UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q


(Mark One)

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
      EXCHANGE ACT OF 1934

For the quarterly period ended        MARCH 31, 1999
                                      ------------------------------------------
                                       or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
    ACT OF 1934

For the transition period from                        to
                               ----------------------    -----------------------

Commission file number:        0-25944
                               -------------------------------------------------

                                   FOHP, INC.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

NEW JERSEY                                                   22-3314813
--------------------------------------------------------------------------------
(State or other jurisdiction of                           (I.R.S. Employer
incorporation or organization)                           Identification No.)

3501 STATE HIGHWAY 66, NEPTUNE, NEW JERSEY                   07753
--------------------------------------------------------------------------------
(Address of principal executive offices)                    (Zip Code)


                                (732) 918 - 6700
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)


--------------------------------------------------------------------------------
              (Former name, former address and former fiscal year,
                          if changed since last report)

     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  [  ]

               APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS:


     Indicate by check mark whether the  registrant  has filed all documents and
reports  required  to be filed by  Sections  12, 13 or 15 (d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court.
      Yes      [  ]      No     [  ]

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

     Indicate the number of shares  outstanding of each of the issuer's  classes
of common stock, as of the latest practicable date.


499,000,000 SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE,  OUTSTANDING AS OF
MAY 21, 1999


<PAGE>


                              INDEX                                     PAGE NO.

                         PART I - FINANCIAL INFORMATION


ITEM 1.    FINANCIAL STATEMENTS.

Condensed Consolidated Balance Sheets - March 31, 1999
  and December 31, 1998                                                     3

Condensed Consolidated Statements of Operations                             4
      For the period January 1, 1999 to March 31, 1999
      For the period January 1, 1998 to March 31, 1998

Condensed Consolidated Statements of Shareholders'
  (Deficiency) Equity                                                       5
      For the period January 1, 1998 to December 31, 1998
      For the period January 1, 1999 to March 31, 1999

Condensed Consolidated Statements of Cash Flows                             6
      For the period January 1, 1999 to March 31, 1999
      For the period January 1, 1998 to March 31, 1998

Notes to Condensed Consolidated Financial Statements                        7

ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
           AND RESULTS OF OPERATIONS.                                      14

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.     23


                          PART II - OTHER INFORMATION

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K.                               24

Signature Page                                                             25



<PAGE>


<TABLE>
<CAPTION>


                         PART I - FINANCIAL INFORMATION


ITEM 1.    FINANCIAL STATEMENTS.


                                                     FOHP, INC. AND SUBSIDIARIES
                                                CONDENSED CONSOLIDATED BALANCE SHEETS

                                                                                                 MARCH 31,           DECEMBER 31,
                                                                                                  1999                       1998
                                                                                              ------------------------------------
                                                                                               (unaudited)               (audited)
<S>                                                                                           <C>                   <C>
ASSETS
Current assets:
  Cash and cash equivalents                                                                  $  45,603,700         $  44,052,058
  Marketable securities, at cost                                                                   275,078                     -
  Accounts receivable from owners/providers, net of allowances for doubtful accounts
    and retroactive terminations of $1,524,149 in 1999 and $1,546,616 in 1998                   11,087,437             5,138,201
  Other accounts receivable, net of allowance for doubtful accounts and retroactive
    terminations of $653,206 in 1999 and $662,836 in 1998.                                       9,263,630             4,918,844
  Due from Integrated Pharmacy Services, Inc.                                                      763,042             3,540,608
  Prepaid and other current assets                                                                  69,435               513,073
                                                                                             -----------------------------------
Total current assets                                                                            67,062,322            58,162,784

  Restricted cash                                                                               66,421,741            57,855,421
  Furniture and equipment, net                                                                   4,724,642             1,730,136
  Goodwill, net of accumulated amortization of $3,366,570 in 1999 and $2,693,256 in 1998        95,564,543            96,237,857
  Deferred tax asset                                                                             5,575,739             3,942,798
  Other assets                                                                                     107,993               350,419
                                                                                             -----------------------------------
Total assets                                                                                 $ 239,456,980         $ 218,279,415
                                                                                             ===================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Medical claims payable to owners/providers                                                 $  11,873,171         $  18,106,942
  Other medical claims payable                                                                  58,751,110            42,249,530
  Accounts payable                                                                               3,624,985               215,855
  Accrued expenses, including restructuring accrual of approximately $1,207,753
      in 1999 and $1,577,000 in 1998                                                            12,458,607             9,512,535
  Due to Foundation Health Systems, Inc.                                                           738,959             1,446,459
  Due to other affiliates                                                                        1,597,032               612,989
  Unearned premium                                                                               2,568,012             1,204,911
                                                                                             -----------------------------------
Total current liabilities                                                                       91,611,876            73,349,221

  Convertible debentures payable to Foundation Health Systems, Inc.                             11,336,934            11,131,386
  Subordinated debentures payable to Foundation Health Systems, Inc.                            25,533,254            25,113,575
                                                                                             -----------------------------------
Total liabilities                                                                              128,482,064           109,594,182

Shareholders' equity:
  Preferred Stock, $1.00 par value, 1,000,000 shares authorized,
     none issued or outstanding
  Common Stock, $.01 par value, 499,000,000 shares authorized,
     issued and outstanding                                                                      1,011,941             1,011,941
  Additional paid-in capital                                                                   268,150,758           239,135,758
  Valuation allowance for investments, net of tax                                                   41,275                     -
  Accumulated deficit                                                                         (158,229,058)         (131,462,466)
                                                                                             -------------         -------------
Total shareholders' equity                                                                     110,974,916           108,685,233
                                                                                             -------------         -------------
Total liabilities and shareholders' equity                                                   $ 239,456,980         $ 218,279,415
                                                                                             =============         =============
</TABLE>



                             See accompanying notes

                                       3


<PAGE>




                     FOHP, INC. AND SUBSIDIARIES
           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                              THREE MONTHS ENDED
                                                                                   MARCH 31,
                                                                        1999                    1998
                                                                    ------------------------------------
                                                                     (unaudited)             (unaudited)
<S>                                                                 <C>                     <C>
REVENUE:
  Premiums from owners/providers                                    $ 24,906,154            $ 34,981,939
  Other premium revenue                                               61,500,728              54,891,193
  Other, principally administrative service fees                         351,975                 875,331
  Interest income                                                      1,450,989               1,232,062
                                                                    ------------------------------------
Total revenue                                                         88,209,846              91,980,525
                                                                    ------------------------------------


EXPENSES:
  Medical services to owners/providers                                14,555,350              25,493,241
  Other medical services                                              71,064,357              51,703,616
  Selling, general and administrative                                  1,292,206              14,706,604
  Management fee - Foundation Health Systems, Inc.                             -                 635,000
  Management fee - Physicians Health Services, Inc.                    7,925,779                       -
  Amortization of goodwill                                               673,314                 673,314
  Depreciation and other amortization                                    269,609                 363,399
  Interest - Foundation Health Systems, Inc.                             601,615                 515,598
  Other interest                                                          79,821                 109,151
                                                                    ------------------------------------
Total expenses                                                        96,462,051              94,199,923
                                                                    ------------------------------------

NET LOSS BEFORE PROVISION FOR INCOME TAXES                            (8,252,205)             (2,219,398)

Benefit for income taxes                                              (3,431,555)             (1,329,713)
                                                                    ------------------------------------

NET LOSS                                                            $ (4,820,650)           $   (889,685)
                                                                    ====================================

NET LOSS PER COMMON SHARE                                           $      (0.01)           $      (0.01)
                                                                    ====================================
</TABLE>


                             See accompanying notes

                                       4


<PAGE>


                           FOHP, INC. AND SUBSIDIARIES
     CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' (DEFICIENCY) EQUITY

<TABLE>
<CAPTION>

                                                                                                               NET
                                                               COMMON STOCK                                 UNREALIZED     TOTAL
                                                         ----------------------- ADDITIONAL                   LOSS ON   SHAREHOLDERS
                                                                          PAR      PAID-IN      ACCUMULATED INVESTMENTS (DEFICIENCY)
                                                            SHARES       VALUE     CAPITAL       DEFICIT   (NET OF TAX)   EQUITY
                                                         ---------------------------------------------------------------------------
<S>                                                      <C>          <C>        <C>           <C>            <C>      <C>
BALANCE AT JANUARY 1, 1998                               100,000,000  $1,000,000 $208,053,796  ($136,620,579)          $ 72,433,217

