##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




---

Form 10-K



---

|           |  |                                                                                    
|---------- |  | -----------------------------------------------------------------------------------
|(Mark One) |  |                                                                                    
|þ          |  | ANNUAL REPORT UNDER SECTION 13 OR
	15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934   
|          
|           |  | For the fiscal year ended December 31,
	2001                                       
|          
|or        
|          
|o          |  | TRANSITION REPORT UNDER SECTION 13 OR 15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 0-12024



---

Maxicare Health Plans, Inc.

(Exact name of registrant as specified in its
charter)


|                                                                                              |  |                                   
|--------------------------------------------------------------------------------------------- |  | ----------------------------------
|Delaware                                                                                      |  | 95-3615709                        
|(State or other jurisdiction of
	incorporation or organization)                               |  | (IRS Employer
	Identification No.)
|                                                                                             
|1149 South Broadway Street, Los Angeles,
	California(Address of principal executive
	offices) |  | 90015(Zip Code)                   

Registrants telephone number, including
area code: (213) 765-2000

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 þ          No o

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 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.     þ

The aggregate market value of the voting stock
held by non-affiliates of the registrant as of April 8,
2001.

Common Stock, $.01 par value  $97,419

The number of shares outstanding of each of the
issuers classes of capital stock, as of April 12,
2002.

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 2002 Annual Meeting of Stockholders to be filed within
120 days of the close of the registrants fiscal year.



---






---

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 Stockholder Matters             
|                                                                             | Item 6. 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. 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                                                                  
|MAXICARE HEALTH PLANS, INC. SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
|EXHIBIT 23.1                                                                



---



##### Table of Contents






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.
Through our wholly-owned subsidiaries, we operated health
maintenance organizations (HMOs) in California
(through December 31, 2001) and Indiana (through
May 4, 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 4, 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. At December 31, 2001 we had a substantial
capital deficiency.

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
with the California Department of Managed Health Care-appointed
conservator relinquishing that position in order to act as
Examiner of the Debtor (the Examiner). The agreement
calls for any disputes between the California HMO and the
Examiner to be resolved in Bankruptcy Court. 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.

The Indiana HMO owns Maxicare Life and Health
Insurance Company, Inc., the indemnity provider that had
underwritten our preferred provider organization
(PPO), point of service (POS) and life
insurance products. The Indiana HMO is incorporated under the
laws of the state of Indiana and is primarily regulated by the
Indiana Department of Insurance. 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 4, 2001, the Indiana
Department of Insurance placed the Indiana HMO into
rehabilitation. 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. On January 28, 2002 the Missouri
Department of Insurance placed Maxicare Life and Health
Insurance Company, Inc. into rehabilitation. The effect of these
actions was to terminate the ongoing operations of the Indiana
HMO and Maxicare Life and Health Insurance Company, Inc. as of
May 4, 2001 and December 31, 2001, respectively.

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 1,
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.

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 stockholders.

We are a Delaware Corporation, organized on
January 5, 1981. Our executive offices are located at
1149 South Broadway Street, Los Angeles, California 90015,
and our telephone number is (213) 765-2000. On May 3,
2002 our executive offices will be located at 11321 La
Cienega Boulevard, Los Angeles, California 90045.

1



---



##### Table of Contents



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 economics 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, 2001:



| |   |                                                                                                                                                                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We had a consolidated working capital deficiency
	of approximately $5.1 million.                                                                                                                                                                                                                                                                                  
|
| |  | We had a deficiency in stockholders equity
	of approximately $7.8 million.                                                                                                                                                                                                                                                                                       
|
| |  | Only $78,000 of our cash and marketable
	securities of $3.7 million was immediately available to us;
	the remainder of our cash was held at subsidiaries where the
	transfer of cash to us requires the approval of regulatory
	authorities, which we are not likely to receive.                                                                                  
|
| |  | We had no means of generating cash or working
	capital.                                                                                                                                                                                                                                                                                                           
|
| |  | 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 potential
	claim under a management services agreement of up to
	$15.0 million, a potential claim by a former executive, 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 stockholders.



| |                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 which 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
stockholders to sell any common stock they may own.

Employees

As of March 31, 2002 we employed
approximately seventy employees. None of our employees are
represented by a labor union or covered by a collective
bargaining arrangement. We believe our employee relations are
good.

2



---



##### Table of Contents



Our Executive Officers

Our executive officers at March 31, 2002
were as follows:

|                        |  |     |    |          |  |                                                             
|----------------------- |  | --- | -- | -------- |  | ------------------------------------------------------------
|Name                    |  | Age |    | Position
|                        |  |     |    |         
|Paul R. Dupee, Jr.      |  |     | 58 |          |  | Chairman of the Board of Directors, Chief
	Executive Officer
|Alan D. Bloom           |  |     | 56 |          |  | Senior Vice President, Secretary and General
	Counsel       
|Patricia A. Fitzpatrick |  |     | 50 |          |  | Treasurer                                                   
|Joseph W. White         |  |     | 43 |          |  | 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 four locations in California.
These leases have remaining terms of up to three years. Our
leased properties include administrative locations for our
California HMO and corporate facilities. Our executive offices
are located in an 83,000 square foot facility at
1149 South Broadway, Los Angeles, California pursuant to a
lease expiring in May 2002. Under the terms of this lease, we
pay a monthly base rental of approximately $81,000, plus a
percentage of operating costs and annual increases.




Item 3.     Legal
Proceedings

a.     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 MHP and the five directors of the Indiana
HMO, one of whom was a director of MHP. The Commissioner amended
the Complaint on February 1, 2002. The Complaint, as
amended, alleges, in substance, that: (1) the directors
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 further alleging
on various grounds that MHP is also liable for such failure;
(2) MHP fraudulently concealed the financial condition of
the Indiana HMO; (3) MHP manipulated the finances of the
Indiana HMO for MHPs own benefit; and (4) MHP
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. No formal
pre-trial discovery has yet been taken. MHP believes that the
claims against it are without merit and intends to vigorously
defend the suit.

3



---



##### Table of Contents



b.     Other
Litigation

We are also involved in legal actions in the
normal course of business, including cases in which the
plaintiffs assert claims against the Company or third parties
assert breach of contract, indemnity or contribution claims
against the Company for malpractice, negligence, bad faith in
the failure to pay claims on a timely basis or denial of
coverage, seeking compensatory, fraud and, in certain instances,
punitive damages in an indeterminate amount which may be
material and are not covered by insurance and/or seeking other
forms of equitable relief. We do not believe that the ultimate
determination of these cases will either individually or in the
aggregate have a material, adverse effect on our business or
operations. However, our evaluation of the likely impact of
these actions could change in the future and an unfavorable
outcome, depending on the amount and timing, could have a
material effect on our business and operations in future period.




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, 2001.




PART II




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

(a) Market Information

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

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
|               |  |            |       |    
|2000           |  |            |       |     |  |   |      | 
|First Quarter  |  | $          | 18.75 |     |  | $ | 8.75 | 
|Second Quarter |  | $          | 10.65 |     |  | $ | 3.75 | 
|Third Quarter  |  | $          | 15.00 |     |  | $ | 5.00 | 
|Fourth Quarter |  | $          | 6.70  |     |  | $ | 2.50 | 
|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
stockholders to sell any common stock they may own.

(b) Holders

There were 869 holders of record of our Common
Stock as of December 31, 2001.

4



---



##### Table of Contents



(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 2001 we had no sales of unregistered
equity securities.

5



---



##### Table of Contents








|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

|                                                     |                                                                                             |                                                             |         |         |       |      |         |         |        |      |         |         |        |   |         |         |        |   |         |         |        | 
|---------------------------------------------------- | ------------------------------------------------------------------------------------------- | ----------------------------------------------------------- | ------- | ------- | ----- | ---- | ------- | ------- | ------ | ---- | ------- | ------- | ------ | - | ------- | ------- | ------ | - | ------- | ------- | ------ | 
|                                                     |                                                                                             |                                                            
|                                                     |                                                                                             | For the Years Ended December 31,                           
|                                                     |                                                                                             |                                                            
|                                                     |                                                                                             | 2001                                                        |         | 2000    |       | 1999 |         | 1998    |        | 1997
|                                                     |                                                                                             |                                                             |         |         |       |      |         |         |        |     
|                                                     |                                                                                             |                                                            
|                                                     |                                                                                             | (Amounts in thousands except per share and membership data)
|Continuing operations(1):                            |                                                                                             |                                                             |         |         |       |      |         |         |        |      |         |         |        |   |         |         |        |   |         |        
|Revenues                                             |                                                                                             |                                                             |         |         |       |      |         |         |        |      |         |         |        |   |         |         |        |   |         |        
|                                                     | Premiums                                                                                    |                                                             | $       | 1,819   |       |      | $       | 2,343   |        |      | $       | 1,928   |        |   | $       | 1,798   |        |   | $       | 1,478   |       
|                                                     | Investment income                                                                           |                                                             |         | 239     |       |      |         | 529     |        |      |         | 288     |        |   |         | 888     |        |   |         | 2,661   |       
|                                                     | Inter-company service agreement income                                                      |                                                             |         |         |       |      |         | 11,599  |        |      |         | 13,035  |        |   |         | 11,848  |        |   |         | 10,854  |       
|                                                     | Other income                                                                                |                                                             |         | 971     |       |      |         | 398     |        |      |         | 4,103   |        |   |         | 1,734   |        |   |         | 2,394   |       
|                                                     |                                                                                             |                                                             |         |         |       |      |         |         |        |      |         |         |        |   |         |         |        |   |         |        
|                                                     |                                                                                             | Total revenues                                              |         |         | 3,029 |      |         |         | 14,869 |      |         |         | 19,354 |   |         |         | 16,268 |   |         |         | 17,387 | 
|                                                     |                                                                                             |                                                             |         |         |       |      |         |         |        |      |         |         |        |   |         |         |        |   |         |        
|Expenses                                             |                                                                                             |                                                             |         |         |       |      |         |         |        |      |         |         |        |   |         |         |        |   |         |        
|                                                     | Health care expenses                                                                        |                                                             |         | 582     |       |      |         | 2,615   |        |      |         | 866     |        |   |         | 521     |        |   |         | 193     |       
|                                                     | Salary, general and administrative expenses                                                 |                                                             |         | 4,998   |       |      |         | 23,147  |        |      |         | 13,339  |        |   |         | 16,822  |        |   |         | 12,312  |       
|                                                     | Depreciation and amortization                                                               |                                                             |         | 704     |       |      |         | 962     |        |      |         | 916     |        |   |         | 548     |        |   |         | 566     |       
|                                                     | Charges for litigation and management
	settlements(2)                                       |                                                             |         |         |       |      |         | 1,510   |        |      |         | 5,500   |        |   |         | 250     |        |   |         | 9,000   |       
|                                                     |                                                                                             |                                                             |         |         |       |      |         |         |        |      |         |         |        |   |         |         |        |   |         |        
|                                                     |                                                                                             | Total expenses                                              |         |         | 6,284 |      |         |         | 28,234 |      |         |         | 20,621 |   |         |         | 18,141 |   |         |         | 22,071 | 
|                                                     |                                                                                             |                                                             |         |         |       |      |         |         |        |      |         |         |        |   |         |         |        |   |         |        
|Loss from continuing operations before income
	taxes |                                                                                             |                                                             | (3,255  | )       |       |      | (13,365 | )       |        |      | (1,267  | )       |        |   | (1,873  | )       |        |   | (4,684  | )      
|Income tax benefit (provision)                       |                                                                                             |                                                             |         |         |       |      | (18,229 | )       |        |      |         |         |        |   |         |         |        |   |         |        
|                                                     |                                                                                             |                                                             |         |         |       |      |         |         |        |      |         |         |        |   |         |         |        |   |         |        
|Net loss from continuing operations(3)               |                                                                                             |                                                             | (3,255  | )       |       |      | (31,594 | )       |        |      | (1,267  | )       |        |   | (1,873  | )       |        |   | (4,684  | )      
|                                                     |                                                                                             |                                                             |         |         |       |      |         |         |        |      |         |         |        |   |         |         |        |   |         |        
|Discontinued operations:                             |                                                                                             |                                                             |         |         |       |      |         |         |        |      |         |         |        |   |         |         |        |   |         |        
|                                                     | Loss from discontinued operations                                                           |                                                             |         | (28,095 | )     |      |         | (33,352 | )      |      |         | (10,997 | )      |   |         | (25,660 | )      |   |         | (20,397 | )     
|                                                     | Write-off of excess of rehabilitated and bankrupt
	subsidiaries liabilities over assets(4) |                                                             |         | 16,423  |       |      |         |         |        |      |         |         |        |   |         |         |        |   |         |         |       
|                                                     |                                                                                             |                                                             |         |         |       |      |         |         |        |      |         |         |        |   |         |         |        |   |         |        
|Loss from discontinued operations                    |                                                                                             |                                                             | (11,672 | )       |       |      | (33,352 | )       |        |      | (10,997 | )       |        |   | (25,660 | )       |        |   | (20,397 | )      
|                                                     |                                                                                             |                                                             |         |         |       |      |         |         |        |      |         |         |        |   |         |         |        |   |         |        
|Net Loss                                             |                                                                                             | $                                                           | (14,927 | )       |       | $    | (64,946 | )       |        | $    | (12,264 | )       |        | $ | (27,533 | )       |        | $ | (25,081 | )      
|                                                     |                                                                                             |                                                             |         |         |       |      |         |         |        |      |         |         |        |   |         |         |        |   |         |        
|Net loss per common share:                           |                                                                                             |                                                             |         |         |       |      |         |         |        |      |         |         |        |   |         |         |        |   |         |        
|Basic:(5)                                            |                                                                                             |                                                             |         |         |       |      |         |         |        |      |         |         |        |   |         |         |        |   |         |        
|                                                     | Basic loss per common share from continuing
	operations                                     |                                                             | $       | (.33    | )     |      | $       | (6.46   | )      |      | $       | (.35    | )      |   | $       | (.52    | )      |   | $       | (1.31   | )     
|                                                     |                                                                                             |                                                             |         |         |       |      |         |         |        |      |         |         |        |   |         |         |        |   |         |        
|                                                     | Basic loss per common share from discontinued
	operations                                   |                                                             | $       | (1.20   | )     |      | $       | (6.81   | )      |      | $       | (3.07   | )      |   | $       | (7.16   | )      |   | $       | (5.70   | )     
|                                                     |                                                                                             |                                                             |         |         |       |      |         |         |        |      |         |         |        |   |         |         |        |   |         |        
|                                                     | Weighted average number of common shares
	outstanding                                       |                                                             |         | 9,742   |       |      |         | 4,894   |        |      |         | 3,585   |        |   |         | 3,586   |        |   |         | 3,579   |       
|                                                     |                                                                                             |                                                             |         |         |       |      |         |         |        |      |         |         |        |   |         |         |        |   |         |        
|Diluted:(5)                                          |                                                                                             |                                                             |         |         |       |      |         |         |        |      |         |         |        |   |         |         |        |   |         |        
|                                                     | Diluted loss per common share from continuing
	operations                                   |                                                             | $       | (.33    | )     |      | $       | (6.46   | )      |      | $       | (.35    | )      |   | $       | (.52    | )      |   | $       | (1.31   | )     
|                                                     |                                                                                             |                                                             |         |         |       |      |         |         |        |      |         |         |        |   |         |         |        |   |         |        
|                                                     | Diluted loss per common share from discontinued
	operations                                 |                                                             | $       | (1.20   | )     |      | $       | (6.81   | )      |      | $       | (3.07   | )      |   | $       | (7.16   | )      |   | $       | (5.70   | )     
|                                                     |                                                                                             |                                                             |         |         |       |      |         |         |        |      |         |         |        |   |         |         |        |   |         |        
|                                                     | Weighted average number of common and common
	dilutive potential shares outstanding         |                                                             |         | 9,742   |       |      |         | 4,894   |        |      |         | 3,585   |        |   |         | 3,586   |        |   |         | 3,579   |       
|                                                     |                                                                                             |                                                             |         |         |       |      |         |         |        |      |         |         |        |   |         |         |        |   |         |        

