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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the fiscal year ended: December 31, 2003

OR

For the transition period from                      to                     

Commission file number: 0-21428

OCCUPATIONAL HEALTH + REHABILITATION INC

(Exact name of registrant as specified in its charter)

(781) 741-5175

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.001 par value

(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  x    NO  ¨.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulations 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  ¨.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2)    YES  ¨    NO  x.

The aggregate market value of the voting Common Stock held by non-affiliates of the registrant on June 30, 2003 was $2,165,858 based on the closing price of $1.25 per share. The number of shares outstanding of the registrant’s Common Stock as of March 1, 2004 was 3,088,111.

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OCCUPATIONAL HEALTH + REHABILITATION INC

Annual Report on Form 10-K

For the Fiscal Year Ended December 31, 2003

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PART I

ITEM 1. BUSINESS

General

Occupational Health + Rehabilitation Inc (the “Company”), a leading occupational healthcare provider, specializes in the prevention, treatment, and management of work-related injuries and illnesses, as well as regulatory compliance services. As of March 1, 2004, the Company operates thirty-six occupational health centers serving over 15,000 employer clients in ten states and also delivers workplace health services at employer locations throughout the United States. The Company’s mission is to provide high quality medical care and extraordinary service, thereby improving the health status of employees, reducing workers’ compensation costs, and assisting employers in their compliance with state and federal regulations governing workplace health and safety. The Company believes it is the leading provider of occupational health services in most of its established markets as a result of its commitment to these core values and competencies.

The Company has developed a system of clinical and operating protocols as well as proprietary information systems to track the resulting patient outcomes (the “OH+R System”), all focused on reducing the cost of work-related injuries. The OH+R System includes a full array of proven protocols designed to reduce the frequency and severity of work-related injuries, to return injured employees to full duty in the shortest possible time, and to assure regulatory compliance. Many of these services may also be delivered on-site at the workplace. Prevention and compliance services include pre-placement examinations, medical surveillance services, fitness for duty and return to work evaluations, drug and alcohol testing, physical examinations, and work-site safety programs.

The Company’s treatment approach for work-related injuries and illnesses is based on documented, proprietary clinical protocols which combine state-of-the-art medical, rehabilitation, and care coordination services in an integrated system of care focused on addressing the needs of employers, employees, and payers. Under this approach, employees receive high quality care, maintain a positive attitude, and have a greatly reduced probability of developing chronic problems or being re-injured. Utilizing the OH+R System, which is being continually refined, occupational medicine physicians and other clinical staff have consistently generated substantial documented savings as compared to national averages for both lost work days and medical costs associated with work-related injuries and illnesses.

In recent years, the Company has expanded its operations beyond its base in New England into selected major metropolitan markets elsewhere in the United States. In selecting new markets, the Company looks for many factors, including a favorable regulatory environment, attractive reimbursement levels, fragmented competition and a good industrial base. The Company’s strategic plan is to expand its network of service delivery sites throughout the United States, principally through joint ventures and other contractual agreements with hospitals and by development of its workplace health programs. The Company currently has twelve health system affiliations in place.

The Company maintains its principal executive offices at 175 Derby Street, Suite 36, Hingham, Massachusetts 02043-4058, and its telephone number is (781) 741-5175.

Industry Overview

Work-related injuries and illnesses are a large source of lost productivity and costs for businesses in the United States. In a report issued in October 2002, The National Institute for Occupational Safety and Health estimated the cost to business each year of job related injuries to be $171 billion. Liberty Mutual’s 2002 Safety Index, based on 1999 data, estimated the total annual cost, inclusive of lost productivity, overtime, and the cost of replacement workers, to be between $120 billion and $240 billion, of which $40 billion related to the direct cost of workplace injuries, namely payments to injured workers and their medical care providers. The Company

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estimates that the primary occupational healthcare market (“Primary Occupational Healthcare”) represents $10 billion of the total outlays, of which $6 billion relates to initial treatment of injuries and $4 billion to injury healthcare services, such as prevention and compliance services. Although Primary Occupational Healthcare accounts for only a small portion of these total expenditures, the Company believes it is a critical determinant of other costs. Functioning as the gatekeeper, the occupational medicine physician greatly influences both “down stream” medical costs and when an injured employee returns to work, thereby controlling lost work days.

The increase in workers’ compensation costs nationally in recent years, after a short period of relative stability, has resulted in employers taking a more active role in preventing and managing workplace injuries. This typically includes the establishment of safety committees, an emphasis on ergonomics in the workplace, drug testing, and other efforts to reduce the number of injuries, and the establishment of preferred provider relationships to ensure prompt and appropriate treatment of work-related injuries when they do occur. Employer demand for comprehensive and sophisticated healthcare services to support these programs has been a key factor in the development of the occupational healthcare industry.

The occupational healthcare market is highly fragmented, consisting primarily of individual or small-group practices and hospital-based programs. Increasing capital requirements, the need for more sophisticated management of both information systems and direct sales and marketing, and changes in the competitive environment, including the formation of larger integrated networks such as the Company’s, have all created increased interest in affiliating with larger, professionally managed organizations. As a result of these factors, the Company believes there is an opportunity to consolidate hospital programs and private practices.

Strategy

The Company’s mission is to reduce the cost of work-related injuries and illnesses and other healthcare costs for employers and payers and to improve the health status of employees through high-quality care and extraordinary service. The Company’s strategic objectives are to develop a comprehensive national network of occupational healthcare delivery sites and to expand its workplace health services to become a leading occupational health provider in selected regional markets.

The Company intends to build its network of delivery sites through:

Subsequent to an acquisition, joint venture or other contractual relationship, new centers are converted to the Company’s practice model through implementation of the OH+R System. New services are added as required to provide the Company’s comprehensive offering. These additional services may be provided by contracting with affiliates of the newly partnered health system or with local practitioners. Workplace health services are often delivered at employer locations within the service area of a center and are a natural extension of center operations. The Company’s direct sales efforts and word-of-mouth recommendations from satisfied clients are the source of workplace health opportunities not proximate to a center.

The Company’s operating strategy is based upon:

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Services

The Company’s services address the diverse healthcare needs and challenges faced by employers in the workplace. Specializing in the prevention, treatment and management of work-related injuries and illnesses, the Company is able to meet the needs of single site, regional multi-site or national employers and payers in the regions it serves. The Company’s services are delivered in a variety of venues including the Company’s full service centers, in the workplace, and through contractual arrangements with providers or hospitals affiliated with its health system partners.

The Company, in conjunction with its health system partners, provides an integrated system of care. The Company’s full service centers provide primary occupational health services while its health system partners offer after-hours care, specialist services, and diagnostic testing. The integrated system provides a seamless continuum of services to employees and employers. The Company’s occupational health centers are typically staffed with multi-disciplinary teams, including physicians, physician assistants, nurse practitioners, and physical and occupational therapists, as well as a manager, a client relations director, a care coordinator, and support personnel.

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In support of both center operations and workplace health initiatives, the Company also provides an after-hours program to coordinate treatment of second and third shift injuries through local emergency departments. This program ensures that the injured employee receives immediate medical attention and continuing treatment in the Company’s organized system of care. The Company also offers 24-hour nurse triage in selected markets.

The Company’s Medical Policy Board is the focal point for maintaining and enhancing the Company’s reputation for clinical excellence. The Medical Policy Board is comprised of physicians and other provider representatives employed by the Company who are established, recognized leaders in occupational healthcare. The Medical Policy Board oversees the establishment of “best practice” standards, the development of clinical protocols and quality assurance programs, and the recruitment, training, and monitoring of clinical personnel.

Specific services provided by the Company include:

Prevention/Compliance

A safe work environment is a critical factor impacting costs associated with work-related injuries and illnesses. To optimize workplace safety and productivity, the Company offers a full array of services designed to prevent injuries and to meet regulatory compliance requirements. The expertise and experience of the Company’s occupational health specialists differentiate the Company’s prevention and compliance services. Through treating work-related injuries, the Company’s clinicians gain significant insights into employers’ safety issues, thereby improving the efficacy of prevention programs. The Company’s expertise in health and safety regulatory matters provides employers with a critical resource to assist them in addressing increasingly complex federal and state regulations.

Specific prevention and compliance services include:

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Treatment/Management

Where an injured worker receives initial treatment for a work-related injury or illness is critical to the eventual outcome of the case. The initial provider is the medical gatekeeper and single most important player in controlling case costs. When the Company acts as the gatekeeper, whether in a Company center, in the workplace, or through its network providers, it controls the cost of treatment provided as well as the costs of specialist and ancillary services by ensuring that referrals are appropriate and required. The Company’s prevention/compliance efforts support an in-depth understanding of the workplace and the workforce, facilitating optimal treatment plans and early return to work. Lost work-days are minimized when care is controlled and effectively coordinated.

The Company’s treatment protocols, which have been demonstrated to be effective through outcome studies documenting reduced medical costs and fewer lost work days, are based on a sports medicine philosophy of early intervention and aggressive treatment to maximize a patient’s recovery while minimizing the ultimate costs associated with the case.

As part of the Company’s injury treatment services, the multi-disciplinary clinical team controls and coordinates all aspects of an injured worker’s care. This includes referrals to specialists within a network of physicians who understand workers’ compensation and the special requirements of treating work-related injuries. In a typical Company full service center or a network of its contract providers, medical and rehabilitation team members work within an integrated system of formal, defined protocols. This approach facilitates superior, ongoing communication among clinician team members regarding the most appropriate treatment plan, thus eliminating time lost from delays in dealing with several unrelated providers.

Another element to successfully managing work-related injuries is continuous communication to all the “key players,” including the employer, employee, and third-party payers. With expectations and treatment plans clearly communicated to all involved, the Company’s commitment to goal-oriented, cost-effective, quality care is evident.

When an individual has not been treated within the Company’s system of care, specialty evaluations may be used to bring a case to closure and/or to create return to work programs for both work-related and non-work-related cases. The Company’s occupational medicine physicians and therapists bring a unique set of skills and experiences to these evaluations, including in-depth understanding of the workplace and of the laws and regulations governing work assignments. Referrals for these services typically come from employers, insurers, or lawyers.

Treatment/management services include:

Workplace Health

The workplace is often the most effective place for the Company to deliver its services for work-related injuries/illnesses as well as to reduce other employee healthcare costs. Furthermore, many employers recognize

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the value of medical personnel managing integrated disability management programs that cover both work-related and non-work-related injuries and illnesses. The Company is a leader in workplace health services. It has assembled a fully integrated continuum of workplace health services that systematically address workplace safety and aim to minimize absenteeism of employees who have work-related and non-work-related injuries and illnesses. Employers may choose to have all or some of these services delivered at the workplace through staffing contracts or in conjunction with the Company’s center resources. The Company’s physical and occupational therapists provide job-specific, individualized treatment at the workplace, utilizing real work as the rehabilitation medium. The Company helps employees remain on the job while they receive therapy. Disability days decrease and return-to-work rates increase using this model of rehabilitative care.

Consulting/Advisory Services

Based on its depth of occupational medicine expertise, the Company provides a variety of consulting/advisory services for clients as follows:

Outcomes Measurement and Tracking

The Company has significant experience with data management and outcomes tracking and has created a sophisticated reporting tool that enables employers and third-party payers to track all costs and utilization of services received within the Company’s network of care. In addition, the system measures the Company’s return-to-work performance by measuring lost and modified work days per case. The Company believes that its multi-disciplinary clinical teams have consistently outperformed others by returning injured employees to work more quickly and at lower cost, while maintaining high patient satisfaction. The Company also believes its ability and willingness to measure and be accountable for its performance to employers and third-party payers significantly differentiates it from its competitors.

