<PAGE>   1
                                   FORM 10-KSB

(Mark One)

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

                   For the fiscal year ended December 31, 1999

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

              For the transition period from            to

COMMISSION FILE NUMBER 000-22719

                  PHYSICIAN HEALTHCARE PLAN OF NEW JERSEY, INC.
                 (Name of small business issuer in its charter)

New Jersey                                                   22-3273637
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                               Identification No.)


c/o The Pace Group, Inc., 2828 N. Haskell, B5 F6, Dallas, TX 75204
-----------------------------------------------------------------------
(Address of principal executive offices) (zip code)

Issuer's telephone number:  (214) 887-7947

         Securities registered under Section 12(b) of the Exchange Act: None

         Securities registered under Section 12(g) of the Exchange Act: Common
         Stock, no par value.

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

Check if there was no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosures will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]

State issuer's revenues for the most recent fiscal year: $208,164

There is no current market for this stock. However, the aggregate value of
voting stock held by non-affiliates as of December 31, 1999, computed by
reference to the book value as of December 31, 1999, was approximately
$4,374,571.

As of December 31, 1999, there were 4,629 shares of Common Stock outstanding.


<PAGE>   2

Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]

DOCUMENTS INCORPORATED BY REFERENCE

None


<PAGE>   3
PART I

ITEM 1.  DESCRIPTION OF BUSINESS

Overview

         The Company is a New Jersey corporation, formed on January 10, 1994,
under the sponsorship of private practicing physicians for the purpose of
developing a statewide physician-owned and directed health maintenance
organization ("HMO"). The Company's HMO and preferred provider organization
("PPO") operations were sold on December 19, 1997, as described below, and the
Company is seeking approval from state regulators to surrender its Certificate
of Authority and subsequently liquidate.

         In December 1994, the Company filed an application for a Certificate of
Authority ("COA") to operate as an HMO in five counties in New Jersey, which
application was approved effective August 28, 1995. The Company was not
permitted to solicit business until a Certificate of Authority was obtained. The
Company commenced marketing its HMO plans to persons living in the five county
area and issued its first policy in November 1995. In September 1995, the
Company filed an application to amend its COA to expand its service area to
cover the entire State of New Jersey. The amendment was approved effective
January 29, 1996. The Company received federal trademark registration for its
name, for the acronym PHPNJ and for the stylized "P" logo which contains a
cutout in the shape of New Jersey.

         The Company devoted substantial efforts to developing and credentialing
its health care delivery network, and health plans particularly for the small
employer marketplace in New Jersey. The Company had entered into approximately
1,400 Physician Participation Agreements with physicians who had been
credentialed, and 81 contracts with inpatient care facilities. In addition, the
Company had negotiated contracts for the provision of certain ancillary services
such as prescription benefits. The Company had developed HMO, PPO and
point-of-service ("POS") products.

Management

         Since inception, the Company had no employees. As such, the Company had
engaged a management company to provide substantially all management and
administrative services, including but not limited to, financial services,
member and provider support services, provider credentialing, and claims
processing. Until July 1997, the Company was managed by Medical Group
Management, Inc. ("MGM"), a subsidiary of the New Jersey State Medical
Underwriters, Inc., which in turn was a subsidiary of the Medical Society of New
Jersey. That arrangement with MGM terminated in July 1997 and the Company
entered into a Management Agreement with Medigroup of New Jersey, Inc.
("Horizon" or the "Purchaser") effective July 1, 1997. Horizon managed the
Company's operations until December 19, 1997, when it purchased the Company's
HMO and PPO operations pursuant to an Agreement dated as of June 26, 1997 (the
"Agreement"). Currently, Horizon provides limited management services on an
hourly basis, and the Company has a contract with The Pace Group, Inc. ("Pace")
to provide management transition services and certain corporate financial and
reporting assistance not otherwise provided by the Purchaser, such as assistance
in making required filings with state insurance regulators and with the
Securities and Exchange Commission.

                                     PAGE 1
<PAGE>   4
Strategic Initiatives and Sale of Operations

         By April 1996, the Company's leadership recognized the impact of
changing market conditions, coupled with attendant network, pricing and product
issues, and acknowledged that membership goals were not being met and that
expenses were being incurred in excess of the Company's revenues. The Company
developed a three-part strategy to improve operating results. The components of
that strategy were: (a) capital preservation, (b) marketing and sales, and (c)
new product initiatives. To preserve capital, the Company implemented a new
staffing model which reduced monthly salaries and compensation expenses
beginning in September, 1996. Staffing was reduced and sales efforts were
shifted from a staff of sales employees to a broker-driven sales effort. In
addition, the Company reduced the amount of space it leased, effective October
1, 1996, and cut its monthly advertising budget by approximately two-thirds. The
Company proposed to develop special marketing arrangements with local medical
communities, and marketed one of its existing products under a marketing
arrangement called "Skyland Select".

         Notwithstanding the implementation of this strategy, the Company
continued to incur losses. Early in 1997, the Company's leadership charged the
Board of Directors' Due Diligence Committee with identifying strategic options
and recommending a course of action that would be most beneficial to the Company
and its stockholders, ultimately resulting in the negotiation of the Agreement
and Management Services Agreement with Horizon. In addition, the Company has
sold most of its fixed assets to MGM, sold certain equipment to Horizon and sold
its automobiles to other parties.

         On December 19, 1997 the Company consummated the transfer and
assignment of certain provider and subscriber contracts constituting its HMO and
PPO operations to Horizon, the HMO affiliated with Blue Cross Blue Shield of New
Jersey, Inc. The Company received a cash payment of $1,839,300 as consideration
for the transfer and assignment. As of the date of closing, the Management
Services Agreement dated as of June 26, 1997 between the Company and Horizon
terminated and the parties entered into a new Management Services Agreement
pursuant to which Horizon provided certain limited management services through
March 1, 1999. The Company has agreed to pay Medigroup an hourly fee of $75 for
services provided under that agreement. In early 1999 the Company and Horizon
renegotiated an extension of this agreement from March 1, 1999 through the
Company's ultimate dissolution. Horizon currently continues to provide services
to the Company as described above.

         Although the Company sold its operations to Horizon, the Company
remained responsible for the payment of claims incurred prior to the December
19, 1997, date of the closing of the transaction with Horizon. This liability is
limited to those claims asserted by a claimant on or before December 19, 1998,
and previously acknowledged or otherwise known to the Company. In early 1999,
the Company completed payment of claims incurred prior to December 19, 1997. The
Company continued to fulfill the reporting requirements of regulatory agencies
through its contracts with The Pace Group and Horizon. The Company expects that
it will surrender its COA to New Jersey insurance regulators at such time as the
regulators approve, based on the regulators determination that the Company has
satisfied its liabilities. In 1999 the Company had ongoing discussions with the
New Jersey insurance regulators to reach agreement on the most expeditious way
to surrender the COA. It is anticipated that the Company will reach agreement
with the New Jersey insurance regulators on this process sometime in 2000 and
will surrender the COA at such point. After such surrender, it is expected that
the Company will be dissolved and any assets remaining after satisfaction of

                                     PAGE 2


<PAGE>   5
the Company's liabilities will be distributed to stockholders. Amounts
distributed in respect of each outstanding share of the Company's common stock
are expected to be substantially lower than the purchase price paid for such
shares. However, the Company is unable to estimate the amount, if any, that
would be available for distribution. Dissolution would require additional
stockholder action.

