents~~26

In July 1996, our shareholders approved the Senior Executives 1996 Stock Option Plan (the “Senior Executives Plan”). Under the ~~terms~~Senior ofExecutives aPlan, we ~~lease~~were ~~expiring~~authorized into ~~May~~issue ~~2004~~up ~~for~~to 79140,000 ~~square~~nonqualified ~~feet~~stock options to Peter J. Ratican and Eugene L. Froelich, former Chief Executive Officer and Chief Financial Officer of the Company, respectively (the “Senior Executives” and ~~industrial~~individually ~~space~~the in“Senior ~~Los~~Executive”). ~~Angeles~~On the date the Senior Executives Plan was adopted, weeach ~~are~~Senior ~~obligated~~Executive toreceived ~~surrender~~a ~~that~~grant ~~space~~of instock options to ~~its~~purchase ~~original~~14,000 ~~condition~~shares of Common Stock. WeCommencing ~~have~~January 1, ~~previously~~1997, ~~made~~and ~~extensive~~each January ~~modifications~~1st thereafter through and including January 1, 2000, each Senior Executive then employed by us was to receive a grant of stock options to purchase 14,000 shares of Common Stock. Mr. Froelich’s continuing participation in the Senior Executives Plan ceased when his employment with us ~~leased~~was ~~premises~~terminated in December 1997. ~~The~~Mr. Ratican’s ~~ultimate~~continuing ~~cost~~participation ofin ~~any~~the Senior ~~required~~Executives ~~repairs~~Plan ~~and~~ceased ~~renovations~~when his employment with us terminated effective June 30, if1999. Options granted under the Senior Executives Plan are at an ~~any~~exercise price equal to the fair market value of the stock at the date of grant, ~~cannot~~vest beimmediately ~~determined~~and expire 10 years from the date of grant. No options have been granted under the Senior Executives Plan subsequent to January 1999.

~~Other~~A ~~than~~summary ~~those~~of ~~noted~~our ~~above,~~stock nooption ~~claims~~activity ~~have been filed against the Company by the creditors of Maxicare Life~~ and ~~Health~~related ~~Insurance~~information ~~Company,~~for ~~Inc.,~~ the ~~California HMO or the Indiana HMO. However, claims may be filed against us~~ byyears ~~such~~ended ~~creditors~~December 31 ~~in the future.~~follows:


	2003					2002					2001
				Weighted-					Weighted-					Weighted-
	Options			Average		Options			Average		Options			Average
	(000)			Exercise Price		(000)			Exercise Price		(000)			Exercise Price
Outstanding beginning of year		209		$	16.91		385		$	15.76		510		$	18.73
Granted(a)		0					0					0
Exercised
Forfeited		(2	)		22.28		(176	)		15.55		(125	)		26.33
Expired										0		0			0
Outstanding end of year		207			16.86		209			16.91		385			15.76
Exercisable end of year		207			16.86		209			16.91		367			15.63

WeThe ~~are~~following ~~also~~table ~~involved~~summarizes ininformation ~~other~~about ~~legal~~stock ~~actions~~options ~~in the normal course of~~outstanding ~~business.~~at ~~We do not believe that any ultimate liability in excess of amounts accrued which would likely arise from these actions would materially affect our consolidated financial position~~December 31, ~~results of operations or cash flows, except~~2003: ~~that the matters described above involving the Indiana Department of Insurance,~~ ~~TZG, Medimpact and the renovation of leased space, may have such effect.~~

Leases


	Options Outstanding						Options Exercisable
							Number
	Number		Weighted-Average				Exercisable
	Outstanding		Remaining				at
	at 12/31/03		Contractual Life		Weighted-Average		12/31/03		Weighted-Average
Range of Exercise Prices	(000)		(# of Months)		Exercise Price		(000)		Exercise Price
$5.00 - $5.94		112		82	$	5.00		112	$	5.00
$22.50 - $36.44		95		35		30.85		95		30.85

$5.00 - $36.44		207		60		16.86		207		16.86

WeNote have operating leases, some of which provide for initial free rent and all of which provide for subsequent rent increases. Rental expense is recognized on a straight-line basis with rental expense of $.1 million, $.8 million and $2.5 ~~million~~ ~~reported~~— ~~for~~Notes ~~the~~Receivable ~~years~~from ~~ended December 31, 2002, 2001~~Shareholders ~~and 2000, respectively.~~

InOn ~~the~~February 18, ~~first~~1997 ~~quarter of 2002~~ we ~~determined~~entered ~~that~~into ~~the~~recourse ~~termination~~loan ofagreements ~~our~~with Peter ~~business~~J. ~~operations~~Ratican ~~eliminated~~and ~~our~~Eugene ~~need~~L. ~~for~~Froelich, ~~certain~~who ~~equipment~~at ~~held~~that ~~under capital~~date ~~lease~~served ~~agreements~~as ~~(principally~~our ~~high~~Chief Executive ~~volume~~Officer ~~copying~~and ~~equipment).~~Chief WeFinancial ~~have returned~~Officer, ~~that~~respectively ~~equipment~~(collectively to the “Executives” ~~lessor~~ and ~~have~~individually ~~removed~~ the ~~leased~~“Executive”), ~~assets~~whereby ~~from our~~we ~~balance~~loaned ~~sheet.~~to ~~The~~each Executive ~~liability~~$2,229,028 ~~associated~~in connection with ~~these~~the ~~leased~~exercise ~~assets~~of ~~remains~~certain stock options ongranted ~~our~~to ~~consolidated~~the ~~balance~~Executives ~~sheets.~~on ~~(Please~~February 25, ~~see~~1992 (the “1997 Ratican Note” 8and —the “1997 ~~Impairment~~Froelich ofNote”, ~~Leased Assets~~respectively). ~~Assets~~The ~~held~~1997 ~~under~~Ratican ~~capital~~Note ~~leases~~and atthe ~~December 31,~~1997 Froelich ~~2001~~Note ofare ~~$1,156,000 (net~~evidenced ofby ~~$1,306,000~~a ofsecured ~~accumulated~~Promissory ~~amortization)~~Note ~~are~~which ~~comprised~~provides ~~primarily of~~for ~~equipment~~interest ~~leases.~~compounding ~~Amortization~~monthly ~~expense~~at ~~for~~the ~~capital~~one ~~leases~~year isLondon ~~included~~Interbank inOffered Rate plus ~~depreciation~~50 ~~expense~~basis points. ~~Future~~All ~~minimum~~principal ~~lease~~and ~~commitments~~accrued ~~for~~interest ~~noncancelable~~were ~~leases~~ due at ~~December~~the maturity date of April 311, ~~2002~~2001 ~~were~~or asupon ~~follows:~~an event of default.

		Operating		Capitalized
		Leases		Leases
		(Amounts in thousands)
2003		$	336	$	1,033
2004			183		202
2005			—		96
2006			—		—
2007			—		—
	Total minimum obligations	$	519		1,331
Amount representing interest					(195	)
Less current obligations					(860	)
Long-term obligations				$	276

In connection with a settlement agreement with Mr. Ratican, as of April 24, 1999, the 1997 Ratican Note and related loan documents were amended extending the term from April 1, 2001 to June 30, 2003 (the “Restated 1997 Ratican Note”). The Restated 1997 Ratican Note provides that on the maturity date, in lieu of payment of the original principal balance and all accrued interest thereon (the “Maturity Balance”), Ratican may fully satisfy his obligations under the Restated 1997 Ratican Note through the payment to us for payment to the applicable state and Federal tax authorities the applicable minimum state and federal withholding amounts and FICA taxes due from Mr. Ratican resulting from the reduction of the Maturity Balance to zero. At December 31, 2003 Mr. Ratican had not satisfied his obligations under Restated 1997 Ratican Note, which accordingly remained open at that date. As a result of the Settlement Agreement and Mutual Release we entered into with Mr. Ratican in February 2004 (see “Note 2 — Charges for Litigation and Management Settlements”) such note became non-recourse to Mr. Ratican in the first quarter of 2004. We have fully reserved for the Restated 1997 Ratican Note.

~~The California HMO and Maxicare Life and Health Insurance Company, Inc.~~27 continue to contribute to the payment of the capital and operating lease obligations of MHP. Although there can be no assurance that such payments will continue, management believes it likely that the California HMO and Maxicare Life and Health Insurance Company, Inc. will together contribute approximately $78,000 to the payment of operating and capital lease obligations in 2003. Such payments by the California HMO and Maxicare Life and Health Insurance Company, Inc. are unlikely to continue after June 30, 2003.

~~Table~~ On April 1, 2001, the 1997 Froelich Note came due and was not paid. We commenced an action in California state court to collect on the note. On October 18, 2001, the court granted summary adjudication and judgment was entered in our favor. On November 14, 2002, the California Court of ~~Contents~~Appeals affirmed the judgment. On or about March 14, 2003, Mr. Froelich satisfied the judgment in the net stipulated amount of $3,407,500 by paying $2,583,000 to us and by paying over $767,000 to the Sheriff pursuant to an attachment by Peter J. Ratican, as more fully set forth in “Note 2 — Charges for Litigation and Management Settlements”. Offset against the judgment of $3,407,500 was $57,500 that Mr. Froelich agreed to accept in full settlement of his claim against us in connection with his benefits under our Supplemental Executive Retirement Plan. In connection with the settlement of the 1997 Froelich Note and Mr. Froelich’s Supplemental Executive Retirement Plan benefits, we recognized $521,000 of investment income and a gain of $671,000 (included in charges for litigation and management settlements) in 2002.

~~Note~~ The 4principal —and ~~Capital~~accrued ~~Stock~~interest on notes receivable from shareholders at December 31, 2002 have been reflected as a reduction of shareholders’ equity. There were no such amounts recorded at December 31, 2003.

WeNote ~~are~~6 authorized to issue 80,000,000 shares of common stock, par value $.01 per share, and 5,000,000 shares of preferred stock, par value $.01 per share. The board of directors has the right to determine the rights, preferences and privileges of one or more series of preferred stock. As of December 31, 2002, the board of directors had created two series of preferred stock — ~~Series A~~Income ~~Convertible Cumulative Preferred Stock, consisting of~~Taxes ~~2,500,000 shares, and Series B Preferred Stock, consisting of 500,000 shares.~~ ~~As of December 31, 2002, there were no shares of either series of preferred stock outstanding.~~

AtThe ~~December 31,~~provision ~~2002, 9,741,926 shares of common stock were issued and outstanding; 209,000 shares were reserved for stock options~~ (~~all of which had vested~~benefit)~~; and 107,000 shares were reserved for the fulfillment of warrants. Warrants having an exercise price of $7.50 per share for 81,000 shares expire on November~~ ~~3, 2007. Warrants having an exercise price of $7.50 per share~~ for ~~20,000~~ ~~shares~~income ~~expire~~taxes onat ~~September~~December ~~12,~~31 ~~2005.~~consisted ~~Warrants having an exercise price~~ of ~~$6.25 per share for 6,000 shares expire on January 3, 2006.~~the following:

Restrictions on Transfers of Common Stock


	2003		2002		2001
	(Amounts in thousands)
Current:
Federal	$	—	$	—	$	—
State		—		—		—

		0		0		0
Deferred:
Federal		—		—		—
State		—		—		—

		0		0		0

Provision for income taxes	$	0	$	0	$	0

OnThe ~~September 14,~~federal ~~2000~~and ~~our~~state ~~shareholders~~deferred ~~approved~~tax anliabilities ~~amendment to our certificate of incorporation that would prohibit transfer of our stock, unless approved by the Board, to the extent the transfer would~~ (iassets) ~~cause~~are ~~the~~comprised ~~ownership interest~~ of ~~the transferee or any other person to equal 5% or more of the our~~ ~~fair market value; or (ii) increase~~ the ~~ownership~~following ~~interest~~at ~~of the transferee or~~December 31: ~~any other person where such transferee’s or other person’s ownership interest~~ ~~equaled 5% or more of our fair market value before the transfer.~~