6



---



##### Table of Contents



|                                         |  |                 |        |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|---------------------------------------- |  | --------------- | ------ | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                                         |  |                
|                                         |  | At December 31,
|                                         |  |                
|                                         |  | 2001            |        | 2000 |  | 1999 |         | 1998 |  | 1997
|                                         |  |                 |        |      |  |      |         |      |  |     
|Balance Sheet Data:                      |  |                 |        |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|Assets of continuing operations          |  | $               | 5,136  |      |  | $    | 13,198  |      |  | $    | 29,151  |  |  | $ | 32,181  |  |  | $ | 42,710  | 
|Indebtedness of continuing operations(6) |  | $               | 12,942 |      |  | $    | 17,099  |      |  | $    | 19,931  |  |  | $ | 10,557  |  |  | $ | 9,353   | 
|Net assets of discontinued operations(1) |  | $               |        |      |  | $    | 11,042  |      |  | $    | 33,936  |  |  | $ | 31,332  |  |  | $ | 47,679  | 
|Shareholders equity (deficit)           |  | $               | (7,806 | )    |  | $    | 7,141   |      |  | $    | 43,156  |  |  | $ | 52,956  |  |  | $ | 81,036  | 
|Membership Data:                         |  |                 |        |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|Number of members                        |  |                 | 0      |      |  |      | 416,000 |      |  |      | 466,600 |  |  |   | 512,000 |  |  |   | 514,000 | 

7



---



##### Table of Contents



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 3, 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 9 to our Consolidated
	Financial Statements.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|(2) | 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. A $6.0 million
	litigation charge was recorded in 1997 as a result of a ruling
	denying the Company recovery on its receivable of
	$5.0 million due in connection with the operation of a
	Medicaid managed care program from 1986 through 1989, and
	related litigation costs. A $3.0 million management
	restructuring charge was also recorded in 1997 for termination
	expenses primarily related to the settlement of certain
	obligations pursuant to a former chief financial officers
	employment agreement. (See Item 8. Financial
	Statements and Supplementary Data  Note 8 to our
	Consolidated Financial Statements.)
|   
|(3) | 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 Note 9 of Notes to
	Consolidated Financial Statements.)                                                                                                                                                                                                                                                                                                           
|   
|(4) | 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 and its wholly-owned
	subsidiary, Maxicare Life and Health Insurance Company, into
	rehabilitation 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.)                                                                                                                                                                                                           
|   
|(5) | All share and per share amounts have been
	retroactively restated to reflect the one for five reverse stock
	split completed on March 27, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(6) | Includes long-term liabilities of $3,815, $5,092,
	$1,210, $104 and $0, in 2001, 2000, 1999, 1998 and 1997,
	respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

8



---



##### Table of Contents








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

Current Status

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 program
(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

At December 31, 2001, we had a consolidated
working capital deficiency of approximately $5.1 million,
and a deficiency in stockholders equity of approximately
$7.8 million. Furthermore, of our total cash and marketable
securities of $3.7 million at December 31, 2001,
approximately $3.65 million was held at subsidiaries where
the transfer of cash to MHP requires the approval of regulatory
authorities. We cannot give any assurance that we would receive
such approval.

As noted above, we had no significant business
activities after December 31, 2001 and no means of raising
working capital from operations.

We have defaulted in making the October 2001
payment of approximately $43,000 due a former executive under
his consulting agreement, and has made no further payments.
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. The former executive has not to date
made such election.

Disposition of Subsidiaries

On May 4, 2001, the Commissioner of the
Indiana Department of Insurance petitioned the Marion County
Circuit Court to place our Indiana HMO into rehabilitation. Our
Indiana HMO is the sole owner of Maxicare Life and Health
Insurance Company, the indemnity provider underwriting the
preferred provider organization (PPO), point of
service (POS) and life insurance products offered by
both our Indiana (PPO only) and California HMOs. On
May 24, 2001, the Missouri Department of Insurance placed
Maxicare Life and Health Insurance Company, Inc. under an Order
of Administrative Supervision and Maxicare Life and Health
Insurance Company, Inc. was ordered to cease writing new
business by both the Missouri Department of Insurance, the
California Department of Insurance and the Indiana Department of
Insurance. On January 28, 2002, Maxicare Life and Health
Insurance Company, Inc. was placed into rehabilitation by the
Missouri Department of Insurance. As a result of these events,
results for the year ended December 31, 2001 include
Maxicare Life and Health Insurance Company, Inc. and the Indiana
HMO through May 3, 2001.

Our California HMO is primarily regulated by the
California Department of Managed Health Care. 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 with the recently
appointed conservator relinquishing that position in order to
act as Examiner of the Debtor (the Examiner). The
agreement calls for any disputes between the California HMO and
the Examiner to be resolved in Bankruptcy Court. As a result of
these events, results for the year ended December 31, 2001
include California only through May 24, 2001. On
August 31, 2001 the California HMO terminated its Medicare
line of business. On November 30, 2001, the California HMO
completed the assignment of its Medi-Cal contracts to other
health

9



---



##### Table of Contents



care providers in exchange for
$15.9 million. On December 31, 2001, after
unsuccessful efforts to transfer its commercial membership to
other health care providers, the California HMO terminated its
commercial line of business. Also on that day, the California
HMO surrendered its HMO license. Effective January 1, 2002,
the California HMO had no membership. While the resolution of
the California HMOs bankruptcy continues, the possibility
of MHP receiving a distribution upon the final resolution is
remote at best.


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, 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 Indiana Department
of Insurances placement of the Indiana HMO and its
wholly-owned subsidiary, Maxicare Life and Health Insurance
Company, Inc., 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 (Indiana) or bankruptcy (California).
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 4, 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.

10



---



##### Table of Contents





| |                                                                       
| | ----------------------------------------------------------------------
| | Year Ended December 31, 2000 Compared
	to Year Ended December 31, 1999

We reported a net loss of $31.6 million, or
$6.46 per share (basic and diluted), from continuing operations
for the year ended December 31, 2000. We sustained a loss
of $1.3 million, or $.35 per share (basic and diluted),
from continuing operations for the year ended December 31,
1999. 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
$4.5 million in 2000 when compared to 1999 due to the
recognition of $4.1 million of other income in 1999 related
to a settlement reached by us in connection with the operation
of a Medicaid managed care program from 1986 through 1989.
Salary, general and administrative expenses of continuing
operations increased from $13.3 million in 1999 to
$23.1 million in 2000, principally due to the increases in
salary, general and administrative expenses for 2000 that were
discussed above.

Results of discontinued operations for the year
ended December 31, 2000 were a loss of $33.4 million
compared to a loss of $11.0 million in 1999. The
deteriorating operating performance was the result of
$14.4 million in provider network restructuring costs in
Indiana; $2.6 million in premium receivable write-offs; and
increased medical claims costs.

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, 2001, we had
approximately $3.7 million in cash, cash equivalents, and
marketable securities (principally United States Treasury
Securities). Marketable securities of $300,000 are classified as
available-for-sale investments. These investments are primarily
in fixed income, investment grade securities. 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, 2001, we did not have any
outstanding bank borrowings or debt obligations.

11



---



##### 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, 2001 and 2000, 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, 2001. 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, 2001 and 2000, and the consolidated results
of its operations and its cash flows for each of the three years
in the period ended December 31, 2001 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 22, 2002


12



---



##### Table of Contents



MAXICARE HEALTH PLANS, INC.

CONSOLIDATED BALANCE SHEETS

|                              |                                                                                                         |                                                |       |          |        |   |       |          |        | 
|----------------------------- | ------------------------------------------------------------------------------------------------------- | ---------------------------------------------- | ----- | -------- | ------ | - | ----- | -------- | ------ | 
|                              |                                                                                                         |                                               
|                              |                                                                                                         | December 31,                                  
|                              |                                                                                                         |                                               
|                              |                                                                                                         | 2001                                           |       | 2000    
|                              |                                                                                                         |                                                |       |         
|                              |                                                                                                         |                                               
|                              |                                                                                                         | (Amounts in thousands                         
|                              |                                                                                                         | except par value)                             
|Current Assets                |                                                                                                         |                                                |       |          |        |   |       |         
|                              | Cash and cash equivalents                                                                               |                                                | $     | 3,426    |        |   | $     | 8,159    |       
|                              | Marketable securities                                                                                   |                                                |       | 306      |        |   |       | 2,078    |       
|                              | Accounts receivable, net                                                                                |                                                |       |          |        |   |       | 10       |       
|                              | Other current assets                                                                                    |                                                |       | 248      |        |   |       | 660      |       
|                              |                                                                                                         |                                                |       |          |        |   |       |         
|                              |                                                                                                         | Total Current Assets                           |       |          | 3,980  |   |       |          | 10,907 | 
|                              |                                                                                                         |                                                |       |          |        |   |       |         
|Furniture and Equipment       |                                                                                                         |                                                |       |          |        |   |       |         
|                              | Furniture and equipment                                                                                 |                                                |       | 2,462    |        |   |       | 2,430    |       
|                              |                                                                                                         | Less accumulated depreciation and amortization |       |          | 1,306  |   |       |          | 859    | 
|                              |                                                                                                         |                                                |       |          |        |   |       |         
|                              |                                                                                                         | Net Property and Equipment                     |       |          | 1,156  |   |       |          | 1,571  | 
|                              |                                                                                                         |                                                |       |          |        |   |       |         
|Other Long-Term Assets        |                                                                                                         |                                                |       |          |        |   |       |         
|                              | Restricted investments                                                                                  |                                                |       |          |        |   |       | 720      |       
|                              | Net assets of discontinued operations 
	Note 9                                                         |                                                |       | 0        |        |   |       | 11,042   |       
|                              |                                                                                                         |                                                |       |          |        |   |       |         
|                              |                                                                                                         | Total Long-Term Assets                         |       |          | 0      |   |       |          | 11,762 | 
|                              |                                                                                                         |                                                |       |          |        |   |       |         
|                              |                                                                                                         | Total Assets                                   |       | $        | 5,136  |   |       | $        | 24,240 | 
|                              |                                                                                                         |                                                |       |          |        |   |       |         
|Current Liabilities           |                                                                                                         |                                                |       |          |        |   |       |         
|                              | Estimated claims and other health care costs
	payable                                                   |                                                | $     | 1,050    |        |   | $     | 2,420    |       
|                              | Accounts payable                                                                                        |                                                |       | 54       |        |   |       | 603      |       
|                              | Deferred income                                                                                         |                                                |       | 113      |        |   |       |          |       
|                              | Accrued salary expense                                                                                  |                                                |       | 247      |        |   |       | 1,402    |       
|                              | Other current liabilities                                                                               |                                                |       | 7,663    |        |   |       | 7,582    |       
|                              |                                                                                                         |                                                |       |          |        |   |       |         
|                              |                                                                                                         | Total Current Liabilities                      |       |          | 9,127  |   |       |          | 12,007 | 
|Long-Term Liabilities Note 7 |                                                                                                         |                                                | 3,815 |          |        |   | 5,092 |         
|                              |                                                                                                         |                                                |       |          |        |   |       |         
|                              |                                                                                                         | Total Liabilities                              |       |          | 12,942 |   |       |          | 17,099 | 
|                              |                                                                                                         |                                                |       |          |        |   |       |         
|                              | Commitments and Contingencies 
	Note 3                                                                 |                                                |       |          |        |   |       |          |       
|Shareholders Equity          |                                                                                                         |                                                |       |          |        |   |       |         
|                              | Common stock, $.01 par value  80,000
	shares authorized, 9,742 shares issued and
	outstanding  Note 4 |                                                |       | 98       |        |   |       | 98       |       
|                              | Additional paid-in capital                                                                              |                                                |       | 283,466  |        |   |       | 283,442  |       
|                              | Notes receivable from shareholders 
	Note 5                                                            |                                                |       | (2,887   | )      |   |       | (2,842   | )     
|                              | Accumulated deficit                                                                                     |                                                |       | (288,485 | )      |   |       | (273,558 | )     
|                              | Accumulated other comprehensive income                                                                  |                                                |       | 2        |        |   |       | 1        |       
|                              |                                                                                                         |                                                |       |          |        |   |       |         
|                              |                                                                                                         | Total Shareholders Equity (Deficit)           |       |          | (7,806 | ) |       |          | 7,141  | 
|                              |                                                                                                         |                                                |       |          |        |   |       |         
|                              |                                                                                                         | Total Liabilities and Shareholders Equity     |       | $        | 5,136  |   |       | $        | 24,240 | 
|                              |                                                                                                         |                                                |       |          |        |   |       |         

See notes to consolidated financial statements.

13



---



##### Table of Contents



MAXICARE HEALTH PLANS, INC.