Sales and Marketing

The Company markets through a direct sales force primarily to employers, but also to insurers and third-party administrators. The latter parties strongly influence (and in many instances direct) an injured worker’s choice of provider, while employers select providers for prevention and compliance services.

Through a sales planning and forecasting process, the Company analyzes markets and allocates and consistently monitors resources to ensure maximum results. Client Relations Directors (“CRDs”), typically located at each Company center, are responsible for client retention and new client prospecting activities. The personal sales efforts of each CRD are supported by direct mail, selective advertising, and public relations programs focused on reinforcing the Company’s position as a leader in occupational health. The successful establishment of partnership relationships with clients is a key ingredient to the Company’s success. During the sales process, the CRD routinely engages the expertise of the local provider team to enhance these efforts.

Agreements with Medical Providers

In most cases, medical and other professional services at the Company’s centers are provided through professional corporations (collectively, the “Medical Providers”) that enter into management agreements with the Company or with its affiliated joint ventures which then subcontract with the Company. The Company provides a

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wide array of business services under these management and submanagement agreements, such as the provision of trained personnel, practice and facilities management, real estate services, billing and collection, accounting, tax and financial management, human resource management, risk management, insurance, sales, marketing, and information-based services such as process management and outcome analysis. The Company provides services under these management agreements as an independent contractor, and the medical personnel at the centers, under the direction of the Medical Providers, provide all medical services and retain sole responsibility for all medical decisions. The management agreements grant the Medical Providers a non-exclusive license to use the Company’s service mark “Occupational Health + Rehabilitation Inc.” These agreements typically have automatically renewing terms and specific termination rights. Management fees payable to the Company vary depending upon the particular circumstances and applicable legal requirements. These fees may include an assignment of certain accounts receivable, an allocation of a portion of net revenue, or a flat fee for each service provided by the Company.

Expansion Plan

The Company’s objective is to develop regional occupational healthcare systems in selected areas of the United States with full-service occupational health centers, workplace health sites, and a variety of network providers, typically affiliated with the Company’s health system partners. Forming ventures, alliances and other contractual relationships with hospitals, health systems, and providers in markets in which it operates is a key strategy for the Company. The Company’s management team, comprised primarily of seasoned healthcare executives, is experienced in corporate development as well as the integration and operation of the resulting acquisitions, ventures and alliances. In addition, the OH+R System, with its documented protocols covering all aspects of occupational health services delivery, facilitates effective assimilation of new operations. The Company believes that occupational health providers, like all other segments of the healthcare industry, have been subjected to the pressure of managed care and other cost containment efforts from employers and payers. These pressures and the expected continuance of regulatory complexities in the workers’ compensation and health and safety systems have caused a growing need, in the Company’s opinion, for physicians and hospitals with occupational health programs to seek affiliations with larger, professionally managed organizations, such as the Company, that specialize in occupational healthcare. However, because of the many factors involved in building such a network, there can be no assurance that the Company will be successful in meeting its expansion goals.

Health System Joint Ventures, Affiliations, and Network Service Agreements

The Company’s intended principal method of expansion is by entering into joint ventures, affiliations, service agreements, or other contractual arrangements with health systems to develop and operate comprehensive occupational health programs based upon networks of delivery sites, including full-service centers, satellite locations and/or contract providers. There are about 3,200 hospital-owned occupational health programs in the United States. Approximately half of these programs are affiliated with one of the 270 multi-hospital health systems that offer occupational health services while the rest are operated by non-health system affiliated hospitals.

Most hospital occupational health programs have developed by default. Employers and injured employees have naturally looked to the local hospital for treatment of work-related injuries. In addition, as Occupational Safety and Health Administration (“OSHA”) and other safety and health regulations came into existence, hospitals again were the logical, and often only, place for employers to turn for service. The majority of the occupational health services offered by hospitals are delivered by functional departments where occupational health is a small percentage of the services rendered. Management of care, employer communications and, ultimately, successful outcomes are extremely difficult to accomplish. Because of their relatively small size in the context of the total hospital system, occupational health departments generally receive insufficient management attention, operate at a loss, and require constant funding. Consequently, many health systems are looking to acknowledged experts in the field, such as the Company, for effective outsourcing of their hospital-based occupational health programs.

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By affiliating or contracting with the Company, health systems benefit from:

Health system relationships allow the Company to leverage the name and position of the institution within a community to expedite building market share. Moreover, as healthcare reform continues, many hospitals and health systems are re-thinking their scope of activities. As a result, health systems are concentrating more of their effort and capital on core services and are more open to outsourcing important yet ancillary services such as occupational health. It is strategically important for the Company to have links to these systems in order to be well positioned to become the occupational health provider for a system.

Under these health system affiliations, the Company typically provides all necessary personnel and assumes management responsibility for the day-to-day operation of the occupational health entity. In return for such services, the Company will receive fees customarily including a component based upon the net revenue attained by the entity and its operating profit performance, as well as reimbursement of all of the Company’s personnel costs and other expenses incurred. Moreover, in a typical joint venture, the Company will own 51% or more of the occupational health entity with the health system owning the remainder. The Company is continuously exploring potential health system affiliations but there can be no assurance that it will be successful in these efforts.

Acquisitions, Strategic Alliances, and Selective Start-ups

By acquiring private practices that perform occupational medicine, physical therapy, or related services, the Company can enter a new geographical area or consolidate its position within an existing market. Therapy practices receive referrals of injured workers from local specialty physicians, which can complement the Company’s direct marketing to employers. Alternatively, occupational medicine practices, including medical consulting practices focused on occupational and environmental health issues, have established relationships with employers to whom the Company may provide its more comprehensive services.

In November 2001, OHR-SSM, LLC, a joint venture of the Company, purchased an occupational medicine business in St. Louis, Missouri for $77,000, and recognized goodwill of $57,000. The acquired revenue stream was incorporated into the Company’s existing Missouri centers.

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In January 2002, the Company entered into an affiliation with a hospital system in New Jersey to operate its employee health and occupational health programs. In February 2002, the Company purchased two occupational health clinics located in New Jersey and transferred the hospital system’s occupational health programs to these centers. The combined purchase price of these entities was $610,000, of which $70,000 was in cash and the balance in the form of a subordinated note payable in varying installments through February 2005. The Company recognized goodwill of $621,000 on these transactions. Effective July 1, 2002, the Company assumed the 40% ownership interest of its joint venture partner in its Rochester, NY center, and recognized $193,000 in goodwill on the transaction.

Effective January 31, 2003, the Company terminated its long-term management contract with Eastern Rehabilitation Network (“ERN”), an affiliate of Hartford Hospital, Hartford, Connecticut, in exchange for transfer of title to the Company of ERN’s four occupational health centers in Connecticut which the Company had previously managed for ERN. In addition, ERN agreed to terminate its network provider agreement with Hartford Medical Group (“HMG”), also an affiliate of Hartford Hospital, under which the Company had managed seven occupational health centers owned by HMG. The Company agreed to pay ERN $25,000 for its share of the network’s assets. There will be a final settlement between the parties after the Company has collected all amounts owed to, and paid all amounts owed by, the network as of the termination date. It is estimated that settlement will occur in June 2004.

In 2002, the Company recognized revenue of $2,286,000 for the seven occupational health centers owned by HMG which it no longer manages. Because a significant portion of the revenue was paid to third party providers for services rendered to the Company’s patients, the loss of revenue did not have a material impact on its operating profit.

On April 1, 2003, the Company purchased an occupational health practice in Murfreesboro, TN and consolidated the operations into its existing center. The Company recognized $493,000 in goodwill and other intangible assets on the transaction.

Effective April 30, 2003, the Company terminated its long-term management contract with a hospital system in Nashville, TN and concurrently purchased five centers which it had previously managed for a total consideration of $1,700,000, payable in cash of $300,000 at closing, and $400,000, $500,000, and $500,000 on October 1, 2003, 2004, and 2005, respectively. In connection with the purchase, the seller forgave the loan payable balance of $1,200,000 (before discount) due under the long-term management contract. Accordingly, the Company offset against the purchase price the net deferred credit previously recorded on the management contract which amounted to $550,000. This deferred credit represented the net difference between payments made by the hospital system for working capital deficiencies and the discounted value of the non-interest bearing loan payable to the hospital system. The net of the aforementioned items resulted in the recognition of $98,000 in fixed assets and $35,000 in goodwill and other intangible assets and had no impact on the Company’s statement of operations.

The Company will also consider establishing start-up centers when appropriate. This approach is most suitable for geographic areas proximate to existing Company centers or where a significant source of patients can be assured through arrangements with large employers and third-party administrators. Often, start-ups can be developed in concert with a local provider, enabling the Company to minimize its investments, particularly during the early growth phase of the site. The Company will continue to explore opportunities such as these throughout its marketplace when conditions warrant such an approach. However, there can be no assurance the Company will be successful in these efforts.

1999 Restructuring Plan

During the fourth quarter of 1999, the Company initiated measures designed to enhance its overall financial strength and success. These measures principally included the closure of Company centers that were either outside of the Company’s core occupational health focus or were not capable of achieving significant

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profitability due to specific market factors. In December 1999, the Company’s South Boston, Massachusetts occupational health and sports medicine center was closed and during the first quarter of 2000 its Wellesley Hills, Massachusetts occupational health and sports conditioning center and its Essex Junction, Vermont primary care location were closed. The restructuring plan also included the streamlining of certain other remaining operations and the elimination or combining of various positions within the Company. The plan resulted in restructuring and other charges of $2,262,000. At December 31, 2003, the Company had no further obligations under the restructuring plan, having made its final lease payment in connection with one of its closed centers in October 2003.

Competition

Most organizations providing care for work-related injuries and illnesses in the eastern part of the United States are local providers or hospitals. The fundamental difference between the Company and these providers is the Company’s focused expertise in combining multiple disciplines to address the needs of a single market segment—work-related injuries and illnesses, and prevention and compliance services. Other providers are generally organized to provide services, such as physical therapy, to a wide variety of market segments with differing needs, regardless of the source of the injury or type of patient.

Most of the Company’s competitors are local operations and typically provide only some of the services required to successfully resolve work-related injuries and illnesses, and reduce employers’ costs. Hospitals typically provide most of the required services but not as part of a tightly integrated, formal care system. Injured workers tend to be a small segment of the patients seen by the individual hospital departments involved, and department personnel tend not to have any particular training or expertise in work-related injuries and illnesses.

Concentra, Inc. is the nation’s largest company providing occupational healthcare followed by U.S. HealthWorks, Inc. which in 2000 acquired the occupational health centers operated by HEALTHSOUTH Corporation, a large national provider of rehabilitation services which also offered occupational health services in certain locations. The Company is in direct competition with these companies in approximately half the markets in which it operates. While the Company believes it can compete effectively with these companies on the basis of quality and service, there can be no assurance that these competitors will not establish similar services to those offered by the Company in all its markets. These companies are larger than the Company and have greater financial resources.

Laws and Regulations

General

As a participant in the healthcare industry, the Company’s operations and relationships are subject to extensive and increasing regulation by a number of governmental entities at the federal, state, and local levels. The Company is also subject to laws and regulations relating to business corporations in general. The Company believes that its operations are in material compliance with applicable laws. Nevertheless, many aspects of the Company’s business operations, especially those related to the special nature of the Company’s relationship with the Medical Providers, have not been the subject of state or federal regulatory interpretation, and there can be no assurance that a review of the Company’s or the Medical Providers’ business by courts or regulatory authorities will not result in a determination that could adversely affect the operations of the Company or the Medical Providers or that the healthcare regulatory environment will not change so as to restrict the Company’s or the Medical Providers’ existing operations or their expansion.

