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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
   Form 10-K   (Mark One) [X]
    
    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2003 or [   ]
    
    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
    
    (IRS Employerincorporation or organization)
    
    Identification No.)11231 South La Cienega Boulevard, Los Angeles, California
    
    90045(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code: (310) 665-9861 Securities registered pursuant to Section 12(b) of the Act: Title of each class
    
    Name of each exchangeNone
    
    None
 Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [   ] 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. [X] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). o Yes x No The aggregate market value of the voting stock held by non-affiliates of
the registrant as of April 9, 2004. Common Stock, $.01 par
value  $2,054,165 The number of shares outstanding of each of the issuers classes of
capital stock, as of April 12, 2004. Common Stock, $.01 par value  9,991,926 shares DOCUMENTS INCORPORATED BY REFERENCE None.




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TABLE OF CONTENTS  PART IItem 1. BusinessItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Submission of Matters to a Vote of Security HoldersPART IIItem 5. Market for the Registrants Common Stock and Related Shareholder MattersItem 6. Selected Financial DataItem 7. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 7a. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataREPORT OF INDEPENDENT AUDITORSCONSOLIDATED BALANCE SHEETSCONSOLIDATED STATEMENTS OF OPERATIONSCONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (DEFICIT)CONSOLIDATED STATEMENTS OF CASH FLOWSNOTES TO CONSOLIDATED FINANCIAL STATEMENTSItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosuresItem 9A. Controls and ProceduresPART IIIItem 10. Directors and Executive Officers of the RegistrantItem 11. Executive CompensationItem 12. Security Ownership of Certain Beneficial Owners and ManagementItem 13. Certain Relationships and Related TransactionsItem 14. Principal Accounting Services and FeesPART IVItem 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-KSIGNATURESEXHIBIT 14EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2    Table of Contents  
 PART I 
 Item 1.Business General Since March 15, 2002 we have not been engaged in any active business and
we have no reasonable prospects of obtaining or generating any ongoing
business. At December 31, 2003 we had a substantial capital deficiency. As noted above, we have no continuing business activities. We are in the
process of exploring possible strategies to realize any possible value
remaining in the Company. It is likely, however, that it will be necessary for
us to liquidate. We cannot give assurance that any liquidation would provide
any value to our shareholders. We are a Delaware Corporation, organized on January 5, 1981. Our executive
offices are located at 11231 South La Cienega Boulevard, Los Angeles,
California 90045 and our telephone number is (310) 665-9861. Disposition of Subsidiaries Through our wholly-owned subsidiaries, we formerly operated health
maintenance organizations (HMOs) in California (through May 25, 2001) and
Indiana (through May 3, 2001). Maxicare Life and Health Insurance Company, our
licensed insurance company, operated preferred provider organizations (PPOs)
in California (through December 31, 2001) and Indiana (through May 3, 2001) in
conjunction with the HMO products of Maxicare (our California HMO) and Maxicare
Indiana, Inc. (our Indiana HMO). As of January 1, 2002 our operations were
substantially terminated. On March 14, 2003 the California HMOs Liquidating Plan of Reorganization
was confirmed in the United States Bankruptcy Court. We will not receive any
distribution of assets from the California HMO. The Indiana HMO was formally placed into liquidation on July 3, 2001. On
that date the Indiana Commissioner of Insurance was appointed as Liquidator. It
is very unlikely that we will receive any distribution of assets from the
Indiana HMO. On January 28, 2002 the Missouri Department of Insurance placed Maxicare
Life and Health Insurance Company, Inc. into rehabilitation. On March 4, 2003
the Board of Directors of Maxicare Life and Health Insurance Company agreed to
its liquidation. We cannot say at this time whether we will receive any
distribution of assets from Maxicare Life and Health Insurance Company. We also own and operate Health Care Assurance Company, Ltd., a captive
insurer that provided certain insurance coverage to us and our subsidiaries.
Effective January 31, 2002, Health Care Assurance Company, Ltd. ceased
providing all such insurance. 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 this Form 10-K annual report, including
the risks described under Risks Factors and Managements Discussion and
Analysis of Financial Condition and Results of Operations and in other
documents which we file with the Securities and Exchange Commission. In
addition, such statements could be affected by risks and uncertainties related
to our financial condition, as well as general market conditions and growth
rates, and general economic conditions. Any forward-looking statements speak
only as of the date on which they are made, and we do not undertake any
obligation to update any forward-looking statements to reflect events or
circumstances after the date of this Form 10-K. 2




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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, 2003:  
    
    We had a consolidated working capital deficiency of approximately $1.5 million.
    
    We had a deficiency in shareholders equity of approximately $3.5 million.
    
    Of our total cash and cash equivalents of $5.4 million at December
31, 2003, $2.5 million was held at Health Care Assurance Company, Ltd.
The transfer of cash to MHP from Health Care Assurance Company, Ltd.
requires the approval of regulatory authorities.
    
    We had no means of generating cash or working capital.
    
    The Commissioner of the Indiana Department of Insurance has made
claims against us that may exceed $48.0 million and are far in excess of
liabilities accrued by us in connection with the claims. Additionally,
substantial claims may be made against us in connection with the lease
of a building that the landlord contends requires substantial
restoration at our expense and a pharmacy services agreement. As a result, we cannot give any assurance that it will not be necessary
for us to seek protection under the Bankruptcy Code or liquidate without paying
any consideration to our shareholders. Because our shares are not listed on a stock exchange, our shares are subject
to the penny stock rules, which make it difficult to purchase or sell our
shares. Our common stock is subject to the SECs penny-stock rules, which impose
additional sales practice requirements on broker-dealers who sell our stock to
persons other than established customers and institutional accredited
investors. These rules may affect the ability of broker-dealers to sell our
common stock and may affect the ability of our shareholders to sell any common
stock they may own. Employees As of March 31, 2004 we had no full-time employees. Certain employees of
the California HMO work for us on a part time basis. We reimburse the
California HMO for the cost of their time under an established agreement. Our Executive Officers Our executive officers at March 31, 2004 were as follows: Name
    
    Age
    
    PositionPaul R. Dupee, Jr.
    
    
    60
    
    
    Chairman of the Board of Directors, Chief Executive OfficerAlan D. Bloom
    
    
    58
    
    
    Senior Vice President, Secretary and General CounselPatricia A Fitzpatrick
    
    
    52
    
    
    TreasurerJoseph W. White
    
    
    45
    
    
    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. 3




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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 has served as Vice
President, Accounting of Molina Healthcare, Inc. since June 2003. Mr. White is
a certified public accountant. 
 Item 2.Properties We lease space at two locations in California. Both of these leases
terminate in 2004. Our executive offices are located at 11231 South La Cienega
Boulevard, Los Angeles, California 90045, pursuant to a lease expiring in May
2004. Under the terms of this lease, we pay a monthly rental of approximately
$19,500, plus a percentage of operating costs and annual increases. Through
March 31, 2004, the California HMO was sharing space with us and paying a
substantial portion of our lease costs, and may continue to do so. 
 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.,
our Indiana HMO, filed a complaint (the Complaint) in the Marion County
Circuit Court of Indiana against us and the five directors of the Indiana HMO,
one of whom was a director of the Company. The Commissioner amended the
Complaint on February 1, 2002. The Complaint, as amended, alleges, in
substance, that: (1) the directors of the Indiana HMO breached their fiduciary
duty by failing to maintain a plan providing for continuation of care benefits
in the event that the Indiana HMO was placed in receivership, and that the
Company is also liable for such failure; (2) the Company fraudulently concealed
the financial condition of the Indiana HMO; (3) the Company manipulated the
finances of the Indiana HMO for the Companys own benefit; and (4) the Company
received preferential and/or fraudulent transfers of money from the Indiana
HMO. While the amended Complaint requests money damages in largely unspecified
amounts, we understand the Commissioners claims against us to be in excess of
$48.0 million. All defendants answered the amended Complaint on April 5, 2002.
Pre-trial discovery has not been completed. We believe that the claims against
us are without merit and intend to vigorously defend the suit. b. Consulting Agreement On or about February 10, 2003, Peter J. Ratican, a shareholder and former
executive officer and director of MHP, commenced an action against us in the
Superior Court of the State of California, alleging that we had breached his
consulting agreement with us and claiming damages. On March 11, 2003, Mr.
Ratican obtained an attachment in the amount of $767,000 against us in
connection with his claim. In February 2004, we entered into a Settlement
Agreement and Mutual Release with Mr. Ratican under the terms of which we paid
Mr. Ratican $550,000 in addition to the amount already attached,
for a total payment of $1,317,000. c. Back Office Services Agreement Effective February 2, 2000, we entered into a Services Agreement for Back
Office Administration with Nichols TXEN Corporation calling for Nichols TXEN to
provided certain claims adjudication services to certain of our subsidiaries in
exchange for a predetermined per member per month fee. Subsequently, CSC
Healthcare Inc. (CSC), the successor in interest to Nichols TXEN, commenced
an arbitration (the Arbitration) in Atlanta against us before the American
Arbitration Association, claiming our breach of the parties Service Agreement
for Back Office Administration and contract damages of approximately $1.3
million. On December 1, 2003, the Arbitration and a related case brought by CSC
against us in Alabama State court were settled and all claims and counterclaims
dismissed. Pursuant to such settlement, we paid CSC $300,000. 4




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Item 4.Submission of Matters to a Vote of Security Holders No matter was submitted to a vote of security holders during the three
months ended December 31, 2003. 5




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PART II 
 Item 5.Market for the Registrants Common Stock and Related Shareholder Matters (a) Market Information Our Common Stock trades on the Over the Counter Bulletin Board under the
trading symbol MAXIQ. The following table sets forth the high and low sale prices per share of
our common stock. The quotations are interdealer prices without retail
mark-ups, markdowns, or commissions, and may not represent actual transactions. Common Stock Sale PriceHigh
    
    Low2003First Quarter.
    
    $
    .01
    
    
    $
    .01Second Quarter
    
    $
    .05
    
    
    $
    .01Third Quarter.
    
    $
    .18
    
    
    $
    .01Fourth Quarter
    
    $
    .47
    
    
    $
    .112002First Quarter.
    
    $
    .02
    
    
    $
    .01Second Quarter
    
    $
    .01
    
    
    $
    .01Third Quarter.
    
    $
    .01
    
    
    $
    .01Fourth Quarter
    
    $
    .01
    
    
    $
    .01
 Our common stock is subject to the SECs penny-stock rules, which impose
additional sales practice requirements on broker-dealers who sell our stock to
persons other than established customers and institutional accredited
investors. These rules may affect the ability of broker-dealers to sell our
common stock and may affect the ability of our shareholders to sell any common
stock they may own. (b) Holders There were 915 holders of record of our Common Stock as of December 31,
2003. (c) Dividends We have not paid any cash dividends on our Common Stock and have no
intention of doing so in the near future. Additionally, of our total cash and cash equivalents of $5.4 million at
December 31, 2003, $2.5 million was held at Health Care Assurance Company, Ltd.
The transfer of cash to MHP from Health Care Assurance Company, Ltd. requires
the approval of regulatory authorities, potentially limiting our ability to pay
dividends. (d) Sales of Unregistered Equity Security During 2003 we had no sales of unregistered equity securities. We issued
250,000 shares of unregistered common stock as part of an agreement settling
certain litigation in the third quarter of 2003. Please see Item 8. Financial
Statements and Supplementary Data  Note 2 to our Consolidated Financial
Statements. 6




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(e) Securities Authorized for Issuance Under Equity Compensation Plans No securities were authorized for issuance during 2003 pursuant to equity
compensation plans. Securities Authorized for Issuance Under Equity Compensation Plans (as of
December 31, 2003) The following table sets forth information concerning shares available for
issuance pursuant to equity compensation plans. Number of sharesremaining available forfuture issuance underNumber of shares to be
    
    Weighted average
    
    equity compensationissued upon exercise of
    
    exercise price of
    
    plans (excludingoutstanding options,
    
    outstanding options,
    
    securities reflected inwarrants and rights
    
    warrants and rights
    
    column (a)Plan Category
    
    (a)
    
    (b)
    
    (c)Equity compensation
plans approved by
security holders
    
    
    207,120
    (1)
    
    $
    16.86
    
    
    
    1,118,133
    (2)
   (1)
    
    Options to purchase shares of our common stock issued under the 1995
Stock Option Plan, the 1999 Stock Option Plan, the 2000 Stock Option Plan,
the Outside Directors 1996 Formula Stock Option Plan and Senior Executive
1996 Stock Option Plan. All options were vested as of December 31, 2003.(2)
    
    Includes shares issuable under the 1995 Stock Option Plan, the 1999 Stock
Option Plan, the 2000 Stock Option Plan, the Outside Directors 1996
Formula Stock Option Plan and Senior Executive 1996 Stock Option Plan. 7




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Item 6.Selected Financial Data For the Years Ended December 31,2003
    
    2002
    
    2001
    
    2000
    
    1999(Amounts in thousands except per share and membership data)Continuing operations(1):RevenuesPremiums
    
    $
    
    
    
    $
    
    
    
    $
    1,819
    
    
    $
    2,343
    
    
    $
    1,928Investment income(2)
    
    
    33
    
    
    
    569
    
    
    
    239
    
    
    
    529
    
    
    
    288Inter-company service agreement income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,599
    
    
    
    13,035Other income
    
    
    3,471
    
    
    
    268
    
    
    
