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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 June 30, 2003



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.)



|801 94th Avenue North, St. Petersburg, Florida |  | 33702     
|---------------------------------------------- |  | ----------
|(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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).



Yes ̈No x



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 as of August 6, 2003: 12,246,063
|----------------------------------- |  | --------------------------------------------



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TABLE OF CONTENTS



|                                                                                                                           |  | Page Number
|-------------------------------------------------------------------------------------------------------------------------- |  | -----------
|PART I. FINANCIAL INFORMATION                                                                                              |  | 1          
|Item 1. Financial Statements                                                                                               |  | 1          
|Consolidated Balance Sheets as of December 31, 2002 and June 30, 2003                                                      |  | 1          
|Consolidated Statements of Operations for the three months and six months ended June 30, 2002 and 2003                     |  | 2          
|Consolidated Statement of Shareholders Equity for the year ended December 31, 2002 and the six months ended June 30, 2003 |  | 3          
|Consolidated Statements of Cash Flows for the six months ended June 30, 2002 and 2003                                      |  | 4          
|Notes to Consolidated Financial Statements                                                                                 |  | 5          
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations                              |  | 10         
|Item 3. Quantitative and Qualitative Disclosures about Market Risk                                                         |  | 16         
|Item 4. Controls and Procedures                                                                                            |  | 16         
|PART II. OTHER INFORMATION                                                                                                 |  | 16         
|Item 1. Legal Proceedings                                                                                                  |  | 16         
|Item 5. Other Information                                                                                                  |  | 17         
|Item 6. Exhibits and Reports on Form 8-K                                                                                   |  | 18         



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 regarding the merger contemplated by the Agreement and Plan of Merger, dated April 9, 2003, among the Company, Fiserv Inc. and certain of its direct and indirect subsidiaries; (iii) trends affecting the Companys
financial condition or results of operations; (iv) the Companys operating strategies; (v) changes in the business and/or financial condition of the Companys clients; (vi) the ability of Bankers Insurance Group, Inc. (including its
subsidiaries, BIG) to pay outstanding amounts owed the Company; (vii) potential increases in the Companys costs; (viii) the impact of general economic conditions on the demand for the Companys services; (ix) changes in
existing service agreements; (x) the ability to obtain new customers and retain existing customers; (xi) the outcome of certain litigation and other proceedings involving the Company; (xii) the outcome of certain administrative proceedings involving
BIG; and (xiii) the ability to implement expense reductions. 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. Prospective investors should also consult the risks described from time to time in the Companys Reports on Forms 8-K, 10-Q and 10-K and Annual Reports to Shareholders.



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PART 1. FINANCIAL INFORMATION



ITEM 1. FINANCIAL STATEMENTS



INSURANCE MANAGEMENT SOLUTIONS GROUP, INC., AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS



|                                                                                                                                                       |  | December 31,2002 |            | June 30, 2003
|------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---------------- | ---------- | -------------
|                                                                                                                                                       |  |                  |            | (unaudited)  
|ASSETS                                                                                                                                                 |  |                  |            |              
|CURRENT ASSETS                                                                                                                                         |  |                  |            |              
|Cash and cash equivalents                                                                                                                              |  | $                | 13,109,540 |              
|Accounts receivable, net                                                                                                                               |  |                  | 1,015,450  |              
|Due from affiliates                                                                                                                                    |  |                  | 4,892,216  |              
|Note and interest receivable  affiliate                                                                                                               |  |                  | 6,660,259  |              
|Prepaid expense and other assets                                                                                                                       |  |                  | 893,444    |              
|Income taxes recoverable                                                                                                                               |  |                  | 1,473,895  |              
|                                                                                                                                                       |  |                  |            |              
|Total current assets                                                                                                                                   |  |                  | 28,044,804 |              
|PROPERTY AND EQUIPMENT, net                                                                                                                            |  |                  | 2,277,716  |              
|OTHER ASSETS                                                                                                                                           |  |                  |            |              
|Goodwill                                                                                                                                               |  |                  | 2,250,409  |              
|Deferred tax assets                                                                                                                                    |  |                  | 478,714    |              
|Capitalized software costs, net                                                                                                                        |  |                  | 125,896    |              
|Other, net                                                                                                                                             |  |                  | 1,813,883  |              
|                                                                                                                                                       |  |                  |            |              
|Total assets                                                                                                                                           |  | $                | 34,991,422 |              
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                   |  |                  |            |              
|CURRENT LIABILITIES                                                                                                                                    |  |                  |            |              
|Accounts payable, trade                                                                                                                                |  | $                | 625,863    |              
|Employee related accrued expenses                                                                                                                      |  |                  | 1,125,545  |              
|Other accrued expenses                                                                                                                                 |  |                  | 1,840,267  |              
|                                                                                                                                                       |  |                  |            |              
|Total current liabilities                                                                                                                              |  |                  | 3,591,675  |              
|COMMITMENTS AND CONTINGENCIES                                                                                                                          |  |                  |            |              
|SHAREHOLDERS EQUITY                                                                                                                                   |  |                  |           |              
|Preferred Stock. $.01 par value; 20,000,000 shares authorized, no shares issued and outstanding                                                        |  |                  |           |              
|Common Stock, $.01 par value; 100,000,000 shares authorized, 12,246,063 shares issued and outstanding at December 2002 and June
30, 2003, respectively |  |                  | 122,460    |              
|Additional paid-in capital                                                                                                                             |  |                  | 26,407,405 |              
|Retained earnings                                                                                                                                      |  |                  | 4,869,882  |              
|Total shareholders equity                                                                                                                             |  |                  | 31,399,747 |              
|                                                                                                                                                       |  |                  |            |              
|Total liabilities and shareholders equity                                                                                                             |  | $                | 34,991,422 |              
|                                                                                                                                                       |  |                  |            |              



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



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INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)



|                                                  |  | Three Months Ended June 30 |            | Six Months Ended June 30 |     
|------------------------------------------------- |  | -------------------------- | ---------- | ------------------------ | ----
|                                                  |  | 2002                       |            |                          | 2003
|REVENUES                                          |  |                            |            |                          |     
|Outsourcing services  affiliated                 |  | $                          | 6,891,875  |                          |     
|Outsourcing services                              |  |                            | 3,123,277  |                          |     
|                                                  |  |                            |            |                          |     
|Total revenues                                    |  |                            | 10,015,152 |                          |     
|EXPENSES                                          |  |                            |            |                          |     
|Cost of outsourcing services                      |  |                            | 8,482,732  |                          |     
|Selling, general and administrative               |  |                            | 1,922,474  |                          |     
|Management services from Parent                   |  |                            | 184,338    |                          |     
|Depreciation and amortization                     |  |                            | 719,342    |                          |     
|                                                  |  |                            |            |                          |     
|Total expenses                                    |  |                            | 11,308,886 |                          |     
|                                                  |  |                            |            |                          |     
|OPERATING INCOME/(LOSS)                           |  |                            | (1,293,734 | )                        |     
|                                                  |  |                            |            |                          |     
|OTHER INCOME/(EXPENSE)                            |  |                            |            |                          |     
|Interest income                                   |  |                            | 129,859    |                          |     
|                                                  |  |                            |            |                          |     
|Total other income/(expense)                      |  |                            | 129,859    |                          |     
|INCOME/(LOSS) FROM OPERATIONS BEFORE INCOME TAXES |  |                            | (1,163,875 | )                        |     
|PROVISION/(BENEFIT) FOR INCOME TAXES              |  |                            | (432,600   | )                        |     
|                                                  |  |                            |            |                          |     
|NET INCOME/(LOSS)                                 |  | $                          | (731,275   | )                        |     
|NET INCOME/(LOSS) PER COMMON SHARE                |  | $                          | (.06       | )                        |     
|Weighted average common shares outstanding        |  |                            | 12,276,063 |                          |     
|                                                  |  |                            |            |                          |     



