##### 









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




---

Form 10-Q

|           |  |                                                                                                
|---------- |  | -----------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                                
|þ          |  | QUARTERLY REPORT PURSUANT TO SECTION 13
    OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the quarterly period ended March 31,
    2004                                              
|          
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934   
|          
|           |  | For the transition period
    from           to                                                

Commission File Number 0-22585



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Trover Solutions, Inc.

(Exact Name of Registrant as Specified in its
Charter)


|                                                                                           |  |                                         
|------------------------------------------------------------------------------------------ |  | ----------------------------------------
|Delaware                                                                                   |  | 61-1141758                              
|(State or Other Jurisdiction of
    Incorporation or Organization)                         |  | (I.R.S. Employer
    Identification No.)
|                                                                                          
|1600 Watterson Tower,
    Louisville, Kentucky(Address of Principal Executive
    Offices) |  | 40218(Zip Code)                         

(Registrants Telephone Number, Including
Area Code)

(502) 454-1340


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

Indicate by check mark whether the Registrant is
an accelerated filer (as defined in Rule 12b-2 of the
Exchange
Act).     Yes o          No þ

As of May 12, 2004, 8,504,163 shares of
the Registrants Common Stock, $0.001 par value were
outstanding.



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##### 

TABLE OF CONTENTS



|                                                                                              |  |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|PART I: FINANCIAL INFORMATION                                                                
|Item 1. Financial Statements (Unaudited)                                                     
|CONDENSED BALANCE SHEETS                                                                     
|CONDENSED STATEMENTS OF INCOME                                                               
|CONDENSED STATEMENTS OF CASH FLOWS                                                           
|NOTES TO CONDENSED FINANCIAL STATEMENTS                                                      
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|Item 4. Controls and Procedures                                                              
|PART II: OTHER INFORMATION                                                                   
|Item 1. Legal Proceedings                                                                    
|Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities     
|Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                                                                   
|EMPLOYMENT AGREEMENT                                                                         
|SECTION 302 CERTIFICATION OF THE CEO                                                         
|SECTION 302 CERTIFICATION OF THE CFO                                                         
|SECTION 906 CERTIFICATION OF THE CEO AND CFO                                                 

TROVER SOLUTIONS, INC.

FORM 10-Q

March 31, 2004


INDEX



THIS FORM 10-Q AND OTHER STATEMENTS ISSUED OR
MADE FROM TIME TO TIME BY TROVER SOLUTIONS, INC. OR MEMBERS OF
ITS MANAGEMENT TEAM CONTAIN STATEMENTS WHICH MAY CONSTITUTE
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE
SECURITIES ACT OF 1933 AND THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED BY THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995, 15 U.S.C.A. SECTIONS 77Z-2 AND 78U-5 (SUPP.
1996). THOSE STATEMENTS INCLUDE STATEMENTS REGARDING THE INTENT,
BELIEF OR CURRENT EXPECTATIONS OF TROVER SOLUTIONS, INC. AND
MEMBERS OF ITS MANAGEMENT TEAM, AS WELL AS THE ASSUMPTIONS ON
WHICH SUCH STATEMENTS ARE BASED. 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 CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS.
IMPORTANT FACTORS CURRENTLY KNOWN TO MANAGEMENT THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN
FORWARD-LOOKING STATEMENTS ARE SET FORTH IN THE SAFE HARBOR
COMPLIANCE STATEMENT FOR FORWARD-LOOKING STATEMENTS INCLUDED AS
EXHIBIT 99.1 TO THE TROVER SOLUTIONS, INC. ANNUAL REPORT ON
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003, AND
ARE HEREBY INCORPORATED HEREIN BY REFERENCE. TROVER SOLUTIONS,
INC. UNDERTAKES NO OBLIGATION TO UPDATE OR REVISE
FORWARD-LOOKING STATEMENTS TO REFLECT CHANGED ASSUMPTIONS OR
CIRCUMSTANCES, THE OCCURRENCE OF UNANTICIPATED EVENTS OR CHANGES
TO FUTURE OPERATING RESULTS OVER TIME.

i



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##### 






PART I:     FINANCIAL
INFORMATION






|        |                                     
|------- | ------------------------------------
|Item 1. | Financial Statements
    (Unaudited)

TROVER SOLUTIONS, INC.



CONDENSED BALANCE SHEETS


(Unaudited)


(In thousands, except per share
information)


|                                         |                                                                                                                                                                         |                                            |        |              |        |  |        |         |        | 
|---------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------ | ------------ | ------ |  | ------ | ------- | ------ | 
|                                         |                                                                                                                                                                         | March 31,                                  |        | December 31,
|                                         |                                                                                                                                                                         | 2004                                       |        | 2003        
|                                         |                                                                                                                                                                         |                                            |        |             
|ASSETS                                  
|Current assets:                          |                                                                                                                                                                         |                                            |        |              |        |  |        |        
|                                         | Cash and cash equivalents                                                                                                                                               |                                            | $      | 11,244       |        |  | $      | 11,174  |       
|                                         | Restricted cash                                                                                                                                                         |                                            |        | 16,064       |        |  |        | 17,034  |       
|                                         | Accounts receivable, less allowance for doubtful
    accounts of $551 at March 31, 2004 and $479 at
    December 31, 2003                                               |                                            |        | 8,381        |        |  |        | 6,993   |       
|Other current assets                     |                                                                                                                                                                         |                                            | 3,043  |              |        |  | 3,039  |        
|                                         |                                                                                                                                                                         |                                            |        |              |        |  |        |        
|                                         |                                                                                                                                                                         | Total current assets                       |        |              | 38,732 |  |        |         | 38,240 | 
|                                         |                                                                                                                                                                         |                                            |        |              |        |  |        |        
|Property and equipment, net              |                                                                                                                                                                         |                                            | 5,558  |              |        |  | 5,813  |        
|                                         |                                                                                                                                                                         |                                            |        |              |        |  |        |        
|Goodwill, net                            |                                                                                                                                                                         |                                            | 29,146 |              |        |  | 29,146 |        
|Identifiable intangibles, net            |                                                                                                                                                                         |                                            | 3,220  |              |        |  | 3,315  |        
|Other assets                             |                                                                                                                                                                         |                                            | 1,892  |              |        |  | 1,982  |        
|                                         |                                                                                                                                                                         |                                            |        |              |        |  |        |        
|                                         |                                                                                                                                                                         | Total assets                               |        | $            | 78,548 |  |        | $       | 78,496 | 
|                                         |                                                                                                                                                                         |                                            |        |              |        |  |        |        
|                                        
|LIABILITIES AND STOCKHOLDERS
    EQUITY
|Current liabilities:                     |                                                                                                                                                                         |                                            |        |              |        |  |        |        
|                                         | Trade accounts payable                                                                                                                                                  |                                            | $      | 542          |        |  | $      | 1,250   |       
|                                         | Accrued expenses                                                                                                                                                        |                                            |        | 5,204        |        |  |        | 5,405   |       
|                                         | Accrued bonuses                                                                                                                                                         |                                            |        | 1,262        |        |  |        | 1,581   |       
|                                         | Funds due clients                                                                                                                                                       |                                            |        | 11,638       |        |  |        | 12,019  |       
|                                         | Income taxes payable                                                                                                                                                    |                                            |        | 1,266        |        |  |        | 677     |       
|                                         | Short-term borrowings                                                                                                                                                   |                                            |        | 4,000        |        |  |        | 4,000   |       
|                                         | Deferred income tax liability                                                                                                                                           |                                            |        | 361          |        |  |        | 354     |       
|                                         |                                                                                                                                                                         |                                            |        |              |        |  |        |        
|                                         |                                                                                                                                                                         | Total current liabilities                  |        |              | 24,273 |  |        |         | 25,286 | 
|Other liabilities                        |                                                                                                                                                                         |                                            | 4,067  |              |        |  | 4,562  |        
|                                         |                                                                                                                                                                         |                                            |        |              |        |  |        |        
|                                         |                                                                                                                                                                         | Total liabilities                          |        |              | 28,340 |  |        |         | 29,848 | 
|                                         |                                                                                                                                                                         |                                            |        |              |        |  |        |        
|Commitments and contingencies            |                                                                                                                                                                         |                                            |       |              |        |  |       |        
|Stockholders equity:                    |                                                                                                                                                                         |                                            |        |              |        |  |        |        
|                                         | Preferred stock, $.001 par value per share;
    2,000 shares authorized; no shares issued or outstanding                                                                |                                            |        |             |        |  |        |        |       
|                                         | Common stock, $.001 par value per share;
    20,000 shares authorized; 8,495 and 8,477 shares
    outstanding at March 31, 2004 and December 31, 2003,
    respectively |                                            |        | 12           |        |  |        | 12      |       
|                                         | Capital in excess of par value                                                                                                                                          |                                            |        | 23,566       |        |  |        | 23,465  |       
|                                         | Other                                                                                                                                                                   |                                            |        | (1,004       | )      |  |        | (988    | )     
|                                         | Treasury stock at cost; 3,261 shares at
    March 31, 2004 and December 31, 2003                                                                                        |                                            |        | (14,459      | )      |  |        | (14,459 | )     
|                                         | Accumulated other comprehensive income                                                                                                                                  |                                            |        | (40          | )      |  |        | (51     | )     
|                                         | Unearned compensation                                                                                                                                                   |                                            |        | (26          | )      |  |        | (28     | )     
|                                         | Retained earnings                                                                                                                                                       |                                            |        | 42,159       |        |  |        | 40,697  |       
|                                         |                                                                                                                                                                         |                                            |        |              |        |  |        |        
|                                         |                                                                                                                                                                         | Total stockholders equity                 |        |              | 50,208 |  |        |         | 48,648 | 
|                                         |                                                                                                                                                                         |                                            |        |              |        |  |        |        
|                                         |                                                                                                                                                                         | Total liabilities and stockholders equity |        | $            | 78,548 |  |        | $       | 78,496 | 
|                                         |                                                                                                                                                                         |                                            |        |              |        |  |        |        

The accompanying notes are an integral part of
the condensed financial statements.

1



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##### 



TROVER SOLUTIONS, INC.