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                     |                                                                                          |                                                                                     |                |         |       |       |         |         |       |        |         |         |       |        | 
|---------------------------------------------------- | ---------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------- | -------------- | ------- | ----- | ----- | ------- | ------- | ----- | ------ | ------- | ------- | ----- | ------ | 
|                                                     |                                                                                          |                                                                                    
|                                                     |                                                                                          | Years Ended December 31,                                                           
|                                                     |                                                                                          |                                                                                    
|                                                     |                                                                                          | 2001                                                                                |                | 2000    |       | 1999 
|                                                     |                                                                                          |                                                                                     |                |         |       |      
|                                                     |                                                                                          |                                                                                    
|                                                     |                                                                                          | (Amounts in thousands                                                              
|                                                     |                                                                                          | except per share data)                                                             
|Revenues                                             |                                                                                          |                                                                                     |                |         |       |       |         |         |       |        |         |        
|                                                     | Premiums                                                                                 |                                                                                     | $              | 1,819   |       |       | $       | 2,343   |       |        | $       | 1,928   |      
|                                                     | Investment income                                                                        |                                                                                     |                | 239     |       |       |         | 529     |       |        |         | 288     |      
|                                                     | Inter-company service agreement income                                                   |                                                                                     |                |         |       |       |         | 11,599  |       |        |         | 13,035  |      
|                                                     | Other income                                                                             |                                                                                     |                | 971     |       |       |         | 398     |       |        |         | 4,103   |      
|                                                     |                                                                                          |                                                                                     |                |         |       |       |         |         |       |        |         |        
|                                                     |                                                                                          |                                                                                     | Total Revenues |         |       | 3,029 |         |         |       | 14,869 |         |         |       | 19,354 | 
|                                                     |                                                                                          |                                                                                     |                |         |       |       |         |         |       |        |         |        
|Expenses                                             |                                                                                          |                                                                                     |                |         |       |       |         |         |       |        |         |        
|                                                     | Health care expenses                                                                     |                                                                                     |                | 582     |       |       |         | 2,615   |       |        |         | 866     |      
|                                                     | Salary, general and administrative expenses                                              |                                                                                     |                | 4,998   |       |       |         | 23,147  |       |        |         | 13,339  |      
|                                                     | Depreciation and amortization                                                            |                                                                                     |                | 704     |       |       |         | 962     |       |        |         | 916     |      
|                                                     | Charges for litigation and management
	settlements  Note 8                              |                                                                                     |                |         |       |       |         | 1,510   |       |        |         | 5,500   |      
|                                                     |                                                                                          |                                                                                     |                |         |       |       |         |         |       |        |         |        
|                                                     |                                                                                          |                                                                                     | Total Expenses |         |       | 6,284 |         |         |       | 28,234 |         |         |       | 20,621 | 
|                                                     |                                                                                          |                                                                                     |                |         |       |       |         |         |       |        |         |        
|Loss from continuing operations before income
	taxes |                                                                                          |                                                                                     | (3,255         | )       |       |       | (13,365 | )       |       |        | (1,267  | )      
|                                                     | Income tax provision  Note 6                                                            |                                                                                     |                |         |       |       |         | (18,229 | )     |        |         |         |      
|                                                     |                                                                                          |                                                                                     |                |         |       |       |         |         |       |        |         |        
|Loss from continuing operations                      |                                                                                          |                                                                                     | (3,255         | )       |       |       | (31,594 | )       |       |        | (1,267  | )      
|                                                     |                                                                                          |                                                                                     |                |         |       |       |         |         |       |        |         |        
|Discontinued
	operations Note 9                     |                                                                                          |                                                                                     |                |         |       |       |         |         |       |        |         |        
|                                                     | Loss from discontinued operations                                                        |                                                                                     |                | (28,095 | )     |       |         | (33,352 | )     |        |         | (10,997 | )    
|                                                     | Write-off of excess of rehabilitated and bankrupt
	subsidiaries liabilities over assets |                                                                                     |                | 16,423  |       |       |         |         |       |        |         |         |      
|                                                     |                                                                                          |                                                                                     |                |         |       |       |         |         |       |        |         |        
|Loss from discontinued operations                    |                                                                                          |                                                                                     | (11,672        | )       |       |       | (33,352 | )       |       |        | (10,997 | )      
|                                                     |                                                                                          |                                                                                     |                |         |       |       |         |         |       |        |         |        
|Net Loss                                             |                                                                                          | $                                                                                   | (14,927        | )       |       | $     | (64,946 | )       |       | $      | (12,264 | )      
|                                                     |                                                                                          |                                                                                     |                |         |       |       |         |         |       |        |         |        
|Net Loss Per Common Share:                           |                                                                                          |                                                                                     |                |         |       |       |         |         |       |        |         |        
|Basic Loss Per Common Share:                         |                                                                                          |                                                                                     |                |         |       |       |         |         |       |        |         |        
|                                                     |                                                                                          | Continuing operations                                                               |                | $       | (.33  | )     |         | $       | (6.46 | )      |         | $       | (.35  | )     
|                                                     |                                                                                          |                                                                                     |                |         |       |       |         |         |       |        |         |        
|                                                     |                                                                                          | Discontinued operations                                                             |                | $       | (1.20 | )     |         | $       | (6.81 | )      |         | $       | (3.07 | )     
|                                                     |                                                                                          |                                                                                     |                |         |       |       |         |         |       |        |         |        
|                                                     |                                                                                          | Weighted average number of common shares
	outstanding                               |                |         | 9,742 |       |         |         | 4,894 |        |         |         | 3,585 |       
|                                                     |                                                                                          |                                                                                     |                |         |       |       |         |         |       |        |         |        
|Diluted Loss Per Common Share:                       |                                                                                          |                                                                                     |                |         |       |       |         |         |       |        |         |        
|                                                     |                                                                                          | Continuing operations                                                               |                | $       | (.33  | )     |         | $       | (6.46 | )      |         | $       | (.35  | )     
|                                                     |                                                                                          |                                                                                     |                |         |       |       |         |         |       |        |         |        
|                                                     |                                                                                          | Discontinued operations Diluted Loss Per Common
	Share                              |                | $       | (1.20 | )     |         | $       | (6.81 | )      |         | $       | (3.07 | )     
|                                                     |                                                                                          |                                                                                     |                |         |       |       |         |         |       |        |         |        
|                                                     |                                                                                          | Weighted average number of common and common
	dilutive potential shares outstanding |                |         | 9,742 |       |         |         | 4,894 |        |         |         | 3,585 |       
|                                                     |                                                                                          |                                                                                     |                |         |       |       |         |         |       |        |         |        

See notes to consolidated financial statements.

14



---



##### Table of Contents



MAXICARE HEALTH PLANS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS EQUITY

|                              |                                       |                                                                                               |       |        |       |            |    |       |    |             |         |               |        |       |        |   |       |   |          |         |   |   |     |   |     |   |        |         |         |  
|----------------------------- | ------------------------------------- | --------------------------------------------------------------------------------------------- | ----- | ------ | ----- | ---------- | -- | ----- | -- | ----------- | ------- | ------------- | ------ | ----- | ------ | - | ----- | - | -------- | ------- | - | - | --- | - | --- | - | ------ | ------- | ------- | -
|                              |                                       |                                                                                               |       |        |       |            |    |       |    |             |         | Accumulated   |        |      
|                              |                                       | Number of                                                                                     |       |        |       | Additional |    |       |    |             |         | Other         |        |      
|                              |                                       | Common                                                                                        |       | Common |       | Paid-in    |    |       |    | Accumulated |         | Comprehensive |        |      
|                              |                                       | Shares                                                                                        |       | Stock  |       | Capital    |    | Other |    | Deficit     |         | Income        |        | Total
|                              |                                       |                                                                                               |       |        |       |            |    |       |    |             |         |               |        |      
|                              |                                       |                                                                                              
|                              |                                       | (Amounts in thousands)                                                                       
|Balances at December 31, 1998 |                                       |                                                                                               | 3,579 |        |       |            | 36 |       |    |             | 254,393 |               |        |       | (5,159 | ) |       |   | (196,348 | )       |   |   | 34  |   |     |   | 52,956 |        
|                              | Comprehensive income (loss): Net loss |                                                                                               |       |        |       |            |    |       |    |             |         |               |        |       |        |   |       |   |          | (12,264 | ) |   |     |   |     |   |        | (12,264 | )      
|                              |                                       | Other comprehensive income, net of tax, related
	to unrealized gains on marketable securities |       |        |       |            |    |       |    |             |         |               |        |       |        |   |       |   |          |         |   |   |     |   | (44 | ) |        |         | (44     | )
|                              |                                       |                                                                                               |       |        |       |            |    |       |    |             |         |               |        |       |        |   |       |   |          |         |   |   |     |   |     |   |        |        
|                              |                                       | Comprehensive loss                                                                            |       |        |       |            |    |       |    |             |         |               |        |       |        |   |       |   |          |         |   |   |     |   |     |   |        |         | (12,308 | )
|                              |                                       | Notes receivable from shareholders                                                            |       |        |       |            |    |       |    |             |         |               |        |       |        |   | (179  | ) |          |         |   |   |     |   |     |   |        |         | (179    | )
|                              |                                       | Forgiveness of note receivable from shareholders                                              |       |        |       |            |    |       |    |             |         |               |        |       |        |   | 2,687 |   |          |         |   |   |     |   |     |   |        |         | 2,687   |  
|                              |                                       |                                                                                               |       |        |       |            |    |       |    |             |         |               |        |       |        |   |       |   |          |         |   |   |     |   |     |   |        |        
|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 | )      
|                              |                                       |                                                                                               |       |        |       |            |    |       |    |             |         |               |        |       |        |   |       |   |          |         |   |   |     |   |     |   |        |        

See notes to consolidated financial statements.

15



---



##### Table of Contents



MAXICARE HEALTH PLANS, INC.

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                                            |                                                                                                      |                                                                                                  |                                                       |         |        |         |         |        |        |         |         |        |        |        | 
|------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------ | ----------------------------------------------------- | ------- | ------ | ------- | ------- | ------ | ------ | ------- | ------- | ------ | ------ | ------ | 
|                                                                                            |                                                                                                      |                                                                                                 
|                                                                                            |                                                                                                      | Years Ended December 31,                                                                        
|                                                                                            |                                                                                                      |                                                                                                 
|                                                                                            |                                                                                                      | 2001                                                                                             |                                                       | 2000    |        | 1999   
|                                                                                            |                                                                                                      |                                                                                                  |                                                       |         |        |        
|                                                                                            |                                                                                                      |                                                                                                 
|                                                                                            |                                                                                                      | (Amounts in thousands)                                                                          
|Cash Flows from Operating
	Activities:                                                      |                                                                                                      |                                                                                                  |                                                       |         |        |         |         |        |        |         |         |       
|Net loss                                                                                    |                                                                                                      | $                                                                                                | (14,927                                               | )       |        | $       | (64,946 | )      |        | $       | (12,264 | )     
|Adjustments to reconcile net loss to net cash
	provided by (used for) operating activities: |                                                                                                      |                                                                                                  |                                                       |         |        |         |         |        |        |         |         |       
|                                                                                            | Depreciation and amortization                                                                        |                                                                                                  |                                                       | 1,305   |        |         |         | 1,527  |        |         |         | 1,173  |       
|                                                                                            | Provision for (benefit from) deferred income taxes                                                   |                                                                                                  |                                                       |         |        |         |         | 18,229 |        |         |         | (55    | )     
|                                                                                            | Write-off of rehabilitated and bankrupt
	subsidiaries liabilities over assets                       |                                                                                                  |                                                       | (16,423 | )      |         |         |        |        |         |         |        |       
|                                                                                            | Loss contracts, divestiture costs, litigation,
	management settlement and other charges              |                                                                                                  |                                                       |         |        |         |         | 1,959  |        |         |         | 4,948  |       
|                                                                                            | Changes in assets and liabilities (net of effect
	of rehabilitation and bankruptcy of subsidiaries): |                                                                                                  |                                                       |         |        |         |         |        |        |         |         |        |       
|                                                                                            |                                                                                                      | (Increase) decrease in accounts receivable                                                       |                                                       |         | 8,403  |         |         |        | (7,216 | )       |         |        | 8,375  |       
|                                                                                            |                                                                                                      | Increase (decrease) in estimated claims and
	other health care costs payable                     |                                                       |         | (5,969 | )       |         |        | 31,337 |         |         |        | 4,077  |       
|                                                                                            |                                                                                                      | Increase (decrease) in deferred income                                                           |                                                       |         | (5,789 | )       |         |        | (3,177 | )       |         |        | 3,810  |       
|                                                                                            |                                                                                                      | Changes in other miscellaneous assets and
	liabilities                                           |                                                       |         | 2,161  |         |         |        | 6,874  |         |         |        | (4,337 | )     
|                                                                                            |                                                                                                      |                                                                                                  |                                                       |         |        |         |         |        |        |         |         |       
|                                                                                            |                                                                                                      |                                                                                                  | Net cash provided by (used for) operating
	activities |         |        | (31,239 | )       |        |        | (15,413 | )       |        |        | 5,727  | 
|                                                                                            |                                                                                                      |                                                                                                  |                                                       |         |        |         |         |        |        |         |         |       
|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 | )      |         |         | (494   | )     
|                                                                                            | Dispositions of property and equipment                                                               |                                                                                                  |                                                       |         |        |         |         |        |        |         |         | 420    |       
|                                                                                            | Decrease in restricted investments                                                                   |                                                                                                  |                                                       | 708     |        |         |         | 1,957  |        |         |         | 5,674  |       
|                                                                                            | Increase in long-term receivables                                                                    |                                                                                                  |                                                       |         |        |         |         | (497   | )      |         |         |        |       
|                                                                                            | Proceeds from sales and maturities of marketable
	securities                                         |                                                                                                  |                                                       | 1,231   |        |         |         | 4,620  |        |         |         | 13,799 |       
|                                                                                            | Purchases of marketable securities                                                                   |                                                                                                  |                                                       | (299    | )      |         |         | (4,535 | )      |         |         | (4,200 | )     
|                                                                                            |                                                                                                      |                                                                                                  |                                                       |         |        |         |         |        |        |         |         |       
|                                                                                            |                                                                                                      |                                                                                                  | Net cash provided by (used for) investing
	activities |         |        | (45,656 | )       |        |        | (1,731  | )       |        |        | 15,199 | 
|                                                                                            |                                                                                                      |                                                                                                  |                                                       |         |        |         |         |        |        |         |         |       
|Cash Flows from Financing
	Activities:                                                      |                                                                                                      |                                                                                                  |                                                       |         |        |         |         |        |        |         |         |       
|                                                                                            | Issuance of common stock                                                                             |                                                                                                  |                                                       |         |        |         |         | 29,053 |        |         |         |        |       
|                                                                                            | Payments on capital lease obligations                                                                |                                                                                                  |                                                       | (372    | )      |         |         | (333   | )      |         |         | (316   | )     
|                                                                                            |                                                                                                      |                                                                                                  |                                                       |         |        |         |         |        |        |         |         |       
|Net cash provided by (used for) financing
	activities                                       |                                                                                                      |                                                                                                  | (372                                                  | )       |        |         | 28,720  |        |        |         | (316    | )     
|                                                                                            |                                                                                                      |                                                                                                  |                                                       |         |        |         |         |        |        |         |         |       
|Net increase (decrease) in cash and cash
	equivalents                                       |                                                                                                      |                                                                                                  | (77,267                                               | )       |        |         | 11,576  |        |        |         | 20,610  |       
|Cash and cash equivalents at beginning of year                                              |                                                                                                      |                                                                                                  | 80,693                                                |         |        |         | 69,117  |        |        |         | 48,507  |       
|                                                                                            |                                                                                                      |                                                                                                  |                                                       |         |        |         |         |        |        |         |         |       
|Cash and cash equivalents at end of year                                                    |                                                                                                      | $                                                                                                | 3,426                                                 |         |        | $       | 80,693  |        |        | $       | 69,117  |       
|                                                                                            |                                                                                                      |                                                                                                  |                                                       |         |        |         |         |        |        |         |         |       
|Supplemental disclosures of cash flow information:                                          |                                                                                                      |                                                                                                  |                                                       |         |        |         |         |        |        |         |         |       
|                                                                                            | Cash paid during the year for                                                                       |                                                                                                  |                                                       |         |        |         |         |        |        |         |         |        |       
|                                                                                            |                                                                                                      | Interest                                                                                         |                                                       | $       | 98     |         |         | $      | 107    |         |         | $      | 185    |       
|                                                                                            |                                                                                                      | Income taxes                                                                                     |                                                       |         |        |         |         |        |        |         |         | $      | 63     |       
|Supplemental schedule of non-cash investing
	activities:                                    |                                                                                                      |                                                                                                  |                                                       |         |        |         |         |        |        |         |         |       
|                                                                                            |                                                                                                      | Capital lease obligations incurred for purchase
	of property and equipment and intangible assets |                                                       | $       | 114    |         |         | $      | 813    |         |         | $      | 1,479  |       
|                                                                                            |                                                                                                      | Forgiveness of note receivable from shareholder                                                  |                                                       |         |        |         |         |        |        |         |         | $      | 145    |       
|                                                                                            |                                                                                                      | Allowance for forgiveness of note receivable from
	shareholder                                   |                                                       |         |        |         |         |        |        |         |         | $      | 2,542  |       
|                                                                                            | Liabilities of rehabilitated and bankrupt
	subsidiaries                                              |                                                                                                  | $                                                     | 101,405 |        |         |         |        |        |         |         |        |       
|                                                                                            | Assets of rehabilitated and bankrupt subsidiaries
	excluding cash 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.

16



---



##### Table of Contents



MAXICARE HEALTH PLANS, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

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, 2001 we were operating with a substantial
capital deficiency (see Liquidity below).