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



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INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY



|                                                                      |  | CommonStock |         |   | AdditionalPaid-InCapital |   |            | RetainedEarnings |  |   | Total      |  
|--------------------------------------------------------------------- |  | ----------- | ------- | - | ------------------------ | - | ---------- | ---------------- |  | - | ---------- | -
|Balance at December 31, 2001                                          |  | $           | 122,760 |   |                          | $ | 26,394,438 |                  |  | $ | 7,892,381  |  
|Compensation expense related to stock options issued to non-employees |  |             |        |   |                          |   | 110,167    |                  |  |   |           |  
|Purchase and retirement of 30,000 shares of Common Stock              |  |             | (300    | ) |                          |   | (97,200    | )                |  |   |           |  
|Net Loss                                                              |  |             |        |   |                          |   |           |                  |  |   | (3,022,499 | )
|                                                                      |  |             |         |   |                          |   |            |                  |  |   |            |  
|Balance at December 31, 2002                                          |  | $           | 122,460 |   |                          | $ | 26,407,405 |                  |  | $ | 4,869,882  |  
|Net Loss (unaudited)                                                  |  |             |        |   |                          |   |           |                  |  |   | (641,078   | )
|                                                                      |  |             |         |   |                          |   |            |                  |  |   |            |  
|Balance at June 30, 2003 (unaudited)                                  |  | $           | 122,460 |   |                          | $ | 26,407,405 |                  |  | $ | 4,228,804  |  



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



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INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS



(Unaudited)



|                                                                                         |  | Six Months Ended June 30, |           
|---------------------------------------------------------------------------------------- |  | ------------------------- | ----------
|                                                                                         |  | 2002                      |           
|CASH FLOWS FROM OPERATING ACTIVITIES                                                     |  |                           |           
|Net income/(loss)                                                                        |  | $                         | (1,702,320
|Adjustments to reconcile net income/(loss) to net cash provided by operating activities: |  |                           |           
|Depreciation and amortization expense                                                    |  |                           | 1,368,306 
|Loss on disposal of property and equipment                                               |  |                           | 9,909     
|Compensation expense related to nonemployee stock options                               |  |                           | 86,722    
|Deferred income taxes, net                                                               |  |                           | 23,500    
|Changes in assets and liabilities:                                                       |  |                           |           
|Accounts receivable, trade                                                               |  |                           | (895,507  
|Due from affiliates                                                                      |  |                           | 25,369    
|Income taxes recoverable                                                                 |  |                           | (1,104,659
|Prepaid expenses and other current assets                                                |  |                           | (71,614   
|Accounts payable, trade                                                                  |  |                           | (654,739  
|Employee related accrued expenses                                                        |  |                           | 122,794   
|Other accrued expenses                                                                   |  |                           | 495,477   
|Income taxes payable                                                                     |  |                           | (1,418,415
|                                                                                         |  |                           |           
|Net cash provided by/(used in) operating activities                                      |  |                           | (3,715,177
|                                                                                         |  |                           |           
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                    |  |                           |           
|Purchases of property and equipment                                                      |  |                           | (239,712  
|Collection of notes receivable  affiliated                                              |  |                           | 5,026,541 
|                                                                                         |  |                           |           
|Net cash provided by/(used in) investing activities                                      |  |                           | 4,786,829 
|                                                                                         |  |                           |           
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                    |  |                           |           
|Net cash used in financing activities                                                    |  |                           |          
|                                                                                         |  |                           |           
|INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS                                         |  |                           | 1,071,652 
|CASH AND CASH EQUIVALENTS, beginning of period                                           |  |                           | 20,095,808
|CASH AND CASH EQUIVALENTS, end of period                                                 |  | $                         | 21,167,460
|                                                                                         |  |                           |           



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



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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. (together with its
subsidiaries, 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). Historically, the Company has operated in two principal
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 (IT) 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.



In 2002 and prior years, the Company was substantially dependent on the business of its affiliated insurance companies under the common control of BIG, as
the Company derived a substantial portion of its revenue from outsourcing services provided to these affiliated companies and BIG.



The Company amended its existing Administration Services Agreement, effective October 1, 2001, with BIG (the BIG Service Agreement), such
that, as of July 1, 2002, the Company no longer provides policy administration or claims processing services for BIGs personal (i.e., automobile and homeowners) insurance lines of business or claims processing for BIGs commercial
insurance lines of business. The Company, pursuant to the BIG Service Agreement, continues to provide BIG with IT hosting and support services for a fixed monthly fee and also provides various other back-office support services, including cash
office processing, records management, policy assembly, and print and mail distribution services, in connection with all of BIGs personal and commercial insurance lines of business. Effective August 12, 2002, the Company further amended the
BIG Service Agreement. Pursuant to this amendment, the Company provides additional IT support services to BIG.



On August 15, 2002 the Company agreed to loan BIG and/or Bankers Underwriters, Inc., a wholly-owned subsidiary of BIG (BUI), up to $7.0
million under a revolving line of credit (the Line of Credit), secured by the insurance flood book of BUI. The Line of Credit was established in connection with an Agreement and Plan of Merger, dated August 15, 2002, by and among the
Company and BIG, which Agreement and Plan of Merger was terminated as of November 21, 2002. All amounts outstanding under the Line of Credit (approximately $6.7 million) were paid in full, and the Line of Credit was terminated, on January 3, 2003.



Also, on January 3, 2003, BIG consummated the sale of First
Community Insurance Company, a subsidiary of BIG and a fifty-state licensed insurance carrier (FCIC), and certain assets of BIG, including the rights to issue new and renewal flood insurance policies underwritten by BIG and its
subsidiaries, Bankers Insurance Company (BIC), Bankers Security Insurance Company (BSIC) and FCIC, to Fidelity National Financial, Inc. (FNF). FNF, a Fortune 500 company, is the largest title insurance and
diversified real estate related services company in the United States, with total revenue of nearly $3.9 billion in 2001. The transaction involved more than 360,000 flood insurance policies originated through a nationwide network of approximately
10,000 independent agents in conjunction with the National Flood Insurance Plan.



Effective as of the consummation of the foregoing transaction between BIG and FNF, the Company entered into a new Flood Insurance Full Service Vendor Agreement, dated January 3, 2003 (the FCIC Service
Agreement), with FCIC, now a wholly-owned subsidiary of FNF, pursuant to which the Company continues to provide policy administration, claims administration, data processing and other related services to FCIC in connection with FCICs
Write Your Own (WYO) Flood Insurance Program. As of the date of this Report, FCICs WYO Program consists solely of the flood insurance book of business previously administered by the Company on behalf of BIG. Given, among other
factors, FNFs substantial size and financial strength relative to BIG, the Company believes that FCICs prospects for both retention and growth of the existing flood insurance book of business are favorable. No assurances can be given,
however, as to whether FCIC will be able to retain or grow the



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existing flood insurance book of business, or as to whether the acquisition of FCIC and certain related assets by FNF
from BIG will have a positive impact on the Companys business, financial condition or results of operations.



