##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2002
Or

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

For the transition period from ___________________ to ___________________

Commission File Number: 000-25273

INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
(Exact name of registrant as specified in its charter)

|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Florida                                                        |  | 59-3422536                          
|                                                               |  |                                     
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification No.)
|                                                              
|                                                              
|                                                              
|                                                              
|                                                              
|360 Central Avenue, St. Petersburg, Florida                    |  | 33701                               
|                                                               |  |                                     
|(Address of Principal Executive Offices)                       |  | (Zip Code)                          

(727) 803-2040
Registrants telephone number, including area code

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 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 the number of shares outstanding of each of the issuers classes of
common stock as of the latest practicable date:

|                                    |  |                                       
|----------------------------------- |  | --------------------------------------
|Class: Common Stock, $.01 par value |  | Outstanding at May 3, 2002: 12,276,063



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##### 



INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.

Form 10-Q Quarterly Report

TABLE OF CONTENTS

|                              |                                                                                               |                                                                                                                               |  |        |   | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------- |  | ------ | - | 
|                              |                                                                                               |                                                                                                                               |  | Page  
|                              |                                                                                               |                                                                                                                               |  | Number
|                              |                                                                                               |                                                                                                                               |  |       
|PART I. FINANCIAL INFORMATION |                                                                                               |                                                                                                                               |  |       
|                             
|                             
|                             
|                             
|                             
|                              | Item 1. Financial Statements                                                                  |                                                                                                                               |  | 1      |  
|                             
|                             
|                             
|                             
|                             
|                              |                                                                                               | Consolidated Balance Sheets as of December 31, 2001 and
March 31, 2002                                                        |  |        | 1 | 
|                             
|                             
|                             
|                             
|                             
|                              |                                                                                               | Consolidated Statements of Operations for the three months
ended March 31, 2001 and 2002                                      |  |        | 2 | 
|                             
|                             
|                             
|                             
|                             
|                              |                                                                                               | Consolidated Statement of Shareholders Equity for the year
ended December 31, 2001 and the three months ended March 31,
2002 |  |        | 3 | 
|                             
|                             
|                             
|                             
|                             
|                              |                                                                                               | Consolidated Statements of Cash Flows for the three months
ended March 31, 2001 and 2002                                      |  |        | 4 | 
|                             
|                             
|                             
|                             
|                             
|                              |                                                                                               | Notes to Consolidated Financial Statements                                                                                    |  |        | 5 | 
|                             
|                             
|                             
|                             
|                             
|                              | Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations |                                                                                                                               |  | 9      |  
|                             
|                             
|                             
|                             
|                             
|                              | Item 3. Quantitative and Qualitative Disclosures about Market Risk                            |                                                                                                                               |  | 12     |  
|                             
|                             
|                             
|                             
|                             
|PART II. OTHER INFORMATION    |                                                                                               |                                                                                                                               |  |       
|                             
|                             
|                             
|                             
|                             
|                              | Item 1. Legal Proceedings                                                                     |                                                                                                                               |  | 13     |  
|                             
|                             
|                             
|                             
|                             
|                              | Item 5. Other Information                                                                     |                                                                                                                               |  | 13     |  
|                             
|                             
|                             
|                             
|                             
|                              | Item 6. Exhibits and Reports on Form 8-K                                                      |                                                                                                                               |  | 14     |  

The statements contained in this report on Form 10-Q that are not purely
historical are forward-looking statements within the meaning of Section 27a of
the securities act of 1933 and Section 21e of the Securities Exchange Act of
1934, including statements regarding the companys expectations, hopes, beliefs,
intentions, or strategies regarding the future. Forward-looking statements
include statements regarding, among other things: (i) the ability to retain
material customers; (ii) the Companys intentions involving possible strategic
alternatives; (iii) the Companys financing plans; (iv) trends affecting the
Companys financial condition or results of operations; (v) the Companys
operating strategies; (vi) the impact of competition from new and existing
competitors; (vii) changes in the business and/or financial condition of the
Companys clients; (viii) the ability of Bankers Insurance Group, Inc. (BIG)
to repay outstanding indebtedness to the Company and the sufficiency of the
collateral securing such indebtedness; (ix) potential increases in the Companys
costs; (x) the potential for unfavorable interpretation of existing government
regulations or new government legislation; (xi) the impact of general economic
conditions on the demand for the Companys services; (xii) the impact of changes
in existing service agreements; (xiii) the ability to obtain new customers and
retain existing customers; (xiv) the ability to obtain third-party information
technology outsourcing services on a timely basis and at reasonable costs; (xv)
the outcome of certain litigation involving the Company; (xvi) the outcome of
certain administrative proceedings involving the Companys principal customer;
(xvii) trends affecting the insurance industry; and (xviii) the ability to
achieve expected expense reductions as a result of management initiatives.
Prospective investors are cautioned that any such forward-looking statements are
not guarantees of future performance and involve risks and uncertainties, and
that actual results may differ materially from those projected in the
forward-looking statements as a result of various factors. All forward-looking
statements included in this document are based on information available to the
Company on the date hereof and the Company assumes no obligation to update any
such forward-looking statement. Among the factors that could cause actual
results to differ materially are the factors detailed in Part I, Item 2, and
Part II, Item 5 of this report and the risk factors set forth under the caption
Item 1. Business  Risk Factors in the Companys Annual Report on Form 10-K
for the year ended December 31, 2001, as filed with the Securities and Exchange
Commission on April 1, 2002. Prospective investors should also consult the risks
described from time to time in the Companys Reports on Form 10-Q, 8-K and 10-K
and Annual Reports to Shareholders.

