<PAGE>   1








                   SECURITIES AND EXCHANGE COMMISSION

                         WASHINGTON, D.C. 20549



                              FORM 10 - K


         [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)

                 OF THE SECURITIES EXCHANGE ACT OF 1934

              For the fiscal year ended December 31, 2003
                                  OR


         [   ] TRANSITION REPORT PURSUANT SECTION 13 OR 15 (d)

                 OF THE SECURITIES EXCHANGE ACT OF 1934

               For the transition period from         to


                      Commission File No.  0-23998



                    FIRST CHOICE HEALTH NETWORK, INC.
         (Exact name of Registrant as specified in its charter)

       Washington                                            91-1272766
(State or Other Jurisdiction of                     (I.R.S. Employer
 Incorporation or Organization)                     Identification No.)

                               600 University Street
                                  Suite 1400
                             Seattle, Washington 98101
                               (Address of principal
                                 executive offices)



                                (206) 292-8255
               (Registrant telephone number, including area code)










                                      1

<PAGE>   2


     Securities registered pursuant to Section 12 (b) of the Act: None


         Securities registered under Section 12 (g) of the Act:
             Class A Common Stock, par value $1.00 per share


Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.

Yes   ___X__             No   ______


Indicate by check mark whether the registrant is an accelerated filer (as
Defined in Rule 12B-2 of the Act).

Yes   _____             No   __X___

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


There is no trading market for the Registrant's common equity (Class A Common
Stock, $1.00 par value and Class B Common Stock, $1.00 par value) and,
accordingly, the market value of the stock held by non-affiliates of
the Registrant based on bid and asked prices cannot be determined.


The aggregate number of Registrant's shares outstanding on December 31, 2003
was 537 shares of Class A Common Stock, and 40,600 shares of Class B Common
Stock, $1.00 par value, respectively.





Documents incorporated by reference:

Portions of the definitive Proxy Statement for the 2004 Annual Meeting of
Shareholders are hereby incorporated by reference into Part III of Form 10-K.


















                                      2

 <PAGE>   3




PART  I
      ITEM 1      BUSINESS                                             4

      ITEM 2      PROPERTIES                                           6

      ITEM 3      LEGAL PROCEEDINGS                                    6

      ITEM 4      SUBMISSION OF MATTERS
                  TO A VOTE OF SECURITY HOLDERS                        6

PART  II

      ITEM 5      MARKET FOR REGISTRANT'S COMMON EQUITY AND
                  RELATED STOCKHOLDER MATTERS                          6

      ITEM 6      SELECTED FINANCIAL DATA                              7

      ITEM 7      MANAGEMENT'S DISCUSSION AND ANALYSIS
                  OF FINANCIAL CONDITION AND RESULTS OF
                  OPERATIONS                                           7

      ITEM 7A     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
                  MARKET RISK                                         11

      ITEM 8      FINANCIAL STATEMENTS AND
                  SUPPLEMENTARY DATA                                  12

      ITEM 9      CHANGES IN AND DISAGREEMENTS WITH
                  ACCOUNTANTS ON ACCOUNTING AND
                  FINANCIAL DISCLOSURE                                32

      ITEM 9A     CONTROLS AND PROCEDURES                             32

PART  III

      ITEM 10     DIRECTORS AND EXECUTIVE OFFICERS OF
                  THE REGISTRANT                                      32

      ITEM 11     EXECUTIVE COMPENSATION                              32

      ITEM 12     SECURITY OWNERSHIP OF CERTAIN
                  BENEFICIAL OWNERS AND MANAGEMENT
                  AND RELATED STOCKHOLDER MATTERS                     33

      ITEM 13     CERTAIN RELATIONSHIPS AND RELATED
                  TRANSACTIONS                                        33

      ITEM 14     PRINCIPAL ACCOUNTANT FEES AND SERVICES              33


PART  IV


      ITEM 15     EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
                  AND REPORTS ON FORM 8-K                             34

                  SIGNATURES                                          36








                                     3

<PAGE>   4

PART  I

ITEM 1.  BUSINESS

Company Overview

First Choice Health Network, Incorporated ("the Company") is a physician
and hospital owned company offering preferred provider organization ("PPO"),
health benefits management services to large self-funded plan sponsors and
until year end 2003 has offered insured health plan products through a
subsidiary, First Choice Health Plan, Incorporated ("the Plan").

The Company was organized under the laws of the State of Washington in 1984 and
is  owned by 537 physicians all of whom own Class A common stock, seven
hospital systems who own Class B common stock and four additional hospital
participants.  The Company's web address is www.1stchoiceofwa.com.

The Company's operations have historically consisted of two business segments.
The parent company, First Choice Health Network (the "Network"), operates a PPO
rental network and the subsidiary company, First Choice Health Plan
(the "Plan"), operated as a health care service contractor that accepted
insurance risk. The Plan no longer provides insurance services as of January
1, 2004.

FORWARD-LOOKING STATEMENTS

This report includes forward-looking statements about the future operations of
the Company, including discussion of the effects of the Company's exit from the
insured health care business, the prospects for the Company's Health Benefits
Management("HBM") business, and the adequacy of the Company's reserves for
claims expenses and unreported claims. These forward-looking statements involve
certain risks and uncertainties that could cause actual results to differ
materially from those in the forward-looking statements. Such factors include
the Company's ability to attract and retain HBM customers, the cost of
maintaining technological and staff capabilities for health benefits
administration, and the risks associated with potential claim volatility and
adverse selection as a result of the reduced membership in the Plan due to the
Company's decision to exit the insured health care business. Because of
these uncertainties, actual future results, performance or achievements may be
materially different from the results, performance or achievements expressed or
implied by these forward-looking statements.

Discontinued Operations

As a result of the decision by the Plan's Board of Directors in 2002
authorizing management to exit the insured health care business by no later
than December 31, 2003, no business was renewed after January 2003 and the Plan
operations are in the process of being wound down in an orderly fashion.  As a
result of the exit, the Plan's insured membership declined from 28,715 at
December 31, 2002 to 4,400 in the month of December, 2003.  The Plan's
financial information is presented as a discontinued segment in the financial
statements.

As the Plan ceased to offer its commercial insurance products, a new business
strategy of offering health benefits administration services to self-funded
employers(health benefits management "HBM") is being implemented.  This
strategy allows the Company to take advantage of its extensive technological
and staff capabilities for health benefits management that were developed for
the commercial insurance business.  Development of this HBM has helped to
mitigate some of the administrative costs of exiting the commercial insurance
business by utilizing current infrastructure. HBM membership is 10,470 at
December 31, 2003.  As a result, the HBM has now replaced the discontinued
insurance business as a business segment for the Company.




                                                                          4

<PAGE>   5

PPO Business Segment

The Company's principal business since inception has been the development and
operation of a preferred provider network ("PPO") of hospitals, physicians and
ancillary service providers.  Currently, the PPO has approximately 21,700
professional providers and 110 hospitals serving approximately 1.1 million
employees and dependents through contracts with 125 payors including insurers,
third party administrators ("TPAs"), union trusts and employers.  PPO product
offerings include medical and utilization management services for certain PPO
clients and various specialty network services including a complementary and
alternative medicine PPO and Employee Assistance Program (EAP) product and
network services, both of which were new PPO product offerings in 2002.  The
geographic focus of the Company's PPO offerings is Washington State but
includes healthcare providers in Alaska, Montana and Idaho to serve employees
and dependents in these areas.

Revenue from PPO network services including utilization management services
takes the form of monthly access fees from participating payors and fees from
payers based on a percentage of the savings generated by PPO provider
contracts.  In addition, participating hospitals pay fees based on PPO claims
volumes in those hospitals.

HBM business segment

The HBM segment offers benefits management and administration services to
self-funded employers and insurance carriers. This strategy allows the Company
to take advantage of its extensive technological and staff capabilities for
health benefits administration that were developed for the commercial
insurance business.  With certain well defined exceptions, these self-funded
benefits administration services will not be offered to potential clients that
currently obtain such services from benefit administrators that access the
Company's PPO products.

PPO Business Segment Products

Products currently offered within the PPO business segment include:

(1) Access to the PPO or to subsets of the PPO (e.g. Hospital Only access)
(2) Medical management services including utilization management services (pre-
    certification, concurrent review, gap analysis, etc.), catastrophic case
    management, disease management, consumer decision support tools, etc.
(3) Employee Assistance Program provider network and services.
(4) Complementary and alternative medicine provider network.

Health Benefits Management Business Segment Products

(1) Health benefit administration for self-funded employers and insurance
    carriers.
(2) Flexible spending account and health reimbursement account administration.
(3) COBRA benefits administration.
(4) Medical management services including utilization management services (pre-
    certification, concurrent review, gap analysis, etc.), catastrophic case
    management, disease management, consumer decision support tools, etc.

Marketing and Sales

PPO products are marketed to payers including insurers, third party
administrators, union trusts, and employers through an internal sales force
that also works closely with the broker and consultant community.

HBM products are marketed to insurers and employers through an internal sales
force that also works closely with the broker and consultant community.




                                     5

<PAGE>   6

Competition

The PPO and HBM businesses operate in a highly competitive market.  The PPO
network competes with other managed health care companies primarily in terms of
provider contract reimbursement terms, credentialing quality, accuracy
and timeliness of provider maintenance, claim repricing, utilization management
and other services provided to payer clients as well as the price of accessing
the PPO.

The PPO offers excellent provider contract and service value to payer clients
compared to other independent PPO networks in Washington and the Northwest as
shown by the Company's market position as the largest independent PPO in
Washington.  The PPO product also competes well against the PPO networks of the
two dominant regional insurers in the Northwest.

The Company's Heath Benefits Management business competes with numerous
other insurance carriers and Third Party Administrators operating in
Washington, many of which are significantly larger and have greater financial
resources than the Company. Competition for HBM clients is based primarily on
price, HBM management operational performance and provider contract terms.

Government Regulation

The PPO and HBM are subject to significant regulation.  The HBM business and
the PPO are subject to standards regarding privacy and maintenance and
transmission of health information established under the Health Insurance
Portability and Accountability Act of 1996 ("HIPAA").  The Company believes it
is in compliance with these regulations.