Workers’ Compensation Legislation

Each state in which the Company operates has workers’ compensation programs requiring employers to cover medical expenses, lost wages, and other costs resulting from work-related injuries, illnesses, and disabilities. Medical costs are paid to healthcare providers through the employers’ purchase of insurance from private workers’ compensation carriers, participation in a state fund, or by self-insurance. Changes in workers’ compensation laws or regulations may create a greater or lesser demand for some or all of the Company’s

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services, require the Company to develop new or modified services or ways of doing business to meet the needs of the marketplace and compete effectively, or modify the fees that the Company may charge for its services.

Many states are considering or have enacted legislation reforming their workers’ compensation laws. These reforms generally give employers greater control over who will provide medical care to their employees and where those services will be provided, and attempt to contain medical costs associated with workers’ compensation claims. Some states have implemented procedure-specific fee schedules that set maximum reimbursement levels for healthcare services. The federal government and certain states provide for a “reasonableness” review of medical costs paid or reimbursed by workers’ compensation.

When not governed by a fee schedule, the Company adjusts its charges to the usual and customary levels authorized by the payer.

Corporate Practice of Medicine and Other Laws

Most states limit the practice of medicine to licensed individuals or professional organizations which are themselves comprised of licensed individuals and prohibit physicians and other licensed individuals from splitting professional fees with non-licensed persons. Many states also limit the scope of business relationships between business entities such as the Company and licensed professionals and professional corporations, particularly with respect to non-physicians exercising control over physicians engaged in the practice of medicine. Many states require regulatory approval, including certificates of need, before establishing certain types of healthcare facilities, offering certain services or making expenditures in excess of statutory thresholds for healthcare equipment, facilities or programs.

Laws and regulations relating to the corporate practice of medicine, the sharing of professional fees, certificates of need, and similar issues vary widely from state to state, are often vague, and are seldom interpreted by courts or regulatory agencies in a manner that provides guidance with respect to business operations such as those of the Company. Although the Company attempts to structure all of its operations so that they comply with the relevant state statutes and believes that its operations and planned activities do not violate any applicable medical practice, fee-splitting, certificates of need, or similar laws, there can be no assurance that (i) courts or governmental officials with the power to interpret or enforce these laws and regulations will not assert that the Company or certain transactions in which it is involved are in violation of such laws and regulations, and (ii) future interpretations of such laws and regulations will not require structural and organizational modifications of the Company’s business. In addition, the laws and regulations of some states could restrict expansion of the Company’s operations into those states.

Federal regulations aimed at standardizing the format in which certain types of healthcare information is exchanged electronically and establishing standards for the security and privacy of protected healthcare information have been issued pursuant to the administrative simplification provisions of the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”). Further regulations under HIPAA, as well as modifications to and interpretations of existing regulations, are expected. Compliance with these regulations became effective beginning April 14, 2003 and at various dates thereafter for Covered Entities (as defined). Based principally upon the composition of its business on that date, most notably the elimination of its urgent care services in March 2003, and because it does not engage in Covered Transactions (as defined) through electronic means, the Company has determined that it does not currently fall directly under the purview of HIPAA. However, the Company recognizes that a number of the standards established by HIPAA represent “best practices” for its own business and it intends to phase in those procedures over time in addition to maintaining its compliance with state privacy laws applicable to its business. The Company may also be expected to comply with some limited HIPAA standards under future contracts with healthcare providers and insurers. Moreover, there can be no assurance that the Company will not be required at some future time to comply fully with HIPAA in which event the Company may be called upon to devote substantial management effort and expenditures to achieving such compliance.

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Fraud and Abuse Laws

A federal law (the “Anti-Kickback Statute”) prohibits any offer, payment, solicitation, or receipt of any form of remuneration to induce, or in return for, the referral of Medicare or other governmental health program patients or patient care opportunities, or in return for the purchase, lease or order of, or arranging for, items or services that are covered by Medicare or other governmental health programs. Violations of the statute can result in the imposition of substantial civil and criminal penalties. In addition, certain anti-referral provisions (the “Stark Amendments”) prohibit a physician with a “financial interest” in an entity from referring a patient to that entity for the provision of certain “designated health services,” some of which are provided by the Medical Providers that engage the Company’s management services.

Most states have statutes, regulations or professional codes that restrict a physician from accepting various kinds of remuneration in exchange for making referrals, some of which are similar to the Anti-Kickback Statute and are applicable to non-governmental programs. Several states are considering legislation that would prohibit referrals by a physician for certain types of healthcare services to an entity in which the physician has a specified financial interest.

All of the foregoing laws are subject to modification and interpretation, have not often been interpreted by appropriate authorities in a manner directly relevant to the Company’s business, and are enforced by authorities vested with broad discretion. The Company has attempted to structure all of its operations so that they comply with applicable federal and state anti-kickback and anti-referral prohibitions. The Company also monitors developments in this area. If these laws are interpreted in a manner contrary to the Company’s interpretation, or are reinterpreted or amended, or if new legislation is enacted with respect to healthcare fraud and abuse or similar issues, the Company will seek to restructure any affected operations so as to maintain compliance with applicable law. No assurance, however, can be given that such restructuring will be possible, or, if possible, will not adversely affect the Company’s business.

Antitrust Laws

Federal, and many state, laws prohibit anti-competitive conduct, including price fixing, improper exercise of monopoly power, concerted refusals to deal, and division of markets. Violations of the Sherman Act, the primary federal antitrust statute, are felonies punishable by significant fines. While the Company believes that it is in compliance with relevant antitrust laws, no assurance can be given that the Company’s business practices will be interpreted by federal and state enforcement agencies to comply with such laws, and any violation of such laws could have a material adverse effect on the Company and its business.

Uncertainties Related to Changing Healthcare Environment

Over the last several years, the healthcare industry has experienced change. Although managed care has yet to become a major factor in occupational healthcare, the Company anticipates that managed care programs, including capitation plans, may play an increasing role in the delivery of occupational healthcare services. Further, competition in the occupational healthcare industry may shift from individual practitioners to specialized provider groups such as those managed by the Company, insurance companies, health maintenance organizations and other significant providers of managed care products. To facilitate the Company’s managed care strategy, the Company is offering risk-sharing products for the workers’ compensation industry that will be marketed to employers, insurers and managed care organizations. However, no assurance can be given that the Company will prosper in the changing healthcare environment or that the Company’s strategy to develop managed care programs will succeed in meeting employers’ and workers’ occupational healthcare needs.

Other changes in the healthcare environment may result from an Internal Revenue Service ruling and recent cases related to whole-hospital joint ventures with tax-exempt organizations. The Company currently does not believe that this specific ruling will be extended to joint ventures concerning ancillary services such as

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occupational health for tax-exempt hospitals; however, if so extended, the Company’s structure for joint ventures with tax-exempt hospitals may differ from the Company’s typical model so as not to jeopardize the tax-exempt status of these hospitals.

Environmental

The Company and the Medical Providers are subject to various federal, state, and local statutes and ordinances regulating the disposal of infectious waste. If any environmental regulatory agency finds the Company’s facilities to be in violation of waste laws, penalties and fines may be imposed for each day of violation, and the affected facility could be forced to cease operations. The Company believes that its waste handling and discharge practices are in material compliance with the applicable law; however, any future claims or changes in environmental laws could have an adverse effect on the Company and its business.

Use of Provider Networks

The Company’s provision of comprehensive healthcare management and cost containment services depends in part on its ability to contract with or create networks of healthcare providers which share its objectives. For some of its clients, the Company offers injured workers access to networks of providers who are selected by the Company or its joint venture partners for quality of care and willingness to follow the OH+R System. Laws regulating the operation of managed care provider networks have been adopted by a number of states. These laws may apply to managed care provider networks having contracts with the Company or to provider networks that the Company may develop or acquire. To the extent these regulations apply to the Company, the Company may be subject to additional licensing requirements, financial oversight and procedural standards for beneficiaries and providers.

Background

The Company was incorporated in Delaware in 1988. On June 6, 1996, Occupational Health + Rehabilitation Inc (“OH+R”) merged with and into (the “Merger”) Telor Opthalmic Pharmaceuticals, Inc. (“Telor”). Pursuant to the terms of the Merger, Telor was the surviving corporation. Concurrent with the Merger, Telor’s name was changed to Occupational Health + Rehabilitation Inc, and the business of the surviving corporation was changed to the business of OH+R. The Merger was accounted for as a “reverse acquisition” whereby OH+R was deemed to have acquired Telor for financial reporting purposes.

Economic Conditions

The Company’s success is influenced by a number of economic factors, principally employment levels and the rate of change thereof, and the general level of business activity. Adverse changes in these economic conditions may negatively affect the Company’s growth and profitability.

Seasonality

The Company is subject to the seasonal fluctuations that impact the various employers and their employees it serves. Historically, the Company has noticed these impacts in portions of the first and fourth quarters. Traditionally, revenues are lower during these periods since patient visits decrease due to the occurrence of plant closings, vacations, holidays, a reduction in new employee hires, and inclement weather. These activities also cause a decrease in drug and alcohol tests, medical monitoring services, and pre-employment examinations. Similar fluctuations occur during the summer months, but typically to a lesser degree than during the first and fourth quarters. The Company attempts to ameliorate the impact of these fluctuations through adjusting staff levels.

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Employees

As of March 1, 2004, the Company employed 524 individuals on a full and part-time basis. The total clinical professionals contracted or associated with the Company as of March 1, 2004 were 260, including physicians, physician assistants, nurse practitioners, nurses, medical assistants, physical and occupational therapists, and assistant physical and occupational therapists. None of the Company’s employees are covered by collective bargaining agreements. The Company has not experienced any work stoppages and considers its relations with its employees to be good.

Important Factors Regarding Forward-Looking Statements

Statements contained in this Annual Report on Form 10-K, including in Management’s Discussion and Analysis of Financial Condition and Results of Operations, contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act, which statements are intended to be subject to the “safe-harbor” provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements are based on management’s current expectations and are subject to many risks and uncertainties which could cause actual results to differ materially from such statements. Such statements include statements regarding the Company’s objective to develop a network of regional occupational healthcare systems providing integrated services through multi-disciplinary teams. In addition, when used in this report, the words “anticipate,” “plan,” “believe,” “estimate,” “expect,” and similar expressions as they relate to the Company or its management are intended to identify forward-looking statements. Among the risks and uncertainties that will affect the Company’s actual results are locating and identifying suitable partnership candidates; the ability to consummate operating agreements on favorable terms; the success of such ventures, if completed; the costs and delays inherent in managing growth; the ability to attract and retain qualified professionals and other employees to expand and complement the Company’s services; the availability of sufficient financing; the attractiveness of the Company’s capital stock to finance its ventures; strategies pursued by competitors; the restrictions imposed by government regulation; changes in the industry resulting from changes in workers’ compensation laws and regulations and in the healthcare environment generally; and other risks described in this Annual Report on Form 10-K and the Company’s other filings with the Securities and Exchange Commission. The forward-looking statements speak only as of the date on which such statements are made. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

ITEM 2. PROPERTIES

The Company rents approximately 7,000 square feet of office space for its corporate offices in Hingham, Massachusetts.