Shareholder Rights Plan


	2003			2002
	(Amounts in thousands)
Noncurrent deferred tax assets:
Loss carryforwards	$	(99,554	)	$	(153,134	)
Other		(1,033	)		(5,008	)

Gross deferred tax assets		(100,587	)		(158,142	)
Deferred tax assets valuation allowance		100,587			158,142

Deferred tax assets	$	0		$	0

OnThe ~~February 24,~~differences ~~1998,~~between ~~our Board of Directors (~~the ~~“Board”)~~benefit ~~adopted~~for ~~a Shareholder~~income ~~Rights~~taxes ~~Plan~~at (the ~~“Rights~~federal statutory ~~Plan”)~~rate ~~designed~~of to34% ~~assure~~and that shown in the ~~event~~ ofConsolidated anStatements ~~unsolicited or hostile attempt to acquire the Company, the Board would have the opportunity to consider and implement a course~~ of ~~action which~~ ~~would~~Operations ~~best~~are ~~maximize~~summarized ~~shareholder~~as ~~value.~~follows ~~Additionally,~~for ~~on February 24, 1998,~~ the ~~Board~~ ~~declared~~years aended ~~dividend distribution of one preferred share purchase right (a~~December 31: ~~“Right”) for each outstanding share of Common Stock.~~

The dividend was paid to the shareholders of record on March 16, 1998, and with respect to Common Stock issued thereafter, until the Distribution Date (as defined below) and, in certain circumstances, with respect to Common Stock issued after the Distribution Date.


	2003			2002			2001
	(Amounts in thousands)
Tax provision (benefit) at statutory rate	$	934		$	(438	)	$	(5,052	)
State income taxes		4			4			4
Utilization of NOL carryforward		(938	)		—			—
Limitation on current-year tax benefit due to unrealized NOL carryforwards		—			434			5,048

Income tax provision	$	0		$	0		$	0

~~Each Right entitled the holder thereof to purchase 1/500(th) of a share of~~28 our Series B Preferred Stock (the “Series B Preferred”) for $45.00 (the “Exercise Price”). Each 1/500 Series B Preferred (the “Preferred Fraction”) share shall be entitled to one vote in all matters being voted on by the holders of Common Stock and shall also be entitled to a liquidation preference of $0.20.

InAt ~~order to further protect our tax loss carryforward~~December 31, ~~from the impact of an ownership change~~2003, ~~the~~we ~~Board~~had onnet ~~June 6,~~operating ~~2000~~loss ~~voted~~carryforwards to(“NOLs”) ~~amend the Rights Plan~~for tofederal ~~provide~~tax ~~that~~purposes ~~the~~expiring ~~exercisability~~as offollows ~~the~~(amounts ~~Share~~are ~~Purchase Rights is triggered~~ in ~~the~~ ~~event any party acquires 5% or more of our Common Stock or any party which~~millions): ~~currently holds 5% or more of the Common Stock acquires additional shares,~~ ~~without the approval of the Board.~~


Year of Expiration	NOL
2004	$	78.1
2005		7.2
2006		2.1
2007		1.2
2012		25.7
2018		73.8
2019		3.9
2020		20.0
2021		3.3
2022		2.7
2023		71.4

Total NOL carryforwards	$	289.4

~~Table~~The NOLs presented above exclude certain additional benefits that may be realized upon the ultimate disposition of ~~Contents~~the Indiana HMO and Maxicare Life and Health Insurance Company, Inc. Certain NOL’s associated with the California HMO, that were to expire in 2022 and prior years, have been eliminated and replaced by an NOL expiring in 2023 as a result of the Company taking a worthless stock deduction upon its surrender of the common stock of the California HMO upon the approval of a liquidating plan of reorganization in 2003.

~~Rights~~ On ~~Offering~~December 5, 1990 (the “Effective Date”) the Company emerged from protection under Chapter 11 pursuant to our joint plan of reorganization, as modified (the “Reorganization Plan”). Upon the Effective Date of the Reorganization Plan, we experienced a “change of ownership” pursuant to applicable provisions of the Internal Revenue Code (the “IRC”). As a result of the ownership change, our pre-change NOL carryforwards of approximately $85.3 million are subject to limitation under provisions of Section 382 of the IRC. From December 5, 1990 through December 31, 2003 we have utilized approximately $32.8 million of the pre-change NOLs for federal income tax return purposes. We are unable to quantify to what extent, if any, we may be able to fully utilize our remaining pre-change NOLs prior to their expiration. Should we experience a second “change of ownership”, the limitation under Section 382 of the IRC on NOLs would be recalculated.

OnWe ~~September 15,~~use ~~2000~~the weliability ~~initiated~~method aof ~~Rights~~accounting ~~Offering~~for ~~and~~income ~~the~~taxes ~~subscription period~~as ~~extended~~set ~~through~~forth ~~October 6~~in SFAS 109, ~~2000~~“Accounting for Income Taxes.” ~~Upon~~Deferred ~~the~~taxes ~~completion~~are ofdetermined on the ~~subscription~~difference ~~period,~~between wethe ~~accepted~~financial ~~subscriptions~~statement ~~(including~~and ~~over-subscriptions) for~~tax ~~the~~bases ~~purchase~~ of ~~approximately~~assets ~~21.9 million~~and liabilities ~~shares~~using ofthe ~~Common~~enacted ~~Stock~~tax ~~(before giving~~rates in effect toin the ~~subsequent~~years ~~one-for-five~~in ~~reverse~~which ~~stock~~the differences ~~split)~~are atexpected ~~$1.00~~to ~~per share~~reverse. ~~Accordingly,~~Deferred wetax ~~issued~~assets ~~the~~are ~~shares~~recognized toand measured based on the ~~subscribing~~likelihood ~~shareholders~~of ~~and received~~the ~~gross~~related ~~proceeds~~tax ofbenefit ~~approximately~~in ~~$21~~the future.~~9 million.~~

~~Private~~ Accordingly, ~~Placement~~we have reserved the full amount of the deferred tax asses at December 31, 2003. Deferred taxes will be recorded when realized in income tax returns. Any future benefits from a reduction of the valuation allowance will reduce our income tax expense.

OnNote October 17, 2000 we entered into agreements for the sale in a private placement of 1.62 million shares of our common stock at $5.00 per share with certain qualified institutional buyers and highly accredited institutional investors. On November 3, 2000 the private placement was consummated and we received gross proceeds of $8.1 million for the issuance of 1.62 million shares of our common stock at $5.00 per share. In connection with the private placement we issued warrants for the purchase of 81,000 shares of our common stock at $7~~.50~~ ~~per~~— ~~share.~~Employee InBenefit ~~June 2000, we issued 160,000 shares of our common~~Plans ~~stock at $6.25 per share to Meespierson Cayman Limited, as trustee of Sofaer~~ ~~Funds/SCI Global Hedge Fund. The Rights Offering and the private placements~~ ~~taken together enabled us to receive gross proceeds of approximately $31.0~~ ~~million.~~

~~Stock~~ We ~~Option~~previously adopted the Maxicare Health Plans, Inc. Savings Incentive Plan (the “Savings Plan”). The Savings Plan is a defined contribution 401(k) profit sharing plan covering employees who have satisfied certain eligibility requirements. The primary eligibility requirement is that an employee must have completed six months of eligible service. The participants and the Company share the cost of the Savings Plan. Eligible employees may defer from 1% to 15% of base compensation on a before-tax basis in accordance with Section 401(k) of the IRC. The Savings Plan calls for us to match up to 3% of total compensation, not to exceed the employee’s contribution. The Savings Plan was terminated effective February 28, 2002. We made no contributions for the years ended December 31, 2002 and 2001.

~~In December 1990, we approved the 1990 Stock Option Plan (the “1990~~29 Plan”). Under the terms of the 1990 Plan, as amended, we may issue up to an aggregate of 1,000,000 nonqualified stock options to directors, officers and other employees. In July 1995, we approved the 1995 Stock Option Plan (the “1995 Plan”). Under the terms of the 1995 Plan, we may issue up to an aggregate of 1,000,000 nonqualified or incentive stock options to directors, officers and other employees. In June 1999, we approved the 1999 Stock Option Plan (the “1999 Plan”). Under the terms of the 1999 Plan, we may issue up to an aggregate of 750,000 nonqualified or incentive stock options to directors, officers and other employees. In September 2000, we approved the 2000 Stock Option Plan (the “2000 Plan”). Under the terms of the 2000 Plan, we may issue up to an aggregate of 4,000,000 nonqualified or incentive stock options to directors, officers and other employees. Under the 1990 Plan, the 1995 Plan, the 1999 Plan and the 2000 Plan, stock options granted to date have been nonqualified stock options which expire no later than 10 years from the date of grant. Stock options granted to date under the 1990 Plan, the 1995 Plan, the 1999 Plan and the 2000 Plan have been at an exercise price equal to or greater than the fair market value of the stock at the date of grant.

InWe ~~July~~previously ~~1996,~~adopted ~~we approved~~ the ~~Senior~~Maxicare ~~Executives~~Health ~~1996~~Plans, ~~Stock~~Inc. ~~Option~~Supplemental Executive Retirement Plan (the “~~Senior Executives Plan~~SERP”). ~~Under~~covering ~~the~~five ~~terms~~key ofexecutives selected by the ~~Senior Executives Plan~~Board, we ~~were~~four ~~authorized to issue up to an aggregate~~ of ~~700,000~~whom ~~nonqualified~~are ~~stock options~~no tolonger ~~Peter~~employed J.by ~~Ratican and Eugene L~~us. ~~Froelich,~~Benefits ~~former~~are ~~Chief~~based ~~Executive~~on ~~Officer~~years ~~and~~of ~~Chief~~service ~~Financial~~and ~~Officer~~average ofcompensation in the ~~Company,~~last ~~respectively~~three ~~(the~~years ~~“Senior~~of ~~Executives”~~employment. ~~and~~No ~~individually~~executives ~~the~~who ~~“Senior~~joined ~~Executive”).~~us Onsubsequent ~~the~~to ~~date~~January 1, ~~the~~1997 ~~Senior~~are ~~Executives~~participants ~~Plan~~in ~~was~~the ~~adopted,~~SERP. ~~each~~Compensation ~~Senior~~expense ~~Executive~~recognized ~~received~~in aconnection ~~grant of stock~~with ~~options~~the toSERP ~~purchase~~was 70$1,230,000 ~~shares~~for ofthe ~~Common~~year ~~Stock~~ended ~~(before~~December 31, ~~giving~~2001. ~~effect~~No toexpense ~~the~~was ~~subsequent~~recognized ~~one-~~for~~-five~~ ~~reverse~~the ~~stock~~years ~~split).~~ended ~~Commencing January~~December 131, ~~1997,~~2003 and ~~each~~ ~~January~~2002. ~~1st~~The ~~thereafter through and including January 1, 2000, each Senior~~SERP ~~Executive~~compensation ~~then~~expense ~~employed~~recognized byin us2001 was tothe ~~receive~~result of a ~~grant~~valuation of ~~stock options to~~our ~~purchase~~liability ~~70,000~~performed ~~shares~~by ofa ~~Common~~third ~~Stock~~party. ~~(before~~In ~~giving~~2003, ~~effect~~we tosettled the ~~subsequent one-for-five~~SERP ~~reverse stock split). Mr. Froelich’s continuing participation in~~liability ~~the~~due ~~Senior~~to ~~Executives~~our ~~Plan~~former ~~ceased~~chief ~~when~~financial ~~his~~officer ~~employment~~as ~~with~~discussed ~~us was terminated~~ in ~~December~~ ~~1997.~~Note ~~Mr. Ratican’s~~5 ~~continuing~~– ~~participation in the Senior Executives~~Notes ~~Plan~~Receivable ~~ceased~~from ~~when~~Shareholders. ~~his~~Our ~~employment~~remaining ~~with~~liability ~~us terminated effective June 30, 1999. Options granted~~ under the ~~Senior~~SERP ~~Executives Plan are~~ at ~~an exercise price equal~~ toDecember 31, ~~the~~2003 ~~fair~~is ~~market~~estimated ~~value of the stock~~ at ~~the date of grant~~$1.9 million, ~~vest immediately and expire 10 years from the date~~ of ~~grant.~~which No$48,000 ~~options~~is ~~have~~payable ~~been granted under~~in ~~the Senior Executives Plan subsequent to January 1999~~2004.