The FCIC Service Agreement expressly removed FCIC as a party from the BIG Service Agreement. As a result of the consummation of the sale of FCIC and
related assets by BIG to FNF, the Companys reliance on its affiliated customers is expected to diminish significantly on a going-forward basis. Pursuant to the BIG Service Agreement, however, the Company continues to provide BIG, including its
BIC and BSIC subsidiaries, with IT hosting and support services, as well as various other back-office support services, including cash office processing, records management, policy assembly, and print and mail distribution services, in connection
with all of BIGs personal and commercial insurance lines of business, with no changes in the existing fee structure.



On April 9, 2003, the Company entered into an Agreement and Plan of Merger (the Merger Agreement) with Fiserv, Inc., a Wisconsin corporation
(Fiserv), Fiserv Solutions, Inc., a Wisconsin corporation and a wholly-owned subsidiary of Fiserv (Fiserv Solutions), and Fiserv Merger Sub, Inc., a Florida corporation and a wholly-owned subsidiary of Fiserv Solutions
(Fiserv Merger Sub), providing for, among other things, the merger of Fiserv Merger Sub with and into the Company, with the Company as the surviving corporation (the Merger).



On June 23, 2003, the Company informed BIG that the First Amendment to the
Insurance Administration Service Agreement, dated July 1, 2002, and the Second Amendment to the Insurance Administration Service Agreement (Amendments), dated August 12, 2002 were set to expire as of June 30, 2003. These Amendments were
executed by and between IMS and BIC, BSIC and FCIC.



IMS
informed BIG that these Amendments require written notification from BIC, BSIC and FCIC prior to July 1, 2003 with a statement of services to be provided by IMS on a month-to-month basis pursuant to the terms and conditions of the Amendments. IMS is
continuing to provide such services as per these Amendments, on a month-to-month basis, and BIG and IMS are negotiating provision of future services at this time. These Amendments therefore, continue in force as the Company and BIG negotiate with
regard to future services to be provided to BIG. No assurances can be given as to what services will be provided to BIG in the future based on these negotiations and if so, what effect such services will have on the Companys revenues going
forward, although it is expected that such services will diminish in the future.



NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Basis of Presentation



The accompanying consolidated financial statements of 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, 2002, as filed with the Securities and Exchange Commission on March 26, 2003. The results of operations for the six-month period ended June 30, 2003 are not necessarily
indicative of the results that should be expected for a full fiscal year.



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Goodwill



Effective as of January 1, 2002, the Company adopted Statements of Financial Accounting Standards (SFAS) 142, Goodwill and Intangible
Assets, and 144, Accounting for the Impairment or Disposal of Long Lived Assets. In connection with the adoption of SFAS 142, Goodwill and Intangible Assets, the Company retained an independent third-party investment banking firm
to conduct an analysis of its goodwill valuation at January 1, 2002. This valuation determined that no impairment of the Companys goodwill existed as of January 1, 2002. At December 31, 2002 and June 30, 2003, managements assessment
remains that no impairment exists.



Stock Based Compensation



The Company accounts for its employee stock compensation plans using the
intrinsic value method under Accounting Principles Board Opinion No. 25, with pro forma disclosures of net earnings and earnings per share, as if the fair value based method of accounting defined in SFAS 123, Accounting for Stock-Based
Compensation, had been applied. The Company amortizes compensation costs related to the pro forma disclosure using the straight-line method over the vesting period of the employees common stock options.



Had compensation cost for the Companys stock option plan been
determined on the fair value at the grant dates for stock-based employee compensation arrangements consistent with the method required by SFAS 123, the Companys net loss and net loss per common share would have been the pro forma amounts
indicated below.



|                                                                                                           |  | Three Months Ended June 30, |          | Six Months Ended June 30, |     
|---------------------------------------------------------------------------------------------------------- |  | --------------------------- | -------- | ------------------------- | ----
|                                                                                                           |  | 2002                        |          |                           | 2003
|Net income/(loss), as reported                                                                             |  | $                           | (731,275 | )                         |     
|Less: stock-based employee compensation cost under the fair value based method, net of related tax effects |  |                             | (29,921  | )                         |     
|                                                                                                           |  |                             |          |                           |     
|Pro forma net income/(loss)                                                                                |  | $                           | (761,196 | )                         |     
|                                                                                                           |  |                             |          |                           |     
|Net income/(loss) per common share-basic and diluted:                                                      |  |                             |          |                           |     
|as reported                                                                                                |  | $                           | (.06     | )                         |     
|                                                                                                           |  |                             |          |                           |     
|Pro forma net income/(loss)                                                                                |  | $                           | (.06     | )                         |     
|                                                                                                           |  |                             |          |                           |     



During 2002 and 2001,
there were no stock options granted and, as of June 30, 2003, there were no options that were exercisable. The per-share weighted-average fair value of stock options granted during 2000 was $1.16 using the Black-Scholes option-pricing model with the
following weighted-average assumptions: expected dividend yield of 0%; risk-free interest rate of 5.75%; expected volatility of 65%; and an expected life of 5 years.



Effective August 20, 2002, each of the Companys Directors and Executive Officers entered into a separate Option
Termination Agreement whereby the Directors and Executive Officers agreed to the cancellation of all options granted under the Companys Long-Term Incentive Plan, Non-Employee Directors Stock Option Plan and/or Non-Qualified Stock Option
Plan. Additionally, all other stock options granted under the Long-Term Incentive Plan were cancelled effective January 2003, subject to an Option Termination Agreement signed by each of the Companys current employees who held options under
this plan. Consequently, no options remain outstanding under the aforementioned plans and no further options may be granted thereunder.



Recent Accounting Pronouncements



In May 2003, the FASB issued Statement 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity
(SFAS 150). This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both a liability and equity. It requires that an issuer classify a financial instrument
that is within its scope as a liability (or an asset in some circumstances). The Company does not anticipate that SFAS 150 will have a material impact on its financial statements.



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Net Income/(Loss) Per Common Share



Net income/(loss) per common share, which represents both basic and diluted earnings per share (EPS) since no
dilutive securities were outstanding for all periods presented, 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 June 30, |            | Six Months Ended June 30, |     
|------------------------------------------------------------------------------------------------ |  | --------------------------- | ---------- | ------------------------- | ----
|                                                                                                 |  | 2002                        |            |                           | 2003
|Numerator                                                                                        |  |                             |            |                           |     
|Net income/(loss)                                                                                |  | $                           | (731,275   | )                         |     
|Denominator                                                                                      |  |                             |            |                           |     
|Weighted average number of Common Shares used in basic EPS                                       |  |                             | 12,276,063 |                           |     
|Diluted stock options                                                                            |  |                             |           |                           |     
|                                                                                                 |  |                             |            |                           |     
|Weighted average number of Common Shares and diluted potential Common Shares used in diluted EPS |  |                             | 12,276,063 |                           |     



As of June 30, 2002
options to purchase 465,000 shares 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. There were no options to purchase shares
of Common Stock outstanding at June 30, 2003.



NOTE 3. COMMITMENTS AND CONTINGENCIES



IPO Litigation



At a July 18, 2003 hearing, U.S. District Judge Richard
A. Lazzara entered an Order and Final Judgment approving the settlement of the class action lawsuit referred to as the IPO Litigation and described under the caption Item 1. Legal Proceedings in the Companys Quarterly
Report on Form 10-Q for the three months ended March 31, 2003, as filed with the Securities and Exchange Commission on May 15, 2003 (the First Quarter Form 10-Q). As reported in the First Quarter Form 10-Q, the plaintiff agreed to
accept, in full settlement of the IPO Litigation as to all defendants, the payment of $2.1 million to the plaintiff class by the issuer of the Companys applicable Directors and Officers and Company Reimbursement insurance policy. In May 2003,
in anticipation of Judge Lazzaras approval of the settlement and pursuant to the parties Stipulation and Agreement of Settlement, the insurer deposited those monies into an escrow account established and maintained by the
plaintiffs attorneys.