The Company’s centers range in size from 750 square feet to approximately 15,000 square feet and generally have lease terms of between three years and six years with varying renewal or extension rights. A typical center ranges in size from approximately 4,000 to 10,000 square feet and has four to eight rooms used for examination and trauma, a laboratory, an x-ray room, and ancillary areas for reception, drug testing collection, rehabilitation, client education, and administration. Most centers are open from nine to ten hours per day for five days per week.

The Company believes that its facilities are adequate for its reasonably foreseeable needs.

ITEM 3. LEGAL PROCEEDINGS

The Company is not a party to any material legal proceedings and is not aware of any threatened litigation that could have a material adverse effect upon its business, operating results, or financial condition.

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

None.

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PART II

The Company’s Common Stock is traded on the OTC Bulletin Board. The Company trades under the symbol OHRI. The following table sets forth the high and low bid quotations for the Company’s Common Stock as reported by the OTC Bulletin Board during the periods shown below.

The foregoing represent inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. As of March 1, 2004, the Company’s Common Stock was held by 72 stockholders of record and approximately 500 beneficial stockholders whose shares were held in “street” name.

The Company has never paid any cash dividends on its Common Stock. The Company currently intends to retain earnings, if any, for use in its business and does not anticipate paying any cash dividends in the foreseeable future. The payment of future dividends will be at the discretion of the board of directors of the Company and will depend, among other things, upon the Company’s earnings, capital requirements, and financial condition. The Company is subject to a covenant with one of its lenders that prohibits the payment of dividends.

The transfer agent and registrar for the Company’s Common Stock is American Stock Transfer & Trust Company.

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Securities Authorized for Issuance Under Equity Compensation Plans

The following table sets forth certain information with respect to compensation plans (including individual compensation arrangements) under which the Company’s equity securities are authorized for issuance, as of December 31, 2003.

EQUITY COMPENSATION PLAN INFORMATION

On March 24, 2003, the Company paid a cash amount of $2,699,740 and issued 1,608,247 shares of its Common Stock, and promissory notes in the aggregate principal amount of $2,699,740 to repurchase 1,416,667 shares of its Series A Convertible Preferred Stock, from certain venture capital funds and other accredited investors (the “Sellers”) in reliance upon the exemption from the registration requirements of the Securities Act under Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder.

In claiming the exemption under Section 4(2) and Rule 506, the Company relied in part on the following facts: (1) each of the Sellers represented that such Seller (a) had the requisite knowledge and experience in financial and business matters to evaluate the merits and risk of an investment in the Company; (b) was able to bear the economic risk of an investment in the Company; (c) had access to or was furnished with the kinds of information that registration under the Securities Act would have provided; (d) acquired the shares for the Seller’s own account in a transaction not involving any general solicitation or general advertising, and not with a view to the distribution thereof; and (e) is an “accredited investor” as defined in Rule 502 of Regulation D; and (2) a restrictive legend was placed on each certificate or other instrument evidencing the shares and notes.

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ITEM 6. SELECTED FINANCIAL DATA

The consolidated statement of operations data set forth below with respect to the years ended December 31, 2003, 2002 and 2001 and the consolidated balance sheet data as of December 31, 2003 and 2002 are derived from, and are qualified by reference to, the audited consolidated financial statements included elsewhere in this report and should be read in conjunction with those financial statements and notes thereto. The consolidated statement of operations data for the years ended December 31, 2000 and 1999 and the consolidated balance sheet data at December 31, 2001, 2000, and 1999 are derived from financial statements not included herein. Historical results should not be taken as necessarily indicative of the results that may be expected for any future period.

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QUARTERLY RESULTS (UNAUDITED)

Set forth below is certain summary information with respect to the Company’s operations for the last eight fiscal quarters.

The Company’s quarterly results of operations are not necessarily indicative of results for any future period.

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

Overview

The Company is a leading provider of occupational healthcare services to employers and their employees specializing in the prevention, treatment, and management of work related injuries and illnesses. The Company develops and operates multidisciplinary outpatient healthcare centers and contracts with other healthcare providers to develop integrated occupational healthcare delivery systems. The Company typically operates the centers under management and submanagement agreements with professional corporations that practice exclusively through such centers. Additionally, the Company has entered into joint ventures and long-term management agreements with health systems to provide management and related services to the centers and networks of providers established by the joint ventures.

The Company’s operations have been funded primarily through venture capital investments, the Merger, and lines of credit. The Company’s growth has resulted predominantly from the formation of joint ventures, long-term management agreements, acquisitions, and development of businesses principally engaged in occupational healthcare.

The Company derives its revenue from three principal sources: treatment of work-related injuries, including the provision of rehabilitation services necessary to speed the patient’s post-injury recovery, injury prevention and regulatory compliance services such as pre-placement physical examinations and drug and alcohol tests, and workplace health services where the Company provides on-site delivery of its services for work-related injuries, generally to regional locations of major corporations. Medical treatment of injuries and the associated rehabilitation services account for nearly two-thirds of the Company’s revenue, prevention and compliance services about 25%, and workplace health about 10%. The Company operates 36 centers, 27 of which are in the northeast of the United States, five in Tennessee, and four in Missouri. It manages workplace health contracts not only at sites close to its centers but also in many other areas of the country.

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The level of economic activity in the regions of the country in which the Company’s centers are located impacts its profitability. Certain classifications of employment have higher injury rates than other classifications. For instance, manufacturing, transportation, healthcare delivery, and construction tend to have high injury rates and therefore high utilization of the types of services offered by the Company. Consequently, changes in the employment levels in these market sectors impact the volume of business available to the Company. The Company also provides more services when employment levels rise. The stronger the employment market, the greater the demand for pre-placement examinations and drug and alcohol tests. Higher levels of economic activity also result in more work-related injuries requiring treatment. In the past three years, when employment levels have been soft and economic growth modest, the Company has focused on increasing its market share in a still very fragmented industry through aggressive marketing, offering high levels of service to its clients, and maintaining a tight control on its costs.

In many states in which the Company operates, the prices it charges for its injury treatment of work-related injuries are determined by state specific fee schedules established by state agencies pursuant to the workers’ compensation programs in that state. Such fee schedules are reviewed by the regulatory bodies from time to time, but changes in the rates tend to lag the increase in the cost of delivering medical services. Moreover, reimbursement rates vary widely from state to state. In those states not governed by a fee schedule, the Company charges the usual and customary rates which are based on the average fees paid by workers’ compensation insurers and accepted by healthcare providers. The Company uses the services of third party consultants to assist it in keeping abreast of the frequently complex and often changing workers’ compensation fee schedules and the appropriate usual and customary fees.

Accounts receivable is the Company’s largest single asset on the balance sheet. The Company closely monitors its days sales outstanding, a measure computed by dividing its average revenue per day into its current accounts receivable balance. By reducing its days sales outstanding, the Company can increase its cash inflow and use the additional funds to pay down its short-term debt or for general corporate purposes. Over the past three years, the Company has reduced its days sales outstanding by 12 days from 72 in 2001 to 60 in 2003.

The Company’s major focus is building its revenue base. Once a center has covered its fixed costs, which account on average for approximately 53% of its revenue and consist primarily of employee-related expenses and rent and occupancy charges, each additional dollar of revenue generates a high variable profit margin. A new injury visit, for example, generates about $600 in net revenue through follow up visits and referrals to rehabilitation treatment.

The discussion and analysis of the financial condition and results of operations of the Company are based on the Company’s consolidated financial statements, included elsewhere within this report, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the use of estimates and judgments that affect the reported amounts and related disclosures of commitments and contingencies. The Company relies on historical experience and on various other assumptions that it believes to be reasonable under the circumstances to make judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates.

Critical Accounting Policies

Revenue Recognition

Revenue is recorded at estimated net amounts to be received from third-party payers, employers, and others for services rendered. The Company operates in certain states that regulate the amounts which the Company can charge for its services associated with work-related injuries and illnesses.

Provision for Doubtful Accounts

Accounts receivable consist primarily of amounts due from third-party payers (principally, managed care companies and commercial insurance companies), employers, and others, including private individuals.

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Estimated provisions for doubtful accounts are recorded to the extent that it is probable that a portion or all of a particular account receivable will not be collected. The Company estimates the provision for doubtful accounts based on various factors including payer type, historical collection patterns, and the age of the receivable. Changes in estimates for particular accounts receivable are recorded in the period in which the change occurs.

Professional Liability Coverage

The Company maintains entity professional liability insurance coverage on a claims-made basis in all states in which it has operating centers. The Company also maintains shared professional liability insurance coverage in the name of its employed physicians on a claims-made basis. At December 31, 2003, the Company recorded an actuarially determined liability equal to the estimated required reserves for future payments for claims that have been reported and claims that have occurred but have not been reported. The Company intends to renew its existing policies and is not aware of any reason it will not be able to do so. Nor is it aware of any claims that may result in a loss in excess of amounts covered by its existing insurance.

Impairment of Property and Equipment, Goodwill, and Intangible Assets

The Company reviews the carrying value of its property and equipment, goodwill, and intangible assets on a quarterly basis. The Company’s review is undertaken to determine if current facts and circumstances suggest that the assets have been impaired or that the life of the asset needs to be changed. As part of its review, the Company considers various factors including local market developments, changes in the regulatory environment, historical financial performance, recent operating results, and projected future cash flows. Any impairment would be recognized in operating results if a diminution in value considered to be other than temporary were to occur. During the years ended December 31, 2003 and 2002, the Company did not recognize any adjustments to the carrying value of its property and equipment, goodwill, and intangible assets.

Reserves for Employee Health Benefits

The Company retains a significant amount of self-insurance risk for its employee health benefits. The Company maintains stop-loss insurance which limits the Company’s liability for health insurance payments on both an individual and total group basis. At the end of each quarter, the Company records an accrued expense for estimated health benefit claims incurred but not reported at the end of such period. The Company estimates this accrual based on various factors including historical experience, industry trends, and recent claims history. This accrual is by necessity based on estimates and is subject to ongoing revision as conditions change and as new data present themselves. Adjustments to estimated liabilities are recorded in the accounting period in which the change in estimate occurs.

New Accounting Pronouncements

In December 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure – an amendment of SFAS No. 123, Accounting for Stock Based Compensation. SFAS 148 provides additional transition guidance for those entities that elect to voluntarily adopt the accounting provisions of SFAS 123. SFAS 148 does not change the provisions of SFAS 123 that permit entities to continue to apply the intrinsic value method of Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees.

SFAS 148 is intended to encourage the adoption of the accounting provisions of SFAS 123. Under the provisions of SFAS 148, companies that choose to adopt the accounting provisions of SFAS 123 will be permitted to select from three transition methods:

(a) Prospective method. Apply the recognition provisions to all employee compensation awards granted, modified, or settled after the beginning of the fiscal year in which the recognition provisions are first applied. The prospective method, however, may no longer be applied for adoptions of the accounting provisions of SFAS 123 for periods beginning after December 15, 2003.

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(b) Modified prospective method. Recognize stock-based employee compensation cost from the beginning of the fiscal year in which the recognition provisions are first applied as if the fair value based accounting method had been used to account for all employee awards granted, modified, or settled in fiscal years beginning after December 15, 2004.

(c) Retroactive restatement method. Restate all periods presented to reflect stock-based employee compensation cost under the fair value based accounting method for all employee awards granted, modified, or settled in fiscal years beginning after December 15, 2004.

The Company has a stock option program. SFAS 123 encourages entities to recognize as expense over the vesting period the fair market value of all stock-based awards on the date of grant. Alternatively, SFAS 123 allows entities to continue to apply the provisions of APB 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock grants as if the fair-value method defined in SFAS 123 had been applied.