Employees

As of December 31, 2003, the company had 141 employees.  None of the Company's
employees are unionized or subject to collective bargaining agreement.
Company management believes that its relationship with its employees is good.

Item 2.     PROPERTIES

Prior to June 2003, the Company leased and occupied two offices in Seattle,
Washington.  Both leases expired in the Summer of 2003.  The Company has
entered into a new five-year office lease agreement effective June 2003 that
has allowed the Company to consolidate its operations at one office at a
substantial reduction in lease costs.  The new facility is also located in
Seattle, Washington.

ITEM  3.     LEGAL PROCEEDINGS

In the normal course of business, the Company may encounter claims,
assessments, and litigation brought against the Company.  If and when these
situations arise, the Company assesses the situation and accrues for financial
exposure, if appropriate.  As of December 31, 2003, the Company is not aware
of any such material situations.

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

Not applicable

PART II

ITEM  5.     MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

There is no public trading market for any of the Company's equity securities.

As of December 31, 2003, there were 537 holders of the Company's Class A Common
Stock, seven holders of the Company's Class B Common Stock, three Hospital
Participants and a hospital holder of a redeemable equity participation.


                                     6

<PAGE>   7

Holders of each class of Common Stock are entitled to share ratably on a share-
for-share basis with respect to any dividends on such class of Common Stock,
when, as and if declared by the Board of Directors out of funds legally
available.

Pursuant to the Company's contracts with the Hospital Participants, if the
Company pays any dividends or other distributions with respect to the Class B
Common Stock, it must make an equivalent distribution to the Hospital
Participants. See Item 6 below for information regarding cash dividends paid in
December 2003. See "Liquidity and Capital Resources" in Item 7 below for a
discussion of anticipated future cash dividends.


ITEM  6.     SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
                                    2003         2002         2001         2000         1999
                                ------------  ------------  -----------  -----------  ----------
<S>                           <C>           <C>          <C>           <C>          <C>

Operating revenue,
 continuing and discontinued
  operations                   $  51,053,380 $ 93,034,185 $122,652,504 $139,144,059 $ 92,097,975
Net income from continuing
  operations after minority
  interest                         3,936,138    5,776,678    3,067,942    3,758,220    3,301,410
Net income(loss)                   4,690,921    1,924,891   (1,407,987)  (1,349,859)   1,660,238
Total assets                      25,695,039   28,802,641   31,217,479   32,658,089   30,899,535
Total liabilities                  6,508,654   13,869,499   18,649,453   20,083,110   16,626,642
Redeemable equity participation    2,520,000    2,385,443    1,991,850    1,617,000    1,260,000
Total Equity                      14,744,079   11,325,169    9,338,690   10,784,920   12,148,644
Net income from continuing
  operations after minority
  interest per common share            67.24        98.68        52.39        64.16        56.34
Net income(loss)
  per common share                     80.13        32.88       (24.04)      (23.04)       28.33
Dividends declared per common
  share, Class A                      187.62          -            -            -            -
Dividends declared on Class B
  shareholders and non-shareholder
  district hospitals with
  equivalent rights, per entity      100,000          -            -            -            -

</TABLE>

ITEM  7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS
OVERVIEW

The following table summarizes income from continuing operations, discontinued
operations and net income for 2001-2003:

(In millions)                                       2003      2002     2001
                                                    ----      ----     ----
Income from continuing operations                   $3.9       5.8      3.1
Income (loss) from discontinued operations            .8      (3.9)    (4.5)
Net income (loss)                                    4.7       1.9     (1.4)

The Company's income from continuing operations decreased by $1.8 million
from 2002 to 2003 due to the following:
(1) The change in business focus from the insured health plan to the new HBM
    business segment. The start-up HBM business experienced a net loss of
    $.6 million in 2003 compared to no activity in 2002.



                             7

<PAGE>   8

(2) As a result of the profitability of the discontinued insured health plan,
    minority interest expense increased by $.9 million from income of $.5
    million in 2002 to expense of $.4 million in 2003 (this represents 20% of
    the health plan legal entity's net income).
Income from continuing operations increased $2.7 million from 2001 to 2002 due
primarily to pricing and higher hospital fees received and operational
efficiency gains.  Consolidated net income has significantly increased by $2.8
million in 2003 to $4.7 million.  The increase in 2003 is primarily due to the
increased income from discontinued operations of $4.6 million offset by the
decrease in income from continuing operations previously noted. Consolidated
net income increased by $3.3 million from a loss of $1.4 million in 2001 to
$1.9 million income in 2002. This increase is primarily due to the increase in
income from continuing operations noted earlier.

Financial results for 2003 showed a significant improvement in the Company's
financial condition.  Shareholders' equity increased by $3.4 million from
$11.3 million in 2002 to $14.7 million in 2003.  The Company's current ratio
(current assets/current liabilities)improved from 1.7 in 2002 to 3.5 at year
end 2003. Generally, a higher current ratio indicates increased financial
strength.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEARS ENDED DECEMBER 31, 2002 AND 2001

The following table summarizes operating revenues for 2001-2003:

(in millions)                                2003      2002     2001
                                             ----      ----     ----
Network access fees                         $10.0       9.1      8.6
Hospital administrative fees                  9.0       9.6      7.7
Health benefit management fees                1.9        -        -
Other                                          .6        .2       .2
                                             ----     ----      ----
    Total Operating Revenues                 21.4      18.9     16.6

Operating revenue of continuing operations increased $2.5 million (13.5%)
from 2002 to 2003 and increased $2.3 million (13.9%) from 2001 to 2002.
The increase from 2002 to 2003 was primarily attributable to income from the
new health benefits management business segment with an operating revenue of
$1.9 million and income from additional services offered through the PPO
business segment in employee assistance programs and case management services
of $.4 million. Hospital administrative fees increased $1.9 million (24.2%)
from 2001 to 2002. This increase was primarily due to higher volume of services
provided by the hospitals and billed charge inflation at hospitals with
administrative fees based on charges.

The following table summarizes operating expenses for 2001-2003:

(in millions)                               2003      2002       2001
                                            ----      ----       ----
Payroll and related expenses                $8.2       5.9        6.0
Selling, general and administrative          6.3       4.6        3.7
Amortization                                  -         -         1.0
                                            ----      ----       ----
   Total Operating Expenses                 14.5      10.5       10.7

Payroll and related expenses increased $2.3 million (39%)from 2002 to 2003
while selling, general and administrative expenses increased $1.7 million (37%)
from 2002 to 2003. These increases are primarily due to a shift of $2.9 million
in expenses from the discontinued operations of the Plan to the HBM operations
as the Plan exits the insurance business. The remaining increase is due to
higher operating expenses for the PPO segment resulting from various
initiatives including obtaining Utilization Review Accreditation Commission
(URAC) accreditation for credentialing, implementation of a new proprietary PPO
information system and various provider initiatives. Selling, general and

                                     8

<PAGE>   9

administrative expenses increased $.9 million from 2001 to 2002. This increase
resulted from higher spending in several cost categories with the single
largest increase of $.4 million for advisory fees related to exploring options
for the disposition of the Health Plan. Amortization expense was $1.0 million
in 2001. This amount was due to the amortization of the intangible asset
related to a 1998 acquisition becoming fully amortized in November 2001.
Therefore, there was no such amortization in 2002 and 2003.

The following table summarizes interest, net and write-down of investment and
other:
(in millions)                               2003      2002       2001
                                            ----      ----       ----
Interest, net                               $ .2        .1          -
Write down of investment and other           (.3)      (.1)       (.9)

Interest, net results from interest income earned on investments and fluctuates
depending on interest rates and balances invested. Write-down of investment and
other expense in 2001 primarily represents the Company's write-down of its
investment in the Plan to the Plan's estimated net realizable value.

Discontinued Operations

The financial performance of discontinued operations improved by $4.6 million
in 2003 from a loss of $3.9 million in 2002 to income of $.8 million in 2003.
This primarily resulted from a 25 percent increase in per member per month
premium yields in 2003 vs. 2002, while per member per month health care costs
increased by 10 percent. Health care costs were favorably impacted by favorable
development of claims reserves of approximately $2 million. This resulted from
a reduction in the healthcare cost trend from the first half of 2002 that was
not fully evident at year end 2002.

Related Party Transactions

The Company's related party transactions consist of hospital administrative
fees from owner hospitals.

Inflation

Health care costs in the United States have increased more rapidly than the
national consumer price index in recent years, and that trend is expected to
continue.

The Company's operating results have not been significantly affected by general
inflation, and the Company does not anticipate that inflation will have a
significant impact on its operating results in the near term.

Market Risk

The Company offers its PPO and HBM products in a highly competitive
environment. The Company has numerous competitors, including for-profit and
not-for-profit HMOs, TPAs, preferred provider organizations ("PPOs") and
indemnity insurance carriers, some of which have substantially larger
enrollments and greater financial resources than the Company.  The Company's
ability to retain existing PPO clients and attract new PPO and HBM clients is
largely dependent on its ability to offer competitive provider contract value
and maintain a network of high quality, efficient, fully credentialed providers
who agree to accept competitive reimbursement rates.

LIQUIDITY AND CAPITAL RESOURCES

Since inception in 1984, the Company has financed its operations from equity
investments from over 870 physicians, from the seven hospitals constituting the
Company's Class B shareholders, non-equity capital contributions from four
additional hospitals pursuant to their respective participation agreements, and
funds from operations.


                                      9

<PAGE>   10

The Company's cash flow consists of operating, investing and financing cash
flows.  Operating cash flow is generated by operating income, depreciation and
fluctuations in various balance sheet accounts.  In the event of ongoing
negative operating cash flow, the Company's investment portfolio of marketable
securities is available to meet liquidity needs.  The Company does not
anticipate significant financing activities in 2004 other than as noted below.

