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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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Form 10-K



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

For the fiscal year ended December 31, 2002

or

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

Commission file number: 0-12024



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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.)

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

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 (1) has filed all reports
required to be filed by Section 13 or 15(d) of 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 o

Indicate by check mark if disclosure of delinquent filers pursuant toItem
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. x

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of April 10, 2003.

Common Stock, $.01 par value  $38,965

The number of shares outstanding of each of the issuers classes of capital
stock, as of April 10, 2003.

Common Stock, $.01 par value
 9,741,926 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 year.



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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                                          
|                                                           | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
|PART III                                                  
|                                                           | Items 10, 11, 12, and 13.                                                                    
|                                                           | Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                    
|SIGNATURES                                                
|CERTIFICATION OF CHIEF EXECUTIVE AND FINANCIAL OFFICERS   
|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                                              



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PART I




Item 1. Business

General

Since January 1, 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 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) 649-7166.

Disposition of Subsidiaries

Through our wholly-owned subsidiaries, we operated health maintenance
organizations (HMOs) in California (through May 25, 2001) and Indiana
(through May 3, 2001). Maxicare Life and Health Insurance Company, our licensed
insurance company, operated preferred provider organizations (PPOs) 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 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.

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 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
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.

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
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.

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Forward Looking Statements

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 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.

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:



| |  |  | We had a consolidated working capital deficiency of approximately $7.5 million.                                                                                                                                                                                                                                                                                                                                                                                              
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | We had a deficiency in shareholders equity of approximately $9.6 million.                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  |  | Only $183,000 of our cash and cash equivalents of $2.6 million was
immediately available to us; the remainder of our cash and cash
equivalents was held at subsidiaries where the transfer of cash to us
requires the approval of regulatory authorities, which we may not
receive. Subsequent to December 31, 2002, we were able to transfer
$100,000 from one of our subsidiaries to MHP.                                                                                  
|
| |  |  | We had no means of generating cash or working capital.                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  |  | We had substantial contingent liabilities, including a claim by the
Commissioner of the Indiana Department of Insurance seeking at least
$3.5 million in money damages, a claim under a management information
services agreement of up to $12.0 million, an undetermined liability in
connection with a building we lease that must be returned to its
original condition upon termination of the lease, and an undetermined
amount due under 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 we had no full-time employees. Certain employees of
our 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.

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Our Executive Officers

Our executive officers at March 31, 2003 were as follows:

|                       |  |     |    |          |  |                                                            
|---------------------- |  | --- | -- | -------- |  | -----------------------------------------------------------
|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                          

Paul R. Dupee, Jr.was appointed Chairman of the Board of Directors in
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.

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

Patricia A. Fitzpatrickhas 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. Whitehas 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 is a certified public
accountant.




Item 2.Properties

We lease space at three locations in California. All of these leases have
remaining terms of less than two years. 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, the California HMO and 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 Note

At April 1, 2001, a note held by MHP in the approximate amount of $2.9
million (including accrued interest) became due. The note, issued by Eugene
Froelich, 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 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 $3.41 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 Peter J. Ratican, as more fully set forth below. Offset
against the judgment of $3.41 million was $.06 million 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.

b. Indiana Department of Insurance

On or about June 25, 2001, the Commissioner of the Indiana Department of
Insurance (the Commissioner), as the rehabilitator of Maxicare Indiana, Inc.,
the Companys 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, 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

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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.

c. Derivative Action

On or about June 6, 2002, Mr. Froelich 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 and current officers and
directors. The complaint, which names the Company as a nominal 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 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.

d. Executive Retirement

On or about July 1, 2002, Mr. Froelich commenced an action in the Superior
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).

e. Consulting Agreement

On or about February 10, 2003, Peter J. Ratican, a shareholder and former
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.

f. Business Services Agreement

On September 1, 2000 the Company entered into an Application and Business
Services Agreement (the Trizetto Agreement) with the Trizetto Group, Inc.
(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.

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g. Office of Personnel Management

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.

h. Back Office Services Agreement

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), 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.

i. Other Litigation

We are also involved in other legal actions in the normal course of
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.

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Item 4.Submission of Matters to a Vote of Security Holders

No matter was submitted to a vote of security holders during the three
months ended December 31, 2002.

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PART II




Item 5.Market for the Registrants Common Stock and Related Shareholder Matters

(a)  Market Information

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

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.

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.

Common Stock

|               |  |            |      |     |  |   |      | 
|-------------- |  | ---------- | ---- | --- |  | - | ---- | 
|               |  | 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 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.

(b)  Holders

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

(c)  Dividends

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

(d)  Sales of Unregistered Equity Security

During 2002 we had no sales of unregistered equity securities.