Redemption of Common Stock                                    (3,000)        (30)      (1,050)                               (1,080)
Issued Common Stock (December 31, 1998 at
     $.003 per share)                                    399,003,000      11,971    1,185,211                             1,197,182
Net income for the period January 1, 1998 to
    December 31, 1998                                                                              5,158,113              5,158,113
Capital contributed by Foundation Health
    Systems, Inc.                                                                                 29,897,801             29,897,801
                                                         --------------------------------------------------------------------------
Balance at December 31, 1998 (audited)                   499,000,000   1,011,941  239,135,758   (131,462,466)           108,685,233

Increase in equity due to merger of Physicians
  Health Services of New Jersey, Inc. into First
  Option Health Plan of New Jersey, Inc.                                           29,015,000    (21,945,942)  67,218     7,136,276
Unrealized depreciation on fixed maturity securities                                                          (25,943)      (25,943)
Net loss for the period January 1, 1999 to
    March 31, 1999                                                                                (4,820,650)            (4,820,650)
                                                         --------------------------------------------------------------------------

Balance at March 31, 1999                                499,000,000  $1,011,941 $268,150,758  ($158,229,058) $41,275  $110,974,916
                                                         ==========================================================================
</TABLE>



                             See accompanying notes

                                       5


<PAGE>



                           FOHP, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                     FOR THE PERIOD                 FOR THE PERIOD
                                                                    JANUARY 1, 1999                 JANUARY 1, 1998
                                                                   TO MARCH 31, 1999               TO MARCH 31, 1998
                                                                  -----------------------------------------------------
                                                                      (unaudited)                      (unaudited)
<S>                                                                 <C>                               <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                                            $ (4,820,650)                     $ (889,685)
Adjustments to reconcile net loss to net cash
  used in operating activities:
      Depreciation and amortization                                      942,923                       1,036,713
      Interest cost converted to debt                                    625,227                         506,036
      Disposal of fixed assets                                            12,000                               -
      Unrealized depreciation on fixed maturity securities               (25,943)                              -
      Changes in operating assets and liabilities:
       Accounts receivable from owners/providers                      (5,949,236)                     (3,558,751)
       Other accounts receivable                                      (4,344,786)                       (160,423)
       Due from other affiliates                                       3,540,608                               -
       Income tax receivables                                                  -                      (1,331,638)
       Prepaid expenses and other current assets                         443,638                         212,993
       Restricted cash                                                (8,566,320)                     (4,785,370)
       Deferred tax asset                                             (1,632,941)                              -
       Other assets                                                      242,426                          10,900
       Medical claims payable to owners/providers                     (6,233,771)                     (6,875,578)
       Other medical claims payable                                   16,501,580                      (5,866,072)
       Accounts payable                                                3,409,130                         303,799
       Accrued expenses                                                2,946,072                         451,654
       Due to Foundation Health Systems, Inc.                           (707,500)                        644,562
       Due to QualMed, Inc.                                                    -                        (504,559)
       Due to other affiliates                                           984,043                               -
       Unearned premium revenue                                        1,363,101                      (6,635,635)
       Other liabilities                                                       -                          (8,054)
                                                                    --------------------------------------------
Net cash used in operating activities                                 (1,270,399)                    (27,449,108)
                                                                    --------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases and additions of furniture and equipment                    (3,276,115)                       (792,561)
                                                                    --------------------------------------------
Net cash used in investing activities                                 (3,276,115)                       (792,561)
                                                                    --------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributed by Foundation Health Systems, Inc.                         -                       7,297,801
Purchase of marketable securities                                       (275,078)                              -
Addition of Physicians Health Services of
  New Jersey, Inc. shareholder equity                                  7,136,276                               -
                                                                    --------------------------------------------
Net cash used in financing activities                                  6,861,198                       7,297,801
                                                                    --------------------------------------------

Net (decrease) increase in cash and cash equivalents
 at the end of the period                                              2,314,684                     (20,943,868)
Cash and cash equivalents at the beginning of the period              44,052,058                      79,266,721
                                                                    --------------------------------------------
Cash and cash equivalents at the end of the period                  $ 46,366,742                    $ 58,322,853
                                                                    ============================================


Interest paid for the period                                        $     70,274                    $     73,336
                                                                    ============================================

State income taxes paid for the period                              $        200                    $      1,075
                                                                    ============================================
</TABLE>



                             See accompanying notes
                                       6




<PAGE>




                           FOHP, Inc. and Subsidiaries

              Notes to Condensed Consolidated Financial Statements

                                 March 31, 1999




1.  GENERAL

FOHP,  Inc.  (the  "Company"  or "FOHP")  serves as the holding  company for its
wholly-owned  subsidiaries.  The  Company's  principal  operating  subsidiary is
Physicians  Health  Services of New Jersey,  Inc.("PHS-NJ"),  formerly  known as
First Option Health Plan of New Jersey,  Inc. PHS-NJ,  a New Jersey  corporation
formed in May 1993 as First Option Health Plan of New Jersey, Inc., received its
Certificate of Authority ("COA") to operate as a health maintenance organization
("HMO") in New  Jersey in June  1994.  Other  wholly-owned  subsidiaries  of the
Company include First Option Health Plan of  Pennsylvania,  Inc., a Pennsylvania
corporation, First Option Health Plan of Maryland, Inc., a Maryland corporation,
and FOHP Agency,  Inc.,  a New Jersey  corporation,  each formed in 1995.  These
other  subsidiaries  are not active.  Since January 1, 1998, First Option Health
Plan of New York,  Inc.,  First Option  Health Plan of Delaware,  Inc. and First
Option Dental,  Inc.,  former inactive  subsidiaries  of the Company,  have been
dissolved.

The Company is a New Jersey corporation that was formed in May 1994. The Company
was  formed to  effect  the  reorganization  of  PHS-NJ  into a holding  company
structure  (the  "Reorganization"),  which was  consummated on June 8, 1995. The
Reorganization was completed through an exchange of PHS-NJ's  outstanding common
stock for  shares of the  Company's  Common  Stock-NJ.  In  connection  with the
Reorganization, PHS-NJ distributed, as a dividend, all of the outstanding common
stock of First Managed Care Option,  Inc.  ("FMCO") to the Company.  Pursuant to
the  Reorganization,  PHS-NJ and FMCO became  wholly-owned  subsidiaries  of the
Company.  Prior to the Reorganization,  the Company did not conduct any business
nor did it have any significant  assets or  liabilities.  The primary purpose of
the  Reorganization was to facilitate the formation of additional HMOs in states
other than New Jersey. In December 1996, the Company sold all of the outstanding
common stock of FMCO.

Health  care  providers  investing  in the  Company  are  required to enter into
provider agreements (the "Provider  Agreements") with the Company.  The Provider
Agreements  have an initial term of one year and are  renewable  annually.  Such
agreements with acute care  institutions and certain other health care providers
may be terminated by either party upon 90 days written  notice;  agreements with
physicians  may be terminated by either party upon 60 days written  notice.  The
Provider  Agreements may also be terminated for breaches specified therein.  The
Provider Agreements, among other things, establish covered services, billing and
payment procedures, and reimbursement methods.

Effective   December  8,  1997,   through  the  conversion  of  debentures  (the
"Convertible  Debentures")  into shares of the Company's Common Stock, par value
$.01 per share ("Common  Stock"),  the Company became a 98% owned  subsidiary of
Foundation Health Systems, Inc. ("FHS"), a Delaware corporation. On December 31,
1998,  FHS converted  additional  Convertible  Debentures  into shares of Common
Stock, which increased its ownership interest to 99.6%.

On January 1, 1999, Physicians Health Services of New Jersey, Inc., a New Jersey
corporation  controlled  by FHS  which  operated  as an HMO in the  State of New
Jersey,  merged with and into PHS-NJ pursuant to an Agreement and Plan of Merger
dated October 26, 1998. In connection  with the merger,  PHS-NJ changed its name
from First Option Health Plan of New Jersey,  Inc. to Physicians Health Services
of New Jersey,  Inc. The purpose of the merger was to consolidate the operations
of the HMOs controlled by FHS in the State of New Jersey into  substantially one
corporation.  This merger was accounted for as a pooling of interest of entities
under common control.