ITEM 2.  DESCRIPTION OF PROPERTY

The Company has no leased or owned real property.

ITEM 3.  LEGAL PROCEEDINGS

The Company was a defendant in an action entitled Beharie v. Physician
Healthcare Plan of New Jersey, et.al., Docket No. L-2397-97, in the Superior
Court of Morris County, New Jersey. Dr. Beharie claimed he was wrongfully
terminated as an employee and subsequently defamed by PHPNJ (and other unrelated
corporate entities). The Plaintiff seeks to recover unspecified compensatory and
punitive damages together with interest and litigations costs from the
Defendants. On April 1, 1999, prior to the summary judgement hearing, Dr.
Beharie reached a settlement with the co-defendant. On August 11, 1999, a
Stipulation of Dismissal was received which dismissed this matter without costs
to the Company.

In addition, the Company was a third party defendant in an action entitled
Valley National Bank v. Dr. Hussein Matari v. Physician Healthcare Plan of New
Jersey, docket number DC-10412-98, filed in Superior Court of New Jersey, Law
Division, Special Civil Part - Civil, Bergen County. The action was brought by
Valley National Bank to recover a loan made to Dr. Matari for the purchase of
stock in PHPNJ. Dr. Matari sought to recover his initial investment in PHPNJ and
hold the Company responsible for his defaulted loan. On March 15, 1999, an order
was filed dismissing the third party complaint without prejudice.

The Company is a defendant in an action entitled Benjamin Levine, M.D. v.
Physician Healthcare Plan of New Jersey, docket number DC-2841-98, filed in
Superior Court of New Jersey Law Division, Special Civil Part, Mercer County.
The Plaintiff sought to recover $10,000 together with interest and litigation
costs from the Defendants for redemption of stock. On August 14, 1998, the Court
issued a summary judgement to dismiss the action. In November 1998, the
Plaintiff filed an appeal. On March 1, 1999, Dr. Levine filed a motion before
the trial judge, who previously dismissed the action, to be declared indigent
and entitled to free transcripts for the appeal, which was denied. On March 31,
1999, Dr. Levine made a request for the transcripts. A brief was to be filed by
Dr. Levine by July 8, 1999; however, Dr. Levine contacted the Appellate Division
Clerk on July 8, 1999 requesting an additional 45 days to complete his briefing
period, which was granted. Dr. Levine filed a brief to appeal on August 20,
1999. On August 31, 1999, the Company filed a brief in opposition to the appeal
filed by Dr. Levine. A letter brief, concluding the briefing process, was filed
by Dr. Levine on September 21, 1999. The court has scheduled a hearing for April
4, 2000. The Company believes that it has excellent defenses which it intends to
pursue vigorously.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No meetings for shareholders were held in 1999.

                                     PAGE 3
<PAGE>   6
PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

         There is no public market for the common stock of the Company. At
December 31, 1999, the Company had 4,629 shareholders. The Company's shares
could only be purchased by eligible purchasers (4,629), which were physicians
who were licensed to practice medicine and surgery in New Jersey and who were
actively practicing. Each eligible purchaser is limited to one share. The
By-Laws of the Company prohibit the transfer of stock to any person or entity to
ensure that only physicians participating in the network maintained ownership in
the Company. However, the By-Laws do provide for mandatory redemption by the
Company in Exchange for the book value of the stock upon the occurrence of
certain events, such as death, retirement, disability, loss of medical license,
cessation of practice in New Jersey and termination of an effective Physician
Participation Agreement. Discretionary redemption by the Board of Directors is
also permitted.

         Additionally, the Physician Participation Agreement was expressly
conditioned on the physician being credentialed. If the physician was not
initially credentialed, the physician agreed that his or her stock shall be
redeemed by the Company for the purchase price paid, without interest. If the
Company had not made a decision regarding the initial credentialing of a
stockholder within twelve (12) months of the Company's receipt of such
stockholder's purchase price, upon request of such stockholder, the Company
would redeem such stock for the purchase price, without interest.

         The Company is not permitted to redeem a share if the Company is
insolvent or if doing so would cause the Company to be in a precarious financial
condition, as determined by the Board of Directors.

         In November 1996, the Board of Directors adopted a resolution to the
effect that discretionary redemptions would not be made for a period of 12
months after the adoption of such resolution. In July 1997, the Board of
Directors adopted a resolution that placed a moratorium on all redemptions, for
any reason, to prevent a potentially large redemption obligation from causing
the Company to be in precarious financial condition.

         The Company has not paid any dividends and does not intend to pay
dividends in the future. Earnings, if any, have been retained for use in the
operation and expansion of the Company's business. Additionally, the Company
must obtain approval from the New Jersey Department of Banking and Insurance
prior to declaring any dividends.

         The Company expects that it will surrender its COA to New Jersey
insurance regulators at such time as the regulators approve, expected sometime
in 2000. After such surrender, it is expected that the Company will be dissolved
and assets remaining, if any, after satisfaction of the Company's liabilities
will be distributed to stockholders. Amounts distributed in respect of each
outstanding share of the Company's common stock are expected to be substantially
lower than the purchase price paid for such share. However, the Company is
unable to estimate the amount, if any, that would be available for distribution.
Dissolution would require additional stockholder action.

                                     PAGE 4
<PAGE>   7
ITEM 6.  MANAGEMENT'S PLAN OF OPERATIONS

         The Company is a New Jersey corporation, formed on January 10, 1994,
under the sponsorship of private practicing physicians for the purpose of
developing a statewide, physician-owned HMO. The Company sold its operations to
the Purchaser on December 19, 1997, following the December 9, 1997 shareholder
meeting at which the sale was approved, and has continued efforts through 1998
year to date to wind down operations. As a result, effective December 31,
1997,the Company changed its basis of accounting from a going-concern basis to a
liquidation basis. During the year ended December 31, 1999, management
activities have been limited to continuing the Company's payment of existing
liabilities, stewardship of remaining assets, maintaining compliance as
appropriate in reporting to applicable regulatory agencies and working with
applicable regulatory agencies to gain approval to surrender its COA and
dissolve.

         Although the Company has sold its operations to Horizon, the Company
remained responsible for the payment of claims incurred prior to the December
19, 1997 date of the closing of the transaction with Horizon. The Company's
liability for claims payment after December 19, 1998, the first anniversary of
the Transaction, is limited to claims asserted by a claimant for services prior
to December 19, 1997 and previously acknowledged or otherwise known to the
Company no later than December 19, 1998. As of December 31, 1999 that liability
had been fully paid out. Any claims for services provided after December 19,
1997 or any claims for services provided prior to December 19, 1997 but first
discovered after December 18, 1998 are the responsibility of Horizon. Subsequent
to December 31, 1999, Horizon notified the Company that it believes the Company
is responsible for approximately $30,000 of claims because they were incurred
prior to December 19, 1997. The Company believes it has no responsibility for
these claims because they were reported to the Company after December 19, 1998
and that they are Horizon's responsibility pursuant to the agreements entered
into in connection with the transaction. The Company expects that it will
surrender its Certificate of Authority to New Jersey insurance regulators at
such time as the regulators approve, based on the regulators' determination that
the Company has satisfied its liabilities. In 1999 the Company had ongoing
discussions with the New Jersey insurance regulators to reach agreement on the
most expeditious way to surrender the COA. It is anticipated that the Company
will reach agreement with the New Jersey insurance regulators on this process
sometime in 2000 and will surrender the COA at such point.