(e)  Securities Authorized for Issuance Under Equity Compensation Plans

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

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Item 6.Selected Financial Data

|                                                         |                                                                                             |                |        |       |       |                                                             |         |                                  |       |      |         |         |        |   |         |         |        |   |         |         |        | 
|-------------------------------------------------------- | ------------------------------------------------------------------------------------------- | -------------- | ------ | ----- | ----- | ----------------------------------------------------------- | ------- | -------------------------------- | ----- | ---- | ------- | ------- | ------ | - | ------- | ------- | ------ | - | ------- | ------- | ------ | 
|                                                         |                                                                                             |                |        |       |       |                                                             |         | 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   |       
|                                                         |                                                                                             |                |        |       |       |                                                             |         |                                  |       |      |         |         |        |   |         |         |        |   |         |        

|                                         |  |      |        |      |  |      |        |      |  |                 |         |  |  |   |         |  |  |   |         | 
|---------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | ---- |  | --------------- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                                         |  |      |        |      |  |      |        |      |  | 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 | 

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NOTES TO SELECTED FINANCIAL DATA

The selected financial data should be read in conjunction with Item 7.
Managements Discussion and Analysis of Financial Condition and Results of
Operations and Item 8. Financial Statements and Supplementary Data.



|(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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

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

Current Status

We have no active business and no reasonable prospects of obtaining or
generating any active business

On December 31, 2001, we effectively ceased all operations. On that date,
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.

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.

Liquidity/ Working Capital Deficiency

As noted above, we have terminated all operations. At 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. Subsequent to December
31, 2002, we were able to transfer $100,000 from one of our subsidiaries to
MHP. We may not be able to transfer any more funds from our subsidiaries to
MHP. MHP has certain contractual undertakings for which it may be liable and
there are various alleged claims that may be asserted against it, including,
among others, undertakings to and/or purported claims against it by vendors and
former employees of its subsidiaries who have provided goods or services to
those subsidiaries.

At April 1, 2001, a note held by MHP in the approximate amount of $2.9
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 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. This action remains pending.

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.

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.

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##### Table of Contents



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 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.

On May 24, 2001 the Missouri Department of Insurance placed our
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.

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 unlikely that we will receive
any distribution of assets from the Indiana HMO.

As a result of these events, results for the year ended December 31, 2001
include the Indiana HMO only through May 3, 2001. The financial results of
Maxicare Life and Health Insurance Company are 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.

Discontinued Operations

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, Health Care Assurance Company, Ltd., and 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 treated as
continuing operations.

Results of Operations

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

We reported a net loss of $1.3 million ($.13 per share basic and diluted) 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).

12



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##### Table of Contents



Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

We reported a net loss of $3.3 million, or $.33 per share (basic and
diluted), from continuing operations for the year ended December 31, 2001. We
sustained a loss of $31.6 million, or $6.46 per share (basic and diluted), from
continuing operations for the year ended December 31, 2000. Year 2000 results
from continuing operations included an $18.2 million non-cash charge associated
with the write off of deferred tax assets.

Revenues from continuing operations decreased by $11.8 million in 2001
when compared to 2000 due to the assumption of MHPs inter-entity service
agreements by the California HMO effective January 1, 2001. Through 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. Prior to
the reclassification of our HMO activities as discontinued operations, the
service agreement income and related expense were eliminated in consolidation.
Salary, general and administrative expenses of continuing operations declined
from $23.1 million in 2000 to $5.0 million in 2001, principally due to
decreased salary costs as a result of the transfer of employees from MHP to the
California HMO ($5.1 million); reserves taken against certain prepaid items and
accounts receivable in 2000 ($4.0 million); and higher consulting costs in 2000
associated with various infrastructure enhancements ($5.9 million).

Results of discontinued operations for the year ended December 31, 2001
include 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 the date of
rehabilitation or bankruptcy. Loss from discontinued operations before
adjustment for this gain was $28.1 million in 2001 compared to $33.4 million in
2000. The accelerating losses from discontinued operations in 2001 (results for
2001 are only through May 3, 2001 for Indiana and Maxicare Life and Health
Insurance Company, Inc. and May 25, 2001 for California) stem from rapidly
deteriorating operating performance in the first quarter of 2001 and additional
claims liabilities of the Indiana HMO relating to dates of service prior to
December 31, 2000.

Forward Looking Information

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 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 statement to reflect events or
circumstances after the date of this Form 10-K.




Item 7a.Quantitative and Qualitative Disclosures About Market Risk

As of December 31, 2002, we had approximately $2.6 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.

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

13



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Item 8. Controls and Procedures

Our chief executive officer 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 forms. 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.

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##### Table of Contents






Item 8.Financial Statements and Supplementary Data

REPORT OF INDEPENDENT AUDITORS

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

We have audited 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
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the 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.