Third-Party Contract Dispute



On June 5, 2003, the Company received a Notice of Dispute from a former
unaffiliated third-party customer. This Notice of Dispute alleges that the Company materially breached its services agreement with this former customer by failing to design, construct, acquire or implement a software system that would enable it to
provide the services set forth in the agreement. On July 3, 2003, the former customer submitted an Arbitration Notice to the Company under the services agreement. The Arbitration Notice seeks resolution of the following issues: (1) whether the
Company breached the services agreement by failing to design, construct, acquire and/or implement the software systems that would enable the Company to provide the insurance administration services set forth in the services agreement; (2) whether
the former customer is entitled to the return of the $1.0 million implementation charge it paid the Company upon execution of the services agreement, plus attorneys fees and any other cost, loss, damage or expense it incurred as a result of
the Companys alleged failure to perform; (3) in the alternative, whether the Company was unjustly enriched by retaining the $1.0 million implementation charge when it allegedly failed to perform work of any value to the former customer; and
(4) whether the $1.0 million implementation charge constitutes a preference under Pennsylvania statutory law such that the Company must return that amount to the former customer.



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As previously disclosed, the Companys services agreement with this former customer was terminated
in 2000, and the Company has previously recorded a liability of $800,000 relating to this matter. Management of the Company believes, however, that the allegations made by the former customer are without merit (and/or are subject to available
defenses) and intends to vigorously defend the arbitration proceeding brought against it by the former customer. Nevertheless, no assurances can be given with respect to the outcome of this matter, and an adverse outcome in any such proceeding could
have a material adverse effect on the Companys business, financial condition and results of operations.



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.



NOTE 4. OPERATIONAL MATTERS



During the quarter ended June 30, 2003, the Company realized after-tax net
income of approximately $287,000 and generated positive cash flows resulting in an increase in cash of approximately $800,000 as compared to the previous quarter. As of June 30, 2003, BIG owed the Company an aggregate of approximately $5.7 million
under the BIG Service Agreement (substantially all of which was overdue), including approximately $731,000 in late payment fees. The Company has made written demand on BIG for payment in full of all past due amounts owed under the BIG Service
Agreement, and the Audit Committee of the Companys Board of Directors continues to consider various alternatives for collecting such past due amounts. If such past due amounts are not paid in full and BIG does not thereafter continue to pay
amounts due under the BIG Service Agreement on a timely basis, it could have a material adverse effect on the Companys business, financial condition and results of operations.



On August 5, 2003, the Principal Shareholders and Fiserv, Fiserv Solutions and Fiserv Merger Sub entered into Amendment
No. 1 to Agreement to Facilitate Merger, pursuant to which, among other things, the Principal Shareholders agreed to pay all amounts due the Company under the BIG Service Agreement (approximately $5.7 million as of June 30, 2003) out of the
consideration otherwise to be received by the Principal Shareholders for their shares of Company Common Stock pursuant to the Merger.



Management of the Company believes cash and cash equivalents of approximately $18.9 million at June 30, 2003 are adequate to support operating cash needs
for the foreseeable future.



NOTE 5. SEGMENT
INFORMATION



|                                 |  | OutsourcingServices Administration |            |   | OutsourcingServices ClaimsAdjusting |   |           | IntercompanyEliminationsAnd Other |  |   | ConsolidatedTotals |  
|-------------------------------- |  | ----------------------------------- | ---------- | - | ------------------------------------ | - | --------- | --------------------------------- |  | - | ------------------ | -
|Three months ended June 30, 2002 |  |                                     |            |   |                                      |   |           |                                   |  |   |                    |  
|Operating revenues-affiliated    |  | $                                   | 6,885,125  |   |                                      | $ |          |                                   |  | $ | 6,750              |  
|Operating revenues-unaffiliated  |  | $                                   | 1,310,830  |   |                                      | $ | 1,812,447 |                                   |  | $ |                   |  
|Operating income/(loss)          |  | $                                   | (1,567,253 | ) |                                      | $ | 273,519   |                                   |  | $ |                   |  
|Depreciation and amortization    |  | $                                   | 708,829    |   |                                      | $ | 10,513    |                                   |  | $ |                   |  
|Identifiable assets              |  | $                                   | 37,107,756 |   |                                      | $ | 6,283,844 | (1)                               |  | $ | (5,462,601         | )
|                                 |  |                                     |            |  
|Three months ended June 30, 2003 |  |                                     |            |   |                                      |   |           |                                   |  |   |                    |  
|Operating revenues-affiliated    |  | $                                   | 776,698    |   |                                      | $ |          |                                   |  | $ |                   |  
|Operating revenues-unaffiliated  |  | $                                   | 4,793,823  |   |                                      | $ | 571,207   |                                   |  | $ |                   |  
|Operating income/(loss)          |  | $                                   | 179,058    |   |                                      | $ | 38,800    |                                   |  | $ |                   |  
|Depreciation and amortization    |  | $                                   | 559,085    |   |                                      | $ | 6,756     |                                   |  | $ |                   |  
|Identifiable assets              |  | $                                   | 37,142,854 |   |                                      | $ | 5,562,087 | (1)                               |  | $ | (8,517,723         | )
|                                 |  |                                     |            |  
|Six months ended June 30, 2002   |  |                                     |            |   |                                      |   |           |                                   |  |   |                    |  
|Operating revenues-affiliated    |  | $                                   | 13,982,108 |   |                                      | $ |          |                                   |  | $ |                   |  
|Operating revenues-unaffiliated  |  | $                                   | 2,434,355  |   |                                      | $ | 2,066,701 |                                   |  | $ |                   |  
|Operating income/(loss)          |  | $                                   | (3,022,232 | ) |                                      | $ | 34,237    |                                   |  | $ |                   |  
|Depreciation and amortization    |  | $                                   | 1,347,188  |   |                                      | $ | 21,118    |                                   |  | $ |                   |  
|Identifiable assets              |  | $                                   | 37,107,756 |   |                                      | $ | 6,283,844 | (1)                               |  | $ | (5,462,601         | )



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|Six months ended June 30, 2003  |  |   |            |   |  |   |           |     |  |   |            |   |  |   |            |  
|------------------------------- |  | - | ---------- | - |  | - | --------- | --- |  | - | ---------- | - |  | - | ---------- | -
|Operating revenues-affiliated   |  | $ | 1,620,313  |   |  | $ |          |     |  | $ |           |   |  | $ | 1,620,313  |  
|Operating revenues-unaffiliated |  | $ | 8,217,950  |   |  | $ | 1,120,338 |     |  | $ |           |   |  | $ | 9,338,288  |  
|Operating income/(loss)         |  | $ | (1,529,977 | ) |  | $ | 2,376     |     |  | $ |           |   |  | $ | (1,527,601 | )
|Depreciation and amortization   |  | $ | 1,146,392  |   |  | $ | 14,207    |     |  | $ |           |   |  | $ | 1,160,536  |  
|Identifiable assets             |  | $ | 37,142,854 |   |  | $ | 5,562,087 | (1) |  | $ | (8,517,723 | ) |  | $ | 34,187,218 |  



|(1) |  | Includes Goodwill of $2,250,409.
|--- |  | --------------------------------