30Quarterly Results of Operations (Unaudited)

~~Table~~ The following is a tabulation of ~~Contents~~the quarterly results of operations for the years ended December 31, 2003 and 2002.

A summary of our stock option activity and related information for the years ended December 31 follows:


	Three Months Ended,
	March 31			June 30			September 30			December 31
	(Amounts in thousands, except per share data)
2003
Revenues	$	5		$	3,409		$	21		$	69
Income (loss)		(549	)		4,063			(516	)		(256	)
Net income (loss) per common share:
Basic	$	(.06	)	$	.42		$	(.05	)	$	(.03	)
Diluted	$	(.06	)	$	.42		$	(.05	)	$	(.03	)
2002
Revenues	$	110		$	88		$	110		$	529
Income (loss)		(1,245	)		(1,093	)		(142	)		1,202
Net income (loss) per common share:
Basic	$	(.13	)	$	(.11	)	$	(.01	)	$	.12
Diluted	$	(.13	)	$	(.11	)	$	(.01	)	$	.12

		2002					2001					2000
					Weighted-					Weighted-					Weighted-
		Options			Average		Options			Average		Options			Average
		(000)			Exercise Price		(000)			Exercise Price		(000)			Exercise Price
Outstanding beginning of year			385		$	15.76		510		$	18.73		520		$	54.95
	Granted(a)		0					0					300			6.90
	Exercised
	Forfeited		(176	)		15.55		(125	)		26.33		(118	)		54.15
	Expired		0					0					(192	)		37.15
	Outstanding end of year		209			16.91		385			15.76		510			18.73
	Exercisable end of year		209			16.91		367			15.63		216			31.85

~~The~~Item ~~following~~9. ~~table~~Changes ~~summarizes~~in ~~information~~and ~~about~~Disagreements ~~stock~~with ~~options~~Accountants ~~outstanding at~~on ~~December 31,~~Accounting ~~2002:~~ and Financial Disclosures

							Options Exercisable
	Options Outstanding
							Number
	Number		Weighted-Average				Exercisable
	Outstanding		Remaining				at
	at 12/31/02		Contractual Life		Weighted-Average		12/31/02		Weighted-Average
Range of Exercise Prices	(000)		(# of Months)		Exercise Price		(000)		Exercise Price
$5.00 - $56.90		181		86	$	14.55		181	$	14.55
$71.25 - $73.75		14		43		73.75		14		73.75
$102.50 - $132.50		14		48		111.25		14		111.25
$5.00 - $132.50		209		81		24.97		209		24.97

None.

~~Restricted~~Item ~~Stock~~ 9A. Controls and Procedures

OnOur ~~February 27,~~chief ~~1995~~executive ~~the~~officer ~~Board~~and ~~approved~~chief ~~Restricted~~financial ~~Stock~~officer ~~Grant~~have ~~Agreements~~supervised ~~awarding~~and ~~13,000~~participated ~~shares~~in an evaluation of ~~Restricted~~the ~~Stock~~effectiveness ~~each~~of toour ~~Mr. Ratican~~disclosure controls and ~~Mr.~~procedures as of a date within 90 ~~Froelich~~days of the date of this report, and, based on their evaluations, they believe that our disclosure controls and procedures (~~individually~~as defined in Rule 13a-14(c) of the ~~“Executive”~~Securities Exchange Act of 1934, as amended). ~~Mr. Froelich’s~~are ~~Restricted~~designed ~~Stock~~to ~~vested~~ensure ~~upon~~that information required to be disclosed by us in the reports that we file or submit under the Securities ~~termination~~Exchange Act of ~~his~~1934 ~~employment~~is ~~with~~recorded, usprocessed, onsummarized ~~December 11~~and reported, ~~1997.~~within the ~~Mr. Ratican~~time periods specified in the Commission’s ~~Restricted~~ ~~Stock~~rules ~~vested~~and onforms. ~~February 27,~~As ~~1998~~a ~~upon~~result of the ~~expiration~~evaluation, ofthere ~~the~~were no significant changes in our internal controls or ~~three-year~~in ~~vesting~~other ~~period~~factors that could significantly affect these controls subsequent to the date of their evaluation.

~~Note 5 — Notes Receivable from Shareholders~~31

InPART ~~connection with a settlement agreement with Mr. Ratican, as of April~~III ~~24, 1999, the 1997 Ratican Note and related loan documents were amended~~ ~~extending the term from April 1, 2001 to June 30, 2003 (the Restated 1997~~ ~~Ratican Note). The Restated 1997 Ratican Note provides that on the maturity~~ date, in lieu of payment of the original principal balance and all accrued interest thereon (the “Maturity Balance”), Ratican may fully satisfy his obligations under the Restated 1997 Ratican Note through the payment to the Company for payment to the applicable state and Federal tax authorities the applicable minimum state and federal withholding amounts and FICA taxes due from Mr. Ratican resulting from the reduction of the Maturity Balance to zero.

31 Item 10. Directors and Executive Officers of the Registrant

~~Table~~ The following table sets forth certain information concerning our directors and executive officers as of ~~Contents~~March 31, 2004:

On April 1, 2001, the 1997 Froelich Note came due and was not paid. We commenced an action in California state court to collect on the note. On October 18, 2001, the court granted summary adjudication and judgment was entered in our favor. On November 14, 2002, the California Court of Appeals affirmed the judgment. On or about March 14, 2003, Mr. Froelich satisfied the judgment in the net stipulated amount of $3,407,500 by paying $2,583,000 to MHP and by paying over $767,000 to the Sheriff pursuant to an attachment by Peter J. Ratican, as more fully set forth in “Note 3 — Commitments and Contingencies”. Offset against the judgment of $3,407,500 was $57,500 that Mr. Froelich agreed to accept in full settlement of his claim against the Company in connection with his benefits under our Supplemental Executive Retirement Plan. In connection with the settlement of this liability, we recognized $521,000 of investment income and a gain of $671,000 in connection with the settlement of Mr. Froelich's SERP benefits. See “Note 9 — Litigation and Management Settlement Charges”.


NAME	AGE		POSITION
Paul R. Dupee, Jr.		60	Chief Executive Officer and Chairman of the Board of Directors
George H. Bigelow		61	Director
John H. Gutfreund		74	Director
Simon J. Whitmey		57	Director
Alan D. Bloom		58	Senior Vice President, Secretary and General Counsel
Patricia A. Fitzpatrick		52	Treasurer
Joseph W. White		45	Vice President, Chief Financial Officer and Director

~~The~~Compliance ~~principal~~With ~~and~~Section 16(A) ~~accrued interest~~ of ~~notes~~The ~~receivable~~Securities ~~from~~Exchange ~~shareholders at~~Act ~~December 31, 2002 and 2001 have been reflected as a reduction~~ of ~~shareholders’~~ ~~equity.~~1934

~~Note~~ Based 6solely —upon ~~Income~~our ~~Taxes~~review of the Forms 3, 4 and 5 and amendments thereto furnished to us, we believe that there were no instances where our executive officers or directors failed to file all required reports on a timely basis.

~~The~~Meetings ~~provision~~and ~~(benefit) for~~Committees ~~income~~of ~~taxes~~the atBoard ~~December 31 consisted~~ of ~~the~~Directors ~~following:~~

		2002		2001		2000
		(Amounts in thousands)
Current:
	Federal	$	—	$	—	$	—
	State		—		—		7
			0		0		7
Deferred:
	Federal		—		—		15,300
	State		—		—		2,922
			0		0		18,222
Provision for income taxes		$	0	$	0	$	18,229

Our board of directors has two committees — the audit committee and the compensation committee.

The ~~federal~~Audit ~~and~~Committee ~~state~~consists ~~deferred~~of ~~tax~~three ~~liabilities~~independent ~~(assets)~~directors: Mr. ~~are~~Bigelow, Mr. Gutfreund ~~comprised~~and Mr. Whitmey. Mr. Whitmey is chairman of the Audit Committee. The audit committee met with our independent auditors and chief financial officer prior to the ~~following~~filing atof ~~December~~our Form 10-K annual report to review the 2003 audited financial statements. We have designated Mr. ~~31:~~Bigelow as our Audit Committee financial expert.

		2002			2001
		(Amounts in thousands)
Current deferred tax assets:
	Loss carryforwards	$	—		$	—
Noncurrent deferred tax assets:
	Loss carryforwards	$	(153,134	)	$	(153,654	)
	Depreciation		—			(1,001	)
	Other		(5,008	)		(9,098	)
	Gross deferred tax assets		(158,142	)		(163,753	)
	Deferred tax assets valuation allowance		158,142			163,753
	Deferred tax assets	$	0		$	0

The Compensation Committee, which is composed of Mr. Bigelow, Mr. Whitmey and Mr. Dupee, serves as the stock option committee for our stock option plans and approves any employment agreements with management and changes in compensation for our executive officers. The Compensation Committee did not grant any options or rights during 2003. Mr. Dupee is our Chief Executive Officer.

~~The~~Excluding ~~differences~~actions ~~between~~by ~~the~~unanimous ~~benefit~~written ~~for~~consent, ~~income~~during ~~taxes~~2003, at the ~~federal~~Board of ~~statutory~~Directors ~~rate~~held ofthree ~~34%~~meetings and ~~that~~the ~~shown~~Audit inCommittee ~~the~~held ~~Consolidated~~four ~~Statements~~meetings. ofOur ~~Operations~~Compensation ~~are~~Committee ~~summarized~~met asonce ~~follows~~in ~~for the years ended December 31:~~2003.

	2002			2001			2000
	(Amounts in thousands)
Tax benefit at statutory rate	$	(438	)	$	(5,052	)	$	(15,883	)
State income taxes		4			4			7
Anticipation of future benefit of NOLs		—			—			—
Change in deferred tax asset valuation allowance		—			—			18,222
Limitation on current-year tax benefit due to unrealized NOL carryforwards		434			5,048			15,883
Income tax provision	$	0		$	0		$	18,229

During 2003, all of our directors attended at least 75% of the meetings of the board and any committee of which they are members.

32Code of Ethics

~~Table~~ We have adopted a code of ~~Contents~~ethics. Individuals needing a copy of our code of ethics should write: Maxicare Health Plans, Inc., Code of Ethics, Attn: Patricia Fitzpatrick, 11231 South La Cienega Boulevard, Los Angeles, California, 90045.