We own a California HMO that is incorporated
under the laws of the state of California and is primarily
regulated by the California Department of Managed Health Care.
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 with the
California Department of Managed Health Care-appointed
conservator relinquishing that position in order to act as
Examiner of the Debtor (the Examiner). The agreement
calls for any disputes between the California HMO and the
Examiner to be resolved in Bankruptcy Court. All operations of
the California HMO were terminated December 31, 2001.

We operated an HMO in Indiana (the Indiana
HMO) prior to May 4, 2001. The Indiana HMO owns
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. The Indiana HMO is
incorporated under the laws of the state of Indiana and is
primarily regulated by the Indiana Department of Insurance.
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 4, 2001, the Indiana Department of Insurance placed the
Indiana HMO into rehabilitation. 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. On
January 28, 2002 the Missouri Department of Insurance
placed Maxicare Life and Health Insurance Company, Inc. into
rehabilitation. The effect of these actions was to terminate the
ongoing operations of the Indiana HMO and Maxicare Life and
Health Insurance Company, Inc. as of May 4, 2001 and
December 31, 2001, respectively.

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 1,
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.



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



| |          
| | ---------
| | Liquidity

The significant losses we experienced in 2000 and
prior years continued in 2001, resulting in the placement of the
Indiana HMO and Maxicare Life and Health Insurance Company, Inc.
into rehabilitation and the bankruptcy of the California HMO. As
a result of these losses we had a consolidated working capital
deficiency of approximately $5.1 million, and a deficiency
in stockholders equity of approximately $7.8 million
at December 31, 2001. Furthermore, of our total cash and
marketable securities of $3.7 million at December 31,
2001, $3.65 million was held at subsidiaries where the
transfer of cash to MHP requires the approval of regulatory
authorities.

17



---



##### Table of Contents



MAXICARE HEALTH PLANS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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.

At April 1, 2001 a note held by MHP in the
approximate amount of $2.9 million became due. The note,
issued by a shareholder and former executive officer of MHP, had
not been paid as of March 28, 2002. We commenced an action
in California state court to collect on the note, and on
October 18, 2001 the court granted summary adjudication in
our favor. We cannot give assurance that we will recover all or
a significant portion of this note. This note is presented as a
reduction in shareholders equity in the consolidated
balance sheets (see Note 5  Notes
Receivable From Shareholders).

MHP also holds certain claims against the United
States Office of Personnel Management in regards to the
underpayment of amounts due closed subsidiaries of MHP for
health care coverage provided to Federal employees. We have
fully reserved for these potential recoveries due MHP in our
consolidated balance sheets.

MHP has defaulted in making the October 2001
payment of approximately $43,000 due a former executive under
his consulting agreement, and has made no further payments.
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. The former executive has not to date
made such election.

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. 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. We also continue to search
for ways of utilizing our net operating loss tax carryforwards,
although the possibility of realizing any value from the
carryforwards is negligible at best (see Note
6  Income Taxes).

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. The consolidated financial statements include the
operations and accounts of the Indiana HMO and Maxicare Life and
Health Insurance Company, Inc. only through May 3, 2001 and
the California HMO only through May 24, 2001. 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 Indiana
Department of Insurances placement of the Indiana HMO and
its wholly-owned subsidiary, Maxicare Life and Health Insurance
Company, Inc., into rehabilitation 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.

All significant intercompany balances and
transactions have been eliminated.



| |                        
| | -----------------------
| | Discontinued Operations

The placement of the Indiana HMO (of which
Maxicare Life and Health Insurance Company, Inc. is a
subsidiary) into rehabilitation on May 3, 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

18



---



##### Table of Contents



MAXICARE HEALTH PLANS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

preparation of these financial statements (see
Note 9  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:

|                            |  |             |       |      |  |   |        | 
|--------------------------- |  | ----------- | ----- | ---- |  | - | ------ | 
|                            |  | 2001        |       | 2000
|                            |  |             |       |     
|                            |  |            
|                            |  | (Amounts in
|                            |  | thousands) 
|Cash                        |  | $           | 166   |      |  | $ | 1,299  | 
|Certificates of deposit     |  |             | 105   |      |  |   | 674    | 
|Commercial paper            |  |             |      |      |  |   | 36,782 | 
|Money market funds          |  |             | 3,155 |      |  |   | 26,541 | 
|U.S. Government obligations |  |             |      |      |  |   | 15,397 | 
|                            |  |             |       |      |  |   |        | 
|                            |  | $           | 3,426 |      |  | $ | 80,693 | 
|                            |  |             |       |      |  |   |        | 

Cash and cash equivalents at December 31,
2000 included approximately $72.5 million held by discontinued
operations.



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

Our restricted investments consist of securities
restricted to specific purposes as required by various
governmental regulations. These securities have been designated
as held-to-maturity as we have the intent and the ability to
hold them to maturity. These securities are stated at amortized
cost.

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
$.7 million, realizing a net gain of approximately $3,500.
During 2000, we sold available-for-sale marketable securities
having a book value of $.3 million, realizing a net loss of
approximately $2,500.

19



---



##### Table of Contents



MAXICARE HEALTH PLANS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

During 1999, we sold available-for-sale
marketable securities having a book value of $3.0 million,
realizing a net gain of approximately $2,500.

The following is a summary of investments at
December 31 (gross unrealized gains and losses are
immaterial):

|                    |                                                                    |                        |     |            |  |           |     |            |  |   |       |       |  |   |       |       | 
|------------------- | ------------------------------------------------------------------ | ---------------------- | --- | ---------- |  | --------- | --- | ---------- |  | - | ----- | ----- |  | - | ----- | ----- | 
|                    |                                                                    |                        |     |           
|                    |                                                                    | 2001                   |     | 2000      
|                    |                                                                    |                        |     |           
|                    |                                                                    | Amortized              |     | Estimated  |  | Amortized |     | Estimated 
|                    |                                                                    | Cost                   |     | Fair Value |  | Cost      |     | Fair Value
|                    |                                                                    |                        |     |            |  |           |     |           
|                    |                                                                    |                       
|                    |                                                                    | (Amounts in thousands)
|Available-for-sale: |                                                                    |                        |     |            |  |           |     |            |  |   |       |       |  |   |       |      
|                    | U.S. Government obligations                                        |                        | $   | 304        |  |           | $   | 306        |  |   | $     | 1,623 |  |   | $     | 1,625 | 
|                    | Warrants to purchase shares of common stock of
	The Trizetto Group |                        |     |           |  |           |     |           |  |   |       | 1,771 |  |   |       | 1,771 | 
|                    | Other                                                              |                        |     |           |  |           |     |           |  |   |       | 4     |  |   |       | 4     | 
|                    |                                                                    |                        |     |            |  |           |     |            |  |   |       |       |  |   |       |      
|                    |                                                                    | $                      | 304 |            |  | $         | 306 |            |  | $ | 3,398 |       |  | $ | 3,400 |      
|                    |                                                                    |                        |     |            |  |           |     |            |  |   |       |       |  |   |       |      
|Held-to-maturity:   |                                                                    |                        |     |            |  |           |     |            |  |   |       |       |  |   |       |      
|                    | U.S. Government obligations                                        |                        | $   |           |  |           | $   |           |  |   | $     | 5,043 |  |   | $     | 5,062 | 
|                    | Other                                                              |                        |     |           |  |           |     |           |  |   |       | 1,075 |  |   |       | 1,075 | 
|                    |                                                                    |                        |     |            |  |           |     |            |  |   |       |       |  |   |       |      
|                    |                                                                    | $                      | 0   |            |  | $         | 0   |            |  | $ | 6,118 |       |  | $ | 6,137 |      
|                    |                                                                    |                        |     |            |  |           |     |            |  |   |       |       |  |   |       |      

Investments available-for-sale of discontinued
operations at December 31, 2000 consisted of
U.S. Government obligations of approximately
$1.3 million (amortized cost and fair value). Assets
held-to-maturity of discontinued operations at December 31,
2000 consisted of approximately $4.3 million (amortized
cost and fair value) of U.S. Government obligations and $1,075
of other investments (principally certificates of deposit).

The contractual maturities of investments at
December 31, 2001 were as follows:

|                    |                                       |                        |   |            |  |  |   |     | 
|------------------- | ------------------------------------- | ---------------------- | - | ---------- |  |  | - | --- | 
|                    |                                       | Amortized              |   | Estimated 
|                    |                                       | Cost                   |   | Fair Value
|                    |                                       |                        |   |           
|                    |                                       |                       
|                    |                                       | (Amounts in thousands)
|Available-for-sale: |                                       |                        |   |            |  |  |   |    
|                    | Due after one year through five years |                        | $ | 304        |  |  | $ | 306 | 
|                    |                                       |                        |   |            |  |  |   |    



| |                    
| | -------------------
| | Accounts Receivable

Accounts receivable consisted of the following at
December 31:

|                                                              |  |             |   |      |  |   |        |  
|------------------------------------------------------------- |  | ----------- | - | ---- |  | - | ------ | -
|                                                              |  | 2001        |   | 2000
|                                                              |  |             |   |     
|                                                              |  |            
|                                                              |  | (Amounts in
|                                                              |  | thousands) 
|Premiums receivable                                           |  | $           |  |      |  | $ | 35,813 |  
|Allowances for retroactive billing adjustments
	and bad debts |  |             |  |      |  |   | (5,922 | )
|                                                              |  |             |   |      |  |   |        |  
|Premiums receivable, net                                      |  |             | 0 |      |  |   | 29,891 |  
|Other                                                         |  |             |  |      |  |   | 5,537  |  
|                                                              |  |             |   |      |  |   |        |  
|Accounts receivable, net                                      |  | $           | 0 |      |  | $ | 35,428 |  
|                                                              |  |             |   |      |  |   |        |  

All but $10,000 of our accounts receivable at
December 31, 2000 were held by discontinued operations.

20



---



##### Table of Contents



MAXICARE HEALTH PLANS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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



| |                  
| | -----------------
| | Intangible Assets

Intangible assets consist primarily of purchased
computer software and are amortized using the straight-line
method over three years. At December 31, 2001 we had no
intangible assets. All intangible assets at December 31,
2000 were held by discontinued operations. Accumulated
amortization of intangible assets at December 31, 2000 was
$2.6 million.



| |                          
| | -------------------------
| | Other Current Liabilities

Other current liabilities include estimated
liabilities related to litigation and contract termination costs
(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 2001, 2000 and 1999
was as follows:

|                |              |                          |        |       |  |      |        |       |  |   |        |       | 
|--------------- | ------------ | ------------------------ | ------ | ----- |  | ---- | ------ | ----- |  | - | ------ | ----- | 
|                |              |                         
|                |              | Years Ended December 31,
|                |              |                         
|                |              | 2001                     |        | 2000  |  | 1999
|                |              |                          |        |       |  |     
|Direct premiums |              | $                        | 2,877  |       |  | $    | 4,964  |       |  | $ | 6,608  |      
|Ceded premiums  |              |                          | (1,058 | )     |  |      | (2,621 | )     |  |   | (4,680 | )    
|                |              |                          |        |       |  |      |        |       |  |   |        |      
|                | Net premiums |                          | $      | 1,819 |  |      | $      | 2,343 |  |   | $      | 1,928 | 
|                |              |                          |        |       |  |      |        |       |  |   |        |      

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, 2001, there were no
significant amounts recoverable from Maxicare Life and Health
Insurance Company, Inc.

21



---



##### Table of Contents



MAXICARE HEALTH PLANS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                 
| | --------------------------------
| | Health Care Expense
	Recognition

The cost of health care services is expensed in
the period we are obligated to provide such services. Our HMOs
arranged for the provision of health care services primarily
through capitation arrangements and to a lesser degree shared
risk arrangements. Under capitation contracts, the HMO pays the
health care provider or providers a fixed amount per member per
month to cover the payment of all or most physician and hospital
services regardless of utilization. Under shared risk
arrangements where we retained the financial responsibility for
specialist referrals, hospital utilization, pharmacy and other
health care costs, we established 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.



| |                     
| | --------------------
| | 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, 2001 and 2000.



| |                            
| | ---------------------------
| | 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,
|                                       |                                                       |                         
|                                       |                                                       | 2001                     |        | 2000  |  | 1999
|                                       |                                                       |                          |        |       |  |     
|Basic loss per share of common
	stock: |                                                       |                          |        |       |  |      |         |       |  |   |        |      
|Continuing operations:                 |                                                       |                          |        |       |  |      |         |       |  |   |        |      
|Numerator  net loss                   |                                                       | $                        | (3,255 | )     |  | $    | (31,594 | )     |  | $ | (1,267 | )    
|                                       |                                                       |                          |        |       |  |      |         |       |  |   |        |      
|Denominator                           |                                                       |                          |        |       |  |      |         |       |  |   |        |      
|                                       | Weighted average number of common shares
	outstanding |                          |        | 9,742 |  |      |         | 4,894 |  |   |        | 3,585 | 
|                                       |                                                       |                          |        |       |  |      |         |       |  |   |        |      
|Basic loss per common share            |                                                       | $                        | (.33   | )     |  | $    | (6.46   | )     |  | $ | (.35   | )    
|                                       |                                                       |                          |        |       |  |      |         |       |  |   |        |      

22



---



##### Table of Contents



MAXICARE HEALTH PLANS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                         |                                                                                     |                          |         |       |  |      |         |       |  |   |         |       | 
|---------------------------------------- | ----------------------------------------------------------------------------------- | ------------------------ | ------- | ----- |  | ---- | ------- | ----- |  | - | ------- | ----- | 
|                                         |                                                                                     |                         
|                                         |                                                                                     | Years Ended December 31,
|                                         |                                                                                     |                         
|                                         |                                                                                     | 2001                     |         | 2000  |  | 1999
|                                         |                                                                                     |                          |         |       |  |     
|Discontinued operations:                 |                                                                                     |                          |         |       |  |      |         |       |  |   |         |      
|Numerator  net loss                     |                                                                                     | $                        | (11,672 | )     |  | $    | (33,352 | )     |  | $ | (10,997 | )    
|                                         |                                                                                     |                          |         |       |  |      |         |       |  |   |         |      
|Denominator                             |                                                                                     |                          |         |       |  |      |         |       |  |   |         |      
|                                         | Weighted average number of common shares
	outstanding                               |                          |         | 9,742 |  |      |         | 4,894 |  |   |         | 3,585 | 
|                                         |                                                                                     |                          |         |       |  |      |         |       |  |   |         |      
|Basic loss per common share              |                                                                                     | $                        | (1.20   | )     |  | $    | (6.81   | )     |  | $ | (3.07   | )    
|                                         |                                                                                     |                          |         |       |  |      |         |       |  |   |         |      
|Diluted loss per share of common
	stock: |                                                                                     |                          |         |       |  |      |         |       |  |   |         |      
|Continuing operations:                   |                                                                                     |                          |         |       |  |      |         |       |  |   |         |      
|Numerator  net loss                     |                                                                                     | $                        | (3,255  | )     |  | $    | (31,594 | )     |  | $ | (1,267  | )    
|                                         |                                                                                     |                          |         |       |  |      |         |       |  |   |         |      
|Denominator                             |                                                                                     |                          |         |       |  |      |         |       |  |   |         |      
|                                         | Weighted average number of common and common
	dilutive potential shares outstanding |                          |         | 9,742 |  |      |         | 4,894 |  |   |         | 3,585 | 
|                                         |                                                                                     |                          |         |       |  |      |         |       |  |   |         |      
|Diluted loss per common share            |                                                                                     | $                        | (.33    | )     |  | $    | (6.46   | )     |  | $ | (.35    | )    
|                                         |                                                                                     |                          |         |       |  |      |         |       |  |   |         |      
|Discontinued operations:                 |                                                                                     |                          |         |       |  |      |         |       |  |   |         |      
|Numerator  net loss                     |                                                                                     | $                        | (11,672 | )     |  | $    | (33,352 | )     |  | $ | (10,997 | )    
|                                         |                                                                                     |                          |         |       |  |      |         |       |  |   |         |      
|Denominator                             |                                                                                     |                          |         |       |  |      |         |       |  |   |         |      
|                                         | Weighted average number of common shares
	outstanding                               |                          |         | 9,742 |  |      |         | 4,894 |  |   |         | 3,585 | 
|                                         |                                                                                     |                          |         |       |  |      |         |       |  |   |         |      
|Basic loss per common share              |                                                                                     | $                        | (1.20   | )     |  | $    | (6.81   | )     |  | $ | (3.07   | )    
|                                         |                                                                                     |                          |         |       |  |      |         |       |  |   |         |      