    971
    
    
    
    398
    
    
    
    4,103Total revenues
    
    
    3,504
    
    
    
    837
    
    
    
    3,029
    
    
    
    14,869
    
    
    
    19,354ExpensesHealth care expenses (credits)
    
    
    (1,146
    )
    
    
    (312
    )
    
    
    582
    
    
    
    2,615
    
    
    
    866Salary, general and administrative
expenses
    
    
    1,833
    
    
    
    1,062
    
    
    
    4,998
    
    
    
    23,147
    
    
    
    13,339Depreciation and
amortization
    
    
    
    
    
    
    120
    
    
    
    704
    
    
    
    962
    
    
    
    916Impairment of leased assets
    
    
    
    
    
    
    1,036
    
    
    
    
    
    
    
    
    
    
    
    Charges for litigation and
management settlements(3)
    
    
    75
    
    
    
    209
    
    
    
    
    
    
    
    1,510
    
    
    
    5,500Total expenses
    
    
    762
    
    
    
    2,115
    
    
    
    6,284
    
    
    
    28,234
    
    
    
    20,621Income (loss) from continuing operations before
income taxes
    
    
    2,742
    
    
    
    (1,278
    )
    
    
    (3,255
    )
    
    
    (13,365
    )
    
    
    (1,267
    )Income tax provision
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,229
    )
    
    
    Income
(loss) from continuing operations
    
    
    2,742
    
    
    
    (1,278
    )
    
    
    (3,255
    )
    
    
    (31,594
    )
    
    
    (1,267
    )Discontinued operations:Loss from discontinued operations (4)
    
    
    
    
    
    
    
    
    
    
    (28,095
    )
    
    
    (33,352
    )
    
    
    (10,997
    )Write-off of excess of rehabilitated
and bankrupt subsidiaries
liabilities over assets (5)
    
    
    
    
    
    
    
    
    
    
    16,423
    
    
    
    
    
    
    
    Loss from discontinued operations
    
    
    0
    
    
    
    0
    
    
    
    (11,672
    )
    
    
    (33,352
    )
    
    
    (10,997
    )Net income
(loss)
    
    $
    2,742
    
    
    $
    (1,278
    )
    
    $
    (14,927
    )
    
    $
    (64,946
    )
    
    $
    (12,264
    )Net income
(loss) per common share:Basic:(6)Basic income
(loss) per common share from
continuing operations
    
    $
    .28
    
    
    $
    (.13
    )
    
    $
    (.33
    )
    
    $
    (6.46
    )
    
    $
    (.35
    )Basic loss per common share from
discontinued operations
    
    $
    
    
    
    $
    
    
    
    $
    (1.20
    )
    
    $
    (6.81
    )
    
    $
    (3.07
    )Weighted average number of common
shares outstanding
    
    
    9,867
    
    
    
    9,742
    
    
    
    9,742
    
    
    
    4,894
    
    
    
    3,585Diluted:(6)Diluted
income (loss) per common share from
continuing operations
    
    $
    .28
    
    
    $
    (.13
    )
    
    $
    (.33
    )
    
    $
    (6.46
    )
    
    $
    (.35
    )Diluted loss per common share from
discontinued operations
    
    $
    
    
    
    $
    
    
    
    $
    (1.20
    )
    
    $
    (6.81
    )
    
    $
    (3.07
    )Weighted average number of common and
common dilutive potential shares
outstanding
    
    
    9,867
    
    
    
    9,742
    
    
    
    9,742
    
    
    
    4,894
    
    
    
    3,585
 At December 31,2003
    
    2002
    
    2001
    
    2000
    
    1999Balance Sheet Data:Assets of continuing operations
    
    $
    5,386
    
    
    $
    2,643
    
    
    $
    5,136
    
    
    $
    13,198
    
    
    $
    29,151Indebtedness of continuing operations(7)
    
    $
    8,843
    
    
    $
    12,250
    
    
    $
    12,942
    
    
    $
    17,099
    
    
    $
    19,931Net assets of discontinued operations(1)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    11,042
    
    
    $
    33,936Shareholders equity (deficit)
    
    $
    (3,457
    )
    
    $
    (9,607
    )
    
    $
    (7,806
    )
    
    $
    7,141
    
    
    $
    43,156
 8




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NOTES TO SELECTED FINANCIAL DATA The selected financial data should be read in conjunction with Item 7.
Managements Discussion and Analysis of Financial Condition and Results of
Operations and Item 8. Financial Statements and Supplementary Data.  (1)
    
    The placement of our Indiana HMO into rehabilitation on May 4, 2001 and
the bankruptcy filing of our California HMO on May 25, 2001 have
effectively ended our involvement in the managed care industry. As a
result, we have treated our HMO subsidiaries as discontinued operations in
the preparation of these financial statements. Although our remaining
operations (parent, Health Care Assurance Company, Ltd., and the AIM
program) are insignificant and financially dependent upon our HMOs, they represent
services not intrinsically linked to the managed care industry and have
been treated as continuing operations. (See Item 8. Financial
Statements and Supplementary Data  Note 2 to our Consolidated
Financial Statements.)(2)
    
    In 2002 we recorded investment income of $521,000 in connection with the
March, 2003 collection of a note that had been issued by a former
executive officer of the Company. (See Item 8. Financial Statements and
Supplementary Data  Note 5 to our Consolidated Financial Statements.)(3)
    
    In 2003 we recognized a gain of $580,000 in connection with the
settlement of a dispute regarding a Services Agreement for Back Office
Administration that we had previously entered into for the benefit of our
subsidiaries. In 2003 we recognized expense of $250,000 in connection
with the settlement of a dispute involving an information services
contract that we had previously entered into; and we recognized expense of
$405,000 in connection with the settlement of an action brought by a
former executive. In 2002 we recognized a gain of $671,000 in connection
with the settlement of a former executives benefits under our
Supplemental Executive Retirement Plan. In 2002 we also accrued
litigation-related expense of $880,000 in connection with the previously
noted Services Agreement for Back Office Administration. (See Item 8.
Financial Statements and Supplementary Data  Note 2 to our Consolidated
Financial Statements.) In 2000 we recorded charges of $785,000 for
employee severance costs and $725,000 in litigation reserves for costs
associated with the defense and settlement of various legal actions. A
$5.5 million charge for management settlement costs was recorded in 1999.(4)
    
    The loss from discontinued operations in 2000 includes charges of $4.9
million, for losses associated with certain of our capitated provider
arrangements. The loss from discontinued operations for 1999 includes a
$3.0 million charge for loss contracts related to the Carolinas commercial
line of business.(5)
    
    The results of discontinued operations for the year ended December 31,
2001 include a gain of $16.4 million realized by MHP in the second quarter
of 2001 upon the placement of the Indiana HMO into rehabilitation, the
subsequent disposition of Maxicare Life and Health Insurance Company, and
the placement of the California HMO into Chapter 11 bankruptcy. This gain
represents the extent to which consolidated losses of those entities
through May 3, 2001 (the Indiana HMO and Maxicare Life and Health
Insurance Company, Inc.) and May 24, 2001 (the California HMO) exceeded
MHPs investment in those subsidiaries. (See Item 8. Financial Statements
and Supplementary Data  Note 2 to our Consolidated Financial
Statements.)(6)
    
    All share and per share amounts have been retroactively restated to
reflect the one for five reverse stock split completed on March 27, 2001.(7)
    
    Includes long-term liabilities of $1.9 million, $2.1 million, $3.8
million, $5.1 million and $1.2 million, in 2003, 2002, 2001, 2000 and
1999, respectively. 9




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Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations Current Status We have had no active business since March 15, 2002 and have no reasonable
prospects of obtaining or generating any active business. We have no means of
generating additional cash. We are exploring possible strategies to realize any possible value
remaining in the Company. Any such strategy may include the ultimate
liquidation of Health Care Assurance Company, Ltd.; however, because of our
financial condition and the claims of our creditors, we may seek protection
under the Bankruptcy Code. Liquidity/ Working Capital Deficiency As noted above, we have terminated all operations. At December 31, 2003,
we had a consolidated working capital deficiency of approximately $1.5 million
and a deficiency in shareholders equity of approximately $3.5 million.
Furthermore, of our total cash and cash equivalents of $5.4 million at December
31, 2003, $2.5 million was held at Health Care Assurance Company, Ltd. The
transfer of cash to MHP from Health Care Assurance Company, Ltd. requires the
approval of regulatory authorities. In February 2004 we paid $550,000 in settlement of a claim by a former
executive. See Item 8, Note 2  Charges for Litigation and Management
Settlements to our Consolidated Financial Statements. MHP has certain contractual undertakings for which it may be liable and
there are various alleged claims that may be asserted against it, including,
among others, undertakings to and/or purported claims against it by vendors and
former employees of its subsidiaries who have provided goods or services to
those subsidiaries. We are involved in various legal actions brought against us in the normal
course of business, some of which seek damages in amounts that exceed those
accrued in our consolidated balance sheets. The ultimate liability for these
legal actions cannot be determined and could materially affect our consolidated
financial position, results of operations or cash flows, if resolved
unfavorably. See Item 8, Note 3  Commitments and Contingencies to our
Consolidated Financial Statements. Disposition of Subsidiaries The California and Indiana HMOs and Maxicare Life and Health Insurance
Company, Inc. are currently in liquidation. We will receive no distribution of
assets from the California HMO, are unlikely to receive any distribution from
the Indiana HMO, and may or may not receive a distribution from Maxicare Life
and Health Insurance Company. Any distribution from Maxicare Life and Health
Insurance Company, Inc. if assets ultimately are available for distribution,
will require regulatory approval. Results of Operations Year Ended December 31, 2003 Compared to Year Ended December 31, 2002 We reported net income of approximately $2.7 million ($.28 per share basic
and diluted) for the year ended December 31, 2003 compared to a loss of
approximately $1.3 million ($.13 per share basic and diluted) for the year
ended December 31, 2002. During the second quarter of 2003 we recognized other
income in the amount of $3.4 million in connection with a settlement recovering
the underpayment of amounts due to us for health care coverage provided to
employees of the United States Office of Personnel Management. Also during the
second quarter of 2003 we recognized approximately $1.15 million of income,
reflected as negative health care expense, in connection with the expiration of
notice periods in connection with certain insurance provided by our Health Care
Assurance Company, Ltd. subsidiary. In the second quarter of 2003 we also
accrued additional expenses of $250,000 in regards to the settlement of certain
litigation involving an information services contract. In the fourth quarter
of 2003 we recorded expense of $405,000 in connection with the settlement of an
action brought by a former executive for consulting fees he was due. Also in
the fourth quarter of 2003 we recognized a gain of $580,000 in connection with
the settlement of a dispute involving a Services Agreement for Back Office
Administration that we had previously entered into for the benefit of our
subsidiaries. See Item 8, Note 2  Charges for Litigation and Management
Settlements to our Consolidated Financial Statements. 10




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##### Table of Contents



Year Ended December 31, 2002 Compared to Year Ended December 31, 2001 We reported a net loss of $1.3 million ($.13 per share basic and diluted)
for the year ended December 31, 2002. We reported a net loss of $14.9 million
($1.53 per share basic and diluted) for the year ended December 31, 2001. Net
income for the year ended December 31, 2002 included investment income of
$521,000 recorded in connection with the collection of a note that had been
issued by a former executive officer of the Company. In 2002 we also
recognized a gain of $671,000 in connection with the settlement of a former
executives benefits under our Supplemental Executive Retirement Plan. In 2002
we also accrued litigation-related expense of $880,000 in connection with the
previously noted Services Agreement for Back Office Administration. Losses
from continuing operations for the year ended December 31, 2001 were $3.2
million; losses from discontinued operations for the year ended December 31,
2001 were $11.7 million, which included a gain of $16.4 million realized by MHP
upon the placement of our Indiana HMO (to which MHP had contributed the capital
stock of Maxicare Life and Health Insurance Company on March 9, 2001) into
rehabilitation and the bankruptcy of our California HMO. This gain represents
the extent to which liabilities of those subsidiaries exceeded their assets at
May 3, 2001 (the Indiana HMO and Maxicare Life and Health Insurance Company) or
May 25, 2001 (the California HMO). Contractual Obligations In the table below, we set forth our contractual obligations as of
December 31, 2003. Some of the figures we include in this table are based on
managements estimates and assumptions about these obligations, including their
duration, the possibility of renewal, anticipated actions by third parties, and
other factors. Because these estimates and assumptions are necessarily
subjective, the contractual obligations we will actually pay in future periods
may vary from those reflected in the table. Amounts are in thousands. 2005 and2004
    
    beyondOperating lease obligations (1)
    
    $
    205
    
    
    $
    31Capital lease obligations (2)
    
    
    193
    
    
    
    96Supplemental executive retirement plan obligations(3)
    
    
    48
    
    
    
    1,845Total contractual obligations
    
    $
    446
    
    
    $
    1,972
  (1)
    
    The California HMO continues to contribute to the payment of the
operating lease obligations of MHP. Although there can be no assurance
that such payments will continue, management believes it likely that the
California HMO will contribute approximately $49,000 to the payment of
operating lease obligations in 2004. Such payments by the California HMO
are unlikely to continue after May 31, 2004.  (2)
    
    We have made no payments to the lessor in connection with the leased
assets since the first quarter of 2002. The liability associated with
these leased assets remains on our consolidated balance sheets.  (3)
    