CONDENSED STATEMENTS OF INCOME


For the Three Months Ended March 31, 2004
and 2003


(Unaudited)


(In thousands, except per share
information)


|                                    |                            |                    |        |       |  |   |        |       | 
|----------------------------------- | -------------------------- | ------------------ | ------ | ----- |  | - | ------ | ----- | 
|                                    |                            |                   
|                                    |                            | Three Months Ended
|                                    |                            | March 31,         
|                                    |                            |                   
|                                    |                            | 2004               |        | 2003 
|                                    |                            |                    |        |      
|Claims revenues                     |                            | $                  | 15,937 |       |  | $ | 16,353 |      
|Cost of revenues                    |                            |                    | 7,646  |       |  |   | 8,343  |      
|                                    |                            |                    |        |       |  |   |        |      
|                                    | Gross profit               |                    |        | 8,291 |  |   |        | 8,010 | 
|                                    |                            |                    |        |       |  |   |        |      
|Support expenses                    |                            |                    | 5,036  |       |  |   | 4,482  |      
|Depreciation and amortization       |                            |                    | 765    |       |  |   | 962    |      
|                                    |                            |                    |        |       |  |   |        |      
|                                    | Operating income           |                    |        | 2,490 |  |   |        | 2,566 | 
|                                    |                            |                    |        |       |  |   |        |      
|Interest income                     |                            |                    | 49     |       |  |   | 50     |      
|Interest expense                    |                            |                    | 103    |       |  |   | 121    |      
|                                    |                            |                    |        |       |  |   |        |      
|                                    | Income before income taxes |                    |        | 2,436 |  |   |        | 2,495 | 
|Provision for income taxes          |                            |                    | 974    |       |  |   | 998    |      
|                                    |                            |                    |        |       |  |   |        |      
|                                    | Net income                 |                    | $      | 1,462 |  |   | $      | 1,497 | 
|                                    |                            |                    |        |       |  |   |        |      
|Earnings per common share (basic)   |                            | $                  | 0.17   |       |  | $ | 0.18   |      
|                                    |                            |                    |        |       |  |   |        |      
|Earnings per common share (diluted) |                            | $                  | 0.17   |       |  | $ | 0.17   |      
|                                    |                            |                    |        |       |  |   |        |      

The accompanying notes are an integral part of
the condensed financial statements.

2



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##### 



TROVER SOLUTIONS, INC.



CONDENSED STATEMENTS OF CASH FLOWS


For the Three Months Ended March 31, 2004
and 2003


(Unaudited)


(In thousands)


|                                               |                                                                                       |                                              |                        |                                                         |     |        |       |       |       |        |       |  
|---------------------------------------------- | ------------------------------------------------------------------------------------- | -------------------------------------------- | ---------------------- | ------------------------------------------------------- | --- | ------ | ----- | ----- | ----- | ------ | ----- | -
|                                               |                                                                                       |                                             
|                                               |                                                                                       | Three Months Ended                          
|                                               |                                                                                       | March 31,                                   
|                                               |                                                                                       |                                             
|                                               |                                                                                       | 2004                                         |                        | 2003                                                   
|                                               |                                                                                       |                                              |                        |                                                        
|Cash flows from operating activities:          |                                                                                       |                                              |                        |                                                         |     |        |       |      
|                                               | Net income                                                                            |                                              | $                      | 1,462                                                   |     |        | $     | 1,497 |      
|                                               | Adjustments to reconcile net income to net cash
    provided by operating activities: |                                              |                        |                                                         |     |        |       |       |      
|                                               |                                                                                       | Depreciation and amortization                |                        |                                                         | 994 |        |       |       | 1,141 |       
|                                               |                                                                                       | Other                                        |                        |                                                         | 22  |        |       |       | 3     |       
|                                               |                                                                                       | Changes in operating assets and liabilities: |                        |                                                         |     |        |       |       |       |       
|                                               |                                                                                       |                                              | Restricted cash        |                                                         |     | 970    |       |       |       | (1,190 | )    
|                                               |                                                                                       |                                              | Accounts receivable    |                                                         |     | (1,388 | )     |       |       | 601    |      
|                                               |                                                                                       |                                              | Other current assets   |                                                         |     | (27    | )     |       |       | 180    |      
|                                               |                                                                                       |                                              | Other assets           |                                                         |     | (63    | )     |       |       | 8      |      
|                                               |                                                                                       |                                              | Trade accounts payable |                                                         |     | (708   | )     |       |       | (419   | )    
|                                               |                                                                                       |                                              | Accrued expenses       |                                                         |     | (522   | )     |       |       | (2,616 | )    
|                                               |                                                                                       |                                              | Funds due clients      |                                                         |     | (381   | )     |       |       | 1,345  |      
|                                               |                                                                                       |                                              | Income taxes payable   |                                                         |     | 589    |       |       |       | 962    |      
|                                               |                                                                                       |                                              | Other liabilities      |                                                         |     | (495   | )     |       |       |       |      
|                                               |                                                                                       |                                              |                        |                                                         |     |        |       |      
|                                               |                                                                                       |                                              |                        | Net cash provided by operating activities               |     |        | 453   |       |       |        | 1,512 |  
|                                               |                                                                                       |                                              |                        |                                                         |     |        |       |      
|Cash flows from investing activities:          |                                                                                       |                                              |                        |                                                         |     |        |       |      
|                                               | Purchases of property and equipment                                                   |                                              |                        | (233                                                    | )   |        |       | (546  | )    
|                                               | Capitalization of internally developed software                                       |                                              |                        | (234                                                    | )   |        |       | (262  | )    
|                                               |                                                                                       |                                              |                        |                                                         |     |        |       |      
|                                               |                                                                                       |                                              |                        | Net cash used in investing activities                   |     |        | (467  | )     |       |        | (808  | )
|                                               |                                                                                       |                                              |                        |                                                         |     |        |       |      
|Cash flows from financing activities:          |                                                                                       |                                              |                        |                                                         |     |        |       |      
|                                               | Repurchase of common stock                                                            |                                              |                        |                                                        |     |        |       | (902  | )    
|                                               | Issuance of common stock                                                              |                                              |                        | 100                                                     |     |        |       | 60    |      
|                                               | Other                                                                                 |                                              |                        | (16                                                     | )   |        |       | (15   | )    
|                                               |                                                                                       |                                              |                        |                                                         |     |        |       |      
|                                               |                                                                                       |                                              |                        | Net cash provided by (used in) financing
    activities |     |        | 84    |       |       |        | (857  | )
|                                               |                                                                                       |                                              |                        |                                                         |     |        |       |      
|Net decrease in cash and cash equivalents      |                                                                                       |                                              | 70                     |                                                         |     |        | (153  | )    
|Cash and cash equivalents, beginning of period |                                                                                       |                                              | 11,174                 |                                                         |     |        | 2,269 |      
|                                               |                                                                                       |                                              |                        |                                                         |     |        |       |      
|Cash and cash equivalents, end of period       |                                                                                       | $                                            | 11,244                 |                                                         |     | $      | 2,116 |      
|                                               |                                                                                       |                                              |                        |                                                         |     |        |       |      

The accompanying notes are an integral part of
the condensed financial statements.

3



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##### 



TROVER SOLUTIONS, INC.



NOTES TO CONDENSED FINANCIAL
STATEMENTS


(Unaudited)




|   |                                           
|-- | ------------------------------------------
|1. | Organization and Basis of
    Presentation

Trover Solutions, Inc., a Delaware corporation
(the Company), was incorporated on June 30,
1988. The Company provides subrogation and certain other claims
recovery and cost containment services, on an outsourcing basis,
to the private healthcare payor industry and the property and
casualty insurance industry. Its primary business is medical
claims recovery, and its primary product is subrogation
recovery, i.e., the Company identifies, investigates and
recovers accident-related medical benefits incurred by its
healthcare payor and insurance clients on behalf of their
insureds, but for which other persons or entities have primary
responsibility. The Companys clients rights to
recover the value of these medical benefits, arising by law or
contract, are generally known as the right of subrogation and
are generally paid from the proceeds of liability or
workers compensation insurance. The Companys other
medical claims recovery services include (1) the auditing
of the bills of medical providers, particularly hospitals, for
accuracy, correctness and compliance with contract terms
(provider bill audit), (2) the recovery of
overpayments attributable to duplicate payments, failures to
coordinate benefits and similar errors in payment
(overpayments), and (3) the auditing of
physician evaluation and management claims for consistency with
medical records, in accordance with federal guidelines (MD
Audit).

The Company has three segments:
(1) Healthcare Recovery Services, which encompasses its
four healthcare recovery products: healthcare subrogation,
provider bill audit, overpayments, and MD audit;
(2) Property and Casualty Recovery Services, which is
subrogation recovery services for property and casualty
insurers, sold under the brand name TransPaC Solutions; and
(3) Software, which is subrogation recovery software in a
browser-based application service provider (ASP) form, sold
under the name Troveris.

The accompanying financial statements are
presented in a condensed format and consequently do not include
all of the disclosures normally required by accounting
principles generally accepted in the United States of America or
those normally made in the Companys annual financial
statements. Accordingly, for further information, the reader of
this Form 10-Q may wish to refer to the Companys
audited financial statements as of and for the year ended
December 31, 2003, contained in the Companys Annual
Report on Form 10-K for the fiscal year ended
December 31, 2003, filed with the Securities and Exchange
Commission on March 19, 2004.

The financial information has been prepared in
accordance with the Companys customary accounting
practices and is unaudited. In the opinion of management of the
Company, the information presented reflects all adjustments
necessary for a fair presentation of interim results. All such
adjustments are of a normal and recurring nature.



|   |                         
|-- | ------------------------
|2. | Stock-Based Compensation

In December 2002, the Financial Accounting
Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 148, Accounting
for Stock-Based Compensation  Transition and
Disclosure  an Amendment of SFAS 123 which
provides alternative methods for a voluntary change to the fair
value method of accounting for stock-based compensation and
amends the disclosure requirements of SFAS 123. The Company
has elected to continue to account for its stock-based
compensation plans under Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to
Employees (APB No. 25), and related interpretations.
The following disclosures are provided in accordance with
SFAS 148.

The Company has various stock-based compensation
plans including stock option plans and an employee stock
purchase plan. No stock-based employee compensation cost is
reflected in net income as all options granted under those plans
had an exercise price equal to the market value of the
underlying common stock on the date of grant. The following
table illustrates the effect on net income and earnings per
share if the

4



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##### 



TROVER SOLUTIONS, INC.