Stock options are excluded from the calculation
of diluted loss per share for 2001, 2000 and 1999 because the
inclusion of stock options would have an anti-dilutive effect.



| |              
| | -------------
| | Stock Options

We measure stock option compensation expense by
using the intrinsic value method prescribed by APB Opinion
No. 25 Accounting for Stock Issued to
Employees. With respect to stock options granted at an
exercise price that is less than the fair market value on the
date of grant, the difference between the option exercise price
and market value at date of grant is charged to operations over
the period the options vest. Income tax benefits attributable to
stock options are credited to Additional Paid-in Capital when
exercised.



| |                                
| | -------------------------------
| | 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
$3.7 million of cash and marketable securities held by MHP
and consolidated subsidiaries at December 31, 2001
approximately $75,000 was held directly by MHP. Approximately
$3.65 million was held by subsidiaries requiring approval
of regulatory authorities in order to transfer cash to MHP. In
January 2002, Health Care Assurance Company, Ltd., transferred
$200,000 to MHP in a transaction approved by regulatory
authorities in December of 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

23



---



##### Table of Contents



MAXICARE HEALTH PLANS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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.



| |                              
| | -----------------------------
| | Concentrations of Credit Risk

Financial instruments that potentially subject us
to concentrations of credit risk consist primarily of
investments in marketable securities and premiums receivable.
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. Concentrations
of credit risk with respect to premiums receivable are limited
due to the large number of employer groups comprising our
customer base. As of December 31, 2001, we believe that we
had no significant concentrations of credit risk.



| |             
| | ------------
| | Other Income

Other income includes the recognition of
$4.1 million in 1999 related to a settlement reached by us
in connection with the operation of a Medicaid managed care
program from 1986 through 1989.

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 MHP and the five directors of the Indiana
HMO, one of whom was a director of MHP. The Commissioner amended
the Complaint on February 1, 2002. The Complaint, as
amended, alleges, in substance, that: (1) the directors
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 further alleging
on various grounds that MHP is also liable for such failure;
(2) MHP fraudulently concealed the financial condition of
the Indiana HMO; (3) MHP manipulated the finances of the
Indiana HMO for MHPs own benefit; and (4) MHP
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. No formal
pre-trial discovery has yet been taken. MHP believes that the
claims against it are without merit and intends to vigorously
defend the suit.

On September 1, 2000 we 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.
The Trizetto Agreement also calls for a termination payment to
be made by us under certain circumstances upon the termination
of the Trizetto Agreement by the Company. The termination
payment could be as much as $15.0 million. In March 2001,
we assigned the Trizetto Contract to our 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. In addition to asserting various pre- and
post-petition claims in the California bankruptcy proceeding,
TZG has demanded $4.6 million from MHP in connection with
this contract. The final amount of TZGs termination claim
against us is unknown at this time.

Effective January 1, 2001, we entered into a
Pharmacy Benefits Management Agreement (the PBM
Agreement) with Medimpact Healthcare Systems, Inc.
(Medimpact). The PBM Agreement called for

24



---



##### Table of Contents



MAXICARE HEALTH PLANS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 us 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s rehabilitation and the
California HMOs bankruptcy, Medimpact 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 MHP for such costs.

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

We are also involved in legal actions in the
normal course of business, including cases in which the
plaintiffs assert claims against the Company or third parties
assert breach of contract, indemnity or contribution claims
against the Company for malpractice, negligence, bad faith in
the failure to pay claims on a timely basis or denial of
coverage, seeking compensatory, fraud and, in certain instances,
punitive damages in an indeterminate amount which may be
material and are not covered by insurance and/or seeking other
forms of equitable relief. We do not believe that any ultimate
liability in excess of amounts accrued which would likely arise
from these actions (including those brought by the Commissioner,
TZG and Medimpact) would materially affect our consolidated
financial position, results of operations or cash flows.
However, our evaluation of the likely impact of these actions
could change in the future and an unfavorable outcome, depending
on the amount and timing, could have a material effect on our
consolidated financial position, results of operations or cash
flows for a future period.



| |       
| | ------
| | 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 $.8 million, $2.5 million
and $1.8 million reported for the years ended
December 31, 2001, 2000 and 1999, respectively.

Assets held under capital leases at
December 31, 2001 and 2000 of $1,156,000 and $1,570,000,
respectively, (net of $1,306,000 and $859,000, respectively, 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, 2001 were as follows:

|                             |                           |                        |     |             |  |   |      |       | 
|---------------------------- | ------------------------- | ---------------------- | --- | ----------- |  | - | ---- | ----- | 
|                             |                           | Operating              |     | Capitalized
|                             |                           | Leases                 |     | Leases     
|                             |                           |                        |     |            
|                             |                           |                       
|                             |                           | (Amounts in thousands)
|2002                         |                           | $                      | 871 |             |  | $ | 696  |      
|2003                         |                           |                        | 336 |             |  |   | 494  |      
|2004                         |                           |                        | 183 |             |  |   | 220  |      
|2005                         |                           |                        |    |             |  |   | 114  |      
|2006                         |                           |                        |    |             |  |   | 2    |      
|                             |                           |                        |     |             |  |   |      |      
|                             | Total minimum obligations |                        | $   | 1,390       |  |   |      | 1,526 | 
|                             |                           |                        |     |             |  |   |      |      
|Amount representing interest |                           |                        |     |             |  |   | (200 | )    
|Less current obligations     |                           |                        |     |             |  |   | (555 | )    
|                             |                           |                        |     |             |  |   |      |      
|Long-term obligations        |                           |                        |     |             |  | $ | 771  |      
|                             |                           |                        |     |             |  |   |      |      

25



---



##### Table of Contents



MAXICARE HEALTH PLANS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 $675,000 to the payment of operating
lease obligations and $690,000 to the payment of capital lease
obligations, respectively, in 2002. Such payments by the
California HMO and Maxicare Life and Health Insurance Company,
Inc. are unlikely to continue after December 31, 2002.

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. At December 31, 2001, we had 9,741,926 shares
of common stock outstanding. 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, 2001,
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, 2001, there were no shares of either series of
preferred stock outstanding.

At December 31, 2001, 9,741,926 million
shares of common stock were issued and outstanding;
385,000 shares were reserved for stock options (of which
367,000 shares 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 stockholders 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

26



---



##### Table of Contents



MAXICARE HEALTH PLANS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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.



| |                
| | ---------------
| | 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
8.1 million shares of our common stock at $1.00 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 8.1 million shares
of its common stock (before giving effect to the subsequent
one-for-five reverse stock split) at $1.00 per share. In
connection with the private placement we issued warrants for the
purchase of 405,000 shares of our common stock at $1.50 per
share (before giving effect to the subsequent one-for-five
reverse stock split). In June, 2000 we issued
800,000 shares of our common stock at $1.25 per share
(before giving effect to the subsequent one-for-five reverse
stock split) 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

27



---



##### Table of Contents



MAXICARE HEALTH PLANS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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.

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

|                              |                         |         |     |                |   |         |       |                |  |         |     |                |   |   |       |       |  |  |     |     |   |   |       |       | 
|----------------------------- | ----------------------- | ------- | --- | -------------- | - | ------- | ----- | -------------- |  | ------- | --- | -------------- | - | - | ----- | ----- |  |  | --- | --- | - | - | ----- | ----- | 
|                              |                         |         |     |                |   |        
|                              |                         | 2001    |     | 2000           |   | 1999   
|                              |                         |         |     |                |   |        
|                              |                         |         |     | Weighted-      |   |         |       | Weighted-      |  |         |     | Weighted-     
|                              |                         | Options |     | Average        |   | Options |       | Average        |  | Options |     | Average       
|                              |                         | (000)   |     | Exercise Price |   | (000)   |       | Exercise Price |  | (000)   |     | Exercise Price
|                              |                         |         |     |                |   |         |       |                |  |         |     |               
|Outstanding beginning of year |                         |         | 510 |                |   | $       | 14.15 |                |  |         | 520 |                |   | $ | 54.95 |       |  |  | 441 |     |   | $ | 57.30 |      
|                              | Granted(a)              |         |     | 0              |   |         |       |                |  |         |     | 300            |   |   |       | 6.90  |  |  |     | 142 |   |   |       | 23.50 | 
|                              | Exercised               |         |     |                |   |         |       |                |  |         |     |                |   |   |       |       |  |  |     |     |   |   |       |       | 
|                              | Forfeited               |         |     | (125           | ) |         |       | 26.33          |  |         |     | (118           | ) |   |       | 54.15 |  |  |     | (45 | ) |   |       | 63.15 | 
|                              | Expired                 |         |     | 0              |   |         |       |                |  |         |     | (192           | ) |   |       | 37.15 |  |  |     | (18 | ) |   |       | 66.05 | 
|                              | Outstanding end of year |         |     | 385            |   |         |       | 15.76          |  |         |     | 510            |   |   |       | 18.73 |  |  |     | 520 |   |   |       | 47.05 | 
|                              | Exercisable end of year |         |     | 367            |   |         |       | 15.63          |  |         |     | 216            |   |   |       | 31.85 |  |  |     | 357 |   |   |       | 54.95 | 



---



|    |                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------
|(a) | The weighted-average fair value of options
	granted during 2000 and 1999 was $3.80 and $12.00, respectively.
	No options were granted in 2001.

28



---



##### Table of Contents



MAXICARE HEALTH PLANS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table summarizes information about
stock options outstanding at December 31, 2001:

|                         |  |                     |     |                     |  |                  |    |             |  |                  |        |  |  |  |     |  |  |   |        | 
|------------------------ |  | ------------------- | --- | ------------------- |  | ---------------- | -- | ----------- |  | ---------------- | ------ |  |  |  | --- |  |  | - | ------ | 
|                         |  |                     |     |                     |  |                  |    |            
|                         |  |                     |     | Options Exercisable
|                         |  | Options Outstanding |     |                    
|                         |  |                     |     | Number              |  |                 
|                         |  | Number              |     | Weighted-Average    |  |                  |    | Exercisable |  |                 
|                         |  | Outstanding         |     | Remaining           |  |                  |    | at          |  |                 
|                         |  | at 12/31/01         |     | Contractual Life    |  | Weighted-Average |    | 12/31/01    |  | Weighted-Average
|Range of Exercise Prices |  | (000)               |     | (# of Months)       |  | Exercise Price   |    | (000)       |  | Exercise Price  
|                         |  |                     |     |                     |  |                  |    |             |  |                 
|$  5.00 - $ 56.90        |  |                     | 346 |                     |  |                  | 99 |             |  | $                | 12.89  |  |  |  | 328 |  |  | $ | 12.59  | 
|$ 71.25 - $ 73.75        |  |                     | 18  |                     |  |                  | 55 |             |  |                  | 73.75  |  |  |  | 18  |  |  |   | 73.75  | 
|$102.50 - $132.50        |  |                     | 21  |                     |  |                  | 60 |             |  |                  | 110.54 |  |  |  | 21  |  |  |   | 110.54 | 
|                         |  |                     |     |                     |  |                  |    |             |  |                  |        |  |  |  |     |  |  |   |        | 
|$  5.00 - $132.50        |  |                     | 385 |                     |  |                  | 95 |             |  |                  | 21.06  |  |  |  | 367 |  |  |   | 21.19  | 
|                         |  |                     |     |                     |  |                  |    |             |  |                  |        |  |  |  |     |  |  |   |        | 

We have elected to follow APB Opinion No. 25
and related Interpretations in accounting for our employee stock
options because, as discussed below, the alternative fair value
accounting provided for under SFAS No. 123 requires use of
option valuation models that were not developed for use in
valuing employee stock options. Under APB Opinion No. 25,
because the exercise price of our employee stock options equals
the market price of the underlying stock on the date of grant,
no compensation expense is recognized.

Pro forma information regarding net income
(loss) and earnings (loss) per share is required by
SFAS No. 123, and has been determined as if we had
accounted for our employee stock options under the fair value
method. The fair value for these options was estimated at the
date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions for 2000 and 1999
respectively: volatility factors of the expected market price of
the Companys common stock of .59 and .53; a
weighted-average expected life of the options of 5.0 years;
risk-free interest rates of 6.1% and 5.5%, and dividend yield of
0%. No options were granted in 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.

Pro forma disclosures required by SFAS
No. 123 include the effects of all stock option awards
granted by us from January 1, 1995 through
December 31, 2001. During the initial phase-in period, the
effects of applying this Statement for generating pro forma
disclosures are not likely to be representative of the effects
on pro forma net income for future years, because, for example,
options may vest over several years and additional awards
generally are made each year. For purposes of pro forma
disclosures, the estimated fair value of the options is
amortized to expense over the options vesting period. Our
pro forma information is as follows for the years ended
December 31 (in thousands except for earnings per share
information):

|                                                             |         |      |        |      |   |      |         |       |   |   |        |      |  
|------------------------------------------------------------ | ------- | ---- | ------ | ---- | - | ---- | ------- | ----- | - | - | ------ | ---- | -
|                                                             |         | 2001 |        | 2000 |   | 1999
|                                                             |         |      |        |      |   |     
|Pro forma net loss from continuing operations                |         | $    | (3,260 | )    |   | $    | (31,599 | )     |   | $ | (1,612 | )   
|Pro forma loss per common share from continuing
	operations: |         |      |        |      |   |      |         |       |   |   |        |     
|                                                             | Basic   |      | $      | (.33 | ) |      | $       | (6.46 | ) |   | $      | (.45 | )
|                                                             | Diluted |      | $      | (.33 | ) |      | $       | (6.46 | ) |   | $      | (.45 | )

29



---



##### Table of Contents



MAXICARE HEALTH PLANS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                 
| | ----------------
| | Restricted Stock

On February 27, 1995 the Board approved
Restricted Stock Grant Agreements awarding 65,000 shares of
Restricted Stock (before giving effect to the subsequent
one-for-five reverse stock split) 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; provided however, that if an
Executive should sell any shares of our Common Stock serving as
security under the loan agreement, the Executive shall pay a pro
rata share of the proceeds to us to be applied against any
outstanding principal and accrued interest balances of such
Executive as of such date.

In connection with the Ratican Settlement
Agreement (see Note 8  Litigation and
Management Settlement Charges), as of April 24, 1999,
the 1997 Ratican Note and related loan documents were amended
extending the term from April 1, 2001 to June 30, 2003
(the Restated 1997 Ratican Note). The Restated 1997 Ratican Note
provides that on the maturity date, in lieu of payment of the
original principal balance and all accrued interest thereon (the
Maturity Balance), Ratican may fully satisfy his
obligations under the Restated 1997 Ratican Note through the
payment to us for payment to the applicable state and Federal
tax authorities the applicable minimum state and federal
withholding amounts and FICA taxes due from Mr. Ratican
resulting from the reduction of the Maturity Balance to zero.