i



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##### 



PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

|                            |                                                                                                                                                             |                      |                                            |                                      |            |              |           |             |            |            |  | 
|--------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------- | ------------------------------------------ | ------------------------------------ | ---------- | ------------ | --------- | ----------- | ---------- | ---------- |  | 
|                            |                                                                                                                                                             |                      |                                            |                                      |            | December 31, |           | March 31,  
|                            |                                                                                                                                                             |                      |                                            |                                      |            | 2001         |           | 2002       
|                            |                                                                                                                                                             |                      |                                            |                                      |            |              |           |            
|                            |                                                                                                                                                             |                      |                                            |                                      |            |              |           | (Unaudited)
|                            |                                                                                                                                                             |                      |                                            | ASSETS                               |            |              |           |             |            |            |  | 
|                           
|                           
|                           
|                           
|CURRENT
ASSETS              |                                                                                                                                                             |                      |                                            |                                      |            |              |           |            
|                           
|                           
|                           
|                           
|                            | Cash and cash equivalents                                                                                                                                   |                      | $                                          | 20,095,808                           |            |              | $         | 17,983,969  |           
|                           
|                           
|                           
|                           
|                            | Accounts receivable, trade  affiliates                                                                                                                     |                      |                                            | 4,716,172                            |            |              |           | 3,879,890   |           
|                           
|                           
|                           
|                           
|                            | Accounts receivable, trade  net                                                                                                                            |                      |                                            | 875,297                              |            |              |           | 686,227     |           
|                           
|                           
|                           
|                           
|                            | Prepaid expenses and other assets                                                                                                                           |                      |                                            | 883,729                              |            |              |           | 1,070,073   |           
|                           
|                           
|                           
|                           
|                            | Note receivable  affiliate                                                                                                                                 |                      |                                            | 5,026,541                            |            |              |           | 5,026,541   |           
|                           
|                           
|                           
|                           
|                            | Income taxes recoverable                                                                                                                                    |                      |                                            |                                     |            |              |           | 538,759     |           
|                            |                                                                                                                                                             |                      |                                            |                                      |            |              |           |            
|                            |                                                                                                                                                             | Total current assets |                                            |                                      | 31,597,547 |              |           |             | 29,185,459 |           
|                           
|                           
|                           
|                           
|PROPERTY AND EQUIPMENT, net |                                                                                                                                                             |                      | 3,942,712                                  |                                      |            |              | 3,583,215 |            
|                           
|                           
|                           
|                           
|OTHER ASSETS                |                                                                                                                                                             |                      |                                            |                                      |            |              |           |            
|                           
|                           
|                           
|                           
|                            | Goodwill, net                                                                                                                                               |                      |                                            | 2,250,409                            |            |              |           | 2,250,409   |           
|                           
|                           
|                           
|                           
|                            | Service contract                                                                                                                                            |                      |                                            | 2,189,090                            |            |              |           | 2,189,090   |           
|                           
|                           
|                           
|                           
|                            | Capitalized software costs, net                                                                                                                             |                      |                                            | 564,793                              |            |              |           | 436,655     |           
|                           
|                           
|                           
|                           
|                            | Deferred tax assets                                                                                                                                         |                      |                                            | 429,329                              |            |              |           | 431,629     |           
|                           
|                           
|                           
|                           
|                            | Other                                                                                                                                                       |                      |                                            | 25,600                               |            |              |           | 25,600      |           
|                            |                                                                                                                                                             |                      |                                            |                                      |            |              |           |            
|                            |                                                                                                                                                             |                      | Total assets                               |                                      | $          | 40,999,480   |           |             | $          | 38,102,057 | 
|                            |                                                                                                                                                             |                      |                                            |                                      |            |              |           |            
|                            |                                                                                                                                                             |                      |                                            | LIABILITIES AND SHAREHOLDERS EQUITY |            |              |           |             |            |            |  | 
|                           
|                           
|                           
|                           
|CURRENT LIABILITIES         |                                                                                                                                                             |                      |                                            |                                      |            |              |           |            
|                           
|                           
|                           
|                           
|                            | Accounts payable, trade                                                                                                                                     |                      | $                                          | 1,272,921                            |            |              | $         | 909,035     |           
|                           
|                           
|                           
|                           
|                            | Employee related accrued expenses                                                                                                                           |                      |                                            | 1,546,078                            |            |              |           | 1,745,619   |           
|                           
|                           
|                           
|                           
|                            | Other accrued expenses                                                                                                                                      |                      |                                            | 2,352,487                            |            |              |           | 1,963,869   |           
|                           
|                           
|                           
|                           
|                            | Income taxes payable                                                                                                                                        |                      |                                            | 1,418,415                            |            |              |           |            |           
|                            |                                                                                                                                                             |                      |                                            |                                      |            |              |           |            
|                            |                                                                                                                                                             |                      | Total current liabilities                  |                                      |            | 6,589,901    |           |             |            | 4,618,523  | 
|                           
|                           
|                           
|                           
|SHAREHOLDERS EQUITY        |                                                                                                                                                             |                      |                                            |                                      |            |              |           |            
|                           
|                           
|                           
|                           
|                            | Preferred Stock, $.01 par value; 20,000,000 shares
authorized, no shares issued and outstanding at December 31,
2001 and March 31, 2002, respectively       |                      |                                            |                                     |            |              |           |            |           
|                           
|                           
|                           
|                           
|                            | Common Stock, $.01 par value; 100,000,000 shares
authorized, 12,276,063 shares issued and outstanding
at December 31, 2001 and March 31, 2002, respectively |                      |                                            | 122,760                              |            |              |           | 122,760     |           
|                           
|                           
|                           
|                           
|                            | Additional paid-in capital                                                                                                                                  |                      |                                            | 26,394,438                           |            |              |           | 26,439,438  |           
|                           
|                           
|                           
|                           
|                            | Retained earnings                                                                                                                                           |                      |                                            | 7,892,381                            |            |              |           | 6,921,336   |           
|                            |                                                                                                                                                             |                      |                                            |                                      |            |              |           |            
|                            |                                                                                                                                                             |                      | Total shareholders equity                 |                                      |            | 34,409,579   |           |             |            | 33,483,534 | 
|                            |                                                                                                                                                             |                      |                                            |                                      |            |              |           |            
|                            |                                                                                                                                                             |                      | Total liabilities and shareholders equity |                                      | $          | 40,999,480   |           |             | $          | 38,102,057 | 
|                            |                                                                                                                                                             |                      |                                            |                                      |            |              |           |            

The accompanying notes are an integral part of these consolidated statements.

-1-



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##### 



INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

|                                                                                         |  |                                            |                              |                |           |                              |            |      |           |            |           | 
|---------------------------------------------------------------------------------------- |  | ------------------------------------------ | ---------------------------- | -------------- | --------- | ---------------------------- | ---------- | ---- | --------- | ---------- | --------- | 
|                                                                                         |  |                                            |                              |                |           | Three Months Ended March 31,
|                                                                                         |  |                                            |                              |                |           |                             
|                                                                                         |  |                                            |                              |                |           | 2001                         |            | 2002
|                                                                                         |  |                                            |                              |                |           |                              |            |     
|REVENUES                                                                                 |  |                                            |                              |                |           |                              |            |      |          
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |  | Outsourcing services  affiliated          |                              | $              | 9,581,963 |                              |            | $    | 7,090,233 |           
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |  | Outsourcing services                       |                              |                | 1,219,534 |                              |            |      | 1,377,779 |           
|                                                                                         |  |                                            |                              |                |           |                              |            |     
|                                                                                         |  |                                            |                              | Total revenues |           |                              | 10,801,497 |      |           |            | 8,468,012 | 
|                                                                                         |  |                                            |                              |                |           |                              |            |     
|EXPENSES                                                                                 |  |                                            |                              |                |           |                              |            |      |          
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |  | Cost of outsourcing services               |                              |                | 8,392,491 |                              |            |      | 7,650,792 |           
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |  | Selling, general and administrative        |                              |                | 1,733,662 |                              |            |      | 1,739,671 |           
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |  | Management services from Parent            |                              |                | 354,168   |                              |            |      | 122,846   |           
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |  | Depreciation and amortization              |                              |                | 775,658   |                              |            |      | 648,964   |           
|                                                                                         |  |                                            |                              |                |           |                              |            |     
|                                                                                         |  |                                            |                              | Total expenses |           | 11,255,979                   |            |      |           | 10,162,273 |          
|                                                                                         |  |                                            |                              |                |           |                              |            |     
|OPERATING INCOME/(LOSS)                                                                  |  |                                            | (454,482                     | )              |           |                              | (1,694,261 | )   
|                                                                                         |  |                                            |                              |                |           |                              |            |     
|OTHER INCOME/(EXPENSE):                                                                  |  |                                            |                              |                |           |                              |            |     
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |  | Interest income                            |                              |                | 42,387    |                              |            |      | 144,416   |           
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |  | Interest expense                           |                              |                | (2,066    | )                            |            |      |          |           
|                                                                                         |  |                                            |                              |                |           |                              |            |     
|                                                                                         |  |                                            | Total other income/(expense) |                |           | 40,321                       |            |      |           | 144,416    |          
|                                                                                         |  |                                            |                              |                |           |                              |            |     
|INCOME/(LOSS) FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES AND DISCONTINUED OPERATIONS |  |                                            | (414,161                     | )              |           |                              | (1,549,845 | )   
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|PROVISION/(BENEFIT) FOR INCOME TAXES                                                     |  |                                            | (137,600                     | )              |           |                              | (578,800   | )   
|                                                                                         |  |                                            |                              |                |           |                              |            |     
|INCOME/(LOSS) FROM CONTINUING OPERATIONS BEFORE
DISCONTINUED OPERATIONS                  |  |                                            | (276,561                     | )              |           |                              | (971,045   | )   
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|INCOME/(LOSS)FROM OPERATIONS OF DISCONTINUED
OPERATIONS, NET OF TAX                      |  |                                            | 429,126                      |                |           |                              |           |     
|                                                                                         |  |                                            |                              |                |           |                              |            |     
|NET INCOME/(LOSS)                                                                        |  | $                                          | 152,565                      |                |           | $                            | (971,045   | )   
|                                                                                         |  |                                            |                              |                |           |                              |            |     
|Earnings/(loss) per Common Share:                                                        |  |                                            |                              |                |           |                              |            |      |          
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |  | Income/(loss) from continuing
operations   |                              | $              | (.02      | )                            |            | $    | (.08      | )         
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |  | Income/(loss) from discontinued
operations |                              |                | .03       |                              |            |      |          |           
|                                                                                         |  |                                            |                              |                |           |                              |            |     
|NET INCOME/(LOSS) PER COMMON SHARE                                                       |  | $                                          | .01                          |                |           | $                            | (.08       | )   
|                                                                                         |  |                                            |                              |                |           |                              |            |     
|Weighted average common shares outstanding                                               |  |                                            | 12,800,261                   |                |           |                              | 12,276,063 |     
|                                                                                         |  |                                            |                              |                |           |                              |            |     

The accompanying notes are an integral part of these consolidated statements.