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



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 June 30 |   | Six months ended June 30 |  
|------------------------------------ |  | -------------------------- | - | ------------------------ | -
|                                     |  | 2002                       |   |                          |  
|REVENUES                             |  |                            |   |                          | %
|Outsourcing services                 |  | 100.0                      |   |                          |  
|Total revenues                       |  | 100.0                      |   |                          |  
|EXPENSES                             |  |                            |   |                          |  
|Cost of outsourcing services         |  | 84.7                       |   |                          |  
|Selling, general and administrative  |  | 19.2                       |   |                          |  
|Management services from Parent      |  | 1.8                        |   |                          |  
|Depreciation and amortization        |  | 7.2                        |   |                          |  
|                                     |  |                            |   |                          |  
|Total expenses                       |  | 112.9                      |   |                          |  
|                                     |  |                            |   |                          |  
|Operating income/(loss)              |  | (12.9                      | ) |                          |  
|Interest income, net                 |  | 1.3                        |   |                          |  
|                                     |  |                            |   |                          |  
|Income/(loss) before income taxes    |  | (11.6                      | ) |                          |  
|Provision/(benefit) for income taxes |  | (4.3                       | ) |                          |  
|                                     |  |                            |   |                          |  
|Net income/(loss)                    |  | (7.3                       | ) |                          |  



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.



OVERVIEW



Insurance Management Solutions Group, Inc. (together with its subsidiaries,
the Company) is a holding company that was incorporated in the State of Florida in December 1996 by Bankers Insurance Group, Inc. (together with its subsidiaries, BIG), which contributed to the Company two of its wholly-owned
operating subsidiaries, Insurance Management Solutions, Inc. (IMS) and Bankers Hazard Determination Services, Inc. (BHDS) that were previously formed in August 1991 and June 1988, respectively. The Company, through its
wholly-owned subsidiaries, IMS and Colonial Claims Corporation (Colonial), provides comprehensive policy and claims outsourcing services to the property and casualty (P&C) insurance industry, with an emphasis on providing
these services to the flood insurance market.



On January 3,
2003, BIG consummated the sale of First Community Insurance Company, a subsidiary of BIG and a fifty-state licensed insurance carrier (FCIC), and certain assets of BIG, including the rights to issue new and renewal flood insurance
policies underwritten by BIG and its subsidiaries, Bankers Insurance Company



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(BIC), Bankers Security Insurance Company (BSIC) and FCIC, to Fidelity National Financial, Inc.
(FNF). FNF, a Fortune 500 company, is the largest title insurance and diversified real estate related services company in the United States, with total revenue of nearly $3.9 billion in 2001. The transaction involved more than 360,000
flood insurance policies originated through a nationwide network of approximately 10,000 independent agents in conjunction with the National Flood Insurance Plan.



Effective as of the consummation of the foregoing transaction between BIG and FNF, the Company entered into a new Flood
Insurance Full Service Vendor Agreement, dated January 3, 2003 (the FCIC Service Agreement), with FCIC, now a wholly-owned subsidiary of FNF, pursuant to which the Company continues to provide policy administration, claims
administration, data processing and other related services to FCIC in connection with FCICs Write Your Own (WYO) Flood Insurance Program. As of the date of this Report, FCICs WYO Program consists solely of the flood insurance
book of business previously administered by the Company on behalf of BIG. Given, among other factors, FNFs substantial size and financial strength relative to BIG, the Company believes that FCICs prospects for both retention and growth
of the existing flood insurance book of business are favorable. No assurances can be given, however, as to whether FCIC will be able to retain or grow the existing flood insurance book of business, or as to whether the acquisition of FCIC and
certain related assets by FNF from BIG will have a positive impact on the Companys business, financial condition or results of operations.



The FCIC Service Agreement expressly removed FCIC as a party from the BIG Service Agreement. Pursuant to the BIG Service Agreement, however, the Company
continues to provide BIG, including its BIC and BSIC subsidiaries, with IT hosting and support services, including cash office processing, records management, policy assembly, and print and mail distribution services, in connection with all of
BIGs personal and commercial insurance lines of business, with no changes in the existing fee structure.



On June 23, 2003, the Company informed BIG that the First Amendment to the Insurance Administration Service Agreement, dated July 1, 2002, and the Second
Amendment to the Insurance Administration Service Agreement (Amendments), dated August 12, 2002 were set to expire as of June 30, 2003. These Amendments were executed by and between IMS and BIC, BSIC and FCIC.



IMS informed BIG that these Amendments require written notification from BIC,
BSIC and FCIC prior to July 1, 2003 with a statement of services to be provided by IMS on a month-to-month basis pursuant to the terms and conditions of the Amendments. IMS is continuing to provide such services as per these Amendments, on a
month-to-month basis, and BIG and IMS are negotiating provision of future services at this time. These Amendments therefore, continue in force as the Company and BIG negotiate with regard to future services to be provided to BIG. No assurances can
be given as to what services will be provided to BIG in the future based on these negotiations and if so, what effect such services will have on the Companys revenues going forward, although it is expected that such services will diminish in
the future.



The Company is a 68.2%-owned subsidiary of BIG,
which was the Companys principal customer, representing 66.1% of outsourcing revenues, in 2002. IMSG has experienced a significant decline in its volume of outsourcing business over the past year due primarily to changes in the amounts and
lines of insurance business serviced on behalf of BIG. Nevertheless, as a result of the consummation of the sale of FCIC and related assets by BIG to FNF, the Companys reliance on BIG is expected to diminish significantly on a going-forward
basis.



ESTIMATES AND CRITICAL ACCOUNTING
POLICIES



The preparation of the Companys consolidated
financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and revenues
and expenses for the respective period-ended for such statements. The determination of estimates requires the use of judgment since future events and their



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affect on the Companys operations cannot be determined with absolute certainty. Actual results typically differ
from these estimates in some fashion, and at times, these variances may be material to the Companys financial statements. Management continually evaluates its estimates and assumptions, which are based on historical experience and other
factors that are believed to be reasonable under these circumstances, but these estimates and the Companys actual results are subject to certain risk factors. Nevertheless, management of the Company believes the following items involve a
higher degree of complexity and judgment, and therefore, has commented on these items below.



(1) Valuation of Accounts Receivable and Due from Affiliate at December 31, 2002 and June 30, 2003, respectively.



The Companys allowance for doubtful accounts of approximately $179,000 and $145,000 at December 31, 2002 and June 30, 2003, respectively, is based
on managements estimates of the credit worthiness of its customers, current economic conditions and historical information. In the opinion of management, the Companys allowance for doubtful accounts is believed to be an amount sufficient
to respond to normal business conditions. Historically the level of recorded bad debt expense and write-offs has not been material to the Companys financial statements. Should business conditions deteriorate or any customer, including BIG,
default on its obligations to the Company, this allowance may need to be significantly increased, which would have a negative impact upon the Companys financial condition and results of operations.



As of December 31, 2002 and June 30, 2003, respectively, BIG owed the Company
an aggregate of approximately $4.9 million and $5.7 million (substantially all of which was overdue) under the BIG Service Agreement, including approximately $310,000 and $731,000 in late payment fees. The Company has made written demand on BIG for
payment in full of all past due amounts owing under the BIG Service Agreement, and the Audit Committee of the Companys Board of Directors continues to consider various alternatives for collecting such past due amounts. The Audit Committee and
management of the Company believe that no valuation allowance for such past due fees should be recorded at June 30, 2003 based on discussions with management of BIG and an analysis of BIGs ability to make payment for such past due amounts.