At April 1, 2001, the 1997 Froelich Note in
the approximate amount of $2.9 million became due. The 1997
Froelich Note had not been paid as of March 28, 2002. We
commenced an action in California state court to collect on the
note, and on October 18, 2001 the court granted summary
adjudication in our favor. We cannot give assurance that we will
recover all or a significant portion of this note.

The principal and accrued interest of notes
receivable from shareholders at December 31, 2001 and 2000
have been reflected as a reduction of shareholders equity.

30



---



##### Table of Contents



MAXICARE HEALTH PLANS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note 6  Income Taxes

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

|                           |         |                        |   |      |  |      |        |        |  |   |     |     |  
|-------------------------- | ------- | ---------------------- | - | ---- |  | ---- | ------ | ------ |  | - | --- | --- | -
|                           |         | 2001                   |   | 2000 |  | 1999
|                           |         |                        |   |      |  |     
|                           |         |                       
|                           |         | (Amounts in thousands)
|Current:                   |         |                        |   |      |  |      |        |        |  |   |     |    
|                           | Federal |                        | $ |     |  |      | $      |       |  |   | $   |    |  
|                           | State   |                        |   |      |  |      |        | 7      |  |   |     | 55  |  
|                           |         |                        |   |      |  |      |        |        |  |   |     |    
|                           |         |                        | 0 |      |  |      | 7      |        |  |   | 55  |    
|                           |         |                        |   |      |  |      |        |        |  |   |     |    
|Deferred:                  |         |                        |   |      |  |      |        |        |  |   |     |    
|                           | Federal |                        |   |      |  |      |        | 15,300 |  |   |     |     |  
|                           | State   |                        |   |      |  |      |        | 2,922  |  |   |     | (55 | )
|                           |         |                        |   |      |  |      |        |        |  |   |     |    
|                           |         |                        |   |      |  |      | 18,222 |        |  |   | (55 | )  
|                           |         |                        |   |      |  |      |        |        |  |   |     |    
|Provision for income taxes |         | $                      |  |      |  | $    | 18,229 |        |  | $ |    |    
|                           |         |                        |   |      |  |      |        |        |  |   |     |    

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

|                                |                                         |                        |   |          |   |  |   |          |  
|------------------------------- | --------------------------------------- | ---------------------- | - | -------- | - |  | - | -------- | -
|                                |                                         | 2001                   |   | 2000    
|                                |                                         |                        |   |         
|                                |                                         |                       
|                                |                                         | (Amounts in thousands)
|Current deferred tax assets:    |                                         |                        |   |          |   |  |   |         
|                                | Loss carryforwards                      |                        | $ |         |   |  | $ |         |  
|                                |                                         |                        |   |          |   |  |   |         
|Noncurrent deferred tax assets: |                                         |                        |   |          |   |  |   |         
|                                | Loss carryforwards                      |                        | $ | (153,654 | ) |  | $ | (140,275 | )
|                                | Depreciation                            |                        |   | (1,001   | ) |  |   | (1,171   | )
|                                | Other                                   |                        |   | (9,098   | ) |  |   | (9,098   | )
|                                |                                         |                        |   |          |   |  |   |         
|                                | Gross deferred tax assets               |                        |   | (163,753 | ) |  |   | (150,544 | )
|                                | Deferred tax assets valuation allowance |                        |   | 163,753  |   |  |   | 150,544  |  
|                                |                                         |                        |   |          |   |  |   |         
|                                | 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:

|                                                                            |  |                        |        |      |  |      |         |   |  |   |        |  
|--------------------------------------------------------------------------- |  | ---------------------- | ------ | ---- |  | ---- | ------- | - |  | - | ------ | -
|                                                                            |  | 2001                   |        | 2000 |  | 1999
|                                                                            |  |                        |        |      |  |     
|                                                                            |  |                       
|                                                                            |  | (Amounts in thousands)
|Tax benefit at statutory rate                                               |  | $                      | (5,052 | )    |  | $    | (15,883 | ) |  | $ | (4,170 | )
|State income taxes                                                          |  |                        | 4      |      |  |      | 7       |   |  |   | 55     |  
|Anticipation of future benefit of NOLs                                      |  |                        |        |      |  |      |         |   |  |   | (55    | )
|Change in deferred tax asset valuation allowance                            |  |                        |        |      |  |      | 18,222  |   |  |   |        |  
|Limitation on current-year tax benefit due to
	unrealized NOL carryforwards |  |                        | 5,048  |      |  |      | 15,883  |   |  |   | 4,170  |  
|                                                                            |  |                        |        |      |  |      |         |   |  |   |        |  
|Provision for income taxes                                                  |  | $                      | 0      |      |  | $    | 18,229  |   |  | $ | 0      |  
|                                                                            |  |                        |        |      |  |      |         |   |  |   |        |  

31



---



##### Table of Contents



MAXICARE HEALTH PLANS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

At December 31, 2001, 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               |                         |     | 30.9  |      
|                   |                         |     |       |      
|                   | Total NOL carryforwards |     | $     | 436.2 | 
|                   |                         |     |       |      

On December 5, 1990 (the Effective
Date) we 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, 2001 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, 2001.
Should we recognize any future benefits from a reduction of the
valuation allowance, this will result in a reduction to our
income tax expense.

32



---



##### Table of Contents



MAXICARE HEALTH PLANS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 $139,000, $330,000 and $380,000 for the years
ended December 31, 2001, 2000 and 1999, respectively. The
Savings Plan was terminated effective February 28, 2002.

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, 2001. Compensation expense recognized
in connection with the SERP was $1,230,000 and $282,000 for the
years ended December 31, 2001 and 1999, respectively. No
expense was recognized in 2000. The SERP compensation expense
recognized in 2001 was the result of a valuation of our
liability performed by a third party. The SERP compensation
expense recognized in 1999 included $500,000 related to the
immediate recognition of the discounted present value of vested
retirement benefits for our former Chief Executive Officer which
was included in the management settlement charge recorded in
1999 (see Note 8  Litigation and Management
Settlement Charges). Our liability under the SERP at
December 31, 2001 is estimated at $2.78 million and is
included in the caption Other Long-Term Liabilities.

Note 8  Litigation and Management
Settlement Charges

In the fourth quarter of 2000, we recorded
charges of $.785 million for employee severance costs and
$.725 million in litigation reserves for costs associated
with the defense and settlement of various legal actions.

In 1999, we recorded a $5.5 million
management settlement charge related to a settlement with our
Chief Executive Officer, Peter J. Ratican pursuant to which
Mr. Ratican agreed to retire as President and CEO of the
Company and agreed not to seek re-election to the Board of
Directors.

Note 9  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. through its rehabilitation date
of May 3, 2001; and the California HMO through its
bankruptcy filing on May 25, 2001, are included in
discontinued operations.

33



---



##### Table of Contents



MAXICARE HEALTH PLANS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The operating results of the discontinued
operations for the years ended December 31 are summarized
as follows:

|                                                                                                  |                                   |                          |         |         |   |      |         |         |   |   |         |         |  
|------------------------------------------------------------------------------------------------- | --------------------------------- | ------------------------ | ------- | ------- | - | ---- | ------- | ------- | - | - | ------- | ------- | -
|                                                                                                  |                                   |                         
|                                                                                                  |                                   | Years Ended December 31,
|                                                                                                  |                                   |                         
|                                                                                                  |                                   | 2001                     |         | 2000    |   | 1999
|                                                                                                  |                                   |                          |         |         |   |     
|Revenues                                                                                          |                                   | $                        | 237,243 |         |   | $    | 731,888 |         |   | $ | 712,872 |        
|Expenses                                                                                          |                                   |                          | 265,338 |         |   |      | 765,240 |         |   |   | 723,869 |        
|                                                                                                  |                                   |                          |         |         |   |      |         |         |   |   |         |        
|Loss from discontinued operations                                                                 |                                   |                          | (28,095 | )       |   |      | (33,352 | )       |   |   | (10,997 | )      
|Write-off of excess of rehabilitated and bankrupt
	subsidiaries liabilities over assets  Note 2 |                                   |                          | 16,423  |         |   |      |         |         |   |   |         |        
|                                                                                                  |                                   |                          |         |         |   |      |         |         |   |   |         |        
|                                                                                                  | Loss from discontinued operations |                          | $       | (11,672 | ) |      | $       | (33,352 | ) |   | $       | (10,997 | )
|                                                                                                  |                                   |                          |         |         |   |      |         |         |   |   |         |        

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

In 1999, expenses include $3.0 million for
loss contracts associated with our commercial healthcare
operations in North and South Carolina. We ceased offering
commercial health care coverage in the Carolinas health plans in
1999.

The net assets (liabilities) of discontinued
operations as of December 31 are summarized as follows:

|                       |                                       |              |   |      |  |   |          |        | 
|---------------------- | ------------------------------------- | ------------ | - | ---- |  | - | -------- | ------ | 
|                       |                                       |             
|                       |                                       | December 31,
|                       |                                       |             
|                       |                                       | 2001         |   | 2000
|                       |                                       |              |   |     
|Current assets         |                                       | $            |  |      |  | $ | 110,497  |       
|Property and equipment |                                       |              |  |      |  |   | 3,306    |       
|Long-term assets       |                                       |              |  |      |  |   | 6,370    |       
|Current liabilities    |                                       |              |  |      |  |   | (109,131 | )     
|                       |                                       |              |   |      |  |   |          |       
|                       | Net assets of discontinued operations |              | $ | 0    |  |   | $        | 11,042 | 
|                       |                                       |              |   |      |  |   |          |       

34



---



##### 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, 2001
and 2000, as restated, to reflect the deconsolidation of the
California HMO described in (4) below and the
reclassification of the HMO operations as discontinued
operations:

|                                                                                              |                     |                                               |          |         |   |              |          |             |   |   |          |       |   |   |          |       |  
|--------------------------------------------------------------------------------------------- | ------------------- | --------------------------------------------- | -------- | ------- | - | ------------ | -------- | ----------- | - | - | -------- | ----- | - | - | -------- | ----- | -
|                                                                                              |                     |                                              
|                                                                                              |                     | Three Months Ended,                          
|                                                                                              |                     |                                              
|                                                                                              |                     | March 31                                      |          | June 30 |   | September 30 |          | December 31
|                                                                                              |                     |                                               |          |         |   |              |          |            
|                                                                                              |                     |                                              
|                                                                                              |                     | (Amounts in thousands, except per share data)
|2001                                                                                          |                     |                                               |          |         |   |              |          |             |   |   |          |       |   |   |          |      
|Revenues as originally reported                                                               |                     | $                                             | 157,244  |         |   | $            | 121,768  |             |   | $ | 83,652   |       |   | $ | N/A      |      
|Adjustment for discontinued operations                                                        |                     |                                               | (157,601 | )       |   |              | (79,642  | )           |   |   | N/A      |       |   |   | N/A      |      
|Adjustment to reflect deconsolidation of
	California subsidiary                               |                     |                                               | N/A      |         |   |              | (41,871  | )           |   |   | (83,404  | )     |   |   | N/A      |      
|Adjustment to reflect inter-company service
	agreement income                                 |                     |                                               | 999      |         |   |              | 991      |             |   |   | 986      |       |   |   | N/A      |      
|                                                                                              |                     |                                               |          |         |   |              |          |             |   |   |          |       |   |   |          |      
|Revenues as revised                                                                           |                     |                                               | 642      |         |   |              | 1,246    |             |   |   | 1,234    |       |   |   | (93      | )    
|Income (loss) as originally reported(1)                                                       |                     |                                               | (18,360  | )       |   |              | (4,916   | )           |   |   | (3,557   | )     |   |   | N/A      |      
|Adjustment to reflect deconsolidation of
	California subsidiary                               |                     |                                               | N/A      |         |   |              | 2,407    |             |   |   | 2,789    |       |   |   | N/A      |      
|Adjustment to reflect write-off of excess of
	California subsidiarys liabilities over assets |                     |                                               | N/A      |         |   |              | 7,317    |             |   |   | N/A      |       |   |   | N/A      |      
|Adjustment for discontinued operations                                                        |                     |                                               | 19,095   |         |   |              | (7,423   | )           |   |   | N/A      |       |   |   | N/A      |      
|                                                                                              |                     |                                               |          |         |   |              |          |             |   |   |          |       |   |   |          |      
|Income (loss) as revised                                                                      |                     |                                               | 735      |         |   |              | (2,615   | )           |   |   | (768     | )     |   |   | (607     | )    
|Net income (loss) per common share(3):                                                        |                     |                                               |          |         |   |              |          |             |   |   |          |       |   |   |          |      
|                                                                                              | Basic as reported   |                                               | $        | (1.88   | ) |              | $        | (.50        | ) |   | $        | (.37  | ) |   |          | N/A   |  
|Adjustment for discontinued operations                                                        |                     | $                                             | 1.96     |         |   | $            | (.76     | )           |   |   | N/A      |       |   |   | N/A      |      
|Adjustment to reflect deconsolidation of
	California subsidiary                               |                     |                                               | N/A      |         |   | $            | .99      |             |   | $ | .29      |       |   |   | N/A      |      
|                                                                                              |                     |                                               |          |         |   |              |          |             |   |   |          |       |   |   |          |      
|                                                                                              | Basic as revised    |                                               | $        | .08     |   |              | $        | (.27        | ) |   | $        | (.08  | ) |   | $        | (.06  | )
|                                                                                              | Diluted as reported |                                               | $        | (1.88   | ) |              | $        | (.50        | ) |   | $        | (.37  | ) |   |          | N/A   |  
|Adjustment for discontinued operations                                                        |                     | $                                             | 1.96     |         |   | $            | (.76     | )           |   |   | N/A      |       |   |   | N/A      |      
|Adjustment to reflect deconsolidation of
	California subsidiary                               |                     |                                               | N/A      |         |   | $            | .99      |             |   | $ | .29      |       |   |   | N/A      |      
|                                                                                              |                     |                                               |          |         |   |              |          |             |   |   |          |       |   |   |          |      
|Diluted as revised                                                                            |                     | $                                             | .08      |         |   | $            | (.27     | )           |   | $ | (.08     | )     |   | $ | (.06     | )    
|2000                                                                                          |                     |                                               |          |         |   |              |          |             |   |   |          |       |   |   |          |      
|Revenues as originally reported                                                               |                     | $                                             | 184,919  |         |   | $            | 187,187  |             |   | $ | 181,755  |       |   | $ | 177,912  |      
|Adjustment to reflect inter-company service
	agreement income                                 |                     |                                               | 3,795    |         |   |              | 3,434    |             |   |   | 3,331    |       |   |   | 4,424    |      
|Adjustment for discontinued operations                                                        |                     |                                               | (185,254 | )       |   |              | (186,505 | )           |   |   | (182,205 | )     |   |   | (177,924 | )    
|                                                                                              |                     |                                               |          |         |   |              |          |             |   |   |          |       |   |   |          |      
|Revenues as revised                                                                           |                     |                                               | 3,460    |         |   |              | 4,116    |             |   |   | 2,881    |       |   |   | 4,412    |      
|Income (loss) as originally reported(2)                                                       |                     |                                               | 50       |         |   |              | (4,680   | )           |   |   | (7,784   | )     |   |   | (52,532  | )    
|Adjustment for discontinued operations                                                        |                     |                                               | (506     | )       |   |              | 4,475    |             |   |   | 4,862    |       |   |   | 24,521   |      
|                                                                                              |                     |                                               |          |         |   |              |          |             |   |   |          |       |   |   |          |      
|Income (loss) as revised                                                                      |                     |                                               | (456     | )       |   |              | (205     | )           |   |   | (2,922   | )     |   |   | (28,011  | )    
|Net income (loss) per common share(3):                                                        |                     |                                               |          |         |   |              |          |             |   |   |          |       |   |   |          |      
|                                                                                              | Basic as reported   |                                               | $        | .00     |   |              | $        | (1.30       | ) |   | $        | (2.08 | ) |   | $        | (6.05 | )
|Adjustment for discontinued operations                                                        |                     | $                                             | (.13     | )       |   | $            | 1.24     |             |   | $ | 1.30     |       |   | $ | 2.82     |      
|                                                                                              |                     |                                               |          |         |   |              |          |             |   |   |          |       |   |   |          |      
|                                                                                              | Basic as revised    |                                               | $        | (.13    | ) |              | $        | (.06        | ) |   | $        | (.78  | ) |   | $        | (3.23 | )
|                                                                                              | Diluted as reported |                                               | $        | .00     |   |              | $        | (1.30       | ) |   | $        | (2.08 | ) |   | $        | (6.05 | )
|Adjustment for discontinued operations                                                        |                     | $                                             | (.13     | )       |   | $            | 1.24     |             |   | $ | 1.30     |       |   | $ | 2.82     |      
|                                                                                              |                     |                                               |          |         |   |              |          |             |   |   |          |       |   |   |          |      
|Diluted as revised                                                                            |                     | $                                             | (.13     | )       |   | $            | (.06     | )           |   | $ | (.78     | )     |   | $ | (3.23    | )    