The accompanying 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.

|                                       |  |                  
|-------------------------------------- |  | -----------------
|                                       |  | ERNST & YOUNG LLP
|                                      
|                                       |  |                  
|                                      
|Los Angeles, California
March 14, 2003 |  |                  

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MAXICARE HEALTH PLANS, INC.

CONSOLIDATED BALANCE SHEETS

|                              |                                                                                              |                                                |       |                       |        |      |       |          |        |  
|----------------------------- | -------------------------------------------------------------------------------------------- | ---------------------------------------------- | ----- | --------------------- | ------ | ---- | ----- | -------- | ------ | -
|                              |                                                                                              |                                                |       | 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 notes to consolidated financial statements.

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MAXICARE HEALTH PLANS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                    |                                                                                         |                                                                                    |                |       |                          |       |                        |         |       |       |         |         |        |        | 
|--------------------------------------------------- | --------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------- | -------------- | ----- | ------------------------ | ----- | ---------------------- | ------- | ----- | ----- | ------- | ------- | ------ | ------ | 
|                                                    |                                                                                         |                                                                                    |                |       | 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 notes to consolidated financial statements.

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MAXICARE HEALTH PLANS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (DEFICIT)
(Amounts in thousands)

|                              |                                       |                                                                                              |       |           |       |        |    |         |    |            |         |         |        |             |        |               |      |   |          |         |   |   |     |             |    |   |        |         |         |  
|----------------------------- | ------------------------------------- | -------------------------------------------------------------------------------------------- | ----- | --------- | ----- | ------ | -- | ------- | -- | ---------- | ------- | ------- | ------ | ----------- | ------ | ------------- | ---- | - | -------- | ------- | - | - | --- | ----------- | -- | - | ------ | ------- | ------- | -
|                              |                                       |                                                                                              |       |           |       |        |    |         |    |            |         |         |        |             |        |               |      |   |          |         |   |   |     | 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 | )      
|                              |                                       |                                                                                              |       |           |       |        |    |         |    |            |         |         |        |             |        |               |      |   |          |         |   |   |     |             |    |   |        |        

See notes to consolidated financial statements.

18



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##### Table of Contents



MAXICARE HEALTH PLANS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                             |                                                                                                     |                                                                                                 |                                        |       |                          |      |         |         |        |         |         |        |        |         |  
|---------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------- | -------------------------------------- | ----- | ------------------------ | ---- | ------- | ------- | ------ | ------- | ------- | ------ | ------ | ------- | -
|                                                                             |                                                                                                     |                                                                                                 |                                        |       | 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 | )      |         |         |        |       
|                                                                             |                                                                                                     |                                                                                                 |                                        |       |                          |      |         |         |        |         |         |       

See notes to consolidated financial statements.

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MAXICARE HEALTH PLANS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002

Note 1  Business Description

Maxicare Health Plans, Inc., a Delaware corporation (MHP), is a holding
company that owns various subsidiaries, primarily in the field of managed care.
As of January 1, 2002 substantially all operations of MHP and its subsidiaries
were terminated. Additionally, as of December 31, 2002 we were operating with a
substantial capital deficiency (see Liquidity below).

We operated an HMO 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 California Department of Managed
Health Care reached an agreement allowing the California HMOs bankruptcy
filing to remain in effect. 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.

We operated an HMO in Indiana (the Indiana HMO) prior to May 4, 2001. 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 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 Life and Health Insurance Company, the indemnity provider that
had underwritten the preferred provider organization (PPO), point of service
(POS) and life insurance products offered by both our Indiana (PPO only) and
California HMOs, is incorporated under the laws of the state of Missouri and is
primarily regulated by the Missouri Department of Insurance. 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
from the Company to Maxicare Indiana, Inc., on the condition that control of
Maxicare Life and Health Insurance Company LH remain with the Company. 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. The effect of these actions was to terminate the ongoing operations
of Maxicare Life and Health Insurance Company, Inc. as of December 31, 2001.
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.

We also own and operate Health Care Assurance Company, Ltd., a captive
insurer that provided certain insurance coverage to MHP and its subsidiaries.
Effective January 31, 2002 Health Care Assurance Company, Ltd., ceased
providing all such insurance. 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.

Reverse Stock Split

On March 27, 2001, we effected a one-for-five reverse split of 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.

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Liquidity and Going Concern

At 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.

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 Note 3  Commitments and Contingencies.

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.

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.

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.

Note 2  Significant Accounting Policies

Basis of Consolidation and Gain on Disposition of Subsidiaries

The accompanying consolidated financial statements include the accounts of
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 significant intercompany balances and transactions have been
eliminated.