~~At December 31, 2002, we had net operating loss carryforwards (“NOLs”) for~~32 ~~federal tax purposes expiring as follows (amounts are in millions):~~

Year of Expiration		NOL
2003		$	144.7
2004			80.7
2005			7.8
2006			2.2
2007			1.2
2012			30.1
2018			84.8
2019			5.9
2020			47.9
2021			36.2
2022			1.3
	Total NOL carryforwards	$	442.8

OnItem ~~December 5, 1990 (the “Effective Date”) the Company emerged from protection under Chapter~~ 11 ~~pursuant to our joint plan of reorganization, as modified (the “Reorganization Plan”)~~. ~~Upon~~Executive the Effective Date of the Reorganization Plan, we experienced a “change of ownership” pursuant to applicable provisions of the Internal Revenue Code (the “IRC”). As a result of the ownership change, our pre-change NOL carryforwards of approximately $325 million are subject to limitation under provisions of Section 382 of the IRC. From the Effective Date through December 31, 1995 we have recognized for financial statement reporting purposes an annual limitation for its NOLs of approximately $6.3 million per year. In 1996, we determined that our annual limitation for our pre-change NOLs is $9.2 million per year or an aggregate amount of $139 million over the carryover period. We also determined during 1996 that $182 million of additional limitation is available for income tax return purposes under other provisions of Section 382 of the IRC. Accordingly, we believe that approximately $321 million of the total pre-change NOLs of $325 million will be available for utilization for federal income tax return purposes over the carryover period. In the event the current limitation amount is not fully utilized, we are allowed to carryover such amount to subsequent years during the carryover period. From December 5, 1990 through December 31, 2002 we have utilized approximately $55 million of the pre-change NOLs for federal income tax return purposes. We are unable to quantify to what extent, if any, we may be able to fully utilize our remaining pre-change NOLs prior to their expiration. Should we experience a second “change of ownership”, the limitation under Section 382 of the IRC on NOLs would be recalculated. Compensation

WeShown ~~use~~below ~~the~~is ~~liability~~information ~~method~~concerning ofthe ~~accounting~~annual ~~for~~and ~~income~~long-term compensation ~~taxes~~for asservices ~~set forth~~ in ~~SFAS~~ ~~109,~~all ~~“Accounting~~capacities for ~~Income~~the ~~Taxes.”~~years ~~Under~~ended ~~this method~~December 31, ~~deferred taxes are~~ ~~determined~~2003, on2002 ~~the difference between the financial statement~~ and ~~tax~~2001, ~~bases~~ of ~~assets~~ ~~and~~(i) our ~~liabilities~~chief ~~using~~executive ~~the~~officer ~~enacted~~and ~~tax rates in effect in~~ (ii) the ~~years~~other infour ~~which~~most ~~the~~highly ~~differences~~compensated ~~are~~executive ~~expected~~officers tofor ~~reverse. Deferred tax assets are~~2003: ~~recognized and measured based on the likelihood of the related tax benefit in~~ ~~the future.~~

InSUMMARY ~~accordance~~COMPENSATION ~~with SFAS 109 we have reserved the full amount of the~~TABLE ~~deferred tax asset at December 31, 2002. Should we recognize any future~~ ~~benefits from a reduction of the valuation allowance, this will result in a~~ ~~reduction to our income tax expense.~~

Note 7 — Employee Benefit Plans


						LONG-TERM
						COMPENSATION
			ANNUAL COMPENSATION			STOCK
						OPTIONS	ALL OTHER
NAME AND PRINCIPAL POSITION	YEAR		SALARY		BONUS	AWARDS(#)	COMPENSATION
Paul R. Dupee		2003	$	—			$	32,250
Chief Executive Officer		2002	$	—			$	33,000
		2001	$	607,000			$	6,000
Alan D. Bloom		2003	$	255,000			$	6,000
Senior Vice President,		2002	$	265,000			$	6,000
Secretary and General Counsel		2001	$	245,000			$	6,000
Patricia A. Fitzpatrick, Treasurer		2003	$	165,000			$	—
		2002	$	165,000			$	—
		2001	$	142,000			$	—
Joseph W. White		2003	$	—			$	74,750
Vice President and		2002	$	179,000			$	26,000
Chief Financial Officer		2001	$	136,000			$	—

WeAnnual ~~previously~~salary ~~adopted~~for ~~the~~2003, ~~Maxicare~~2002 ~~Health~~and ~~Plans,~~2001 ~~Inc~~for Mr. Bloom ~~Savings~~and ~~Incentive~~Ms. Fitzpatrick ~~Plan~~includes ~~(the~~amounts ~~“Savings~~paid ~~Plan”).~~to ~~The~~them ~~Savings~~by ~~Plan~~Maxicare, isthe aCompany’s ~~defined~~California ~~contribution~~HMO, ~~401(k)~~and ~~profit~~Maxicare ~~sharing~~Life ~~plan~~and ~~covering~~Health ~~those~~Insurance ofCompany, ~~our employees who have satisfied certain eligibility requirements~~Inc. ~~The~~pursuant ~~primary~~to ~~eligibility~~formal ~~requirement is that an~~agreements ~~employee~~with ~~must~~each ~~have~~of ~~completed~~those ~~six~~entities. ~~months~~Annual ofsalary ~~eligible~~for ~~service~~Mr. White ~~The~~for ~~cost~~2002 ofand ~~the~~2001 ~~Savings~~includes ~~Plan~~amounts ispaid ~~shared~~to him by the ~~participants~~California HMO and ~~the~~Maxicare ~~Company.~~Life ~~Eligible~~and ~~employees~~Health ~~may~~Insurance ~~defer~~Company ~~from~~pursuant 1% to ~~15%~~formal ofagreements ~~base compensation on a before-tax basis in accordance~~ with ~~Section 401(k)~~each of ~~the IRC~~those entities. ~~The~~Substantially ~~Savings~~all ~~Plan~~compensation ~~calls~~ for usMr. Bloom toand ~~match~~Ms. Fitzpatrick upin to2003 3%and of2002 ~~total~~was ~~compensation,~~paid ~~not~~by ~~to exceed~~ the ~~employee’s~~California HMO ~~contribution.~~and ~~Our~~Maxicare ~~contributions~~Life ~~were~~and ~~approximately~~Health ~~$330,000~~Insurance ~~for the year ended December 31~~Company, ~~2000~~Inc. WeThe ~~made~~California noHMO ~~contributions~~is ~~for~~likely ~~the~~to ~~year~~continue ~~ended~~paying ~~December~~compensation to Ms. ~~31,~~Fitzpatrick ~~2002~~ and ~~2001~~Mr. Bloom ~~The~~through ~~Savings~~June 30, ~~Plan~~2004, ~~was~~although ~~terminated~~likely ~~effective~~at ~~February 28,~~reduced ~~2002~~rates.

33 Mr. Dupee earned no salary or bonus in 2003 or 2002, but was compensated as a director of the Company for the entire year. “All Other Compensation” earned by Mr. Dupee in 2003 and 2002 is comprised of director fees. All other compensation earned by Mr. Dupee in 2001 was a car allowance.

~~Table~~ “All ofOther ~~Contents~~Compensation” earned by Mr. Bloom is a car allowance.

WeEffective ~~previously adopted the Maxicare Health Plans~~August 9, ~~Inc~~2002 Mr. White ~~Supplemental Executive~~resigned ~~Retirement~~as ~~Plan~~a ~~(the~~full-time ~~“SERP”)~~employee ~~covering~~of ~~key executives as selected by~~ the ~~Board~~ Company. ~~Benefits~~On ~~are~~that ~~based~~date, onhe ~~years~~entered ofinto ~~service~~a ~~and~~consulting ~~average~~agreement ~~compensation~~with in the ~~last~~Company that ~~three~~calls ~~years~~for ofhim ~~employment.~~to Nobe ~~executives~~compensated ~~who~~for ~~joined~~his usservices ~~subsequent~~at ~~to January 1, 1997 are participants in~~ the ~~SERP.~~rate ~~Four~~ of ~~the~~$125 ~~five individuals~~per ~~currently~~hour, ~~eligible~~with ~~for~~a ~~participation~~minimum inweekly ~~the~~payment ~~SERP~~of ~~were~~$500. noCommencing ~~longer employed by us at December~~August 311, 2002 Mr. White ~~Compensation~~also ~~expense~~became ~~recognized~~eligible infor ~~connection~~compensation ~~with~~as ~~the SERP~~a ~~was~~director ~~$1,230,000~~of ~~for~~ the ~~year ended December 31, 2001~~Company. ~~No expense was~~“All ~~recognized~~Other inCompensation” ~~2002~~earned ~~and~~by ~~2000~~Mr. White ~~The SERP compensation expense recognized~~ in ~~2001 was~~2003 ~~the~~is ~~result~~comprised of aconsulting ~~valuation~~ fees of ~~our~~approximately ~~liability~~$42,500 ~~performed~~and byDirector afees ~~third~~of ~~party~~$32,250. ~~Our~~“All Other ~~liability~~Compensation” ~~under~~earned ~~the~~by ~~SERP at December~~Mr. ~~31,~~White in 2002 is ~~estimated~~comprised atof ~~$2.0 million~~consulting ~~and is~~fees ~~comprised~~ of approximately ~~long-term~~$12,000 and ~~short-term~~Director ~~portions~~fees of $14,000.

~~Note~~Option ~~8 — Impairment of Leased Assets~~Grants

~~During~~There ~~the~~were ~~first~~no ~~quarter~~stock ofoption ~~2002~~grants we determined that the termination of our business operations eliminated our need for certain leased equipment, principally high volume copying equipment, held under capital lease agreements. We have returned that equipment to the lessor and have recorded an impairment charge of approximately $1.0 million on our consolidated statements of operations in ~~March, 2002 to write off the entire net book value of these leased assets~~2003. ~~The liability associated with these leased assets remains on our~~ ~~consolidated balance sheets.~~

~~Note 9 — Litigation and Management Settlement Charges~~33

~~Note~~Option 10Exercises —and ~~Discontinued~~Fiscal ~~Operations~~Year-end Values

AsOfficers alisted ~~result~~in of the ~~rehabilitation~~Summary ofCompensation ~~the~~Table ~~Indiana~~exercised ~~HMO~~no ~~and~~options ~~Maxicare Life and~~in ~~Health Insurance Company, Inc~~2003., ~~and~~Shown ~~the~~below ~~bankruptcy~~is ofinformation ~~the~~with ~~California~~respect ~~HMO,~~to ~~we have~~unexercised ~~treated~~options ~~our HMO subsidiaries as discontinued operations. Accordingly, the~~to ~~operations~~purchase ofcommon ~~the~~stock ~~North~~held ~~and~~by ~~South~~those ~~Carolina~~officers ~~HMOs~~at ~~through their closures on September~~December ~~30, 1999 and March~~ 31, ~~1999, respectively; the Louisiana HMO through its sale date on August 1, 2000; the Indiana HMO and Maxicare Life and Health Insurance Company, Inc~~2003. ~~up to its rehabilitation date of May 4, 2001; and the~~ ~~California HMO up to its bankruptcy filing on May 25, 2001, are included in~~ ~~discontinued operations.~~

There are no results for discontinued operations for the year ended December 31, 2002. The operating results of the discontinued operations for the years ended December 31, 2001 and 2000 are summarized as follows:


	NUMBER OF UNEXERCISED				VALUE OF UNEXERCISED
	OPTIONS HELD AT				IN-THE-MONEY OPTIONS AT
	DECEMBER 31, 2003				DECEMBER 31, 2003(1)
NAME	EXERCISABLE		UNEXERCISABLE		EXERCISABLE		UNEXERCISABLE
Paul R. Dupee, Jr.		131,000		0	$	0	$	0
Alan D. Bloom		5,020		0	$	0	$	0
Patricia A. Fitzpatrick		3,020		0	$	0	$	0
Joseph W. White		20		0	$	0	$	0

		2001			2000
Revenues		$	237,243		$	731,888
Expenses			265,338			765,240
Loss from discontinued operations			(28,095	)		(33,352	)
Write-off of excess of rehabilitated and bankrupt subsidiaries’ liabilities over assets — Note 2			16,423			—
	Loss from discontinued operations	$	(11,672	)	$	(33,352	)

(1)

Based on the closing price on the Over the Counter Bulletin Board on December 31, 2003 of $.30 per share, none of the options were in-the-money.