NOTES TO CONDENSED
FINANCIAL STATEMENTS  (Continued)

Company had applied the fair value recognition
provisions of SFAS No. 123, Accounting for
Stock-Based Compensation to stock-based employee
compensation (dollars in thousands, except per share results):

|                                                                                                                                                  |  |                 |       |      |  |   |       |  
|------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | ----- | ---- |  | - | ----- | -
|                                                                                                                                                  |  |                
|                                                                                                                                                  |  | Three Months   
|                                                                                                                                                  |  | Ended March 31,
|                                                                                                                                                  |  |                
|                                                                                                                                                  |  | 2004            |       | 2003
|                                                                                                                                                  |  |                 |       |     
|Net income as reported                                                                                                                            |  | $               | 1,462 |      |  | $ | 1,497 |  
|Less: total stock-based employee compensation
    expense determined under fair value based method for all awards,
    net of related tax effects |  |                 | (37   | )    |  |   | (155  | )
|                                                                                                                                                  |  |                 |       |      |  |   |       |  
|Proforma net income                                                                                                                               |  | $               | 1,425 |      |  | $ | 1,342 |  
|                                                                                                                                                  |  |                 |       |      |  |   |       |  
|Earnings per common share:                                                                                                                        |  |                 |       |      |  |   |       |  
|As reported (basic)                                                                                                                               |  | $               | 0.17  |      |  | $ | 0.18  |  
|As reported (diluted)                                                                                                                             |  |                 | 0.17  |      |  |   | 0.17  |  
|Proforma (basic)                                                                                                                                  |  |                 | 0.17  |      |  |   | 0.16  |  
|Proforma (diluted)                                                                                                                                |  |                 | 0.16  |      |  |   | 0.15  |  

The effects of applying SFAS No. 123 in
the pro forma disclosures are not likely to be representative of
the effects on pro forma net income or earnings per common share
for future years because variables such as option grants, option
exercises, and stock price volatility included in the
disclosures may not be indicative of actual future activity.



|   |                          
|-- | -------------------------
|3. | Earnings Per Common Share

Reconciliations of the average number of common
shares outstanding used in the calculation of earnings per
common share and earnings per common share assuming dilution are
as follows (dollars and shares in thousands, except per share
results):

|                                                                   |         |                 |       |      |  |   |       |      | 
|------------------------------------------------------------------ | ------- | --------------- | ----- | ---- |  | - | ----- | ---- | 
|                                                                   |         |                
|                                                                   |         | Three Months   
|                                                                   |         | Ended March 31,
|                                                                   |         |                
|                                                                   |         | 2004            |       | 2003
|                                                                   |         |                 |       |     
|Weighted average number of common shares
    outstanding           |         |                 | 8,492 |      |  |   | 8,481 |     
|Add: Dilutive stock options                                        |         |                 | 339   |      |  |   | 242   |     
|                                                                   |         |                 |       |      |  |   |       |     
|Number of common shares outstanding (diluted)                      |         |                 | 8,831 |      |  |   | 8,723 |     
|                                                                   |         |                 |       |      |  |   |       |     
|Net earnings for earnings per common share (basic
    and diluted) |         | $               | 1,462 |      |  | $ | 1,497 |     
|                                                                   |         |                 |       |      |  |   |       |     
|Earnings per common share:                                         |         |                 |       |      |  |   |       |     
|                                                                   | Basic   |                 | $     | 0.17 |  |   | $     | 0.18 | 
|                                                                   |         |                 |       |      |  |   |       |     
|                                                                   | Diluted |                 | $     | 0.17 |  |   | $     | 0.17 | 
|                                                                   |         |                 |       |      |  |   |       |     

Basic earnings per common share were computed
based on the weighted-average number of shares outstanding
during the period. The dilutive effect of stock options was
calculated using the treasury stock method. Options to
purchase 879,502 and 950,402 shares for the three
months ended March 31, 2004 and 2003, respectively, were
not included in the computation of diluted earnings per common
share because their effect would be anti-dilutive.



|   |             
|-- | ------------
|4. | Income Taxes

For the three months ended March 31, 2004
and 2003, the Company accrued income taxes at a 40.0% effective
tax rate.

5



---



##### 



TROVER SOLUTIONS, INC.


NOTES TO CONDENSED
FINANCIAL STATEMENTS  (Continued)



|   |                           
|-- | --------------------------
|5. | Related Party Transactions

The Company has entered into a contract for legal
services with a professional service corporation,
Sharps & Associates, PSC, an entity owned solely by one
of the Companys officers, Douglas R. Sharps. This
arrangement exists solely for the benefit of the Company. Its
purpose is to minimize the costs of legal services purchased by
the Company on behalf of its clients. Mr. Sharps receives
no financial or other personal benefit from his ownership of the
firm. All payments to Sharps & Associates, PSC are
reviewed and approved by the Audit Committee of the
Companys Board of Directors. For the three months ended
March 31, 2004 and 2003, approximately $895,000 and
$830,000, respectively, was paid to this law firm for such legal
services, including all employees and expenses.

On February 12, 1999, the Board of Directors
approved a loan in the amount of $350,000 to Patrick B.
McGinnis, the Chairman and Chief Executive Officer of the
Company, in exchange for a full recourse promissory note in the
same amount from Mr. McGinnis. On June 30, 2000, at
the direction of the Board of Directors and in accordance with
terms authorized by it, the Company loaned Mr. McGinnis an
additional $500,000. Under these terms, the $500,000 loan to
Mr. McGinnis was combined with his existing debt to the
Company of $350,000 of principal and $36,520 of accrued
interest. Mr. McGinnis delivered to the Company his full
recourse promissory note in the amount of $886,520, bearing
interest at a fixed rate of 6.62% per annum (the applicable
Federal mid-term rate in effect for tax purposes at the date of
the note), compounded annually (the Amended Promissory
Note), and the Company cancelled the old promissory note
evidencing the prior debt. The Amended Promissory Note provides
for mandatory prepayments from certain of the proceeds received
by Mr. McGinnis from his sale of the Companys
securities and any related transactions. At March 31, 2004
and December 31, 2003, the promissory note of $886,520 and
accrued interest of $117,540 and $101,237, respectively, were
outstanding. Mr. McGinnis used the proceeds of these loans
to repay debts originally incurred by him to pay income taxes
related to the ordinary income deemed to have been received by
him on account of Common Stock granted to him by the former
shareholder of the Company in connection with the initial public
offering of the Companys stock in May 1997, and to
purchase additional stock in the initial public offering. The
balance of the Amended Promissory Note at March 31, 2004
and December 31, 2003 is included in Other in
the Stockholders Equity section of the accompanying
balance sheets.

On June 30, 2000, pursuant to Board
authorization and in accordance with the terms of the Amended
Promissory Note, the Company and Mr. McGinnis entered into
a deferred compensation agreement (the Agreement).
Under the Agreement, 50% of the amount otherwise payable to
Mr. McGinnis under the Companys Management Group
Incentive Compensation Plan is to be deferred until the Amended
Promissory Note is paid in full, with such deferred compensation
then being paid in full to Mr. McGinnis within 30 days
thereafter. The Company has full right of set-off against any
deferred compensation under the Agreement should
Mr. McGinnis default under the Amended Promissory Note. At
the election of Mr. McGinnis, the payment of the deferred
compensation, upon payment of the Amended Promissory Note, may
be extended for a period of not more than ten years. At
March 31, 2004 and December 31, 2003, the amount of
deferred compensation was $182,012, with accrued interest of
$22,542 and $19,323, respectively.

Effective January 1, 2003, the Company
entered into an employment agreement with Mr. McGinnis.
Upon signing the employment agreement, Mr. McGinnis
received a bonus of $200,000. The bonus is subject to full or
partial reimbursement by Mr. McGinnis to the Company, based
on the date of termination, if Mr. McGinnis terminates his
employment with the Company during the initial three-year term
of his employment. The bonus payment was recorded in Other
Current Assets on the accompanying Balance Sheets and is
being amortized over the term of the agreement. The unamortized
balance March 31, 2004 and December 31, 2003 was
$116,667 and $133,333, respectively.

6



---



##### 



TROVER SOLUTIONS, INC.


NOTES TO CONDENSED
FINANCIAL STATEMENTS  (Continued)



|   |                       
|-- | ----------------------
|6. | Property and Equipment

The property and equipment consists of the
following at March 31, 2004 and December 31, 2003 (in
thousands):

|                                 |                                           |                             |        |              |       |  |        |         |       | 
|-------------------------------- | ----------------------------------------- | --------------------------- | ------ | ------------ | ----- |  | ------ | ------- | ----- | 
|                                 |                                           | March 31,                   |        | December 31,
|                                 |                                           | 2004                        |        | 2003        
|                                 |                                           |                             |        |             
|Property and equipment, at cost: |                                           |                             |        |              |       |  |        |        
|                                 | Furniture and fixtures                    |                             | $      | 3,126        |       |  | $      | 3,126   |      
|                                 | Office equipment                          |                             |        | 1,414        |       |  |        | 1,410   |      
|                                 | Computer equipment                        |                             |        | 7,880        |       |  |        | 7,734   |      
|                                 | Software                                  |                             |        | 10,929       |       |  |        | 10,614  |      
|                                 | Leasehold improvements                    |                             |        | 1,889        |       |  |        | 1,886   |      
|                                 |                                           |                             |        |              |       |  |        |        
|                                 |                                           |                             | 25,238 |              |       |  | 24,770 |        
|                                 | Accumulated depreciation and amortization |                             |        | (19,680      | )     |  |        | (18,957 | )    
|                                 |                                           |                             |        |              |       |  |        |        
|                                 |                                           | Property and equipment, net |        | $            | 5,558 |  |        | $       | 5,813 | 
|                                 |                                           |                             |        |              |       |  |        |        



|   |                                     
|-- | ------------------------------------
|7. | Goodwill and Other Intangible Assets

The Company accounts for goodwill under
FAS 142, under which goodwill is not amortized but instead
is assessed for impairment at least annually. The Company
performs its annual impairment review during the second quarter
of each year. The review performed during the quarter ended
June 30, 2003 did not result in an impairment charge for
the Company. The Companys reporting units are generally
consistent with the operating segments underlying the segments
identified in Note 15. Segment Information. All
recorded goodwill and other intangible assets relate to the
Healthcare Recovery Services segment.

The carrying value of goodwill, net, was
approximately $29.1 million at December 31, 2003 and
2002. There were no goodwill impairment losses recorded during
the three months ended March 31, 2004.

All of the Companys intangible assets
(other than goodwill, net) are subject to amortization. The
details of the Companys intangible assets at
March 31, 2004 and December 31, 2003 are as follows
(in thousands):

|                       |       |                |       |                   |  |     |       |       |  |              |       |       |  |   |       |       |  |   |       |       |  |   |       |       | 
|---------------------- | ----- | -------------- | ----- | ----------------- |  | --- | ----- | ----- |  | ------------ | ----- | ----- |  | - | ----- | ----- |  | - | ----- | ----- |  | - | ----- | ----- | 
|                       |       |                |       |                  
|                       |       | March 31, 2004 |       | December 31, 2003
|                       |       |                |       |                  
|                       |       |                |       | Accumulated       |  |     |       |       |  | Accumulated  |       |      
|                       |       | Cost           |       | Amortization      |  | Net |       | Cost  |  | Amortization |       | Net  
|                       |       |                |       |                   |  |     |       |       |  |              |       |      
|Client lists           |       | $              | 4,900 |                   |  | $   | 1,680 |       |  | $            | 3,220 |       |  | $ | 4,900 |       |  | $ | 1,599 |       |  | $ | 3,301 |      
|Backlog                |       |                | 570   |                   |  |     | 570   |       |  |              |      |       |  |   | 570   |       |  |   | 560   |       |  |   | 10    |      
|Non-compete agreements |       |                | 530   |                   |  |     | 530   |       |  |              |      |       |  |   | 530   |       |  |   | 526   |       |  |   | 4     |      
|                       |       |                |       |                   |  |     |       |       |  |              |       |       |  |   |       |       |  |   |       |       |  |   |       |      
|                       | Total |                | $     | 6,000             |  |     | $     | 2,780 |  |              | $     | 3,220 |  |   | $     | 6,000 |  |   | $     | 2,685 |  |   | $     | 3,315 | 
|                       |       |                |       |                   |  |     |       |       |  |              |       |       |  |   |       |       |  |   |       |       |  |   |       |      

Client lists are being amortized on a
straight-line basis over 15 years. Backlog was amortized
over 5 years on a straight-line basis. Non-compete
agreements were amortized on a straight-line basis over periods
ranging from 4 years to 5 years.