Pursuant to an  Agreement  and Plan of Merger (the  "Merger  Agreement"),  dated
November 16, 1998,  FHS will acquire the remaining  0.4%  outstanding  ownership
interest in the Company from the provider


                                       7


<PAGE>




                           FOHP, Inc. and Subsidiaries

              Notes to Condensed Consolidated Financial Statements

                                 March 31, 1999


shareholders of FOHP. In connection with the Merger,  a provider  shareholder of
FOHP will be offered for his, her or its shares of Common Stock either the value
of such shares at December  31, 1998 as  determined  by one or more  independent
appraisers or payment  rights (one payment right per share).  The payment rights
would entitle  provider  shareholders  to receive a payment of not less than $15
per  share of Common  Stock on or about  July 1,  2001,  provided  that  certain
conditions are either  satisfied or waived.  The Merger  Agreement is subject to
several conditions, including shareholder and regulatory approval.

The  Company is  dependent  upon FHS to provide  sufficient  capital to meet its
operating and statutory  financial  requirements.  It is the intention of FHS to
provide such funds, as needed.

The Company generated a net loss of $4,820,650 for the three-month  period ended
March 31, 1999 and has an accumulated deficit of $158,229,058 at March 31, 1999.
In order for the Company's principal operating subsidiary,  PHS-NJ (See Note 5),
to meet statutory net worth requirements set forth in its COA granted by the New
Jersey  Department  of  Banking  and  Insurance  (the  "DOI") and the New Jersey
Department  of Health  and  Senior  Services  (the  "DOH")  (the DOI and DOH are
collectively referred to herein as the "Departments"), the Company must generate
sufficient  operating  profits  and/or obtain one or more capital  contributions
from FHS.

In connection with PHS-NJ's plan to remedy its statutory net worth deficiency at
December 31, 1995, as set forth in a plan of action submitted to the Departments
(See Note 5), the Board of Directors of the Company  approved an  investment  by
FHS of  approximately  $51.7 million into the Company  effective April 30, 1997.
FHS invested  $51,701,121 into the Company through the purchase of a Convertible
Debenture  (the "Initial  Convertible  Debenture")  convertible  into 71% of the
Company's  outstanding  equity,  on a fully diluted basis. At the closing of the
purchase of the Initial Convertible Debenture, which occurred on April 30, 1997,
FHS  converted  $1,701,121 of the  principal  amount of the Initial  Convertible
Debenture  into 168,109  shares of the Common  Stock.  On December 1, 1997,  FHS
converted the remaining $50,000,000 of principal into 4,941,049 shares of Common
Stock. On December 8, 1997, due to the continued  operating  losses of PHS-NJ in
1997, FHS invested an additional  $29,897,801 into the Company in exchange for a
Convertible  Debenture (the "New  Convertible  Debenture") in form and substance
substantially  similar to the  Initial  Convertible  Debenture  issued to FHS on
April 30, 1997. Immediately upon receipt of the New Convertible  Debenture,  FHS
converted  $18,952,930 of the principal amount thereof into 92,804,003 shares of
Common Stock, increasing FHS' ownership interest in the Company to approximately
98%.

On  December  31,  1998,  FHS  converted  $1,197,182  of  principal  of the  New
Convertible  Debenture  into  399,003,000  shares  of  Common  Stock.  After the
conversion, 499,000,000 shares of Common Stock were outstanding, with FHS owning
496,916,161 of such shares or 99.6% of the fully diluted equity of the Company.

The price per share paid by FHS upon  conversion of the  Convertible  Debentures
was calculated in accordance with the Amended and Restated  Securities  Purchase
Agreement (the "Amended Securities Purchase Agreement") entered into by FHS, the
Company  and  PHS-NJ  in  connection  with the sale of the  Initial  Convertible
Debenture.  The  Convertible  Debentures  accrue  interest  at a  variable  rate
adjusted on a calendar  quarterly basis. Such interest is due and payable within
ten days after the end of each calendar quarter. Any such interest not paid when
due and  payable  is  considered  defaulted  interest  and shall be added to the
principal amount of the Convertible Debentures. At March 31, 1999, $4,020,776 of
defaulted  interest  is  included  in the  principal  amount of the  Convertible
Debentures.


                                       8


<PAGE>



                           FOHP, Inc. and Subsidiaries

              Notes to Condensed Consolidated Financial Statements

                                 March 31, 1999


In connection with the purchase by FHS of the Company's Common Stock through the
conversion of Convertible  Debentures,  goodwill totaling  $107,730,254 has been
recorded to reflect the excess of FHS' purchase price over the appropriate  fair
value of the net assets acquired.  The acquisition was treated as a purchase for
accounting  purposes.  The goodwill is being amortized on a straight-line  basis
over 40 years.  Amortization  for the  three-month  period  ended March 31, 1999
totaling $601,615 has been reflected in the statement of operations.

In December 1997, FHS also contributed an additional  $24,000,000 to the Company
to satisfy  certain  statutory  net worth  requirements  applicable to PHS-NJ in
return for additional  subordinated  debentures (the "Subordinated  Debentures")
which are not convertible  into Common Stock,  but otherwise have  substantially
the  same  terms  as  the  Convertible  Debentures.   Further,  FHS  contributed
$29,897,801 to FOHP as additional paid in capital to satisfy  certain  statutory
net worth requirements applicable to PHS-NJ through March 31, 1999.

The financial  information  for the three month periods ended March 31, 1999 and
March 31, 1998 included  herein are  unaudited.  Such  information  includes all
adjustments,  including  adjustments of a normal and recurring nature, which, in
the  opinion  of  management,  are  necessary  for a  fair  presentation  of the
Company's  financial  position,  results  of  operations  and cash  flows.  Such
information  should be read in  conjunction  with  Management's  Discussion  and
Analysis of Financial  Condition and Results of Operations  included in Part I -
Item 2 hereof.

2.  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING

The  Company's  financial  statements  are  prepared  on the  accrual  basis  of
accounting in accordance  with generally  accepted  accounting  principles.  The
following is a summary of significant accounting policies of the Company:

USE OF ESTIMATES

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

PRINCIPLES OF CONSOLIDATION

The consolidated  financial  statements  include the accounts of the Company and
its  wholly-owned  subsidiaries.   All  significant  intercompany  balances  and
transactions have been eliminated in consolidation.

CASH AND CASH EQUIVALENTS

Cash and cash  equivalents  include money market funds and U.S.  Treasury  Bills
with  original  maturities of three months or less when  purchased.  Fair market
values,  as determined  through  quoted market prices,  of the cash  equivalents
approximate carrying value.

ACCOUNTS RECEIVABLE

Accounts  receivable are reported at estimated net realizable value by including
provisions for retroactive terminations and uncollectible amounts.


                                       9


<PAGE>


                           FOHP, Inc. and Subsidiaries

              Notes to Condensed Consolidated Financial Statements

                                 March 31, 1999


RESTRICTED CASH

At March 31, 1999,  PHS-NJ  maintained  $64,999,334  on deposit with the DOI, as
required to meet its "Minimum  Insolvency  Deposit for Healthcare  Expenditures"
under current insurance regulations. In addition, PHS-NJ is required to maintain
a $1,200,000 cash reserve with the Health Care Financing Administration ("HCFA")
for its federal programs. As of March 31, 1999, PHS-NJ had $1,422,407 on deposit
for its federal programs.

FURNITURE AND EQUIPMENT

Furniture and equipment are recorded at cost.  Depreciation is calculated on the
straight-line  method over the useful  lives of the  depreciable  assets (3 to 5
years).

PREMIUM REVENUE

Subscriber  contracts for commercial managed care products are on a yearly basis
subject to  cancellation  by the  employer  group upon 30 days  written  notice.
Premium  revenue is  recorded as revenue in the month in which  subscribers  are
entitled  to service.  Premiums  collected  in advance are  reported as unearned
premium revenue.

Certain premium revenue is earned under a contract  between PHS-NJ and the State
of New Jersey Department of Human Services,  Division of Medical  Assistance and
Health Services ("NJDHS-DMAHS").  The contract with NJDHS is renewable annually.
The contract can be suspended (by  NJDHS-DMAHS)  or terminated (by either party)
upon the  occurrence  of certain  events.  Premiums are earned  monthly on a per
capita basis,  based on the number of eligible members enrolled in PHS-NJ health
plans.  Members  may  disenroll  at any time  other  than  months 2 through 6 of
membership and eligibility is determined by NJDHS-DMAHS.

Certain premium  revenue is earned under a contract  between PHS-NJ and HCFA for
services  provided to Medicare  eligible  recipients.  The contract with HCFA is
renewable annually.  Premiums are earned monthly on a per capita basis, based on
the number of eligible members enrolled in PHS-NJ health plans.