35



---



##### Table of Contents





---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In the second quarter of 2001 the Company
	recorded a gain of $16.4 million to record the extent to
	which the liabilities of certain subsidiaries that were either
	placed into rehabilitation by regulatory authorities or filed
	for Chapter 11 bankruptcy protection exceeded the assets of
	those subsidiaries (See Item 7. Managements
	Discussion and Analysis of Financial Condition and Results of
	Operations and Item 8. Financial
	Statements and Supplementary Data  Note 2 to the
	Companys Consolidated Financial Statements).                                                                                                                                                                                                                                                              
|   
|(2) | In the second, third and fourth quarters of 2000
	the Company recorded charges of $2.0 million,
	$2.5 million and $.4 million, respectively, for losses
	associated with certain of the Companys capitated provider
	arrangements. In the fourth quarter of 2000 the Company also
	recorded charges of $.785 million for employee severance
	costs and $.725 million in litigation reserves for costs
	associated with the defense and settlement of various legal
	actions. In the fourth quarter of 2000 the Company also wrote
	off its deferred tax asset of $18.2 million. (See
	Item 7. Managements Discussion and
	Analysis of Financial Condition and Results of Operations
	and Item 8. Financial Statements and
	Supplementary Data  Note 6 to the Companys
	Consolidated Financial Statements).
|   
|(3) | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|(4) | On May 25, 2001, the California HMO filed
	for bankruptcy. The Company continued to report the accounts of
	the California HMO in their consolidated financial statements
	for the second and third quarters of 2001. The results of
	operations for these quarters have been restated to reflect the
	deconsolidation of the California HMO, and for all 2001 and 2000
	quarters to reflect the reclassification of the HMO operations
	as discontinued operations.                                                                                                                                                                                                                                                                                                                                              

36



---



##### 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 Stockholders to be filed with the Securities and
Exchange Commission not later than 120 days after the close
of the year ended December 31, 2001.




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, 2001 and 2000                                               
|
| | Consolidated Statements of Operations 
	Years ended December 31, 2001, 2000 and 1999                      
|
| | Consolidated Statements of Changes in
	Shareholders Equity  Years ended
	December 31, 2001, 2000 and 1999
|
| | Consolidated Statements of Cash Flows 
	Years ended December 31, 2001, 2000 and 1999                      
|
| | Notes to Consolidated Financial Statements                                                                 

2. Financial Statement
Schedules



| |                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Schedule I  Condensed Financial
	Information of Registrant  Condensed Balance Sheets
	at December 31, 2001 and 2000, Condensed Statements of
	Operations and Condensed Statements of Cash Flows for the years
	ended December 31, 2001, 2000 and 1999, Notes to Condensed
	Financial Information of Registrant
|
| | Schedule II  Valuation and
	Qualifying Accounts for the years ended December 31, 2001,
	2000 and 1999                                                                                                                                                                                                          
|
| | 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.
| | 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.                                    

37



---



##### Table of Contents



| |        |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | ------ |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 3.3    |  |  | 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.                                                                                                                                                                                                                             
| | 10.28  |  |  | Form of Distribution Trust Agreement.
	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.                                                                                                                                                                                                                                                                                                                                                                                                
| | 10.30  |  |  | Maxicare Health Plans, Inc. 401(k) Plan.
	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.                                                                                                                                                                                                                                                                                                                                                                                             
| | 10.44  |  |  | Incorporated by reference from the Companys
	Annual Report on Form 10-K for the year ended
	December 31, 1991, in which this exhibit bore the same
	exhibit number.                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | 10.44a |  |  | Form of Stock Option Agreement related to the
	Maxicare Health Plans, Inc. 1990 Stock Option Plan. Incorporated
	by reference from the Companys Quarterly Report on
	Form 10-Q for the quarterly period ended September 30,
	1999 in which this exhibit bore the same exhibit number.                                                                                                                                                                                                                                                                                                                         
| | 10.78  |  |  | Maxicare Health Plans, Inc. 1995 Stock Option
	Plan. Incorporated by reference from the Companys
	Quarterly Report on Form 10-Q for the quarterly period
	ended September 30, 1995, in which this exhibit bore the
	same exhibit number.                                                                                                                                                                                                                                                                                                                                                                      
| | 10.78a |  |  | Amendment Number One to the Maxicare Health
	Plans, Inc. 1995 Stock Option Plan. Incorporated by reference
	from the Companys Report on Form 10-K dated for the
	year ended December 31, 1996 in which this exhibit bore the
	same exhibit number.                                                                                                                                                                                                                                                                                                                                                            
| | 10.81  |  |  | Form of Stock Option Agreement relating to
	Exhibit 10.78. Incorporated by reference from the
	Companys Report on Form 10-K dated for the year ended
	December 31, 1995 in which this exhibit bore the same
	exhibit number.                                                                                                                                                                                                                                                                                                                                                                                  
| | 10.83  |  |  | Maxicare Health Plans, Inc. Outside Directors
	1996 Formula Stock Option Plan Incorporated by reference from
	the Companys Proxy Statement for Annual Meeting of
	Stockholders held on July 26, 1996, in which this exhibit
	bore the same exhibit number.                                                                                                                                                                                                                                                                                                                                                    
| | 10.83a |  |  | Amendment Number One to the Maxicare Health
	Plans, Inc. Outside Directors 1996 Formula Stock Option Plan.
	Incorporated by reference from the Companys Annual Report
	on Form 10-K for the year ended December 31, 1996, in
	which this exhibit bore the same exhibit number.                                                                                                                                                                                                                                                                                                                                
| | 10.83b |  |  | Amendment No. 2 to the Maxicare Health
	Plans, Inc. Outside Directors 1996 Formula Stock Option Plan.
	Incorporated by reference from the Companys Quarterly
	Report on Form 10-Q for the quarterly period ended
	March 31, 1999 in which this exhibit bore the same exhibit
	number.                                                                                                                                                                                                                                                                                                                         
| | 10.84  |  |  | Maxicare Health Plans, Inc. Senior Executives
	1996 Stock Option Plan. Incorporated by reference from the
	Companys Proxy Statement for Annual Meeting of
	Stockholders held on July 26, 1996.                                                                                                                                                                                                                                                                                                                                                                                                                
| | 10.84a |  |  | Amendment Number One to the Maxicare Health
	Plans, Inc. Senior Executives 1996 Stock Option Plan.
	Incorporated by reference from the Companys Annual Report
	on Form 10-K for the year ended December 31, 1996, in
	which this exhibit bore the same exhibit number.                                                                                                                                                                                                                                                                                                                                        

38



---



##### Table of Contents



| |        |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ------ | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10.84b |   |  | Amendment Number Two dated April 16, 1999 to
	the Maxicare Health Plans, Inc. Senior Executives 1996 Stock
	Option Plan. Incorporated by reference from the Companys
	Report on Form 8-K dated May 4, 1999 in which this
	exhibit bore the same exhibit number.                                                                                                                                                                                                                                                                                                                                                                                                
| | 10.87  |   |  | Maxicare Health Plans, Inc. Supplemental
	Executive Retirement Program Incorporated by reference from the
	Companys Annual Report on Form 10-K for the year
	ended December 31, 1997, in which this exhibit bore the
	same exhibit number.                                                                                                                                                                                                                                                                                                                                                                                                                     
| | 10.87a |   |  | Amendment No. 1 to the Maxicare Health
	Plans, Inc. Supplemental Executive Retirement Plan dated as of
	March 28, 1998. Incorporated by reference from the
	Companys Quarterly Report on Form 10-Q for the
	quarterly period ended March 31, 1998 in which this exhibit
	bore the same exhibit number.                                                                                                                                                                                                                                                                                                                                                         
| | 10.87b |   |  | Amendment No. 2 to the Maxicare Health
	Plans, Inc. Supplemental Executive Retirement Plan dated as of
	May 8, 1998. Incorporated by reference from the
	Companys Quarterly Report on Form 10-Q for the
	quarterly period ended March 31, 1998 in which this exhibit
	bore the same exhibit number.                                                                                                                                                                                                                                                                                                                                                            
| | 10.87c |   |  | Amendment No. 3 dated April 16, 1999 to
	the Supplemental Executive Retirement Plan. Incorporated by
	reference from the Companys Report on Form 8-K dated
	May 4, 1999 in which this exhibit bore the same exhibit
	number.                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | 10.89  |   |  | Dupee Group Settlement Agreement by and between
	American Opportunity Trust, Paul R. Dupee, Jr., J.O. Hambro
	Capital Management Limited, J.O. Hambro Investment Management,
	and North Atlantic Smaller Companies Investment Trust and
	Maxicare Health Plans, Inc., dated as of May 8, 1998,
	including Exhibit A, Resolutions to be Adopted by the
	Shareholders of Maxicare Health Plans, Inc. at the 1998 Annual
	Meeting, and Exhibits I and II, form of stipulations
	dismissing litigation. Incorporated by reference from the
	Companys Report on Form 10-Q for the period ended
	March 31, 1998 in which the exhibit bore the same exhibit
	number.
| | 10.89a |   |  | Form of Voting Agreement including
	Exhibit A, Resolutions to be Adopted by the
	Shareholders of Maxicare Health Plans, Inc. at the 1998 Annual
	Meeting. Incorporated by reference from the Companys
	Report on Form 10-Q for the period ended March 31,
	1998 in which the exhibit bore the same exhibit number.                                                                                                                                                                                                                                                                                                                                           
| | 10.92. | 1 |  | Maxicare Health Plans, Inc. 1999 Stock Option
	Plan. Incorporated by reference from the Companys Proxy
	Statement for Annual Meeting of Stockholders held on
	June 30, 1999.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | 10.92a |   |  | Form of Stock Option Agreement related to the
	Maxicare Health Plans, Inc. 1999 Stock Option Plan. Incorporated
	by reference from the Companys Quarterly Report on
	Form 10-Q for the quarterly period ended September 30,
	1999 in which this exhibit bore the same exhibit number.                                                                                                                                                                                                                                                                                                                                                                          
| | 10.94  |   |  | Employment Agreement between the Company and
	Susan M. Blais dated January 25, 2000. Incorporated by
	reference from the Companys Quarterly Report on
	Form 10-Q for the quarterly period ended June 30, 2000 in
	which this exhibit bore the same exhibit number.                                                                                                                                                                                                                                                                                                                                                                                             
| | 10.95  |   |  | Application and Business Services Agreement
	entered into by and between Maxicare Health Plans, Inc., and The
	TriZetto Group, Inc. Incorporated by reference from the
	Companys Quarterly Report on Form 10-Q for the
	quarterly period ended September 30, 2000 in which this
	exhibit bore the same exhibit number.                                                                                                                                                                                                                                                                                                                                         
| | 10.96  |   |  | Pharmacy Benefits Management Services Agreement
	between Maxicare Health Plans, Inc. and Medimpact Healthcare
	Systems, Inc. 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.                                                                                                                                                                                                                                                                                                                                                               
| | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | 28.1   |   |  | Notice That The Conditions to Effectiveness of
	the Plan Have Been Met or Waived. Incorporated by reference from
	the Companys Report on Form 8-K dated
	December 5, 1990 in which this exhibit bore the same
	exhibit number.                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | 28.2   |   |  | Stipulation and Order Regarding Conditions to
	Effectiveness of Joint Plan of Reorganization. Incorporated by
	reference from the Companys Report on Form 8-K dated
	December 5, 1990 in which this exhibit bore the same
	exhibit number.                                                                                                                                                                                                                                                                                                                                                                                                                     

39



---



##### 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 12, 2002

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 12, 2002
|/s/ JOSEPH W. WHITEJoseph W. White       |  | Chief Financial Officer
	and Director
	Principal Finance and
	Accounting Officer |  | April 12, 2002
|/s/ GEORGE H. BIGELOWGeorge H. Bigelow   |  | Director                                                                         |  | April 12, 2002
|                                        
|/s/ JOHN H. GUTFREUNDJohn H. Gutfreund   |  | Director                                                                         |  | April 12, 2002
|                                        
|/s/ SIMON J. WHITMEYSimon J. Whitmey     |  | Director                                                                         |  | April 12, 2002

40



---



##### Table of Contents



MAXICARE HEALTH PLANS, INC.

SCHEDULE I  CONDENSED FINANCIAL
INFORMATION OF REGISTRANT

CONDENSED BALANCE SHEETS

|                                        |                                                       |                                            |       |       |        |   |        |        |        | 
|--------------------------------------- | ----------------------------------------------------- | ------------------------------------------ | ----- | ----- | ------ | - | ------ | ------ | ------ | 
|                                        |                                                       |                                           
|                                        |                                                       | December 31,                              
|                                        |                                                       |                                           
|                                        |                                                       | 2001                                       |       | 2000 
|                                        |                                                       |                                            |       |      
|                                        |                                                       |                                           
|                                        |                                                       | (Amounts                                  
|                                        |                                                       | in thousands)                             
|Current Assets                          |                                                       |                                            |       |       |        |   |        |       
|                                        | Cash and cash equivalents                             |                                            | $     | 78    |        |   | $      | 4,903  |       
|                                        | Accounts receivable, net                              |                                            |       |       |        |   |        | 9      |       
|                                        | Amounts due from subsidiaries 
	Note 2               |                                            |       |       |        |   |        | 878    |       
|                                        | Other current assets                                  |                                            |       | 250   |        |   |        | 2,431  |       
|                                        |                                                       |                                            |       |       |        |   |        |       
|                                        |                                                       | Total Current Assets                       |       |       | 328    |   |        |        | 8,221  | 
|Property and Equipment, Net             |                                                       |                                            | 1,156 |       |        |   | 1,571  |       
|Investment in Subsidiaries              |                                                       |                                            | 2,214 |       |        |   | 15,160 |       
|                                        |                                                       |                                            |       |       |        |   |        |       
|                                        |                                                       | Total Assets                               |       | $     | 3,698  |   |        | $      | 24,952 | 
|                                        |                                                       |                                            |       |       |        |   |        |       
|Current Liabilities                     |                                                       |                                            |       |       |        |   |        |       
|                                        | Estimated claims and other health care costs
	payable |                                            | $     |       |        |   | $      | 516    |       
|                                        | Amounts due to subsidiaries 
	Note 2                 |                                            |       | 80    |        |   |        | 1,557  |       
|                                        | Other current liabilities                             |                                            |       | 7,608 |        |   |        | 10,658 |       
|                                        |                                                       |                                            |       |       |        |   |        |       
|                                        |                                                       | Total Current Liabilities                  |       |       | 7,688  |   |        |        | 12,731 | 
|Other Long-Term Liabilities             |                                                       |                                            | 3,816 |       |        |   | 5,080  |       
|                                        |                                                       |                                            |       |       |        |   |        |       
|                                        |                                                       | Total Liabilities                          |       |       | 11,504 |   |        |        | 17,811 | 
|                                        |                                                       |                                            |       |       |        |   |        |       
|Commitments and Contingencies 
	Note 3 |                                                       |                                            |       |       |        |   |        |       
|                                        |                                                       | Total Shareholders Equity                 |       |       | (7,806 | ) |        |        | 7,141  | 
|                                        |                                                       |                                            |       |       |        |   |        |       
|                                        |                                                       | Total Liabilities and Shareholders Equity |       | $     | 3,698  |   |        | $      | 24,952 | 
|                                        |                                                       |                                            |       |       |        |   |        |       

See notes to condensed financial information of
registrant.