As a result from the exit from the capital intensive health insurance business,
the Company paid a $1.2 million dividend to shareholders in 2003. This was the
first dividend in the Company's history. Based on expected consistently
positive cash flow generated from continuing operations, the Company expects to
pay dividends annually. The balance sheet presents all assets and liabilities
of the health plan legal entity as discontinued. During 2004 the Plan expects
to request regulatory approval to distribute as dividends a significant portion
of its assets. During 2005 the Company expects to request regulatory approval
to dissolve the Plan and distribute any remaining assets as dividends. The
Company expects to declare a special dividend to distribute its share of these
non-recurring cash flows to its shareholders in the year in which they are
received.

At December 31, 2003, the Company's continuing operations had cash and cash
equivalents of approximately $1.5 million as compared to approximately $2.3
million at December 31, 2002.  As the company generates cash flow from
continuing operations, significant amounts are being invested in investment
securities available for sale which increased by $2.4 million (51.4%) from
2002 to 2003. Investment securities consist of U.S. Government Agency
asset-backed and mortgage-backed adjustable rate securities and municipal
bonds that are marketable in the event additional cash is needed.

Following are explanations of significant balance sheet account fluctuations:
The decrease in service fees receivable from related parties and others of
$.6 million (31.4%) is due to the timing of cash receipts on outstanding
receivables. The increase in other current assets of $.3 million is due to new
receivables for the health benefits management business segment.  The increase
in accrued expenses of $.6 million (47.9%) is primarily attributable to a long
term incentive plan implemented in 2003 and employee health benefit programs.
The 2002 liability for federal income tax payable to subsidiary of $1.6 million
was satisfied by payments in 2003. The fluctuation in discontinued operations
balance sheet items primarily result from the exit of the insurance business
and is shown in detail in note 11, Discontinued Operations, to the Company's
financial statements included in Item 8 below.

On December 20, 1999, the Company executed an agreement with University of
Washington Academic Medical Center (UWMC) to become a participant in the
administration, operations and any incentives bestowed upon any shareholders
in the Company effective  January 1, 2000.  UWMC is not a shareholder or member
of the Company.  UWMC will participate in any incentive or reward program
established by the Company as if UWMC owned 5,800 shares of class B common
stock. Dividends, distributions, and liquidation of the Company are also
calculated as if UWMC owned 5,800 shares of class B stock.

If the Company performs certain actions that substantially change the
organization, the Company discontinues the health care facility services
contract with UWMC, or if total managed care enrollment falls below 500,000
member months, then UWMC can withdraw from the agreement, but no refunds are
given.  If the Company merges, is sold, or if the Company takes a material
action that proves detrimental to UWMC, then UWMC may redeem its interest
for the equivalent of the fair value of 5,800 shares of class B stock, less any
amounts still owed by UWMC.  The UWMC ownership interest is classified as
redeemable equity participation.







                                      10

<PAGE>   11

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

As a result of the decision to exit the insured health care business by
December 31, 2003, the Company's 80% ownership in the Plan was written down at
December 31, 2001 to the expected net realizable value, which is the Plan's
book value.  Management believes this measurement of the expected net
realizable value is still valid as of December 31, 2003.

The reserve for unpaid claims and claims adjustment expenses in discontinued
operations of the Plan represents reported and unreported claims which have
been incurred but have not been paid at the date of the financial statements.
The reserve for unreported claims is determined actuarially using prior
experience and the nature of current health insurance contracts and volume.

Included in the liability is an estimate of the future expenses necessary to
settle claims.  Due to the uncertainties inherent in the estimation process,
actual costs may differ from the estimated amounts in the near term, and these
differences may be significant. As a result of the decreasing membership in the
Plan, management has increased the level of conservatism in the estimate due to
increased risk associated with potential claim volatility resulting from a
lower membership base.

The development and selection of "critical" accounting estimates and the
associated disclosures in this discussion have been discussed by management
with the audit committee of the Board of Directors.

OFF-BALANCE SHEET ARRANGEMENTS

The Company has no off-balance sheet arrangements.

CONTRACTUAL OBLIGATIONS

Contractual obligations consist of operating lease arrangements and are payable
as follows:

Less than 1 Year     2 - 3 Years     4 - 5 Years     More than 5 Years
---------------      -----------     -----------     -----------------
   $785,260          $1,471,592      $1,028,535            0

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable as of December 31, 2003.


















                                    11

<PAGE>   12


ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

FIRST CHOICE HEALTH NETWORK, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . 13

Consolidated Balance Sheets as of December 31, 2003 and 2002 . . . . . . 14

Consolidated Statements of Income
      for the years ended December 31, 2003, 2002, and 2001. . . . . . . 16

Consolidated Statements of Shareholders' Equity
      for the years ended December 31, 2003, 2002, and 2001. . . . . . . 17

Consolidated Statements of Cash Flows
      for the years ended December 31, 2003, 2002, and 2001. . . . . . . 18

Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . 19













































                                     12


 <PAGE>   13

                         INDEPENDENT AUDITORS' REPORT


Shareholders and Board of Directors
First Choice Health Network, Inc.


We have audited the accompanying consolidated balance sheet of First Choice
Health Network, Inc., as of December 31, 2003 and 2002 and the related
consolidated statements of income, shareholders' equity, and cash flows for
the years ended December 31, 2003, 2002 and 2001. These financial
statements are the responsibility of First Choice Health Network, Inc.'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 of America. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of First Choice Health
Network, Inc., as of December 31, 2003 and 2002 and the results of its
operations and its cash flows for the years ended December 31, 2003, 2002
and 2001, in conformity with accounting principles generally accepted in the
United States of America.


Moss Adams LLP
February 2, 2004
Everett, Washington





















                                     13

<PAGE>   14

FIRST CHOICE HEALTH NETWORK, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2003 and 2002


<TABLE>
<CAPTION>
ASSETS                                                                 2003          2002
<S>                                                               <C>           <C>
CURRENT ASSETS:
Cash and cash equivalents                                          $ 1,459,881   $ 2,324,382
Investment securities available-for-sale, at fair value              7,132,880     4,712,815
Service fees receivable, net of allowance for doubtful
  accounts of $ 77,194 and $131,840                                    950,498     1,400,693
Service fees receivable from related parties                           354,114       502,000
Prepaid expenses                                                       442,072       508,900
Deferred tax assets                                                    164,066       181,711
Other current assets                                                   340,025        39,165
Receivable from subsidiary                                              51,650       102,273
Federal income tax benefit receivable from subsidiary                    6,677          -
Current assets of discontinued operations                           11,715,163    14,219,465
                                                                   -----------   -----------
                        Total current assets                        22,617,026    23,991,404

FURNITURE, EQUIPMENT, AND COMPUTER SOFTWARE:
Furniture and equipment                                              5,303,600     4,538,941
Computer software                                                    1,386,784     1,277,375

                                                                   -----------   -----------
                                                                     6,690,384     5,816,316
Less accumulated depreciation                                       (5,392,963)   (4,362,200)
                                                                   -----------   -----------
Furniture, equipment, and computer software, net                     1,297,421     1,454,116

DEFERRED TAX ASSETS                                                  1,140,249       945,214

OTHER ASSETS:
Investment in One Health Port                                          141,984       337,400
Other assets                                                           114,135          -
Assets of discontinued operations                                      384,224     2,074,507
                                                                   -----------   -----------
                        Total other assets                             640,343     2,411,907
                                                                   -----------   -----------
TOTAL ASSETS                                                       $25,695,039   $28,802,641
                                                                   ===========   ===========
</TABLE>

See notes to consolidated financial statements.














                                     14

<PAGE>   15

FIRST CHOICE HEALTH NETWORK, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2003 and 2002


<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY                                     2003        2002
<S>                                                                <C>           <C>
CURRENT LIABILITIES:
Accounts payable                                                  $   627,631    $   487,291
Accrued expenses                                                    1,986,532      1,342,978
Federal income tax payable                                             70,703        110,582
Federal income tax benefit due to subsidiary                             -         1,607,743
Current liabilities of discontinued operations                      3,823,788     10,320,905
                                                                  -----------    -----------
            Total current liabilities                               6,508,654     13,869,499

MINORITY INTEREST                                                   1,922,306      1,222,530

REDEEMABLE EQUITY PARTICIPATION                                     2,520,000      2,385,443

COMMITMENTS (Note 5)

SHAREHOLDERS' EQUITY:
Common stock:
Class A, par value $1 - Authorized, 30,000 shares;
  issued and outstanding, 537 and 538 shares                              537            538
Class B, par value $1 - Authorized, 70,000 shares;
  issued and outstanding, 40,600 shares                                40,600         40,600
Additional paid-in capital                                          4,305,356      4,306,221
Additional capital from affiliates                                  1,472,108      1,472,108
Retained earnings                                                   8,943,283      5,452,362
Accumulated other comprehensive income (loss), net of tax             (17,805)        53,340
                                                                  -----------    -----------
            Total shareholders' equity                             14,744,079     11,325,169
                                                                  -----------    -----------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                        $25,695,039    $28,802,641
                                                                  ===========    ===========
</TABLE>

See notes to consolidated financial statements.


