Amortization expense related to intangible assets
for the three months ended March 31, 2004 was approximately
$95,000. Over the nine-month period ended December 31, 2004
and each of the four

7



---



##### 



TROVER SOLUTIONS, INC.


NOTES TO CONDENSED
FINANCIAL STATEMENTS  (Continued)

succeeding fiscal years, amortization expense
related to intangible assets is expected to be as follows (in
thousands):

|                                          |  |   |     | 
|----------------------------------------- |  | - | --- | 
|Nine month period ended December 31, 2004 |  | $ | 245 | 
|Year ended December 31,                   |  |   |     | 
|2005                                      |  |   | 327 | 
|2006                                      |  |   | 327 | 
|2007                                      |  |   | 327 | 
|2008                                      |  |   | 327 | 



|   |            
|-- | -----------
|8. | Derivatives

On November 6, 2001, the Company entered
into an interest rate swap contract to pay 3.66% and to receive
the one-month LIBOR rate on a $4 million notional amount of
the Revolving Credit Facility (see Note 9. Credit
Facility). The Company uses derivative financial
instruments to manage the risk that changes in interest rates
will affect the amount of its future interest payments. Under
the interest rate swap contract, the Company agrees to pay an
amount equal to a specified fixed rate of interest times a
notional principal amount, and to receive in return an amount
equal to a variable rate of interest times the same notional
principal amount. The notional amounts of the contract are not
exchanged. No other cash payments are made unless the contract
is terminated prior to maturity, in which case the amount paid
or received in settlement is established by agreement at the
time of termination, and represents the net present value, at
current rates of interest, of the remaining obligations to
exchange payments under the terms of the contract. The interest
rate swap contract was entered into with a major financial
institution in order to minimize counterparty credit risk. The
interest rate swap transaction qualifies for hedge accounting
treatment and is accounted for in accordance with FAS 133,
Accounting for Derivative Instruments and Hedging
Activities, as amended by FAS 138, Accounting
for Certain Derivative Instruments and Certain Hedging
Activities  an Amendment of FAS 133. At
March 31, 2004, the fair value of the hedge was a liability
of $67,533, or $40,520, net of tax. At December 31, 2003,
the fair value of the hedge was a liability of $86,397, or
$51,838, net of tax.



|   |                
|-- | ---------------
|9. | Credit Facility

On November 1, 2001, the Company entered
into a revolving credit facility with National City Bank of
Kentucky, Bank One Kentucky, N.A. and Fifth Third Bank (the
Revolving Credit Facility), and the existing Credit
Facility was terminated. The Companys obligations under
the Revolving Credit Facility are collateralized by
substantially all of the Companys assets, subject to
certain permitted exceptions. The Revolving Credit Facility
carries a maximum borrowing capacity of $40 million and
will mature October 31, 2004. Principal amounts outstanding
under the Revolving Credit Facility bear interest at a variable
rate based on the Prime Rate or Eurodollar Rate, as applicable,
plus a pre-determined fixed margin. At March 31, 2004 and
December 31, 2003, the interest rate was 2.85% and 2.92%,
respectively, based on the one-month Eurodollar Rate plus the
fixed margin. The Revolving Credit Facility contains customary
covenants and events of default including, but not limited to,
financial tests for interest coverage, net worth levels and
leverage that may limit the Companys ability to pay
dividends. The Company was in compliance with these covenants at
March 31, 2004 and December 31, 2003. It also contains
a material adverse change clause. At March 31, 2004 and
December 31, 2003, $4 million was outstanding under
the Revolving Credit Facility.



|    |              
|--- | -------------
|10. | Contingencies

The Company is engaged in the business of
identifying and recovering subrogation and related claims of its
clients, many of which arise in the context of personal injury
lawsuits. As such, the Company operates in a

8



---



##### 



TROVER SOLUTIONS, INC.


NOTES TO CONDENSED
FINANCIAL STATEMENTS  (Continued)

litigation-intensive environment. The Company has
been, from time to time, and in the future expects to be, named
as a party in litigation incidental to its business operations.
To date, the Company has not been involved in any litigation
which resulted in a material adverse effect upon the Company,
but there can be no assurance that pending litigation or future
litigation will not have a material adverse effect on the
Companys business, results of operations or financial
condition.



|    |                          
|--- | -------------------------
|11. | Adoption of a Rights Plan

On February 12, 1999, the Board adopted a
Stockholder Rights Plan (the Rights Plan) and
declared a dividend of one preferred stock purchase right (a
Right) for each outstanding share of Common Stock of
the Company. The dividend was payable to stockholders of record
on March 1, 1999. The Rights, which will initially trade
with the Common Stock, separate and become exercisable only upon
the earlier to occur of (i) 10 days after the date
(the Stock Acquisition Date) of a public
announcement that a person or group of affiliated persons has
acquired 20% or more of the Common Stock (such person or group
being hereinafter referred to as an Acquiring
Person) or (ii) 10 days (or such later date as
the Board of Directors shall determine) after the commencement
of, or announcement of an intention to make, a tender offer or
exchange offer that could result in such person or group owning
20% or more of the Common Stock (the earlier of such dates being
called the Distribution Date). When exercisable,
each Right initially entitles the registered holder to purchase
from the Company one one-hundredth of a share of a newly created
class of preferred stock of the Company at a purchase price of
$65 (the Purchase Price). The Rights are redeemable
for $0.001 per Right at the option of the Board of
Directors. The Rights expire on March 1, 2009.

If any person becomes an Acquiring Person, each
holder of a Right will thereafter have the right (the
Flip-In Right) to receive, in lieu of shares of
preferred stock and upon payment of the Purchase Price, shares
of Common Stock having a value equal to two times the Purchase
Price of the Right. Also, if at any time on or after the Stock
Acquisition Date, (i) the Company is acquired in a
transaction in which the holders of all the outstanding shares
of Common Stock immediately prior to the consummation of the
transaction are not the holders of all of the surviving
corporations voting power, or (ii) more than 50% of
the Companys assets, cash flow or earning power is sold or
transferred other than in the ordinary course of business, then
each holder of a Right shall thereafter have the right (the
Flip-Over Right) to receive, in lieu of shares of
preferred stock and upon exercise and payment of the Purchase
Price, common shares of the acquiring company having a value
equal to two times the Purchase Price. If a transaction would
otherwise result in a holder having a Flip-In as well as a
Flip-Over Right, then only the Flip-Over Right will be
exercisable. If a transaction results in a holder having a
Flip-Over Right subsequent to a transaction resulting in the
holder having a Flip-In Right, a holder will have a Flip-Over
Right only to the extent such holders Flip-In Rights have
not been exercised.

On February 19, 2004, in connection with the
Proposed Transaction described in Note 16 below, the
Company and National City Bank, as Rights Agent, executed a
First Amendment to Rights Agreement, which amends the
Stockholders Rights Plan and renders the Rights inapplicable to
the transactions contemplated by the definitive agreement
announced by the Company on February 20, 2004. See
Note 16. Recent Developments.



|    |                      
|--- | ---------------------
|12. | Stock Repurchase Plan

The Companys Board of Directors authorized
the repurchase of up to $20 million of the Companys
Common Stock in the open market at prices per share deemed
favorable by the Company. Shares may be repurchased using cash
from operations and borrowed funds and may continue until such
time as the Company has repurchased $20 million of the
Companys Common Stock or until it otherwise terminates the
stock repurchase plan. The Company did not repurchase any shares
of Common Stock during the three months ended March 31,
2004. From inception of the program through March 31, 2004,
the Company

9



---



##### 



TROVER SOLUTIONS, INC.


NOTES TO CONDENSED
FINANCIAL STATEMENTS  (Continued)

repurchased 3,269,630 shares at a cost of
$14.5 million, or an average cost of $4.43 per share.
Except for 8,874 shares of Common Stock previously
repurchased but reissued in connection with an employee
restricted stock award, all of the reacquired shares of Common
Stock through March 31, 2004 are reflected as treasury
stock on the accompanying Balance Sheets.



|    |                                  
|--- | ---------------------------------
|13. | Other Comprehensive Income (Loss)

Other comprehensive income for the three months
ended March 31, 2004 and 2003 consists of the following (in
thousands):

|                                      |  |                 |       |      |  |   |       | 
|------------------------------------- |  | --------------- | ----- | ---- |  | - | ----- | 
|                                      |  |                
|                                      |  | Three Months   
|                                      |  | Ended March 31,
|                                      |  |                
|                                      |  | 2004            |       | 2003
|                                      |  |                 |       |     
|Net income                            |  | $               | 1,462 |      |  | $ | 1,497 | 
|Other comprehensive income:           |  |                 |       |      |  |   |       | 
|Deferred gain on cash flow hedge, net |  |                 | 11    |      |  |   |      | 
|                                      |  |                 |       |      |  |   |       | 
|Comprehensive income                  |  | $               | 1,473 |      |  | $ | 1,497 | 
|                                      |  |                 |       |      |  |   |       | 

Accumulated other comprehensive (loss) income
consists of the following:

|                           |  |           |     |  
|-------------------------- |  | --------- | --- | -
|                           |  | Cash Flow
|                           |  | Hedge    
|                           |  |          
|Balance, December 31, 2003 |  | $         | (51 | )
|First quarter 2004 change  |  |           | 11  |  
|                           |  |           |     |  
|Balance, March 31, 2004    |  | $         | (40 | )
|                           |  |           |     |  



|    |                                             
|--- | --------------------------------------------
|14. | Concentration of Clients and Credit
    Risk

UnitedHealth Group (UHG), a
terminated client, accounted for 19% and 28% of the
Companys total revenues for the three-month periods ended
March 31, 2004 and 2003, respectively. Wellpoint Health
Network Inc. (Wellpoint) accounted for 21% and 15%
of the Companys total revenues for the three-month periods
ended March 31, 2004 and 2003, respectively. No other
client accounted for more than 10% of the Companys total
revenues. The loss of Wellpoint could have a material adverse
effect on the Companys results of operations, financial
position and cash flows.

Wellpoint accounted for 36% and 30% of the
Companys accounts receivable balance at March 31,
2004 and December 31, 2003, respectively. In addition,
Health Net, Inc. accounted for 8% and 10% of the Companys
accounts receivable balance at March 31, 2004 and
December 31, 2003, respectively. Should a substantial
portion of the current balance of either of these accounts
receivable balances become uncollectible, it could have a
material adverse effect on the Companys results of
operations and cash flows. No other client accounted for 10% or
more of accounts receivable at March 31, 2004 or
December 31, 2003.

During 2002, UHG management informed the Company
of its intention to terminate subrogation services with respect
to all but 1.8 million lives of the 9.7 million lives
then subject to the Companys services under a contract
with UHG. UHGs termination of these services resulted from
its decision to bring subrogation recovery services back inside
UHG, where they are being performed by its Ingenix strategic
business unit. The Companys contract with UHG expired in
accordance with its terms on February 1, 2003, except with
respect to the 1.8 million lives. In December 2003, UHG
gave notice of the termination of the remaining business under
contract, effective February 1, 2004. The Company expects
to continue recovering on the backlog as to which UHG terminated
the Companys services, a process that the Company expects
will be completed in 5 to 6 years from the dates of
termination.