InSupplemental ~~2000,~~Executive ~~expenses~~Retirement ~~include a $4.9 million charge for losses associated with~~Plan ~~certain of our capitated provider arrangements.~~

~~There~~The ~~were~~Maxicare noHealth ~~net~~Plans, ~~assets~~Inc. orSupplemental ~~liabilities~~Executive ofRetirement ~~discontinued~~Plan ~~operations~~is an unfunded retirement plan that covers key executives as ofdesignated by the Board. As of December 31, 2003, there were four participants in this plan, one of whom (Mr. Bloom) was employed by us as of that date. The normal retirement benefit is payable at age 65; however, the participant may elect to receive an early retirement benefit whereupon such benefit will be reduced by 1/240 for each month by which the distribution precedes the normal retirement date. In addition, the plan provides for a pre-retirement death benefit equal to 200% of the Participant’s average compensation. In January 2002, orthe ~~2001~~Company exercised its option under the plan to suspend payments until February 2003. In February 2003, the Company commenced payments to eligible participants. Of the officers named in the Summary Compensation Table, only Mr. Bloom is a participant in the Supplemental Executive Retirement Plan.

34Compensation of Directors

~~Table~~ During 2003, outside directors received compensation for their services as directors. These directors were, George H. Bigelow, John H. Gutfreund and Simon J. Whitmey. During 2003, Mr. Bigelow received $36,000; Mr. Whitmey received $36,000; and Mr. Gutfreund received $36,000. During 2004, the Company’s directors will receive cash compensation for their services in the amount of $30,000 ~~Contents~~per year, plus $750 per meeting attended. In addition, directors are entitled to reimbursement for all reasonable out-of-pocket expenses incurred in connection with their service as directors of the Company.

~~Quarterly~~ There ~~Results~~were no grants of ~~Operations~~stock ~~(Unaudited)~~options in 2003, 2002 or 2001. Previously, the outside directors have received options to purchase shares of common stock at an exercise price equal to the market price at the date of grant. Set forth below is a schedule of the options that have been granted to our present non-employee directors:

The following is a tabulation of the quarterly results of operations for the years ended December 31, 2002 and 2001.


	# OF			EXERCISE PRICE
DIRECTOR	OPTIONS		DATE OF GRANT	PER SHARE
George H. Bigelow		4,000	November 3, 2000	$	5.00
John H. Gutfreund		4,000	November 3, 2000	$	5.00
Simon J. Whitmey		4,000	November 3, 2000	$	5.00

		Three Months Ended,
		March 31			June 30			September 30			December 31
		(Amounts in thousands, except per share data)
2002
Revenues		$	110		$	88		$	110		$	529
Income (loss)			(1,245	)		(1,093	)		(142	)		1,202
Net income (loss) per common share(1):
	Basic	$	(.13	)	$	(.11	)	$	(.01	)	$	.12
	Diluted	$	(.13	)	$	(.11	)	$	(.01	)	$	.12
2001
Revenues		$	642		$	1,246		$	1,234		$	(93	)
Income (loss)			735			(2,615	)		(768	)		(607	)
Net income (loss) per common share(1):
	Basic	$	.08		$	(.27	)	$	(.08	)	$	(.06	)
	Diluted	$	.08		$	(.27	)	$	(.08	)	$	(.06	)

The options vest six months from the date of grant and expire ten years from the date of grant provided the director continues to serve as a director of the Company. In the event of termination of the directorship, such options expire one year from the date of such termination.

~~(1)~~Compensation ~~All~~Committee ~~share~~Interlocks and ~~per~~Insider ~~share amounts have been retroactively adjusted to reflect the one-for-five reverse split on our common stock completed on March 27, 2001.~~Participation

35 Paul R. Dupee, Jr., our chief executive officer, served as an ex-officio member of the compensation committee for 2003. Mr. Dupee did not participate in any decisions regarding his own compensation as an executive officer, which was determined by our board of directors, with Mr. Dupee not participating.

~~Table of Contents~~34

~~None~~Item 12. Security Ownership of Certain Beneficial Owners and Management

~~PART~~ The ~~III~~following table and discussion provides information as to the shares of common stock beneficially owned on March 31, 2004 by:

~~Items~~• 10each director; • our chief executive officer and our other executive officers as of March 31, 112004 who were officers on March 31, 122004; • each person owning of record or known by us, based on information provided to us by the persons named below, to own beneficially at least 5% of our common stock; and 130 • all officers and directors as a group.

~~The~~Beneficial ~~information~~ownership ~~called~~is ~~for~~determined byin ~~Item 10~~accordance ~~(Directors~~with ~~and~~the ~~Executive~~rules ~~Officers),~~of the ~~Item 11~~SEC. ~~(Executive~~These ~~Compensation),~~rules ~~Item 12~~generally ~~(Security~~attribute ~~Ownership~~beneficial ownership of ~~Certain~~securities to ~~Beneficial~~persons ~~Owners~~who ~~and~~possess ~~Management),~~sole ~~and~~or ~~Item 13~~shared ~~(Certain~~voting ~~Relationships~~power ~~and~~or investment power with ~~Related~~respect ~~Transactions)~~to isthose ~~incorporated~~securities ~~herein~~and byinclude ~~reference~~shares ~~from~~of ~~our~~common ~~definitive~~stock issuable upon ~~proxy~~the ~~statement~~exercise ~~for~~of ~~the~~stock ~~Annual~~options ~~Meeting~~or warrants that are immediately exercisable or exercisable within 60 days. Shares of ~~Shareholders~~common stock subject to beoptions currently ~~filed~~exercisable ~~with~~or ~~the~~exercisable within 60 days are deemed outstanding for ~~Securities~~computing ~~and~~the ~~Exchange~~percentage ~~Commission~~of ~~not~~the ~~later~~person ~~than~~holding ~~120 days~~these ~~after~~options but are not deemed outstanding for computing the ~~close~~percentage of any other person. Unless otherwise indicated, the ~~year~~persons ~~ended~~or ~~December 31~~entities identified in this table have sole voting and investment power with respect to all shares shown as beneficially owned by them, ~~2002~~subject to applicable community property laws.

~~Item 14.~~ Percentage ~~Exhibits,~~ownership ~~Financial~~calculations ~~Statement~~are ~~Schedules~~based on 9,991,926 ~~and~~shares outstanding ~~Reports~~as onof ~~Form~~March ~~8-K~~31, 2004. No person is known to us to beneficially own more than 5% of our Common Stock.

(a) 1. Financial Statements


NAME	SHARES		PERCENT
Paul R. Dupee, Jr.		281,020		2.8	%
Alan D. Bloom		5,020		*
John H. Gutfreund		54,000		*
George H. Bigelow		11,150		*
Simon J. Whitmey		7,000		*
Patricia A. Fitzpatrick		3,036		*
Joseph W. White		20		*
All Directors and Executive Officers as a group (7 individuals)		361,246		3.6	%

~~The~~* ~~following~~less ~~consolidated~~than ~~financial~~one ~~statements of Maxicare Health Plans, Inc. are included in this report in response to Item 8.~~ percent

~~Report~~The number of ~~Independent~~shares ~~Auditors~~owned —by ~~Ernst~~our &directors ~~Young~~and ~~LLP~~officers shown in the table include shares of common stock which are issuable upon the exercise of options and warrants that are exercisable on March 31, 2004 or will become exercisable within 60 days after that date. Set forth below is the number of shares issuable upon exercise of those options for those of our directors and officers named in the foregoing table and for all officers and directors as group.

Consolidated Balance Sheets — At December 31, 2002 and 2001


Paul Dupee			131,000
Alan Bloom			5,020
George Bigelow			4,000
John Gutfreund			4,000
Simon Whitmey			4,000
Patricia A. Fitzpatrick			3,020
Joseph W. White			20
All officers and directors as a group (7 individuals holding stock options)			151,060

~~Consolidated Statements of Operations — Years ended December 31, 2002, 2001~~35 ~~and 2000~~

~~Notes to Consolidated Financial Statements~~None.

2Item 14. ~~Financial~~Principal ~~Statement~~Accounting ~~Schedules~~Services and Fees

~~Schedule I~~ Ernst —& ~~Condensed~~Young, ~~Financial~~LLP ~~Information~~served ofas ~~Registrant~~our —independent ~~Condensed Balance~~accountants ~~Sheets~~during at2003 ~~December 31, 2002~~ and ~~2001, Condensed Statements of~~ ~~Operations~~2002. ~~and~~Fees ~~Condensed~~earned ~~Statements~~by ofErnst ~~Cash~~& ~~Flows~~Young LLP for ~~the~~ years ended December 31, ~~2002,~~2003 ~~2001~~ and 2002 ~~2000,~~were ~~Notes~~as ~~to Condensed Financial Information of~~follows: ~~Registrant~~

Schedule II — Valuation and Qualifying Accounts for the years ended December 31, 2002, 2001 and 2000


	December 31
	2003		2002
Audit Fees including our annual audit and review of our quarterly reports on Form 10-Q	$	67,200	$	107,500
Audit Related Fees including employee benefit plan audit and accounting consultations	$	18,000	$	15,000
Tax Fees		—		—
All Other Fees		—		—

~~All~~ The ~~other~~Audit ~~financial~~Committee ~~statement~~has ~~schedules~~considered ~~have~~the ~~been~~nature ~~omitted~~of ~~since~~ the ~~required~~services underlying ~~information~~these isfees ~~not~~and ~~present~~does or not ~~present~~consider inthem ~~amounts sufficient~~ to ~~require submission~~be ofincompatible ~~the~~with ~~schedule, or because~~ the ~~required information is included~~independent inaccountants’ ~~the consolidated financial statements or notes thereto~~independence.

~~(b) 1. Reports on Form 8-K~~36

~~(c)~~PART ~~1. Exhibits~~IV

2.1		Bankruptcy Court Stipulation. Incorporated by reference from the Company’s Report on Form 8-K dated June 8, 2001 in which this exhibit bore the same exhibit number.
3.1		Charter of Maxicare Health Plans, Inc., a Delaware corporation as amended through December 31, 2000. Incorporated by reference from the Company’s Registration Statement on Form 10, declared effective March 18, 1991, in which this exhibit bore the same exhibit number.

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)		1. Financial Statements

		The following consolidated financial statements of Maxicare Health Plans, Inc. are included in this report in response to Item 8.