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Discontinued Operations

The placement of the Indiana HMO (to which MHP had contributed the capital
stock of Maxicare Life and Health Insurance Company, Inc.) into rehabilitation
on May 4, 2001 and the bankruptcy filing of the 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 and Maxicare Life and Health
Insurance Company, Inc. as discontinued operations in the preparation of these
financial statements (see Note 10  Discontinued Operations). Although our
remaining operations (parent, Health Care Assurance Company, Ltd., and the AIM
program) are insignificant in size, financially dependent upon the California
and Indiana HMOs, and also either terminated or likely to be terminated, they
represent services not intrinsically linked to the managed care industry and
have been treated as continuing operations.

Use of Estimates

The preparation of 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.

Cash and Cash Equivalents

We 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.

Cash and cash equivalents consist of the following at December 31:

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

Investments

Realized gains and losses and unrealized gains and losses judged to be
other than temporary with respect to available-for-sale and held-to-maturity
securities are included in the determination of net income. The cost of
securities sold is based on the specific identification method. Fair values of
marketable securities are based on published or quoted market prices.

We have designated our marketable securities included in current assets as
available-for-sale. Such securities have been recorded at fair value, and
unrealized holding gains and losses, net of related tax effects, are reported
as accumulated other comprehensive income (loss) in the Consolidated Statements
of Changes in Shareholders Equity until realized.

We had no sales of investments during 2002. During 2001, in response to a
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.

We had no investments at December 31, 2002. Investments at December 31,
2001 were comprised of U.S. Government obligations with a carrying value of
$304,000 and fair value of $306,000 (gross unrealized gains and losses are
immaterial).

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Furniture and Equipment

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 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 Current Liabilities

Other current liabilities include estimated liabilities related to
litigation and contract termination costs and lease obligations (see Note 3 
Commitments and Contingencies).

Revenue Recognition

Premiums are recorded as revenue in the month for which enrollees are
entitled to health care services. Premiums collected in advance are deferred. A
portion of premiums is subject to possible retroactive adjustment. Provision
has been made for estimated retroactive adjustments to the extent the probable
outcome of such adjustments can be determined. Other revenues are recognized as
services are rendered.

Reinsurance Ceded

Health Care Assurance Company, Ltd., provided excess of loss health care
reinsurance coverage to the California HMO through November 30, 2001 (the date
the California HMOs Medi-Cal contracts were assigned to other providers) for
the costs of medical services provided to Medi-Cal enrollees in California.
From January 1, 1996 through April 30, 2001 Maxicare Life and Health Insurance
Company, Inc. assumed 90% of the claims risk pursuant to this 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 | 
|                |              |  |      |   |      |   |                           |  |  |   |        |       |  |   |        |      

Reinsurance ceded contracts do not relieve the Health Care Assurance
Company, Ltd., from its obligations to policyholders. Health Care Assurance
Company, Ltd., remains liable to its policyholders for the portion reinsured to
the extent that Maxicare Life and Health Insurance Company, Inc. does not meet
the obligations assumed under the reinsurance agreements. 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 Care Expense Recognition

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

Insurance

Effective 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.

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Premium Deficiencies

Estimated future health care costs and maintenance expenses under a group
of contracts in excess of estimated future premiums and reinsurance recoveries
on those contracts are recorded as a loss when determinable. No premium
deficiencies existed at December 31, 2002 and 2001.

Stock Based Compensation

At December 31, 2002 we had several stock-based employee compensation
plans as described in Note 4. We account for these plans under the recognition
and measurement principles (the intrinsic-value method) prescribed in
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued
to Employees, and related interpretations. Compensation cost for stock options
is reflected in net income and is measured as the excess of the market price of
the Companys stock at the date of grant over the amount an employee must pay
to acquire the stock. SFAS No. 123, Accounting for Stock-Based Compensation,
established accounting and disclosure requirements using a fair-value-based
method of accounting for stock-based employee compensation plans.

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

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

|                                                                                            |                     |   |                          |      |      |   |        |      |   |   |         |       |  
|------------------------------------------------------------------------------------------- | ------------------- | - | ------------------------ | ---- | ---- | - | ------ | ---- | - | - | ------- | ----- | -
|                                                                                            |                     |   | 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 | )

The fair value for the options was estimated at the date of grant using a
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.

The 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.

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##### Table of Contents



Net Income Per Common Share

Basic earnings per share are computed by dividing net income (loss)
available to common shareholders by the weighted average number of shares of
common stock outstanding. Diluted earnings per share is computed by dividing
net income (loss) by the weighted average number of shares of common stock
outstanding, after giving effect to stock options with an exercise price less
than the average market price for the period. The following is a reconciliation
of the numerators and denominators used in the calculation of basic and diluted
earnings per share for each period presented in the financial statements:

|                                                                                                 |  |                          |        |      |  |      |         |   |  |   |         |  
|------------------------------------------------------------------------------------------------ |  | ------------------------ | ------ | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                                                 |  | 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   | )
|                                                                                                 |  |                          |        |      |  |      |         |   |  |   |         |  

Stock options are excluded from the calculation of diluted loss per share
for 2002, 2001 and 2000 because the inclusion of stock options would have an
anti-dilutive effect.