In 1996,  Physicians Health Services of New Jersey,  Inc. entered into marketing
and reinsurance  agreements with The Guardian Life Insurance  Company of America
("Guardian"). Pursuant to quota share reinsurance agreements, the Company writes
its HMO/POS In-Network business and cedes 50% to Guardian and writes its HMO/POS
out-of-network  business and cedes 100% to  Guardian,  which  retrocedes  50% to
PHS/Bermuda,  Ltd.,  an affiliate  of PHS-NJ.  As part of the  arrangement,  the
Company recovers from Guardian a specified portion of the administrative expense
related to the activity.

Premiums  ceded to  Guardian  under the above  arrangement  for the  three-month
period  ended  March 31,  1999 were  approximately  $6,493,500,  and health care
expenses  ceded to  Guardian  under the  above  arrangement  were  approximately
$1,202,000 for the same period.

OTHER REVENUE

Other  revenue  consists  principally  of fees for  administrative  service only
contracts, which are recognized as income as services are rendered.


                                       10



<PAGE>


                           FOHP, Inc. and Subsidiaries

              Notes to Condensed Consolidated Financial Statements

                                 March 31, 1999


MEDICAL AND HOSPITAL SERVICE EXPENSES

Medical and hospital service expenses are accrued in the period the services are
provided to enrollees,  based in part on estimates for hospital and other health
care services which have been incurred but not reported ("IBNR"). Such estimates
are continually monitored and reviewed and, as settlements are made or estimates
adjusted,  the  resulting  differences  are  reflected in the current  period of
operations.

PHS-NJ's  arrangements for commercial products with hospitals are primarily on a
per diem reimbursement basis and with physicians on a discounted fee for service
basis.  Under the NJDHS-DMAHS for Medicaid,  providers are reimbursed for health
care services provided to Medicaid  eligible members on a per member,  per month
capitation basis for primary care services,  fee for service basis for specialty
services and per diem arrangement for inpatient services.

PHS-NJ also  contracts  with another party for the  arrangement of mental health
services  provided to enrollees  in its health care plans.  PHS-NJ pays for such
services on a capitated  basis.  If the costs of such services are less than the
capitation  payments,  the amount of any savings is shared equally by PHS-NJ and
the servicer.  If costs are greater than the capitation payments,  any shortfall
must be funded equally by PHS-NJ and the servicer.


INCOME TAXES

The Company's  operations  are included in FHS'  consolidated  federal and state
income  tax  returns.  The  Company  records  income  taxes in  accordance  with
Statement of  Financial  Accounting  Standards  No. 109,  ACCOUNTING  FOR INCOME
TAXES.  Under FHS' tax  allocation  method,  a tax  provision  or tax benefit is
allocated to the Company based upon a calculation of the Company's  income taxes
as if it filed separate income tax returns.

PER SHARE DATA

Per share data are based on the weighted average number of shares of all classes
of common stock  outstanding  during the comparative  three-month  periods ended
March  31,  1999  and  1998  (499,000,000  in  1999  and  100,000,000  in  1998,
respectively).


3.  SUBORDINATED DEBT

In accordance  with the terms of the  Convertible  Debentures  and  Subordinated
Debentures,  repayment of principal  and interest  will occur only from free and
divisible  surplus as reflected in the  financial  statements of the Company and
with  written  approval  of  the  Commissioner  of the  DOI.  In  the  event  of
dissolution or  liquidation  of the Company,  no repayment on these notes can be
made unless and until all other liabilities of the Company have been satisfied.

The Convertible Debentures and Subordinated Debentures are due December 31, 2002
and accrue interest at a rate determined  quarterly based on the rate charged to
FHS under its credit facility (6.63% as of March 31, 1999).  Interest is due and
payable  within  ten days  after the end of each  quarter,  subject to the terms
noted above.


                                       11


<PAGE>



                           FOHP, Inc. and Subsidiaries

              Notes to Condensed Consolidated Financial Statements

                                 March 31, 1999


4.  COMMON STOCK

In  connection  with the April 30, 1997  investment by FHS, the  Certificate  of
Incorporation of the Company was amended to, among other things,  reclassify the
Company's  capital stock. In October 1998, the Certificate of  Incorporation  of
the Company was further amended to increase the number of shares of Common Stock
authorized  for issuance  and  decrease the number of shares of Preferred  Stock
authorized  for issuance.  As a result,  the Company  currently has  500,000,000
shares of authorized  capital stock, which is comprised of 499,000,000 shares of
Common Stock, par value $.01 per share, and 1,000,000 shares of Preferred Stock,
par value  $1.00 per  share.  In  connection  with the  reclassification  of the
Company's capital stock, each outstanding share of Common Stock-NJ was converted
into one share of Common  Stock.  As a result,  all  2,086,839  shares of Common
Stock-NJ  outstanding  at the time FHS made its initial  investment in FOHP were
converted into Common Stock.

Prior to the April 30, 1997  investment by FHS, the authorized  capital stock of
the Company  totaled  100  million  shares and was  comprised  of the  following
classes of Common  Stock,  $.01 par value:  Common  Stock-NJ,  Common  Stock-NY,
Common Stock-PA, Common Stock-DE and Unclassified Common Stock. During 1995, the
Company issued  2,100,173  shares of Common  Stock-NJ.  There were no additional
shares of Common Stock-NJ issued during 1996.

The Certificate of Incorporation and By-Laws of the Company include  significant
restrictions  on the  issuance  and  transfer  of shares of  Common  Stock.  The
Certificate of  Incorporation  of the Company  provides that only FHS and health
care  providers  who  enter  into  and  maintain  a  provider  agreement  with a
subsidiary  of the Company may purchase  Common Stock.  Acute care  institutions
that  enter into a provider  agreement  with a  subsidiary  of the  Company  may
purchase shares of Common Stock directly or through an affiliate.

The Company may, but is not obligated to, repurchase shares of Common Stock from
any shareholder whose provider  agreement  terminates for any reason or upon the
occurrence  of certain  events,  as described in the  Company's  Certificate  of
Incorporation.  The  determination of the repurchase price of the shares is also
described in the Company's Certificate of Incorporation.


5.  STATUTORY NET WORTH AND DIVIDEND RESTRICTIONS

PHS-NJ,  pursuant  to its COA to operate an HMO in New  Jersey,  is  required to
maintain a minimum  statutory net worth.  In addition,  the COA provides that if
PHS-NJ's  statutory  net worth is, or is  expected  to be, less than 125% of the
minimum statutory net worth requirement  applicable to it, PHS-NJ is required to
submit to the Departments a plan of action to address the deficiency or expected
deficiency.  During the first quarter of 1996, the Company learned that PHS-NJ's
statutory  net worth as of  December  31,  1995 may have been  below 125% of the
minimum statutory net worth requirement  applicable to PHS-NJ.  PHS-NJ addressed
this potential  deficiency by submitting to the Departments in April 1996 a plan
of action  which  outlined  the actions  which had been taken and measures to be
used by PHS-NJ to correct the potential deficiency.

As part of the plan of action,  on April 30, 1997,  the Company sold the Initial
Convertible  Debenture to FHS in the  principal  amount of  $51,701,120.38.  The
principal amount of the Initial Convertible  Debenture was converted by FHS into
71% of FOHP's capital stock on a fully-diluted basis.


                                       12


<PAGE>


                           FOHP, Inc. and Subsidiaries

              Notes to Condensed Consolidated Financial Statements

                                 March 31, 1999


To  facilitate  the  sale of the  Initial  Convertible  Debenture  to  FHS,  the
Departments agreed to rescind their conditions attached to their approval of the
plan of action  submitted by PHS-NJ in April 1996,  subject to the  Department's
right to  require  PHS-NJ to  submit a new plan of  action  if PHS-NJ  failed to
increase its net worth to 100% of the minimum  statutory net worth  requirement,
provided that FHS guaranteed,  in form  satisfactory to the  Commissioner of the
DOI, that PHS-NJ's net worth will be maintained at a level equal to or in excess
of 100% of the minimum statutory net worth requirement  applicable to PHS-NJ. In
December 1997, the  Departments  further agreed to permit  PHS-NJ's net worth to
remain  below 100% until  December  31, 1998,  provided  that it attain  certain
benchmarks each quarter during 1998.

In December  1997,  FHS  contributed an additional $24 million to the Company to
satisfy certain statutory net worth requirements  applicable to PHS-NJ in return
for the New Convertible Debenture.  Further, FHS contributed  $29,897,801 to the
Company as  additional  paid in capital to satisfy  certain  statutory net worth
requirements  applicable to FOHP-NJ  during 1998. At March 31, 1999,  PHS-NJ was
approximately  $14,764,591  above the 100% of the  minimum  statutory  net worth
requirement.