10



---



##### 



TROVER SOLUTIONS, INC.


NOTES TO CONDENSED
FINANCIAL STATEMENTS  (Continued)



|    |                    
|--- | -------------------
|15. | Segment Information

The accounting policies of the Companys
reportable segments are the same as those accounting policies
described in the summary of significant accounting policies in
the Companys Annual Report on Form 10-K for the year
ended December 31, 2003. The Company has three reportable
segments based on qualitative guidelines. The Companys
three segments are: (1) Healthcare Recovery Services, which
encompasses its healthcare recovery products: healthcare
subrogation, provider bill audit, overpayments, and MD Audit;
(2) Property and Casualty Recovery Services, which is
subrogation recovery services for property and casualty
insurers, sold under the name TransPaC Solutions; and
(3) Software, which is subrogation recovery software in a
browser-based application service provider (ASP) form, sold
under the name Troveris. The segment profit measure is income
before income taxes.

Segment results for the three months ended
March 31, 2004 and 2003 are as follows (in thousands):

|                                   |                                                                 |                                     |   |        |        |  |   |        |        | 
|---------------------------------- | --------------------------------------------------------------- | ----------------------------------- | - | ------ | ------ |  | - | ------ | ------ | 
|                                   |                                                                 |                                    
|                                   |                                                                 | Three Months Ended                 
|                                   |                                                                 | March 31,                          
|                                   |                                                                 |                                    
|                                   |                                                                 | 2004                                |   | 2003  
|                                   |                                                                 |                                     |   |       
|Revenues:                          |                                                                 |                                     |   |        |        |  |   |       
|                                   | Healthcare Recovery Services                                    |                                     | $ | 15,644 |        |  | $ | 16,107 |       
|                                   | Property and Casualty Recovery Services                         |                                     |   | 271    |        |  |   | 229    |       
|                                   | Software                                                        |                                     |   | 264    |        |  |   | 313    |       
|                                   | Elimination of intercompany revenue                             |                                     |   | (242   | )      |  |   | (296   | )     
|                                   |                                                                 |                                     |   |        |        |  |   |       
|                                   |                                                                 | Total revenues                      |   | $      | 15,937 |  |   | $      | 16,353 | 
|                                   |                                                                 |                                     |   |        |        |  |   |       
|Operating income (loss):           |                                                                 |                                     |   |        |        |  |   |       
|                                   | Healthcare Recovery Services                                    |                                     | $ | 7,088  |        |  | $ | 6,753  |       
|                                   | Property and Casualty Recovery Services                         |                                     |   | (215   | )      |  |   | (232   | )     
|                                   | Software                                                        |                                     |   | 22     |        |  |   | (233   | )     
|                                   | Unallocated Corporate support expenses                          |                                     |   | (4,405 | )      |  |   | (3,722 | )     
|                                   |                                                                 |                                     |   |        |        |  |   |       
|                                   |                                                                 | Total operating income              |   | $      | 2,490  |  |   | $      | 2,566  | 
|                                   |                                                                 |                                     |   |        |        |  |   |       
|Depreciation and amortization:     |                                                                 |                                     |   |        |        |  |   |       
|                                   | Healthcare Recovery Services                                    |                                     | $ | 593    |        |  | $ | 787    |       
|                                   | Property and Casualty Recovery Services                         |                                     |   | 21     |        |  |   | 23     |       
|                                   | Software                                                        |                                     |   |       |        |  |   | 13     |       
|                                   | Unallocated Corporate depreciation and
    amortization expense |                                     |   | 151    |        |  |   | 139    |       
|                                   |                                                                 |                                     |   |        |        |  |   |       
|                                   |                                                                 | Total depreciation and amortization |   | $      | 765    |  |   | $      | 962    | 
|                                   |                                                                 |                                     |   |        |        |  |   |       
|Income (loss) before income taxes: |                                                                 |                                     |   |        |        |  |   |       
|                                   | Healthcare Recovery Services                                    |                                     | $ | 7,092  |        |  | $ | 6,767  |       
|                                   | Property and Casualty Recovery Services                         |                                     |   | (225   | )      |  |   | (242   | )     
|                                   | Software                                                        |                                     |   | 22     |        |  |   | (263   | )     
|                                   | Unallocated Corporate (loss)                                    |                                     |   | (4,453 | )      |  |   | (3,767 | )     
|                                   |                                                                 |                                     |   |        |        |  |   |       
|                                   |                                                                 | Total income before income taxes    |   | $      | 2,436  |  |   | $      | 2,495  | 
|                                   |                                                                 |                                     |   |        |        |  |   |       

Unallocated Corporate amounts include corporate
expenses and other miscellaneous charges. Because this category
includes a variety of miscellaneous items not attributable to
one particular segment, it is subject to fluctuation on a
quarterly and annual basis. The Company does not allocate assets.

11



---



##### 



TROVER SOLUTIONS, INC.


NOTES TO CONDENSED
FINANCIAL STATEMENTS  (Continued)



|    |                    
|--- | -------------------
|16. | Recent Developments

On February 19, 2004, the Company entered
into a definitive agreement to be acquired by an affiliate of
Tailwind Capital Partners LLC (Tailwind) in an
all-cash transaction (the Proposed Transaction). The
Proposed Transaction is to be accomplished by the merger of a
subsidiary of TSI Holding Co., Inc., itself an indirect
subsidiary of Tailwind, with and into the Company. As a result
of the merger, every stockholder of the Company will receive
$7.00 per share in cash and each holder of an in the
money option will receive an amount of cash equal to the
difference between the exercise price of the option and $7.00,
except that certain employees may exchange unexercised in
the money stock options of the Company for stock options
of TSI Holding Co., Inc. (which will be the parent corporation
of the surviving entity). In connection with the Proposed
Transaction, certain members of management will receive new
stock option grants from TSI Holding Co., Inc. and may purchase
shares of common stock of TSI Holding Co., Inc. at a price equal
to the price per share paid by Tailwind. Immediately following
the Proposed Transaction, TSI Holding Co., Inc. will be owned by
Tailwind, certain members of management of the Company, and
certain co-investors.

If completed, the Proposed Transaction will
result in the Company no longer being publicly traded and no
longer filing annual, quarterly and current reports with the
Securities and Exchange Commission (the SEC). The
Proposed Transaction is subject to approval by the
Companys stockholders at a special meeting of the
stockholders, which the Company expects will occur in July of
2004. The Proposed Transaction is also subject to other
customary closing conditions. Each of Tailwind and the Company
may elect to terminate the merger agreement and not complete the
Proposed Transaction at any time after July 15, 2004, so
long as the party electing to terminate has not breached the
merger agreement in a manner that has caused, resulted in or
materially contributed to the failure to consummate the merger
by July 15, 2004.

In connection with the Proposed Transaction, the
Company intends to file a proxy statement with the SEC. All
security holders of the Company are advised to read the proxy
statement when it becomes available, because it will contain
important information about the Company and the Proposed
Transaction. Security holders may obtain a free copy of the
proxy statement, when available, and other documents filed by
the Company with the SEC at the SECs website at
http://www.sec.gov/. Free copies of the Companys SEC
filing also may be obtained by directing a request to Trover
Investor Relations, Trover Solutions, Inc., 1600 Watterson
Tower, Louisville, Kentucky 40218. In addition, investors and
security holders may access copies of documents filed with the
SEC by the Company on the Companys website at
www.troversolutions.com.

The Company, its directors and executive officers
may be deemed to be participants in the solicitation of proxies
from the Companys stockholders in favor of the Proposed
Transaction. A description of the security holdings and other
interests of the directors and executive officers of the Company
will be set forth in the proxy statement referred to above.

As described in greater detail in the preliminary
proxy statement filed by the Company on April 30, 2004, in
connection with the Proposed Transaction, Mr. McGinnis has
entered into a new employment agreement with TSI Holding Co.,
Inc., providing for his continued service following completion
of the Proposed Transaction as chief executive officer of the
Company, on substantially the same terms as his existing 2003
employment agreement. As a result of this agreement, the merger
will not constitute a Change in Control Event under
the 2003 employment agreement. The new agreement will become
effective by its terms only at the effective time of the merger.
The provisions in the new employment agreement regarding
Mr. McGinnis compensation and the term of the
agreement are the same as in his existing 2003 employment
agreement with the Company.

12



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##### 








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 2. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

The Company, believes, based on its experience
and assessment of its market, that it is a leading independent
provider of outsourcing of subrogation and certain other medical
claims recovery and cost containment services to the
U.S. private healthcare payor industry and of outsourcing
of subrogation recovery services to the U.S. property and
casualty insurance industry. The Companys primary business
is medical claims recovery, and its primary product is
subrogation recovery, which generally entails the
identification, investigation and recovery of accident-related
medical benefits incurred by its clients on behalf of their
insureds, but for which other persons or entities have primary
responsibility. The Companys clients rights to
recover the value of these medical benefits, arising by law or
contract, are generally known as the right of subrogation and
are generally paid from the proceeds of liability or
workers compensation insurance. The Companys other
medical claims recovery services include (1) the auditing
of the bills of medical providers, particularly hospitals, for
accuracy, correctness and compliance with contract terms
(provider bill audit), (2) the recovery of
overpayments attributable to duplicate payments, failures to
coordinate benefits and similar errors in payment
(overpayments), and (3) the auditing of
physician evaluation and management claims for consistency with
medical records, in accordance with federal guidelines (MD
audit). The Company offers its healthcare recovery
services on a nationwide basis to health maintenance
organizations (HMOs), indemnity health insurers,
self-funded employee health plans, companies that provide claims
administration services to self-funded plans (referred to as
third-party administrators), Blue Cross and Blue
Shield organizations and provider organized health plans.
Current clients include Humana Inc., Kaiser Permanente,
Wellpoint Health Network Inc. and The Principal Financial Group.
The Company had 39.9 million and 34.3 million lives
under contract from its clientele at March 31, 2004 and
2003, respectively.

The Company has three segments:
(1) Healthcare Recovery Services, which encompasses its
four healthcare recovery products that the Company sells under
the brand name Healthcare Recoveries: healthcare subrogation,
provider bill audit, overpayments, and MD audit;
(2) Property and Casualty Recovery Services, which is
subrogation recovery services for property and casualty
insurers, sold under the brand name TransPaC Solutions; and (3)
Software, which is subrogation recovery software in a
browser-based application service provider (ASP) form, sold
under the brand name Troveris.

Healthcare Recovery Services



| |                       
| | ----------------------
| | Overview of Operations

For a typical new healthcare subrogation or other
medical claims recovery client, it takes up to six months from
the contract signing (when the lives are sold) to
complete the construction of electronic data interfaces
necessary for the Company to begin providing service. At this
point, the client is considered installed. During
the installation period, the Company must also hire and train
quality staff necessary to provide contractual services. After
installation, the Company receives files and data from the
client from which it creates an inventory of backlog.