                                     15

<PAGE> 16

FIRST CHOICE HEALTH NETWORK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001


<TABLE>
<CAPTION>
                                                    2003          2002          2001
<S>                                            <C>           <C>           <C>
OPERATING REVENUE:
Network access fees                             $ 9,953,530   $ 9,092,039   $ 8,636,915
Hospital administrative fees                      4,936,034     5,067,915     4,628,533
Hospital administrative fees, related parties     4,032,114     4,523,692     3,094,633
Health Benefit Management fees                    1,908,246          -             -
Employee Assistance Program and Other               582,765       189,140       203,255
                                                -----------   -----------   -----------
            Total operating revenue              21,412,689    18,872,786    16,563,336

OPERATING EXPENSES:
Payroll and related expenses                      8,222,612     5,944,538     6,040,006
Selling, general, and administrative expenses     6,312,450     4,606,129     3,659,480
Amortization expense                                   -             -        1,026,175
                                                -----------   -----------   -----------
            Total operating expenses             14,535,062    10,550,667    10,725,661
                                                -----------   -----------   -----------
            Operating income                      6,877,627     8,322,119     5,837,675

OTHER INCOME (EXPENSE):
Interest, net                                       193,700       128,737        19,602
Write-down of investment and other                 (276,327)      (93,703)     (854,436)
                                                -----------   -----------   -----------
            Total other income (expense), net      ( 82,627)       35,034      (834,834)
                                                -----------   -----------   -----------
            Income from continuing operations
               before federal income taxes
               and minority interest              6,795,000     8,357,153     5,002,841

Provision for federal income taxes on
   continuing operations                          2,410,199     2,984,601     2,107,961
                                                -----------   -----------   -----------
Income from continuing operations before
   minority interest                              4,384,801     5,372,552     2,894,880

MINORITY INTEREST, net of tax                      (448,663)      404,126       173,062
                                                -----------   -----------   -----------
Income from continuing operations after
   minority interest                              3,936,138     5,776,678     3,067,942

Discontinued operations
   Income (loss) from discontinuation of
   First Choice Health Plan Insurance
   operations (net of applicable income tax
   expense (benefit) of $ 388,826,
   ($1,970,074) and ($2,065,462))                   754,783    (3,851,787)   (4,475,929)
                                               ------------  ------------  ------------
NET INCOME (LOSS)                               $ 4,690,921   $ 1,924,891   $(1,407,987)
                                                ===========   ===========   ===========
NET INCOME FROM CONTINUING OPERATIONS
    AFTER MINORITY INTEREST PER COMMON SHARE    $     67.24   $     98.68   $     52.39
                                                ===========   ===========   ===========
NET INCOME (LOSS) PER COMMON SHARE              $     80.13   $     32.88   $    (24.04)
                                                ===========   ===========   ===========
WEIGHTED AVERAGE SHARES OUTSTANDING                  58,538        58,538        58,565
                                                ===========   ===========   ===========
</TABLE>

See notes to consolidated financial statements.

                                          16


<PAGE>   17

FIRST CHOICE HEALTH NETWORK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
<TABLE>
<CAPTION>                                Common Stock                                Accumulated
                        Class A      Class B    Additional   Additional                Other          Total    Comprehensive
                                                 paid-in    capital from   Retained Comprehensive Shareholders'   Income
                      Shares  Amt  Shares   Amt  capital     affiliates    Earnings Income (Loss)     Equity      (Loss)
<S>                     <C>   <C>   <C>    <C>     <C>        <C>           <C>         <C>          <C>        <C>
BALANCE,
 December 31, 2000      572   $572  40,600 $40,600 $4,336,182 $1,472,108 $4,935,458     -0-      $10,784,920
Repurchase of Class
 A common stock and
 membership rights
 from physicians        (33)   (33)                   (29,601)                                       (29,634)
Unrealized loss on
 investments,net of tax                                                              $ (8,609)        (8,609)  $    (8,609)
Net loss                                                                 (1,407,987)              (1,407,987)   (1,407,987)
                       ----   ----  ------  ------ ---------- ---------- ----------  --------    -----------   -----------
BALANCE,                                                                                                       $(1,416,596)
 December 31, 2001      539    539  40,600  40,600  4,306,581  1,472,108  3,527,471    (8,609)     9,338,690   ===========

Repurchase of Class
 A common stock and
 membership rights
 from physicians         (1)    (1)                      (360)                                          (361)
Unrealized gain on
 investments, net of tax                                                               61,949         61,949   $    61,949
Net Income                                                                1,924,891                 ,924,891     1,924,891
                       ----   ----  ------  ------ ---------- ---------- ----------  --------    -----------   -----------
Balance,                                                                                                       $ 1,986,840
  December 31, 2002     538    538  40,600  40,600  4,306,221  1,472,108  5,452,362    53,340     11,325,169   ===========

Repurchase of Class
 A common stock and
 membership rights
 from physicians         (1)    (1)                      (865)                                          (866)
Dividends Paid                                                           (1,200,000)              (1,200,000)
Unrealized loss on
 investments, net of tax                                                              (71,145)       (71,145)  $   (71,145)
Net income                                                                4,690,921                4,690,921     4,690,921
                       ----   ----  ------ ------- ---------- ---------- ----------  --------    -----------   -----------
Balance,                                                                                                       $ 4,619,776
 December 31, 2003      537   $537  40,600 $40,600 $4,305,356 $1,472,108 $8,943,283  $(17,805)   $14,744,079   ===========
                       ====   ====  ====== ======= ========== ========== ==========  ========    ===========
</TABLE>
See notes to consolidated financial statements.
                                     17

<PAGE>   18

FIRST CHOICE HEALTH NETWORK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001

<TABLE>
<CAPTION>
                                                         2003          2002         2001
<S>                                                 <C>            <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income from continuing operations              $ 3,936,138   $ 5,776,678   $ 3,067,942
  Adjustments to reconcile net income to net
       cash from operating activities:
    Depreciation                                       1,030,763     1,083,314       818,428
    Amortization                                            -             -        1,026,175
    Deferred income taxes, net                          (177,390)       73,630       286,302
    Provision for doubtful accounts                      (54,646)     (288,657)     (229,528)
    Minority interest                                    709,456       (20,527)    1,064,424
    Changes in operating assets and liabilities:
      Service fees receivable                            652,727       465,990       855,237
      Due to subsidiary including tax accrual         (1,563,797)      741,406    (1,568,365)
      Prepaid expenses                                    66,828       258,501        71,914
      Other current assets                              (300,860)      (24,063)          388
      Other assets                                      (114,135)         -             -
      Accounts payable                                   140,340        35,516      (226,281)
      Accrued expenses                                   643,554       303,169       245,354
      Federal income tax accrual                         (39,879)      667,922           (66)
      Adjustment in value of investment in
        One Health Port                                  195,416          -             -
                                                     -----------   -----------   -----------
  Net cash provided by continuing operations           5,124,515     9,072,879     5,411,924

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment in One Health Port                   -         (337,400)         -
Purchase of investments available for sale            (8,990,862)   (6,364,075)     (624,333)
Principal paydowns and sales of investments
      available for sale                               6,538,370     2,306,647          -
Purchase of furniture, equipment, and computer
      software                                          (874,068)     (334,421)     (412,807)
                                                     -----------   -----------   -----------
  Net cash used by investing activities               (3,326,560)   (4,729,249)   (1,037,140)
                                                     -----------   -----------   -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Repurchase of Class A common stock and
      membership rights from physicians                     (866)         (361)      (29,634)
  Redeemable equity participation                        134,557       393,593       374,850
  Payment of note payable                                   -         (698,170)     (301,830)
  Dividends to shareholders                           (1,200,000)         -             -
                                                     -----------   -----------   -----------
  Net cash from financing activities                  (1,066,309)     (304,938)       43,386
                                                     -----------   -----------   -----------
CASH FLOWS TO DISCONTINUED OPERATIONS                 (1,596,147)   (3,335,044)   (2,878,383)
                                                     -----------   -----------   -----------
NET INCREASE (DECREASE) IN CASH AND
    CASH EQUIVALENTS                                    (864,501)      703,648     1,539,787
CASH AND CASH EQUIVALENTS, Beginning of year           2,324,382     1,620,734        80,947
                                                     -----------   -----------   -----------
CASH AND CASH EQUIVALENTS, End of year               $ 1,459,881   $ 2,324,382   $ 1,620,734
                                                     ===========   ===========   ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Cash paid (received) during the year for
    Federal income taxes                             $ 2,892,635   $  (303,633)  $      -
                                                     ===========   ===========   ===========
    Interest                                         $      -      $    32,294   $    84,540
                                                     ===========   ===========   ===========
</TABLE>
See notes to consolidated financial statements.
                                               18

 <PAGE>   19

FIRST CHOICE HEALTH NETWORK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 and 2001

NOTE 1:     DESCRIPTION OF BUSINESS AND SUMMARY
            OF SIGNIFICANT ACCOUNTING POLICIES

Description of business: First Choice Health Network, Inc. (the Company) was
incorporated under the laws of the state of Washington on September 28, 1984.
The Company was formed initially to organize a network of independent
participating physicians and hospitals to serve insurers, third party
administrators, union trusts and employers.  Subsequently the Company created
additional related PPO services including utilization management services and
an Employee Assistance Program (EAP).  In 2003 the Company initiated a program
for providing health benefit management services ("HBM" business) for self
funded employers and insurance carriers.  The Company's business is conducted
primarily in Washington, with some additional business located in Alaska,
Montana and Idaho.

The Company's majority owned subsidiary, First Choice Health Plan, Inc. (the
Plan), is a health care services contractor, which was formed on January 31,
1995, to offer fully insured health products in Washington state.  As a result
of the decision by the Plan's Board of Directors authorizing management to exit
the insured health care business, the Plan did not renew any business after
January 1, 2003.  The Plan's financial information for the Plan's insured
healthcare business is presented as a discontinued operation in the financial
statements. All financial statement presentations for prior years have been
restated accordingly.

Principles of consolidation:  The consolidated financial statements include the
accounts of the Company and the Plan, with the Plan's insured healthcare
business being presented as a discontinued operation.  Due to this
presentation, certain intercompany accounts are included in the financial
statements.

New accounting pronouncements: In June 2002, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 146,
Accounting for Costs Associated with Exit or Disposal Activities.  This
Statement requires that a liability for costs associated with an exit or
disposal activity be recognized when the liability is incurred, and be measured
at fair value and adjusted for changes in estimated cash flows.  The
discontinuance of the Plan's operation is accounted for pursuant to SFAS
No. 60, Accounting and Reporting by Insurance Enterprises.  This statement
requires recording a liability for all costs expected to be incurred in
connection with the settlement of unpaid claims to be accrued when the related
liability for unpaid claims is incurred.

In January 2003, the FASB issued Interpretation No. 46, consolidation of
Variable Interest Entities (VIE).  The Company does not have any VIEs and
accordingly the implementation of the Interpretation did not result in an
impact on its financial position or results of operations.

In May 2003, the FASB issued Statement No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity.
Adoption of this Statement did not result in an impact on the Company's
 financial position or results of operations.

In November 2003, the Emerging Issues Task Force (EITF) reached a consensus
that certain quantitative and qualitative disclosures should be required for
debt and marketable equity securities classified as available-for-sale or
held-to-maturity under FASB Statements No. 115 and 124, that are impaired at
the balance sheet date but for which an other-than-temporary impairment has
not been recognized. This EITF consensus is effective for fiscal years ending
after December 15, 2003. Accordingly, the Company has adopted this statement as
of December 31, 2003 and the result did not have an impact on the Company's
financial position or results of operations.