    Amount of benefits owed and payment periods are dependent upon a number
of factors, among them the life expectancies of the participants. 11




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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, 2003, we had approximately $5.4 million in cash and
cash equivalents, no marketable securities and no restricted investments. Our
investment policies emphasize return of principal and liquidity and are focused
on fixed returns that limit volatility and risk of principal. Because of our
investment policies, the primary market risk associated with our portfolio is
interest rate risk. As of December 31, 2003, we did not have any outstanding bank borrowings
or debt obligations. 12




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##### Table of Contents



Item 8.Financial Statements and Supplementary Data 
 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Shareholders Maxicare Health Plans, Inc. We have audited the accompanying consolidated balance sheets of Maxicare
Health Plans, Inc. as of December 31, 2003 and 2002, and the related
consolidated statements of operations, changes in shareholders equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 2003. 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, 2003 and 2002, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 2003 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. /s/ ERNST & YOUNG LLP
 Los Angeles, California
April 2, 2004 13




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##### Table of Contents



MAXICARE HEALTH PLANS, INC. 
 CONSOLIDATED BALANCE SHEETS December 31,2003
    
    2002(Amounts in thousandsexcept par value)Current AssetsCash and cash equivalents
    
    $
    5,361
    
    
    $
    2,636Other current assets
    
    
    25
    
    
    
    7Total Assets
    
    $
    5,386
    
    
    $
    2,643Current LiabilitiesEstimated claims and other health care costs payable
    
    $
    
    
    
    $
    736Accounts payable
    
    
    
    
    
    
    76Accrued salary expense
    
    
    91
    
    
    
    328Other current liabilities
    
    
    6,814
    
    
    
    9,019Total Current Liabilities
    
    
    6,905
    
    
    
    10,159Long-Term Liabilities
    
    
    1,938
    
    
    
    2,091Total Liabilities
    
    
    8,843
    
    
    
    12,250Commitments and ContingenciesShareholders Equity (Deficit)Common stock, $.01 par value  80,000
shares authorized, 9,992 (2003) and 9,742 (2002)
shares issued and outstanding
    
    
    98
    
    
    
    98Additional paid-in capital
    
    
    283,466
    
    
    
    283,466Notes receivable from shareholders
    
    
    
    
    
    
    (3,408
    )Accumulated deficit
    
    
    (287,021
    )
    
    
    (289,763
    )Total Shareholders Deficit
    
    
    (3,457
    )
    
    
    (9,607
    )Total Liabilities and Shareholders Equity
    
    $
    5,386
    
    
    $
    2,643
 See notes to consolidated financial statements. 14




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##### Table of Contents



MAXICARE HEALTH PLANS, INC. 
 CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended December 31,2003
    
    2002
    
    2001(Amounts in thousandsexcept per share data)RevenuesPremiums
    
    $
    
    
    
    $
    
    
    
    $
    1,819Investment income
    
    
    33
    
    
    
    569
    
    
    
    239Other income
    
    
    3,471
    
    
    
    268
    
    
    
    971Total Revenues
    
    
    3,504
    
    
    
    837
    
    
    
    3,029ExpensesHealth care expenses (credits)
    
    
    (1,146
    )
    
    
    (312
    )
    
    
    582Salary, general and administrative expenses
    
    
    1,833
    
    
    
    1,062
    
    
    
    4,998Depreciation and amortization
    
    
    
    
    
    
    120
    
    
    
    704Impairment of capital assets
    
    
    
    
    
    
    1,036
    
    
    
    Charges for litigation and
management settlements
    
    
    75
    
    
    
    209
    
    
    
    Total Expenses
    
    
    762
    
    
    
    2,115
    
    
    
    6,284Income (loss) from continuing operations
before
income taxes
    
    
    2,742
    
    
    
    (1,278
    )
    
    
    (3,255
    )Income tax provision
    
    
    
    
    
    
    
    
    
    
    Income (loss) from continuing operations
    
    
    2,742
    
    
    
    (1,278
    )
    
    
    (3,255
    )Discontinued operationsLoss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    (28,095
    )Write-off of excess of rehabilitated and
bankrupt subsidiaries liabilities over
assets
    
    
    
    
    
    
    
    
    
    
    16,423Loss from discontinued operations
    
    
    0
    
    
    
    0
    
    
    
    (11,672
    )Net income (loss)
    
    $
    2,742
    
    
    $
    (1,278
    )
    
    $
    (14,927
    )Net income (loss) per common share:Basic income (loss) per common share:Continuing operations
    

    $
    .28
    
    
    $
    (.13
    )
    
    $
    (.33
    )Discontinued operations
    
    $
    
    
    
    $
    
    
    
    $
    (1.20
    )Basic income (loss) per common share
    
    $
    .28
    
    
    $
    (.13
    )
    
    $
    (1.53
    )Weighted average number of
common shares outstanding
    
    
    9,867
    
    
    
    9,742
    
    
    
    9,742Diluted income (loss) per common share:Continuing operations
    
    $
    .28
    
    
    $
    (.13
    )
    
    $
    (.33
    )Discontinued operations
    
    $
    
    
    
    $
    
    
    
    $
    (1.20
    )Diluted income (loss) per common share
    
    $
    .28
    
    
    $
    (.13
    )
    
    $
    (1.53
    )Weighted average number of common and
common dilutive potential shares
outstanding
    
    
    9,867
    
    
    
    9,742
    
    
    
    9,742
 See notes to consolidated financial statements. 15




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MAXICARE HEALTH PLANS, INC. 
 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (DEFICIT) (Amounts in thousands) Notes
    
    
    
    
    
    AccumulatedNumber of
    
    
    
    
    
    Additional
    
    Receivable
    
    
    
    
    
    OtherCommon
    
    Common
    
    Paid-in
    
    from
    
    Accumulated
    
    ComprehensiveShares
    
    Stock
    
    Capital
    
    Shareholders
    
    Deficit
    
    Income
    
    TotalBalances at December 31, 2000
    
    
    9,742
    
    
    $
    98
    
    
    $
    283,442
    
    
    $
    (2,842
    )
    
    $
    (273,558
    )
    
    $
    1
    
    
    $
    7,141Comprehensive income (loss):Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,927
    )
    
    
    
    
    
    
    (14,927
    )Other comprehensive income, net of tax, related to
unrealized gains on marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,926
    )Interest earned on notes receivable from shareholder
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (45
    )
    
    
    
    
    
    
    
    
    
    
    (45
    )Warrants issued in connection with professional
services contract
    
    
    
    
    
    
    
    
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24Balances at December 31, 2001
    
    
    9,742
    
    
    
    98
    
    
    
    283,466
    
    
    
    (2,887
    )
    
    
    (288,485
    )
    
    
    2
    
    
    
    (7,806
    )Comprehensive income (loss):Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,278
    )
    
    
    
    
    
    
    (1,278
    )Other comprehensive income, net of tax, related to
unrealized gains on marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    (2
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,280
    )Interest earned on note receivable from shareholder
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (521
    )
    
    
    
    
    
    
    
    
    
    
    (521
    )Balances at December 31, 2002
    
    
    9,742
    
    
    
    98
    
    
    
    283,466
    
    
    
    (3,408
    )
    
    
    (289,763
    )
    
    
    
    
    
    
    (9,607
    )Comprehensive income (loss):Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,742
    
    
    
    
    
    
    
    2,742Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,742Common
shares issued to settle litigation
    
    
    250Collection of note from shareholder
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,408
    
    
    
    
    
    
    
    
    
    
    
    3,408Balances at December 31, 2003
    
    
    9,992
    
    
    $
    98
    
    
    $
    283,466
    
    
    $
    0
    
    
    $
    (287,021
    )
    
    $
    0
    
    
    $
    (3,457
    )
 See notes to consolidated financial statements. 16




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##### Table of Contents



MAXICARE HEALTH PLANS, INC. 
 CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31,2003
    
    2002
    
    2001(Amounts in thousands)Cash Flows from Operating Activities:Net income (loss)
    
    $
    2,742
    
    
    $
    (1,278
    )
    
    $
    (14,927
    )Adjustments to reconcile net income (loss) to net cash used
for operating activities:Depreciation and amortization
    
    
    
    
    
    
    120
    
    
    
    1,305Impairment of capital assets
    
    
    
    
    
    
    1,036
    
    
    
    Write-off of rehabilitated and bankrupt subsidiaries liabilities
over assets
    
    
    
    
    
    
    
    
    
    
    (16,423
    )Charges for litigation and management settlements
    
    
    75
    
    
    
    209
    
    
    
    Changes in assets and liabilities (net of effect of rehabilitation
and bankruptcy of subsidiaries):Decrease in accounts receivable
    
    
    
    
    
    
    
    
    
    
    8,403Decrease in estimated claims and other health care costs payable
    
    
    (736
    )
    
    
    (314
    )
    
    
    (5,969
    )Decrease in deferred income
    
    
    
    
    
    
    (113
    )
    
    
    (5,789
    )Changes in other miscellaneous assets and liabilities
    
    
    (2,764
    )
    
    
    (233
    )
    
    
    2,161Net cash used for operating activities
    
    
    (683
    )
    
    
    (573
    )
    
    
    (31,239
    )Cash Flows from Investing Activities:Cash surrendered in rehabilitation and bankruptcy of subsidiaries
    
    
    
    
    
    
    
    
    
    
    (42,040
    )Purchases of property and equipment and intangible assets
    
    
    
    
    
    
    
    
    
    
    (5,256
    )Decrease in restricted investments
    
    
    
    
    
    
    
    
    
    
    708Loan to shareholder
    
    
    3,408
    
    
    
    (521
    )
    
    
    Proceeds from sales and maturities of
marketable securities
    
    
    
    
    
    
    304
    
    
    
    1,231Purchases of marketable securities
    
    
    
    
    
    
    
    
    
    
    (299
    )Net cash provided by (used for) investing activities
    
    
    3,408
    
    
    
    (217
    )
    
    
    (45,656
    )Cash Flows from Financing Activities:Payments on capital lease obligations
    
    
    
    
    
    
    
    
    
    
    (372
    )Net cash used for financing activities
    
    
    0
    
    
    
    0
    
    
    
    (372
    )Net increase (decrease) in cash and cash equivalents
    
    
    2,725
    
    
    
    (790
    )
    
    
    (77,267
    )Cash and cash equivalents at beginning of year
    
    
    2,636
    
    
    
    3,426
    
    
    
    80,693Cash and cash equivalents at end of year
    
    $
    5,361
    
    
    $
    2,636
    
    
    $
    3,426Supplemental disclosures of cash flow information:Cash paid during the year for  Interest
    
    
    
    
    
    
    
    
    
    $
    98Supplemental schedule of non-cash investing activities:Capital lease obligations incurred for purchase of property and
equipment and intangible assets
    
    
    
    
    
    
    
    
    
    $
    114Liabilities of rehabilitated and bankrupt subsidiaries
    
    
    
    
    
    
    
    
    
    $
    101,405Assets of rehabilitated and bankrupt subsidiaries excluding cash
    
    
    
    
    
    
    
    
    
    
    42,942Net liabilities of rehabilitated and bankrupt subsidiaries
excluding cash
    
    
    
    
    
    
    
    
    
    
    58,463Cash of rehabilitated and bankrupt subsidiaries surrendered
    
    
    
    
    
    
    
    
    
    
    42,040Write-off of rehabilitated and bankrupt subsidiaries liabilities
in excess of assets
    
    
    
    
    
    
    
    
    
    $
    (16,423
    )
 See notes to consolidated financial statements. 17




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##### Table of Contents



MAXICARE HEALTH PLANS, INC. 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2003 Note 1  Business Description Maxicare Health Plans, Inc., a Delaware corporation (MHP or the
Company), is a holding company that formerly operated health maintenance
organizations and other subsidiaries, primarily in the field of managed care.
As of March 15, 2002 all operations of MHP and its subsidiaries were
terminated. MHP and its subsidiaries have not engaged in any business
activities since that date. At December 31, 2003 we had negative net worth of
$3.5 million and a working capital deficiency of $1.5 million. See Liquidity
and Going Concern below. All significant subsidiaries formally operated by MHP (the California and
Indiana HMOs and Maxicare Life and Health Insurance Company, Inc.) were placed
into bankruptcy, rehabilitation and administrative supervision, respectively,
in May of 2001 and are currently in liquidation. We will receive no
distribution of assets from the California HMO, are unlikely to receive any
distribution of assets from the Indiana HMO, and cannot determine whether or
not we will receive a distribution of assets from Maxicare Life and Health
Insurance Company, Inc. Any distribution from Maxicare Life and Health
Insurance Company, Inc., if assets ultimately are available for distribution,
will require regulatory approval. We own Health Care Assurance Company, Ltd., a captive insurer that
provided certain insurance coverage to MHP and its subsidiaries. Effective
January 31, 2002 all policies underwritten by Health Care Assurance Company,
Ltd., have terminated or expired. We also served as administrator of the
California Access for Infants and Mothers (AIM) program through another of
our subsidiaries. Administration of the AIM program was transferred to another
health care provider effective March 15, 2002. 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 and Going Concern At December 31, 2003 we had a consolidated working capital deficiency of
approximately $1.5 million, and a deficiency in shareholders equity of
approximately $3.5 million. Furthermore, of our total cash and cash equivalents
of $5.4 million at December 31, 2003, $2.5 million was held at Health Care
Assurance Company, Ltd. The transfer of cash to MHP from Health Care Assurance
Company, Ltd. requires the approval of regulatory authorities. In February 2004 we paid $550,000 in settlement of a claim by a former
executive. See Note 2  Litigation and Management Settlement Charges. As noted above, we had no continuing business activities after March 15,
2002. We have no access to cash that is held at Health Care Assurance Company
except to the extent regulatory authorities approve the transfer of cash to
MHP. As set forth below in Note 3 Commitments and Contingencies, substantial
claims have been or may be asserted against us. Such claims, when resolved,
may be far in excess of liabilities reported in the Consolidated Balance
Sheets. These conditions raise substantial doubt about our ability to continue as
a going concern. The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classifications of liabilities that may result from
the outcome of these uncertainties. Management is exploring possible strategies to realize any possible value
remaining in the Company; however, given our financial condition, our stock
price and the claims against us, it is very possible that management will not
be successful in these efforts, and we may seek protection under the Bankruptcy
Code. 18