Restrictions on Fund Transfers

All of the Companys consolidated subsidiaries that maintain cash and
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.

Through 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.

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Concentrations of Credit Risk

Financial instruments that potentially subject us to concentrations of
credit risk consist primarily of investments in marketable securities. Our
investments in marketable securities are managed by internal investment
managers within the guidelines established by the board of directors, which, as
a matter of policy, limit the amounts that may be invested in any one issuer.
As of December 31, 2002, we believe that we had no significant concentrations
of credit risk.

Other Income

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.

New Accounting Pronouncements

In 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 the Effects of Disposal of a Segment of a
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.

In June 2002, SFAS No. 146, Accounting for Costs Associated with Exit or
Disposal Activities, which requires that a liability for a cost associated with
an exit or disposal activity be recognized when the liability is incurred, was
issued. This statement nullifies Emerging Issues Task Force Issue No, 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring),
which requires that a liability for an exit cost be recognized upon the
entitys commitment to an exit plan. SFAS No. 146 is effective for exit or
disposal activities that are initiated after December 31, 2002. The adoption
pf the provisions of SFAS No. 146 is not expected to have a material impact on
the Companys results of operations, financial position or cash flows.

Note 3  Commitments and Contingencies

Litigation and Contract Terminations

On or about June 25, 2001, the Commissioner of the Indiana Department of
Insurance (the Commissioner), as the rehabilitator of Maxicare Indiana, Inc.,
the Companys 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, 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. 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.

On or about June 6, 2002, Eugene Froelich, a shareholder and former
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
26Table of Contents

and current officers and directors. The complaint, which names the Company
as a nominal 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 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.

On or about July 1, 2002, Mr. Froelich commenced an action in the Superior
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 expired.

On or about February 10, 2003, Peter J. Ratican, a shareholder and former
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.

On September 1, 2000, the Company entered into an Application and Business
Services Agreement (the Trizetto Agreement) with the Trizetto Group, Inc.
(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
Contract 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.

Effective January 1, 2001, the Company entered into 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 the Company for 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.

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), 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.

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 from the Company to Maxicare Indiana, Inc., on the
condition that control of MLH remain with the Company. The Company believes
that this condition has not been complied with and that, accordingly, the
transfer of
27Table of Contents

the 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.

Under the terms of a lease expiring in May 2004 for 79,000 square feet of
industrial space in Los Angeles, we are obligated to surrender that space in
its original condition. We have previously made extensive modifications to the
leased premises. The ultimate cost of any required repairs and renovations, if
any, cannot be determined.

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

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.

We are also involved in other legal actions in the normal course of
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,
TZG, Medimpact and the renovation of leased space, may have such effect.

Leases

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 with rental expense of $.1 million, $.8
million and $2.5 million reported for the years ended December 31, 2002, 2001
and 2000, respectively.

In the first quarter of 2002 we determined that the termination of our
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   |      
|                             |                           |   |                        |     |             |   |       |      

The California HMO and Maxicare Life and Health Insurance Company, Inc.
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.

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Note 4  Capital Stock

We are 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 Convertible Cumulative Preferred Stock, consisting of
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.

At December 31, 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); 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.

Restrictions on Transfers of Common Stock

On September 14, 2000 our shareholders approved an amendment to our
certificate of incorporation that would prohibit transfer of our stock, unless
approved by the Board, to the extent the transfer would (i) cause the 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 interest of the transferee or
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

On February 24, 1998, our Board of Directors (the Board) adopted a
Shareholder Rights Plan (the Rights Plan) designed to assure that in the
event of an unsolicited or hostile attempt to acquire the Company, the Board
would have the opportunity to consider and implement a course of action which
would best maximize shareholder value. Additionally, on February 24, 1998, the
Board declared a dividend distribution of one preferred share purchase right (a
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.

Each Right entitled the holder thereof to purchase 1/500(th) of a share of
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.

The 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.

In order to further protect our tax loss carryforward, from the impact of
an ownership change, the Board on June 6, 2000 voted to amend the Rights Plan
to provide that the exercisability of the Share Purchase Rights is triggered in
the event any party acquires 5% or more of our Common Stock or any party which
currently holds 5% or more of the Common Stock acquires additional shares,
without the approval of the Board.

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##### Table of Contents



Rights Offering

On September 15, 2000 we initiated a Rights Offering and the subscription
period extended through October 6, 2000. Upon the completion of the
subscription period, we accepted subscriptions (including over-subscriptions)
for the purchase of approximately 21.9 million shares of Common Stock (before
giving effect to the subsequent one-for-five reverse stock split) at $1.00 per
share. Accordingly, we issued the shares to the subscribing shareholders and
received gross proceeds of approximately $21.9 million.