                                     19

<PAGE>   20
Cash equivalents:  The Company considers all investments purchased with an
original maturity of three months or less to be cash equivalents.  At
December 31, 2003 and 2002, cash and cash equivalents consisted of cash
management funds of $1,459,881 and $2,324,382, respectively.

Investment securities:  The Company owns U.S. Government Agency mortgage-backed
adjustable rate securities and municipal bonds that are classified as available
for sale.  Investment securities categorized as available for sale are
generally held for investment purposes (to maturity), although unanticipated
future events may result in the sale of some securities.  Available for sale
securities are recorded at fair value, with the net unrealized gain or loss
included in comprehensive income, net of the related tax effect.  Realized
gains or losses on dispositions are based on the net proceeds and the adjusted
carrying amount of securities sold, using the specific identification method.

Declines in the fair value of individual available for sale securities below
their cost that are other than temporary are recognized by write-downs of the
individual securities to their fair value. Such write-downs would be included
in earnings as realized losses. Premiums and discounts are recognized in
interest income using the interest method over the period to call or maturity.

Service fees receivable:  Service fees receivable consists primarily of
outstanding invoices.

Allowance for doubtful accounts:  The Company performs periodic credit
evaluations of its customers and maintains an allowance for potential credit
losses related to receivables.

Furniture, equipment and computer software:  Furniture, equipment and
computer software are recorded at cost.  Depreciation is
computed using the straight-line method over the lesser of the estimated useful
lives of the assets or lease term ranging from three to five years.

Operating revenue:  Operating revenue consists primarily of network access
fees, hospital administrative fees, health benefit management fees and employee
assistance program and utilization management fees. Network access fees are
recognized as earned during the period of coverage and are recorded at
contractual rates.  Hospital administrative fees are recognized as earned in
the period hospital claims are incurred by a subscriber and are recorded at a
contractual amount or percentage of the claims.  Health benefit management fees
and EAP and utilization management fees are recognized in the month services
are provided.

Income taxes:  Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of assets and liabilities and their respective
tax bases using the liability method. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to reverse.  The effect
on the deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.  A
valuation allowance is established to the extent that it is more likely than
not that deferred tax assets will not be realized.

Valuation of long-lived assets:  Using its best estimates, based on reasonable
and supportable assumptions and projections, the Company reviews its long-
lived assets for impairment whenever events or changes in circumstances have
indicated that the carrying amounts of its assets might not be recoverable.  At
December 31, 2003 the investment in One Health Port was written down by
$195,416 to reflect current equity ownership.  In 2002 no write-downs were
required.

Write-down of investment in the Plan:  As a result of the decision to exit the
insured health care business by December 2003, the Company's 80% ownership
interest in the Plan was written down to the expected net realizable value,
which is the Plan's book value at December 31, 2001.  The write-down of
$1,237,486 is included in Other Expense.  Further write-downs of $260,793
and $383,600 were recorded in 2003 and 2002, respectively, representing 20%
of the capital contributions to the Plan in those years.
                                     20

<PAGE>   21

Earnings per share:  Net income per common share (Class A and B) is computed by
dividing income available to common shareholders by the weighted average number
of common shares outstanding during the period, including 41,138, 41,138 and
41,165 common shares and 17,400 shares applicable to affiliate common share
equivalents (Note 2) in 2003, 2002 and 2001, respectively.  Shares issued and
reacquired during each period were weighted for the portion of the period that
they were outstanding.  There are no dilutive securities.

Use of estimates:  Preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the United States
of America (GAAP) requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure 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.

Material estimates that are particularly susceptible to significant change
relate to the determination of unpaid claims, claims adjustment expenses, the
write-down of the investment in the Plan, the allowance for service fees
receivable and deferred income taxes.

Reclassifications:  Certain amounts in the 2002 and 2001 financial statements
have been reclassified to conform with the 2003 presentation.

Discontinued Operations:  As a result of the decision by the Plan's Board of
Directors authorizing management to exit the insured health care business, the
Plan did not renew any business after January 1, 2003.  The financial
information for the Plan's insured healthcare business is presented as a
discontinued operation in the financial statements.  All financial statement
presentations for the prior years have been restated accordingly.

NOTE 2:     SHAREHOLDERS' EQUITY

Ownership of stock:  Class A voting common stock may be held solely by
physicians licensed in the state of Washington who contract with the Company
to provide health care services and who hold active, associate or provisional
medical staff privileges at one or more of the hospitals that contract with
the Company to provide health care services.  Class B voting common stock may
be held by hospitals in the state of Washington that contract with the Company
to provide health care services.

Voting rights:  Holders of each outstanding share of Class A or Class B
common stock are entitled to one vote on each matter submitted to a vote at
meetings of shareholders, and each class of common stock votes as a separate
class.

Transfer of stock:  Shareholders may only transfer their stock in the Company
to the Company for repurchase.  The repurchase price is established by the
Board of Directors each fiscal year as set forth in the bylaws.  Class A shares
were repurchased at $866, $752 and $898 per share during 2003, 2002 and 2001,
respectively.

Dividends:  The Board of Directors may declare and pay dividends on one or
more classes of common stock at such times and in such amounts as it
designates, but in no event may dividends be paid while there is an outstanding
obligation to repurchase shares.  Dividends are allocated among shareholders of
each class of stock according to the number of shares outstanding to each Class
A or Class B shareholder.  Any dividends paid to the Class B shareholders must
be shared with the non-shareholders that have rights equivalent to those of the
other shareholders.  In 2003 the Company paid a dividend totaling $1.2 million
to Class A shareholders of $187.62 per share and $100,000 to each Class B
shareholder and non-shareholder district hospital that has equivalent rights to
shareholders.




                                     21
<PAGE>   22

Liquidation rights:  Upon liquidation or dissolution, the Board of Directors,
at its discretion, will allocate the value of assets among the classes of its
outstanding stock in proportion to the capital contributions of shareholders of
each class.  For these purposes, the contributions by the non-shareholder
district hospitals that have rights equivalent to those of the Class B
shareholders and the membership fees paid by Class A shareholders are
considered capital contributions.  The allocation to Class A shareholders will
be shared among all Class A shareholders in accordance with the number of
shares outstanding to each Class A shareholder.  The allocation of the Class B
shareholders must be shared with the non-shareholder hospitals that have rights
equivalent to those of Class B shareholders.

Paid-in capital from affiliates:  District hospitals are not shareholders of
the Company, but have contractual agreements with the Company that provide for
certain rights and obligations equivalent, but not identical, to those of
Class B shareholders, including liquidation and dividend rights.  The capital
contributions of the non-shareholders are recorded as paid-in capital from
affiliates.  These contractual agreements are considered to be common share
equivalents for purposes of calculating net income per common share.

NOTE 3:     REDEEMABLE EQUITY PARTICIPATION

On December 20, 1999, the Company executed a participation agreement with
the University of Washington Academic Medical Center (UWMC) to become a
participant in the administration, operations, and any incentives bestowed upon
any shareholders in the Company effective January 1, 2000.

UWMC agreed to pay a fee of $2,520,000, $1,260,000 payable upon execution of
the agreement and the remaining $1,260,000 payable in three equal annual
payments of $420,000, consisting of principal and interest at 5%.  The final
payment in 2003 was adjusted for outstanding principal and interest.

UWMC did not become a shareholder or a member of the Company.  UWMC
will participate in any incentive or reward program established by the Company
as if UWMC owned 5,800 shares of Class B common stock.  Dividends,
distributions and liquidation of the Company are also determined as if UWMC
owned 5,800 shares of Class B common stock.

If the Company performs certain activities that substantially change the
organization, the Company discontinues the health care facility services
contract with UWMC, or if total managed care enrollment falls below 500,000
member months, then UWMC can withdraw from the agreement, but no refunds will
be given.  If the Company merges, is sold, or if the Company takes a material
action that proves detrimental to UWMC, then UWMC may redeem its interest for
the equivalent of the fair value of 5,800 Class B common shares of Company
stock, less any amounts still owed by UWMC.  Since redemption, under certain
terms, is outside the control of the Company, the amounts received are recorded
as a redeemable equity participation.

NOTE 4:     FEDERAL INCOME TAXES

Federal income taxes consist of the following components:
<TABLE>
<CAPTION>
                                      2003          2002         2001
<S>                              <C>           <C>           <C>
Current                          $ 2,232,809   $ 3,058,231   $ 2,393,993
Deferred                             177,390       (73,630)     (286,302)
                                 -----------   -----------   -----------
                                 $ 2,410,199   $ 2,984,601   $ 2,107,691
                                 ===========   ===========   ===========
</TABLE>





                                     22

<PAGE>   23

Federal income taxes differ from the amount computed by applying the expected
U.S. corporate income tax rate to income before federal income taxes for the
years ended December 31 as follows:

<TABLE>
<CAPITION>
                                      2003                   2002                 2001
                                 Amount   Percent    Amount   Percent    Amount   Percent
<S>                           <C>          <C>     <C>         <C>     <C>        <C>
Computed expected tax rate     $2,310,300   34.0   $2,841,432   34.0   $1,700,966   34.0
Tax effect of permanent
  differences:
    Write-down of investment
      in subsidiary                88,670    1.3      130,424    1.6      420,745    8.4
    Other                          11,229     .2       12,745     .1      (13,750)   (.3)
                               ---------    ----   ----------   ----   ----------   ----
                               $2,410,199   35.5   $2,984,601   35.7   $2,107,961   42.1
                               ==========   ====   ==========   ====   ==========   ====
</TABLE>


The deferred tax assets and liabilities resulting from the tax effects of
temporary differences at December 31 are presented below:

<TABLE>
<CAPTION>
                                                        2003          2002
<S>                                                 <C>           <C>
Deferred tax assets:
  Net operating loss                                $2,216,807    $2,216,807
  Reduction of shareholders' equity                    213,724       213,724
  Allowance for doubtful accounts                       26,246        53,997
  Depreciation and amortization                        790,086       731,490
  Vacation                                             137,819       127,714
  Other                                                136,440          -
                                                    ----------    ----------