-2-



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##### 



INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY

|                                      |                                                                                   |   |         |        |         |   |            |            |       |   |           |           |   |   |            |            |  
|------------------------------------- | --------------------------------------------------------------------------------- | - | ------- | ------ | ------- | - | ---------- | ---------- | ----- | - | --------- | --------- | - | - | ---------- | ---------- | -
|                                      |                                                                                   |   |         |        |         |   | Additional |            |       |   |           |           |   |   |           
|                                      |                                                                                   |   | Common  |        | Paid-In |   | Retained   |            |       |   |          
|                                      |                                                                                   |   | Stock   |        | Capital |   | Earnings   |            | Total
|                                      |                                                                                   |   |         |        |         |   |            |            |      
|Balance at December 31, 2000          |                                                                                   | $ | 128,002 |        |         | $ | 27,545,901 |            |       | $ | 5,438,685 |           |   | $ | 33,112,588 |           
|                                     
|                                     
|                                     
|                                     
|                                      | Compensation expense related to stock options
issued to non-employees             |   |         |       |         |   |            | 180,000    |       |   |           |          |   |   |            | 180,000    |  
|                                     
|                                     
|                                     
|                                     
|                                      | Common stock reacquired in Geotrac sale                                           |   |         | (5,242 | )       |   |            | (1,331,463 | )     |   |           |          |   |   |            | (1,336,705 | )
|                                     
|                                     
|                                     
|                                     
|                                      | Net income                                                                        |   |         |       |         |   |            |           |       |   |           | 2,453,696 |   |   |            | 2,453,696  |  
|                                      |                                                                                   |   |         |        |         |   |            |            |       |   |           |           |   |   |            |           
|Balance at December 31, 2001          |                                                                                   | $ | 122,760 |        |         | $ | 26,394,438 |            |       | $ | 7,892,381 |           |   | $ | 34,409,579 |           
|                                      |                                                                                   |   |         |        |         |   |            |            |       |   |           |           |   |   |            |           
|                                      | Compensation expense related to stock options
issued to non-employees (unaudited) |   |         |       |         |   |            | 45,000     |       |   |           |          |   |   |            | 45,000     |  
|                                     
|                                     
|                                     
|                                     
|                                      | Net income/(loss) (unaudited)                                                     |   |         |       |         |   |            |           |       |   |           | (971,045  | ) |   |            | (971,045   | )
|                                      |                                                                                   |   |         |        |         |   |            |            |       |   |           |           |   |   |            |           
|Balance at March 31, 2002 (unaudited) |                                                                                   | $ | 122,760 |        |         | $ | 26,439,438 |            |       | $ | 6,921,336 |           |   | $ | 33,483,534 |           
|                                      |                                                                                   |   |         |        |         |   |            |            |       |   |           |           |   |   |            |           

The accompanying notes are an integral part of these consolidated statements.

-3-



---



##### 



INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

|                                                 |                                                                                          |                                                            |                                           |                                                     |          |                              |            |          |         |            |            |  
|------------------------------------------------ | ---------------------------------------------------------------------------------------- | ---------------------------------------------------------- | ----------------------------------------- | --------------------------------------------------- | -------- | ---------------------------- | ---------- | -------- | ------- | ---------- | ---------- | -
|                                                 |                                                                                          |                                                            |                                           |                                                     |          | Three Months Ended March 31,
|                                                 |                                                                                          |                                                            |                                           |                                                     |          |                             
|                                                 |                                                                                          |                                                            |                                           |                                                     |          | 2001                         |            | 2002    
|                                                 |                                                                                          |                                                            |                                           |                                                     |          |                              |            |         
|CASH FLOWS FROM OPERATING ACTIVITIES:            |                                                                                          |                                                            |                                           |                                                     |          |                              |            |         
|                                                
|                                                
|                                                
|                                                
|                                                 | Income/(loss) from continuing operations                                                 |                                                            | $                                         | (276,561                                            | )        |                              | $          | (971,045 | )      
|                                                
|                                                
|                                                
|                                                
|                                                 | Adjustments to reconcile net income/(loss) to net cash
provided by operating activities: |                                                            |                                           |                                                     |          |                              |            |          |        
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                          | Depreciation and amortization                              |                                           |                                                     | 775,658  |                              |            |          | 648,963 |           
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                          | Loss on disposal of property and equipment                 |                                           |                                                     | 1,251    |                              |            |          |        |           
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                          | Compensation expense related to non-employee stock
options |                                           |                                                     | 45,000   |                              |            |          | 45,000  |           
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                          | Deferred income taxes, net                                 |                                           |                                                     | (162,600 | )                            |            |          | (2,300  | )         
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                          | Changes in assets and liabilities:                         |                                           |                                                     |          |                              |            |          |         |           
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                          |                                                            | Accounts receivable, trade                |                                                     |          | 1,134,243                    |            |          |         | 189,070    |           
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                          |                                                            | Accounts receivable, trade  Geotrac      |                                                     |          | 168,711                      |            |          |         |           |           
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                          |                                                            | Accounts receivable, trade  affiliate    |                                                     |          | (702,941                     | )          |          |         | 836,282    |           
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                          |                                                            | Income taxes recoverable                  |                                                     |          |                             |            |          |         | (538,759   | )         
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                          |                                                            | Prepaid expenses and other current assets |                                                     |          | 74,948                       |            |          |         | (186,344   | )         
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                          |                                                            | Other assets                              |                                                     |          | (42,506                      | )          |          |         |           |           
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                          |                                                            | Accounts payable, trade                   |                                                     |          | 30,043                       |            |          |         | (363,886   | )         
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                          |                                                            | Employee related accrued expenses         |                                                     |          | 174,321                      |            |          |         | 199,541    |           
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                          |                                                            | Other accrued expenses                    |                                                     |          | (208,835                     | )          |          |         | (388,618   | )         
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                          |                                                            | Income taxes payable                      |                                                     |          | 62,310                       |            |          |         | (1,418,415 | )         
|                                                 |                                                                                          |                                                            |                                           |                                                     |          |                              |            |         
|                                                 |                                                                                          |                                                            |                                           | Net cash provided by/(used in) operating activities |          |                              | 1,073,042  |          |         |            | (1,950,511 | )
|                                                 |                                                                                          |                                                            |                                           |                                                     |          |                              |            |         
|CASH FLOWS FROM INVESTING ACTIVITIES:            |                                                                                          |                                                            |                                           |                                                     |          |                              |            |         
|                                                
|                                                
|                                                
|                                                
|                                                 | Purchases of property and equipment                                                      |                                                            |                                           | (532,797                                            | )        |                              |            | (161,328 | )      
|                                                
|                                                
|                                                
|                                                
|                                                 | Collection of notes receivable                                                           |                                                            |                                           | 71,110                                              |          |                              |            |         |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Collection of notes receivable from discontinued
operations                              |                                                            |                                           | 1,198,929                                           |          |                              |            |         |        
|                                                 |                                                                                          |                                                            |                                           |                                                     |          |                              |            |         
|                                                 |                                                                                          |                                                            |                                           | Net cash provided by/(used in) investing activities |          |                              | 737,242    |          |         |            | (161,328   | )
|                                                 |                                                                                          |                                                            |                                           |                                                     |          |                              |            |         
|CASH FLOWS FROM FINANCING ACTIVITIES:            |                                                                                          |                                                            |                                           |                                                     |          |                              |            |         
|                                                
|                                                
|                                                
|                                                
|                                                 | Repayment of debt                                                                        |                                                            |                                           | (64,538                                             | )        |                              |            |         |        
|                                                 |                                                                                          |                                                            |                                           |                                                     |          |                              |            |         
|                                                 |                                                                                          |                                                            |                                           | Net cash (used in) financing activities             |          |                              | (64,538    | )        |         |            |           |  
|                                                 |                                                                                          |                                                            |                                           |                                                     |          |                              |            |         
|INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS |                                                                                          |                                                            | 1,745,746                                 |                                                     |          |                              | (2,111,839 | )       
|                                                
|                                                
|                                                
|                                                
|CASH AND CASH EQUIVALENTS, beginning of period   |                                                                                          |                                                            | 2,391,103                                 |                                                     |          |                              | 20,095,808 |         
|                                                 |                                                                                          |                                                            |                                           |                                                     |          |                              |            |         
|CASH AND CASH EQUIVALENTS, end of period         |                                                                                          | $                                                          | 4,136,849                                 |                                                     |          | $                            | 17,983,969 |         
|                                                 |                                                                                          |                                                            |                                           |                                                     |          |                              |            |         

The accompanying notes are an integral part of these consolidated statements.