In addition to the minimum statutory net worth requirements,  PHS-NJ may not pay
dividends to its parent without prior approval of the Commissioner of the DOI.


6.  RELATED PARTY TRANSACTIONS

Pursuant to an administrative  management agreement entered into by FHS and FOHP
in connection with the closing of the Amended Securities Purchase Agreement with
FHS,  the  Company is required to pay FHS,  or a  designated  subsidiary  of FHS
(Physicians Health Services,  Inc.), a monthly management fee which is currently
based on allocated corporate charges. For the three-month period ended March 31,
1999,  the Company  charged  $7,925,779 to expense  related to these  management
fees.

The  amounts  due to FHS at March 31,  1999 and March  31,  1998,  respectively,
represent   management  fees  payable  and  interest   payable  related  to  the
Convertible  Debentures  (which haven't been converted to principal at March 31,
1999) and Subordinated  Debentures.  Amounts due to other affiliates,  which are
wholly-owned by FHS, represent cost allocations due for administration services.
The balances due from  Integrated  Pharmacy  Services,  Inc.  ("IPS")  represent
amounts due for  payments  made by the  Company,  on behalf of IPS, for pharmacy
services.




                                       13


<PAGE>



ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

         OVERVIEW

         The Company, a New Jersey corporation, was formed in May 1994 to effect
the   Reorganization   of  PHS-NJ  into  a  holding   company   structure.   The
Reorganization was consummated on June 8, 1995.  Pursuant to the Reorganization,
PHS-NJ  became  a  wholly-owned   subsidiary  of  the  Company.   Prior  to  the
Reorganization,  the Company did not  conduct any  business  nor did it have any
significant  assets or  liabilities.  The  Company  does not  conduct,  nor does
management believe that it will conduct,  any business.  All health care benefit
products and services are, and will be, provided by the Company's subsidiaries.

         PHS-NJ, a New Jersey corporation,  was formed in May 1993 to operate as
an HMO in the  State of New  Jersey.  PHS-NJ  received  its COA in June  1994 to
operate as an HMO in the  service  area  encompassing  the  entire  State of New
Jersey and commenced operations on July 1, 1994. Pursuant to the Reorganization,
PHS-NJ  became a  wholly-owned  subsidiary  of the  Company on June 8, 1995.  On
January 1, 1999,  Physicians  Health Services of New Jersey,  Inc., a New Jersey
HMO controlled by FHS, merged with and into PHS-NJ. At the effective time of the
merger,  PHS-NJ changed its name to "Physicians  Health  Services of New Jersey,
Inc." The purpose of the merger was to consolidate the FHS controlled operations
in the State of New Jersey into primarily one corporation.  Currently, PHS-NJ is
the Company's principal subsidiary.

         PHS-NJ  markets a  comprehensive  range of  health  care  benefit  plan
products  pursuant to contractual  arrangements  with physicians,  hospitals and
other  health  care  providers.  As of May 21,  1999,  PHS-NJ had  entered  into
provider  agreements  with 62 New Jersey  hospitals and acute care  institutions
("NJ Acute Care  Institutions"),  approximately  11,000  physicians  licensed to
practice in New Jersey ("NJ  Practitioners")  and  approximately 75 other health
care providers. The provider agreements have an initial term of one-year and are
renewable  annually.  Such agreements with NJ Acute Care  Institutions and other
health care providers who are not NJ  Practitioners  may be terminated by mutual
consent  or,  after the  initial  one-year  term,  by either  party upon 90 days
notice;  agreements with NJ Practitioners may be terminated by either party upon
60 days notice.  The agreements  also may be terminated  for breaches  specified
therein.  The terms and  conditions of provider  agreements  are not affected by
whether the provider is, or is not, a shareholder of the Company.  However, some
agreements with shareholders that are NJ Acute Care Institutions and subscribers
in  PHS-NJ  health  plans  are  different  from  the  subscriber  agreements  of
non-shareholders  in that premium rates for those NJ Acute Care Institutions are
capped to be within a certain  corridor  (+/-4%)  from their prior year  premium
rates. There are 24 NJ Acute Care Institutions with such subscriber agreements.

         PHS-NJ's agreements with NJ Acute Care Institutions  provide for, among
other things, a reimbursement  schedule setting the amounts to be paid to the NJ
Acute  Care  Institutions  by PHS-NJ  for  services  provided  to  members.  The
reimbursement  schedule  of  a  provider  agreement  between  a  NJ  Acute  Care
Institution and PHS-NJ is individually  negotiated.  Rates paid to NJ Acute Care
Institutions for services provided to members of PHS-NJ's health plans vary from
institution  to institution  and are based on, among other things,  the types of
services  provided  by, and the  location  of,  the NJ Acute  Care  Institution.
Agreements with  participating NJ Acute Care Institutions  prohibit the NJ Acute
Care Institutions from billing a member of a


                                       14



<PAGE>


PHS-NJ  health  plan for any  services  paid for under such plan  except for any
applicable co-payment, co-insurance, deductibles and non-covered services.

         NJ  Practitioners  are paid pursuant to a fee schedule  established  by
PHS-NJ and are  prohibited  from billing  members of a PHS-NJ health plan except
for  co-payments  and  non-covered  services,  if  any.  The  fees  paid  to  NJ
Practitioners  are  based on a  percentage  of the fees  payable  under  the fee
schedule  developed for Medicare.  Co-payments,  co-insurance and deductibles in
amounts approved by PHS-NJ,  are collected  directly by the NJ Practitioner from
the member.

         Subscriber  contracts are entered into with large employer groups (more
than 50  employees)  and small  employer  groups (50  employees  or less).  Such
contracts  are  generally  for a term of one year,  but may be  cancelled by the
employer group upon 30 days written notice.  Under these  contracts,  PHS-NJ has
agreed to provide  the  employer  groups  with  health  coverage in return for a
monthly premium. PHS-NJ utilizes a system of community rating by class, adjusted
(with  respect to  employer  groups of 100 or more  employees)  by age,  sex and
industry  classification,  in determining its rates for various employers in the
proposed service area.  Premium revenue  generated from subscriber  contracts is
recorded as revenue in the month in which subscribers are entitled to service.
Premiums collected in advance are reported as unearned premium revenue.

         In 1996,  Physicians  Health Services of New Jersey,  Inc. entered into
marketing and  reinsurance  agreements  with  Guardian.  Pursuant to quota share
reinsurance  agreements,  the Company writes its HMO/POS In-Network business and
cedes 50% to Guardian and writes its HMO/POS  out-of-network  business and cedes
100% to Guardian,  which  retrocedes 50% to  PHS/Bermuda,  Ltd., an affiliate of
PHS-NJ.  As part of the  arrangement,  the  Company  recovers  from  Guardian  a
specified portion of the administrative expense related to the activity.



         RESULTS OF OPERATIONS

         FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998

         PREMIUM  REVENUE.  For the  three-month  period  ended March 31,  1999,
medical  premium  revenue  totaled  $86.4  million or $3.5 million less than the
$89.9 million of medical  premium  revenue  generated  during the same period in
1998.  This  decrease was due to reduced  enrollment  in PHS-NJ  health  benefit
plans,  specifically  in the  Medicare  line of business.  Approximately  29% of
medical  premium  generated  in 1999 and  approximately  39% of medical  premium
generated  in 1998 was  attributable  to NJ Acute Care  Institutions,  which are
obligated to enroll their employees in PHS-NJ health plans. The Company believes
that it  will  benefit  by its  inclusion  in the  formation  of FHS'  Northeast
Division, which is comprised of three health plans with a total of more than one
million  members in the New York  tri-state  area,  and the merger of Physicians
Health  Services of New Jersey,  Inc. into PHS-NJ,  and that such  inclusion and
merger  will  result  in  a  greater   percentage  of  future  premium   revenue
attributable to members who are not employees of NJ Acute Care Institutions.

         OTHER REVENUE. Other revenue,  principally administrative fees, for the
three-month  period  ended  March 31,  1999 was $352  thousand  compared to $875
thousand of other revenue for the same period of the prior year. Interest income
for the first quarter of 1999 was $1.5 million,  as compared to the $1.2 million
generated in the first quarter of 1998.