  Gross deferred tax assets                          3,521,122     3,343,732
  Valuation allowance                               (2,216,807)   (2,216,807)
                                                    ----------    ----------
    Net deferred tax assets                          1,304,315     1,126,925
                                                    ==========    ==========

Current portion of deferred tax assets              $  164,066    $  181,711
Long-term portion of deferred tax assets             1,140,249       945,214
                                                    ----------    ----------

Total deferred tax assets                           $1,304,315    $1,126,925
                                                    ==========    ==========
</TABLE>

















                                     23

<PAGE>   24

A valuation allowance was established in 1997 for the tax benefit of the 1997
net operating losses (NOLs) of the Plan which is being reported as a
discontinued operation.  The Company filed a separate federal income tax
return for the final six months of 1997 and the first three weeks of 1998,
and the realization of the tax benefit is unlikely.  The allowance also
provides for NOLs acquired in acquisition of a business in 1997.  The
following schedule represents the amounts of the Plan's NOLs and their
expiration date:

<TABLE>
     <S>                                            <C>
     2007                                         $   150,754
     2008                                              53,781
     2009                                              20,754
     2010                                           1,584,667
     2011                                           2,075,894
     2012                                           2,353,449
     2018                                             280,723
                                                  -----------
     Total net operating losses                     6,520,022
     Valuation Allowance                           (6,520,022)
                                                   ----------
                                                  $     -
                                                  ===========
</TABLE>
Because the operations of the Plan is being discontinued, future income will
not be available to utilize the NOLs. Upon the ultimate liquidation and
dissolution of the Plan, these NOLs may be potentially utilized by the Company.
Because the timing and ultimate realization of these NOLs is uncertain, they
are fully reserved.

NOTE 5:     COMMITMENTS

Leases:  The Company leases its office facilities and some office equipment
under operating leases expiring through 2008.  The leases provide for monthly
minimum rent payments, and some include renewal options for an additional
five years.

Rental expense charged to operations under the operating leases for the years
ended December 31, 2003, 2002 and 2001 were $834,564, $928,093 and $923,239,
respectively.

Future minimum lease payments under operating leases for the years ending
December 31 are as follows:

<TABLE>

     <S>                                            <C>
     2004                                           $  785,260
     2005                                              757,192
     2006                                              714,400
     2007                                              687,663
     2008                                              340,872
                                                    ----------
                                                    $3,285,387
                                                    ==========
</TABLE>











                                    24

<PAGE?   25

NOTE 6:     REPORTABLE OPERATING SEGMENTS

Factors management used to identify the enterprise's reportable segments:  The
Company has two reportable segments representing 100% of it's revenue.  Each
segment requires distinct tracking capabilities in the areas of revenues and
expenses.

As a result of the exit from the commercial insurance market, the segment
reported as of December 31, 2002 and 2001 as the Plan, which offered a variety
of fully insured health insurance plans to employer groups, is being reported
as a discontinued operation and will no longer be included as an operating
segment. Disclosures for prior years have been restated accordingly.

Description of the types of products and services from which each reportable
segment derives its revenue:  The Network operations have two primary products
which have been aggregated into one reportable segment:  network access fees
and hospital administrative fees.  Network access fees arise from the rental of
the Company's large PPO and other network products while hospital
administrative fees arise from charges to the network hospitals based on claims
incurred by members or fixed monthly contractual payments.  The other
reportable segment, Health Benefits Management (HBM), is the outcome of the new
business strategy of offering benefits management and administration services
to employers who are self-funding their company health benefit plans.  This
segment offers management and administration services for health benefit plans,
flexible spending accounts, health reimbursement accounts and COBRA benefits.

Measurement of segment profit or loss and segment assets: The accounting
policies of the segments are the same as those described in the summary of
significant accounting policies.  The Company evaluates performance based on
profit and loss from operations before income taxes not including nonrecurring
gains and losses.





































                                     25

<PAGE>   26

Information about profit or loss and assets of reportable segments:

<TABLE>
<CAPTION>
                                                First Choice     Health Benefits
                                               Health Network       Management      Total
<S>                                            <C>              <C>              <C>
2003:
  Revenues from external customers              $ 19,504,443     $  1,908,246     $ 21,412,689
  Intersegment revenue                                74,413          (74,413)            -
  Interest revenue                                   193,700             -             193,700
  Depreciation expense                               851,670          179,093        1,030,763
  Income tax expense (benefit)                     2,740,230         (330,031)       2,410,199
  Expenditures on furniture, equipment
    and computer software                            874,068             -             874,068
  Segment profit (loss)                            5,025,449         (640,648)       4,384,801
  Minority interest                                                                   (448,663)
  Income from discontinued operations                                                  754,783
  Consolidated net income                                                            4,690,921
  Assets of reportable segments                   13,491,308          104,344       13,595,652
  Liabilities of reportable segments               2,684,866             -           2,684,866

2002:
  Revenues from external customers              $ 18,872,786     $       -        $ 18,872,786
  Intersegment revenue                                28,125          (28,125)            -
  Interest revenue                                   128,737             -             128,737
  Depreciation expense                             1,083,314             -           1,083,314
  Income tax expense (benefit)                     2,989,081          ( 4,480)       2,984,601
  Expenditures on furniture, equipment
    and computer software                            334,421             -             334,421
  Segment profit (loss)                            5,381,248          ( 8,696)       5,372,552
  Minority interest                                                                    404,126
  Loss from discontinued operations                                                 (3,851,787)
  Consolidated net income                                                            1,924,891
  Assets of reportable segments                   12,508,669             -          12,508,669
  Liabilities of reportable segments               3,548,594             -           3,548,594

2001:
  Revenues from external customers              $ 16,563,336     $       -        $ 16,563,336
  Intersegment revenue                                  -                -                -
  Interest revenue                                    19,602             -              19,602
  Depreciation/amortization expense                1,844,603             -           1,844,603
  Income tax expense                               2,107,961             -           2,107,961
  Expenditures on furniture, equipment
    and computer software                            412,807             -             412,807
  Segment profit                                   2,894,880             -           2,894,880
  Minority interest                                                                    173,062
  Loss from discontinued operations                                                 (4,475,929)
  Consolidated net loss                                                             (1,407,987)
  Assets of reportable segments                    9,090,106             -           9,090,106
  Liabilities of reportable segments               2,975,528             -           2,975,528

                                                    2003             2002             2001
Revenues:
  Total revenues from reportable segments and
      discontinued operations                   $ 51,053,380     $ 93,034,185     $122,652,504
                                                ============     ============     ============
Profit or loss:
  Total profit or (loss) for reportable
    segments and discontinued operations        $  5,139,584     $  1,520,765     $ (1,581,049)
  Adjustment for minority interest in
    consolidated statements                         (448,663)         404,126          173,062
                                                ------------     ------------     ------------
          Consolidated net income (loss)        $  4,690,921     $  1,924,891     $ (1,407,987)
                                                ============     ============     ============
</TABLE>


                                     26

<PAGE>   27

<TABLE>
<CAPTION>
                                                      2003            2002            2001
  <S>                                           <C>              <C>              <C>
  Assets:
  Total assets for reportable segments          $ 13,595,652     $ 12,508,669     $  9,090,106
  Assets of discontinued operations               12,099,387       16,293,972       22,127,373
                                                ------------     ------------     ------------
         Consolidated total assets              $ 25,695,039     $ 28,802,641     $ 31,217,479
                                                ============     ============     ============

Liabilities:
  Total liabilities for reportable segments     $  2,684,866     $  3,548,594     $  2,975,531
  Liabilities of discontinued operations           3,823,788       10,320,905       15,673,922
                                                ------------     ------------     ------------
         Consolidated total liabilities         $  6,508,654     $ 13,869,499     $ 18,649,453
                                                ============     ============     ============
</TABLE>

Substantially all of the revenues from external customers are derived from
within the state of Washington.

NOTE 7:     FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of cash and cash equivalents, short-term investments,
service fees receivable, and accounts payable approximates fair value because
of the short maturity of these instruments.

NOTE 8:  INVESTMENT SECURITIES AVAILABLE FOR SALE

Investment securities available for sale consist of the following:

<TABLE>
<CAPTION>
                                                 Gross        Gross        Gross
                                   Amortized   Unrealized   Unrealized   Unrealized
                                     Cost        Gains        Losses       Losses
                                                             Less Than    More Than
                                                             12 Months    12 Months  Fair Value
                                 ---------------------------------------------------------------
<S>                             <C>           <C>           <C>         <C>         <C>
December 31, 2003
   Mortgage-backed
   adjustable rate securities   $  1,098,214   $  4,262     $( 4,365)     $ (782)   $ 1,097,329
   Municipal bonds                 6,043,750      2,260      (10,459)         -       6,035,551
                                 -----------   --------     ---------     -------   -----------
                                $  7,141,964   $  6,522     $(14,824)     $ (782)   $ 7,132,880
                                ============   ========     =========     =======   ===========
December 31, 2002
   Government-backed
   adjustable rate securities   $  1,478,103   $ 10,369     $( 1,550)     $   -     $ 1,486,922
   Mortgage-backed
   adjustable rate securities      3,217,244      9,720      ( 1,071)     $   -       3,225,893
                                 -----------   --------     --------      -------   -----------
                                $  4,695,347   $ 20,089     $( 2,621)     $   -     $ 4,712,815
                                ============   ========     =========     =======   ===========
</TABLE>

Certain investment securities shown above currently have fair values less than
amortized cost and therefore contain unrealized losses. The Company has
evaluated these securities and has determined that the decline in value is
temporary and is related to the change in market interest rates since purchase
The decline in value is not related to any company or industry specific event.
At December 31, 2003, there are approximately 12 investment securities with
unrealized losses. The Company anticipates full recovery of amortized cost with
respect to these securities at maturity or sooner in the event of a more
favorable market interest rate environment.

                                      27

<PAGE>   28

Contractual maturities of investment securities as of December 31, 2003 are
shown below.  Expected maturities will differ from contractual maturities
because issuers may have the right to call or prepay obligations with or
without prepayment penalties.