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##### Table of Contents



Note 2  Significant Accounting Policies Basis of Consolidation and Gain on Disposition of Subsidiaries The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries. As a result of the placement of the Indiana
HMO into rehabilitation on May 4, 2001, the consolidated financial statements
include the operations and accounts of the Indiana HMO and Maxicare Life and
Health Insurance Company, Inc (the outstanding shares of which were transferred
to the Indiana HMO on March 9, 2001) only through May 3, 2001. As a result of
the California HMOs bankruptcy on May 25, 2001 the consolidated financial
statements include its operations and accounts 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 occurrence of these events. This gain represents the extent to which
liabilities of the aforementioned subsidiaries exceeded their assets at their
respective disposition dates. All significant intercompany balances and transactions have been
eliminated. Discontinued Operations The placement of the Indiana HMO (to which MHP had contributed the capital
stock of Maxicare Life and Health Insurance Company, Inc.) into rehabilitation
on May 4, 2001 and the bankruptcy filing of the California HMO on May 25, 2001
have effectively ended our involvement in the managed care industry. As a
result, we have treated our HMO subsidiaries and Maxicare Life and Health
Insurance Company, Inc. as discontinued operations in the preparation of these
financial statements. Our remaining operations (parent, Health Care Assurance
Company, Ltd., and the AIM program) are insignificant. Although these
operations are dependent upon the California and Indiana HMOs, they represent
services not intrinsically linked to the managed care industry and have been
treated as continuing operations. The operating results of the discontinued operations for the year ended
December 31, 2001 are summarized as follows (amounts are in
thousands): Revenues
    
    $
    237,243Expenses
    
    
    265,338Loss from discontinued operations
    
    
    (28,095
    )Write-off of excess of rehabilitated and bankrupt
subsidiaries liabilities over assets  Note 2
    
    
    16,423Loss from discontinued operations
    
    $
    (11,672
    )
 There were no net assets or liabilities of discontinued operations as of
December 31, 2003 or 2002. 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. 19




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##### Table of Contents



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: 2003
    
    2002(Amounts inthousands)Cash
    
    $
    26
    
    
    $
    259Certificates of deposit
    
    
    
    
    
    
    15Money market funds
    
    
    5,335
    
    
    
    2,362$
    5,361
    
    
    $
    2,636
 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 and are amortized using
the straight-line method over the shorter of the remaining term of the
applicable lease or the life of the asset. All furniture and equipment have
been depreciated or written off as of December 31, 2002. Other Current Liabilities Other current liabilities include estimated liabilities related to
litigation and contract termination costs and lease obligations (see Note 3 
Commitments and Contingencies). Revenue Recognition Premiums were recorded as revenue in the month for which enrollees were
entitled to health care services. Premiums collected in advance were deferred..
Provision was made for estimated retroactive adjustments to the extent the
probable outcome of such adjustments could 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 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 was as follows (amounts are in thousands): 2001Direct premiums
    
    $
    2,877Ceded premiums
    
    
    (1,058
    )Net premiums
    
    $
    1,819
 All policy obligations under the reinsurance and retrocession agreements
between Health Care Assurance Company, Ltd., Maxicare Life and Health Insurance
Company, Inc. and the California HMO were fully settled during 2003. 20




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##### Table of Contents



Health Care Expense Recognition The cost of health care services was expensed in the period we were
obligated to provide such services. We established an accrual for estimated
claims payable including claims reported as of the balance sheet date and the
estimated (based upon utilization trends and projections of historical
developments) costs of health care services rendered but not reported.
Estimated claims payable were continually monitored and reviewed and, as
settlements are made or accruals adjusted, differences are reflected in current
operations. From February 1, 1997 through May 4, 2001, Health Care Assurance Company
provided certain reinsurance coverage to Transamerica, a nonaffiliated company,
in connection with excess of loss health care claims and continuation of care
and insolvency coverage for Medicaid HMO claims arising under coverage provided
by Transamerica to the Indiana HMO. This coverage terminated on May 4, 2001,
when the Indiana HMO was placed into rehabilitation by the Indiana Department
of Insurance. Under the contract, Transamerica was liable only for claims
incurred by the Indiana HMO through May 4, 2001 and reported to Transamerica by
April 30, 2003. Health Care Assurance Corporation, Ltd.s contract with
Transamerica required it to provide a $600,000 letter of credit to secure its
obligations to Transamerica. On October 1, 2001, Transamerica drew down the
full amount of the letter based on its estimate of the covered claims payable
to the Indiana HMO, and the Company reduced claims liability at December 31,
2001 by the amount of the letter of credit. Through June 30, 2003, Transamerica
had paid approximately $190,000 in claims from the proceeds of the letter of
credit. In August 2003 Transamerica refunded to the Company approximately
$410,000, representing the unused portion of the funds drawn from the letter of
credit, to Health Care Assurance Company. Additionally, the liquidator of
Maxicare Indiana, Inc. reported to Marion Circuit Court in March 2003 that no
claim on the continuation of care / insolvency portion of the coverage was
currently contemplated. Since the Company has satisfied all obligations under policies previously
written and all claims notification and payment periods have expired during
2003, the Company released the remaining claims reserves of $736,000 and the
$410,000 received from Transamerica into income.. These amounts were recorded
as negative health care expense of $1,146,000 in 2003. Stock Based Compensation At December 31, 2003 we had several stock-based employee compensation
plans as described in Note 4. We account for the plans under the recognition
and measurement principles (the intrinsic-value method) prescribed in
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued
to Employees, and related interpretations. Compensation cost for stock options
is reflected in net income and is measured as the excess of the market price of
our stock at the date of grant over the amount an employee must pay to acquire
the stock. We have adopted the disclosure provisions required by Statement of
Financial Accounting Standards (SFAS) No. 148, Accounting for Stock-Based
CompensationTransition and Disclosure. The following table illustrates the effect on net income and earnings per
share if we had applied the fair-value recognition provision to stock-based
employee compensation. Years ended December 31,2003
    
    2002
    
    2001(Amounts in thousands except per sharevalues)Net income (loss) from continuing operations, as reported
    
    $
    2,742
    
    
    $
    (1,278
    )
    
    $
    (3,255
    )Less stock-based employee compensation expense determined
under the fair-value based method
    
    
    
    
    
    
    
    
    
    
    (26
    )Net income (loss) from continuing operations, as adjusted.
    
    $
    2,742
    
    
    $
    (1,278
    )
    
    $
    (3,281
    )Income (loss) per common share from continuing operations:Basic as reported
    
    $
    .28
    
    
    $
    (.13
    )
    
    $
    (.33
    )Basic as adjusted
    
    $
    .28
    
    
    $
    (.13
    )
    
    $
    (.34
    )Diluted as reported
    
    $
    .28
    
    
    $
    (.13
    )
    
    $
    (.33
    )Diluted as adjusted
    
    $
    .28
    
    
    $
    (.13
    )
    
    $
    (.34
    )
 The fair value for the options was estimated at the date of grant using a
Black-Scholes option pricing model. No options were granted in 2003, 2002 or
2001. 21




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##### Table of Contents



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. 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 31,2003
    
    2002
    
    2001(Amounts in thousands except per sharevalues)Basic income (loss) per share of common stock:Continuing operations:Numerator  net income (loss)
    
    $
    2,742
    
    
    $
    (1,278
    )
    
    $
    (3,255
    )Denominator  Weighted average number of common shares outstanding
    
    
    9,867
    
    
    
    9,742
    
    
    
    9,742Basic income (loss) per common share
    
    $
    .28
    
    
    $
    (.13
    )
    
    $
    (.33
    )Discontinued operations:Numerator  net loss
    
    $
    
    
    
    $
    
    
    
    $
    (11,672
    )Denominator  Weighted average number of common shares outstanding
    
    
    
    
    
    
    
    
    
    
    9,742Basic loss per common share
    
    $
    
    
    
    $
    
    
    
    $
    (1.20
    )Diluted income (loss) per share of common stock:Continuing operations:Numerator  net income (loss)
    
    $
    2,742
    
    
    $
    (1,278
    )
    
    $
    (3,255
    )Denominator  Weighted average number of common and common
dilutive shares outstanding
    
    
    9,867
    
    
    
    9,742
    
    
    
    9,742Diluted income (loss) per common share
    
    $
    .28
    
    
    $
    (.13
    )
    
    $
    (.33
    )Discontinued operations:Numerator  net loss
    
    $
    
    
    
    $
    
    
    
    $
    (11,672
    )Denominator  Weighted average number of common and common
dilutive shares outstanding
    
    
    
    
    
    
    
    
    
    
    9,742Basic loss per common share
    
    $
    
    
    
    $
    
    
    
    $
    (1.20
    )
 Stock options are excluded from the calculation of the weighted average
number of dilutive shares outstanding for 2003, 2002 and 2001 because the
inclusion of stock options would have an anti-dilutive effect. Restrictions on Fund Transfers Health Care Assurance Company, Ltd., our wholly-owned subsidiary, holds
$2.5 million of our cash. The transfer of cash to MHP from Health Care
Assurance Company, Ltd. requires the approval of regulatory authorities. Concentrations of Credit Risk Financial instruments that potentially subject us to concentrations of
credit risk consist primarily of cash equivalents. Our funds are managed by
internal investment managers within the guidelines established by the board of
directors, which, as a matter of policy, limit the amounts that may be invested
in any one issuer. As of December 31, 2003, we believe that we had no
significant concentrations of credit risk. 22




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##### Table of Contents



Other Income In or about November 1999, MHP, on its own behalf and also on behalf of
various closed and then operating subsidiaries, commenced an action in the
United States Court of Federal Claims against the United States, seeking
recovery in connection with the underpayment of amounts due for health care
coverage provided to employees of the United States Office of Personnel
Management. On or about June 9, 2003 a settlement with the Office of Personnel
Management was approved by the Court. The net settlement amount, after payment
of attorneys fees and expenses, was approximately $5.3 million. Of this
amount, MHP received approximately $3.4 million, which included reimbursement
of litigation expenses. The balance of the net settlement amount was payable
directly to the liquidators / receivers / debtors in possession of certain
subsidiaries. The amount received by MHP of $3.4 million was recorded as Other
Income in the Consolidated Statements of Operations for the year ended December
31, 2003. Other income in 2002 and 2001 includes revenue from the AIM program, which
terminated March 15, 2002. Other income in 2002 also includes $100,000 received
in connection with the sale of certain intellectual property rights. Charges for Litigation and Management Settlements In March 2003, the TriZetto Group, Inc. (TriZetto) sued us in California
State court, alleging that we breached an information services contract and
claiming over $12,000,000 in damages, including over $1,000,000 in amounts due
under the contract and $11,000,000 in termination fees. On or about June 30,
2003, this action was settled. Pursuant to the settlement agreement, we paid
$1,250,000 to TriZetto, issued 250,000 shares of our common stock to TriZetto
and returned to TriZetto certain warrants that TriZetto had issued to us. The
action may be revived in certain circumstances in the event that a judgment is
obtained against TriZetto by a third-party based on TriZettos receipt of the
$1,250,000 settlement payment. We recorded a litigation and contract settlement
charge of $250,000 in the second quarter of 2003 to record the amount by which
the cash settlement paid Trizetto exceeded amounts previously accrued. We
issued common shares to TriZetto on July 1, 2003, but no cost was recorded in
the Consolidated Statements of Operations for the shares issued to TriZetto
since the fair value of the shares was immaterial. Effective February 2, 2000, we entered into a Services Agreement for Back
Office Administration with Nichols TXEN Corporation calling for Nichols TXEN to
provided certain claims adjudication services to certain of our subsidiaries in
exchange for a predetermined per member per month fee. Subsequently, CSC
Healthcare Inc. (CSC), the successor in interest to Nichols TXEN, commenced
an arbitration (the Arbitration) in Atlanta against us before the American
Arbitration Association, claiming our breach of the parties Service Agreement
for Back Office Administration and contract damages of approximately $1,300,000.
On December 1, 2003, the Arbitration and a related case brought by CSC
against us in Alabama State court were settled and all claims and counterclaims
dismissed. Pursuant to such settlement, we paid CSC $300,000 and recognized a
gain, reflected as negative litigation and management settlement charges, of
$580,000 in the fourth quarter of 2003, for the difference between the
liability previously accrued in connection with this matter and the ultimate
settlement of $300,000. On or about February 10, 2003, Peter J. Ratican, a shareholder and former
executive officer and director of MHP, commenced an action against us in the
Superior Court of the State of California, alleging that we had breached his
consulting agreement with us and claiming damages. On March 11, 2003, Mr.
Ratican obtained an attachment in the amount of $767,000 against us in
connection with his claim. In February 2004, we entered into a Settlement
Agreement and Mutual Release with Mr. Ratican under the terms of which we paid
Mr. Ratican $550,000 in addition to the amount already attached,
for a total payment of $1,317,000. As a result
of the Settlement Agreement and Mutual Release we recorded a litigation and
management settlement charge of $405,000 in the fourth quarter of 2003 for the
amount paid Mr. Ratican in excess of amounts previously accrued. In 2002 we recognized a gain of $671,000 in connection with the settlement
of a former executives claim under our Supplemental Executive Retirement Plan.
This gain was recognized in conjunction with the collection of a note issued by
the same executive. Please see Note 5  Notes Receivable From Shareholders.
Also in 2002 we recorded $880,000 in litigation and management settlement
charges in connection with the previously discussed Services Agreement for Back
Office Administration, which we had previously entered into for the benefit of
our subsidiaries. 23