On August 5, 2003, the Principal Shareholders and Fiserv,
Fiserv Solutions and Fiserv Merger Sub entered into Amendment No. 1 to Agreement to Facilitate Merger, pursuant to which, among other things, the Principal Shareholders agreed to pay all amounts due the Company under the BIG Service Agreement
(approximately $5.7 million as of June 30, 2003) out of the consideration otherwise to be received by the Principal Shareholders for their shares of Company Common Stock pursuant to the Merger.



(2) Impairment Valuations



On a quarterly basis, management assesses the composition of the
Companys assets and liabilities, as well as the events that have occurred and the circumstances that have changed since the most recent fair value determination. If events occur or circumstances change that would more likely than not reduce
the fair value of the related asset or liability below its carrying amount, the related asset or liability would be tested for impairment.



Goodwill



Under SFAS 142, Goodwill and Intangible Assets, the Company retained an independent third-party investment banking firm to conduct an analysis of
its goodwill valuation at January 1, 2002. The valuation determined that no impairment of the Companys goodwill existed as of January 1, 2002. The Companys internal assessment during 2002 and 2003 concluded that no impairment existed at
December 31, 2002 and at June 30, 2003.



Impairment of
Long-Lived Assets



The Company evaluates the
recoverability of its long-lived assets (principally property and equipment and an intangible service contract) whenever circumstances indicate that the carrying amount of an asset may not be recoverable. Factors considered include current operating
results, trends, and anticipated undiscounted future cash flows. An impairment loss is recognized to the extent the sum of discounted (using the Companys incremental borrowing rate) estimated future cash flows (over a period ranging from
generally four to ten years) expected to result from the use of the asset is less than the carrying value. Management of the Company believes no impairment exists for any of the periods presented.



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Service Contract



In conjunction with the sale of Geotrac of America, Inc. (Geotrac), the Companys former flood zone
determination subsidiary, on December 28, 2001, the Company obtained a favorable long-term service contract with Geotrac for flood zone determinations, which was recorded at its estimated fair value of $2,189,090 at December 27, 2001. Accumulated
amortization was $387,807 and $681,062 at December 31, 2002 and June 30, 2003, respectively. The unamortized balance is classified in Other Assets in the Companys consolidated balance sheet. This contract is amortized over the 10-year contract
period using a method that approximates the projected annual requirements of flood zone determinations. The Companys internal assessments during 2002 and 2003 concluded that no impairment existed at December 31, 2002 or June 30, 2003.



(3) Estimated Liabilities



The Company makes a number of estimates in the ordinary course of business.
Historically, past changes to these estimates have not had a material impact on the Companys financial condition. However, circumstances could change which would alter future financial information based upon a change in estimated-vs.-actual
results.



The Company is subject to various matters of
litigation in the ordinary course of business. Management estimates the potential amount of liability, based on various factors including historical experience and analysis of the relative merits of the litigation. To date, the Company has not had
to pay any legal settlements in excess of existing insurance coverage.



On June 5, 2003, the Company received a Notice of Dispute from a former unaffiliated third-party customer. This Notice of Dispute alleges that the Company materially breached its services agreement with this former customer by failing to
design, construct, acquire or implement a software system that would enable it to provide the services set forth in the agreement. On July 3, 2003, the former customer submitted an Arbitration Notice to the Company under the services agreement. The
Arbitration Notice seeks resolution of the following issues: (1) whether the Company breached the services agreement by failing to design, construct, acquire and/or implement the software systems that would enable the Company to provide the
insurance administration services set forth in the services agreement; (2) whether the former customer is entitled to the return of the $1.0 million implementation charge it paid the Company upon execution of the services agreement, plus attorney
s fees and any other cost, loss, damage or expense it incurred as a result of the Companys alleged failure to perform; (3) in the alternative, whether the Company was unjustly enriched by retaining the $1.0 million implementation charge
when it allegedly failed to perform work of any value to the former customer; and (4) whether the $1.0 million implementation charge constitutes a preference under Pennsylvania statutory law such that the Company must return that amount to the
former customer.



As previously disclosed, the Companys
services agreement with this former customer was terminated in 2000, and as of December 31, 2002, March 31, 2003 and June 30, 2003, the Company had previously recorded a liability of $800,000 relating to this matter. Management of the Company
believes, however, that the allegations made by the former customer are without merit (and/or subject to available defenses) and intends to vigorously defend the arbitration proceeding brought against it by the former customer. Nevertheless, no
assurances can be given with respect to the outcome of this matter, and an adverse outcome in any such proceeding could have a material adverse effect on the Companys business, financial condition and results of operations.



COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2002 AND 2003



Outsourcing Services Revenues. Outsourcing services
revenues decreased $3.9 million, or 39.0%, to $6.1 million for the three months ended June 30, 2003 from $10.0 million for the corresponding period in 2002. This decrease primarily relates to decreases in the Companys affiliated outsourcing
revenues resulting from the implementation of changes to the BIG Service Agreement effective July 1, 2002. This resulted in significant changes in the amounts and lines of business that the Company processes for BIG, resulting in reduced homeowner
and automobile outsourcing services revenue when compared with the corresponding period of the prior year. Also, as described above, in January 2003 the affiliated flood insurance book of business serviced by the Company was sold to FNF by BIG. See
Overview. As a result of these changes, affiliated outsourcing services revenues decreased 88.7% from the prior year to approximately $777,000 and, correspondingly, unaffiliated outsourcing services revenues increased 71.8% from
the corresponding period in 2002 to approximately $5.4 million for the three months ended June 30, 2003. Slightly offsetting this revenue reduction was an increase in unaffiliated revenue of approximately $817,000 resulting from a contract with the
Texas Fair Plan and Texas Windstorm Insurance Associations entered into in February 2003.



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Cost of Outsourcing Services. Cost of outsourcing services decreased $4.5 million, or 52.9%, to
$4.0 million for the three months ended June 30, 2003 from approximately $8.5 million for the corresponding period in 2002. As a percentage of outsourcing services revenues, cost of outsourcing services decreased to 66.1% for the three months ended
June 30, 2003 from 84.7% for the corresponding period in 2002. This $4.5 million decrease was due primarily to payroll and other staff-related expense decreases implemented in 2002 in response to the changes to the BIG Service Agreement effective
July 1, 2002. In addition to the direct staff-related expense decreases, other indirect costs also decreased from the prior period, including leased office space expense, telephone, postage and printing costs.



Selling, General and Administrative Expense. Selling, general and
administrative expenses decreased approximately $622,000 for the three months ended June 30, 2003 as compared to the corresponding period of 2002. This decrease resulted primarily from decreases in administrative salary and related expenses and, to
a lesser extent, decreases in operating expenses such as professional fees as compared to the prior year.



Management Services from Parent. Management Services from Parent decreased $184,000, or 100.0%, during the three months ended June 30, 2003 as
compared to the corresponding period in 2002. The decrease was due to reduced office lease expense, as the Company no longer leases its office space from Bankers Financial Corporation, a subsidiary of BIG. Office lease costs are now reported under
the caption Cost of Outsourcing Services above.