The Company has elected to follow APB 25, and SFAS 148 has no impact on the Company’s financial statements. Consequently, no compensation cost related to the stock option program is reflected in net income since all options under this program had an exercise price equal to the market value of the underlying common stock on the date of grant.

In January 2003, the FASB issued FASB Interpretation (“FIN”) No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51. The primary objective of FIN 46 is to provide guidance on the identification of, and financial reporting for, entities over which control is achieved through means other than voting rights; such entities are known as variable-interest entities. The adoption of FIN 46 during 2003 did not have a material impact on the Company’s financial statements.

In April 2003, the FASB issued SFAS No. 149 which amends SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, and establishes accounting and reporting standards for derivative instruments including derivatives embedded in other contracts (collectively referred to as derivatives) and for hedging activities. Adoption of SFAS 149 did not have a material impact on the Company’s financial statements.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. SFAS 150 clarifies the accounting for certain financial instruments with characteristics of debt that, under previous guidance, issuers could account for as equity. SFAS 150 requires that those instruments be classified as liabilities in statements of financial position. SFAS 150 became effective for financial instruments entered into or modified after May 31, 2003, and otherwise became effective July 1, 2003. Adoption of SFAS 150 did not have a material impact on the Company’s financial statements.

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The following table sets forth, for the periods indicated, the relative percentages which certain items in the Company’s consolidated statements of operations bear to revenue. The following information should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this report. Historical results and percentage relationships are not necessarily indicative of the results that may be expected for any future period.

RESULTS OF OPERATIONS (dollar amounts in thousands)

Years Ended December 31, 2003 and 2002

Revenue

Total net revenue in 2003 decreased by $3,411, or 6.0%, to $53,538 from $56,949 in 2002. The decrease in revenue is attributable primarily to measures implemented by management to eliminate unprofitable operations or lines of business, partially offset by increases in revenue at centers open for more than one year. Revenue decreased by $6,002 as compared to 2002 due to actions taken by the Company in early 2003 to eliminate unprofitable or low margin businesses. The termination of management contracts in Connecticut in January 2003 resulted in the elimination of $2,423 of revenue compared to 2002, and the reorganization of the Company’s operations in Tennessee, including the closure of two centers and the cessation of urgent care services, reduced revenue by an additional $3,579.

Revenue at centers in operation for comparable periods in both years increased by $2,453, or 4.9%, primarily due to a growth in revenue per visit as a result of price increases. Same center new injury initial visits were down 1.5% for the year but were ahead of last year during the second half of 2003, reflecting both the capture of market share by the Company and the positive effects of a slowly recovering economy. Prevention services in 2003 were flat. Additional revenue of $138 in 2003 was primarily attributable to a new center start-up late in the year.

Operating, General and Administrative Expenses

Operating expenses decreased $3,494, or 7.0%, to $46,309 in 2003 from $49,803 in 2002. The decrease was primarily due to the reduction in the number of centers under management, principally in Connecticut where a majority of the costs related to payments to third party providers for services rendered to the Company’s patients, and the elimination of urgent care services in Tennessee after March 31, 2003. These cost reductions were partially offset by consulting fees tied to the increase in revenue resulting from implementation of recommended improvements to the Company’s billing practices, increases in professional and general liability insurance premiums, and costs relating to an upgrade to the Company’s practice management system. As a percentage of revenue, operating expenses decreased to 86.5% in 2003 from 87.5% in 2002.

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General and administrative expenses decreased $186, or 3.8%, to $4,697 in 2003 from $4,883 in 2002, with a decrease in corporate employee-related costs being partially offset by an increase in regional management expenses. As a percentage of revenue, general and administrative expenses increased to 8.8% in 2003 from 8.6% in 2002.

Depreciation and Amortization

Depreciation and amortization expense increased 38.9% to $1,405 in 2003 from $1,012 in 2002. Depreciation expense increased to $1,336 in 2003 from $961 in 2002, primarily due to continued investment in information services-related equipment. Amortization expense increased to $69 in 2003 from $51 in 2002, primarily due to the amortization of non-compete agreements with sellers of businesses acquired by the Company in 2003. As a percentage of revenue, depreciation and amortization expense increased to 2.6% in 2003 from 1.8% in 2002.

Interest Expense

Interest expense increased to $650 in 2003 from $423 in 2002. The increase was attributable to the Company’s repurchase of its preferred stock in March 2003 in connection with which it increased its borrowings under its line of credit by $2,805 in order to pay $2,700 in cash to its preferred stockholders as well as the legal costs associated with the transaction, and issued $2,700 of 8% subordinated promissory notes. As a percentage of total revenue, interest expense increased to 1.2% in 2003 from 0.7% in 2002.

Minority Interest and Contractual Settlements

Minority interest represents the share of (profits) and losses of joint venture investors with the Company. In 2003, the minority interest in pre-tax profits of subsidiaries decreased to $(853) from $(891) in 2002, reflecting a reduction in the aggregate profits of the joint venture operations as compared to the prior year. Contractual settlements represent payments to, or receipts from, the Company’s partners under the Company’s management contracts in respect of the partners’ share of operating (profits) or losses, respectively. In 2003, the Company recorded receipt of $38 of funded operating losses and contractual settlements compared to $395 in 2002.

Tax (Benefit) Provision

There was a net tax benefit of $(99) in 2003 compared to a tax provision of $215 in 2002 because the Company reported a net loss for the year ended December 31, 2003. The effective tax rate for 2003 was (30.2%). The tax provision for 2002 includes $52 relating to an adjustment to the previously provided deferred tax benefit, and to state income taxes. These charges resulted in an increase in the Company’s effective tax rate in 2002 to 60.1% from the normalized rate of 45.5%. If the Company were to continue to operate at a loss, it may at some future time determine that it will be unable to utilize its deferred tax assets, primarily net operating loss carryforwards, before they expire. In such an event, it would record a valuation allowance equal to the carrying value of the deferred tax assets.

Years Ended December 31, 2002 and 2001

Revenue

Revenue in 2002 decreased by $68, or 0.1%, to $56,949 from $57,017 in 2001. A decrease in revenue of $1,948, or 3.4%, at centers in operation for comparable periods in both years was offset by revenue of $2,245 generated by centers opened during 2002. Revenue in 2001 included $365 from non-core businesses which were closed during 2001. The decrease in same center revenue in 2002 was primarily due to the general economic recession which had an especially negative effect on urgent care services. Revenue for urgent care services, which were offered only at the Company’s centers in Tennessee, decreased by $1,038, or 22.1%, versus the prior year. Because of the declining revenue, a high incidence of bad debts, and other economic reasons, the Company ceased offering urgent care services in Tennessee after March 31, 2003.

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Same center revenue in the Company’s core business of occupational medicine decreased 1.8% in 2002 compared to 2001. Including centers open less than a year, revenue in the Company’s core business increased $1,292, or 2.5%, with gains being recorded in all major categories other than prevention services. During periods of economic recession, prevention services generally decline in line with the magnitude of the slow down in economic activity. Although there can be no assurance that this will occur in the future, such a decline has historically reversed as the level of economic activity increases in the markets served by the Company.

Operating, General and Administrative Expenses

Operating expenses increased $1,327, or 2.7%, to $49,803 in 2002 from $48,476 in 2001. Same center operating expenses decreased $842 despite an increase of $444 in information services-related costs. To counter the downturn in its business as result of the weak economy, the Company reduced expenses in all facets of its operations including employee costs where same center costs decreased about 4% despite significant increases in the cost of employee benefits. As a percentage of revenue, operating expenses increased to 87.5% in 2002 from 85.0% in 2001, primarily due to expected early stage losses at centers acquired in 2002 and an increase in rehabilitation services provided by subcontractors.

General and administrative expenses decreased $213, or 4.2%, to $4,883 in 2002 from $5,096 in 2001, primarily due to the elimination of a number of management positions as part of the company-wide program to reduce expenses. Because of the payment of severance costs, the full benefit of these actions was not realized until 2003. As a percentage of revenue, general and administrative expenses decreased to 8.6% in 2002 from 8.9% in 2001.

Depreciation and Amortization

Depreciation and amortization expense decreased 20.0% to $1,012 in 2002 from $1,265 in 2001. Depreciation expense increased to $961 in 2002 from $911 in 2001, primarily due to continued investment in information services equipment. Amortization expense decreased to $51 in 2002 from $354 in 2001 because the Company adopted SFAS 142 on January 1, 2002 and no longer amortizes its goodwill. As a percentage of revenue, depreciation and amortization expense fell to 1.8% in 2002 from 2.2% in 2001.

Interest Expense

Interest expense decreased to $423 in 2002 from $507 in 2001. The decrease was due primarily to lower interest rates. As a percentage of total revenue, interest expense decreased to 0.7% in 2002 from 0.9% in 2001.

Minority Interest and Contractual Settlements

Minority interest represents the share of (profits) and losses of joint venture investors with the Company. In 2002, the minority interest in pre-tax profits of subsidiaries increased to $(891) from $(699) in 2001, reflecting the greater aggregate profits of the joint venture operations. Contractual settlements represent payments to, or receipts from, the Company’s partners under the Company’s management contracts in respect of the partners’ share of operating (profits) or losses, respectively. In 2002, the Company recorded receipt of $395 of funded operating losses and contractual settlements compared to $370 in 2001.

Tax Provision (Benefit)

There was a tax provision of $215 in 2002 compared to a net tax benefit of $(2,695) in 2001. The tax provision for 2002 includes $52 relating to an adjustment to the previously provided deferred tax benefit, and to state income taxes. These charges resulted in an increase in the Company’s effective tax rate to 60.1% from the normalized rate of 45.5%. At December 31, 2001, the Company, having determined that its operating results and forecasted future income supported an assertion that ultimate realization of its net deferred tax assets was more

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likely than not, fully released the valuation allowance which had in prior years offset such deferred tax assets, and recorded a deferred tax benefit of $2,768. The Company also recorded tax expense of $73 in 2001, primarily relating to state income taxes.

Off Balance Sheet Arrangements

The Company does not currently have any off balance sheet arrangements.

Significant Accounting Contractual Obligations

The following summarizes the Company’s contractual obligations at December 31, 2003, and the effect such obligations are expected to have on its liquidity and cash flows in future periods.

Liquidity and Capital Resources

At December 31, 2003, the Company had negative working capital of $3,132 compared to positive working capital of $4,049 in 2002 and $4,453 in 2001. Of the total decrease in working capital, $5,672 related to the repurchase by the Company of its Series A Convertible Preferred Stock (the “Preferred Stock”). The Company increased its borrowings under its line of credit by $2,805 in order to pay $2,700 in cash to the preferred stockholders and $105 of legal costs associated with the transaction. It has also recognized as a current liability $2,867 of notes payable, inclusive of accrued interest, issued to the preferred stockholders. The Company’s principal sources of liquidity at December 31, 2003 consisted of (i) cash and cash equivalents aggregating $1,744 and (ii) uncollateralized accounts receivable of $1,769.

Net cash provided by operating activities in 2003 was $2,959 compared to $2,606 in 2002 and $3,957 in 2001. The increase of $353 in 2003 compared to 2002 was due to a positive net change in operating assets and liabilities of $759 which was partially offset by a decrease in profitability of $406, after adjusting for non-cash charges. The decrease of $1,351 in net cash provided by operating activities in 2002 compared to 2001 was primarily due to a decrease in profitability, after adjusting for non-cash charges.