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##### Table of Contents



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.,
our Indiana HMO, filed a complaint (the Complaint) in the Marion County
Circuit Court of Indiana against us and the five directors of the Indiana HMO,
one of whom was a director of the Company. The Commissioner amended the
Complaint on February 1, 2002. The Complaint, as amended, alleges, in
substance, that: (1) the directors of the Indiana HMO breached their fiduciary
duty by failing to maintain a plan providing for continuation of care benefits
in the event that the Indiana HMO was placed in receivership, and that the
Company is also liable for such failure; (2) the Company fraudulently concealed
the financial condition of the Indiana HMO; (3) the Company manipulated the
finances of the Indiana HMO for the Companys own benefit; and (4) the Company
received preferential and/or fraudulent transfers of money from the Indiana
HMO. While the amended Complaint requests money damages in largely unspecified
amounts, we understand the Commissioners claims against us to be in excess of
$48.0 million. All defendants answered the amended Complaint on April 5, 2002.
Pre-trial discovery has not been completed. We believe that the claims against
us are without merit and intend to vigorously defend the suit. The amounts
sought by the Commissioner are significantly in excess of liabilities recorded
on our Consolidated Balance Sheets. The ultimate resolution of this matter, if
unfavorable, could materially affect our consolidated financial position,
results of operations and cash flows. 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 Medimpact to process and fill
within its network of contracting pharmacies prescriptions for members of
Maxicare Life and Health Insurance Company, Inc., the California HMO and the
Indiana HMO. The PBM agreement called for the Company to reimburse Medimpact
for the cost of drugs dispensed and to pay per transaction administrative fees
on a bi-weekly basis. As a result of the Indiana HMO being placed in
rehabilitation and the California HMOs bankruptcy, Medimpact allegedly has not
received reimbursement for certain prescriptions filled on behalf of the
members of those subsidiaries. Although it has yet to do so, Medimpact may seek
reimbursement from us for such costs in an amount not presently known. We, in
turn, believe that we have claims against Medimpact for rebates due to us. By order dated March 9, 2001, the Missouri Department of Insurance
approved the transfer of all of the outstanding shares of Maxicare Life and
Health Insurance Company, Inc. from the Company to Maxicare Indiana, Inc., on
the condition that control of MLH remain with the Company. We believe that this
condition has not been complied with and that, accordingly, the transfer of the
MLH shares by us to Maxicare Indiana, Inc. is null and void. We intend to
present our position to the Missouri Department of Insurance at the appropriate
time. The landlord under the terms of a lease expiring in May 2004 for 79,000
square feet of industrial space in Los Angeles claims that we are obligated to
surrender that space in its original condition. We have previously made
extensive modifications to the leased premises. The landlord claims that the
restoration of the space may cost $1.5 million. We believe that the
landlords claim is without merit. Six former employees of the Indiana HMO have made demand on us for the
payment of approximately $400,000 in severance payments. We believe these
claims are without merit. 24




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##### Table of Contents



Other than those noted above, no claims have been filed against us by the
creditors of Maxicare Life and Health Insurance Company, Inc., the California
HMO or the Indiana HMO. However, such creditors may file claims against us in
the future. 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 and totaled $200,000, $100,000 and $800,000
for the years ended December 31, 2003, 2002 and 2001, respectively. In the first quarter of 2002 we determined that the termination of our
business operations eliminated our need for certain equipment held under
capital lease agreements (principally high volume copying equipment). We have
returned that equipment to the lessor. We have removed the leased assets from
our balance sheet via a $1.0 million impairment charge in March, 2002. We
have made no payments to the lessor in connection with the leased assets since
the first quarter of 2002. The estimated liability associated with these
leased assets remains on our consolidated balance sheets.. Amortization expense
for capital leases is included in depreciation expense. Future minimum lease commitments for noncancelable leases at December 31,
2003 were as follows: Operating
    
    CapitalizedLeases
    
    Leases(Amounts in thousands)2004
    
    $
    205
    
    
    $
    1932005
    
    
    29
    
    
    
    962006
    
    
    2
    
    
    
    2007
    
    
    
    
    
    
    2008
    
    
    
    
    
    
    Total minimum obligations
    
    $
    236
    
    
    
    289Amount representing interest
    
    
    
    
    
    
    (23
    )Less current obligations
    
    
    
    
    
    
    (172
    )Long-term obligations
    
    
    
    
    
    $
    94
 The California HMO continues to contribute to the payment of the operating
lease obligations of MHP. Although there can be no assurance that such payments
will continue, management believes it likely that the California HMO will
contribute approximately $49,000 to the payment of operating lease obligations
in 2004. Such payments are unlikely to continue after May 31, 2004. Note 4  Capital Stock We are authorized to issue 80,000,000 shares of common stock, par value
$.01 per share, and 5,000,000 shares of preferred stock, par value $.01 per
share. The board of directors has the right to determine the rights,
preferences and privileges of one or more series of preferred stock. As of
December 31, 2002, the board of directors had created two series of preferred
stock  Series A Convertible Cumulative Preferred Stock, consisting of
2,500,000 shares, and Series B Preferred Stock, consisting of 500,000 shares.
As of December 31, 2003, there were no shares of either series of preferred
stock outstanding. At December 31, 2003, 9,991,926 shares of common stock were issued and
outstanding; 207,000 shares were reserved for stock options (all of which had
vested); and 107,000 shares were reserved for the fulfillment of warrants.
Warrants having an exercise price of $7.50 per share for 81,000 shares expire
on November 3, 2007. Warrants having an exercise price of $7.50 per share for
20,000 shares expire on September 12, 2005. Warrants having an exercise price
of $6.25 per share for 6,000 shares expire on January 3, 2006. 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. 25




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##### Table of Contents



Shareholder Rights Plan On February 24, 1998, our Board of Directors (the Board) adopted a
Shareholder Rights Plan (the Rights Plan) designed to assure that in the
event of an unsolicited or hostile attempt to acquire the Company, the Board
would have the opportunity to consider and implement a course of action which
would best maximize shareholder value. Additionally, on February 24, 1998, the
Board declared a dividend distribution of one preferred share purchase right (a
Right) for each outstanding share of Common Stock. The dividend was paid to the shareholders of record on March 16, 1998, and
with respect to Common Stock issued thereafter, until the Distribution Date (as
defined below) and, in certain circumstances, with respect to Common Stock
issued after the Distribution Date. Each Right entitled the holder thereof to purchase 1/500 of a share of our
Series B Preferred Stock (the Series B Preferred) for $45.00 (the Exercise
Price). Each 1/500 Series B Preferred (the Preferred Fraction) share shall
be entitled to one vote in all matters being voted on by the holders of Common
Stock and shall also be entitled to a liquidation preference of $0.20. The Rights initially attached to our Common Stock and will not be
exercisable until a shareholder, or group of shareholders acting together,
without the approval of the Board, announce their intent to become a 15% or
more owner in our Common Stock. At that time, certificates evidencing the
Rights shall be distributed to shareholders (the Distribution Date) and the
Rights shall detach from the Common Stock and shall become exercisable. When
such buyer acquires 15% or more of our Common Stock, all Rights holders, except
the non-approved buyer, will be entitled to acquire an amount of the Preferred
Fraction at a rate equal to twice the Exercise Price divided by the then market
price of the Common Stock. In addition, if we are acquired in a non-approved
merger, after such an acquisition, all Rights holders, except the
aforementioned 15% or more buyer, will be entitled to acquire stock in the
surviving corporation at a 50% discount in accordance with the Rights Plan. The
Rights attached to all common shares held by our shareholders of record as of
the close of business on March 16, 1998. Shares of Common Stock newly-issued
after that date will also carry Rights until the Rights become detached from
the Common Stock. The Rights will expire on February 23, 2008. We may redeem
the Rights for $.01 each at any time before a non-approved buyer acquires 15%
or more of the Companys Common Stock. Any current holder that had 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. Stock Option Plans In July 1995, our shareholders approved the 1995 Stock Option Plan (the
1995 Plan). Under the 1995 Plan, we may issue up to 200,000 nonqualified or
incentive stock options to directors, officers and other employees. In June
1999, our shareholders approved the 1999 Stock Option Plan (the 1999 Plan).
Under the 1999 Plan, we may issue up to 150,000 nonqualified or incentive stock
options to directors, officers and other employees. In September 2000, our
shareholders approved the 2000 Stock Option Plan (the 2000 Plan). Under 2000
Plan, we may issue up 800,000 nonqualified or incentive stock options to
directors, officers and other employees. Under 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 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, our shareholders approved the Outside Directors 1996 Formula
Stock Option Plan (the Formula Plan). Under the Formula Plan, we may issue up
to 25,000 nonqualified stock options to directors who are not employees or
officers of the Company (the Outside Directors). On the date the Formula Plan
was adopted, each Outside Director received a grant of stock options to
purchase 1,000 shares of Common Stock. Commencing January 2, 1997 and each
January 2nd thereafter, each Outside Director then serving on the Board shall
receive a grant of stock options to purchase 1,000 shares of Common Stock.
Options granted under the Formula Plan are at an exercise price equal to the
fair market value of the stock at the date of grant, vest six months from the
date of grant and expire 10 years from the date of grant. No options have been
granted under the Formula Plan subsequent to January 1999. 26




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##### Table of Contents



In July 1996, our shareholders approved the Senior Executives 1996 Stock
Option Plan (the Senior Executives Plan). Under the Senior Executives Plan,
we were authorized to issue up to 140,000 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 14,000 shares of Common Stock. 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 14,000 shares of Common Stock. 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: 2003
    
    2002
    
    2001Weighted-
    
    
    
    
    
    Weighted-
    
    
    
    
    
    Weighted-Options
    
    Average
    
    Options
    
    Average
    
    Options
    
    Average(000)
    
    Exercise Price
    
    (000)
    
    Exercise Price
    
    (000)
    
    Exercise PriceOutstanding beginning of year
    
    
    209
    
    
    $
    16.91
    
    
    
    385
    
    
    $
    15.76
    
    
    
    510
    
    
    $
    18.73Granted(a)
    
    
    0
    
    
    
    
    
    
    
    0
    
    
    
    
    
    
    
    0ExercisedForfeited
    
    
    (2
    )
    
    
    22.28
    
    
    
    (176
    )
    
    
    15.55
    
    
    
    (125
    )
    
    
    26.33Expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0
    
    
    
    0
    
    
    
    0Outstanding end of year
    
    
    207
    
    
    
    16.86
    
    
    
    209
    
    
    
    16.91
    
    
    
    385
    
    
    
    15.76Exercisable end of year
    
    
    207
    
    
    
    16.86
    
    
    
    209
    
    
    
    16.91
    
    
    
    367
    
    
    
    15.63
 The following table summarizes information about stock options outstanding
at December 31, 2003: Options Outstanding
    
    
    
    
    
    Options ExercisableNumberNumber
    
    Weighted-Average
    
    
    
    
    
    ExercisableOutstanding
    
    Remaining
    
    
    
    
    
    atat 12/31/03
    
    Contractual Life
    
    Weighted-Average
    
    12/31/03
    
    Weighted-AverageRange of Exercise Prices
    
    (000)
    
    (# of Months)
    
    Exercise Price
    
    (000)
    
    Exercise Price$5.00 - $5.94
    
    
    112
    
    
    
    82
    
    
    $
    5.00
    
    
    
    112
    
    
    $
    5.00$22.50 - $36.44
    
    
    95
    
    
    
    35
    
    
    
    30.85
    
    
    
    95
    
    
    
    30.85$5.00 - $36.44
    
    
    207
    
    
    
    60
    
    
    
    16.86
    
    
    
    207
    
    
    