Private Placement

On 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. In June 2000, we issued 160,000 shares of our common
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 Option Plans

In December 1990, we approved the 1990 Stock Option Plan (the 1990
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.

In 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.

In July 1996, we approved the Senior Executives 1996 Stock Option Plan
(the Senior Executives Plan). Under the terms of the Senior Executives Plan,
we were authorized to issue up to an aggregate of 700,000 nonqualified 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 individually the Senior Executive). On the date the Senior
Executives Plan was adopted, each Senior Executive received a grant of stock
options to purchase 70,000 shares of Common Stock (before giving effect to the
subsequent one-for-five reverse stock split). Commencing January 1, 1997, and
each January 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 70,000 shares of Common Stock (before giving effect to the subsequent
one-for-five reverse stock split). Mr. Froelichs continuing participation in
the Senior Executives Plan ceased when his employment with us was terminated in
December 1997. Mr. Raticans continuing participation in the Senior Executives
Plan ceased when his employment with us terminated effective June 30, 1999.
Options granted under the Senior Executives Plan are at an exercise price equal
to the fair market value of the stock at the date of grant, vest immediately
and expire 10 years from the date of grant. No options have been granted under
the Senior Executives Plan subsequent to January 1999.

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##### Table of Contents



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

|                              |                         |  |         |      |                |   |           |       |                |  |         |      |                |   |       |       |  |  |           |      |   |   |       |       | 
|----------------------------- | ----------------------- |  | ------- | ---- | -------------- | - | --------- | ----- | -------------- |  | ------- | ---- | -------------- | - | ----- | ----- |  |  | --------- | ---- | - | - | ----- | ----- | 
|                              |                         |  | 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 | 



---

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

The following table summarizes information about stock options outstanding
at December 31, 2002:

|                         |  |                     |     |                  |  |                  |    |          |  |                  |        |  |  |                     |     |  |  |   |        | 
|------------------------ |  | ------------------- | --- | ---------------- |  | ---------------- | -- | -------- |  | ---------------- | ------ |  |  | ------------------- | --- |  |  | - | ------ | 
|                         |  |                     |     |                  |  |                  |    |          |  |                  |        |  |  | 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  | 
|                         |  |                     |     |                  |  |                  |    |          |  |                  |        |  |  |                     |     |  |  |   |        | 

Restricted Stock

On February 27, 1995 the Board approved Restricted Stock Grant Agreements
awarding 13,000 shares of Restricted Stock each to Mr. Ratican and Mr. Froelich
(individually the Executive). Mr. Froelichs Restricted Stock vested upon the
termination of his employment with us on December 11, 1997. Mr. Raticans
Restricted Stock vested on February 27, 1998 upon the expiration of the
three-year vesting period.

Note 5  Notes Receivable from Shareholders

On 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.

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 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



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##### Table of Contents



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.

The principal and accrued interest of notes receivable from shareholders
at December 31, 2002 and 2001 have been reflected as a reduction of
shareholders equity.

Note 6  Income Taxes

The provision (benefit) for income taxes at December 31 consisted of the
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 |       
|                           |         |   |                        |   |      |   |      |   |  |   |        |       

The federal and state deferred tax liabilities (assets) are comprised of
the following at December 31:

|                                |                                         |  |                        |          |      |  |   |          |  
|------------------------------- | --------------------------------------- |  | ---------------------- | -------- | ---- |  | - | -------- | -
|                                |                                         |  | 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 differences between the benefit for income taxes at the federal
statutory rate of 34% and that shown in the Consolidated Statements of
Operations are summarized as follows for the years ended December 31:

|                                                                           |  |                        |      |      |  |      |        |   |  |   |         |  
|-------------------------------------------------------------------------- |  | ---------------------- | ---- | ---- |  | ---- | ------ | - |  | - | ------- | -
|                                                                           |  | 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  |  
|                                                                           |  |                        |      |      |  |      |        |   |  |   |         |  

32



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At December 31, 2002, we had net operating loss carryforwards (NOLs) for
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 | 
|                   |                         |     |       |      

On 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 $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.

We use the liability method of accounting for income taxes as set forth in
SFAS 109, Accounting for Income Taxes. Under this method, deferred taxes are
determined on the difference between the financial statement and tax bases of
assets and liabilities using the enacted tax rates in effect in the years in
which the differences are expected to reverse. Deferred tax assets are
recognized and measured based on the likelihood of the related tax benefit in
the future.