Accounts receivable decreased to $8,771 in 2003 from $9,736 in 2002 and $11,211 in 2001. The reduction in accounts receivable in each of the last two years is attributable in part to the decrease in the Company’s revenue over the period resulting from the reduction in the number of centers under management and the elimination of urgent care services, and in part from the administrative efficiencies gained from centralizing the Company’s billing procedures, a process which began in late 2001. Days sales outstanding at December 31, 2003, 2002 and 2001 were 60, 62, and 72, respectively.

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Prepaid expenses and other assets decreased $28 in 2003 as compared to 2002. In 2002, prepaid and other assets increased $390 from 2001, primarily due to the prepayment of one month’s estimated employee medical costs to the Company’s new medical insurance administrator. Prepaid expenses and other assets decreased $535 in 2001 from 2000, primarily due to final settlement in 2001 of amounts owed the Company by a hospital system partner responsible for funding first year working capital deficiencies and by a client under a managed care contract which expired in mid year.

Accounts payable and accrued expenses decreased $44 in 2003 to $5,906 from $5,950 in 2002. Amounts due to third-party providers decreased $768, primarily due to the termination of a long-term management contract in Connecticut and conversion to on-site rehabilitation services upon the purchase of five centers in Tennessee. Effective January 1, 2003, the Company reduced the amount of earned but unused vacation time an employee may carry over to the following year, resulting in a decrease of $242 in the accrued vacation liability. Accounts payable increased $348 due to normal variances in the payment cycle. An increase of $293 in accrued professional fees related primarily to consulting fees tied to the increase in revenue resulting from implementation of recommended improvements to the Company’s billing practices. Accrued interest expense increased $180, primarily relating to the notes issued in connection with the repurchase of the Preferred Stock in March 2003. The professional liability accrual increased $163, primarily to recognize the actuarially determined liability for future payments for claims that have been reported and claims that have occurred but have not been reported.

Accounts payable and accrued expenses decreased $806 in 2002 from $6,756 in 2001, primarily due to prompter settlement of both medical claims by the Company’s new employee medical insurance administrator and amounts due to certain third-party providers who provide medical services to the Company’s patients, and to a smaller employee incentive pay liability.

Net cash used in investing activities was $1,160, $1,006, and $161 in 2003, 2002, and 2001, respectively. The Company’s investing activities included fixed asset additions of $678, $891, and $993 in 2003, 2002, and 2001, respectively, primarily related to information services equipment.

In 2003, net cash used in investing activities included $482, primarily relating to the purchase of an occupational health practice in Murfreesboro, Tennessee with an initial cash outlay of $150, and the purchase of five centers in Nashville, Tennessee previously managed by the Company with an initial cash outlay of $300.

In 2002, net cash used in investing activities included $115, primarily relating to the purchase of two occupational health centers in New Jersey. In 2001, investing activities included the purchase of a physician business with a cash outlay of $77 and payments of $211 relating to earnouts in connection with previously acquired businesses.

In 2001 net cash used in investing activities also included receipt by the Company of $872 under an agreement with a hospital system to manage its ambulatory care centers where the system provided working capital necessary to fund the working capital deficiencies (as defined) during the first twelve months of operations.

Net cash used by financing activities was $1,729, $1,533, and $3,632 in 2003, 2002, and 2001, respectively. In 2003, the Company increased its borrowings, after repayments, under its line of credit by $3,061, primarily in connection with the repurchase of its Preferred Stock in March 2003. In 2002 and 2001, the Company paid down $198 and $2,153, net of advances, respectively, under its line of credit. The pay down in 2001 was primarily due to the strong operating performance that year and the net receipt of $872 to fund the working capital deficiencies described in the preceding paragraph.

Under lease arrangements with certain leasing companies, the Company accumulates its fixed asset purchases until the value of those purchases reach a certain minimum amount before requesting a draw down from its lease lines. In 2003, 2002 and 2001, cash proceeds of $139, $766 and $398, respectively, were received under its lease lines, primarily to fund information services equipment. The Company used funds of $1,181, $1,205, and $1,072 in 2003, 2002, and 2001, respectively, for the payment of long-term debt and capital lease obligations.

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During the twelve months ended December 31, 2003, 2002, and 2001, the Company paid cash of $845, $886, and $773, respectively, relating to distributions to its joint venture partners. Distributions of cash in joint ventures to the Company and its joint venture partners allow the Company access to its share of the cash accumulated by the joint ventures which it can then utilize for general corporate purposes. The Company expects to continue to make future distributions when the cash balances in the joint ventures permit.

Capital Stock

In 2003, net cash used by financing activities included $2,805 in connection with the Company’s repurchase on March 24, 2003 of all of its outstanding Preferred Stock, namely 1,416,667 shares, for (i) $2,700 in cash at closing, (ii) subordinated promissory notes (the “Notes”) in the aggregate principal amount of $2,700, and (iii) 1,608,247 shares of the Company’s common stock. The Company incurred $105 of legal expenses in connection with this transaction. The Notes bear interest at 8% and are payable in three equal principal installments, together with interest accrued thereon, 12, 15, and 18 months after the date of issuance. In the event a principal payment is not made when due, the interest rate on the past due principal and interest amount will increase to 15% until the default is cured. A default under the Notes permits the Note holders to accelerate payment of all unpaid principal and interest. However, under the CapitalSource Credit Line, no amounts can be paid to the Note holders without the express approval of CapitalSource.

On March 24, 2004, the Company paid $450 of the $900 principal amount due on its Notes together with accrued interest thereon of $36. Beginning March 24, 2004, the unpaid principal and interest is $2,286. The Company elected to enter into such default in order to conserve its cash resources for operating purposes. The default under the Notes created a cross default under the CapitalSource Credit Line. Accordingly, the Company obtained a waiver from CapitalSource on March 30, 2004 which waives any similar cross default that will occur as a result of any additional partial payment of the Notes by the Company through March 31, 2005. Also on March 30, 2004, the Note holders agreed to waive such default through March 31, 2005 and agreed not to pursue any remedies related to the failure to make a full installment payment on the Notes. The Company anticipates making additional payments on the Notes in future months and expects to generate sufficient funds to repay the full principal amount of $2,700 by December 31, 2004. However, if cash is needed for operations the Company will continue to defer payments on the Notes.

Until the repurchase by the Company of its Preferred Stock, holders of the Preferred Stock constituting a majority of the then outstanding shares of the Preferred Stock, by giving notice to the Company, could have required the Company to redeem all of the outstanding shares of the Preferred Stock at $6.00 per share plus an amount equal to all dividends accrued or declared but unpaid thereon, payable in four equal annual installments. If the Company had not completed the repurchase of the Preferred Stock on March 24, 2003, and the preferred stockholders had, instead, put their shares for redemption on that date, the Company would have been obligated to pay the preferred stockholders $2,700, $2,870, $3,040, and $3,210 on April 24, 2003, 2004, 2005, and 2006, respectively. Under the agreement to repurchase its Preferred Stock, the Company paid $2,700 in cash and is obligated to pay $2,970, including interest at 8%, in 2004.

On December 17, 2003, the Company retired 100,502 shares of common stock being held as treasury stock, with the effect that such shares resumed the status of authorized but unissued shares of common stock of the Company.

Secured Credit Facility

On December 15, 2000, the Company entered into an agreement with DVI Business Credit Corporation (“DVI”), an asset-based lender, for a revolving line of credit (the “DVI Credit Line”) of up to $7,250. The DVI Credit Line was collateralized by present and future assets of certain operations of the Company. The borrowing base consisted of a certain percentage of eligible accounts receivable (as defined in the agreement). Under the terms of the agreement, the Company paid a commitment fee of 0.5% of the unused portion of the DVI Credit Line and certain additional fees. The interest rate under the Credit Line was the prime rate plus 1%.

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Effective March 18, 2003, the financial covenants under the DVI Credit Line included a quarterly tangible net worth requirement of $2,500 (defined as shareholders’ equity plus subordinated debt, and minority interests less intangible assets, goodwill, deferred tax assets, leasehold improvements, deposits and certain prepayments), a leverage coverage ratio not greater than 5.00 to 1.00, and a fixed charge ratio not less than 1.25 to 1.00 as well as certain restrictions relating to the acquisition of new businesses without the prior approval of DVI. The Company was not in compliance with one of its financial covenants for the three months ended June 2002, nor with certain of its covenants during the three months ended March 31 and June 30, 2003 and was granted waivers by DVI in each instance.

On August 21, 2003, shortly before filing for Chapter 11 bankruptcy protection, DVI sold the Company’s loan to a subsidiary of CapitalSource Inc. (“CapitalSource”), a publicly traded asset-based lender. As of September 30, 2003, the Company did not meet any of its three financial covenants and was granted a waiver by CapitalSource.

On December 15, 2003, the Company entered into an agreement with CapitalSource for a new three-year revolving line of credit (the “CapitalSource Credit Line”) of up to $7,250. The CapitalSource Credit Line is collateralized by present and future assets of certain operations of the Company. The borrowing base consists of a certain percentage of eligible accounts receivable (as defined in the agreement). Under the terms of the agreement, the Company pays a commitment fee of 0.6% of the unused portion of the CapitalSource Credit Line and certain other fees. The interest rate under the CapitalSource Credit Line is the prime rate plus 1%, subject to a floor of 4% on the prime rate.

The financial covenants under the CapitalSource Credit Line consist of a fixed charge ratio (defined as the ratio, for a defined period, of earnings before interest, taxes, depreciation, amortization, and other non-cash charges and non-recurring gains and losses to the sum of payments on long-term debt, exclusive of the Notes, and capital leases, accrued interest and dividends, and capital expenditures and income taxes paid in cash) of not less than 1.20 to 1.00, tested monthly on a trailing six months’ basis, commencing January 2004, and minimum liquidity (defined as the sum of unrestricted cash on hand, the Company’s pro rata share of cash on hand in its joint ventures, and the unborrowed availability under the CapitalSource Credit Line) of $1,000. In 2003, the fixed charge ratio was set at not less than 1.00 to 1.00 on a trailing four months’ basis through November 30, 2003 and a trailing five months’ basis through December 31, 2003. During the term of the agreement, the Company may enter into new capital lease obligations of up to $1,000 and must obtain the prior approval of CapitalSource before acquiring any new business. The Company was in compliance with its financial covenants through December 31, 2003. As of and for the trailing five months ended December 31, 2003, the Company’s fixed charge ratio was 1.29 and its minimum liquidity $2,469.

The default under the Notes created a cross default under the CapitalSource Credit Line. Accordingly, the Company obtained a waiver from CapitalSource on March 30, 2004 which waives any similar cross default that will occur as a result of any additional partial payment of the Notes by the Company through March 31, 2005. Also on March 30, 2004, the Note holders agreed to waive such default through March 31, 2005 and agreed not to pursue any remedies related to the failure to make a full installment payment on the Notes.

Based on its projections, the Company expects to be in compliance during 2004 with its covenants under the CapitalSource Credit Line, as amended by the waiver granted on March 30, 2004. However, there can be no assurance that the Company will meet its projections and, if it does not, it may not be in compliance with its covenants in the future.

Lease Lines

In March 2001, the Company entered into an agreement for an equipment facility (the “Lease Line”) of $750 to provide secured financing. Borrowings under the facility are repayable over 42 months. The interest rate was based upon the 31 month Treasury Note (“T-Note”) plus a spread and fluctuated with any change in the T-Note rate up until the time of payment commencement for each draw down. At December 31, 2003, the Company had utilized all of its Lease Line.