Changes in Net Assets

         The decrease in net assets in liquidation for the year ended December
31, 1999 was approximately $647,000, which represents investment income of
approximately $280,000 offset by unrealized losses on investments of
approximately $103,000, a state insurance department assessment of $211,000 and
by general, administrative expenses and professional services of approximately
$607,000.

         For the year ended December 31, 1999, the Company incurred general and
administrative costs of approximately $607,000. In 1999, such costs and expenses
relate to the management activities of the Company including, but not limited
to, costs and expenses incurred due to management fees, legal fees, actuarial
and accounting assistance and insurance. During 1999, a one-time assessment of
$211,421 was paid to the New Jersey Individual Health Coverage Program. The
assessment was based on net earned premium reported for calendar years 1997 and
1998.

                                     PAGE 5
<PAGE>   8
         While New Jersey legislation may provide for additional assessments
upon HMOs in the future, the Company is unable at this time to estimate the
applicability or amount of any such assessment on the Company.

Financial Condition

         Cash and invested assets: Total investments, including cash and short
term investments were approximately $4,299,000 at December 31, 1999 and
$5,387,000 at December 31, 1998. The decrease in invested assets between
December 31, 1999 and December 31, 1998 resulted primarily from cash outflow
from payment of administrative and general expenses.

         The Company's investments on December 31,1999 were in debt securities
comprised of investment grade securities, with the highest ratings assigned by
Standard & Poor's (AAA) or Moody's (Aaa;P-1), respectively.

         Claims Payable: The total claims liability is $0 at December 31, 1999
and approximately $21,000 at December 31, 1998. During 1999, $27,000 of claims
were paid which related to claims incurred prior to December 19, 1997.

         Net assets in liquidation: Total net assets in liquidation were
approximately $4,375,000 at December 31, 1999 and approximately $5,022,000 at
December 31, 1998. The decrease is primarily due to investment income and offset
by unrealized losses on investments, general and administrative expenses, and
professional services in excess of investment income.

ITEM 7.  FINANCIAL STATEMENTS

The financial statements of the Company as required by this item are submitted
as a separate section of this report. Reference is made to the Index of
Financial Statements hereafter contained on page F-1.

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

         No change in accountant and/or disagreements on any matter of
accounting principles or financial statement disclosures have occurred within
the last two years.

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

Directors of the Registrant

         The following table lists the Company's current Board of Directors and
their ages. The Company has no executive officers other than its Chairman and
President. Employees of Pace, with whom the Company contracts for certain
management services, serve as acting Chief Executive Officer and Principal
Accounting Officer.

NAME                           DATE ELECTED     TERM     AGE   TITLE
----                           ------------     ----     ---   -----

Joseph Billotti, M.D.              12/95       3 yrs.    52    Chairman of the
                                                               Board & President

Stanley Bloom, M.D.                12/95       1 yr.*    61    Director

William F. Brennan, D.O.           12/95       3 yrs.    52    Director

                                     PAGE 6
<PAGE>   9
NAME                           DATE ELECTED     TERM     AGE   TITLE
----                           ------------     ----     ---   -----

Lee Hindin, M.D.                   12/95       1 yr.*    49    Director

Alexander Horowitz, M.D.           12/95       2 yrs.    57    Director

Louis Keeler, M.D.                 12/95       1 yr.*    67    Director

Linda Korman, M.D.                 12/95       1 yr.*    48    Director

Mark Levy, M.D.                    12/95       1 yr.*    62    Director

Martin S. Levine, D.O.             12/95       1 yr.*    45    Director

Nancy L. Mueller, M.D.             12/95      2 yrs.*    50    Director

Mark T. Olesnicky, M.D.            12/95      2 yrs.*    57    Director

Emmons G. Paine, M.D.              12/95       3 yrs.    70    Director

Fred M. Palace, M.D.               12/95      2 yrs.*    64    Director

Barry Prystowsky, M.D.             12/95      2 yrs.*    45    Director

Thomas R.C. Reutter, Jr., D.O.     12/95      2 yrs.*    60    Director

David L. Sirota, D.O.              12/95      2 yrs.*    60    Director

Bessie Sullivan, M.D.              12/95       3 yrs.    58    Treasurer and
                                                               Director

Vincent J. Vivona, D.O., J.D.      12/95      2 yrs.*    50    Director

* Will serve until successor is elected and qualified. The Company did not hold
an annual meeting in 1997, 1998 or 1999.

JOSEPH BILLOTTI, M.D., has conducted a private medical practice in Orthopedic
Surgery in Bergen County, New Jersey since 1978. Dr. Billotti is a Diplomate of
the American Board of Orthopedic Surgery, Fellow of the American Academy of
Orthopedic Surgeons, and is a Fellow of the American and International College
of Surgeons. Dr. Billotti is a member of the Federal Health Care Financing
Administration Advisory Committee. He served as a Delegate for the State of New
Jersey Medical Society, and was a member of the Board of Directors of the New
Jersey State Orthopedic Society. Dr. Billotti was the Medical Director of the
Valley Regional Medical Center and a Clinical Assistant Professor of Orthopedic
Surgery at the University of Medicine and Dentistry of New Jersey. Dr. Billotti
is a member of the Bergen County Medical Society, the American Medical
Association, the Eastern Orthopaedic Society and the American College of Managed
Care, Inc.

BESSIE SULLIVAN, M.D., has conducted a private medical practice in Rheumatology,
Allergy and Immunology in Central New Jersey since 1974. She is a Diplomate of
the American Boards of Internal Medicine, Rheumatology, and Allergy and
Immunology. Dr. Sullivan is a Clinical Associate Professor of Medicine at the
University of Medicine and Dentistry of New Jersey. She is also a founding
Fellow of the American Rheumatology Association. She served as Vice President of
the New Jersey Chapter of the Arthritis Foundation, was a member of its
Executive Committee, and continues to serve on its Board of Governors and its
Medical and Scientific Committee, and she has served as

                                     PAGE 7
<PAGE>   10
Chairperson of several of the Chapter's other committees. Dr. Sullivan served as
President of the Medical Staff at Muhlenberg Regional Medical Center from
1992-1993, has served as Chairperson of Muhlenberg's Medical Records Committee,
and as a member of its Executive Committee and the Planning Committee of its
Board of Trustees. She was the Chairperson of the Legislative Council of the New
Jersey Medical Society and is currently a member of its House of Delegates,
Consultant to the Board of Trustees, and the Board's Strategic Planning
Committee. From 1990-1991, she served as President of the Union County Medical
Society. Dr. Sullivan is a member of the Board of Governors of the Medical
Inter-Insurance Exchange of New Jersey and serves on its Board's Strategic
Planning and Audit Committees.

STANLEY BLOOM, M.D., has conducted a private medical practice in Urology in
Essex County, New Jersey since 1970. He is a Board Certified Urologist and a
Fellow of the American College of Surgeons. Dr. Bloom is a member of the Essex
County Medical Society, the American Urological Association and the Society of
Endolaparoscopic Surgeons. He is also past Chairman of the Department of Surgery
at East Orange General Hospital and of the Departments of Urology at St.
Barnabas Medical Center and East Orange General Hospital.