-4-



---



##### 



INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS

Insurance Management
Solutions Group, Inc. (the Company) is a
holding company that was incorporated in the State of Florida in December 1996
by its parent, Bankers Insurance Group, Inc. (BIG).

The Company has operated in two major business segments: providing
outsourcing services to the property and casualty insurance industry with an
emphasis on flood insurance; and providing flood zone determinations primarily
to insurance companies and financial institutions. The Companys outsourcing
services, which are provided by its wholly-owned subsidiaries, Insurance
Management Solutions, Inc. (IMS) and Colonial Claims Corporation (Colonial),
include for IMS: policy and claims administration (policy issuance, billing and
collection) and information technology services; and for Colonial:
claims adjusting and processing. The Companys flood zone determination services
had been provided by Geotrac of America, Inc. (Geotrac),
a wholly-owned
subsidiary of the Company until December 28, 2001, when it was sold. With the disposition of
Geotrac, which is reported as discontinued operations herein, Colonial became a
separate reportable segment for financial statement reporting purposes (see Note
5).

The Company is substantially dependent on the business of its
affiliated insurance companies under the common control of BIG as the Company
derives a substantial portion of its revenue from outsourcing services provided
to these affiliated companies and BIG.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements of Insurance
Management Solutions Group, Inc. and subsidiaries (the Company) have been
prepared in accordance with the instructions to Form 10-Q and do not include all
of the disclosures required by accounting principles generally accepted in the
United States of America. In the opinion of management, the accompanying
unaudited consolidated financial statements include all adjustments, consisting
of normal and recurring adjustments, necessary for a fair presentation of the
consolidated financial position, results of operations and cash flows for the
periods presented. The accompanying consolidated financial statements should be
read in conjunction with the Companys Annual Report on Form 10-K for the year
ended December 31, 2001, as filed with the Securities and Exchange Commission on
April 1, 2002. The results of operations for the three-month period ended March
31, 2002 are not necessarily indicative of the results that should be expected
for a full fiscal year.

Discontinued Operations

Geotrac represents discontinued operations and, accordingly, the
discontinued segments net assets are recorded separately
at March 31, 2001. Likewise, the Geotrac results of operations are excluded from
continuing operations for all periods presented.

Reclassification

Exclusive of the separate presentation of continuing and discontinued
operations, certain reclassifications have been made to the 2001 financial
statements to conform to the 2002 presentation.

New Accounting Policies

While the Company
does not expect any material impact of adopting, effective as of
January 1, 2002, Statement of Financial Accounting Standards
(SFAS) 142, Goodwill and Intangible Assets, and 144, Accounting for the
Impairment or Disposal of Long Lived Assets, the Company has not yet completed
its determination of the impact of SFAS 142, which should be completed by June
30, 2002.

Under SFAS 142, the impact, exclusive of the non-amortization of
goodwill, will be recognized as a January 1, 2002 cumulative effect change in
accounting principle. As of January 1, 2002, the Company is no longer amortizing
goodwill (see proforma below).

-5-



---



##### 



Proforma results of operations for the three-month periods ended March
31, 2001 and 2002 for the non-amortization provisions of SFAS 142 in those
periods follows:

|                                                                                                                   |  |                              |          |      |  |   |          |  
|------------------------------------------------------------------------------------------------------------------ |  | ---------------------------- | -------- | ---- |  | - | -------- | -
|                                                                                                                   |  | Three Months Ended March 31,
|                                                                                                                   |  |                             
|                                                                                                                   |  | 2001                         |          | 2002
|                                                                                                                   |  |                              |          |     
|Reported income/(loss) from continuing operations                                                                  |  | $                            | (276,561 | )    |  | $ | (971,045 | )
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|Add:
Goodwill amortization, net of tax, $0                                                                         |  |                              | 33,094   |      |  |   |         |  
|                                                                                                                   |  |                              |          |      |  |   |          |  
|Adjusted income/(loss) from continuing operations                                                                  |  | $                            | (243,467 | )    |  | $ | (971,045 | )
|                                                                                                                   |  |                              |          |      |  |   |          |  
|Reported net income/(loss)                                                                                         |  | $                            | 152,565  |      |  | $ | (971,045 | )
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|Add: Goodwill amortization (including $469,896
pre-tax related to discontinued operations, net of tax of $173,000) |  |                              | 330,000  |      |  |   |         |  
|                                                                                                                   |  |                              |          |      |  |   |          |  
|Adjusted net income/(loss)                                                                                         |  | $                            | 482,565  |      |  | $ | (971,045 | )
|                                                                                                                   |  |                              |          |      |  |   |          |  

|                                                                                                   |  |                              |            |      |  |   |            |  
|-------------------------------------------------------------------------------------------------- |  | ---------------------------- | ---------- | ---- |  | - | ---------- | -
|                                                                                                   |  | Three Months Ended March 31,
|                                                                                                   |  |                             
|                                                                                                   |  | 2001                         |            | 2002
|                                                                                                   |  |                              |            |     
|Reported income/(loss) from continuing operations
per share                                        |  | $                            | (.02       | )    |  | $ | (.08       | )
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Add: Goodwill amortization per share                                                               |  |                              |           |      |  |   |           |  
|                                                                                                   |  |                              |            |      |  |   |            |  
|Adjusted income/(loss) from continuing operations
per share                                        |  | $                            | (.02       | )    |  | $ | (.08       | )
|                                                                                                   |  |                              |            |      |  |   |            |  
|Reported net income/(loss) per share                                                               |  | $                            | .01        |      |  | $ | (.08       | )
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Add: Goodwill amortization per share (including
$.03 per share related to discontinued operations) |  |                              | .03        |      |  |   |           |  
|                                                                                                   |  |                              |            |      |  |   |            |  
|Adjusted net income/(loss) per share                                                               |  | $                            | .04        |      |  | $ | (.08       | )
|                                                                                                   |  |                              |            |      |  |   |            |  
|Weighted average common shares outstanding                                                         |  |                              | 12,800,261 |      |  |   | 12,276,063 |  
|                                                                                                   |  |                              |            |      |  |   |            |  

In addition, effective January 1, 2002, the Company adopted SFAS 144,
Accounting for the Impairment or Disposal of Long Lived Assets. The adoption of
SFAS 144 had no impact on the Companys results of operations or financial
condition.

Net Income/(Loss) Per Common Share

Net income/(loss) per common share, which represents both basic and
diluted earnings per share (EPS), is computed by dividing net income/(loss) by
the weighted average common shares outstanding. The following table reconciles
the numerator and denominator of the basic and dilutive EPS computation:

|                                                                                                 |  |   |            |                              |  |      |            |   |  | 
|------------------------------------------------------------------------------------------------ |  | - | ---------- | ---------------------------- |  | ---- | ---------- | - |  | 
|                                                                                                 |  |   |            | Three Months Ended March 31,
|                                                                                                 |  |   |            |                             
|                                                                                                 |  |   |            | 2001                         |  | 2002
|                                                                                                 |  |   |            |                              |  |     
|Numerator:                                                                                       |  |   |            |                              |  |      |            |  
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Net income/(loss)                                                                                |  | $ | 152,565    |                              |  | $    | (971,045   | )
|                                                                                                 |  |   |            |                              |  |      |            |  
|Denominator:                                                                                     |  |   |            |                              |  |      |            |  
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Weighted average number of common shares
used in basic EPS                                       |  |   | 12,800,261 |                              |  |      | 12,276,063 |  
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Diluted stock options                                                                            |  |   |           |                              |  |      |           |  
|                                                                                                 |  |   |            |                              |  |      |            |  
|Weighted average number of common shares
and diluted potential common shares used
in diluted EPS |  |   | 12,800,261 |                              |  |      | 12,276,063 |  
|                                                                                                 |  |   |            |                              |  |      |            |  

As of March 31, 2001 and 2002, options to purchase 650,250 and
472,250 shares, respectively, of Common Stock were outstanding but were not
included in the computation of diluted earnings per share as the inclusion of
such shares would have an anti-dilutive effect.