		Report of Independent Accountants — Ernst & Young LLP

		Consolidated Balance Sheets — At December 31, 2003 and 2002

		Consolidated Statements of Operations — Years ended December 31, 2003, 2002 and 2001

		Consolidated Statements of Changes in Shareholders’ Equity — Years ended December 31, 2003, 2002 and 2001

		Consolidated Statements of Cash Flows — Years ended December 31, 2003, 2002 and 2001

~~Table~~Notes ofto ~~Contents~~Consolidated Financial Statements

3.2		Bylaws of Maxicare Health Plans, Inc. in effect at December 31, 2000. Incorporated by reference from the Company’s Annual Report on Form 10-K for the year ended December 31, 2000, in which this exhibit bore the same exhibit number.
4.2c		Second Amendment to Rights Agreement of Maxicare Health Plans, Inc., entered into by and between Maxicare Health Plans, Inc. and American Stock Transfer & Trust Company as of June 6, 2000. Incorporated by reference from the Company’s Registration Statement on Form S-2 (No. 333-4150) as previously filed with the Securities and Exchange Commission on July 14, 2000 in which this Exhibit bore the same exhibit number.
4.13		Rights Agreement, dated as of February 24, 1998, between Maxicare Health Plans, Inc. and American Stock Transfer & Trust Company, as Rights Agent, which includes, as Exhibit A thereto, the Certificate of Designation of Series B Preferred Stock of Maxicare Health Plans, Inc., as Exhibit B thereto, the Form of Right Certificate, Form of Assignment, and Form of Election to Purchase, and as Exhibit C thereto, the Summary of Rights Agreement. Incorporated by reference from the Company’s Report on Form 8-K dated February 24, 1998 in which this exhibit bore the same exhibit number.
4.13a		First Amendment to Rights Agreement of Maxicare Health Plans, Inc., entered into and between Maxicare Health Plans, Inc. and American Stock Transfer & Trust Company as of October 9, 1998. Incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1998 in which this exhibit bore the same exhibit number.
21		List of Subsidiaries. Incorporated by reference from the Company’s Annual Report on Form 10-K for the year ended December 31, 1993, in which this exhibit bore the same exhibit number.
23.1		Consent of Independent Auditors — Ernst & Young LLP.

2. Financial Statement Schedules

37Schedule I — Condensed Financial Information of Registrant — Condensed Balance Sheets at December 31, 2003 and 2002, Condensed Statements of Operations and Condensed Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001, Notes to Condensed Financial Information of Registrant

~~Table~~Schedule II of— ~~Contents~~Valuation and Qualifying Accounts for the years ended December 31, 2003, 2002 and 2001

~~SIGNATURES~~All other financial statement schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the required information is included in the consolidated financial statements or notes thereto.

Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

(b)		1. Reports on Form 8-K

		On December 9, 2003 we filed a Report on Form 8-K announcing the settlement of certain arbitration.

(c)		1. Exhibits

/s/PAUL R. DUPEE, JR. Paul R. Dupee, Jr. Chief Executive Officer

2.1		Bankruptcy Court Stipulation. Incorporated by reference from the Company’s Report on Form 8-K dated June 8, 2001 in which this exhibit bore the same exhibit number.

3.1		Charter of Maxicare Health Plans, Inc., a Delaware corporation as amended through December 31, 2000. Incorporated by reference from the Company’s Registration Statement on Form 10, declared effective March 18, 1991, in which this exhibit bore the same exhibit number.

3.2		Bylaws of Maxicare Health Plans, Inc. in effect at December 31, 2000. Incorporated by reference from the Company’s Annual Report on Form 10-K for the year ended December 31, 2000, in which this exhibit bore the same exhibit number.

4.2c		Second Amendment to Rights Agreement of Maxicare Health Plans, Inc., entered into by and between Maxicare Health Plans, Inc. and American Stock Transfer & Trust Company as of June 6, 2000. Incorporated by reference from the Company’s Registration Statement on Form S-2 (No. 333-4150) as previously filed with the Securities and Exchange Commission on July 14, 2000 in which this Exhibit bore the same exhibit number.

~~Date: April 10, 2003~~37

Signatures	Title	Date
4.13	Rights Agreement, dated as of February 24, 1998, between Maxicare Health Plans, Inc. and American Stock Transfer & Trust Company, as Rights Agent, which includes, as Exhibit A thereto, the Certificate of Designation of Series B Preferred Stock of Maxicare Health Plans, Inc., as Exhibit B thereto, the Form of Right Certificate, Form of Assignment, and Form of Election to Purchase, and as Exhibit C thereto, the Summary of Rights Agreement. Incorporated by reference from the Company’s Report on Form 8-K dated February 24, 1998 in which this exhibit bore the same exhibit number.
/s/ PAUL R. DUPEE, JR. Paul R. Dupee, Jr.	Chairman and Director Principal Executive Officer	April 10, 2003
4.13a	First Amendment to Rights Agreement of Maxicare Health Plans, Inc., entered into and between Maxicare Health Plans, Inc. and American Stock Transfer & Trust Company as of October 9, 1998. Incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1998 in which this exhibit bore the same exhibit number.
/s/ JOSEPH W. WHITE Joseph W. White	Chief Financial Officer and Director Principal Finance and Accounting Officer	April 10, 2003
14	Code of Ethics of Maxicare Health Plans, Inc.
/s/ GEORGE H. BIGELOW George H. Bigelow	Director	April 10, 2003
21	List of Subsidiaries. Incorporated by reference from the Company’s Annual Report on Form 10-K for the year ended December 31, 1993, in which this exhibit bore the same exhibit number.
/s/ JOHN H. GUTFREUND John H. Gutfreund	Director	April 10, 2003
23.1	Consent of Independent Accountants — Ernst & Young LLP.
/s/ SIMON J. WHITMEY Simon J. Whitmey	Director	April 10, 2003
31.1	Certificate of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certificate of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certificate of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

~~CERTIFICATION OF CHIEF EXECUTIVE AND FINANCIAL OFFICERS~~SIGNATURES

~~The~~Pursuant ~~undersigned~~to ~~chief executive officer and chief financial officer of~~ the ~~Registrant~~ ~~do hereby certify that this Quarterly Report on Form 10-Q fully complies with the~~ requirements of Section 13~~(a)~~ ~~or 15(d)~~ of the Securities Exchange Act of 1934, ~~as amended, and that~~ the ~~information~~Registrant ~~contained~~has induly caused this report ~~fairly presents,~~to inbe ~~all~~signed ~~material~~on ~~respects,~~its ~~the financial condition and results of~~behalf ~~operations~~by of the ~~Registrant~~undersigned, atthereunto ~~the~~duly ~~dates and for the periods shown in such report~~authorized.

April 10, 2003 Date		/s/ PAUL R. DUPEE, JR. Paul R. Dupee, Jr., Chief Executive Officer
April 10, 2003 Date		/s/ JOSEPH W. WHITE Joseph W. White Chief Financial Officer


		/s/PAUL R. DUPEE, JR.

		Paul R. Dupee, Jr.
		Chief Executive Officer

39Date: April 12, 2004

~~Table~~ Pursuant to the requirements of ~~Contents~~the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Paul R. Dupee, Jr. does hereby certify that he is the duly elected and incumbent chief executive officer and Joseph White does hereby certify that he is the duly elected and incumbent chief financial officer of Maxicare Health Plans, Inc. (the “issuer”) and each of them does hereby certify, with respect to the issuer’s Form 10-K for the year ended December 31, 2002 (the “report”) as follows:


Signatures	Title	Date
/s/ PAUL R. DUPEE, JR. Paul R. Dupee, Jr.	Chairman and Director Principal Executive Officer	April 12, 2004
/s/ JOSEPH W. WHITE Joseph W. White	Chief Financial Officer and Director Principal Finance and Accounting Officer	April 12, 2004
/s/ GEORGE H. BIGELOW George H. Bigelow	Director	April 12, 2004
/s/ JOHN H. GUTFREUND John H. Gutfreund	Director	April 12, 2004
/s/ SIMON J. WHITMEY Simon J. Whitmey	Director	April 12, 2004

1. He or she has reviewed the report; 2. Based on his or her knowledge, the report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the report; 3. Based on his or her knowledge, the financial statements, and other financial information included in the report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in the report; 4. He or she and the other certifying officers are responsible for establishing and maintaining disclosure controls and procedures, as defined in Rule 13a-14(c) of the Securities Exchange Act of 1934, as amended, for the issuer and have:39

5.MAXICARE HeHEALTH orPLANS, ~~she and the other certifying officers have disclosed to the issuer’s auditors and to the audit committee of the board of directors (or persons fulfilling the equivalent function):~~INC.

i.SCHEDULE ~~All~~I ~~significant~~— ~~deficiencies~~CONDENSED inFINANCIAL ~~the~~INFORMATION ~~design~~OF or operation of internal controls which could adversely affect the issuer’s ability to record, process, summarize and report financial data and have identified for the issuer’s auditors any material weaknesses in internal controls; and ii. Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal controls; andREGISTRANT

6.CONDENSED HeBALANCE or she and the other certifying officers have indicated in the report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of their most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.SHEETS

April 10, 2003 Date	/s/ PAUL R. DUPEE, JR. Paul R. Dupee, Jr., Chief Executive Officer
	December 31,
April 10, 2003 Date	/s/ JOSEPH W. WHITE Joseph W. White Chief Financial Officer
	2003			2002
	(Amounts In thousands)
Current Assets
Cash and cash equivalents	$	2,867		$	183
Other current assets		25			7
Total Current Assets		2,892			190
Investment in Subsidiaries		2,507			1,487
Total Assets	$	5,399		$	1,677
Current Liabilities
Amounts due to subsidiaries	$	48		$	55
Other current liabilities		6,870			9,138
Total Current Liabilities		6,918			9,193
Other Long-Term Liabilities		1,938			2,091
Total Liabilities		8,856			11,284
Commitments and Contingencies
Total Shareholders’ Equity		(3,457	)		(9,607	)
Total Liabilities and Shareholders’ Equity	$	5,399		$	1,677

40See notes to condensed financial information of registrant.

~~Table of Contents~~40

~~SCHEDULE~~MAXICARE IHEALTH —PLANS, ~~CONDENSED FINANCIAL INFORMATION OF REGISTRANT~~INC.

SCHEDULE I — CONDENSED ~~BALANCE~~FINANCIAL ~~SHEETS~~INFORMATION OF REGISTRANT

			December 31,
			2002			2001
			(Amounts In thousands)
Current Assets
	Cash and cash equivalents		$	183		$	78
	Other current assets			7			250
		Total Current Assets		190			328
Property and Equipment, Net				—			1,156
Investment in Subsidiaries				1,487			2,214
		Total Assets	$	1,677		$	3,698
Current Liabilities
	Amounts due to subsidiaries		$	55		$	80
	Other current liabilities			9,138			7,609
		Total Current Liabilities		9,193			7,689
Other Long-Term Liabilities				2,091			3,815
		Total Liabilities		11,284			11,504
Commitments and Contingencies
		Total Shareholders’ Equity		(9,607	)		(7,806	)
		Total Liabilities and Shareholders’ Equity	$	1,677		$	3,698

CONDENSED STATEMENTS OF OPERATIONS

See notes to condensed financial information of registrant.


	Years Ended December 31,
	2003		2002			2001
	(Amounts in thousands)
Revenues
Equity in earnings (losses) of subsidiaries	$	1,099	$	505		$	(13,446	)
Investment income		16		523			81
Other income		3,471		100			410

Total revenues		4,586		1,128			(12,955	)

Expenses
Salary, general and administrative expenses		1,769		1,041			1,268
Impairment of capital assets		—		1,036			—
Charges for litigation and management settlements		75		209			—
Depreciation and amortization		—		120			704

Total Expenses		1,844		2,406			1,972

Income (loss) from operations		2,742		(1,278	)		(14,927	)
Income tax provision		—		—			—

Net income (loss)	$	2,742	$	(1,278	)	$	(14,927	)

41See notes to condensed financial information of registrant.