                                       15


<PAGE>



         MEDICAL AND HOSPITAL SERVICES.  Total expenses  attributable to medical
and hospital services for the three-month period ended March 31, 1999 were $86.3
million or $9.2  million  higher than  expenses  incurred for the same period in
1998.  This  increase was a result of  increased  utilization  in PHS-NJ  health
benefit  plans,  changes  in the mix of  products  offered  by  PHS-NJ,  and the
establishment  of a  claims  reserves  within  the  high  end of an  actuarially
determined  range. In addition,  the medical loss ratio (i.e., the percentage of
each premium  dollar used to pay medical  expenses) for the  three-month  period
ended March 31, 1999 was 99.9% compared to 85.8% for the same period in 1998.

         SELLING,  GENERAL AND  ADMINISTRATIVE  EXPENSES.  Selling,  general and
administrative  expenses  totaled $9.3 million for the three-month  period ended
March 31, 1999, including a $7.9 million  administrative  management fee charged
by Physicians Health Services,  Inc., a wholly-owned subsidiary of FHS, and $602
thousand  interest  expense  associated  with  the  Convertible  Debentures  and
Subordinated Debentures issued to FHS, as compared to $16.0 million incurred for
the same period in 1998.  This  decrease was primarily the result of recording a
restructuring  charge  in  1998  representing  estimated  contract  settlements,
provisions  for  lease  termination  costs,   employee   termination   benefits,
write-down of the related assets and other miscellaneous items.

         OTHER  EXPENSES.   Depreciation  and  amortization   expenses  for  the
three-month period ended March 31, 1999 decreased by $100 thousand from the $1.0
million incurred during the same period in 1998. This decrease was primarily the
result of disposal of certain assets included in the restructuring charge.



         FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997

         PREMIUM  REVENUE.  For the  three-month  period  ended March 31,  1998,
medical  premium  revenue  totaled  $89.9  million or $5.9 million more than the
$84.0 million of medical  premium  revenue  generated  during the same period in
1997.  Approximately  38% of  medical  premium  revenue  generated  in 1998  and
approximately  36% of medical premium revenue generated in 1997 was attributable
to NJ Acute Care Institutions,  which are obligated to enroll their employees in
PHS-NJ health plans. The Company believes that the percentage of medical premium
revenue  attributable  to NJ Acute Care  Institutions  will decrease as PHS-NJ's
operations grow and PHS-NJ continues to benefit from current  marketing  efforts
focused on commercial  products which are not marketed  directly to employees of
providers  of PHS-NJ.  The Company  also  believes  that it will  benefit by its
inclusion in the  formation of FHS'  Northeast  Division,  which is comprised of
three health plans with a total of more than one million members in the New York
tri-state area.

OTHER  REVENUE.  Other  revenue,   principally   administrative  fees,  for  the
three-month  period  ended  March 31,  1998 was $875  thousand  compared to $686
thousand of other revenue for the same period of the prior year. Interest income
for the first  quarter of 1998 was $1.2 million,  a $624 thousand  increase from
the $608  thousand  generated  in the first  quarter of 1997.  The  increase  in
interest  income was due to the larger cash reserves  related to the investments
by FHS in April 1997 and December 1997.


                                       16


<PAGE>


MEDICAL AND HOSPITAL SERVICE  EXPENSES.  Total expenses  attributable to medical
and hospital service for the three-month  period ended March 31, 1998 were $77.2
million or $3.3  million  lower than  expenses  incurred  for the same period in
1997.  The decrease in medical and hospital  service  expenses from 1997 to 1998
was  primarily  attributable  to a decrease in enrollees in the Medicare line of
business as well as enhanced utilization efforts in the Commercial, Medicaid and
Medicare  lines of  business.  In addition,  the medical  loss ratio (i.e.,  the
percentage  of  each  premium  dollar  used  to pay  medical  expenses)  for the
three-month period ended March 31, 1998 was 85.8% compared to 95.8% for the same
period in 1997. The Company  believes that this decrease is attributed to recent
operational  changes,  specifically the  implementation  of a modified  provider
reimbursement schedule, along with enhanced utilization management efforts.

SELLING,   GENERAL   AND   ADMINISTRATIVE   EXPENSES.   Selling,   general   and
administrative  expenses totaled $16.0 million for the three-month  period ended
March 31, 1998, including a $635 thousand administrative  management fee charged
by FHS and $516  thousand  interest  expense  associated  with  the  Convertible
Debentures and Subordinated  Debentures,  compared to $14.2 million incurred for
the same period in 1997.  The  increase in selling,  general and  administrative
expenses  was the result of an increase  in  resources  needed to reduce  claims
backlog  as  well as the  payments  of  interest  in 1998  associated  with  the
Convertible Debentures and Subordinated Debentures.

OTHER  EXPENSES.  Depreciation  and  amortization  expenses for the  three-month
period ended March 31, 1998  increased by $796  thousand  from the $241 thousand
incurred  during the same period in 1997. This increase was mostly the result of
amortization of goodwill associated with FHS' investment in the Company.

         LIQUIDITY AND CAPITAL RESOURCES

         Gross proceeds of  approximately  $12,400,000,  received by PHS-NJ from
the private  offering and sale of 826,708  shares of common stock in 1993,  were
sufficient  to cover the  expenses  incurred  by PHS-NJ in  connection  with the
formation  and  development  of its  business.  In order to fund its  continuing
development  activities,  PHS-NJ sold 744,445 shares of common stock in a public
offering which closed on October 31, 1994. Gross proceeds  received by PHS-NJ as
a result of the sale of stock in the public  offering  amounted to  $11,166,675.
Further,  in order  to fund  its  continuing  development  of HMOs in New  York,
Pennsylvania and several other states, the Company sold 529,120 shares of Common
Stock-NJ to NJ  Practitioners  in an offering  which ended on September 1, 1995.
Gross  proceeds  received  by the  Company  as a result  of the  sale of  Common
Stock-NJ in the offering to NJ Practitioners amounted to $7,937,000.

         PHS-NJ is required by the  Departments to maintain a minimum  statutory
net worth.  In addition,  if PHS-NJ's  statutory net worth is, or is expected to
be, less than 125% of the minimum  statutory  net worth  requirement,  PHS-NJ is
required to submit to the Departments a plan of action to address the deficiency
or expected  deficiency.  During the first quarter of 1996, the Company  learned
that  PHS-NJ's  statutory  net worth as of December 31, 1995 may have been below
125% of the minimum  statutory  net worth  requirement.  PHS-NJ  addressed  this
potential  deficiency by submitting to the  Departments  in April 1996 a plan of
action,  which  outlined the actions  taken and measures to be used by PHS-NJ to
correct the potential deficiency.


                                       17


<PAGE>


         As part of the plan of action,  on April 30, 1997,  the Company sold to
FHS the Initial  Convertible  Debenture  in the  aggregate  principal  amount of
$51,701,120.38,  pursuant  to the Amended  Securities  Purchase  Agreement.  The
principal amount of the Initial  Convertible  Debenture was convertible,  at the
option of FHS, into up to 71% of the Company's  capital stock on a fully diluted
basis. At the closing of the purchase of the Initial Convertible Debenture,  FHS
converted $1,701,120.38 of principal amount of the Initial Convertible Debenture
into 168,109 shares of Common Stock.

         To facilitate the sale of the Initial Convertible Debenture to FHS, the
Departments agreed to rescind their conditions attached to their approval of the
plan of action  submitted by PHS-NJ in April 1996,  subject to the  Departments'
right to  require  PHS-NJ to  submit a new plan of  action  if PHS-NJ  failed to
increase its net worth to 100% of the minimum statutory net worth requirement by
December 31, 1997.  In  addition,  the  Departments  agreed that  subsequent  to
December 31, 1997, PHS-NJ will only be required to maintain net worth at 100% of
the minimum  statutory net worth  requirement  applicable to it, and not 125% of
the minimum statutory net worth requirement as required prior to the sale of the
Initial   Convertible   Debenture,   provided  that  FHS  guaranteed,   in  form
satisfactory  to the  Commissioner  of the DOI,  that PHS-NJ's net worth will be
maintained at a level equal to or in excess of 100% of the minimum statutory net
worth  requirement  applicable  to PHS-NJ.  In December  1997,  the  Departments
further agreed to permit  PHS-NJ's net worth to remain below 100% until December
31, 1998, provided that it attain certain benchmarks each quarter during 1998.