-6-



---



##### 



NOTE 3. DISCONTINUED OPERATIONS

Effective December 28, 2001, with shareholder approval, the Company
sold Geotrac, pursuant to a Stock Purchase Agreement dated September 30, 2001,
as amended December 26, 2001, to Geotrac Holdings, Inc. (Holdings). Holdings
is a corporation formed by Geotracs President and his spouse. The consideration
received by the Company included $19.0 million in cash and 524,198 shares of the
Companys Common Stock (valued at $1,336,705 based on a quoted market price of
the Companys Common Stock of $2.55 per share as of December 27, 2001)
beneficially held by Geotracs President and his spouse. In addition, the
Company entered into a Flood Zone Determination Service Agreement with Geotrac
pursuant to which Geotrac will provide the Company with flood zone determination
services for up to ten years at pricing management of the Company currently
believes is favorable. The Company valued the agreement at approximately
$2,189,090 as supported by an independent third-party investment banking firms
valuation. Subsequent to this sale, the Company has no restricted net assets
which affect retained earnings for the period ended March 31, 2002.

GEOTRACS CONDENSED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2001

|                                               |                |                |           |           |           | 
|---------------------------------------------- | -------------- | -------------- | --------- | --------- | --------- | 
|Flood zone determination services              |                | $              | 4,294,168 |          
|                                              
|                                              
|                                              
|                                              
|Flood zone determination services  affiliated |                |                | 218,711   |          
|                                               |                |                |           |          
|                                               | Total revenues |                |           | 4,512,879 |          
|                                               |                |                |           |          
|Cost of flood zone determination services      |                |                | 2,034,394 |          
|                                              
|                                              
|                                              
|                                              
|Selling, general and administrative            |                |                | 1,117,928 |          
|                                              
|                                              
|                                              
|                                              
|Management services from Parent                |                |                | 16,388    |          
|                                              
|                                              
|                                              
|                                              
|Depreciation and amortization                  |                |                | 590,493   |          
|                                               |                |                |           |          
|                                               |                | Total expenses |           |           | 3,759,203 | 
|                                               |                |                |           |          
|Operating income                               |                |                | 753,676   |          
|                                              
|                                              
|                                              
|                                              
|Interest income, net                           |                |                | 18,750    |          
|                                              
|                                              
|                                              
|                                              
|Provision for income taxes                     |                |                | 343,300   |          
|                                               |                |                |           |          
|Income from discontinued operations            |                | $              | 429,126   |          
|                                               |                |                |           |          

SUPPLEMENTAL DISCLOSURE OF GEOTRACS CASH FLOW INFORMATION
FOR THE THREE MONTHS ENDED MARCH 31, 2001

|                                  |                      |   |            |            |   | 
|--------------------------------- | -------------------- | - | ---------- | ---------- | - | 
|Operating activities:             |                      |   |            |           
|                                 
|                                 
|                                 
|                                 
|                                  | Net cash provided by |   | $          | 1,031,521  |  
|                                 
|                                 
|                                 
|                                 
|Investing activities:             |                      |   |            |           
|                                 
|                                 
|                                 
|                                 
|                                  | Net cash used by     |   |            | (1,156,939 | )
|                                 
|                                 
|                                 
|                                 
|Financing activities:             |                      |   |            |           
|                                 
|                                 
|                                 
|                                 
|                                  | Net cash used by     |   |            | (1,213,371 | )
|                                  |                      |   |            |           
|Net increase/(decrease) in cash   |                      |   | (1,338,789 | )         
|                                 
|                                 
|                                 
|                                 
|Cash at beginning of period       |                      |   | 2,801,058  |           
|                                  |                      |   |            |           
|Cash at end of period before sale |                      | $ | 1,462,269  |           
|                                  |                      |   |            |           

-7-



---



##### 



NOTE 4. CONTINGENCIES

On September 28, 2000, October 25, 2000 and October 30, 2000, three
alleged shareholders of the Company filed three nearly identical lawsuits in the
United States District Court for the Middle District of Florida, each on behalf
of a putative class of all persons who purchased shares of the Companys Common
Stock pursuant and/or traceable to the registration statement for the Companys
February 1999 initial public offering (the IPO). The lawsuits were
consolidated on December 1, 2000, and the consolidated action is proceeding
under Case No. 8:00-CV-2013-T-26MAP. The plaintiffs Consolidated Amended Class
Action Complaint, filed February 7, 2001, names as defendants the following
parties: the Company; BIG, Venture Capital Corporation, a
selling shareholder in the IPO; the five inside directors of the Company at the
time of the IPO; and Raymond James & Associates, Inc. and Keefe, Bruyette &
Woods, Inc., the underwriters for the IPO. The complaint alleges, among other
things, that the defendants violated Sections 11, 12(a)(2) and 15 of the
Securities Act of 1933, as amended, by making certain false and misleading
statements in the roadshow presentations, registration statement and prospectus
relating to the IPO. More specifically, the complaint alleges that, in
connection with the IPO, the defendants made various material misrepresentations
and/or omissions relating to: (i) the Companys ability to integrate Geotracs
flood zone determination business with the Companys own flood zone
determination business and with its insurance outsourcing services business;
(ii) actual and anticipated synergies between the Companys flood zone
determination and outsourcing services business lines; and (iii) the Companys
use of the IPO proceeds. The complaint seeks unspecified damages, including
interest, and equitable relief, including a rescission remedy. On March 26,
2001, the Company, BIG and the five inside director defendants filed a motion to
dismiss the plaintiffs complaint for, among other things, failure to allege
material misstatements and/or omissions in the roadshow presentations,
registration statement and/or prospectus relating to the IPO. On July 11, 2001,
U.S. District Judge Richard A. Lazzara denied all of the defendants motions to
dismiss the complaint.

The case has been set for trial during the trial term commencing May 5,
2003, and active discovery is proceeding. Management of the Company believes the
material allegations of the complaint are without merit and intends to
vigorously defend the lawsuit. No assurances can be given, however, with respect
to the outcome of the litigation, and an adverse result could have a material
adverse effect on the Companys business, financial condition and results of
operations.

Bankers Insurance
Company (BIC), a subsidiary of BIG, and Bankers Life
Insurance Company (BLIC) and Bankers Security Insurance
Company (BSIC), subsidiaries of BIC, have been subject to
an investigation by the Florida Department of Insurance (the
DOI), the principal regulator of insurance activities in
the State of Florida, stemming from their use of a private
investigator to gather information on a DOI employee and the private
investigators unauthorized use of illegal wiretaps in
connection therewith. On March 23, 2000, the Treasurer and
Insurance Commissioner of the State of Florida, as head of the DOI,
filed an administrative complaint against BIC, BLIC and BSIC based
upon the results of such investigation. The administrative complaint
charged BIC, BLIC and BSIC with violating various provisions of the
Florida Insurance Code including, among other things, a provision
requiring insurance companies to have management, officers or
directors that are, among other things, trustworthy. The complaint
further notified BIC, BLIC and BSIC that the Insurance Commissioner
intended to impose such penalties or take such other administrative
actions as may be proper or appropriate under applicable law,
including possibly entering an order suspending or revoking the
certificates of authority of BIC, BLIC and BSIC to conduct business
as insurance companies in the State of Florida. Effective February
6, 2002, BIC, BLIC and BSIC entered into a Consent Order with the DOI
pursuant to which the DOIs administrative action against BIC, BLIC
and BSIC was dismissed. Also pursuant to this Consent Order, such
entities were ordered to pay penalties totaling $1 million
(consisting of a fine of $700,000 and reimbursement of
attorneys fees of $300,000), Robert M. Menke was prohibited
from acting as chairman or an officer of any of such entities for a
period of three (3) years, another executive officer of each of these
entities was removed from such positions, and certain other
compliance-related requirements were imposed. BIG has advised the
Company that the terms of the Consent Order should not have a
material adverse effect on the business and/or operations of BIG, but
no assurances can be given in this regard.

On November 19, 1999, the United States, on behalf of the Federal
Emergency Management Agency (FEMA), filed a civil action against Bankers
Insurance Company, a subsidiary of BIG (BIC), in the United States District
Court for the District of Maryland stemming from FEMAs investigation of certain
cash management and claims processing practices of BIC in connection with its
participation in the National Flood Insurance Program (NFIP). The complaint
alleges, among other things, that BIC knowingly failed to report and pay
interest income it had earned on NFIP funds to the United States in violation of
the False Claims Act. The complaint further alleges various common law theories,
including fraud, breach of contract, unjust enrichment and negligent
misrepresentation. The complaint seeks civil penalties of $1.08 million and
actual damages of approximately $1.1 million, as well as treble, punitive and
consequential damages, costs and interest. The suit is currently stayed pending
arbitration following a decision by the United States Court of Appeals for the
Fourth Circuit in favor of BIC on its motion to stay the litigation pending
arbitration. The government has not appealed the Fourth Circuit Court of Appeal
ruling requiring arbitration and the case is stayed pending arbitration. By
letter dated January 30, 2002, FEMA notified BIC that it intends to move forward
with arbitration and set forth proposed procedures. BIC has further informed the
Company that it intends to vigorously defend against the action, but no
assurances can be given as to the outcome thereof. However, BIG has advised the
Company that an adverse judgment in this action should not have a material
adverse affect on the business and/or operations of BIC, although no assurances
can be given in this regard.