<TABLE>
<CAPTION>
                                   Available for Sale
                              Amortized             Fair
      Maturity                  Costs               Value
  -----------------          -----------        -----------
  <S>                       <C>                 <C>
  One to ten years          $  1,500,111        $ 1,497,350
  Over ten years               5,641,853          5,635,530
                             -----------        -----------
                             $ 7,141,964        $ 7,132,880
                             ===========        ===========
</TABLE>

Proceeds from sales and maturities of investment securities in 2003
and 2002 were $6,538,370 and $2,306,647, respectively. Sales of investment
securities resulted in gross gains of $8,949 in 2003 and gross losses of
$54,207 in 2003 and $566 in 2002.


NOTE 9:     RETIREMENT PLAN

The Company has a qualified 401(k) Employee Savings and Profit Sharing Plan
covering all full-time employees.  Under the plan, employees can defer up to
the maximum established by the Internal Revenue Service.  The Company matches
50% of each employee's contribution, up to 6% of the employee's eligible
salary.  Employees are fully vested in employee contributions and vest over
two years for employer contributions.  The Company also has the option to make
an additional profit sharing contribution to the plan.  Employer contributions
to the plan for the years ended December 31, 2003 and 2002, amounted to
$151,173 and $139,691, respectively.

The Company also has a non-qualified contribution retirement program covering
executive management employees.  Participants must have been employed by the
Company for at least one year and hold a position approved by the President and
Board of Directors as having a significant corporate-wide impact on
accomplishing the Company's strategic goals and objectives.  Under this
program, the Company funds the deferred benefits through participant accounts
based upon the  percentages of the individual participant's base salary
approved by the Board of Directors.  Deferred benefits of the trust, which have
been included in accrued expenses, were $114,135 at December 31, 2003.  The
expenses in relation to the program were $97,234 for the year ended December
31, 2003.  The market value of the trust assets was $114,135 at December 31,
2003.  Realized and unrealized gains and losses on the assets accrue to the
individual participants.

NOTE 10:     NOTE PAYABLE

The Company's note payable at December 31, 2001 in the amount of $698,170
bearing interest at 9.86% was fully paid in 2002.

NOTE 11 DISCONTINUED OPERATIONS

As the Plan's business model shifted from capitated contracts to fee for
service contract arrangements over the past three (3) years, management
and the Board of Directors have reevaluated the strategic importance of the
Plan.  As a result, the Plan's existing commercial insured business is being
wound down in an orderly manner with the non-renewal of all commercial
business during 2003 and the run-out of outstanding claim liabilities through
2004.

                                     28

<PAGE>   29

At the balance sheet date the following assets included in the consolidated
balance sheet apply to the discontinued operations of the Plan:

<TABLE>
<CAPTION>
                                                                 December 31,
                                                              2003               2002
             Assets
<S>                                                     <C>                  <C>
Cash and cash equivalents                               $  2,687,652         $    501,078
Investment securities available for sale, at fair value    8,020,730            9,094,340
Premiums receivable, net of allowance for doubtful
  accounts of $17,916 and $77,768                            898,489            2,642,137
Prepaid expenses and other receivables                        72,026              215,411
Deferred tax assets                                           36,266              158,756
Federal income tax benefit receivable from parent               -               1,607,743
Restricted indemnity cash and investments                    384,224            2,074,507
                                                         -----------          -----------
            Total assets                                $ 12,099,387         $ 16,293,972
                                                        ============         ============

            Liabilities
<S>                                                     <C>                <C>
Accrued expenses                                        $    595,351         $    592,489
Reserve for unpaid loss and loss adjustment expenses       3,069,224            8,637,313
Provider settlements payable                                  83,787              225,630
Unearned premiums                                             17,099              763,200
Federal income tax expense payable to parent                   6,677                 -
Amount due to parent                                          51,650              102,273
                                                         -----------          -----------
            Total liabilities                           $  3,823,788         $ 10,320,905
                                                        ============         ============
</TABLE>

The following amounts representing revenue and income and loss from
discontinued operations are included in the consolidated statement of income:

<TABLE>
<CAPTION>
                                                    2003          2002          2001
<S>                                            <C>           <C>           <C>
Operating revenue                              $ 29,640,691  $ 74,161,399  $106,089,168
Income (loss) on discontinued operations
  before federal income tax                       1,143,609    (5,821,861)   (6,541,391)
Income (loss) on discontinued operations
  after federal income tax                          754,783    (3,851,787)   (4,475,929)
Net income (loss) from discontinued
  operations per common share                         12.89        (65.80)       (76.43)


</TABLE>
















                                     29

<PAGE>   30

 NOTE 12:     UNAUDITED QUARTERLY FINANCIAL DATA - CONDENSED CONSOLIDATED
              STATEMENT OF INCOME

<TABLE>
<CAPTION>
                                             Quarter      Quarter      Quarter      Quarter
                                            12/31/2003   09/30/2003   06/30/2003   03/31/2003
                                            ----------   ----------   ----------   ----------
<S>                                     <C>           <C>           <C>           <C>
OPERATING REVENUE
  Network access fees                     $ 2,511,915   $ 2,527,073   $ 2,508,243   $ 2,406,299
  Hospital administrative fees              1,244,569     1,235,692     1,159,794     1,295,979
  Hospital administrative fees,
    related parties                         1,076,095       980,097       991,955       983,967
  Health Benefit Management fees              518,730       503,313       467,914       418,289
  Employee assistance program and other       185,820       163,917       129,155       103,873
                                          -----------   -----------   -----------   -----------
     Total operating revenue                5,537,129     5,410,092     5,257,061     5,208,407
                                          -----------   -----------   -----------   -----------

OPERATING EXPENSES
  Payroll and related expenses              2,177,048     2,113,680     2,040,929     1,890,955
  Selling, general and
    administrative expenses                 1,750,627     1,633,585     1,499,520     1,428,718
                                          -----------   -----------   -----------   -----------
     Total operating expenses               3,927,675     3,747,265     3,540,449     3,319,673
                                          -----------   -----------   -----------   -----------
     Operating income                       1,609,454     1,662,827     1,716,612     1,888,734

OTHER INCOME (EXPENSE)
  Interest, net                                59,154        39,380        40,615        54,551
  Write-down of investment
    and other                                (393,614)       42,179        15,064        60,044
                                          -----------   -----------   -----------   -----------
     Total other income
       (expense), net                        (334,460)       81,559        55,679       114,595
                                          -----------   -----------   -----------   -----------
  Income from continuing operations
    before federal income taxes and
    minority interest                       1,274,994     1,744,386     1,772,291     2,003,329
  Provision for federal income taxes
    on continuing operations                  514,309       594,864       618,024       683,002
                                          -----------   -----------   -----------   -----------
  Income from continuing operations
    before minority interest                  760,685     1,149,522     1,154,267     1,320,327
MINORITY INTEREST, net of tax                 (85,120)     (122,728)     (181,275)      (59,540)
                                          -----------   -----------   -----------   -----------
  Income from continuing operations
    after minority interest                   675,565     1,026,794       972,992     1,260,787
DISCONTINUED OPERATIONS
  Income (loss) from discontinuation
    of First Choice Health Plan
    operations (net of applicable
    income tax expense (benefit) of
    $136,985, $82,657, $265,486
    and ($ 96,302))                           265,914       160,453       513,713      (185,297)
                                          -----------   -----------   -----------   -----------
NET INCOME                                $   941,479   $ 1,187,247   $ 1,486,705   $ 1,075,490
                                          ===========   ===========   ===========   ===========

NET INCOME PER COMMON SHARE               $     16.08   $     20.28   $     25.40   $     18.37
                                          ===========   ===========   ===========   ===========

WEIGHTED AVERAGE SHARES
  OUTSTANDING                                 58,537        58,538        58,538        58,538
                                          ===========   ===========   ===========   ===========
</TABLE>
                                     30

<PAGE>   31

<TABLE>
<CAPTION>
                                             Quarter      Quarter      Quarter      Quarter
                                            12/31/2002   09/30/2002   06/30/2002   03/31/2002
                                            ----------   ----------   ----------   ----------
<S>                                       <C>            <C>          <C>         <C>
OPERATING REVENUE
  Network access fees                     $ 2,385,083   $ 2,361,009   $ 2,303,410  $ 2,042,537
  Hospital administrative fees              1,309,631     1,273,188     1,276,551    1,208,545
  Hospital administrative fees,
    related parties                         1,127,050     1,130,497     1,205,289    1,060,856
  Employee assistance program and other        47,325        41,372        62,563       37,880
                                          -----------   -----------   -----------  -----------
     Total operating revenue                4,869,089     4,806,066     4,847,813    4,349,818
                                          -----------   -----------   -----------  -----------

OPERATING EXPENSES
  Payroll and related expenses              1,386,003     1,468,226     1,587,873    1,502,436
  Selling, general and
    administrative expenses                 1,189,623     1,164,326     1,226,742    1,025,438
                                          -----------   -----------   -----------  -----------
     Total operating expenses               2,575,626     2,632,552     2,814,615    2,527,874
                                          -----------   -----------   -----------  -----------
     Operating income                       2,293,463     2,173,514     2,033,198    1,821,944

OTHER INCOME (EXPENSE)
  Interest, net                                52,504        12,356        52,134       11,743
  Write-down of investment
    and other                                  65,082      (305,214)       68,519       77,910
                                          -----------   -----------   -----------  -----------
     Total other income
       (expense), net                         117,586      (292,858)      120,653       89,653
                                          -----------   -----------   -----------  -----------
   Income from continuing operations
     before federal income taxes
     and minority interest                  2,411,049     1,880,656     2,153,851    1,911,597

  Provision for federal income taxes
    on continuing operations                  822,518       799,002       712,434      650,647
                                          -----------   -----------   -----------  -----------
  Income from continuing operations
    before minority interest                1,588,531     1,081,654     1,441,417    1,260,950

MINORITY INTEREST, net of tax                 (33,347)       12,569       389,801       35,103
                                          -----------   -----------   -----------  -----------
  Income from continuing operations
    after minority interest                 1,555,184     1,094,223     1,831,218    1,296,053