In accordance with SFAS 109 we have reserved the full amount of the
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

We 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 those of our employees who have satisfied certain
eligibility requirements. The primary eligibility requirement is that an
employee must have completed six months of eligible service. The cost of the
Savings Plan is shared by the participants and the Company. 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. Our contributions were approximately $330,000 for the year ended
December 31, 2000. We made no contributions for the year ended December 31,
2002 and 2001. The Savings Plan was terminated effective February 28, 2002.

33



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We previously adopted the Maxicare Health Plans, Inc. Supplemental
Executive Retirement Plan (the SERP) covering key executives as selected by
the Board. Benefits are based on years of service and average compensation in
the last three years of employment. No executives who joined us subsequent to
January 1, 1997 are participants in the SERP. Four of the five individuals
currently eligible for participation in the SERP were no longer employed by us
at December 31, 2002. Compensation expense recognized in connection with the
SERP was $1,230,000 for the year ended December 31, 2001. No expense was
recognized in 2002 and 2000. The SERP compensation expense recognized in 2001
was the result of a valuation of our liability performed by a third party. Our
liability under the SERP at December 31, 2002 is estimated at $2.0 million and
is comprised of long-term and short-term portions.

Note 8   Impairment of Leased Assets

During the first quarter of 2002 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. The liability associated with these leased assets remains on our
consolidated balance sheets.

Note 9  Litigation and Management Settlement Charges

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 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.

Note 10  Discontinued Operations

As a result of the rehabilitation of the Indiana HMO and Maxicare Life and
Health Insurance Company, Inc., and the bankruptcy of the California HMO, we
have treated our HMO subsidiaries as discontinued operations. Accordingly, the
operations of the North and South Carolina HMOs through their closures on
September 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. 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:

|                                                                                                 |                                   |   |         |         |      |   |         |         |  
|------------------------------------------------------------------------------------------------ | --------------------------------- | - | ------- | ------- | ---- | - | ------- | ------- | -
|                                                                                                 |                                   |   | 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 | )
|                                                                                                 |                                   |   |         |         |      |   |         |        

In 2000, expenses include a $4.9 million charge for losses associated with
certain of our capitated provider arrangements.

There were no net assets or liabilities of discontinued operations as of
December 31, 2002 or 2001.

34



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##### Table of Contents



Quarterly Results of Operations (Unaudited)

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

|                                       |         |   |                                               |      |         |   |              |      |             |   |       |      |   |   |       |      |  
|-------------------------------------- | ------- | - | --------------------------------------------- | ---- | ------- | - | ------------ | ---- | ----------- | - | ----- | ---- | - | - | ----- | ---- | -
|                                       |         |   | 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 | )



---

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

35



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##### Table of Contents






Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

None.




PART III




Items 10, 11, 12, and 13.

The information called for by Item 10 (Directors and Executive Officers),
Item 11 (Executive Compensation), Item 12 (Security Ownership of Certain
Beneficial Owners and Management), and Item 13 (Certain Relationships and
Related Transactions) is incorporated herein by reference from our definitive
proxy statement for the Annual Meeting of Shareholders to be filed with the
Securities and Exchange Commission not later than 120 days after the close of
the year ended December 31, 2002.




Item 14.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 Auditors  Ernst & Young LLP

Consolidated Balance Sheets  At December 31, 2002 and 2001

Consolidated Statements of Operations  Years ended December 31, 2002, 2001
and 2000

Consolidated Statements of Changes in Shareholders Equity  Years ended
December 31, 2002, 2001 and 2000

Consolidated Statements of Cash Flows  Years ended December 31, 2002, 2001
and 2000

Notes to Consolidated Financial Statements



|2. |  | Financial Statement Schedules
|-- |  | -----------------------------

Schedule I  Condensed Financial Information of Registrant  Condensed
Balance Sheets at December 31, 2002 and 2001, Condensed Statements of
Operations and Condensed Statements of Cash Flows for the years ended
December 31, 2002, 2001 and 2000, Notes to Condensed Financial Information of
Registrant

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

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.



|(b) |  | 1. Reports on Form 8-K
|--- |  | ----------------------

None.



|(c) |  | 1. Exhibits
|--- |  | -----------

|    |  |                                                                                                                                                                                                                                                                            
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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.

36



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##### Table of Contents



|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

37



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##### Table of Contents






SIGNATURES

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.

|                                                                
|----------------------------------------------------------------
|/s/PAUL R. DUPEE, JR.