~~Table of Contents~~41

~~SCHEDULE~~MAXICARE IHEALTH —PLANS, ~~CONDENSED FINANCIAL INFORMATION OF REGISTRANT~~INC.

SCHEDULE I — CONDENSED ~~STATEMENTS~~FINANCIAL INFORMATION OF ~~OPERATIONS~~REGISTRANT

			Years Ended December 31,
			2002			2001			2000
			(Amounts in thousands)
Revenues
	Equity in earnings (losses) of subsidiaries		$	505		$	(13,446	)	$	(33,365	)
	Service agreement income			—			—			11,599
	Investment income			523			81			384
	Other income (expense)			100			410			(51	)
		Total Revenues		1,128			(12,955	)		(21,433	)
Expenses
	Salary, general and administrative expenses			1,041			1,268			22,812
	Impairment of capital assets			1,036			—			—
	Charges for litigation and management settlements			209			—			1,510
	Depreciation and amortization			120			704			962
		Total Expenses		2,406			1,972			25,284
Loss from Operations				(1,278	)		(14,927	)		(46,717	)
Income Tax Benefit (Provision)				—			—			(18,229	)
Net Loss			$	(1,278	)	$	(14,927	)	$	(64,946	)

CONDENSED STATEMENTS OF CASH FLOWS

See notes to condensed financial information of registrant.


	Years Ended December 31,
	2003			2002			2001
	(Amounts in thousands)
Cash Flows from Operating Activities:
Net income (loss)	$	2,742		$	(1,278	)	$	(14,927	)
Adjustments to reconcile net income (loss) to net cash used for operating activities:
Depreciation and amortization		—			120			704
Impairment of capital assets		—			1,036			—
Charges for litigation and management settlements		75			209			—
Equity in (earnings) losses of subsidiaries		(1,099	)		(505	)		13,446
Changes in other assets and liabilities		(2,521	)		(186	)		(3,548	)

Net cash used for operating activities		(803	)		(604	)		(4,325	)

Cash Flows from Investing Activities:
Loans to shareholders		3,408			(521	)		—
Capital contributions to subsidiaries, net		(233	)		—			(500	)
Dividends received from subsidiaries		312			1,230			—

Net cash provided by (used for) investing activities		3,487			709			(500	)

Net increase (decrease) in cash and cash equivalents		2,684			105			(4,825	)
Cash and cash equivalents at beginning of year		183			78			4,903

Cash and cash equivalents at end of year	$	2,867		$	183		$	78

42See notes to condensed financial information of registrant.

~~Table of Contents~~42

~~SCHEDULE~~MAXICARE IHEALTH —PLANS, ~~CONDENSED FINANCIAL INFORMATION OF REGISTRANT~~INC.

SCHEDULE I — CONDENSED ~~STATEMENTS~~FINANCIAL INFORMATION OF ~~CASH FLOWS~~REGISTRANT

			Years Ended December 31,
			2002			2001			2000
			(Amounts in thousands)
Cash Flows from Operating Activities:
Net loss			$	(1,278	)	$	(14,927	)	$	(64,946	)
Adjustments to reconcile net loss to net cash used for operating activities:
	Depreciation and amortization			120			704			962
	Provision for (benefit from) deferred income taxes			—			—			18,229
	Impairment of leased assets			1,036			—			—
	Charges for litigation and management settlements			209			—			1,959
	Equity in (earnings) losses of subsidiaries			(505	)		13,446			33,365
	Changes in other assets and liabilities			(186	)		(3,548	)		2,448
		Net cash used for operating activities		(604	)		(4,325	)		(7,983	)
Cash Flows from Investing Activities:
	Proceeds from sales and maturities of marketable securities, net									(34	)
	Loans to shareholders			(521	)		—			—
	Capital contributions to subsidiaries, net			—			(500	)		(18,500	)
	Dividends received from subsidiaries			1,230			—			1,550
		Net cash provided by (used for) investing activities		709			(500	)		(16,984	)
Cash Flows from Financing Activities:
	Issuance of common stock			—			—			29,053
	Payments on capital lease obligations			—			—			—
Net cash provided by (used for) financing activities				0			0			29,053
Net increase (decrease) in cash and cash equivalents				105			(4,825	)		4,086
Cash and cash equivalents at beginning of year				78			4,903			817
Cash and cash equivalents at end of year			$	183		$	78		$	4,903
Supplemental disclosures of cash flow information:
	Cash paid during the year for — Interest								$	92

NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT

~~See~~Note ~~notes~~1 to— ~~condensed financial information of registrant.~~General

43 The condensed financial information of the registrant (“MHP”) should be read in conjunction with the consolidated financial statements and the notes to consolidated financial statements, which are included elsewhere herein.

~~Table~~Note of2 ~~Contents~~— Commitments and Contingencies

~~MAXICARE~~Litigation ~~HEALTH~~and ~~PLANS,~~Contract ~~INC.~~Terminations

~~SCHEDULE~~ On Ior —about ~~CONDENSED~~June 25, ~~FINANCIAL~~2001, ~~INFORMATION~~the OFCommissioner ~~REGISTRANT~~of the Indiana Department of Insurance (the “Commissioner”), as the rehabilitator of Maxicare Indiana, Inc., our Indiana HMO, filed a complaint (the “Complaint”) in the Marion County Circuit Court of Indiana against us and the five directors of the Indiana HMO, one of whom was a director of the Company. The Commissioner amended the Complaint on February 1, 2002. The Complaint, as amended, alleges, in substance, that: (1) the directors of the Indiana HMO breached their fiduciary duty by failing to maintain a plan providing for continuation of care benefits in the event that the Indiana HMO was placed in receivership, and that the Company is also liable for such failure; (2) the Company fraudulently concealed the financial condition of the Indiana HMO; (3) the Company manipulated the finances of the Indiana HMO for the Company’s own benefit; and (4) the Company received preferential and/or fraudulent transfers of money from the Indiana HMO. While the amended Complaint requests money damages in largely unspecified amounts, we understand the Commissioner’s claims against us to be in excess of $48.0 million. All defendants answered the amended Complaint on April 5, 2002. Pre-trial discovery has not been completed. We believe that the claims against us are without merit and intend to vigorously defend the suit. The amounts sought by the Commissioner are significantly in excess of liabilities recorded on our Consolidated Balance Sheets. The ultimate resolution of this matter, if unfavorable, could materially affect our consolidated financial position, results of operations and cash flows.

~~NOTES~~ Effective TOJanuary 1, ~~CONDENSED~~2001, ~~FINANCIAL~~we ~~INFORMATION~~entered OFinto ~~REGISTRANT~~a Pharmacy Benefits Management Agreement (the “PBM Agreement”) with Medimpact Healthcare Systems, Inc. (“Medimpact”). The PBM Agreement called for Medimpact to process and fill within its network of contracting pharmacies prescriptions for members of Maxicare Life and Health Insurance Company, Inc., the California HMO and the Indiana HMO. The PBM agreement called for the Company to reimburse Medimpact for the cost of drugs dispensed and to pay per transaction administrative fees on a bi-weekly basis. As a result of the Indiana HMO being placed in rehabilitation and the California HMO’s bankruptcy, Medimpact allegedly has not received reimbursement for certain prescriptions filled on behalf of the members of those subsidiaries. Although it has yet to do so, Medimpact may seek reimbursement from us for such costs in an amount not presently known. We, in turn, believe that we have claims against Medimpact for rebates due to us.

~~Note~~ By 1order —dated ~~General~~March 9, 2001, the Missouri Department of Insurance approved the transfer of all of the outstanding shares of Maxicare Life and Health Insurance Company, Inc. from the Company to Maxicare Indiana, Inc., on the condition that control of MLH remain with the Company. We believe that this condition has not been complied with and that, accordingly, the transfer of the MLH shares by us to Maxicare Indiana, Inc. is null and void. We intend to present our position to the Missouri Department of Insurance at the appropriate time.

The ~~condensed~~landlord ~~financial~~under ~~information~~the terms of ~~the~~a ~~registrant~~lease ~~(“MHP”)~~expiring ~~should~~in beMay 2004 for 79,000 ~~read~~square feet of industrial space in ~~conjunction~~Los ~~with~~Angeles ~~the~~claims ~~consolidated~~that ~~financial~~we ~~statements~~are ~~and~~obligated ~~the~~to surrender ~~notes~~that space in its original condition. We have previously made extensive modifications to the leased premises. The landlord claims that the ~~consolidated~~restoration ~~financial~~of ~~statements~~the ~~which~~space ~~are~~may ~~included~~cost ~~elsewhere~~$1.5 million. ~~herein~~We believe that the landlord’s claim is without merit.

~~Note~~ Six 2former —employees ~~Transactions~~of ~~with~~the ~~Subsidiaries~~Indiana HMO have made demand on us for the payment of approximately $400,000 in severance payments. We believe these claims are without merit.

~~MHP~~Other ~~operates~~than ~~under~~those anoted ~~decentralized~~above, ~~and~~no ~~segregated~~claims ~~cash~~have ~~management~~been ~~system.~~filed against us by the ~~Through~~creditors ~~December 31~~of Maxicare Life and Health Insurance Company, ~~2000~~Inc., the ~~operating~~California HMO ~~subsidiaries~~or ~~paid~~the ~~monthly~~Indiana ~~fees~~HMO. toHowever, ~~MHP pursuant~~such tocreditors ~~administrative~~may ~~services~~file ~~agreements~~claims against us in the future.

~~Note 3 — Commitments and Contingencies~~43

~~In the first quarter of 2002 we determined that the termination of our~~Leases ~~business operations eliminated our need for certain equipment held under~~ ~~capital lease agreements (principally high volume copying equipment). We have~~ ~~returned that equipment to the lessor and have removed the leased assets from~~ our balance sheet. The liability associated with these leased assets remains on our consolidated balance sheets. (Please see “Note 8 — Impairment of Leased Assets). Assets held under capital leases at December 31, 2001 of $1,156,000 (net of $1,306,000 of accumulated amortization) are comprised primarily of equipment leases. Amortization expense for capital leases is included in depreciation expense. Future minimum lease commitments for noncancelable leases at December 31, 2002 were as follows:

		Operating		Capitalized
		Leases		Leases
		(Amounts in thousands)
2003		$	336	$	1,033
2004			183		202
2005			—		96
2006			—		—
2007			—		—
	Total minimum obligations	$	519		1,331
Amount representing interest					(195	)
Less current obligations					(860	)
Long-term obligations				$	276

We have operating leases, some of which provide for initial free rent and all of which provide for subsequent rent increases. Rental expense is recognized on a straight-line basis and totaled $200,000, $100,000 and $800,000 for the years ended December 31, 2003, 2002 and 2001, respectively.