WILLIAM F. BRENNAN, D.O., Board Certified in Family Practice by the American
Osteopathic College of Family Practice, has conducted a private medical practice
in Family Medicine in Gloucester County since 1980. In addition to his private
practice, he currently serves as a Student Health Physician for Rowan College.
Dr. Brennan is also a Delegate to the New Jersey Osteopathic House of Delegates.
In 1995, he was appointed Clinical Associate Professor of Family Practice at the
University of Medicine and Dentistry of New Jersey - School of Osteopathic
Medicine. Previously, in addition to his private practice, Dr. Brennan served as
Medical Director of the Gloucester County Sheriff's Medical Department, school
physician for the Cherry Hill School District and as a medical officer in the
United States Navy.

LEE HINDIN, M.D., conducted a private practice in psychiatry in Essex County
from 1982-1995. Since 1995 his practice has been in Passaic County. Prior to
that, he was an instructor at the University of Medicine and Dentistry of New
Jersey. He is Board Certified in Psychiatry by the American Board of Psychiatry
and Neurology. He is a member of the American Psychiatric Association, the New
Jersey Psychiatric Associates, American Society of Addiction Medicine, and
American Academy of Psychiatrists in Alcoholism and Addictions. He is founder
and Medical Director of Creative Intervention for Mental Health and Chemical
Dependency. He has been the Associate Medical Director of the Department of
Psychiatry, Medical Director of the Division of Drug and Alcohol Services and is
currently on the Medical Board of St. Barnabas Medical Center.

ALEXANDER R. HOROWITZ, M.D., has conducted a private practice in Pediatrics in
Madison, New Jersey since 1977. Dr. Horowitz is a Diplomate of the American
Board of Pediatrics and the American Board of Quality Assurance and Utilization
Review Physicians. He is past Chairman of the Pediatric Audit Committee at
Overlook Hospital and the Joint Patient Care Committee at Morristown Memorial
Hospital. He has served as a utilization reviewer at both institutions. He is an
Instructor of Clinical Pediatrics at the College of Physicians and Surgeons,
Columbia University, New York. He holds and has held multiple positions in the
Morris-Somerset IPA.

LOUIS KEELER, M.D., has conducted a private practice in Urology in Camden County
since 1967. He is Board Certified and a member of the American Urologic
Association. He is immediate past President of the Medical Society of New
Jersey. Dr. Keeler is a Clinical Associate Professor of Urology at

                                     PAGE 8
<PAGE>   11
Thomas Jefferson University in Philadelphia. He has been President of the Camden
County Medical Society and President of the Medical Staff of Our Lady of Lourdes
Medical Center in Camden, New Jersey.

LINDA KORMAN, M.D., has conducted a private practice in Internal Medicine in
Central New Jersey since 1985. She practices Internal Medicine in Edison with an
emphasis on preventative medicine. She is Board Certified in Internal Medicine
by the American Board of Internal Medicine. She served on the Board of Trustees
of the Middlesex County Medical Society. Dr. Korman was recently appointed Vice
President of their Public Relations Committee. She is a member of the American
Medical Association and the American Board of Internal Medicine. The SUNY Health
Science Center appointed Dr. Korman as Clinical Assistant Professor of Medicine.
She is Medical Director of Family Medical Group and has also been Medical
Director and Consultant for several wellness programs.

MARK LEVEY, M.D., has conducted a private medical practice in Otolaryngology in
Essex County, New Jersey since 1969. Dr. Levey is a Fellow of the American
Academy of Facial, Plastic and Reconstructive Surgery, the American Academy of
Ophthalmology and Otolaryngology, the American College of Surgeons, and the
American Society for Head and Neck Surgery. He is currently an Associate
Clinical Professor of Surgery at the Robert Wood Johnson Medical School. Dr.
Levey has served as Treasurer of the Medical Staff at Saint Barnabas Medical
Center and currently serves as Director of MetroWest IPA.

MARTIN S. LEVINE, D.O., has conducted a Family and Sports Medicine practice in
Jersey City, New Jersey since 1983. Dr. Levine is past President of the New
Jersey Association of Osteopathic Physicians and Surgeons. He is the past
National and New Jersey Delegate of the American College of Osteopathic Family
Practitioners. Dr. Levine is the Assistant Clinical Professor of the Department
of Family Practice at the University of Medicine and Dentistry of New Jersey
School of Osteopathic Medicine.

NANCY L. MUELLER, M.D., has conducted a private medical practice in Neurology in
Englewood, New Jersey since 1982. Dr. Mueller is Board Certified by the American
Board of Quality Assurance and Utilization Review Physicians and is Board
eligible with the American Board of Psychiatry and Neurology. She has been an
active member of the Utilization Review Committee of the Englewood Hospital
since 1983. She is currently President-Elect of the Bergen County Medical
Society and has been a member of its Board of Trustees since 1990. She has been
a delegate to the Medical Society of New Jersey since 1988. She was appointed to
the Transition Committee for the State of New Jersey Department of Health. She
is a member of the State Medical Service Committee, as well as a reviewer and
expert for the Professional Review Organization of New Jersey. She is a member
of the American Academy of Neurology, the American College of Physicians and the
American Women's Medical Association. She has been part of the National Health
Care Advisory Board and is currently working as a bipartisan member of the
Committee on National Healthcare for the Democratic National Committee. Dr.
Mueller is presently serving on the Executive Board of Princeton Preferred.

MARK T. OLESNICKY, M.D., has conducted a private practice in Internal Medicine
in Essex County, New Jersey since 1975. He is currently President of the Medical
Staff of Saint Barnabas Medical Center, Livingston, New Jersey. He also serves
as Trustee of the Medical Society of New Jersey as well as an Alternate Delegate
to the American Medical Association. He is a Diplomate of the American Board of
Quality Assurance and Utilization Review Physicians. Dr. Olesnicky has also
served as President of the Essex County Medical Society and President of the
Essex County Health Organization.

                                     PAGE 9
<PAGE>   12
EMMONS G. PAINE, M.D., has conducted a private medical practice in Cardiology in
Camden County, New Jersey since 1962. He has been past-president of the Camden
County Medical Society, and has served on its Executive Committee for several
years. Dr. Paine is a Diplomate of the American Board of Internal Medicine and
is a Fellow of the American College of Cardiology. Dr. Paine has served on the
Governor's Committee for Mobile Intensive Care Units from 1972 to 1975. He
recently ended an eleven-year period as Chief of Cardiology of the West Jersey
Health System and he served as Chairman of West Jersey Hospital's Medical
Subcommittee for Quality Assurance for nine years. Dr. Paine has also served on
the Board of Trustees of West Jersey Hospital. He is presently Chief of Staff of
West Jersey Hospital.

FRED M. PALACE, M.D., is an Attending Radiologist at Morristown Memorial
Hospital, Morristown, New Jersey. He is Board Certified by the National Board of
Medical Examiners, the American Board of Radiology and the American Board of
Nuclear Medicine. He is a Fellow of the American College of Radiology and the
American College of Nuclear Physicians. Dr. Palace is a former President of the
Radiology Society of New Jersey. He is a past-President of the Medical Society
of New Jersey. He is also a member of the Board of Directors of The New Jersey
State Medical Underwriters and current Chairman of its Strategic Planning
Committee.