Backlog is the total dollar amount of
potentially recoverable claims that the Company is pursuing or
auditing on behalf of its clients at a given point in time.
These claims are gross figures, prior to estimates of claim
settlements and rejections. Backlog increases when the Company
opens new files of potentially recoverable claims and decreases
when files are recovered and closed or, after further
investigation, determined to be nonrecoverable. Backlog for a
client will range from newly identified potential recoveries to
potential recoveries that are in the late stages of the recovery
process. Historically, recoveries (the amount actually recovered
for the Companys clients prior to the Companys fee)
have been produced from backlog in a generally predictable
cycle. Any group of potential recoveries, sufficiently large in
number to display statistically significant characteristics and
that originates from a defined time period, tends to produce
recovery results that are comparable to other groups having
similar characteristics.

For the most part, the Company is paid
contingency fees from the amount of claims recoveries it makes
from backlog or recoveries it identifies through other cost
containment and related recovery services on behalf of its
clients. The Companys revenues are a function of
recoveries and effective fee rates. Effective fee rates vary
depending on the mix between services provided and client fee
schedules. The fee schedules for each

13



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##### 



client are separately negotiated and reflect the
Companys standard fee rates, the services to be provided
and the anticipated volume of services. The Company grants
volume discounts and, for its recovery services, negotiates a
lower fee when it assumes backlog from a client because the
client will have already completed some of the recovery work.
Because the Company records expenses as costs are incurred and
records revenues only when a file is settled, there is a lag
between the recording of expenses and related revenue
recognition.


The Companys expenses are determined
primarily by the number of employees directly engaged in
recovery activities (cost of revenues) and by the
number of employees engaged in a variety of support activities
(support expenses). Recovery personnel must be hired
and trained in advance of the realization of recoveries and
revenues. Historically, support expenses have not grown in
direct proportion to revenues.



| |                      
| | ---------------------
| | Results of Operations

The following tables present certain key
operating indicators for the Healthcare Recovery Services
segment for the periods indicated (lives and dollars in
millions):

Healthcare Recovery Services  Key
Operating Indicators

Lives Sold and Installed*

|                                                          |  |              |      |      |  |  |      |  
|--------------------------------------------------------- |  | ------------ | ---- | ---- |  |  | ---- | -
|                                                          |  |             
|                                                          |  | Three Months
|                                                          |  | Ended       
|                                                          |  | March 31,   
|                                                          |  |             
|                                                          |  | 2004         |      | 2003
|                                                          |  |              |      |     
|Cumulative lives sold, beginning of period                |  |              | 39.9 |      |  |  | 41.6 |  
|Lives from existing client loss, net(1)                   |  |              | (0.8 | )    |  |  | (7.4 | )
|Lives added from new contracts with existing
    clients  |  |              | 0.4  |      |  |  | 0.1  |  
|Lives added from contracts with new clients               |  |              | 0.4  |      |  |  | 0.0  |  
|                                                          |  |              |      |      |  |  |      |  
|Cumulative lives sold, end of period                      |  |              | 39.9 |      |  |  | 34.3 |  
|                                                          |  |              |      |      |  |  |      |  
|Lives sold eliminations/cross-sold lives(2)               |  |              | 11.1 |      |  |  | 10.5 |  
|                                                          |  |              |      |      |  |  |      |  
|Lives installed, end of period                            |  |              | 35.7 |      |  |  | 31.9 |  
|                                                          |  |              |      |      |  |  |      |  
|Lives installed eliminations/cross-installed
    lives(3) |  |              | 5.5  |      |  |  | 5.4  |  
|                                                          |  |              |      |      |  |  |      |  



---



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | * | All references to lives in the table,
    whether reported as from existing client loss, added from new
    contracts with existing clients or with new clients, lives sold,
    lives sold eliminations/cross-sold lives, lives installed, or
    lives installed eliminations/cross-installed lives, are derived
    by the Company from information provided to it by clients, which
    may contain estimates.



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents the net of losses from contract
    terminations and organic declines in the clients installed
    base measured in the number of persons covered by clients, and
    gains from organic growth in the clients installed base
    measured in the number of persons covered by clients.                                                                                                                                                                                                           
|   
|(2) | Lives sold eliminations/cross-sold
    lives specifies the number of lives subject to client
    contracts under which Healthcare Recoveries provides or will
    provide more than one healthcare recovery service to a client
    population. By contrast, the number of lives reported in
    Cumulative lives sold, end of period does not
    include the overlap (i.e., double counting) that
    occurs when multiple healthcare recovery services are provided
    to the same client population.
|   
|(3) | Lives installed
    eliminations/cross-installed lives specifies the number of
    lives as to which Healthcare Recoveries provides more than one
    healthcare recovery service to a client population. By contrast,
    the number of lives reported in Lives installed, end of
    period does not include the overlap (i.e., double
    counting) that occurs when multiple healthcare recovery
    services are provided to the same client population.                                            

14



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##### 



Other Key Operating Indicators

|                   |  |                    |         |      |  |   |         |    
|------------------ |  | ------------------ | ------- | ---- |  | - | ------- | ---
|                   |  |                   
|                   |  | Three Months Ended
|                   |  | March 31,         
|                   |  |                   
|                   |  | 2004               |         | 2003
|                   |  |                    |         |     
|Backlog(1)         |  | $                  | 1,497.4 | (2)  |  | $ | 1,611.4 | (2)
|Claims recoveries  |  | $                  | 56.8    |      |  | $ | 57.8    |    
|Throughput(3)      |  |                    | 3.8     | %    |  |   | 3.7     | %  
|Effective fee rate |  |                    | 27.5    | %    |  |   | 27.9    | %  
|Claims revenues    |  | $                  | 15.6    |      |  | $ | 16.1    |    



---



|    |                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Backlog is the total dollar amount of potentially
    recoverable claims that Healthcare Recoveries is pursuing or
    auditing on behalf of its clients at a given point in time.                                      
|   
|(2) | At March 31, 2004 and 2003, approximately
    $250.5 million and $351.2 million, respectively, of
    the backlog derived from terminated clients and clients that, by
    those dates, had given notice of termination.
|   
|(3) | Throughput equals claims recoveries for the
    period divided by the average of backlog at the beginning and
    end of the period.                                                                                    

Three Months Ended March 31, 2004
Compared to Three Months Ended March 31, 2003

Claims Revenues.Total Healthcare Recovery Services revenues for the quarter
ended March 31, 2004 decreased approximately
$0.5 million, or 3.1%, to $15.6 million compared to
$16.1 million for the quarter ended March 31, 2003.
Healthcare claims recoveries for the quarter ended
March 31, 2004 were $56.8 million compared to
$57.8 million for the same quarter of 2003. Provider bill
audit and overpayment services recoveries increased
approximately $2.9 million or 28% compared to the prior
year quarter, primarily due to an increase in installed lives.
Subrogation services recoveries for the quarter ended
March 31, 2004 decreased approximately $3.8 million or
8% compared to the quarter ended March 31, 2003. The lower
recoveries resulted primarily from a decline in installed lives
compared to the same period in the prior year.

The Healthcare Recovery Services segment
effective fee rate for the quarter ended March 31, 2004
decreased to 27.5% from 27.9% for the same quarter of 2003. The
decrease in the fee rate was primarily attributable to a slight
decline in the provider bill audit fee rate compared to the
prior year quarter. The provider bill audit fee rate is
typically more volatile than the other Healthcare Recovery
Services segment products due to the pricing structure of its
contracts.

Backlog for the Healthcare Recovery Services
segment decreased to $1,497.4 million at March 31,
2004 from $1,611.4 million at March 31, 2003, a
decrease of 7.1%. The provider bill audit services backlog
increased approximately $57.8 million while the healthcare
subrogation services backlog decreased approximately
$173.5 million.

The Healthcare Recovery Services segment had a
throughput rate of approximately 3.8% and 3.7% of average
backlog during the first quarter of 2004 and 2003, respectively.
The slight increase in throughput in the quarter ended
March 31, 2004 compared to the quarter ended March 31,
2003 is due to a relatively larger decrease in average backlog
than the decrease in recoveries. Average Healthcare Recovery
Services backlog during the first quarter of 2004 decreased 4.8%
from the same quarter of 2003 while recoveries decreased 1.7%
between the same quarters. Lives installed increased
3.8 million from 31.9 million at March 31, 2003
to 35.7 million at March 31, 2004, because of
installations of clients sold in 2003.

Cost of Revenues.Cost of revenues for the Healthcare Recovery Services segment
decreased 10.3% for the quarter ended March 31, 2004 to
$7.0 million, from $7.8 million for the same quarter
in 2003. Moreover, the cost of revenues as a percentage of
claims revenues decreased to 45.0% for the quarter ended
March 31, 2004 compared to 48.2% for the same quarter in
2003. These decreases  in the cost of revenues and in
the costs of revenues as a percentage of claims
revenues  occurred for two reasons. First, for the
quarter ended March 31, 2004 compared to the same quarter
of 2003, healthcare subrogation services cost of revenues
decreased approximately 15% while the related revenues decreased
only 9%. This is primarily due to a

15



---



##### 



reduction in labor and other expenses related to
file investigation caused by a decrease of 23% in the number of
files investigated during the first quarter of 2004 compared to
the same quarter of the prior year. Second, provider bill audit
services revenue for the quarter ended March 31, 2004
increased approximately 15% over the same quarter of 2003, while
the cost of those revenues increased only 2% because of the
relatively greater amount and percentage of revenues earned in
the more recent quarter from so-called focused audits of certain
facilities, which are project-oriented and produce significantly
higher gross margins than do typical hospital bill audits.


Support Expenses.Support expenses for the Healthcare Recovery Services segment
increased 12.5% to $0.9 million for the quarter ended
March 31, 2004 from $0.8 million for the same quarter
in 2003, primarily because of increased incentive compensation.
In addition, support expenses as a percentage of claims revenues
increased from 5.0% for the first quarter of 2003 to 5.9% for
the same quarter in 2004 primarily due to the decrease in
revenues of the Healthcare Recovery Services segment.

Depreciation and
Amortization.Depreciation and
amortization expense for the Healthcare Recovery Services
segment decreased to $0.6 million for the quarter ended
March 31, 2004 from $0.8 million for the comparable
quarter of 2003 because several assets became fully depreciated
following the quarter ended March 31, 2003.

Income before Income
Taxes.Income before income taxes for
the Healthcare Recovery Services segment for the quarter ended
March 31, 2004 increased $0.3 million, or 4.4%, to
$7.1 million from $6.8 million for the quarter ended
March 31, 2003. The increase is due primarily to the
decrease in cost of revenues as a percentage of revenue
described above.

Property and Casualty Recovery
Services



| |                       
| | ----------------------
| | Overview of Operations

The Company operates in the subrogation
outsourcing market that serves property and casualty
(P&C) insurers. The Company offers its services
to the P&C market under the brand name TransPaC
Solutions.

The Company believes that the market for P&C
subrogation outsourcing in the United States is substantial and
that the potential savings from subrogation recoveries will vary
depending upon the P&C line of business. The Company
believes that total potential subrogation recoveries in the
automobile insurance market exceed $6 billion per year.
Based on its research and early experience, the Company believes
that there is an opportunity to increase total subrogation
recoveries across a wide spectrum of automobile insurers. The
Companys marketing strategy is to offer its services to
automobile insurers and multi-lines carriers that lack the
resources to maximize subrogation recoveries.