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In August 2002, the Company entered into an agreement for secured equipment lease financing in the approximate amount of $1,600 with Somerset Capital Group, Ltd. (the “Somerset Line”). Borrowings under the facility are repayable over 36 months. The lease-rate factors were based upon the 36-month Treasury Note yield ten days prior to payment commencement for each draw down. At the end of the lease term, the Company may purchase the equipment for its fair market value, renew the lease on a year-to-year basis at its then fair market value, or return the equipment with no further obligation. The Company has utilized this lease line primarily to fund its equipment needs relating to the upgrade of its practice management system. At December 31, 2003, the Company had utilized all of its Somerset Line.

In December 2003, the Company entered into an agreement for secured equipment lease financing of approximately $330 with GE Healthcare Financial Services, Inc. Borrowings under the facility are repayable over 60 months. The interest rate is to be set at 4.80 percentage points above the yield on 5 Year Interest Rate Swaps on the payment commencement date for each draw down. At December 31, 2003, the 5 Year Interest Rate Swap was 3.61% and the Company had not drawn down on the lease line.

The Company expects that its principal use of funds in the foreseeable future will be for the repayment of the Notes, and for acquisitions and the formation of joint ventures, working capital requirements, other debt repayments, and purchases of property and equipment. The Company believes that the funds available to it under the CapitalSource Credit Line together with cash generated from operations and other sources of funds it anticipates will be available to it, will be adequate to meet these projected needs. However, the Company recognizes that the level of financial resources available to it is an important competitive factor and it will consider additional financing sources as appropriate, including raising additional equity capital on an on-going basis as market factors and its needs suggest, since additional resources may be necessary to fund its expansion efforts.

Inflation

The Company does not believe that inflation had a significant impact on its results of operations during the last two years. Further, inflation is not expected to adversely affect the Company in the future unless it increases substantially and the Company is unable to pass through the increases in its billings.

Seasonality

The Company is subject to the seasonal fluctuations that impact the various employers and their employees it serves. Historically, the Company has noticed these impacts in portions of the first and fourth quarters. Traditionally, revenues are lower during these periods since patient visits decrease due to the occurrence of plant closings, vacations, holidays, a reduction in new employee hires, and inclement weather. These activities also cause a decrease in drug and alcohol tests, medical monitoring services, and pre-employment examinations. Similar fluctuations occur during the summer months, but typically to a lesser degree than during the first and fourth quarters. The Company attempts to ameliorate the impact of these fluctuations through adjusting staff levels.

Professional Liability Insurance Risk

The Company maintains professional liability insurance coverage both on the Company as an entity and in the name of its employed physicians, as well as an umbrella policy to supplement that coverage. In recent years, the Company, in line with the healthcare industry in general, has experienced significant increases in the cost of such insurance. For its policy year commencing March 1, 2003, the cost to the Company for its professional liability and umbrella insurance approximately doubled to $669 from $343 in the prior policy year, despite the Company assuming more of the risk itself. The cost for the policy year commencing March 1, 2004, with similar coverage to 2003, will be $772, a 15.4% increase over the prior policy year. Maintenance of an appropriate level of professional liability insurance coverage is critical to the Company in order to attract and retain competent clinical staff, the core of its business. While the Company currently believes that it will continue to be able to purchase such insurance, there can be no assurance that the cost of doing so will not have a serious negative

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effect on its operating results since the price it can charge for many of its services is dependent upon fee schedules set by the states in which it operates and changes in those schedules generally lag the increase in medical-related costs.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company has considered the provisions of Financial Reporting Release No. 48, Disclosure of Accounting Policies for Derivative Financial Instruments and Derivative Commodity Instruments, and Disclosure of Quantitative and Qualitative Information about Market Risk Inherent in Derivative Financial Instruments, Other Financial Instruments and Derivative Commodity Instruments. The Company had no holdings of derivative financial or commodity-based instruments or other market risk sensitive instruments entered into for trading purposes at December 31, 2003. As described in the following paragraph, the Company believes that it currently has no material exposure to interest rate risks in its instruments entered into for other than trading purposes.

Interest rates

The Company’s balance sheet includes a revolving credit facility and lease lines which are subject to interest rate risk. The revolving credit loan is priced at a floating rate of interest while the interest rates on the lease lines are subject to market fluctuations until a draw down is effected. As a result, at any given time, a change in interest rates could result in either an increase or decrease in the Company’s interest expense. The Company performed a sensitivity analysis as of December 31, 2003 to assess the potential effect of a 100 basis point increase or decrease in interest rates and concluded that near-term changes in interest rates should not materially affect the Company’s consolidated financial position, results of operations, or cash flows.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The auditors’ reports, consolidated financial statements and financial statement schedule that are listed in the Index to the Consolidated Financial Statements and Financial Statement Schedule on page 45 hereof are incorporated herein by reference.

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

None.

ITEM 9A. CONTROLS AND PROCEDURES

At the end of the period covered by this report, an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures was conducted under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were adequate and designed to ensure that information required to be disclosed by the Company in this report is recorded, processed, summarized and reported in a timely manner, including that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There were no significant changes in internal controls or in other factors that could significantly affect internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses in internal controls, subsequent to the evaluation described above.

Reference is made to the Certifications of the Chief Executive Officer and Chief Financial Officer about these and other matters that are filed as exhibits to this report.

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

As of March 1, 2004, the executive officers and directors of the Company were:

John C. Garbarino, a founder of OH+R, was its President and Chief Executive Officer and a director since its formation in July 1992 and has been President, Chief Executive Officer and a director of the Company since the Merger. From February 1991 through June 1992, Mr. Garbarino served as President and Chief Executive Officer of Occupational Orthopaedic Systems, Inc., a management company that operated Occupational Orthopaedic Center, Inc., a company which was the initial acquisition of OH+R. From 1985 to January 1991, Mr. Garbarino was associated in various capacities with Foster Management Company (“Foster”), a private investment company specializing in developing businesses to consolidate fragmented industries. In his association with Foster, Mr. Garbarino was a general partner and consultant and held various senior executive positions (including Chief Executive Officer, Chief Operating Officer and Chief Financial Officer) in Chartwell Group Ltd., a Foster portfolio company organized to consolidate through acquisitions the highly fragmented premium priced segment of the interior furnishings industry. Previously, Mr. Garbarino participated in the venture capital industry as a founder and general partner of Fairfield Venture Partners, L.P. and as vice president and treasurer of Business Development Services, Inc., a venture capital subsidiary of General Electric Company. Mr. Garbarino is a Certified Public Accountant and previously worked at Ernst & Whinney (a predecessor to Ernst & Young LLP).

Lynne M. Rosen, a founder of OH+R, was appointed Chief Operating Officer in October 2001. She had served as Senior Vice President, Operations of the Company since March 1999. From 1997 to 1999, Ms. Rosen served as Senior Vice President, Planning and Development. Ms. Rosen had previously held the positions of Vice President and Assistant Secretary since the Merger. From April 1988 through June 1992, Ms. Rosen held various positions with Occupational Orthopaedic Center, Inc., including general manager. Ms. Rosen was an athletic trainer at the University of Pennsylvania Sports Medicine Center from 1986 to March 1988 and at the University of Rhode Island from 1985 to 1986.

H. Nicholas Kirby was appointed Senior Vice President, Sales and Development in September 2003. Prior to that he served as Senior Vice President, Corporate Development from January 1998 and as Vice President, Corporate Development from June 1996. From August 1994 to June 1996, he was the Company’s Director of Operations in Maine. Mr. Kirby was a founder and President of LINK Performance and Recovery Systems, Inc. (“LINK”) from January 1986 until the sale of the company to OH+R in August 1994. LINK was an occupational health company headquartered in Portland, Maine.

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Keith G. Frey joined the Company as Vice President, Administration in 2000 and was appointed Chief Financial Officer and Secretary in October 2000. Prior to joining the Company, Mr. Frey served as a part-time consultant to the Company from September 1999. From 1991 until its sale in 1998, he was a principal in IL International Inc., a contemporary lighting company, and served as President of its North American operations. From 1987 to 1991, Mr. Frey was Chief Financial Officer of Chartwell Group Ltd., an interior furnishings company. From 1981 to 1987, he served as chief financial officer of two start-up operations. Mr. Frey also spent thirteen years with General Mills, Inc. in senior financial positions in various consumer products divisions both in England and the United States. He is a Chartered Accountant.

William B. Patterson, MD, MPH, FACOEM was appointed Chief Medical Officer in January 2003. He has also served as Chair of the Company’s Medical Policy Board since September 1998. He served as Medical Director of the Company’s Massachusetts operations from August 1997 when New England Health Center, a company of which he was the founder and president was acquired by the Company, until June, 2000. Dr. Patterson is board certified in both internal medicine and occupational/environmental medicine. He has served as President of the New England College of Occupational and Environmental Medicine and is on its Board of Directors. Dr. Patterson is as an assistant professor at the Boston University School of Public Health. He has a teaching appointment at the Harvard School of Public Health and has been a consultant to many large corporations and government agencies in occupational and environmental medicine.

Edward L. Cahill has served as a director of the Company since November 1996. Mr. Cahill is a Managing Partner of HLM Venture Partners, a venture capital firm specializing in health care companies. He was a founding partner of Camden Partners (aka “Cahill, Warnock”), a private equity firm. Prior to founding Camden Partners in July 1995, Mr. Cahill had been a Managing Director at Alex Brown & Sons Incorporated where, from 1986 through 1995, he headed the firm’s Health Care Investment Banking Group. Mr. Cahill is also a director of Guava Technologies, Johns Hopkins Medicine and several private companies.

Kevin J. Dougherty served as a director of OH+R from July 1993 and has been a director of the Company since the Merger. Mr. Dougherty is currently a General Partner of The Venture Capital Fund of New England, a venture capital firm he joined in April 1986, and a director of several private companies. Previously, he participated in the venture capital industry as Vice President of 3i Capital Corporation from 1985 to 1986, and as Vice President of Massachusetts Capital Resource Company from 1981 to 1985. Prior to that, Mr. Dougherty served as a commercial banker at Bankers Trust Company and the First National Bank of Boston.

Angus M. Duthie served as a director of OH+R from June 1992 and has been a director of the Company since the Merger. Mr. Duthie is currently a General Partner of Prince Ventures, L.P., a venture capital firm he co-founded in 1978, and a director of several private companies. Mr. Duthie has over 30 years of experience involving portfolio management.

Steven W. Garfinkle has served as a director of the Company since July 1998. Since January 2002, Mr. Garfinkle has served as Chairman and Chief Executive Officer of Advanced Care Solutions, Inc., a start-up medical staffing company. From November 1999 to December 2001, he served as President and Chief Executive Officer of Maestro Learning, Inc. From September 1998 to November 1999, he was a principal in NorthStar Health Advisors LLC, a private healthcare consultancy group. Mr. Garfinkle served as Chairman and Chief Executive Officer of Prism Health Group Inc. (“Prism”) from 1992 until Prism was sold to Mariner Health, Inc. in 1997 and from 1991 to 1992 was President of New England Health Strategies. From 1982 to 1991, Mr. Garfinkle served as Chief Operating Officer and in several other senior management positions for the Mediplex Group, Inc.

Donald W. Hughes has served as a director of the Company since December 1997 and is a General Partner and Chief Financial Officer of Cahill, Warnock. Prior to joining Cahill, Warnock in February 1997, Mr. Hughes had served as Vice President, Chief Financial Officer and Secretary of Capstone Pharmacy Services, Inc.