BARRY PRYSTOWSKY, M.D., has conducted a private practice in Pediatrics in
Nutley, New Jersey since 1984. Dr. Prystowsky is a Diplomate of the American
Board of Pediatrics. Dr. Prystowsky is President of the New Jersey Pediatrics
Society. He is on the Council of the American Academy of Pediatrics, New Jersey
Chapter. Dr. Prystowsky has served as the Chairman of the New Jersey Medical
Society Subcommittee on Violence Prevention and Chairman of the New Jersey
Academy of Pediatrics Practice Management Committee. Dr. Prystowsky served on
the Pediatric Clinical Advisory Committee at the New Jersey Department of
Health. Dr. Prystowsky served on the medical advisory committee for Blue Cross
Blue Shield, First Option and Prucare. In addition, he currently serves on the
Credential Committee for Horizon and the pharmacy and therapeutic committee for
Horizon Blue. He is Secretary of the Primary Care Physician of NJ IPA and
President of the Quality Physicians Network of America. Dr. Prystowsky is one of
the cofounders and current Secretary/Treasurer of the Children's Emergency
Medical Fund of New Jersey. Dr. Prystowsky served on the health advisory
committees for Governor Whitman and Senator Rice, and was the health chairman
for Senator Rice's mayoral election team in Newark, New Jersey. Dr. Prystowsky
was the principal health advisor for Senator Bradley's bill on women's mandatory
48 hour hospital stay after giving birth. Dr. Prystowksy also serves as a
Clinical Assistant Professor of Pediatrics at the University of Medicine and
Dentistry of New Jersey and has been appointed to the Governor's Task Force on
Child Abuse.

THOMAS R.C. REUTTER, JR., D.O., has conducted a Family and Sports Medicine
Practice in Gloucester County, New Jersey since 1969. He is a past President of
the New Jersey Association of Osteopathic Physicians and Surgeons and of the
American Academy of Family Practice of New Jersey in Osteopathic Medicine. He
sits on the Board of Executive Peer Review of New Jersey. He is a Fellow of the
Academy of Family Practice and a Board member of the Southern New Jersey
Individual Practice Association. Dr. Reutter is a Clinical Assistant Professor
in Family Practice at the University of Medicine and Dentistry of New Jersey
School of Osteopathic Medicine. He is also the physician for Logan Township and
Westville schools. In addition, Dr. Reutter is the team physician for Rowan
College.

                                    PAGE 10
<PAGE>   13
DAVID L. SIROTA, D.O., has conducted a private medical practice in General
Practice in Passaic and Essex Counties in New Jersey since 1972. He is currently
Medical Director of the Out-Patient Department and Occupational Health Services
at Holy Name Hospital. Dr. Sirota is a past President of the New Jersey
Association of Osteopathic Physicians and Surgeons. He is an active member of
the American Osteopathic Association and the New Jersey Association of
Osteopathic Physicians and Surgeons. He was Director of Medical Education at
Saddlebrook Hospital and is active in peer review activities.

VINCENT J. VIVONA, D.O., J.D., has conducted a private medical practice in
Cardiology in Ocean County, New Jersey since 1979. Dr. Vivona is a Diplomate of
the Board of Internal Medicine (1996). He is also a lawyer currently admitted to
the New Jersey and Pennsylvania bars. He is a Fellow of the American College of
Legal Medicine and an Adjunct Instructor in Healthcare Law at Ocean County
College.

The Company presently has no full-time employees. Pace provides certain services
pursuant to an agreement with the Company. Its employees serve as acting Chief
Executive Officer and Principal Accounting Officer.

Notwithstanding these arrangements with Pace, the Company's operations were
managed by MGM from January - June 1997 and by Horizon from July - December 1997
pursuant to management agreements. Horizon purchased the Company's operations on
December 19, 1997. Pace continues to provide certain administrative and
corporate services to the Company.

There are no familial relationships among the directors of the Company.

Section 16(a) Beneficial Ownership Reporting Compliance

The Company believes that no reports were required to be filed during the fiscal
year ended December 31, 1999 because no transfers of the Company's stock were
permitted in 1999.

ITEM 10. EXECUTIVE COMPENSATION

         No director of the Company receives any remuneration for serving as a
director.

         The Company has no employees.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         With the exception of the Class F and G Director(s), each of the
directors of the Company owns one share of stock of the Company. As a group,
directors own .38% of outstanding stock.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Each shareholder of the Company executed a Physician Participation
Agreement for the provision of healthcare services to the Company's Members.
Accordingly, a large portion of the claims payable and incurred medical costs
were paid to shareholders. On December 19, 1997, the Company consummated the
transfer of its provider contracts to the Purchaser as previously described. No
shareholder individually received any consideration in connection that
transaction.

                                    PAGE 11
<PAGE>   14
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(A) EXHIBITS

         Reference is made to the Index of Exhibits hereinafter contained on
page E-1.

(B) REPORTS ON FORM 8-K

         The Company has not filed any reports on Form 8-K.

SIGNATURES

         In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

                             PHYSICIAN HEALTHCARE PLAN OF NEW JERSEY, INC.

                             BY:   /s/JOSEPH BILLOTTI, MD
                                      Joseph Billotti, M.D.
                                      Chairman and President

/s/RUSS MOHAWK
Russ Mohawk
         Senior Consultant of The Pace Group, Inc.
         (Acting in the capacity of Principal Accounting
         Officer and Principal Financial Officer of the Registrant)

DATED:

In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.

SIGNATURE                         TITLE                         DATE

/s/JOSEPH BILLOTTI, M.D.          Chairman of the Board and
Joseph Billotti, M.D.             President

/s/BESSIE SULLIVAN, M.D.          Treasurer and Director
Bessie Sullivan, M.D.

/s/STANLEY BLOOM, M.D.            Director
Stanley Bloom, M.D.

/s/WILLIAM F. BRENNAN, D.O.       Director
William F. Brennan, D.O.

/s/LEE HINDIN, M.D.               Director
Lee Hindin, M.D.

/s/ALEXANDER R. HOROWITZ, M.D.    Director
Alexander R, Horowitz, M.D.

/s/LOUIS KEELER, M.D.             Director
Louis Keeler, M.D.

                                    PAGE 12
<PAGE>   15
SIGNATURE                         TITLE                         DATE

/s/LINDA KORMAN, M.D.             Director
Linda Korman, M.D.

/s/MARK LEVEY, M.D.               Director
Mark Levey, M.D.

/s/MARTIN S. LEVINE, D.O.         Director
Martin S. Levine, D.O.

/s/NANCY L. MUELLER, M.D.         Director
Nancy L. Mueller, M.D.

/s/MARK T. OLESNICKY, M.D.        Director
Mark T. Olesnicky, M.D.

/s/EMMONS G. PAINE, M.D.          Director
Emmons G. Paine, M.D.

/s/FRED M. PALACE, M.D.           Director
Fred M. Palace, M.D.

/s/BARRY PRYSTOWSKY, M.D.         Director
Barry Prystowsky, M.D.

/s/THOMAS R.C. REUTTER, JR., D.O. Director
Thomas R.C. Reutter, Jr., D.O.

/s/DAVID L. SIROTA, D.O.          Director
David L. Sirota, D.O.

/s/VINCENT J. VIVONA, D.O., J.D.  Director
Vincent J. Vivona, D.O., J.D.

                                    PAGE 13

<PAGE>   16
                  Physician Healthcare Plan of New Jersey, Inc.

                              Financial Statements

                                December 31, 1999

                                    CONTENTS

Report of Independent Auditors..............................................F-1
Statements of Net Assets in Liquidation.....................................F-2
Statements of Changes in Net Assets in Liquidation..........................F-3
Notes to Financial Statements...............................................F-4




<PAGE>   17
                         Report of Independent Auditors

The Board of Directors
Physician Healthcare Plan of New Jersey, Inc.