         In connection with the sale of the Initial Convertible  Debenture,  FHS
and the Company entered into a letter agreement which clarified FHS' right under
the Amended Securities  Purchase Agreement to infuse additional capital into the
Company in the event that it is  determined  that PHS-NJ  needs  capital to meet
applicable  statutory  net  worth  requirements  (referred  to  herein as a "Net
Capital Shortfall").  Pursuant to the letter agreement, FHS had the right to, at
any time prior to December 31, 1997,  contribute  up to $5,000,000 in additional
capital  to the  Company  to be  used in  connection  with  certain  anticipated
liabilities and contribute  such additional  amounts that may be projected to be
required from time to time (based upon  reasonable  projections  prepared by FHS
taking into account  anticipated full year 1997 operating  results) in order for
PHS-NJ  to meet  100% of the  minimum  statutory  net  worth  requirement  as of
December 31, 1997. In the event that FHS contributed  additional  capital to the
Company to meet a Net Capital  Shortfall or projected  Net Capital  Shortfall in
accordance  with the terms of the  Amended  Securities  Purchase  Agreement,  as
clarified by the letter agreement,  FHS would be issued  additional  Convertible
Debentures.

         Effective  December 1, 1997, FHS converted the remaining $50 million of
the principal amount of the Initial Convertible Debenture, dated as of April 30,
1997, into 4,941,049  shares of Common Stock.  After the  conversion,  FHS owned
5,109,158 shares of the 7,195,997 shares of Common Stock then outstanding, which
represented 71% of the fully diluted equity of the Company.

         In order to satisfy certain statutory net worth requirements applicable
to PHS-NJ and in accordance with the Amended Securities Purchase Agreement,  FHS
elected on December  8, 1997 to infuse $29 million  into the Company in exchange
for  the  New  Convertible  Debenture.  Immediately  upon  receipt  of  the  New
Convertible Debenture, FHS converted approximately  $18,952,930 of the principal
amount  thereof  into  92,804,003  shares of  Common  Stock.  After the  partial
conversion of the New Convertible Debenture,  FHS owned 97,913,161 shares of the


                                       18


<PAGE>


100,000,000   shares  of  Common  Stock  then  outstanding,   which  represented
approximately 98% of the fully-diluted equity of the Company.

         In October 1998, the  Certificate of  Incorporation  of the Company was
further amended to increase the number of shares of Common Stock  authorized for
issuance and decrease the number of shares of  Preferred  Stock  authorized  for
issuance.  As  a  result,  the  Company  currently  has  500,000,000  shares  of
authorized  capital stock,  which is comprised of  499,000,000  shares of Common
Stock and 1,000,000 shares of Preferred Stock, par value $1.00 per share.

         On December 31, 1998, FHS converted  $1,197,182 of the principal amount
of the New Convertible  Debenture into 399,003,000 shares of Common Stock. After
this conversion,  499,000,000 shares of Common Stock were outstanding,  with FHS
owning  496,916,161 of such shares or approximately  99.6% of the  fully-diluted
equity of the Company.  The price per share paid by FHS upon  conversion  of the
New  Convertible  Debenture  was  calculated  in  accordance  with  the  Amended
Securities  Purchase  Agreement  entered  into by FHS, the Company and PHS-NJ in
connection with the sale of the Initial Convertible Debenture.

         In December 1997, FHS also contributed an additional $24 million to the
Company to satisfy certain statutory net worth requirements applicable to PHS-NJ
in return for Subordinated  Debentures.  Further, FHS contributed $29,897,801 to
the Company as additional paid in capital to satisfy certain statutory net worth
requirements applicable to PHS-NJ during 1998.

         On January 1, 1999,  Physicians Health Services of New Jersey,  Inc., a
New Jersey  corporation  controlled by FHS which operated as an HMO in the State
of New Jersey,  merged with and into PHS-NJ pursuant to an Agreement and Plan of
Merger dated October 26, 1998. In connection with the merger, PHS-NJ changed its
name from First  Option  Health Plan of New Jersey,  Inc. to  Physicians  Health
Services of New Jersey,  Inc. The purpose of the merger was to  consolidate  the
operations  of the  HMOs  controlled  by FHS in the  State  of New  Jersey  into
substantially one corporation.

         Pursuant  to new HMO  regulations  adopted in the State of New  Jersey,
PHS-NJ is  required to  maintain a "Minimum  Insolvency  Deposit for Health Care
Expenditures." As of March 31, 1999, the deposit covering two months of incurred
health care expenditures is approximately $65.0 million. The initial deposit, or
$12.5  million,  was made by September 30, 1997. An additional  $4.6 million was
deposited on March 31, 1998, $9.5 million was deposited on April 2, 1998,  $14.6
million was  deposited  on June 30,  1998 and $14.1  million  was  deposited  on
September 30, 1998. These deposits (including the PHS-NJ deposit of $7.9 million
added from the merger of  Physicians  Health  Services of New Jersey,  Inc. into
PHS-NJ plus interest earned) have been deemed  sufficient in accordance with the
HMO regulations and therefore no additional deposits should be required.






                                       19


<PAGE>


IMPACT OF YEAR 2000

         The Company,  and its parent,  FHS,  recognize  that the arrival of the
year 2000 (the "Year 2000")  requires  computer  systems to be able to recognize
the date change from 1999 to 2000 and, like other  companies,  are assessing and
modifying  their  computer  applications  and business  processes to provide for
their continued functionality.

         The Year 2000 issue is the result of computer  programs  being  written
using two digits  rather  than four to define the  applicable  year.  Any of the
Company's  computer  programs that have time sensitive  software may recognize a
date using "00" as the year 1900 rather than the Year 2000. This could result in
a  system  failure  or  miscalculations   causing   disruptions  of  operations,
including,  among other things, a temporary  inability to process  transactions,
prepare invoices or engage in normal business activities.  In addition, the Year
2000 problems of the Company's providers and customers,  including  governmental
entities,  can affect the Company's operations,  which are highly dependent upon
information  technology  for  processing  claims,  determining  eligibility  and
exchanging information.

         FHS,  for  itself  and on behalf  of its  subsidiaries,  including  the
Company,  has undertaken a  comprehensive  review of the Year 2000 issue and its
affect on the operations of FHS and its  subsidiaries.  The Company has assisted
FHS in  addressing  the Year 2000 issue as it pertains to the Company.  However,
FHS will  ultimately  direct how the Company  addresses  the Year 2000 issue and
will initially incur all the costs  associated with ensuring that the Company is
Year 2000  compliant,  which costs may be  allocated  to the Company at a future
point in time.

         Set forth  below is a brief  description  of FHS' effort to address the
Year 2000 issue:

         PROJECT STATUS.  The Year 2000 effort for FHS has the highest  priority
of technology projects and has the full support of FHS' management.  The project
has  dedicated  resources  with  multiple  teams to address  its unique  systems
environment.  Uniform  project  management  techniques  have been  adopted  with
overall oversight  responsibility  residing with FHS' Chief Technology  Officer,
assisted by a special  project  manager  hired by FHS. An  executive  management
committee is also  actively and  directly  involved in an oversight  capacity in
FHS' Year 2000 project and receives monthly reports from the project manager. In
addition,  the project  manager  regularly  meets with FHS' audit  committee  to
further discuss FHS' Year 2000 issues.

         FHS is  addressing  its Year 2000  issues  in  several  ways.  Selected
systems are being retired with the business  functions  being  converted to Year
2000 compliant  systems.  A number of the FHS' systems include packaged software
from large  vendors that FHS is closely  monitoring to ensure that those systems
are Year 2000  compliant.  FHS believes  that  vendors will make timely  updates
available  to  ensure  that  all  remaining  purchased  software  is  Year  2000
compliant. The remaining systems' compliance with Year 2000 will be addressed by
internal  technical  staff. FHS has engaged IBM Global Services to assist in the
program management of the project. In addition, FHS has assessed its third party
relationships  with respect to  non-information  technology assets and services,
has retained IBM's The Wilkerson Group, and is developing  contingency  plans to
provide  continuity  of  material  relationships.  Legal  consultants  have been
retained to assist with insurance  review and assessment of FHS' obligations and
rights.


                                       20


<PAGE>


         FHS has divided its Year 2000 effort into five phases:  (1)  Assessment
and Strategy; (2) Detailed Analysis and Planning;  (3) Remediation;  (4) Testing
and Implementation; and (5) Certification. During the first quarter of 1999, FHS
made  substantial  progress in its efforts to address Year 2000 issues.  FHS has
established  the third quarter of 1999 to complete all phases and is endeavoring
to accelerate  completion ahead of that time. The following table sets forth the
estimated percentage completion of each of FHS' Year 2000 phases with respect to
its Year 2000 project overall.