~~The~~In ~~California~~the ~~HMO~~first ~~and~~quarter ~~Maxicare~~of ~~Life~~2002 ~~and~~we ~~Health~~determined ~~Insurance~~that ~~Company,~~the ~~Inc. continue~~termination toof ~~contribute~~our business tooperations ~~the~~eliminated ~~payment~~our ofneed ~~the~~for ~~capital~~certain ~~and~~equipment ~~operating~~held ~~lease~~under ~~obligations~~capital oflease ~~MHP.~~agreements ~~Although~~(principally ~~there~~high ~~can~~volume becopying noequipment). ~~assurance~~We have returned that ~~such~~equipment ~~payments~~to ~~will continue,~~the ~~management~~lessor ~~believes~~and ithave ~~likely~~removed ~~that~~ the ~~California~~leased ~~HMO~~assets ~~and Maxicare~~from ~~Life~~our ~~and~~balance ~~Health~~sheet ~~Insurance~~via ~~Company,~~a ~~Inc~~$1.0 million ~~will~~impairment ~~together~~charge ~~contribute~~in ~~approximately $78~~March 2002,~~000~~ toThe estimated ~~the~~liability ~~payment~~associated ofwith ~~lease~~these ~~obligations~~leased inassets ~~2003.~~remains ~~Such~~on ~~payments~~our consolidated bybalance ~~the California~~sheets. ~~HMO~~Amortization ~~and~~expense ~~Maxicare~~for ~~Life~~capital ~~and~~leases ~~Health~~is included ~~Insurance~~in ~~Company,~~depreciation ~~Inc~~expense. ~~are unlikely~~Future tominimum ~~continue~~lease ~~after~~commitments ~~June~~for noncancelable leases at December 3031, 2003. were as follows:


	Operating		Capitalized
	Leases		Leases
	(Amounts in thousands)
2004	$	205	$	193
2005		29		96
2006		2		—
2007		—		—
2008		—		—

Total minimum obligations	$	236		289

Amount representing interest				(23	)
Less current obligations				(172	)

Long-term obligations			$	94

~~Table~~ The California HMO continues to contribute to the payment of ~~Contents~~the operating lease obligations of MHP. Although there can be no assurance that such payments will continue, management believes it likely that the California HMO will contribute approximately $49,000 to the payment of operating lease obligations in 2004. Such payments by the California HMO are unlikely to continue after May 31, 2004.

Note 43 — Disposition of Subsidiaries

On May 25, 2001, the California ~~Department of Managed Health Care issued an order appointing a conservator for the California~~ HMO. ~~Also on that date the California HMO~~ filed for Chapter 11 bankruptcy protection. ~~Effective~~On ~~June~~March 514, ~~2001,~~ ~~the~~2003 ~~California HMO and~~ the ~~California~~Bankruptcy ~~Department~~Court ofissued ~~Managed Health Care reached~~ an ~~agreement~~order ~~allowing~~ confirming the ~~California~~liquidating ~~HMO’s~~Plan ~~bankruptcy~~of ~~filing to remain in effect. Effective August 31, 2001,~~ the California HMO ~~terminated its Medicare product~~. Effective ~~November~~March 3024, ~~2001~~2003 the ~~California HMO completed the~~ ~~assignment~~effective control of ~~its~~this ~~Medi-Cal~~entity ~~contracts~~passed to ~~other~~a ~~health~~Board ~~care providers, effectively terminating the California HMO’s Medi-Cal line~~ of ~~business. Effective~~Directors ~~December 31, 2001, all commercial membership was transferred to other health plans, leaving the California HMO~~ with no80% ~~operations.~~of ~~On December 31, 2001 the California HMO surrendered~~ its ~~California HMO license. On February 26,~~ ~~2003~~membership ~~the~~selected ~~California~~by ~~HMO’s~~and ~~Liquidating~~representing ~~Plan of Reorganization was confirmed in~~ the ~~United States Bankruptcy Court~~creditors. We will not receive any distribution of assets from the California HMO.

The Indiana HMO is incorporated under the laws of the state of Indiana and is primarily regulated by the Indiana Department of Insurance. On May 4, 2001, the Indiana Department of Insurance placed the Indiana HMO into rehabilitation. The ~~effect of this action was to terminate the ongoing operations of the~~ Indiana HMO ~~as of that date. The Indiana HMO~~ was formally placed into liquidation on July 3, 2001. OnWe ~~that date the Indiana Commissioner of~~are ~~Insurance~~unlikely ~~was~~to ~~appointed as Liquidator. We will not~~ receive any distribution of assets from the Indiana HMO.

Maxicare Life and Health Insurance Company, Inc. is incorporated under the laws of the state of Missouri and is primarily regulated by the Missouri Department of Insurance. On ~~May~~March 249, 2001 we contributed the ~~Missouri~~capital ~~Department~~stock of ~~Insurance~~ ~~placed~~ Maxicare Life and Health Insurance Company, Inc. ~~under~~to ~~administrative supervision~~the Indian HMO. On May 24, 2001 the Missouri Department of Insurance placed Maxicare Life and Health Insurance Company, Inc. ~~ceased~~under ~~offering all~~administrative ~~products effective December 31, 2001, effectively ceasing all operations~~supervision. On January 28, 2002 the Missouri Department of Insurance placed Maxicare Life and Health Insurance Company, Inc. into rehabilitation. ItOn isMarch 4, ~~unlikely~~2003 ~~that~~the weBoard of Directors of ~~will~~Maxicare Life and Health Insurance Company, Inc. agreed to its liquidation. We may or may not receive any distribution of assets from Maxicare Life and Health ~~Insurance~~ Insurance Company, Inc.

As a result of these events, equity in earnings (loss) of subsidiaries include the ~~Indiana~~operating ~~HMO~~results ~~only~~of ~~through~~the ~~May 3,~~Indiana ~~2001.~~HMO ~~The~~and ~~financial results of~~ Maxicare Life and Health Insurance Company, ~~are~~Inc. ~~also included in the 2001 results~~ only through May 3, 2001, ~~due to the contribution of the capital stock of Maxicare Life~~ and ~~Health Insurance Company to~~ the ~~Indiana HMO effective December 31, 2000. The financial results of the~~ California HMO ~~are~~on ~~included in equity in earnings (loss) of subsidiaries~~ only through May 24, 2001.

Note 5 4 — ~~Impairment~~Charges offor ~~Leased~~Litigation ~~Assets~~and Management Settlements

~~During~~In ~~the~~March 2003, ~~first quarter of 2002 we determined that~~ the ~~termination~~TriZetto ofGroup, ~~our business~~Inc. ~~operations~~(“TriZetto”) ~~eliminated~~sued ~~our~~us ~~need~~in ~~for certain leased equipment,~~California ~~principally~~State ~~high volume copying equipment~~court, ~~held~~alleging ~~under capital lease agreements. We have returned~~ that ~~equipment~~we tobreached ~~the lessor and have recorded~~ an ~~impairment~~information ~~charge of approximately $1.0 million on our consolidated statements of~~ ~~operations in March, 2002 to write off the entire net book value of these~~ ~~leased assets. The liability associated with these leased assets remains on our consolidated balance sheets.~~

~~Note 6 — Management Settlement~~44

45services contract and claiming over $12,000,000 in damages, including over $1,000,000 in amounts due under the contract and $11,000,000 in termination fees. On or about June 30, 2003, this action was settled. Pursuant to the settlement agreement, we paid $1,250,000 to TriZetto, issued 250,000 shares of our common stock to TriZetto and returned to TriZetto certain warrants that TriZetto had issued to us. The action may be revived in certain circumstances in the event that a judgment is obtained against TriZetto by a third-party based on TriZetto’s receipt of the $1,250,000 settlement payment. We recorded a litigation and contract settlement charge of $250,000 in the second quarter of 2003 to record the amount by which the cash settlement paid TriZetto exceeded amounts previously accrued. We issued common shares to TriZetto on July 1, 2003, but no cost was recorded in the Consolidated Statements of Operations for the shares issued to TriZetto since the fair value of the shares was immaterial.

~~Table~~ Effective February 2, 2000, we entered into a Services Agreement for Back Office Administration with Nichols TXEN Corporation calling for Nichols TXEN to provided certain claims adjudication services to certain of ~~Contents~~our subsidiaries in exchange for a predetermined per member per month fee. Subsequently, CSC Healthcare Inc. (“CSC”), the successor in interest to Nichols TXEN, commenced an arbitration (the “Arbitration”) in Atlanta against us before the American Arbitration Association, claiming our breach of the parties’ Service Agreement for Back Office Administration and contract damages of approximately $1,300,000. On December 1, 2003, the Arbitration and a related case brought by CSC against us in Alabama State court were settled and all claims and counterclaims dismissed. Pursuant to such settlement, we paid CSC $300,000 and recognized a gain, reflected as negative litigation and management settlement charges, of $580,000 in the fourth quarter of 2003, for the difference between the liability previously accrued in connection with this matter and the ultimate settlement of $300,000.

~~MAXICARE~~ On ~~HEALTH~~or ~~PLANS~~about February 10, ~~INC~~2003, Peter J. Ratican, a shareholder and former executive officer and director of MHP, commenced an action against us in the Superior Court of the State of California, alleging that we had breached his consulting agreement with us and claiming damages. On March 11, 2003, Mr. Ratican obtained an attachment in the amount of $767,000 against us in connection with his claim. In February 2004, we entered into a Settlement Agreement and Mutual Release with Mr. Ratican under the terms of which we paid Mr. Ratican $550,000 in addition to the amount already attached. As a result of the Settlement Agreement and Mutual Release we recorded a litigation and management settlement charge of $405,000 in the fourth quarter of 2003 for the amount paid Mr. Ratican in excess of amounts previously accrued.

~~SCHEDULE~~ In II2002 we recognized a gain of $671,000 in connection with the settlement of a former executive’s claim under our Supplemental Executive Retirement Plan. This gain was recognized in conjunction with the collection of a note issued by the same executive. Please see “Note 5 — ~~VALUATION~~Notes ~~AND~~Receivable ~~QUALIFYING~~From ~~ACCOUNTS~~Shareholders” to our consolidated financial statements. Also in 2002 we recorded $880,000 in litigation and management settlement charges in connection with the previously discussed Services Agreement for Back Office Administration, which we had previously entered into for the benefit of our subsidiaries.

Column A	Column B		Column C			Column D			Column E
			Additions
	Balance at		Charged to		Charged to				Balance at
	Beginning		Costs and		Other Accounts	Deductions			End of
Description	of Period		Expenses		Describe	Describe			Period
					(Amounts in thousands)
For the Year Ended December 31, 2002
Allowance for doubtful accounts and retroactive billing adjustments	$	0				$			$	0
	$	0				$			$	0
For the Year Ended December 31, 2001
Allowance for doubtful accounts and retroactive billing adjustments	$	5,922				$	(5,922	)(1)	$	0
	$	5,922				$	(5,922	)	$	0
For the Year Ended December 31, 2000
Allowance for doubtful accounts and retroactive billing adjustments	$	1,892	$	4,030					$	5,922
	$	1,892	$	4,030					$	5,922

Position

Paul R. Dupee, Jr.

Chairman of the Board of Directors, Chief Executive Officer

Alan D. Bloom

Senior Vice President, Secretary and General Counsel

Patricia A Fitzpatrick

Joseph W. White

Chief Financial Officer, Director

46MAXICARE HEALTH PLANS, INC.

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS


Column A	Column B		Column C		Column D			Column E
			Additions
	Balance at		Charged to	Charged to				Balance at
	Beginning		Costs and	Other Accounts	Deductions			End of
Description	of Period		Expenses	Describe	Describe			Period
	(Amounts in thousands)
For the Year Ended December 31, 2003
Allowance for doubtful accounts and retroactive billing adjustments	$	0			$			$	0

	$	0			$			$	0

For the Year Ended December 31, 2002
Allowance for doubtful accounts and retroactive billing adjustments	$	0			$			$	0

	$	0			$			$	0

For the Year Ended December 31, 2001
Allowance for doubtful accounts and retroactive billing adjustments	$	5,922			$	(5,922	)(1)	$	0

	$	5,922			$	(5,922	)	$	0

(1)

Decrease in allowance, net of retroactive billing adjustment write-offs, is due to the deconsolidation of the Indiana HMO, Maxicare Life and Health Insurance Company, Inc. and the California HMO as a result of their placement into rehabilitation (the Indiana HMO and Maxicare Life and Health Insurance Company) or bankruptcy (the California HMO).

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