We have audited the accompanying statements of net assets in liquidation of
Physician Healthcare Plan of New Jersey, Inc. as of December 31, 1999 and 1998,
and the related statements of changes in net assets in liquidation for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets in liquidation of Physician Healthcare
Plan of New Jersey, Inc. as of December 31, 1999 and 1998, and the changes in
net assets in liquidation for the years then ended, in conformity with
accounting principles generally accepted in the United States.

ERNST & YOUNG LLP
New York, New York
April 24, 2000

                                                                             F-1
<PAGE>   18
                  Physician Healthcare Plan of New Jersey, Inc.

                     Statements of Net Assets in Liquidation
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                    DECEMBER 31
                                                               1999             1998
                                                         --------------------------------
<S>                                                         <C>              <C>
ASSETS
   Cash and cash equivalents                                $    294         $    268
   Investments, at fair value                                  4,299            5,387
   Accrued investment income                                      72               79
                                                         --------------------------------
   Total current assets                                        4,665            5,734

LIABILITIES
   Claims payable                                                 --               21
   Accounts payable and accrued liabilities                      200              181
   Due to management company                                      14              383
   Other liabilities                                              76              127
                                                         --------------------------------
   Net assets in liquidation                                $  4,375         $  5,022
                                                         ================================
</TABLE>

                             See accompanying notes.

                                                                             F-2
<PAGE>   19
                  Physician Healthcare Plan of New Jersey, Inc.

               Statements of Changes in Net Assets in Liquidation
               (In thousands, except per share and share amounts)

<TABLE>
<CAPTION>
                                                                            YEARS ENDED DECEMBER 31
                                                                             1999              1998
                                                                     ---------------------------------
<S>                                                                     <C>               <C>
Net assets in liquidation, beginning of year                            $  5,022          $  4,798

   Premiums                                                                   --               105
   Interest and investment income                                            280               451
   Development of prior year claims payable                                   (6)              617
   Net change in unrealized (losses) gains on investments                   (103)               68
   State Insurance Department assessment                                    (211)               --
   General and administrative expenses                                      (607)           (1,017)
                                                                     ---------------------------------
   Net (loss) income for the period                                         (647)              224
                                                                     ---------------------------------

Net assets in liquidation, end of year                                  $  4,375          $  5,022
                                                                     =================================

Net (loss) income per common share                                         $(140)             $ 48
                                                                     =================================

Weighted average number of shares                                          4,629             4,629
                                                                     =================================
</TABLE>

                             See accompanying notes.

                                                                             F-3
<PAGE>   20
                  Physician Healthcare Plan of New Jersey, Inc.

                          Notes to Financial Statements

                                December 31, 1999

1. ORGANIZATION AND RELATED MATTERS

Physician Healthcare Plan of New Jersey, Inc. (the "Company" or "PHPNJ"), a New
Jersey corporation, was formed January 10, 1994, under the sponsorship of
private practicing physicians for the purpose of developing a statewide,
physician-owned Health Maintenance Organization ("HMO"). The Company's
Certificate of Authority ("COA") to operate as an HMO throughout New Jersey was
approved in 1996. The Board of Directors, comprised solely of shareholders,
oversees the activities of the Company.

On December 19, 1997, the Company consummated the transfer and assignment of
certain provider and subscriber contracts constituting its HMO, POS and PPO
operations (the "Transaction") to Horizon Healthcare of New Jersey, Inc.
("Horizon"), the health maintenance organization affiliated with Blue Cross Blue
Shield of New Jersey, Inc. The Company received a cash payment of $1,839,300 as
consideration for the transfer and assignment.

Although the Company sold its operations to Horizon, the Company remained
responsible for the payment of claims incurred prior to the December 19, 1997
date of the closing of the transaction with Horizon. However, in accordance with
the Transaction Agreement, claims incurred prior to December 19, 1997, but first
reported to the Company after December 19, 1998, are the responsibility of
Horizon. Subsequent to December 31, 1999, Horizon notified the Company that it
believes the Company is responsible for approximately $30,000 of claims because
they were incurred prior to December 19, 1997. The Company believes it has no
responsibility for these claims because they were reported to the Company after
December 19, 1998 and that they are Horizon's responsibility pursuant to the
agreements entered into in connection with the transaction. The Company expects
that it will surrender its COA to New Jersey insurance regulators at such time
as it receives regulatory approval, based on the regulators' determination that
the Company has satisfied its liabilities, which is expected to occur in 2000.
After such surrender, it is expected that the Company will be dissolved and
assets remaining, if any, after satisfaction of the Company's liabilities, will
be distributed to stockholders. Amounts distributed in respect of each
outstanding share of the Company's common stock are expected to be substantially
lower than the purchase price paid for such shares. However, the Company is
unable to determine the final amount that would be available for distribution.
Dissolution would require additional stockholder action.

2. SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

As a result of the sale of its operations to Horizon on December 19, 1997, the
Company implemented a liquidation basis of accounting effective December 31,
1997. The application of a liquidation basis had no effect on the Company's net
assets as of December 31, 1997. The statements of net assets in liquidation at
December 31, 1999 and 1998 do not distinguish between current and long-term
balances as would be reflected if such statements had been prepared on a
going-concern basis.

                                                                             F-4
<PAGE>   21
                  Physician Healthcare Plan of New Jersey, Inc.

                          Notes to Financial Statements

                                December 31, 1999

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States ("GAAP") requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INVESTMENTS

All investments are carried at their fair values, with unrealized gains and
losses included in net income.

Investment income, net of investment expenses and amortization of bond premium
and discount, is recognized in income when earned.

INCOME TAXES

The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. SFAS No. 109 prescribes an asset and liability
method for accounting for deferred taxes, the objective of which is to recognize
an asset or liability for the expected future tax effects due to temporary
differences between financial reporting and tax basis of assets and liabilities,
based on enacted tax rates and other provisions of the tax law. The principal
items giving rise to such differences are net operating loss carryforwards,
start-up and organizational costs and furniture and equipment. Under SFAS No.
109, deferred tax assets are recognized unless it is more likely than not that
some portion of the deferred tax assets may not be realized. At December 31,
1999 and 1998, no deferred tax assets have been recognized. Further, for the
years ended December 31, 1999 and 1998 or any prior period, no tax benefit has
ever been recognized. At December 31, 1999, the total amount of net operating
losses carried forward and available to offset future income subject to federal
income taxes was approximately $18 million.

NET INCOME (LOSS) PER COMMON SHARE

Net income (loss) per common share is based upon the weighted average number of
shares outstanding during the year, in accordance with SFAS No. 128.

3. MANAGEMENT AGREEMENTS

Pursuant to a Management Services Agreement dated December 19, 1997, and amended
on July 16, 1999, the Company has engaged Horizon as its management company to
provide a substantial portion of the Company's management and administrative
services. The Company pays Horizon an hourly fee of $75 for services rendered to
PHPNJ. The agreement can be terminated by either PHPNJ or Horizon, with or
without cause, provided that the terminating party has furnished not less than
thirty (30) days' prior written notice of such termination to the other party.
During 1999 and 1998, the Company incurred $149,363 and $241,577, respectively,
related to this arrangement.

                                                                             F-5
<PAGE>   22
                  Physician Healthcare Plan of New Jersey, Inc.