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(Nasdaq: DOSE) from December 1995, and as Executive Vice President and Chief Financial Officer of Broventure Company Inc., a closely-held investment management company from July 1984 to November 1995. Mr. Hughes is also a director of Touchstone Applied Science Associates, Inc. (OTCBB: TASA) and several private companies.

Frank H. Leone has served as a director of the Company since July 1998. In 1985, Mr. Leone founded and has since served as President/Chief Executive Officer of RYAN Associates, and he is the founder and Executive Director of the National Association of Occupational Health Professionals (N.A.O.H.P.). Mr. Leone is also the executive editor of four leading occupational health periodicals: “VISIONS,” “Partners,” the “Workers’ Compensation Managed Care Bulletin,” and the “Clinical Care Update.”

The directors are elected to three-year terms or until their successors have been duly elected and qualified. The terms of Kevin J. Dougherty and Frank H. Leone expire at the 2004 Annual Meeting of Stockholders. The terms of Angus M. Duthie, John C. Garbarino and Steven W. Garfinkle expire in 2005. The terms of Edward L. Cahill and Donald W. Hughes expire in 2006.

Pursuant to the terms of a Stockholders’ Agreement (the “Stockholders’ Agreement”) dated as of November 6, 1996, by and among the Company and certain of the Company’s stockholders, Angus M. Duthie was elected a director in 1999 as the designee of the Telor Principal Stockholders, as defined in the Stockholders’ Agreement. The Stockholders’ Agreement was amended on May 24, 2001 in connection with the distribution by Prince Venture Partners III, L.P. to its partners of the shares of Common Stock held by it, for the purpose of terminating the right of the Telor Principal Stockholders to designate a director, and releasing them from their obligations under the Stockholders’ Agreement arising from their status as Telor Principal Stockholders. Under the Stockholders’ Agreement as amended and restated on March 24, 2003 in connection with the Company’s repurchase of its Preferred Stock, certain of the Company’s stockholders have agreed to vote all of their shares of Common Stock to elect certain nominees to the Company’s board of directors. The Stockholders’ Agreement provides that such nominees are to be determined as follows: (a) the Chief Executive Officer of the Company (presently, John C. Garbarino); (b) a person designated by the OH+R Principal Stockholders, as defined in the Stockholders’ Agreement (presently, Kevin J. Dougherty); (c) two persons designated by Cahill, Warnock Strategic Partners Fund, L.P. (presently, Edward L. Cahill and Donald W. Hughes); (d) a person designated by the Chief Executive Officer (presently, Angus M. Duthie); and (e) two persons unaffiliated with the management of the Company (the “Independent Directors”) and mutually agreeable to all of the other directors (presently, Steven W. Garfinkle and Frank H. Leone).

Executive officers serve at the discretion of the Company’s Board of Directors. There are no family relationships among the executive officers and directors nor are there any arrangements or understandings between any executive officer and any other person pursuant to which the executive officer was selected.

Other Key Officers

As of March 1, 2004, other key contributing officers of the Company were:

Mark S. Flieger joined the Company as Vice President, Information Services in July 2000 and in December 2001 was appointed Senior Vice President, Information Services. From 1995 to 2000, he held leadership positions with Harvard Pilgrim Health Care, including Senior Director, Information Technology Project Office,

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Y2K Program Manager, and Manager, IT Services for a five center primary care practice in Rhode Island. From 1992 to 1995, Mr. Flieger served as Director of Information Systems and Claims for Health Advantage of Rhode Island, Inc., a Preferred Provider Organization of 2,000 providers and 13 hospitals serving over 60,000 members in Southern New England. Other prior positions include Programmer Analyst and then Manager of Computer Training and Support at Health Systems, Inc. from 1987 to 1992. From 1983 to 1987 he served as a Systems Analyst for the Center for Health Promotion and Environmental Disease Prevention within the Massachusetts Department of Public Health.

Janice M. Goguen has served Vice President, Finance and Controller since May 2000. Previously, she had served as Corporate Controller since joining the Company in October 1997. From November 1992 through October 1997, Ms. Goguen was Corporate Controller for AdvantageHEALTH Corporation, which merged with HEALTHSOUTH Corporation. From August 1985 to November 1992, Ms. Goguen was employed by Ernst & Young, LLP where she planned, managed and executed audits of publicly held, privately owned, and non-profit companies. Ms. Goguen is a Certified Public Accountant.

Patti E. Walkover was appointed Vice President, Reimbursement and Contracting in January 2003. She joined the Company in March 1999 as Vice President, Network Operations. From April 1996 to February 1999, Ms. Walkover served as Vice President, New Markets and Vice President of Operations, respectively, for Healthcare First, a regionally based workers’ compensation managed care company, where she was responsible for network development and operations in New England and New York. Healthcare First was acquired by Gates McDonald in October 1998. Ms. Walkover was Director of Occupational Health and Workers’ Compensation Managed Care at VHA East in Philadelphia from February 1993 to March 1996 where she developed the TeamWorks occupational health plan. Her prior positions include Program Director for the Occupational Health Center at Chester County Hospital (January 1992 to January 1993), and Administrative Director at the Crozier Center for Occupational Health (November 1989 to December 1991), a multi-site occupational health program in greater Philadelphia.

Mary E. Kenney has served as Vice President, Northeast Operations since October 2001. She joined the Company in January 1995 as Manager of Clinical Services, Maine, and served as Regional Operations Director, Maine from May 1998 through September 2001. From May 1990 through December 1994, Ms. Kenney served as Executive Director for the Center for Health Promotion, a division of Maine Medical Center, the largest single provider of occupational medical services in the state of Maine. Other leadership positions included Program Director for Health Promotion and Cardiac Rehabilitation for Geisinger Medical Center in Pennsylvania. In these positions Ms. Kenney was responsible for the start-up and development of the programs, as well as financial and operational oversight.

Thomas J. Ward joined the Company as Vice President, Operations in April 2002. Prior to joining the Company, Mr. Ward served ten years with Concentra, Inc., the nation’s largest company focusing on occupational health services, most recently as Vice President of Business Development. From March 1992 through April 2001, he served as Vice President of Operations with responsibility for a $75 million business unit. From 1987 until February 1992, Mr. Ward served as Director of Operations of The Holly Clinic in Denver, CO where he successfully developed a start-up occupational medicine business into five large, profitable centers. From 1982 through 1987, he served as Director of Operations for Medical Centers of Colorado in Denver, CO, a multi-site urgent care/occupational medicine group. From 1980 to 1982 Mr. Ward served as Assistant Administrator, Ambulatory Services for The Children’s Hospital in Denver, CO.

Audit Committee Financial Expert

The board of directors of the Company has determined that the chair of the audit committee, Donald W. Hughes, has the attributes of an “audit committee financial expert” pursuant to the regulations of the SEC. However, Mr. Hughes may not be considered “independent” pursuant to the listing standards of the Nasdaq Stock Market, if the Company’s securities were so listed (which they are not), since Mr. Hughes is a general partner of a stockholder of the Company that owns in excess of 10% of the Company’s common stock.

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Stockholders should understand that this designation is a disclosure requirement of the SEC related to Mr. Hughes’ experience and understanding with respect to certain accounting and auditing matters. The designation does not impose on Mr. Hughes any duties, obligations or liability that are greater than are generally imposed on him as a member of the audit committee and board of directors, and his designation as an audit committee financial expert pursuant to this SEC requirement does not affect the duties, obligations or liability of any other member of the audit committee or board of directors.

Code of Ethics

The Company has a code of conduct applicable to all employees, including all officers and its independent directors who are not employees of the company, with respect to their Company-related activities. Among other directives, this code of conduct contains guidelines designed to deter wrongdoing and to promote honest and ethical conduct and compliance with applicable laws and regulations. The full text of the Company’s code of conduct may be obtained without charge by an oral or written request to the Company’s chief financial officer at the Company’s principal executive offices.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Act”), requires the Company’s executive officers, as defined for the purposes of Section 16(a) of the Act, and directors and persons who beneficially own more than ten percent of the Company’s Common Stock to file reports of ownership and changes in ownership with the SEC. Except for the late filing of Forms 4 with respect to the grant of stock options in December 2003 to Edward L Cahill, Kevin J. Dougherty, Angus M. Duthie, Keith G. Frey, Steven W. Garfinkle, Donald W. Hughes, Frank H. Leone, and William B. Patterson, and based solely on reports and other information submitted by the executive officers, directors and such beneficial owners, the Company believes that during the fiscal year ended December 31, 2003, all such reports were timely filed.

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ITEM 11. EXECUTIVE COMPENSATION

Summary Compensation

The following table sets forth certain information regarding the compensation paid by the Company to the Company’s Chief Executive Officer, and the other executive officers whose salary and bonus exceeded $100,000 in 2003 (together the “Named Executive Officers”) for services rendered in all capacities to the Company and its subsidiaries for the fiscal years ended December 31, 2003, 2002 and 2001.

SUMMARY COMPENSATION TABLE

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Option Grants

The following table sets forth information with respect to stock options granted to the Named Executive Officers during the fiscal year ended December 31, 2003.

OPTION GRANTS IN LAST FISCAL YEAR

Individual Grants

Option Exercises and Year-End Values

The following table sets forth information concerning option holdings as of December 31, 2003 with respect to the Named Executive Officers.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR

AND FISCAL YEAR-END OPTION VALUES

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Employment Agreements

John C. Garbarino has an employment agreement with the Company dated June 6, 1996. The term of the agreement is two years from such date and renews automatically for successive one-year periods until terminated. The agreement provides for an annual salary of $180,000, subject to increase on an annual basis in the discretion of the board of directors, and bonus as may be determined by the Compensation Committee of the board of directors. Mr. Garbarino is subject to a covenant not to compete with the Company for six months after the termination of his employment. If the Company terminates the agreement without “cause” (as defined in the agreement), or if Mr. Garbarino becomes incapacitated, or if Mr. Garbarino resigns from the Company for “just cause” (as defined in the agreement), then the Company is obligated to pay to Mr. Garbarino six months’ base salary in consideration of his covenant not to compete.

Director Compensation

Except for the Independent Directors, the Company’s directors do not receive any cash compensation for service on the Company’s board of directors or any committee thereof, but all directors are reimbursed for expenses actually incurred in connection with attending meetings of the Company’s board of directors and any committee thereof. In 2003, each of the Independent Directors received $2,000 for each meeting of the Company’s board of directors he attended.

Upon election to the Company’s board of directors, each Independent Director was granted a non-qualified stock option to purchase 20,000 shares of the Company’s Common Stock. In December 2003, each Independent Director was granted a non-qualified stock option to purchase 5,000 shares of the Company’s Common Stock as compensation for services rendered in 2003. Except for the Independent Directors, the Company granted in December 2003 to each director who was not an employee a non-qualified stock option to purchase 2,000 shares of the Company’s Common Stock as compensation for services rendered in 2003. The exercise price of all such option grants was the fair market value of the Company’s Common Stock on the date of grant. All such options vest ratably over four years on each of the first four anniversary dates of the dates of grant and are exercisable for a period of ten years.

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

The following table sets forth certain information regarding beneficial ownership of the Company’s Common Stock as of March 1, 2004 by (i) each person known by the Company to own beneficially more than five percent of the Common Stock of the Company, (ii) each director and nominee for director of the Company, (iii) each Executive Officer of the Company named in the Summary Compensation Table and (iv) all directors and executive officers of the Company as a group. Except as otherwise indicated, all shares are owned directly. Except as indicated by footnote, and subject to community property laws where applicable, the Company believes that the persons named in the table have sole voting and investment power with respect to all shares of Common Stock indicated.