Interest Income. Interest Income increased $116,000, or 89.2%, to $246,000 for the three months ended June 30, 2003 from $130,000 in 2002. The increase resulted from interest earned on the remaining net cash proceeds from the sale of
Geotrac in late December 2001, coupled with late payment fees accrued on past due service fees owed by BIG. See Liquidity and Capital Resources below.



Provision/(Benefit) for Income Taxes. The Companys effective income tax/(benefit) rates were 38.1% and (37.2%)
for the three months ended June 30, 2003 and 2002, respectively.



For additional information on the reconciliation of the Companys effective income tax rate to the federal statutory income tax rate, see Note 8Income Taxes in the Notes to the Consolidated Financial Statements of the
Company for the year ended December 31, 2002, included in the Companys Form 10-K filed with the Securities and Exchange Commission on March 26, 2003.



COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2002 AND 2003



Outsourcing Services Revenues. Outsourcing services revenues decreased $7.5 million, or 40.5%, to $11.0 million for
the six months ended June 30, 2003 from $18.5 million for the corresponding period in 2002. This decrease was due primarily to decreases in the Companys affiliated outsourcing revenues resulting from the implementation of changes to the BIG
Service Agreement effective July 1, 2002. This resulted in significant changes in the amounts and lines of business that the Company processed for BIG, resulting in reduced homeowner and automobile outsourcing services revenue when compared with the
corresponding period of the prior year. Also, as described above, in January 2003 the affiliated flood insurance book of business serviced by the Company was sold to FNF by BIG. See Overview. As a result of these transactions,
affiliated outsourcing services revenues decreased 88.4% from the prior year to approximately $1.6 million and, correspondingly, unaffiliated outsourcing services revenues increased 107.5% from the prior year to approximately $9.3 million. Slightly
offsetting this revenue reduction was an increase in unaffiliated revenue of approximately $817,000 resulting from the contract with the Texas Fair Plan and Texas Windstorm Insurance Associations entered into in February 2003.



Cost of Outsourcing Services. Cost of outsourcing services decreased
$7.8 million, or 48.4%, to $8.3 million for the six months ended June 30, 2003 from approximately $16.1 million for the corresponding period in 2002. As a percentage of outsourcing services revenues, cost of outsourcing services decreased to 75.6%
for the three months ended June 30, 2003 from 87.3% for the corresponding period in 2002. This $7.8 million decrease was due primarily to payroll and other staff-related expense decreases implemented in 2002 in response to changes to the BIG Service
Agreement effective July 1, 2002. In addition to the staff-related expense decreases, other indirect costs also decreased from the prior period, including leased office equipment, postage, printing and supply expenses, and contract labor costs.



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Selling, General and Administrative Expense. Selling, general and administrative expenses
decreased approximately $700,000, or 18.9%, to $3.0 million for the six months ended June 30, 2003 as compared to $3.7 million for the corresponding period of 2002. This decrease consisted primarily of salary and related expense reductions due to
attrition and the aforementioned changes to the BIG Service Agreement effective July 1, 2002. These were slightly offset by an increase in insurance expense due to increases in policy premiums for corporate insurance, primarily directors and
officers liability insurance coverage.



Management
Services from Parent. Management Services from Parent decreased $307,000, or 100.0%, during the six months ended June 30, 2003 as compared to the corresponding period in 2002. The decrease was due to reduced office lease expense, as the Company
no longer leases its office space from Bankers Financial Corporation. Office lease costs are now reported under the caption Cost of Outsourcing Services above.



Interest Income. Interest Income increased 84.6% to $506,000 for the six months ended June 30, 2003 from $274,000 in
2002. The increase resulted from interest earned on the remaining net cash proceeds from the sale of Geotrac in late December 2001, coupled with late payment fees accrued on past due service fees owed by BIG. See Liquidity and Capital
Resources below.



Provision/(Benefit) for Income
Taxes. The Companys effective income tax/(benefit) rates were (37.2%) and (37.3%) for the six months ended June 30, 2003 and 2002, respectively.



For additional information on the reconciliation of the Companys effective income tax rate to the federal statutory income tax rate, see Note
8Income Taxes in the Notes to the Consolidated Financial Statements of the Company for the year ended December 31, 2002, included in the Companys Form 10-K filed with the Securities and Exchange Commission on March 26, 2003.



RECENT ACCOUNTING PRONOUNCEMENTS



In May 2003, the FASB issued Statement 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity (SFAS 150). This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both a
liability and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). The Company does not anticipate that SFAS 150 will have a material impact on its financial
statements.



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



LIQUIDITY
AND CAPITAL RESOURCES



The Companys principal sources of
liquidity consist of cash on-hand and cash proceeds from the sale of the Companys Geotrac subsidiary in late December 2001. The Company received net cash proceeds of approximately $19 million as a result of the sale of its Geotrac subsidiary
in late December 2001.



During the quarter ended June 30, 2003,
the Company realized after-tax net income of approximately $287,000 and generated positive cash flows resulting in an increase in cash of approximately $800,000 as compared to the previous quarter. At June 30, 2003, the Company had cash and cash
equivalents of approximately $18.9 million.



As of June 30,
2003, BIG owed the Company an aggregate of approximately $5.7 million under the BIG Service Agreement (substantially all of which was overdue), including approximately $731,000 in late payment fees. The Company has made written demand on BIG for
payment in full of all past due amounts owing under the BIG Service Agreement, and the Audit Committee of the Companys Board of Directors continues to consider various alternatives for collecting such past due amounts. If such past due amounts
are not paid in full and BIG does not thereafter continue to pay amounts due under the BIG Service Agreement on a timely basis, it could have a material adverse effect on the Companys business, financial condition and results of operations.



On August 5, 2003, the Principal Shareholders and Fiserv,
Fiserv Solutions and Fiserv Merger Sub entered into Amendment No. 1 to Agreement to Facilitate Merger, pursuant to which, among other things, the Principal Shareholders agreed to pay all amounts due the Company under the BIG Service Agreement
(approximately $5.7 million as of June 30, 2003) out of the consideration otherwise to be received by the Principal Shareholders for their shares of Company Common Stock pursuant to the Merger.



Based upon and subject to the foregoing, the Company expects cash on hand to
be adequate to support its operating cash needs for the foreseeable future, although no assurances can be given in this regard.



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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.



ITEM 4. CONTROLS AND PROCEDURES



An evaluation was carried out under the supervision and with the participation of the Companys management, including the Companys Chief Executive Officer and Chief Financial Officer, regarding the effectiveness of the
Companys disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Report. Based upon that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that these disclosure controls and procedures were effective as of the end of the period covered by this Report.



PART II. OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS



IPO Litigation



At a July 18, 2003 hearing, U.S. District Judge Richard
A. Lazzara entered an Order and Final Judgment approving the settlement of the class action lawsuit referred to as the IPO Litigation and described under the caption Item 1. Legal Proceedings in the Companys Quarterly
Report on Form 10-Q for the three months ended March 31, 2003, as filed with the Securities and Exchange Commission on May 15, 2003 (the First Quarter Form l0-Q). As reported in the First Quarter Form 10-Q, the plaintiff agreed to
accept, in full settlement of the IPO Litigation as to all defendants, the payment of $2.1 million to the plaintiff class by the issuer of the Companys applicable Directors and Officers and Company Reimbursement insurance policy. In May 2003,
in anticipation of Judge Lazzaras approval of the settlement and pursuant to the parties Stipulation and Agreement of Settlement, the insurer deposited those monies into an escrow account established and maintained by the
plaintiffs attorneys.