                          Notes to Financial Statements

                                December 31, 1999

The Company also has an agreement with The Pace Group, Inc. ("Pace") to provide
management services and certain corporate financial and reporting assistance not
otherwise provided by HMO Blue, such as assistance in making required filings
with state insurance regulators and with the Securities and Exchange Commission.
Pace has provided the Company with an "Acting CEO" and "Acting CFO" since its
sale to HMO Blue.

4. COMMITMENTS AND CONTINGENCIES

The Company was a defendant in an action entitled Beharie v. Physician
Healthcare Plan of New Jersey, et. al., Docket No. L-2397-97, in the Superior
Court of Morris County, New Jersey. Dr. Beharie claimed he was wrongfully
terminated as an employee and subsequently defamed by PHPNJ (and other unrelated
corporate entities). The Plaintiff seeks to recover unspecified compensatory and
punitive damages together with interest and litigations costs from the
Defendants. On April 1, 1999, prior to the summary judgement hearing, Dr.
Beharie reached a settlement with the co-defendant. On August 11, 1999, a
Stipulation of Dismissal was received which dismissed this matter without costs
to the Company.

In addition, the Company was a third party defendant in an action entitled
Valley National Bank v. Dr. Hussein Matari v. Physician Healthcare Plan of New
Jersey, docket number DC-10412-98, filed in Superior Court of New Jersey, Law
Division, Special Civil Part - Civil, Bergen County. The action was brought by
Valley National Bank to recover a loan made to Dr. Matari for the purchase of
stock in PHPNJ. Dr. Matari sought to recover his initial investment in PHPNJ and
hold the Company responsible for his defaulted loan. On March 15, 1999, an order
was filed dismissing the third party complaint without prejudice.

The Company is a defendant in an action entitled Benjamin Levine, M.D. v.
Physician Healthcare Plan of New Jersey, docket number DC-2841-98, filed in
Superior Court of New Jersey Law Division, Special Civil Part, Mercer County.
The Plaintiff sought to recover $10,000 together with interest and litigation
costs from the Defendants for redemption of stock. On August 14, 1998, the Court
issued a summary judgement to dismiss the action. In November 1998, the
Plaintiff filed an appeal. On March 1, 1999, Dr. Levine filed a motion before
the trial judge, who previously dismissed the action, to be declared indigent
and entitled to free transcripts for the appeal, which was denied. On March 31,
1999, Dr. Levine made a request for the transcripts. A brief was to be filed by
Dr. Levine by July 8, 1999; however, Dr. Levine contacted the Appellate Division
Clerk on July 8, 1999 requesting an additional 45 days to complete his briefing
period, which was granted. Dr. Levine filed a brief to appeal on August 20,
1999. On August 31, 1999, the Company filed a brief in opposition to the appeal
filed by Dr. Levine. A letter brief, concluding the briefing process, was filed
by Dr. Levine on September 21, 1999. The court has scheduled a hearing for April
4, 2000. The Company believes that it has excellent defenses, which it intends
to pursue vigorously.

As of December 31, 1999 and 1998, the Company's investments include restricted
assets of approximately $566,000 and $641,000 respectively, on deposit with the
State of New Jersey for solvency protection.

                                                                             F-6
<PAGE>   23
                  Physician Healthcare Plan of New Jersey, Inc.

                          Notes to Financial Statements

                                December 31, 1999

5. SHAREHOLDERS' EQUITY AND DIVIDEND RESTRICTIONS

On March 4, 1994, the Company sought to raise capital through an initial
offering of up to 15,000 shares of stock at a price of $5,000 per share to
physicians who were eligible purchasers. Only physicians who both practiced and
resided in the State of New Jersey were eligible purchasers. The Company issued
3,569 shares as a result of this offering, representing approximately $17.8
million in initial capital.

The Company's registration statement was filed with the SEC and declared
effective November 9, 1995. The purpose of the second offering to physicians who
practice in the State of New Jersey was to raise additional capital of up to
10,000 shares of stock at a price of $5,500 per share. All shares have the same
rights and privileges. In 1996, the Company issued 1,136 shares as a result of
this offering, representing approximately $6.3 million of additional capital.

In order to ensure the Company operates as a physician-owned HMO whereby
shareholders represent participating physicians in the HMO, the Articles of
Incorporation and by-laws provide certain restrictions on this stock. It is
non-transferable and can only be redeemed by the Company. Circumstances
requiring redemption of stock at current book value in order to preserve the
integrity of the network include death, retirement, disability, loss of license
to practice medicine in New Jersey and termination of an effective Physician
Participation Agreement with the Company. In addition, physicians who fail to
become credentialed by the Company must redeem their shares at the original
purchase price without interest. Physicians who otherwise wish to redeem their
shares may do so at the sole discretion of the Board of Directors at current
book value. After approval, the Board may take up to six months to redeem such
shares. The Company shall not be required to redeem a shareholder's stock if the
Company is insolvent, if doing so would cause the Company to become insolvent,
or if the Company is, or the redemption would cause the Company to be, in a
precarious financial condition.

On July 15, 1997, the Board of Directors of the Company approved a resolution to
place a moratorium on redemptions of the Company's common stock for any reason,
including reasons set forth in the Company's by-laws, because of the prospect
that the satisfaction of all prospective redemption obligations could cause the
Company to be in "precarious financial condition" as that term is defined in the
Company's registration statement on Form SB-2. As a result the Company will not
be required to redeem a stockholder's shares of the Company's common stock in
the event that the stockholder requests such redemption in connection with an
event described in the Company's by-laws, or in connection with the failure of
the Company to credential the stockholder as a provider under the Company's
health care plans, or for any other reason. Seventy-six shares were redeemed
prior to July 15, 1997.

The Company is required to file its Annual Statement prepared in accordance with
accounting practices prescribed or permitted by the New Jersey State Insurance
Department (statutory basis). Such accounting practices vary in certain respects
from generally accepted accounting principles (GAAP).

                                                                             F-7
<PAGE>   24
                  Physician Healthcare Plan of New Jersey, Inc.

                          Notes to Financial Statements

                                December 31, 1999

5. SHAREHOLDERS' EQUITY AND DIVIDEND RESTRICTIONS (CONTINUED)

The following is a reconciliation of the 1999 and 1998 net (loss) income and
December 31, 1999 and 1998 shareholders' equity of the Company as determined in
accordance with statutory accounting practices to net income and net assets in
liquidation reported in accordance with GAAP:

<TABLE>
<CAPTION>
                                                                      1999          1998
                                                                 ---------------------------
                                                                         (In thousands)
<S>                                                                 <C>          <C>
Statutory net (loss) income basis, as reported                      $  (544)     $    39
Net change in unrealized (losses) gains on investments                 (103)          68
Other                                                                                117
                                                                 ---------------------------
Net (loss) income for the period--GAAP                              $  (647)     $   224
                                                                 ===========================

Statutory basis capital and surplus--as reported                    $ 4,410      $ 4,954
Net unrealized (losses) gains on investments                                          68
                                                                       (35)

Other                                                                   --            --
                                                                 ---------------------------
Net assets in liquidation--GAAP                                     $ 4,375      $ 5,022
                                                                 ===========================
</TABLE>

New Jersey State law provides that dividends or other distributions may be paid
only from retained earnings and to the extent statutory capital and surplus is
in excess of the minimum net worth requirement of $1,000,000. The Company has
not paid and does not intend to pay any dividends.