                               Phase 1   Phase 2   Phase 3   Phase 4   Phase 5
                               -------   -------   -------   -------   -------
Overall - May 1999              100%       100%       93%      55%        3%


Overall - February 1999         100%        83%       54%      11%        0%
(as reported in FHS'
Annual Reporton Form
10-K)
         THIRD  PARTIES.   FHS'  inventory  of  third  party  relationships  has
identified general purpose utility vendors, care delivery organizations (such as
providers),   and  customer  service  vendors  and  certain  other  entities  as
strategically  important to FHS. The assessment  continues and is expected to be
completed  within the  second  quarter  of 1999.  FHS is also in the  process of
following-up  with the important  third parties  identified in the assessment to
help  ensure  that the  relationships  will  not be  materially  interrupted  or
affected by the Year 2000 problem. There can be no assurance that the systems of
other  companies on which the Company and FHS rely will be compliant on a timely
basis,  or that the  failure by a third party to be  compliant  would not have a
material adverse affect on the Company or FHS.

         COSTS.  FHS is  evaluating  on an on-going  basis the related  costs to
resolve its potential  Year 2000  problems.  FHS has reduced its estimate of the
total cost for the project from approximately  $42.7 million to $36-$40 million,
excluding  the costs to  accelerate  the  replacement  of  hardware  or software
otherwise  required to be purchased by FHS. The decrease is a result principally
of a  reduction  in the  anticipated  duration  of  the  employment  of  outside
consultants and contractors  and a shift of certain  responsibilities  to inside
labor.  Through the first  quarter of 1999,  FHS  expended  approximately  $20.2
million relating to, among other things,  the cost to repair or replace software
and related hardware problems, the cost of assessment, analysis and planning and
internal  and  external   communications.   FHS  currently  estimates  that  the
percentages of its total expenditures for Year 2000 issues will be approximately
as follows: 35% for internal costs, 20% for outside consultants and contractors,
and 35% for software-related  and hardware-related  costs. FHS has established a
line-item in its overall operating budget specifically to cover Year 2000 costs.
The operating subsidiaries for each line of business of FHS, however, are paying
for the costs of  assessment,  planning,  remediation  and  testing of Year 2000
issues for their respective operations.

         Notwithstanding  the  foregoing,  the  costs  of the  project  and  the
timetable in which FHS plans to complete the Year 2000  compliance  requirements
are based on estimates  derived from  utilizing  numerous  assumptions of future
events including the continued  availability of certain  resources,  third party
modification  plans and other  factors.  There can be no  assurances  that these


                                       21


<PAGE>


estimates will be achieved and actual results and costs could differ  materially
from these estimates.

         Certain insurance coverages for defense costs associated with Year 2000
litigation have already been secured under FHS' Directors and Officers Liability
Insurance policy and will be re-evaluated  upon renewal of that policy.  At this
time, it is unclear as to the extent of existing insurance coverage, if any, FHS
may have to cover  potential  Year 2000  costs and  liabilities  under its other
insurance policies. FHS is currently analyzing the availability of such coverage
under other existing and future insurance policies and products.

         CONTINGENCY  PLANNING.  An  important  part of FHS' Year  2000  project
involves  identifying  worst case  scenarios and seeking to develop  contingency
plans.  FHS has  completed  its  assessment  of its  mission  critical  business
functions  and has  sought  to  prioritize  them in  order to  address  the most
critical  issues first in  remediation  efforts and to develop  alternatives  to
these critical  processes as part of contingency  planning.  A mission  critical
business  activity  or system is one that  cannot be  without  an  automated  or
functional system for a period of 21 days without causing  significant  business
impact to the particular  line of business.  Among other things,  FHS' divisions
have assessed  potential negative impacts on a valid member's ability to receive
services, the ability to generate revenue, the need for additional expenditures,
compliance  with  legal,  regulatory  or  accreditation  requirements,   meeting
contractual obligations and reimbursing providers, vendors and agents. FHS is in
the process of documenting and validating its  contingency  plans and expects to
complete  such process by the end of the second  quarter of 1999.  FHS currently
anticipates that its contingency plans will include the use of manual as well as
on-line  files  of its  members  to  avoid  disruption  in the  verification  of
membership  and  eligibility  for the  provision of health care  services to its
members.

         RISKS.  The  Company  and FHS  are  highly  dependent  upon  their  own
information  technology  systems  and that of  their  providers  and  customers.
Failure by the  Company,  FHS or a third  party to correct a material  Year 2000
problem could result in a failure of or an interruption in the Company's or FHS'
business  activities  and  operations.  Such  interruptions  and failures  could
materially  and adversely  affect the  Company's or FHS' results of  operations,
liquidity and financial  condition.  Due to the general uncertainty  inherent in
the Year 2000 problem,  resulting in part from the  uncertainty of the readiness
of third party  providers and customers,  neither the Company nor FHS is able to
determine  at this time  whether  the Year 2000  problems  will have a  material
adverse  effect on the  Company's  or FHS' results of  operations,  liquidity or
financial condition.  FHS' Year 2000 project is expected to reduce significantly
the Company's and FHS' level of uncertainty  and the  possibility of significant
or  long-lasting  interruptions  of the Company's and FHS' business  operations;
however, the Company and FHS believe that it is impossible to predict all of the
areas in which material problems may arise.

         FHS has been  formally  communicating  with  others  with  whom it does
significant  business to  determine  their Year 2000  issues.  FHS is  currently
projecting  to complete  its  assessment  of third party risks by the end of the
second  quarter of 1999.  There can be no  assurances  that the systems of other
companies  on which the  Company's or FHS' systems rely will be Year 2000 ready,
that any Year 2000 problems of such companies will be timely  remedied,  or that
the  failure by another  company to be Year 2000 ready would not have a material
adverse affect on the Company or FHS.


                                       22


<PAGE>


         Forward-looking  statements  contained in this Year 2000 section should
be read in  connection  with the  Company's  cautionary  statements  identifying
important  risk factors that could cause the Company's  actual results to differ
materially  from those  projected  in these  forward-looking  statements,  which
cautionary  statements are contained in the Company's Annual Report on Form 10-K
for the year ended  December  31,  1998.  The  information  contained  herein is
intended to be a "Year 2000  Readiness  Disclosure"  as defined in the Year 2000
Information and Readiness Disclosure Act of 1998 enacted on October 19, 1998.



ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

         The Company  currently has no outstanding  bank or external  financing.
Moreover,  all of the Company's  investments  are in money market funds and U.S.
Treasury Bills with original  maturities of three months or less when purchased.
Accordingly,  the Company believes that its business  operations are not exposed
to market risk relating to interest rate risk,  foreign currency  exchange risk,
commodity price risk or equity price risk.







                                       23


<PAGE>



                           PART II - OTHER INFORMATION



ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

Exhibit 11 - Computation of Earnings Per Share.

Exhibit 27 - Financial Data Schedule.

Reports on Form 8-K - For the  three-months  ended March 31,  1999,  the Company
filed the following  Current Report on Form 8-K with the Securities and Exchange
Commission:

Form 8-K (Item 2 - Acquisition or Disposition of Assets), date of earliest event
reported  January 1, 1999,  with  respect  to the  merger of  Physicians  Health
Services  of New  Jersey,  Inc.  with and into First  Option  Health Plan of New
Jersey, Inc., and amendment no. 1 thereto.






                                       24


<PAGE>





                                   SIGNATURES

Pursuant  to the  requirements  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.


                                                    FOHP, INC.
                                     ---------------------------------------
                                                  (Registrant)


    MAY 21, 1999                     /s/  Thomas W. Wilfong
    -----------                      ---------------------------------------
        Date                                      (Signature)**

                                                THOMAS W. WILFONG
                                      PRESIDENT AND CHIEF EXECUTIVE OFFICER


    MAY 21, 1999                     /s/ Marc M. Stein
    -----------                      ---------------------------------------
        Date                                      (Signature)**

                                                    MARC M. STEIN
                                     PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER




                                       25



<PAGE>



                           FOHP, INC. AND SUBSIDIARIES
                                   EXHIBIT 11
                        COMPUTATION OF EARNINGS PER SHARE




                                                         THREE MONTHS ENDED
                                                              MARCH 31,
                                                       1999            1998
                                                  -----------------------------


Net Loss                                          $  (4,820,650)    $  (889,685)
                                                  =============================


Weighted average number of common shares:
  Shares outstanding quarter ended 3/31/99          499,000,000

  Shares outstanding quarter ended 3/31/98                          100,000,000

Weighted average shares outstanding                 499,000,000     100,000,000
                                                  =============================


NET LOSS PER COMMON SHARE                         $       (0.01)   $      (0.01)
                                                  =============================