Third-Party Contract Dispute



On June 5, 2003, the Company received a Notice of Dispute from a former
unaffiliated third-party customer. This Notice of Dispute alleges that the Company materially breached its services agreement with this former customer by failing to design, construct, acquire or implement a software system that would enable it to
provide the services set forth in the agreement. On July 3, 2003, the former customer submitted an Arbitration Notice to the Company under the services agreement. The Arbitration Notice seeks resolution of the following issues: (1) whether the
Company breached the services agreement by failing to design, construct, acquire and/or implement the software systems that would enable the Company to provide the insurance administration services set forth in the services agreement; (2) whether
the former customer is entitled to the return of the $1.0 million implementation charge it paid the Company upon execution of the services agreement, plus attorneys fees and any other cost, loss, damage or expense it incurred as a result of
the Companys alleged failure to perform; (3) in the alternative, whether the Company was unjustly enriched by retaining the $1.0 million implementation charge when it allegedly failed to perform work of any value to the former customer; and
(4) whether the $1.0 million implementation charge constitutes a preference under Pennsylvania statutory law such that the Company must return that amount to the former customer. As previously disclosed, the Companys services agreement with
this former customer was terminated in 2000, and the Company had previously recorded a liability of $800,000 relating to this matter.



Management of the Company believes, however, that the allegations made by the former customer are without merit (and/or subject to available defenses) and
intends to vigorously defend the arbitration proceeding brought against it by the former customer. Nevertheless, no assurances can be given with respect to the outcome of this matter, and an adverse outcome in any such proceeding could have a
material adverse effect on the Companys business, financial condition and results of operations.



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ITEM 5. OTHER INFORMATION



As
previously reported, on April 9, 2003, the Company entered into an Agreement and Plan of Merger (the Merger Agreement) with Fiserv, Inc., a Wisconsin corporation (Fiserv), Fiserv Solutions, Inc., a Wisconsin corporation and a
wholly-owned subsidiary of Fiserv (Fiserv Solutions), and Fiserv Merger Sub, Inc., a Florida corporation and a wholly-owned subsidiary of Fiserv Solutions (Fiserv Merger Sub), providing for, among other things, the merger of
Fiserv Merger Sub with and into the Company, with the Company as the surviving corporation (the Merger).



The Merger Agreement contemplates that, pursuant to the Merger, (i) subject to applicable dissenters rights available under Florida law, each issued
and outstanding share of Common Stock, $.01 par value (Company Common Stock), of the Company (other than the 8,354,884 shares (the BIG Shares) of Company Common Stock owned beneficially and of record by Bankers Insurance
Company, a Florida corporation (BIC), Bankers Security Insurance Company, a Florida corporation (BSIC), Bonded Builders Service Corp., a Florida corporation (BBSC), and BIG, a Florida corporation and the direct or
indirect parent corporation of each of BIC, BSIC and BBSC (BIG and, collectively with BIC, BSIC and BBSC, the Principal Shareholders) would be converted into the right to receive $3.30 in cash, without interest, and (ii) each
BIG Share would be converted into the right to receive $3.26 in cash, without interest. As of the date of this Report, the BIG Shares constitute approximately 68.2% of the issued and outstanding shares of Company Common Stock.



The transactions contemplated by the Merger Agreement will not be consummated
unless certain conditions typical for this type of transaction are either satisfied or waived prior to closing. These conditions include, among other things, that the Merger Agreement and the transactions contemplated thereby are approved (i) by the
shareholders of the Company in accordance with Florida law and the Companys Amended and Restated Articles of Incorporation and Amended and Restated Bylaws and (ii) by at least 50.01% of the outstanding shares of Company Common Stock not owned
or controlled by the Principal Shareholders. In connection with the Merger Agreement, each of the Principal Shareholders entered into an Agreement to Facilitate Merger with Fiserv, Fiserv Solutions and Fiserv Merger Sub (the Agreement to
Facilitate Merger), pursuant to which, among other things, the Principal Shareholders have agreed to (i) vote the BIG Shares in favor of the approval and adoption of the Merger Agreement and the transactions contemplated thereby and (ii)
accept $3.26 per BIG Share, in cash, pursuant to the Merger. On August 5, 2003, the Principal Shareholders and Fiserv, Fiserv Solutions and Fiserv Merger Sub entered into Amendment No. 1 to Agreement to Facilitate Merger, pursuant to which,
among other things, the Principal Shareholders agreed to pay all amounts due the Company under the BIG Service Agreement (approximately $5.7 million as of June 30, 2003) out of the consideration otherwise to be received by the Principal Shareholders
for their shares of Company Common Stock pursuant to the Merger.



The Board of Directors of the Company previously called a Special Meeting of Shareholders for the sole purpose of voting upon a proposal to approve the Merger and the Merger Agreement. The Company anticipates that in the near future the
Board of Directors will redesignate the place, date and time of the Special Meeting, as well as fix a new record date for determining the shareholders of the Company entitled to notice of and to vote at the Special Meeting, although no assurances
can be given in this regard.



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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



a) Exhibits



|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                        
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1          |  | Amendment No. 1 to Agreement to Facilitate Merger, dated August 5, 2003, by and among Fiserv, Inc., Fiserv Solutions, Inc., Fiserv Merger Sub, Inc., Bankers Insurance Group, Inc.,
Bankers Insurance Company, Bankers Security Insurance Company and Bonded Builders Service Corp.
|              | 
|31.1          |  | Written Statement of Principal Executive Officer                                                                                                                                                                                                                                   
|              | 
|31.2          |  | Written Statement of Principal Financial Officer                                                                                                                                                                                                                                   
|              | 
|32.1          |  | Written Statement of Chief Executive Officer Pursuant to 18 U.S.C. §1350.                                                                                                                                                                                                          
|              | 
|32.2          |  | Written Statement of Chief Financial Officer Pursuant to 18 U.S.C. §1350.                                                                                                                                                                                                          



b) Reports on Form 8-K



The Company filed one current report on Form 8-K during the
second quarter ended June 30, 2003:



(i) The Company filed a
current report on Form 8-K on April 9, 2003 to announce that, on April 9, 2003, the Company entered into the Merger Agreement with Fiserv, Fiserv Solutions and Fiserv Merger Sub, providing for, among other things, the Merger of Fiserv Merger Sub
with and into the Company, with the Company as the surviving corporation.



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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: August 7, 2003 |  |  |  | INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. (Registrant)
|-------------------- |  |  |  | -------------------------------------------------------
|                     |  |  |  |                                                        
|                     |  |  |  |                                                        
|                     |  |  |  |                                                        



| |  |  |  | 
| |  |  |  | 
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EXHIBIT INDEX



|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                        
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|              | 
|10.1          |  | Amendment No. 1 to Agreement to Facilitate Merger, dated August 5, 2003, by and among Fiserv, Inc., Fiserv Solutions, Inc., Fiserv Merger Sub, Inc., Bankers Insurance Group, Inc.,
Bankers Insurance Company, Bankers Security Insurance Company and Bonded Builders Service Corp.
|              | 
|31.1          |  | Written Statement of Principal Executive Officer                                                                                                                                                                                                                                   
|              | 
|31.2          |  | Written Statement of Principal Financial Officer                                                                                                                                                                                                                                   
|              | 
|32.1          |  | Written Statement of Chief Executive Officer Pursuant to 18 U.S.C. §1350                                                                                                                                                                                                           
|              | 
|32.2          |  | Written Statement of Chief Financial Officer Pursuant to 18 U.S.C. §1350.                                                                                                                                                                                                          





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