6. EMPLOYMENT COSTS

The Company currently has no employees. All persons providing services on behalf
of the Company during 1999 and 1998 were employees of Horizon. In addition, Pace
continues to provide certain management services and certain corporate,
financial and reporting assistance not otherwise provided by HMO Blue, as
previously described. The costs of the Horizon and Pace services are included in
general and administrative expenses on the statement of changes in net assets in
liquidation.

7. RELATED PARTY TRANSACTIONS

The shareholders and directors of the Company are physicians who have entered
into participating provider agreements with the Company. Accordingly, a large
portion of the claims payable and incurred medical costs relate to shareholders.

                                                                             F-8
<PAGE>   25
                  Physician Healthcare Plan of New Jersey, Inc.

                          Notes to Financial Statements

                                December 31, 1999

8. INVESTMENTS

DEBT SECURITIES

The following summarizes the amortized cost and the estimated fair value of the
Company's investments in debt securities as of December 31, 1999 and 1998. The
estimated fair values for the Company's investments in debt securities are based
on quoted market prices.

<TABLE>
<CAPTION>
                                                                                   GROSS
                                                                                UNREALIZED
                                                             AMORTIZED   ------------------------    ESTIMATED
                                                                COST         GAINS      LOSSES      FAIR VALUE
                                                          -------------------------------------------------------
                                                                               (In thousands)
<S>                                                          <C>            <C>         <C>           <C>
   1999
   U.S. Treasury and other governmental units                $4,334         $  --       $ 35          $4,299
   1998
   U.S. Treasury and other governmental units                $5,319         $  70       $  2          $5,387
</TABLE>

The following summarizes the amortized cost and estimated fair value of the
Company's investments in debt securities by contractual maturity as of December
31, 1999:

<TABLE>
<CAPTION>
                                                       AMORTIZED      ESTIMATED
                                                          COST       FAIR VALUE
                                                      ---------------------------
                                                            (In thousands)
<S>                                                       <C>          <C>
Maturity
Within one year                                           $    601     $    601
After one year through five years                            3,733        3,698
                                                      ---------------------------
Total investments                                         $  4,334     $  4,299
                                                      ===========================
</TABLE>

                                                                             F-9
<PAGE>   26
                  Physician Healthcare Plan of New Jersey, Inc.

                          Notes to Financial Statements

                                December 31, 1999

9. MEDICAL CLAIMS

Amounts recorded in 1999 and 1998 related to medical claims liability are
summarized as follows:

<TABLE>
<CAPTION>
                                                                         1999            1998
                                                                    -----------------------------
                                                                           (In Thousands)
<S>                                                                    <C>             <C>
Claims Payable, beginning of year                                      $    21         $ 3,000

Development of prior year claims payable                                     6            (617)

Paid on prior year claims payable                                          (27)         (2,362)
                                                                    -----------------------------

Claims Payable, end of year                                            $    --         $    21
                                                                    =============================
</TABLE>

10. SUBSEQUENT EVENTS

Subsequent to December 31, 1999, legislation was passed in New Jersey, which may
provide for additional assessments to HMOs in the future. The State of New
Jersey has not assessed the Company for any amount to date and the Company is
unable to estimate the applicability or amount of any such assessment to the
Company.

                                                                            F-10
<PAGE>   27
                                INDEX TO EXHIBITS

      EXHIBIT NO.                        EXHIBIT

         3.1      Amended and restated Certificate of Incorporation
                  (incorporated by reference to Exhibit 3.1 to the Registrant's
                  Registration Statement on Form SB-2)

         3.2      Amended and restated By-Laws (incorporated by reference to
                  Exhibit 3.2 to the Registrant's Registration Statement on Form
                  SB-2)

         4.1      Secondary Offering Prospectus, as approved by the Securities
                  Exchange Commission on November 9, 1995, detailing rights of
                  security holders (incorporated by reference to the
                  Registrant's Registration Statement on Form SB-2)

         10.1     Physician Participation Agreement with Registrant, and
                  amendment thereto (incorporated by reference to the
                  Registrant's Annual Report on Form 10-KSB for the year ended
                  December 31, 1995)

         10.2     Hospital Letter of Agreement with Registrant incorporated by
                  reference to Exhibit 10.2 to the Registrant's Registration
                  Statement on Form SB-2)

         10.3     Hospital Participation Agreement with Registrant (incorporated
                  by reference to Exhibit 10.3 to the Registrant's Form 8-K
                  filed on December 29, 1997)

         10.4     Revised Management Agreement by and between Medical Group
                  Management, Inc. and the Registrant (incorporated by reference
                  to Exhibit 10.8 to the Registrant's Registration Statement on
                  Form SB-2)

         10.5     Capital Management Agreement between New England Asset
                  Management and Registrant (incorporated by reference to
                  Exhibit 10.9 to the Registrant's Registration Statement on
                  Form SB-2)

                                                                             E-1
<PAGE>   28
         10.6     Letter of Intent between Acordia of Southern California and
                  Medical Group Management, Inc. (incorporated by reference to
                  Exhibit 10.10 to the Registrant's Registration Statement on
                  Form SB-2)

         10.7     Lease for Registrant's facility (incorporated by reference to
                  Exhibit 10.11 to the Registrant's Registration Statement on
                  Form SB-2)

         10.8     Assignment and Assumption of Lease Agreement dated February
                  11, 1997 (incorporated by reference to Exhibit 10.8 in the
                  Registrant's Registration Statement Form

         10.9     Agreement between the Registrant and Medigroup of New Jersey,
                  Inc. dated as of June 26, 1997 (incorporated by reference to
                  Exhibit 10.9 to the Registrant's Form 10-QSB for quarter ended
                  June 30, 1997)

         10.10    Management Services Agreement between the Registrant and
                  Medigroup of New Jersey, Inc. dated as of June 26, 1997
                  (incorporated by reference to Exhibit 10.9 to the Registrant's
                  Form 10-QSB for quarter ended June 30, 1997)

         10.11    Termination and Release Agreement by and between Medical Group
                  Management, Inc. and Physician Healthcare Plan of New Jersey,
                  Inc., dated as of July 31, 1997 (incorporated by reference to
                  Exhibit 10.11 to the Registrant's Form 10-QSB for quarter
                  ended September 30, 1997)

         10.12    Letter of Agreement between Medigroup of New Jersey, Inc. and
                  Physician Healthcare Plan of New Jersey, dated as of August
                  26, 1977, relating to the sale of certain fixed assets
                  (incorporated by reference to Exhibit 10.12 to the
                  Registrant's Form 10-QSB for quarter ended September 30, 1997)

                                                                             E-2

<PAGE>   29
         10.13    Services Agreement between The Pace Group, Inc. and Physician
                  Healthcare Plan of New Jersey, Inc., dated as of August 1,
                  1997 (incorporated by reference to Exhibit 10.13 to the
                  Registrant's Form 10-QSB for quarter ended September 30, 1997)

         10.14    Agreement between Medigroup of New Jersey, Inc. and Physician
                  Healthcare Plan of New Jersey, Inc., dated July 25, 1997,
                  relating to the use of certain computer equipment
                  (incorporated by reference to Exhibit 10.14 to the
                  Registrant's Form 10-QSB for quarter ended September 30, 1997)

         10.15    Management Services Agreement dated as of December 19, 1997
                  between Physician Healthcare Plan of New Jersey, Inc. and
                  Medigroup of New Jersey, Inc. (incorporated by reference to
                  Exhibit 99.3 to the Registrant's Form 8-K filed December 29,
                  1997)

                                                                             E-3