    16.86
 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 our Chief
Executive Officer and Chief Financial Officer, 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 (the 1997 Ratican Note and the
1997 Froelich Note, respectively). The 1997 Ratican Note and the 1997
Froelich Note are evidenced by a secured Promissory Note which provides for
interest compounding monthly at the one year London Interbank Offered Rate plus
50 basis points. All principal and accrued interest were due at the maturity
date of April 1, 2001 or upon an event of default. In connection with a settlement agreement with Mr. Ratican, as of April
24, 1999, the 1997 Ratican Note and related loan documents were amended
extending the term from April 1, 2001 to June 30, 2003 (the Restated 1997
Ratican Note). The Restated 1997 Ratican Note provides that on the maturity
date, in lieu of payment of the original principal balance and all accrued
interest thereon (the Maturity Balance), Ratican may fully satisfy his
obligations under the Restated 1997 Ratican Note through the payment to us for
payment to the applicable state and Federal tax authorities the applicable
minimum state and federal withholding amounts and FICA taxes due from Mr.
Ratican resulting from the reduction of the Maturity Balance to zero. At
December 31, 2003 Mr. Ratican had not satisfied his obligations under Restated
1997 Ratican Note, which accordingly remained open at that date.
As a result of the Settlement Agreement and Mutual Release we entered
into with Mr. Ratican in February 2004 (see
Note 2  Charges for Litigation and
Management Settlements) such note became non-recourse to Mr. Ratican in the first quarter of 2004. We have fully reserved for
the Restated 1997 Ratican Note. 27




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##### Table of Contents



On April 1, 2001, the 1997 Froelich Note came due and was not paid. We
commenced an action in California state court to collect on the note. On
October 18, 2001, the court granted summary adjudication and judgment was
entered in our favor. On November 14, 2002, the California Court of Appeals
affirmed the judgment.On or about March 14, 2003, Mr. Froelich satisfied the
judgment in the net stipulated amount of $3,407,500 by paying $2,583,000 to us
and by paying over $767,000 to the Sheriff pursuant to an attachment by Peter
J. Ratican, as more fully set forth in Note 2  Charges for Litigation and
Management Settlements. Offset against the judgment of $3,407,500 was $57,500
that Mr. Froelich agreed to accept in full settlement of his claim against us
in connection with his benefits under our Supplemental Executive Retirement
Plan. In connection with the settlement of the 1997 Froelich Note and Mr.
Froelichs Supplemental Executive Retirement Plan benefits, we recognized
$521,000 of investment income and a gain of $671,000 (included in charges for
litigation and management settlements) in 2002. The principal and accrued interest on notes receivable from shareholders
at December 31, 2002 have been reflected as a reduction of shareholders
equity. There were no such amounts recorded at December 31, 2003. Note 6  Income Taxes The provision (benefit) for income taxes at December 31 consisted of the
following: 2003
    
    2002
    
    2001(Amounts in thousands)Current:Federal
    
    $
    
    
    
    $
    
    
    
    $
    State
    
    
    
    
    
    
    
    
    
    
    0
    
    
    
    0
    
    
    
    0Deferred:Federal
    
    
    
    
    
    
    
    
    
    
    State
    
    
    
    
    
    
    
    
    
    
    0
    
    
    
    0
    
    
    
    0Provision for income taxes
    
    $
    0
    
    
    $
    0
    
    
    $
    0
 The federal and state deferred tax liabilities (assets) are comprised of
the following at December 31: 2003
    
    2002(Amounts in thousands)Noncurrent deferred tax assets:Loss carryforwards
    
    $
    (99,554
    )
    
    $
    (153,134
    )Other
    
    
    (1,033
    )
    
    
    (5,008
    )Gross deferred tax assets
    
    
    (100,587
    )
    
    
    (158,142
    )Deferred tax assets valuation allowance
    
    
    100,587
    
    
    
    158,142Deferred 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: 2003
    
    2002
    
    2001(Amounts in thousands)Tax provision (benefit) at statutory rate
    
    $
    934
    
    
    $
    (438
    )
    
    $
    (5,052
    )State income taxes
    
    
    4
    
    
    
    4
    
    
    
    4Utilization of NOL carryforward
    
    
    (938
    )
    
    
    
    
    
    
    Limitation on current-year tax benefit
due to unrealized NOL carryforwards
    
    
    
    
    
    
    434
    
    
    
    5,048Income tax provision
    
    $
    0
    
    
    $
    0
    
    
    $
    0
 28




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##### Table of Contents



At December 31, 2003, we had net operating loss carryforwards (NOLs) for
federal tax purposes expiring as follows (amounts are in millions): Year of Expiration
    
    NOL2004
    
    $
    78.12005
    
    
    7.22006
    
    
    2.12007
    
    
    1.22012
    
    
    25.72018
    
    
    73.82019
    
    
    3.92020
    
    
    20.02021
    
    
    3.32022
    
    
    2.72023
    
    
    71.4Total NOL carryforwards
    
    $
    289.4
 The NOLs presented above
exclude certain additional benefits that may be realized upon the
ultimate disposition of the Indiana HMO and Maxicare Life and Health
Insurance Company, Inc. Certain NOLs associated with the
California HMO, that were to expire in 2022 and prior years, have
been eliminated and replaced by an NOL expiring in 2023 as a result
of the Company taking a worthless stock deduction upon its surrender
of the common stock of the California HMO upon the approval of a
liquidating plan of reorganization in 2003. On December 5, 1990 (the Effective Date) the Company emerged from
protection under Chapter 11 pursuant to our joint plan of reorganization, as
modified (the Reorganization Plan). Upon the Effective Date of the
Reorganization Plan, we experienced a change of ownership pursuant to
applicable provisions of the Internal Revenue Code (the IRC). As a result of
the ownership change, our pre-change NOL carryforwards of
approximately $85.3 million are subject to limitation under provisions of Section 382 of the IRC. From December 5, 1990 through December 31,
2003 we have utilized approximately $32.8 million of the pre-change NOLs for
federal income tax return purposes. We are unable to quantify to what extent,
if any, we may be able to fully utilize our remaining pre-change NOLs prior to
their expiration. Should we experience a second change of ownership, the
limitation under Section 382 of the IRC on NOLs would be recalculated. We use the liability method of accounting for income taxes as set forth in
SFAS 109, Accounting for Income Taxes. 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. Accordingly, we have reserved the full amount of the deferred tax asses at
December 31, 2003. Deferred taxes will be recorded when realized in income tax
returns. Any future benefits from a reduction of the valuation allowance will
reduce our income tax expense. 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 employees who have satisfied certain eligibility
requirements. The primary eligibility requirement is that an employee must have
completed six months of eligible service. The participants and the Company
share the cost of the Savings Plan. Eligible employees may defer from 1% to 15%
of base compensation on a before-tax basis in accordance with Section 401(k) of
the IRC. The Savings Plan calls for us to match up to 3% of total compensation,
not to exceed the employees contribution. The Savings Plan was terminated
effective February 28, 2002. We made no contributions for the years ended
December 31, 2002 and 2001. 29




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##### Table of Contents



We previously adopted the Maxicare Health Plans, Inc. Supplemental
Executive Retirement Plan (the SERP) covering five key executives selected by
the Board, four of whom are no longer employed by us. 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. Compensation expense recognized in connection with
the SERP was $1,230,000 for the year ended December 31, 2001. No expense was
recognized for the years ended December 31, 2003 and 2002. The SERP
compensation expense recognized in 2001 was the result of a valuation of our
liability performed by a third party. In 2003, we settled the SERP liability
due to our former chief financial officer as discussed in Note 5  Notes
Receivable from Shareholders. Our remaining liability under the SERP at
December 31, 2003 is estimated at $1.9 million, of which $48,000 is payable in
2004. Quarterly Results of Operations (Unaudited) The following is a tabulation of the quarterly results of operations for
the years ended December 31, 2003 and 2002. Three Months Ended,March 31
    
    June 30
    
    September 30
    
    December 31(Amounts in thousands, except per share data)2003Revenues
    
    $
    5
    
    
    $
    3,409
    
    
    $
    21
    
    
    $
    69Income (loss)
    
    
    (549
    )
    
    
    4,063
    
    
    
    (516
    )
    
    
    (256
    )Net income (loss) per common share:Basic
    
    $
    (.06
    )
    
    $
    .42
    
    
    $
    (.05
    )
    
    $
    (.03
    )Diluted
    
    $
    (.06
    )
    
    $
    .42
    
    
    $
    (.05
    )
    
    $
    (.03
    )2002Revenues
    
    $
    110
    
    
    $
    88
    
    
    $
    110
    
    
    $
    529Income (loss)
    
    
    (1,245
    )
    
    
    (1,093
    )
    
    
    (142
    )
    
    
    1,202Net income (loss) per common share:Basic
    
    $
    (.13
    )
    
    $
    (.11
    )
    
    $
    (.01
    )
    
    $
    .12Diluted
    
    $
    (.13
    )
    
    $
    (.11
    )
    
    $
    (.01
    )
    
    $
    .12
 30




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##### Table of Contents



Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosures None. 
 Item 9A.Controls and Procedures Our chief executive officer and chief financial officer have supervised
and participated in an evaluation of the effectiveness of our disclosure
controls and procedures as of a date within 90 days of the date of this report,
and, based on their evaluations, they believe that our disclosure controls and
procedures (as defined in Rule 13a-14(c) of the Securities Exchange Act of
1934, as amended) are designed to ensure that information required to be
disclosed by us in the reports that we file or submit under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported, within
the time periods specified in the Commissions rules and forms. As a result of
the evaluation, there were no significant changes in our internal controls or
in other factors that could significantly affect these controls subsequent to
the date of their evaluation. 31




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##### Table of Contents



PART III 
 Item 10. Directors and Executive Officers of the Registrant The following table sets forth certain information concerning our
directors and executive officers as of March 31, 2004: NAME
    
    AGE
    
    POSITIONPaul R. Dupee, Jr.
    
    
    60
    
    
    Chief Executive Officer and Chairman of the Board of DirectorsGeorge H. Bigelow
    
    
    61
    
    
    DirectorJohn H. Gutfreund
    
    
    74
    
    
    DirectorSimon J. Whitmey
    
    
    57
    
    
    DirectorAlan D. Bloom
    
    
    58
    
    
    Senior Vice President, Secretary and General CounselPatricia A. Fitzpatrick
    
    
    52
    
    
    TreasurerJoseph W. White
    
    
    45
    
    
    Vice President, Chief Financial Officer and Director
 Compliance With Section 16(A) of The Securities Exchange Act of 1934 Based solely upon our review of the Forms 3, 4 and 5 and amendments
thereto furnished to us, we believe that there were no instances where our
executive officers or directors failed to file all required reports on a timely
basis. Meetings and Committees of the Board of Directors Our board of directors has two committees  the audit committee and the
compensation committee. The Audit Committee consists of three independent directors: Mr. Bigelow,
Mr. Gutfreund and Mr. Whitmey. Mr. Whitmey is chairman of the Audit Committee.
The audit committee met with our independent auditors and chief financial
officer prior to the filing of our Form 10-K annual report to review the 2003
audited financial statements. We have designated Mr. Bigelow as
our Audit Committee financial expert. The Compensation Committee, which is composed of Mr. Bigelow, Mr. Whitmey
and Mr. Dupee, serves as the stock option committee for our stock option plans
and approves any employment agreements with management and changes in
compensation for our executive officers. The Compensation Committee did not
grant any options or rights during 2003. Mr. Dupee is our Chief Executive
Officer. Excluding actions by unanimous written consent, during 2003, the Board of
Directors held three meetings and the Audit Committee held four meetings. Our
Compensation Committee met once in 2003. During 2003, all of our directors attended at least 75% of the meetings of
the board and any committee of which they are members. Code of Ethics We have adopted a code of ethics. Individuals needing a copy of our code
of ethics should write: Maxicare Health Plans, Inc., Code of Ethics, Attn:
Patricia Fitzpatrick, 11231 South La Cienega Boulevard, Los Angeles,
California, 90045. 32




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##### Table of Contents



Item 11. Executive Compensation Shown below is information concerning the annual and long-term
compensation for services in all capacities for the years ended December 31,
2003, 2002 and 2001, of (i) our chief executive officer and (ii) the other four
most highly compensated executive officers for 2003: SUMMARY COMPENSATION TABLE LONG-TERMCOMPENSATIONANNUAL COMPENSATION
    
    STOCKOPTIONS
    
    ALL OTHERNAME AND PRINCIPAL POSITION
    
    YEAR
    
    SALARY
    
    BONUS
    
    AWARDS(#)
    
    COMPENSATIONPaul R. Dupee
    
    
    2003
    
    
    $
    
    
    
    
    
    
    
    
    
    
    
    $
    32,250Chief Executive Officer
    
    
    2002
    
    
    $
    
    
    
    
    
    
    
    
    
    
    
    $
    33,0002001
    
    
    $
    607,000
    
    
    
    
    
    
    
    
    
    
    $
    6,000Alan D. Bloom
    
    
    2003
    
    
    $
    255,000
    
    
    
    
    
    
    
    
    
    
    $
    6,000Senior Vice President,
    
    
    2002
    
    
    $
    265,000
    
    
    
    
    
    
    
    
    
    
    $
    6,000Secretary and General Counsel
    
    
    2001
    
    
    $
    245,000
    
    
    
    
    
    
    
    
    
    
    $
    6,000Patricia A. Fitzpatrick, Treasurer
    
    
    2003
    
    
    $
    165,000
    
    
    
    
    
    
    
    
    
    
    $
    2002
    
    
    $
    165,000
    
    
    
    
    
    
    
    
    
    
    $
    2001
    
    
    $
    142,000
    
    
    
    
    
    
    
    
    
    
    $
    Joseph W. White
    
    
    2003
    
    
    $
    
    
    
    
    
    
    
    
    
    
    
    $
    74,750Vice President and
    
    
    2002
    
    
    $
    179,000
    
    
    
    
    
    
    
    
    
    
    $
    26,000Chief Financial Officer
    
    
    2001
    
    
    $
    136,000
    
    
    