DISCONTINUED OPERATONS
  Loss from discontinuation of
    First Choice Health Plan
    Insurance operations (net of
    applicable income tax benefit
    of ($156,023), ($298,124),
    ($1,198,509) and ($317,418))             (302,869)     (513,679)   (2,391,547)    (643,692)
                                          -----------   -----------   -----------  -----------
NET INCOME (LOSS)                         $ 1,252,315   $   580,544   $  (560,329) $   652,361
                                          ===========   ===========   ===========  ===========

NET INCOME (LOSS) PER COMMON
  SHARE                                   $     21.39   $      9.91   $     (9.57) $     11.14
                                          ===========   ===========   ===========  ===========

WEIGHTED AVERAGE SHARES
  OUTSTANDING                                  58,538        58,572        58,540       58,540
                                          ===========   ===========   ===========  ===========
</TABLE>

                                     31

<PAGE>   32

ITEM  9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
            FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A     CONTROLS AND PROCEDURES

(a)  Evaluation of Disclosure Controls and Procedures:  An evaluation of the
     Registrant's disclosure controls and procedures (as defined in Rule 13(a)-
     15e under the Securities Exchange Act of 1934 (the "Act")) was carried out
     under the supervision and with the participation of the Registrant's Chief
     Executive Officer, Executive Vice President of Finance and several other
     members of the registrant's senior management as of the end of the period
     covered by this report. Based on that evaluation, the Registrant's Chief
     Executive Officer and Executive Vice President of Finance concluded that
     the Registrant's disclosure controls and procedures are effective in
     ensuring that the information required to be disclosed by the Registrant
     in the reports it files or submits under the Act is (i) accumulated and
     communicated to the Registrant's management (including the Chief Executive
     Officer and Executive Vice President of Finance) as appropriate to allow
     timely decisions regarding required disclosure, and (ii) recorded,
     processed, summarized and reported within the time periods specified in
     the SEC's rules and forms.

(b)  Changes in Internal Control over financial reporting:  In the quarter
     ended December 31, 2003, there has been no change in the Registrant's
     internal control over financial reporting that has materially affected,
     or is reasonably likely to materially affect, its internal control over
     financial reporting.

Disclosure Controls and Internal Controls.  Disclosure controls are procedures
that are designed with the objective of ensuring that information required to
be disclosed in the Registrant's reports filed under the Act is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's (SEC) rules and forms. Disclosure controls
are also designed with the objective of ensuring that such information is
accumulated and communicated to our management, as appropriate to allow timely
decisions regarding required disclosure. Internal Controls are procedures which
are designed with the objective of providing reasonable assurance that
(1) transactions are properly authorized; (2) assets are safeguarded against
unauthorized or improper use; and (3) transactions are properly recorded and
reported, all to permit the preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America.

PART III

ITEM  10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information required to be included in this Item 10 concerning directors and
executive officers of the Company is incorporated into this report by reference
to the Company's definitive Proxy Statement for its 2004 Annual Meeting of
Shareholders to be filed within 120 days of the Company's fiscal year end
December 31, 2003 (the "2004 Proxy Statement"), as set forth under the
headings "Election of Directors," "Section 16(a) Beneficial Ownership Reporting
Compliance," "Management," "Code of Ethics," and "Meetings and Committees of
the Board-Current Board Committees-Audit Committee."

ITEM  11.    EXECUTIVE COMPENSATION

Information required by this Item 11 concerning executive and director
compensation is incorporated into this report by reference to the 2004 Proxy
Statement, in which required information is set forth under the headings
"Executive Compensation," "Meetings and Committees of the Board of Directors-
Current Board Committees-Compensation Committee," and "{Meetings and Committees
of the Board-Compensation of Directors."

                                           32


<PAGE 33>

ITEM  12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
             AND RELATED STOCKHOLDER MATTERS

Information required by this Item 12 concerning the security ownership of
certain beneficial owners and management is incorporated into this report by
reference to the 2004 Proxy Statement, in which required information is set
forth under the heading "Security Ownership of Certain Beneficial Owners and
Management-Beneficial Ownership Table."

The Company does not have any equity compensation plans.

ITEM  13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information required by this Item 13 concerning certain relationships and
related transactions is incorporated into this report by reference to the 2004
Proxy Statement, in which required information is set forth under the heading
"Certain Relationships and Related Transactions."

ITEM  14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information required by this Item 14 concerning fees paid to our independent
auditors is incorporated into this report by reference to the 2004 Proxy
Statement, in which required information is set forth under the heading
"Matters Relating to Our Independent Auditors."











































                                            33

<PAGE>   34
PART  IV

Item  15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a)    Financial Statements and Schedules.
       The financial statements and related documents listed in Item 8 of this
       report are filed as part of this report.  All other schedules to the
       consolidated financial statements are omitted because they are not
       applicable or not material or because the information is included in the
       consolidated financial statements or related notes in Item 8 above.

(b)    Reports on Form 8-K.
       No reports on Form 8-K were filed during the quarter ended
       December 31, 2003.

(c)    Exhibits

2.1     Copy of Registrant's Restated Articles of Incorporation, as filed
August 13, 2003.

2.2    Copy of Registrant's Restated By-Laws as amended June 26, 2003.

10.1   Form of Agreement between Registrant and Physician participating
       in PPO. (1)

10.2   Form of Health Care Facility Service Contract between Registrant and
       Hospital participating in PPO. (1)

10.3   Form of Agreement between Registrant and Health Care
       Provider other than Hospitals and Physicians participating in PPO. (1)

10.4   Form of Agreement between Registrant and Third Party Administrator. (1)

10.5   Form of Agreement between Registrant and Insurance Company.(1)

10.6   Copy of Participation Agreement dated March 27, 1985, between
       Registrant and King County Public Hospital District No.2
       (Evergreen General Hospital).(1)

10.7    Copy of Participation Agreement dated March 26, 1985, between Registrant
       and Valley Medical Center. (1)

10.8    Copy of Participation Agreement dated December 19, 1991, between
       Registrant and Public Hospital District No.2 of Snohomish County
       (Stevens Memorial Hospital) and related Promissory Note in the aggregate
       principal  amount  of  $ 566,000. (1)

10.9    Copy of Participation Agreement dated December 20, 1999 between
       Registrant and University of Washington Academic Medical Center, and
       related Promissory Note in the aggregate principal amount of
       $1,260,000. (2)

10.10  Copy of the Chief Executive Officer's 2003 Compensation Agreement. (3) *

10.11  Copy of the Registrant's 2003 - 2005 Long-Term Incentive Program. (4) *

10.12  Copy of the Registrant's Supplemental Executive Retirement Plan. (5) *

14.1   Code of Conduct for Chief Executive Officer.

14.2   Code of Conduct for Chief Financial Officer.

14.3   Code of Conduct for Controller.






                                 34

<PAGE> 35

31.1   Certification pursuant to Rule 13(a)-14(a) for Gary R. Gannaway.

31.2   Certification pursuant to Rule 13(a)-14(a) for Kenneth A. Hamm.

32.1   Section 1350 Certification for Gary R. Gannaway, Chief Executive
       Officer.

32.2    Section 1350 Certification for Kenneth A. Hamm, Executive Vice
       President.

*      Denotes a management contract or compensatory plan or arrangement
       required to be filed as an exhibit to this Annual Report on Form 10-K.

(1)    Filed as an Exhibit to Registrant's Registration Statement
       on Form 10-SB.

(2)    Filed as Exhibit 10.23 to Registrant's Current Report on Form 8-K filed
       on January 3, 2000.

(3)    Filed as Exhibit 10.24 to Registrant's Annual Report on Form 10-K for
       the year ended December 31, 2002 (the "2002 10-K").

(4)    Filed as Exhibit 10.25 to the 2002 10-K.

(5)    Filed as Exhibit 10.26 to Registrant's Quarterly Report on Form 10-Q for
       the quarter ended March 31, 2003.










































                                    35

<PAGE>   36

SIGNATURES

In accordance with Section 13 or 15 (d) of the Securities Exchange Act of 1934,
the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on the 30th day of March, 2004.

 	FIRST CHOICE HEALTH NETWORK, INC.



By:	 /s/
	--------------------------------------
	KENNETH A. HAMM
	Executive Vice President of Finance
	(Principal Financial and Accounting Officer and Duly Authorized Officer)


In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities indicated on March 30, 2004.

<TABLE>
<CAPTION>
Signature                         Title
---------                         -----
<S>                               <C>


/s/                               President and Chief Executive Officer
----------------------------      (Principal Executive Officer)
      GARY R. GANNAWAY

/s/                               Executive Vice President of Finance
----------------------------      (Principal Financial and Accounting Officer)
      KENNETH A. HAMM


/s/                               Director
----------------------------
      DIANE E. CECCHETTINI

/s/                               Director
----------------------------
      GERALD A. CUFLEY, M.D.

/s/                               Chairman of the Board of Directors
----------------------------
      PAUL M. ELLIOTT

/s/                               Director
----------------------------
      KENNETH D. GRAHAM

/s/                               Director
----------------------------
      PHILLIP J. HAAS

/s/                               Director
----------------------------
      WILLIAM F. JOHNSTON, M.D.

/s/                               Director
----------------------------
      SCOTT F. KRONLUND, M.D.

</TABLE>
                                     36
<PAGE>   37

<TABLE>
<CAPTION>
Signature                         Title
---------                         -----
<S>                               <C>


/s/                               Director
----------------------------
      GARMAN E. LUTZ


/s/                               Director
----------------------------
      RICHARD A. MCGEE, M.D.

/s/                               Director
----------------------------
      BARBARA L. MITCHELL

/s/                               Director
----------------------------
      RICHARD H. PETERSON

/s/                               Director
----------------------------
      PAUL G. RAMSEY, M.D.

/s/                               Director
----------------------------
      RICHARD E. RUST, M.D.

/s/                               Director
----------------------------
      GREG VAN PELT

/s/                               Director
----------------------------
      CLYDE D. WALKER

/s/                               Director
----------------------------
      MITCHELL B. WEINBERG

</TABLE>





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