The Company believes that it has an opportunity
to leverage its healthcare subrogation expertise and resources
to provide service to the P&C markets. The primary
difference between the two markets is in the acquisition of
claims data for investigation of subrogation potential. The
P&C industry does not have standard data definitions
regarding claims as does the health insurance industry.
Nevertheless, the Company used its healthcare subrogation
expertise to build data interfaces with several of its P&C
customers, and it has created proprietary business processes to
acquire paper-based and/or imaged claims data from its
customers claims adjusting offices and archives.

The Company has assessed the competitive
environment for P&C subrogation outsourcing and believes
that the competition is fragmented and characterized by claims
adjusting companies that operate on a local or regional basis
and by law firms that specialize in a low volume of legally
complex subrogation claims. The Company has identified five
competitors that attempt to serve a national market. Two of
these competitors are owned and controlled by P&C insurers,
and the Company believes that this fact may deter potential
buyers of these competitors services if those potential
buyers also compete against the competitors parent
organizations.

16



---



##### 



The Company currently provides subrogation
outsourcing services to 16 P&C insurers, of which 5 are full
outsource clients with the remainder being clients for either
referral services, in which the Company supplements the capacity
of an internal recovery unit, or closed claims reviews, in which
the Company recovers subrogation claims missed or ignored by an
internal recovery unit. The Company has established a full-time
direct sales force experienced in P&C sales and marketing.
The Companys target market for its P&C subrogation
services is P&C insurers that are personal lines automobile
carriers or that are multi-lines carriers which focus on
automobile coverage.



| |                      
| | ---------------------
| | Results of Operations

The following tables present certain key
operating indicators for the Property and Casualty Recovery
Services segment for the periods indicated (dollars in millions):

Property and Casualty Recovery
Services  Key Operating Indicators

|                                        |  |              |    |      |  |  |    |  
|--------------------------------------- |  | ------------ | -- | ---- |  |  | -- | -
|                                        |  |             
|                                        |  | Three Months
|                                        |  | Ended       
|                                        |  | March 31,   
|                                        |  |             
|                                        |  | 2004         |    | 2003
|                                        |  |              |    |     
|Contracts in Force, beginning of period |  |              | 30 |      |  |  | 27 |  
|Outsourcing(1)                          |  |              |   |      |  |  | 1  |  
|Referrals/Closed Claims(2)              |  |              |   |      |  |  | 3  |  
|Terminations                            |  |              | (3 | )    |  |  | (1 | )
|                                        |  |              |    |      |  |  |    |  
|Contracts in Force, end of period       |  |              | 27 |      |  |  | 30 |  
|                                        |  |              |    |      |  |  |    |  



---



|    |                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Outsourcing refers to the full replacement of a
    clients internal subrogation recovery function by TransPaC
    Solutions, typically with a view to an ongoing relationship of
    indefinite period.
|   
|(2) | Referrals/ Closed Claims refers to
    project-related work assumed by TransPaC Solutions, typically
    with files transmitted by clients from time to time.                                            

Other Key Operating Indicators

|                   |  |              |      |      |  |   |      |  
|------------------ |  | ------------ | ---- | ---- |  | - | ---- | -
|                   |  |             
|                   |  | Three Months
|                   |  | Ended       
|                   |  | March 31,   
|                   |  |             
|                   |  | 2004         |      | 2003
|                   |  |              |      |     
|Backlog(1)         |  | $            | 16.9 |      |  | $ | 16.4 |  
|Claims recoveries  |  | $            | 1.4  |      |  | $ | 1.1  |  
|Throughput(2)      |  |              | 7.9  | %    |  |   | 7.1  | %
|Effective fee rate |  |              | 19.7 | %    |  |   | 20.3 | %
|Claims revenues    |  | $            | 0.3  |      |  | $ | 0.2  |  



---



|    |                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Backlog is the total dollar amount of potentially
    recoverable claims that TransPac Solutions is pursuing on behalf
    of its clients at a given point in time.
|   
|(2) | Throughput equals claims recoveries for the
    period divided by the average of backlog at the beginning and
    end of the period.                               

Three Months Ended March 31, 2004
Compared to Three Months Ended March 31, 2003

Claims Revenues.Total Property and Casualty Recovery Services revenues for the
quarter ended March 31, 2004 increased approximately
$42,000, or 18.3%, from the comparable quarter in 2003. Property
and Casualty Recovery Services claims recoveries for the quarter
ended March 31, 2004 increased $0.3 million, or 27.3%,
over the comparable quarter in 2003. This increase in recoveries
was the result of a 3.0% increase in backlog between these
period ends and an increase in throughput (i.e., recoveries as a

17



---



##### 



percentage of average backlog) to 7.9% for the
first quarter of 2004 from 7.1% for the comparable period of
2003. The increase in throughput from the quarter ended
March 31, 2003 is due to claims recoveries increasing at a
higher rate than the average backlog.


The Property and Casualty Recovery Services
effective fee rate for the quarter ended March 31, 2004
decreased to 19.7% from 20.3% for the comparable quarter of
2003. The decrease in fee rate was primarily attributable to the
change in mix of referral and closed claim contracts, which
typically bear higher fees, and full outsourcing contracts,
which typically bear lower fees, that occurred during the past
twelve months.

Cost of Revenues.Cost of revenues for the Property and Casualty Recovery Services
segment increased 5.3% for the quarter ended March 31, 2004
to $359,000, from $341,000 for the comparable quarter in 2003.
As a percentage of claims revenues, cost of revenues decreased
to 132% for the quarter ended March 31, 2004 compared to
149% for the comparable quarter in 2003, primarily due to the
growth in revenue described above.

Support Expenses.Support expenses for the Property and Casualty Recovery Services
segment were $0.1 million for the quarter ended
March 31, 2004, the same as for the quarter ended
March 31, 2003. Support expenses decreased as a percentage
of claims revenues from 42.4% for the first quarter of 2003 to
39.1% for the comparable quarter in 2004. The decrease in
support expenses as a percentage of revenues was due to the
growth in revenue as described above while support expenses
remained stable.

Software



| |                       
| | ----------------------
| | Overview of Operations

The Company has developed a web-enabled
subrogation software application. The Company sells this product
as an application service provider (ASP), under the
brand name Troveris, to participants in both the
health insurance and benefits market and the P&C market
which historically have not outsourced subrogation recoveries.
The Company currently estimates that 40% to 50% of the private
health insurance and health benefits markets do not outsource
subrogation recoveries. In the public health insurance and
benefits market (i.e., Medicaid and Medicare), the Company
believes that there is virtually no outsourcing of subrogation
recoveries because these programs typically rely on their claims
administration contractors to provide subrogation services as
part of a bundled service contract. In the P&C market, the
Company believes that certain participants are less likely to
outsource subrogation services. For example, the Company
believes that mutual insurers have organizational and cultural
biases against outsourcing and that larger P&C insurers have
sufficient resources to develop relatively sophisticated
internal departments. As of March 31, 2004, the Company had
two software clients. One, a Cincinnati-based third party
administrator of healthcare claims for self-funded employers,
became a client in June 2002, and the second, a Blue Cross Blue
Shield organization, became a client in late December 2003.

The Troveris marketing strategy combines the
opportunity for an internal subrogation department to gain
operating efficiency through the functionality of
state-of-the-art desktop software and to leverage its ability to
produce recoveries through the purchase of unbundled components
(such as investigation, training, etc.) of the Companys
traditional subrogation outsourcing services. The Troveris
software application allows the Company to administer these
customized relationships using the same proprietary processes as
it uses for those customers who purchase turnkey subrogation
outsourcing services.

In addition to being offered for sale as an
on-line subrogation recovery system in an ASP model, Troveris
also constitutes the systems platform for the Companys
recovery operations. All of those operations are currently
conducted on Troveris.

The Company is not aware of any competition in
subrogation software in an ASP model for the healthcare payor
industry, and it has identified only one large competitor in the
P&C insurance industry. This competitor is partially owned
and controlled by a major P&C insurer, and the Company
believes that this relationship will reduce the ability of the
competitor to sell its services to other P&C insurers.

18



---



##### 





| |                      
| | ---------------------
| | Results of Operations

Three Months Ended March 31, 2004
Compared to Three Months Ended March 31, 2003

Revenues.Revenue
for the Software segment decreased $49,000, or 15.7%, for the
quarter ended March 31, 2004 to $264,000, from $313,000
from the comparable quarter in 2003, due to a decrease in
intercompany revenue earned from the Healthcare Recovery
Services segment. This decrease was primarily a function of a
lower intercompany charge to the Healthcare Recovery Services
segment, which consumed less management and programming services
from the Software segment in 2004 compared with 2003. All but
$22,000 and $17,000 of the revenue in the quarters ended
March 31, 2004 and 2003, respectively, was derived from
internal clients (i.e., the Healthcare Recovery Services and
Property and Casualty Services segments).

Cost of Revenues.Cost of revenues for the Software segment for the quarter ended
March 31, 2004 was $242,000 compared to $240,000 for the
quarter ended March 31, 2003. This includes $229,000 and
$180,000 for the three months ended March 31, 2004 and
2003, respectively, of depreciation and amortization of software
in service. Approximately $13,000 and $60,000 of the cost of
revenues for the three months ended March 31, 2004 and
2003, respectively, relates to the support and maintenance of
the software.

Support Expenses.For the three months ended March 31, 2004 the Software
segment did not incur any support expenses compared to $293,000
of support expenses for the quarter ended March 31, 2003.
This was the result of a change in the allocation of labor
expense for certain employees now assigned to the Healthcare
Recovery Services segment. For the quarter ended March 31,
2003, the Software segment incurred approximately $496,000 of
expenditures in connection with the creation of new software
products for the insurance industry, of which approximately
$203,000 was capitalized, resulting in net reported support
expenses of $293,000.

Entire Company

Employees

|                  |  |           |     |      |  |  |     | 
|----------------- |  | --------- | --- | ---- |  |  | --- | 
|                  |  |          
|                  |  | March 31,
|                  |  |          
|                  |  | 2004      |     | 2003
|                  |  |           |     |     
|Direct operations |  |           | 414 |      |  |  | 514 | 
|Support           |  |           | 127 |      |  |  | 139 | 
|                  |  |           |     |      |  |  |     | 
|Total employees   |  |           | 541 |      |  |  | 653 | 
|                  |  |           |     |      |  |  |     | 

Statements of Income as a Percentage of
Revenues

|                              |  |              |       |      |  |  |       |  
|----------------------------- |  | ------------ | ----- | ---- |  |  | ----- | -
|                              |  |             
|                              |  | Three Months
|                              |  | Ended       
|                              |  | March 31,   
|                              |  |             
|                              |  | 2004         |       | 2003
|                              |  |              |       |     
|Claims revenues               |  |              | 100.0 | %    |  |  | 100.0 | %
|Cost of revenues              |  |              | 48.0  |      |  |  | 51.0  |  
|Support expenses              |  |              | 31.6  |      |  |  | 27.4  |  
|Depreciation and amortization |  |              | 4.8   |      |  |  | 5.9   |  
|Operating income              |  |              | 15.6  |      |  |  | 15.7  |  
|Interest expense, net         |  |              | (0.3  | )    |  |  | (0.4  | )
|Income before income taxes    |  |              | 15.3  |      |  |  | 15.3  |  
|Net income                    |  |              | 9.2   |      |  |  | 9.2   |  

Depreciation and
Amortization.Depreciation and
amortization expense decreased 20.0% to $0.8 million for
the quarter ended March 31, 2004 from $1.0 million for
the same quarter in 2003. The decrease is due to several assets
becoming fully depreciated following the quarter ended
March 31, 2003. In addition, approximately $229,000 and
$180,000 of depreciation and amortization related to the
Software segment is

19



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included in cost of revenues for the quarters
ended March 31, 2004 and 2003, respectively, because it is
a direct cost of software in service.