    
    
    
    
    
    
    
    $
    
 Annual salary for 2003, 2002 and 2001 for Mr. Bloom and Ms. Fitzpatrick
includes amounts paid to them by Maxicare, the Companys California HMO, and
Maxicare Life and Health Insurance Company, Inc. pursuant to formal agreements
with each of those entities. Annual salary for Mr. White for 2002 and 2001
includes amounts paid to him by the California HMO and Maxicare Life and Health
Insurance Company pursuant to formal agreements with each of those
entities. Substantially all compensation for Mr. Bloom and
Ms. Fitzpatrick in 2003 and 2002 was paid by the California HMO
and Maxicare Life and Health Insurance Company, Inc. The California HMO is likely to continue paying compensation to Ms. Fitzpatrick
and Mr. Bloom through June 30, 2004, although likely at reduced rates. Mr. Dupee earned no salary or bonus in 2003 or 2002, but was compensated
as a director of the Company for the entire year. All Other Compensation
earned by Mr. Dupee in 2003 and 2002 is comprised of director fees. All other
compensation earned by Mr. Dupee in 2001 was a car allowance. All Other Compensation earned by Mr. Bloom is a car allowance. Effective August 9, 2002 Mr. White resigned as a full-time employee of the
Company. On that date, he entered into a consulting agreement with the Company
that calls for him to be compensated for his services at the rate of $125 per
hour, with a minimum weekly payment of $500. Commencing August 1, 2002 Mr.
White also became eligible for compensation as a director of the Company. All
Other Compensation earned by Mr. White in 2003 is comprised of consulting fees
of approximately $42,500 and Director fees of $32,250. All Other
Compensation earned by Mr. White in 2002 is comprised of consulting fees of
approximately $12,000 and Director fees of $14,000. Option Grants There were no stock option grants in 2003. 33




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##### Table of Contents



Option Exercises and Fiscal Year-end Values Officers listed in the Summary Compensation Table exercised no options in
2003. Shown below is information with respect to unexercised options to
purchase common stock held by those officers at December 31, 2003. NUMBER OF UNEXERCISED
    
    VALUE OF UNEXERCISEDOPTIONS HELD AT
    
    IN-THE-MONEY OPTIONS ATDECEMBER 31, 2003
    
    DECEMBER 31, 2003(1)NAME
    
    EXERCISABLE
    
    UNEXERCISABLE
    
    EXERCISABLE
    
    UNEXERCISABLEPaul R. Dupee, Jr.
    
    
    131,000
    
    
    
    0
    
    
    $
    0
    
    
    $
    0Alan D. Bloom
    
    
    5,020
    
    
    
    0
    
    
    $
    0
    
    
    $
    0Patricia A. Fitzpatrick
    
    
    3,020
    
    
    
    0
    
    
    $
    0
    
    
    $
    0Joseph W. White
    
    
    20
    
    
    
    0
    
    
    $
    0
    
    
    $
    0
   (1)
    
    Based on the closing price on the Over the Counter Bulletin Board on
December 31, 2003 of $.30 per share, none of the options were
in-the-money. Supplemental Executive Retirement Plan The Maxicare Health Plans, Inc. Supplemental Executive Retirement Plan is
an unfunded retirement plan that covers key executives as designated by the
Board. As of December 31, 2003, there were four participants in this plan, one
of whom (Mr. Bloom) was employed by us as of that date. The normal retirement
benefit is payable at age 65; however, the participant may elect to receive an
early retirement benefit whereupon such benefit will be reduced by 1/240 for
each month by which the distribution precedes the normal retirement date. In
addition, the plan provides for a pre-retirement death benefit equal to 200% of
the Participants average compensation. In January 2002, the Company exercised
its option under the plan to suspend payments until February 2003. In February
2003, the Company commenced payments to eligible participants. Of the officers
named in the Summary Compensation Table, only Mr. Bloom is a participant in the
Supplemental Executive Retirement Plan. Compensation of Directors During 2003, outside directors received compensation for their services as
directors. These directors were, George H. Bigelow, John H. Gutfreund and Simon
J. Whitmey. During 2003, Mr. Bigelow received $36,000; Mr. Whitmey received
$36,000; and Mr. Gutfreund received $36,000. During 2004, the Companys
directors will receive cash compensation for their services in the amount of
$30,000 per year, plus $750 per meeting attended. In addition, directors are
entitled to reimbursement for all reasonable out-of-pocket expenses incurred in
connection with their service as directors of the Company. There were no grants of stock options in 2003, 2002 or 2001. Previously,
the outside directors have received options to purchase shares of common stock
at an exercise price equal to the market price at the date of grant. Set forth
below is a schedule of the options that have been granted to our present
non-employee directors: # OF
    
    
    
    EXERCISE PRICEDIRECTOR
    
    OPTIONS
    
    DATE OF GRANT
    
    PER SHAREGeorge H. Bigelow
    
    
    4,000
    
    
    November 3, 2000
    
    $
    5.00John H. Gutfreund
    
    
    4,000
    
    
    November 3, 2000
    
    $
    5.00Simon J. Whitmey
    
    
    4,000
    
    
    November 3, 2000
    
    $
    5.00
 The options vest six months from the date of grant and expire ten years
from the date of grant provided the director continues to serve as a director
of the Company. In the event of termination of the directorship, such options
expire one year from the date of such termination. Compensation Committee Interlocks and Insider Participation Paul R. Dupee, Jr., our chief executive officer, served as an ex-officio
member of the compensation committee for 2003. Mr. Dupee did not participate in
any decisions regarding his own compensation as an executive officer, which was
determined by our board of directors, with Mr. Dupee not participating. 34




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##### Table of Contents



Item 12. Security Ownership of Certain Beneficial Owners and Management The following table and discussion provides information as to the shares
of common stock beneficially owned on March 31, 2004 by:  
    
    each director;
    
    our chief executive officer and our other executive officers as of March 31, 2004 who were officers on March 31, 2004;
    
    each person owning of record or known by us, based on information
provided to us by the persons named below, to own beneficially at least
5% of our common stock; and 0
    
    all officers and directors as a group. Beneficial ownership is determined in accordance with the rules of the
SEC. These rules generally attribute beneficial ownership of securities to
persons who possess sole or shared voting power or investment power with
respect to those securities and include shares of common stock issuable upon
the exercise of stock options or warrants that are immediately exercisable or
exercisable within 60 days. Shares of common stock subject to options
currently exercisable or exercisable within 60 days are deemed outstanding for
computing the percentage of the person holding these options but are not deemed
outstanding for computing the percentage of any other person. Unless otherwise
indicated, the persons or entities identified in this table have sole voting
and investment power with respect to all shares shown as beneficially owned by
them, subject to applicable community property laws. Percentage ownership calculations are based on 9,991,926 shares
outstanding as of March 31, 2004. No person is known to us to beneficially own
more than 5% of our Common Stock. NAME
    
    SHARES
    
    PERCENTPaul R. Dupee, Jr.
    
    
    281,020
    
    
    
    2.8
    %Alan D. Bloom
    
    
    5,020
    
    
    
    *John H. Gutfreund
    
    
    54,000
    
    
    
    *George H. Bigelow
    
    
    11,150
    
    
    
    *Simon J. Whitmey
    
    
    7,000
    
    
    
    *Patricia A. Fitzpatrick
    
    
    3,036
    
    
    
    *Joseph W. White
    
    
    20
    
    
    
    *All Directors and Executive Officers as
a group (7 individuals)
    
    
    361,246
    
    
    
    3.6
    %
   *
    
    less than one percent The number of shares owned by our directors and officers shown in the
table include shares of common stock which are issuable upon the exercise of
options and warrants that are exercisable on March 31, 2004 or will become
exercisable within 60 days after that date. Set forth below is the number of
shares issuable upon exercise of those options for those of our directors and
officers named in the foregoing table and for all officers and directors as
group. Paul Dupee
    
    
    131,000Alan Bloom
    
    
    5,020George Bigelow
    
    
    4,000John Gutfreund
    
    
    4,000Simon Whitmey
    
    
    4,000Patricia A. Fitzpatrick
    
    
    3,020Joseph W. White
    
    
    20All officers and directors as a group (7 individuals holding stock
options)
    
    
    151,060
 35




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##### Table of Contents



Item 13. Certain Relationships and Related Transactions None. 
 Item 14. Principal Accounting Services and Fees Ernst & Young, LLP served as our independent accountants during 2003 and
2002. Fees earned by Ernst & Young LLP for years ended December 31, 2003 and
2002 were as follows: December 312003
    
    2002Audit Fees including our annual audit and review of our quarterly reports on Form 10-Q
    
    $
    67,200
    
    
    $
    107,500Audit Related Fees including employee benefit plan audit and accounting consultations
    
    $
    18,000
    
    
    $
    15,000Tax Fees
    
    
    
    
    
    
    All Other Fees
    
    
    
    
    
    
    
 The Audit Committee has considered the nature of the services underlying
these fees and does not consider them to be incompatible with the independent
accountants independence. 36




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##### Table of Contents



PART IV 
 Item 15.Exhibits, Financial Statement Schedules, and Reports on Form 8-K  (a)
    
    1. Financial StatementsThe following consolidated financial statements of Maxicare Health Plans,
Inc. are included in this report in response to Item 8.Report of Independent Accountants  Ernst & Young LLPConsolidated Balance Sheets  At December 31, 2003 and 2002Consolidated Statements of Operations  Years ended December 31, 2003,
2002 and 2001Consolidated Statements of Changes in Shareholders Equity  Years ended
December 31, 2003, 2002 and 2001Consolidated Statements of Cash Flows  Years ended December 31, 2003,
2002 and 2001 Notes to Consolidated Financial Statements 2. Financial Statement Schedules Schedule I  Condensed Financial Information of Registrant  Condensed Balance
Sheets at December 31, 2003 and 2002, Condensed Statements of Operations and
Condensed Statements of Cash Flows for the years ended December 31, 2003, 2002
and 2001, Notes to Condensed Financial Information of Registrant Schedule II  Valuation and Qualifying Accounts for the years ended December
31, 2003, 2002 and 2001 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-KOn December 9, 2003 we filed a Report on Form 8-K announcing the
settlement of certain arbitration.(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.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. 37




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##### Table of Contents



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.14
    
    Code of Ethics of Maxicare Health Plans, Inc.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 Accountants  Ernst & Young LLP.31.1
    
    Certificate of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certificate of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certificate of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 38




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##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized. /s/PAUL R. DUPEE, JR.Paul R. Dupee, Jr.Chief Executive Officer
 Date: April 12, 2004 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, 2004/s/ JOSEPH W. WHITE
Joseph W. White
    
    Chief Financial Officer
and Director
Principal Finance and
Accounting Officer
    
    April 12, 2004/s/ GEORGE H. BIGELOW
George H. Bigelow
    
    Director
    
    April 12, 2004/s/ JOHN H. GUTFREUND
John H. Gutfreund
    
    Director
    
    April 12, 2004/s/ SIMON J. WHITMEY
Simon J. Whitmey
    
    Director
    
    April 12, 2004
 39




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##### Table of Contents



MAXICARE HEALTH PLANS, INC. SCHEDULE I  CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED BALANCE SHEETS December 31,2003
    
    2002(Amounts In thousands)Current AssetsCash and cash equivalents
    
    $
    2,867
    
    
    $
    183Other current assets
    
    
    25
    
    
    
    7Total Current Assets
    
    
    2,892
    
    
    
    190Investment in Subsidiaries
    
    
    2,507
    
    
    
    1,487Total Assets
    
    $
    5,399
    
    
    $
    1,677Current LiabilitiesAmounts due to subsidiaries
    
    $
    48
    
    
    $
    55Other current liabilities
    
    
    6,870
    
    
    
    9,138Total Current Liabilities
    
    
    6,918
    
    
    
    9,193Other Long-Term Liabilities
    
    
    1,938
    
    
    
    2,091Total Liabilities
    
    
    8,856
    
    
    
    11,284Commitments and ContingenciesTotal Shareholders Equity
    
    
    (3,457
    )
    
    
    (9,607
    )Total Liabilities and Shareholders Equity
    
    $
    5,399
    
    
    $
    1,677
 See notes to condensed financial information of registrant. 40




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MAXICARE HEALTH PLANS, INC. SCHEDULE I  CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED STATEMENTS OF OPERATIONS Years Ended December 31,2003
    
    2002
    
    2001(Amounts in thousands)RevenuesEquity in earnings (losses) of subsidiaries
    
    $
    1,099
    
    
    $
    505
    
    
    $
    (13,446
    )Investment income
    
    
    16
    
    
    
    523
    
    
    
    81Other income
    
    
    3,471
    
    
    
    100
    
    
    
    410Total revenues
    
    
    4,586
    
    
    
    1,128
    
    
    
    (12,955
    )ExpensesSalary, general and administrative expenses
    
    
    1,769
    
    
    
    1,041
    
    
    
    1,268Impairment of capital assets
    
    
    
    
    
    
    1,036
    
    
    
    Charges for litigation and management settlements
    
    
    75
    
    
    
    209
    
    
    
    Depreciation and amortization
    
    
    
    
    
    
    120
    
    
    
    704Total Expenses
    
    
    1,844
    
    
    
    2,406
    
    
    
    1,972Income (loss) from operations
    
    
    2,742
    
    
    
    (1,278
    )
    
    
    (14,927
    )Income tax provision
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    2,742
    