Paul R. Dupee, Jr.Chief Executive Officer

Date: April 10, 2003

Pursuant 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.

|                                         |  |                                                                               |  |               
|---------------------------------------- |  | ----------------------------------------------------------------------------- |  | --------------
|Signatures                               |  | Title                                                                         |  | Date          
|                                         |  |                                                                               |  |               
|/s/ PAUL R. DUPEE, JR.Paul R. Dupee, Jr. |  | Chairman and Director
Principal Executive Officer                             |  | April 10, 2003
|                                        
|/s/ JOSEPH W. WHITEJoseph W. White       |  | Chief Financial Officer
and Director
Principal Finance and
Accounting Officer |  | April 10, 2003
|                                        
|/s/ GEORGE H. BIGELOWGeorge H. Bigelow   |  | Director                                                                      |  | April 10, 2003
|                                        
|/s/ JOHN H. GUTFREUNDJohn H. Gutfreund   |  | Director                                                                      |  | April 10, 2003
|                                        
|/s/ SIMON J. WHITMEYSimon J. Whitmey     |  | Director                                                                      |  | April 10, 2003

38



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##### Table of Contents






CERTIFICATION OF CHIEF EXECUTIVE AND FINANCIAL OFFICERS

The undersigned 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 Act
of 1934, as amended, and that the information contained in this report fairly
presents, in all material respects, the financial condition and results of
operations of the Registrant at the dates and for the periods shown in such
report.

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

39



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##### Table of Contents





| |  |  | 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:
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|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:                                                                               



| | i.   |  | 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 Date                                                                                                                       



|5. |  | He or 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):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | i.  |  | All significant deficiencies in the design 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;
and                                                                                                                                    



|6. |  | He 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.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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MAXICARE HEALTH PLANS, INC.




SCHEDULE I  CONDENSED FINANCIAL INFORMATION OF REGISTRANT

CONDENSED BALANCE SHEETS

|                              |                             |                                            |       |                        |        |      |       |       |        |  
|----------------------------- | --------------------------- | ------------------------------------------ | ----- | ---------------------- | ------ | ---- | ----- | ----- | ------ | -
|                              |                             |                                            |       | 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  |  
|                              |                             |                                            |       |                        |        |      |       |      

See notes to condensed financial information of registrant.

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MAXICARE HEALTH PLANS, INC.




SCHEDULE I  CONDENSED FINANCIAL INFORMATION OF REGISTRANT

CONDENSED STATEMENTS OF OPERATIONS

|                               |                                                   |                |        |                          |       |      |         |         |         |   |         |         |         |  
|------------------------------ | ------------------------------------------------- | -------------- | ------ | ------------------------ | ----- | ---- | ------- | ------- | ------- | - | ------- | ------- | ------- | -
|                               |                                                   |                |        | 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 | )      
|                               |                                                   |                |        |                          |       |      |         |         |         |   |         |         |        

See notes to condensed financial information of registrant.

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MAXICARE HEALTH PLANS, INC.




SCHEDULE I  CONDENSED FINANCIAL INFORMATION OF REGISTRANT

CONDENSED STATEMENTS OF CASH FLOWS

|                                                                             |                                                                  |                                                      |        |                          |      |      |         |        |        |   |         |         |         |  
|---------------------------------------------------------------------------- | ---------------------------------------------------------------- | ---------------------------------------------------- | ------ | ------------------------ | ---- | ---- | ------- | ------ | ------ | - | ------- | ------- | ------- | -
|                                                                             |                                                                  |                                                      |        | 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      |        

See notes to condensed financial information of registrant.

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MAXICARE HEALTH PLANS, INC.




SCHEDULE I  CONDENSED FINANCIAL INFORMATION OF REGISTRANT

NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT

Note 1  General

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.

Note 2  Transactions with Subsidiaries

MHP operates under a decentralized and segregated cash management system.
Through December 31, 2000, the operating subsidiaries paid monthly fees to MHP
pursuant to administrative services agreements.

Note 3  Commitments and Contingencies

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 with rental expense of $.1 million, $.8
million and $2.5 million reported for the years ended December 31, 2002, 2001
and 2000, respectively.

In the first quarter of 2002 we determined that the termination of our
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   |      
|                             |                           |   |                        |     |             |   |       |      

The California HMO and Maxicare Life and Health Insurance Company, Inc.
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 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.

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Note 4  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 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. 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. 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 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
and Health Insurance Company, Inc. into rehabilitation. It is unlikely that we
will receive any distribution of assets from Maxicare Life and Health Insurance
Company.

As a result of these events, equity in earnings (loss) of subsidiaries
include the Indiana HMO only through May 3, 2001. The financial results of
Maxicare Life and Health Insurance Company are 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 included in
equity in earnings (loss) of subsidiaries only through May 24, 2001.

Note 5   Impairment of Leased Assets

During the first quarter of 2002 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. The liability associated with these leased assets remains on our
consolidated balance sheets.

Note 6   Management Settlement

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.
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.

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MAXICARE 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, 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 | 
|                                                                    |  |            |       |            |  |                |       |            |  |                        |  |            |  |   |        |      |  |   |       | 



---

|(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 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).
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

46