FEMAs investigation of certain claims processing practices of BIC in
connection with its participation in the NFIP is continuing, and BIC has
produced documentation in connection therewith. If the parties are either unable
to reach agreement in these matters or resolve their disagreement in
arbitration, the United States could amend its complaint against BIC to add
additional claims under the False Claims Act and/or various common law and
equitable theories relating to such matters. In the event such continuing
investigation or any consequence thereof materially adversely affects the
business or operations of BIC, it could result in the loss of or material
decrease in the Companys business from BIC, which would have a material adverse
effect on the Companys business, financial condition and results of operations.

-8-



---



##### 



The Company is involved in various other legal proceedings arising in
the ordinary course of business. Management believes that the ultimate
resolution of these other proceedings will not have a material adverse effect on
the Companys financial position, results of operations, or liquidity, although
no assurances can be given in this regard.

Lastly, the Company
continues to review the adequacy of reserves it has established prior
to January 1, 2002 for two specific items as follows: (i) a
$200,000 provision for potential billing adjustments booked during
the fourth quarter of 2001 related to billing adjustments under the
new Service Agreement with BIG, effective October 1, 2001; and
(ii) a settlement accrual of $800,000 relating to an
unaffiliated third-party customer contract which was terminated in
2000 and for which no settlement has yet been reached with this
former customer. No discussions between the Company and this customer
have taken place since October 2000. These two items will continue to
be reviewed throughout the course of this year, although no
assurances can be given as to their ultimate resolution and, upon what
terms.

NOTE 5. SEGMENT INFORMATION

|                                |  |                |            |            |  |              |           |              |  |   |            |   |  |   |            |  
|------------------------------- |  | -------------- | ---------- | ---------- |  | ------------ | --------- | ------------ |  | - | ---------- | - |  | - | ---------- | -
|                                |  |                |            |            |  | Outsourcing  |           |              |  |   |            |   |  |  
|                                |  | Outsourcing    |            | Services - |  | Intercompany |           |              |  |  
|                                |  | Services -     |            | Claims     |  | Eliminations |           | Consolidated
|                                |  | Administration |            | Adjusting  |  | And Other    |           | Totals      
|                                |  |                |            |            |  |              |           |             
|MARCH 31, 2001                  |  |                |            |            |  |              |           |              |  |   |            |   |  |   |            |  
|                               
|                               
|                               
|                               
|Operating revenues-affiliated   |  | $              | 9,581,963  |            |  |              |          |              |  |   |           |   |  | $ | 9,581,963  |  
|                               
|                               
|                               
|                               
|Operating revenues-unaffiliated |  | $              | 917,387    |            |  | $            | 302,147   |              |  |   |           |   |  | $ | 1,219,534  |  
|                               
|                               
|                               
|                               
|Operating income/(loss)         |  | $              | (243,588   | )          |  | $            | (210,894  | )            |  |   |           |   |  | $ | (454,482   | )
|                               
|                               
|                               
|                               
|Interest expense                |  | $              | 2,066      |            |  |              |          |              |  |   |           |   |  | $ | 2,066      |  
|                               
|                               
|                               
|                               
|Depreciation and amortization   |  | $              | 733,700    |            |  | $            | 41,958    |              |  |   |           |   |  | $ | 775,658    |  
|                               
|                               
|                               
|                               
|Identifiable assets             |  | $              | 40,712,725 |            |  | $            | 5,566,078 |              |  | $ | (6,133,988 | ) |  | $ | 40,144,815 |  
|                               
|                               
|                               
|                               
|MARCH 31, 2002                  |  |                |            |            |  |              |           |              |  |   |            |   |  |   |            |  
|                               
|                               
|                               
|                               
|Operating revenues-affiliated   |  | $              | 7,096,983  |            |  |              |          |              |  | $ | (6,750     | ) |  | $ | 7,090,233  |  
|                               
|                               
|                               
|                               
|Operating revenues-unaffiliated |  | $              | 1,123,525  |            |  | $            | 254,254   |              |  |   |           |   |  | $ | 1,377,779  |  
|                               
|                               
|                               
|                               
|Operating income/(loss)         |  | $              | (1,454,979 | )          |  | $            | (239,282  | )            |  |   |           |   |  | $ | (1,694,261 | )
|                               
|                               
|                               
|                               
|Depreciation and amortization   |  | $              | 638,359    |            |  | $            | 10,605    |              |  |   |           |   |  | $ | 648,964    |  
|                               
|                               
|                               
|                               
|Identifiable assets             |  | $              | 38,188,330 |            |  | $            | 5,525,287 |              |  | $ | (5,611,560 | ) |  | $ | 38,102,057 |  

Outsourcing
Services  Administration. Identifiable assets at
March 31, 2001 includes net assets of discontinued operations of
$21,187,665.

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

The following discussion and analysis should be read in conjunction
with the Companys consolidated financial statements (unaudited) and the notes
thereto included in Item 1. Financial Statements above.

-9-



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##### 



RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain
selected operating results of the Company as a percentage of total revenues:

|                                                       |                                     |                |      |                              |       |      |       |       |       | 
|------------------------------------------------------ | ----------------------------------- | -------------- | ---- | ---------------------------- | ----- | ---- | ----- | ----- | ----- | 
|                                                       |                                     |                |      | Three Months Ended March 31,
|                                                       |                                     |                |      |                             
|                                                       |                                     |                |      | 2001                         |       | 2002
|                                                       |                                     |                |      |                              |       |     
|REVENUES                                               |                                     |                |      |                              |       |      |       |      
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Outsourcing services                |                |      | 100.0                        | %     |      |       | 100.0 | %    
|                                                       |                                     |                |      |                              |       |      |       |      
|                                                       |                                     | Total revenues |      |                              | 100.0 |      |       |       | 100.0 | 
|                                                       |                                     |                |      |                              |       |      |       |      
|                                                      
|                                                      
|                                                      
|                                                      
|EXPENSES                                               |                                     |                |      |                              |       |      |       |      
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Cost of outsourcing services        |                |      | 77.7                         |       |      |       | 90.3  |      
|                                                       | Selling, general and administrative |                |      | 16.1                         |       |      |       | 20.5  |      
|                                                       | Management services from Parent     |                |      | 3.3                          |       |      |       | 1.5   |      
|                                                       | Depreciation and amortization       |                |      | 7.2                          |       |      |       | 7.7   |      
|                                                       |                                     |                |      |                              |       |      |       |      
|                                                       |                                     | Total expenses |      |                              | 104.3 |      |       |       | 120.0 | 
|                                                       |                                     |                |      |                              |       |      |       |      
|Operating income/(loss)                                |                                     |                | (4.3 | )                            |       |      | (20.0 | )    
|Interest income, net                                   |                                     |                | 0.4  |                              |       |      | 1.7   |      
|                                                       |                                     |                |      |                              |       |      |       |      
|Income before income taxes and discontinued
operations |                                     |                | (3.9 | )                            |       |      | (18.3 | )    
|                                                      
|                                                      
|                                                      
|                                                      
|Provision/(benefit) for income taxes                   |                                     |                | 1.3  |                              |       |      | (6.8  | )    
|                                                       |                                     |                |      |                              |       |      |       |      
|Income/(loss) before discontinued operations           |                                     |                | (2.6 | )                            |       |      | (11.5 | )    
|                                                      
|                                                      
|                                                      
|                                                      
|Income/(loss) from discontinued operations             |                                     |                | 4.0  |                              |       |      |      |      
|                                                       |                                     |                |      |                              |       |      |       |      
|Net income/(loss)                                      |                                     |                | 1.4  | %                            |       |      | (11.5 | )%   
|                                                       |                                     |                |      |                              |       |      |       |      

OVERVIEW

During the three
months ended March 31, 2002, the Company experienced a significant
reduction in outsourcing services revenue due primarily to
reduced premium production by BIG, the Company's principal customer. The Company
anticipates that this trend will continue for the remainder of the
fiscal year. Consequently, the Company is currently focused on
implementing cost reduction measures and eliminating support or
service expenses associated with the provision of services to BIG.
See Item 5. Other Information.

COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2001 AND 2002

CONTINUING OPERATIONS

Outsourcing Services Revenues. Outsourcing services revenues
decreased $2.3 million, or 21.3%, to $8.5 million for the three months ended
March 31, 2002 from $10.8 million for the corresponding period in 2001. The
decrease was primarily attributable to a decrease in affiliated direct written
premium (DWP) volumes related to BIGs homeowners, workers compensation, and
commercial lines, coupled with the impact of the reduced base rates charged for
certain affiliated lines of business under the new affiliated service agreements
which became effective October 1, 2001. Affiliated homeowners DWP volumes
decreased 23.7% during the first quarter of 2002 as compared to the
corresponding period of 2001. The Company expects affiliated homeowners DWP volumes to
decrease further as a result of the sale of BIGs Florida wind-inclusive
policies to an unaffiliated third party effective February 2002. In addition,
BIG ceased writing new workers compensation policies in November 2001. As a
result, the Company will not generate additional revenue from the administration
of new policies for this affiliated line of business. However, the Company will
continue to generate revenue from the processing of claims under existing
policies during the run-off period, which is expected to continue on a declining
basis until approximately the end of the second quarter of 2003. The foregoing
decreases were partially offset by a 13.0% increase in unaffiliated outsourcing
revenue primarily resulting from an increase in unaffiliated flood processing
business from existing unaffiliated customers.

-10-



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##### 



Cost of Outsourcing Services. Cost of outsourcing services decreased
$700,000, or 8.3%, to $7.7 million for the three months ended March 31, 2002
from $8.4 million for the corresponding period in 2001. As a percentage of
outsourcing services revenues, cost of outsourcing services increased to 90.3%
for the three months ended March 31, 2002 from 77.7% for the corresponding
period in 2001. The decrease in the dollar amount of cost of outsourcing
services was due primarily to: (i) a decrease in salary expense due to a 50%
reduction in IT staff; (ii) a decrease in telephone expenses due to a change of
service provider effective October, 2001; and (iii) a decrease in computer
leasing expense. This decrease was partially offset by an increase in flood zone
determination expense arising from higher flood DWP volumes and increased
contract labor expenses relating to claims administration.

Selling, General and Administrative Expense. Selling, general and
administrative expenses were consistent with prior year at $1.7 million for the
three months ended March 31, 2002 and included operating expenses such as:
payroll and related expenses, professional fees, insurance expense, and other
normal administrative expenses.

Management Services from Parent. Management Services from Parent
decreased $231,000, or 65.3%, to $123,000 for the three months ended March 31,
2002 from $354,000 for the corresponding period in 2001. The decrease was
primarily related to the assumption of administrative services, including human
resources and legal, that were previously provided to the Company by BIG.
Additionally, the reduction reflects reduced office lease expense under the new
sublease agreement with Bankers Financial Corporation which took effect in late
December 2001.

Interest Income. Interest Income increased 242% to $144,000 for the
three months ended March 31, 2002 from $42,000 in 2001. The increase reflects
interest earned on the remaining net cash proceeds from the sale of Geotrac in
late December 2001, coupled with interest earned on the Companys line of credit
with BIG (see LIQUIDITY AND CAPITAL RESOURCES below).

Provision/(Benefit) for Income Taxes. The Companys effective income
tax/(benefit) rates were (37.3%) and (33.2%) for the three months ended March
31, 2002 and 2001, respectively.

For additional information on the reconciliation of the Companys
effective income tax rate to the federal statutory income tax rate, see Note 10
- Income Taxes, in the Notes to the Consolidated Financial Statements of the
Company for the year ended December 31, 2001, included in the Companys Form
10-K filed with the Securities and Exchange Commission on April 1, 2002.

DISCONTINUED OPERATIONS

As a consequence of the sale of Geotrac
on December 28, 2001, net income from discontinued operations was $0
for the 3 months ended March 31, 2002 as compared to $429,000 for the corresponding period in 2001.
For selected financial information on discontinued operations, see
Note 3. Discontinued Operations in the Notes to the
Consolidated Financial Statements (unaudited) of the Company included
in Item 1. Financial Statements above.

NEW ACCOUNTING POLICIES

While the Company
does not expect any material impact of adopting,
effective as of January 1, 2002, Statement of Financial Accounting Standards
(SFAS) 142, Goodwill and Intangible Assets, and 144, Accounting for the
Impairment or Disposal of Long Lived Assets, the Company has not yet completed
its determination of the impact of SFAS 142, which should be completed by June
30, 2002.

Under SFAS 142, the impact, exclusive of the non-amortization of
goodwill, will be recognized as a January 1, 2002 cumulative effect change in
accounting principle. As of January 1, 2002, the Company is no longer amortizing
goodwill.

In addition, effective January 1, 2002, the Company adopted SFAS 144,
Accounting for the Impairment or Disposal of Long Lived Assets. The adoption of
SFAS 144 had no impact on the Companys results of operations or financial
condition.

See Note 2 of
the Notes to Consolidated Financial Statements for further
information.

-11-



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##### 



LIQUIDITY AND CAPITAL RESOURCES

During 2001, the Companys principal sources of liquidity consisted of
cash on-hand, cash flows from operations, and cash proceeds from the sale of the
Companys Geotrac subsidiary in late December 2001. The Company received net
cash proceeds of approximately $18.2 million as a result of the sale of its
Geotrac subsidiary in late December 2001. Prior to the consummation of the sale
of Geotrac, the Company was party to a Corporate Governance Agreement, dated
July 31, 1998, with Geotrac and Daniel J. White (Mr. White), setting forth
certain terms and conditions pertaining to the operation of Geotrac. Pursuant to
this Corporate Governance Agreement, Mr. White could impede the Companys
ability to access excess cash balances retained by its Geotrac subsidiary.

On April 13, 2001, the Company entered into a Commitment Letter with
BIG pursuant to which BIG has agreed to advance to the Company, beginning June
1, 2001, up to $1.5 million per month as a prepayment of service fees due by BIG
and its affiliates under their service agreements with the Company. Such
advances are available to the Company beginning June 1, 2001 continuing through
December 1, 2002 and shall be payable upon demand by the Company. Any funds
advanced by BIG to the Company under the Commitment Letter shall constitute a
prepayment of, and shall be credited toward, the service fees charged to BIG by
the Company during the month following such advance.

On August 14, 2001, the Company entered into a Credit and Security
Agreement with BIG (together with the related loan documentation, the Credit
Agreement), pursuant to which the Company established a short-term, secured
line of credit in favor of BIG in the amount of up to $5.0 million (the Line of
Credit). The principal purpose of the Line of Credit is to assist BIG, the
Companys principal customer and shareholder, with certain short-term working
capital needs. Pursuant to the Credit Agreement, all unpaid principal and
interest became due and payable in full on February 28, 2002. As of such date,
BIG owed the Company an aggregate of approximately $5.0 million under the Line
of Credit. On March 14, 2002, the Company and BIG amended the Credit Agreement
(the Amended Credit Agreement) to extend the Line of Credit until May 31,
2002. Pursuant to the Amended Credit Agreement, interest is payable monthly on
amounts outstanding under the Line of Credit at an annual rate equal to the
Prime Rate (4.75% at March 31, 2002) as defined in the Amended Credit Agreement,
plus 1.5%. As of March 31, 2002, the aggregate principal amount outstanding
under the Line of Credit was $5.0 million.

The Line of Credit is secured by (i) a first lien security interest in
all accounts and contract rights of Bankers Underwriters, Inc., a wholly-owned
subsidiary of BIG (BUI), with insurance agents (including but not limited to
general agents with respect to the sale of federal flood insurance)
(collectively, the Flood Book), and (ii) an option (the Option) to purchase
from BIG the outstanding capital stock, consisting of 10,898 shares (the Option
Shares) of common stock, $318 par value per share, of First Community Insurance
Company, a New York insurance company licensed in all fifty states and a
subsidiary of BIG. Management of the Company believes that, as of
March 31, 2002, the
fair market value of the Flood Book exceeded the aggregate principal amount of
the Line of Credit.