    
    $
    (1,278
    )
    
    $
    (14,927
    )
 See notes to condensed financial information of registrant. 41




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MAXICARE HEALTH PLANS, INC. SCHEDULE I  CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED STATEMENTS OF CASH FLOWS Years Ended December 31,2003
    
    2002
    
    2001(Amounts in thousands)Cash Flows from Operating Activities:Net income (loss)
    
    $
    2,742
    
    
    $
    (1,278
    )
    
    $
    (14,927
    )Adjustments to reconcile net income (loss) to net cash
used for operating activities:Depreciation and amortization
    
    
    
    
    
    
    120
    
    
    
    704Impairment of capital assets
    
    
    
    
    
    
    1,036
    
    
    
    Charges for litigation and management settlements
    
    
    75
    
    
    
    209
    
    
    
    Equity in (earnings) losses of subsidiaries
    
    
    (1,099
    )
    
    
    (505
    )
    
    
    13,446Changes in other assets and liabilities
    
    
    (2,521
    )
    
    
    (186
    )
    
    
    (3,548
    )Net cash used for operating activities
    
    
    (803
    )
    
    
    (604
    )
    
    
    (4,325
    )Cash Flows from Investing Activities:Loans to shareholders
    
    
    3,408
    
    
    
    (521
    )
    
    
    Capital contributions to subsidiaries, net
    
    
    (233
    )
    
    
    
    
    
    
    (500
    )Dividends received from subsidiaries
    
    
    312
    
    
    
    1,230
    
    
    
    Net cash provided by (used for) investing activities
    
    
    3,487
    
    
    
    709
    
    
    
    (500
    )Net increase (decrease) in cash and cash equivalents
    
    
    2,684
    
    
    
    105
    
    
    
    (4,825
    )Cash and cash equivalents at beginning of year
    
    
    183
    
    
    
    78
    
    
    
    4,903Cash and cash equivalents at end of year
    
    $
    2,867
    
    
    $
    183
    
    
    $
    78
 See notes to condensed financial information of registrant. 42




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MAXICARE HEALTH PLANS, INC. SCHEDULE I  CONDENSED FINANCIAL INFORMATION OF REGISTRANT NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT Note 1  General The condensed financial information of the registrant (MHP) should be
read in conjunction with the consolidated financial statements and the notes to
consolidated financial statements, which are included elsewhere herein. Note 2  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.,
our Indiana HMO, filed a complaint (the Complaint) in the Marion County
Circuit Court of Indiana against us and the five directors of the Indiana HMO,
one of whom was a director of the Company. The Commissioner amended the
Complaint on February 1, 2002. The Complaint, as amended, alleges, in
substance, that: (1) the directors of the Indiana HMO breached their fiduciary
duty by failing to maintain a plan providing for continuation of care benefits
in the event that the Indiana HMO was placed in receivership, and that the
Company is also liable for such failure; (2) the Company fraudulently concealed
the financial condition of the Indiana HMO; (3) the Company manipulated the
finances of the Indiana HMO for the Companys own benefit; and (4) the Company
received preferential and/or fraudulent transfers of money from the Indiana
HMO. While the amended Complaint requests money damages in largely unspecified
amounts, we understand the Commissioners claims against us to be in excess of
$48.0 million. All defendants answered the amended Complaint on April 5, 2002.
Pre-trial discovery has not been completed. We believe that the claims against
us are without merit and intend to vigorously defend the suit. The amounts
sought by the Commissioner are significantly in excess of liabilities recorded
on our Consolidated Balance Sheets. The ultimate resolution of this matter, if
unfavorable, could materially affect our consolidated financial position,
results of operations and cash flows. 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 Medimpact to process and fill
within its network of contracting pharmacies prescriptions for members of
Maxicare Life and Health Insurance Company, Inc., the California HMO and the
Indiana HMO. The PBM agreement called for the Company to reimburse Medimpact
for the cost of drugs dispensed and to pay per transaction administrative fees
on a bi-weekly basis. As a result of the Indiana HMO being placed in
rehabilitation and the California HMOs bankruptcy, Medimpact allegedly has not
received reimbursement for certain prescriptions filled on behalf of the
members of those subsidiaries. Although it has yet to do so, Medimpact may seek
reimbursement from us for such costs in an amount not presently known. We, in
turn, believe that we have claims against Medimpact for rebates due to us. By order dated March 9, 2001, the Missouri Department of Insurance
approved the transfer of all of the outstanding shares of Maxicare Life and
Health Insurance Company, Inc. from the Company to Maxicare Indiana, Inc., on
the condition that control of MLH remain with the Company. We believe that this
condition has not been complied with and that, accordingly, the transfer of the
MLH shares by us to Maxicare Indiana, Inc. is null and void. We intend to
present our position to the Missouri Department of Insurance at the appropriate
time. The landlord under the terms of a lease expiring in May 2004 for 79,000
square feet of industrial space in Los Angeles claims that we are obligated to
surrender that space in its original condition. We have previously made
extensive modifications to the leased premises. The landlord claims that the
restoration of the space may cost $1.5 million. We believe that the
landlords claim is without merit. Six former employees of the Indiana HMO have made demand on us for the
payment of approximately $400,000 in severance payments. We believe these
claims are without merit. Other than those noted above, no claims have been filed against us by the
creditors of Maxicare Life and Health Insurance Company, Inc., the California
HMO or the Indiana HMO. However, such creditors may file claims against us in
the future. 43




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##### Table of Contents



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 and totaled $200,000, $100,000 and $800,000
for the years ended December 31, 2003, 2002 and 2001, respectively. In the first quarter of 2002 we determined that the termination of our
business operations eliminated our need for certain equipment held under
capital lease agreements (principally high volume copying equipment). We have
returned that equipment to the lessor and have removed the leased assets from
our balance sheet via a $1.0 million impairment charge in March 2002, The
estimated liability associated with these leased assets remains on our
consolidated balance sheets. Amortization expense for capital leases is
included in depreciation expense. Future minimum lease commitments for
noncancelable leases at December 31, 2003 were as follows: Operating
    
    CapitalizedLeases
    
    Leases(Amounts in thousands)2004
    
    $
    205
    
    
    $
    1932005
    
    
    29
    
    
    
    962006
    
    
    2
    
    
    
    2007
    
    
    
    
    
    
    2008
    
    
    
    
    
    
    Total minimum obligations
    
    $
    236
    
    
    
    289Amount representing interest
    
    
    
    
    
    
    (23
    )Less current obligations
    
    
    
    
    
    
    (172
    )Long-term obligations
    
    
    
    
    
    $
    94
 The California HMO continues to contribute to the payment of the operating
lease obligations of MHP. Although there can be no assurance that such payments
will continue, management believes it likely that the California HMO will
contribute approximately $49,000 to the payment of operating lease obligations
in 2004. Such payments by the California HMO are unlikely to continue after May
31, 2004. Note 3  Disposition of Subsidiaries On May 25, 2001, the California HMO filed for Chapter 11 bankruptcy
protection. On March 14, 2003 the Bankruptcy Court issued an order confirming
the liquidating Plan of the California HMO. Effective March 24, 2003 the
effective control of this entity passed to a Board of Directors with 80% of its
membership selected by and representing the creditors. We will not receive any
distribution of assets from the California HMO. The Indiana HMO is incorporated under the laws of the state of Indiana and
is primarily regulated by the Indiana Department of Insurance. On May 4, 2001,
the Indiana Department of Insurance placed the Indiana HMO into rehabilitation.
The Indiana HMO was formally placed into liquidation on July 3, 2001. We are
unlikely to receive any distribution of assets from the Indiana HMO. Maxicare Life and Health Insurance Company, Inc. is incorporated under the
laws of the state of Missouri and is primarily regulated by the Missouri
Department of Insurance. On March 9, 2001 we contributed the capital stock of
Maxicare Life and Health Insurance Company, Inc. to the Indian HMO. On May 24,
2001 the Missouri Department of Insurance placed Maxicare Life and Health
Insurance Company, Inc. under administrative supervision. On January 28, 2002
the Missouri Department of Insurance placed Maxicare Life and Health Insurance
Company, Inc. into rehabilitation. On March 4, 2003 the Board of Directors of
Maxicare Life and Health Insurance Company, Inc. agreed to its liquidation. We
may or may not receive any distribution of assets from Maxicare Life and Health
Insurance Company, Inc. As a result of these events, equity in earnings (loss) of subsidiaries
include the operating results of the Indiana HMO and Maxicare Life and Health
Insurance Company, Inc. only through May 3, 2001 and the California HMO on only
through May 24, 2001 Note 4  Charges for Litigation and Management Settlements In March 2003, the TriZetto Group, Inc. (TriZetto) sued us in California
State court, alleging that we breached an information 44




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services contract and claiming over $12,000,000 in damages, including over
$1,000,000 in amounts due under the contract and $11,000,000 in termination
fees. On or about June 30, 2003, this action was settled. Pursuant to the
settlement agreement, we paid $1,250,000 to TriZetto, issued 250,000 shares of
our common stock to TriZetto and returned to TriZetto certain warrants that
TriZetto had issued to us. The action may be revived in certain circumstances
in the event that a judgment is obtained against TriZetto by a third-party
based on TriZettos receipt of the $1,250,000 settlement payment. We recorded a
litigation and contract settlement charge of $250,000 in the second quarter of
2003 to record the amount by which the cash settlement paid TriZetto exceeded
amounts previously accrued. We issued common shares to TriZetto on July 1,
2003, but no cost was recorded in the Consolidated Statements of Operations for
the shares issued to TriZetto since the fair value of the shares was
immaterial. Effective February 2, 2000, we entered into a Services Agreement for Back
Office Administration with Nichols TXEN Corporation calling for Nichols TXEN to
provided certain claims adjudication services to certain of our subsidiaries in
exchange for a predetermined per member per month fee. Subsequently, CSC
Healthcare Inc. (CSC), the successor in interest to Nichols TXEN, commenced
an arbitration (the Arbitration) in Atlanta against us before the American
Arbitration Association, claiming our breach of the parties Service Agreement
for Back Office Administration and contract damages of approximately
$1,300,000. On December 1, 2003, the Arbitration and a related case brought by
CSC against us in Alabama State court were settled and all claims and
counterclaims dismissed. Pursuant to such settlement, we paid CSC $300,000 and
recognized a gain, reflected as negative litigation and management settlement
charges, of $580,000 in the fourth quarter of 2003, for the difference between
the liability previously accrued in connection with this matter and the
ultimate settlement of $300,000. On or about February 10, 2003, Peter J. Ratican, a shareholder and former
executive officer and director of MHP, commenced an action against us in the
Superior Court of the State of California, alleging that we had breached his
consulting agreement with us and claiming damages. On March 11, 2003, Mr.
Ratican obtained an attachment in the amount of $767,000 against us in
connection with his claim. In February 2004, we entered into a Settlement
Agreement and Mutual Release with Mr. Ratican under the terms of which we paid
Mr. Ratican $550,000 in addition to the amount already attached. As a result
of the Settlement Agreement and Mutual Release we recorded a litigation and
management settlement charge of $405,000 in the fourth quarter of 2003 for the
amount paid Mr. Ratican in excess of amounts previously accrued. In 2002 we recognized a gain of $671,000 in connection with the settlement
of a former executives claim under our Supplemental Executive Retirement Plan.
This gain was recognized in conjunction with the collection of a note issued by
the same executive. Please see Note 5  Notes Receivable From Shareholders to
our consolidated financial statements. Also in 2002 we recorded $880,000 in
litigation and management settlement charges in connection with the previously
discussed Services Agreement for Back Office Administration, which we had
previously entered into for the benefit of our subsidiaries. 45




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MAXICARE HEALTH PLANS, INC. SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS Column A
    
    Column B
    
    Column C
    
    Column D
    
    Column EAdditionsBalance at
    
    Charged to
    
    Charged to
    
    
    
    
    
    Balance atBeginning
    
    Costs and
    
    Other Accounts
    
    Deductions
    
    End ofDescription
    
    of Period
    
    Expenses
    
    Describe
    
    Describe
    
    Period(Amounts in thousands)For the Year Ended
December 31, 2003Allowance for
doubtful accounts and
retroactive billing
adjustments
    
    $
    0
    
    
    
    
    
    
    
    
    
    
    $
    
    
    
    $
    0$
    0
    
    
    
    
    
    
    
    
    
    
    $
    
    
    
    $
    0For the Year Ended
December 31, 2002Allowance for
doubtful accounts and
retroactive billing
adjustments
    
    $
    0
    
    
    
    
    
    
    
    
    
    
    $
    
    
    
    $
    0$
    0
    
    
    
    
    
    
    
    
    
    
    $
    
    
    
    $
    0For the Year Ended
December 31, 2001Allowance for
doubtful accounts and
retroactive billing
adjustments
    
    $
    5,922
    
    
    
    
    
    
    
    
    
    
    $
    (5,922
    )(1)
    
    $
    0$
    5,922
    
    
    
    
    
    
    
    
    
    
    $
    (5,922
    )
    
    $
    0
  (1)
    
    Decrease in allowance, net of retroactive billing adjustment write-offs,
is due to the deconsolidation of the Indiana HMO, Maxicare Life and Health
Insurance Company, Inc. and the California HMO as a result of their
placement into rehabilitation (the Indiana HMO and Maxicare Life and
Health Insurance Company) or bankruptcy (the California HMO). 46