41



---



##### Table of Contents



MAXICARE HEALTH PLANS, INC.

SCHEDULE I  CONDENSED FINANCIAL
INFORMATION OF REGISTRANT

CONDENSED STATEMENTS OF OPERATIONS

|                               |                                                |                          |         |         |         |      |         |         |         |   |         |        |        | 
|------------------------------ | ---------------------------------------------- | ------------------------ | ------- | ------- | ------- | ---- | ------- | ------- | ------- | - | ------- | ------ | ------ | 
|                               |                                                |                         
|                               |                                                | Years Ended December 31,
|                               |                                                |                         
|                               |                                                | 2001                     |         | 2000    |         | 1999
|                               |                                                |                          |         |         |         |     
|                               |                                                |                         
|                               |                                                | (Amounts in thousands)  
|Revenues                       |                                                |                          |         |         |         |      |         |         |         |   |         |       
|                               | Equity in earnings (losses) of subsidiaries    |                          | $       | (13,446 | )       |      | $       | (33,365 | )       |   | $       | 60     |       
|                               | Service agreement income                       |                          |         |         |         |      |         | 11,599  |         |   |         | 13,035 |       
|                               | Investment income                              |                          |         | 81      |         |      |         | 384     |         |   |         | 245    |       
|                               | Other income (expense)                         |                          |         | 410     |         |      |         | (51     | )       |   |         | (429   | )     
|                               |                                                |                          |         |         |         |      |         |         |         |   |         |       
|                               |                                                | Total Revenues           |         |         | (12,955 | )    |         |         | (21,433 | ) |         |        | 12,911 | 
|                               |                                                |                          |         |         |         |      |         |         |         |   |         |       
|Expenses                       |                                                |                          |         |         |         |      |         |         |         |   |         |       
|                               | Marketing, general and administrative expenses |                          |         | 1,268   |         |      |         | 24,322  |         |   |         | 24,802 |       
|                               | Depreciation and amortization                  |                          |         | 704     |         |      |         | 962     |         |   |         | 916    |       
|                               |                                                |                          |         |         |         |      |         |         |         |   |         |       
|                               |                                                | Total Expenses           |         |         | 1,972   |      |         |         | 25,284  |   |         |        | 25,718 | 
|                               |                                                |                          |         |         |         |      |         |         |         |   |         |       
|Loss from Operations           |                                                |                          | (14,927 | )       |         |      | (46,717 | )       |         |   | (12,807 | )     
|Income Tax Benefit (Provision) |                                                |                          |         |         |         |      | (18,229 | )       |         |   | 543     |       
|                               |                                                |                          |         |         |         |      |         |         |         |   |         |       
|Net Loss                       |                                                | $                        | (14,927 | )       |         | $    | (64,946 | )       |         | $ | (12,264 | )     
|                               |                                                |                          |         |         |         |      |         |         |         |   |         |       

See notes to condensed financial information of
registrant.

42



---



##### Table of Contents



MAXICARE HEALTH PLANS, INC.

SCHEDULE I  CONDENSED FINANCIAL
INFORMATION OF REGISTRANT

CONDENSED STATEMENTS OF CASH FLOWS

|                                                                              |                                                                                                  |                          |                                                       |        |   |        |         |         |    |         |         |        |     |        |  
|----------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------ | ------------------------ | ----------------------------------------------------- | ------ | - | ------ | ------- | ------- | -- | ------- | ------- | ------ | --- | ------ | -
|                                                                              |                                                                                                  |                         
|                                                                              |                                                                                                  | Years Ended December 31,
|                                                                              |                                                                                                  |                         
|                                                                              |                                                                                                  | 2001                     |                                                       | 2000   |   | 1999  
|                                                                              |                                                                                                  |                          |                                                       |        |   |       
|                                                                              |                                                                                                  |                         
|                                                                              |                                                                                                  | (Amounts in thousands)  
|Cash Flows from Operating
	Activities:                                        |                                                                                                  |                          |                                                       |        |   |        |         |         |    |         |         |       
|Net loss                                                                      |                                                                                                  | $                        | (14,927                                               | )      |   | $      | (64,946 | )       |    | $       | (12,264 | )     
|Adjustments to reconcile net loss to net cash
	used for operating activities: |                                                                                                  |                          |                                                       |        |   |        |         |         |    |         |         |       
|                                                                              | Depreciation and amortization                                                                    |                          |                                                       | 704    |   |        |         | 962     |    |         |         | 916    |    
|                                                                              | Provision for (benefit from) deferred income taxes                                               |                          |                                                       |        |   |        |         | 18,229  |    |         |         | (55    | )  
|                                                                              | Loss contracts, divestiture costs, litigation,
	management settlement and other charges          |                          |                                                       |        |   |        |         | 1,959   |    |         |         | 4,948  |    
|                                                                              | Equity in (earnings) losses of subsidiaries                                                      |                          |                                                       | 13,446 |   |        |         | 33,365  |    |         |         | (60    | )  
|                                                                              | Changes in other assets and liabilities                                                          |                          |                                                       | (3,548 | ) |        |         | 2,448   |    |         |         | 2,421  |    
|                                                                              |                                                                                                  |                          |                                                       |        |   |        |         |         |    |         |         |       
|                                                                              |                                                                                                  |                          | Net cash used for operating activities                |        |   | (4,325 | )       |         |    | (7,983  | )       |        |     | (4,094 | )
|                                                                              |                                                                                                  |                          |                                                       |        |   |        |         |         |    |         |         |       
|Cash Flows from Investing
	Activities:                                        |                                                                                                  |                          |                                                       |        |   |        |         |         |    |         |         |       
|                                                                              | Proceeds from sales and maturities of marketable
	securities, net                                |                          |                                                       |        |   |        |         | (34     | )  |         |         | 1,086  |    
|                                                                              | Capital contributions to subsidiaries, net                                                       |                          |                                                       | (500   | ) |        |         | (18,500 | )  |         |         | (8,300 | )  
|                                                                              | Dividends received from subsidiaries                                                             |                          |                                                       |        |   |        |         | 1,550   |    |         |         | 10,700 |    
|Dispositions of property and equipment, net                                   |                                                                                                  |                          |                                                       |        |   |        |         |         |    |         | 173     |       
|                                                                              |                                                                                                  |                          |                                                       |        |   |        |         |         |    |         |         |       
|                                                                              |                                                                                                  |                          | Net cash provided by (used for) investing
	activities |        |   | (500   | )       |         |    | (16,984 | )       |        |     | 3,659  |  
|                                                                              |                                                                                                  |                          |                                                       |        |   |        |         |         |    |         |         |       
|Cash Flows from Financing
	Activities:                                        |                                                                                                  |                          |                                                       |        |   |        |         |         |    |         |         |       
|                                                                              | Issuance of common stock                                                                         |                          |                                                       |        |   |        |         | 29,053  |    |         |         |        |    
|                                                                              | Payments on capital lease obligations                                                            |                          |                                                       |        |   |        |         |         |    |         |         | (292   | )  
|                                                                              |                                                                                                  |                          |                                                       |        |   |        |         |         |    |         |         |       
|Net cash provided by (used for) financing
	activities                         |                                                                                                  |                          | 0                                                     |        |   |        | 29,053  |         |    |         | (292    | )     
|                                                                              |                                                                                                  |                          |                                                       |        |   |        |         |         |    |         |         |       
|Net increase (decrease) in cash and cash
	equivalents                         |                                                                                                  |                          | (4,825                                                | )      |   |        | 4,086   |         |    |         | (727    | )     
|Cash and cash equivalents at beginning of year                                |                                                                                                  |                          | 4,903                                                 |        |   |        | 817     |         |    |         | 1,544   |       
|                                                                              |                                                                                                  |                          |                                                       |        |   |        |         |         |    |         |         |       
|Cash and cash equivalents at end of year                                      |                                                                                                  | $                        | 78                                                    |        |   | $      | 4,903   |         |    | $       | 817     |       
|                                                                              |                                                                                                  |                          |                                                       |        |   |        |         |         |    |         |         |       
|Supplemental disclosures of cash flow information:                            |                                                                                                  |                          |                                                       |        |   |        |         |         |    |         |         |       
|                                                                              | Cash paid during the year for                                                                   |                          |                                                       |        |   |        |         |         |    |         |         |        |    
|                                                                              |                                                                                                  | Interest                 |                                                       | $      |   |        |         | $       | 92 |         |         | $      | 153 |       
|                                                                              |                                                                                                  | Income taxes             |                                                       |        |   |        |         |         |    |         |         | $      | 63  |       
|Supplemental schedule of non-cash investing
	activities:                      |                                                                                                  |                          |                                                       |        |   |        |         |         |    |         |         |       
|                                                                              | Capital lease obligations incurred for purchase
	of property and equipment and intangible assets |                          |                                                       |        |   |        |         |         |    |         | $       | 1,065  |    
|                                                                              | Forgiveness of note receivable from shareholder                                                  |                          |                                                       |        |   |        |         |         |    |         | $       | 145    |    
|                                                                              | Allowance for forgiveness of note receivable from
	shareholder                                   |                          |                                                       |        |   |        |         |         |    |         | $       | 2,542  |    
|                                                                              | Forgiveness of amount due from subsidiary                                                        |                          |                                                       |        |   |        |         |         |    |         | $       | 1,150  |    
|                                                                              | Equipment contributed to subsidiary                                                              |                          |                                                       |        |   |        |         |         |    |         | $       | 404    |    

See notes to condensed financial information of
registrant.

43



---



##### Table of Contents



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

MHPs assets held under capital leases at
December 31, 1999 of $961,000 (net of $1,130,000, of
accumulated amortization) were comprised primarily of equipment
leases. On December 31, 2000 MHP contributed all of its
fixed assets and intangible assets, along with any related
liabilities, to Maxicare, its California HMO subsidiary. As a
result of the bankruptcy of the California HMO (see
Note 4  Disposition of Subsidiaries
below) MHP has retained responsibility for these obligations.
Accordingly, the assets and related lease liabilities are
included in the December 31, 2001 and 2000 condensed
balance sheets of the registrant.

Assets held under capital leases at
December 31, 2001 and 2000 of $1,156,000 and $1,570,000,
respectively, (net of $1,306,000 and $859,000, respectively, 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, 2001 were as follows:

|                             |                           |                        |     |             |  |   |      |       | 
|---------------------------- | ------------------------- | ---------------------- | --- | ----------- |  | - | ---- | ----- | 
|                             |                           | Operating              |     | Capitalized
|                             |                           | Leases                 |     | Leases     
|                             |                           |                        |     |            
|                             |                           |                       
|                             |                           | (Amounts in thousands)
|2002                         |                           | $                      | 871 |             |  | $ | 696  |      
|2003                         |                           |                        | 336 |             |  |   | 494  |      
|2004                         |                           |                        | 183 |             |  |   | 220  |      
|2005                         |                           |                        |    |             |  |   | 114  |      
|2006                         |                           |                        |    |             |  |   | 2    |      
|                             |                           |                        |     |             |  |   |      |      
|                             | Total minimum obligations |                        | $   | 1,390       |  |   |      | 1,526 | 
|                             |                           |                        |     |             |  |   |      |      
|Amount representing interest |                           |                        |     |             |  |   | (200 | )    
|Less current obligations     |                           |                        |     |             |  |   | (555 | )    
|                             |                           |                        |     |             |  |   |      |      
|Long-term obligations        |                           |                        |     |             |  | $ | 771  |      
|                             |                           |                        |     |             |  |   |      |      

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 $675,000 to the payment of operating
lease obligations and $690,000 to the payment of capital lease
obligations, respectively, in 2002. Such payments by the
California HMO and Maxicare Life and Health Insurance Company,
Inc. are unlikely to continue after December 31, 2002.

44



---



##### Table of Contents



MAXICARE HEALTH PLANS, INC.


SCHEDULE I  CONDENSED FINANCIAL
INFORMATION OF REGISTRANT

NOTES TO CONDENSED FINANCIAL INFORMATION OF
REGISTRANT  (Continued)

Note 4  Disposition of
Subsidiaries

During the course of 2001 all significant
operating subsidiaries of MHP ceased operation. On May 4,
2001, the Commissioner of the Indiana Department of Insurance
petitioned the Marion County Circuit Court to place our Indiana
HMO into rehabilitation. Our Indiana HMO is the sole owner of
Maxicare Life and Health Insurance Company, the indemnity
provider underwriting the preferred provider organization
(PPO), point of service (POS) and life
insurance products offered by both our Indiana (PPO only) and
California HMOs. On May 24, 2001, the MDOI placed Maxicare
Life and Health Insurance Company, Inc. under an Order of
Administrative Supervision. and on January 28, 2002
Maxicare Life and Health Insurance Company, Inc. was placed into
rehabilitation by the Missouri Department of Insurance.
Effective January 1, 2002 Maxicare Life and Health
Insurance Company, Inc. had no membership.

Our California HMO was primarily regulated by the
California Department of Managed Health Care. 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. On December 31, 2001 the California
HMO surrendered its HMO license. Effective January 1, 2002
the California HMO had no membership.

Equity in loss of subsidiaries for the year ended
December 31, 2001 includes a gain of $16.4 million
realized by MHP in the second quarter of 2001 upon the Indiana
Department of Insurances placement of the Indiana HMO and
its wholly-owned subsidiary, Maxicare Life and Health Insurance
Company, Inc., into rehabilitation 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.

45



---



##### Table of Contents






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,
	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 | 
|                                                                     |  |                        |       |            |  |                  |       |              |  |            |  |  |  |   |        |      |  |   |       | 
|For the Year Ended December 31,
	1999                                |  |                        |       |            |  |                  |       |              |  |            |  | 
|Allowance for doubtful accounts and retroactive
	billing adjustments |  | $                      | 5,481 |            |  |                  |       |              |  |            |  |  |  | $ | (3,589 | )(2) |  | $ | 1,892 | 
|                                                                     |  |                        |       |            |  |                  |       |              |  |            |  |  |  |   |        |      |  |   |       | 
|                                                                     |  | $                      | 5,481 |            |  |                  |       |              |  |            |  |  |  | $ | (3,589 | )    |  | $ | 1,892 | 
|                                                                     |  |                        |       |            |  |                  |       |              |  |            |  |  |  |   |        |      |  |   |       | 



---



|    |                                                                                                                                                                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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).
|   
|(2) | Decrease in allowance, net of retroactive billing
	adjustment write-offs.                                                                                                                                                                                                                                                                                

46