The Company has been advised by BIG that it is considering various
methods of satisfying its obligations under the Line of Credit, including the
possible sale of certain of its assets. No assurances can be given, however,
that payment in full of all amounts due and owing under the Line of Credit will
be received on a timely basis.

The Company believes that cash on-hand (including the remaining net
cash proceeds from the Geotrac sale) and cash flows from operations will be
sufficient to support the Companys currently anticipated working capital
requirements for the foreseeable future.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company has not entered into any transactions using derivative
financial instruments or derivative commodity instruments and believes that its
exposure to market risk associated with other financial instruments (such as
variable rate debt) is not material.

-12-



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##### 



PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There have been no material changes to the disclosure set forth under
the caption Item 3. Legal Proceedings in the Companys Annual Report on Form
10-K for the year ended December 31, 2001, as filed with the Securities and
Exchange Commission on April 1, 2002.

ITEM 5. OTHER INFORMATION

On May 7, 2002, the Company further reduced its workforce by
eliminating 45 positions, or approximately 10.7% of its total workforce. These
reductions are expected to result in a reduction of approximately $1.6 million
in annualized payroll costs and are expected to have a positive
impact on the Companys cash flow and pre-tax earnings. These staffing
reductions impacted each of the Companys principal departments, although the
primary areas affected were policy administration and claims processing. These
reductions were undertaken in an effort to help offset the loss of affiliated
outsourcing services revenue resulting primarily from reductions in the amounts of
homeowners, workers compensation and, to a lesser extent, automobile
outsourcing services provided to BIG. See Part I, Item 2. Managements
Discussion and Analysis of Financial Condition and Results of Operations above.
Since the beginning of 2002 (and including the reductions described above), the
Companys total workforce has been reduced by approximately 21%. The annualized payroll
expense savings related to this reduction is currently expected to total
approximately $3.3 million. The Company will continue to consider further
staffing reductions in the future, depending upon the demand for its services
and other factors. No assurances can be given, however, as to whether any
additional reductions will be undertaken, or if so, when and upon
what terms and conditions.

Due to the changes in BIGs business, the Company is considering other
expense reduction measures as well, including possible reductions in the amount
of space it leases. No assurances can be given, however, as to whether any such
measures can or will be implemented. If the Company is unable to replace the
loss of affiliated outsourcing services revenues or reduce its expenses accordingly, it
could have a material adverse affect on the Companys business, financial condition and
results of operations.

Pursuant to the December 2001 sale of Geotrac, the Company entered into
a Flood Zone Determination Service Agreement pursuant to which Geotrac will
provide the Company with flood zone determination services for up to ten years
at pricing management of the Company currently considers to be favorable. The
start date for when the Agreements new pricing goes into effect has been
changed by the parties to May 17, 2002. The fair value of $2,189,090 assigned to
this service agreement will be amortized over the 10-year contract period
commencing May 17, 2002 using a method that approximates the
Companys projected annual
requirements of flood zone determinations.

As previously reported, on January 30, 2002, the Board of Directors of
the Company appointed a Special Committee, consisting of the Companys five
independent directors, to evaluate possible strategic alternatives for the
Company. On April 24, 2002, the Board of Directors approved the following
compensation for members of the Special Committee, retroactive to the formation
of the Special Committee in January 2002. Each member will be paid a flat fee of
$1,000 per meeting attended. In addition, the Chairman of the Committee, John S.
McMullen, will be paid a monthly fee of $5,000. The Board intends to reevaluate
the monthly fee payable to Mr. McMullen at its meeting scheduled
for June 2002.

The Company has also
set September 24, 2002 as the date for the 2002 Annual Meeting
of Shareholders. Proposals of shareholders pursuant to Rule 14a-8
under the Securities Exchange Act of 1934, as amended
(Rule 14a-8), that are intended to be
presented at the 2002 Annual Meeting of Shareholders must be received
by the Company no later than July 1, 2002 to be included in the
Company's proxy materials for that meeting. Further, a shareholder
who otherwise intends to present business at the 2002 Annual Meeting
must comply with the requirements set forth in the Companys
Amended and Restated Bylaws. Among other things, to bring business
before an annual meeting, a shareholder must give written notice
thereof, complying with the Amended and Restated Bylaws, to the
Secretary of the Company generally not less than 60 days nor
more than 90 days prior to the date of the annual meeting of
shareholders. Under the Amended and Restated Bylaws, if the Company
does not receive notice of a shareholder proposal submitted otherwise
than pursuant to Rule 14a-8 (i.e., a proposal a shareholder
intends to present at the 2002 Annual Meeting of Shareholders but
does not intend to have included in the Companys proxy
materials) on or prior to July 27, 2002 (assuming a
September 24, 2002 meeting date), then the notice will be
considered untimely and the Company will not be required to present
such proposal at the 2002 Annual Meeting. If the Board of Directors
of the Company nonetheless chooses to present such proposal at the
2002 Annual Meeting, then the persons named in proxies solicited by
the Board for the Annual Meeting may exercise discretionary voting
power with respect to such proposal.

-13-



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##### 



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

a) Exhibits

|               |  |                                                                                                                                                               
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
Number |  | Description                                                                                                                                                   
|               |  |                                                                                                                                                               
|10.1           |  | Insurance Administration Services Agreement, effective March 1,
2002, by and
between Insurance Management Solutions, Inc. and Island Insurance
Companies, LTD.

b) Reports on Form 8-K

The Company filed two reports on Form 8-K during the three months ended
March 31, 2002:

(1)  On January 14, 2002, the Company filed a report on Form 8-K to
report that on December 28, 2001 the Company consummated the transactions
contemplated by a stock purchase agreement (as amended, the Stock Purchase
Agreement), dated as of September 20, 2001, by and among
the Company, Geotrac,
Geotrac Holdings, Inc., Daniel J. White, the Daniel J. White
Trust, the Sandra A. White Trust, and, solely for purposes of a non-competition
covenant, BIG. Pursuant to the Stock Purchase Agreement, Geotrac Holdings, Inc.,
a Delaware corporation formed by Daniel J. White and his spouse, Sandra A.
White, purchased all the issued and outstanding capital stock (the Shares) of
the Companys Geotrac subsidiary. The purchase price paid for
the Shares was $19.0 million
in cash, plus 524,198 shares of Common Stock, $.01 par value, of the Company
beneficially owned by Daniel J. White and Sandra A. White. Pursuant to the Stock
Purchase Agreement, certain of the parties also entered into additional
agreements as of the closing of such sale, including a Flood Zone Determination
Service Agreement pursuant to which Geotrac will provide the Company with flood
zone determination services for up to ten years.

(2)  On March 13, 2002, the Company filed a report on Form 8-K to report
the following events: (i) on January 30, 2002, the Board of Directors of the
Company appointed a Special Committee, consisting of the Companys five
independent directors, to evaluate possible strategic alternatives for the
Company; (ii) effective February 1, 2002, Robert G. Menke resigned as a director
of the Company to pursue personal interests; and (iii) on March 14, 2002, the
Company and BIG amended an existing Credit and Security Agreement (including
related loan documentation) to extend the short-term secured $5.0 million line
of credit, previously established by the Company in favor of BIG, until May 31, 2002.

-14-



---



##### 



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|                   |  |                                                                                                                
|------------------ |  | ---------------------------------------------------------------------------------------------------------------
|Date: May 10, 2002 |  | INSURANCE MANAGEMENT
SOLUTIONS GROUP, INC.
(Registrant)                                                        
|                  
|                  
|                  
|                  
|                  
|                   |  | By: /s/ David M. Howard                                                                                        
|                   |  |                                                                                                                
|                   |  | David M. Howard
President and
Chief Executive Officer
(Principal Executive Officer)                            
|                  
|                  
|                  
|                  
|                  
|                   |  | By: /s/ Anthony R. Marando                                                                                     
|                   |  |                                                                                                                
|                   |  | Anthony R. Marando
Chief Financial Officer and Corporate
Secretary
(Principal Financial and Accounting
Officer)

-15-



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##### 



EXHIBIT INDEX

|               |  |                                                                                                                                                               
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
Number |  | Description                                                                                                                                                   
|               |  |                                                                                                                                                               
|10.1           |  | Insurance Administration Services Agreement, effective March 1, 2002, by and
between Insurance Management Solutions, Inc. and Island Insurance
Companies, LTD.

E-1