Interest Income.Interest income was $49,000 for the quarter ended March 31,
2004 compared to $50,000 for the prior year quarter.

Interest Expense.Interest expense totaled approximately $103,000 for the quarter
ended March 31, 2004, a decrease of 14.9% from the quarter
ended March 31, 2003. The decrease in interest expense for
the quarter ended March 31, 2004, as compared with the same
quarter in 2003, is due to fees related to the revolving credit
facility incurred in 2003.

Tax.The Company
accrued income taxes for the quarters ended March 31, 2004
and 2003 at a rate of 40.0%.

Net Income.Net
income for the quarter ended March 31, 2004 of
$1.5 million or $0.17 per diluted common share was the
same as the quarter ended March 31, 2003, with decreases in
expenses (described above) offsetting the decrease in revenue
between the periods.

Liquidity and Capital Resources

The Companys statements of cash flows for
the three months ended March 31, 2004 and 2003 are
summarized below:

|                                                        |  |                |      |      |  |   |       |  
|------------------------------------------------------- |  | -------------- | ---- | ---- |  | - | ----- | -
|                                                        |  |               
|                                                        |  | Three Months  
|                                                        |  | Ended         
|                                                        |  | March 31,     
|                                                        |  |               
|                                                        |  | 2004           |      | 2003
|                                                        |  |                |      |     
|                                                        |  |               
|                                                        |  | (In thousands)
|Net cash provided by operating activities               |  | $              | 453  |      |  | $ | 1,512 |  
|Net cash used in investing activities                   |  |                | (467 | )    |  |   | (808  | )
|Net cash provided by (used in) financing
    activities |  |                | 84   |      |  |   | (857  | )
|                                                        |  |                |      |      |  |   |       |  
|Net (decrease) in cash and cash equivalents             |  | $              | 70   |      |  | $ | (153  | )
|                                                        |  |                |      |      |  |   |       |  

The Company had working capital of
$14.5 million at March 31, 2004, including cash and
cash equivalents of $11.2 million, compared with working
capital of $13.0 million at December 31, 2003. Working
capital increased primarily because of an increase in the
accounts receivable balance as of March 31, 2004 compared
to December 31, 2003. Of this $1.4 million increase,
approximately 70% relates to revenue earned primarily from
project-oriented focused audit work performed for a provider
bill audit client in the quarter ended March 31, 2004. The
remainder of the increase relates to healthcare subrogation
services and falls within the normal quarter-to-quarter accounts
receivable fluctuation for this product. The number of days
sales outstanding in the receivable balance at March 31,
2004 is consistent with the Companys historical trends and
management believes that collectability will be consistent with
historical collections experience.

Net cash provided by operating activities was
approximately $0.5 million, a decrease of approximately
$1.0 million for the three months ended March 31,
2004, compared to the same quarter in 2003. The accounts
receivable balance increased $1.4 million during the
quarter ended March 31, 2004, compared to a decrease of
$0.6 million during comparable quarter of 2003. This was
partially offset by a reduction in the amount of accrued
expenses, primarily bonuses, paid during the three months ended
March 31, 2004, compared to the same quarter of 2003.

Net cash used in investing activities includes
purchases of property and equipment. During the quarters ended
March 31, 2004 and 2003, the Company capitalized
approximately $0.2 million and $0.3 million,
respectively, of internally developed software.

Net cash provided by financing activities for the
three months ended March 31, 2004 represents proceeds from
the issuance of stock primarily from stock option exercises. Net
cash used in financing activities for the

20



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quarter ended March 31, 2003 reflects
approximately $0.9 million used to repurchase the
Companys outstanding common stock.


On November 1, 2001, the Company entered
into a revolving credit facility with National City Bank of
Kentucky, Bank One Kentucky, N.A. and Fifth Third Bank (the
Revolving Credit Facility). The Companys
obligations under the Revolving Credit Facility are
collateralized by substantially all of the Companys
assets, subject to certain permitted exceptions. The Revolving
Credit Facility carries a maximum borrowing capacity of
$40 million and will mature October 31, 2004.
Principal amounts outstanding under the Revolving Credit
Facility bear interest at a variable rate based on the Prime
Rate or Eurodollar Rate, as applicable, plus a pre-determined
fixed margin. At March 31, 2004, the interest rate was
2.85% based on the one-month Eurodollar Rate plus the fixed
margin. The Revolving Credit Facility contains customary
covenants and events of default including, but not limited to,
financial tests for interest coverage, net worth levels and
leverage that may limit the Companys ability to pay
dividends. The Company was in compliance with these covenants at
March 31, 2004. It also contains a material adverse change
clause. At March 31, 2004, $4 million was outstanding
under the Revolving Credit Facility. (See Item 1.
Financial Statements (Unaudited) 
Note 8  Derivatives and
 Note 9  Credit
Facility.) The Company intends to pay this outstanding
debt in full from available cash at the earlier of its maturity
or the closing on the Proposed Transaction. See Item 1.
Financial Statements (Unaudited) 
Note 16  Recent Developments.

At March 31, 2004 and December 31,
2003, the Company reported on its balance sheets, as a current
asset, restricted cash of $16.1 million and
$17.0 million, respectively. Restricted cash at
March 31, 2004 and December 31, 2003 represented
claims recoveries by the Company for its clients. At
March 31, 2004 and December 31, 2003, the Company
reported on its balance sheets, as a current liability, funds
due clients of $11.6 million and $12.0 million,
respectively, representing claims recoveries to be distributed
to clients, net of the fee earned on such recoveries.

The Company believes that its available cash
resources, together with the borrowings available under the
Revolving Credit Facility, will be sufficient to meet its
current operating requirements and acquisition and internal
development activities.

Contractual Obligations and Commercial
Commitments

The following summarizes the Companys
contractual obligations at March 31, 2004, and the effect
such obligations are expected to have on its liquidity and cash
flows in future periods (in thousands):

|                         |                               |       |   |           |  |       |   |       |  |         |   |       |  |  |   |       |  |  |   |     | 
|------------------------ | ----------------------------- | ----- | - | --------- |  | ----- | - | ----- |  | ------- | - | ----- |  |  | - | ----- |  |  | - | --- | 
|                         |                               |       |   |           |  |       |   |       |  | More   
|                         |                               |       |   | Less Than |  | 1-3   |   | 4-5   |  | Than   
|                         |                               | Total |   | 1 Year    |  | Years |   | Years |  | 5 Years
|                         |                               |       |   |           |  |       |   |       |  |        
|Contractual Obligations: |                               |       |   |           |  |       |   |       |  |         |   |       |  |  |   |       |  |  |   |    
|                         | Short-term borrowings         |       | $ | 4,000     |  |       | $ | 4,000 |  |         | $ |      |  |  | $ |      |  |  | $ |    | 
|                         | Operating leases              |       |   | 9,530     |  |       |   | 2,277 |  |         |   | 4,449 |  |  |   | 2,581 |  |  |   | 223 | 
|                         | Deferred compensation         |       |   | 270       |  |       |   |      |  |         |   | 205   |  |  |   |      |  |  |   | 65  | 
|                         | Purchase obligations          |       |   |          |  |       |   |      |  |         |   |      |  |  |   |      |  |  |   |    | 
|                         |                               |       |   |           |  |       |   |       |  |         |   |       |  |  |   |       |  |  |   |    
|                         | Total contractual obligations |       | $ | 13,800    |  |       | $ | 6,277 |  |         | $ | 4,654 |  |  | $ | 2,581 |  |  | $ | 288 | 
|                         |                               |       |   |           |  |       |   |       |  |         |   |       |  |  |   |       |  |  |   |    

External Factors

The business of recovering subrogation and other
claims for healthcare payors is subject to a wide variety of
external factors. Prominent among these are factors that would
materially change the healthcare payment, fault-based liability
or workers compensation systems. Examples of these factors
include, but are not limited to, (1) the non-availability
of recovery from such sources as property and casualty and
workers compensation coverages, (2) law changes that
limit the use of or access to claims and medical records, or
(3) the ability of healthcare payors to recover related
claims and audit medical records. Because the Companys
profitability depends in large measure upon obtaining and using
claims data and medical records, the non-availability or
decrease in their availability could have a material adverse
effect on the Company.

21



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Moreover, because the Companys revenues are
derived from the recovery of the costs of medical treatment,
material changes in such costs will tend to affect the
Companys backlog or its rate of backlog growth, as well as
its revenue or its rate of revenue growth. The healthcare
industry, and particularly the business of healthcare payors, is
subject to various external factors that may have the effect of
significantly altering the costs of healthcare and the
environment for the sale or delivery of medical claims recovery
and cost containment services. The Company is unable to predict
which of these factors, if any, could have a potentially
material impact on healthcare payors and through them, the
healthcare recovery and cost containment industry.

Concentration of Clients

The Company provides services to healthcare plans
that as of March 31, 2004 covered approximately
39.9 million lives. The Companys clients are national
and regional healthcare payors, large third-party administrators
or self-insured corporations. The Company currently has one
client, Wellpoint Health Network Inc., that individually
accounts for more than 10% of the Companys revenue. It
also has a former client, UnitedHealth Group (UHG),
which historically accounted for more than 10% of the
Companys revenue. For the three months ended
March 31, 2004 and 2003, UHG generated 19% and 28% of the
Companys revenues, respectively. Wellpoint Health Network
Inc. accounted for 21% and 15% of the Companys total
revenues for the three months ended March 31, 2004 and
2003, respectively as well as 35% and 30% of the Companys
accounts receivable balance at March 31, 2004 and
December 31, 2003, respectively. Health Net accounted for
8% and 10% of the Companys accounts receivable balance at
March 31, 2004 and December 31, 2003, respectively.

The Companys revenues are earned under
written contracts with its clients that generally provide for
contingency fees from recoveries under a variety of pricing
regimes. The pricing arrangements offered by the Company to its
clients include a fixed fee percentage, a fee percentage that
declines as the number of lives covered by the client and
subject to the Companys service increases and a fee
percentage that varies with the Companys recovery
performance.

The Company performs its services on a reasonable
efforts basis and does not obligate itself to deliver any
specific result. Contracts with its customers are generally
terminable on 60 to 180 days notice by either party,
although in a few cases the contracts extend over a period of
years. The Companys contracts generally provide that in
the event of termination, the Company is entitled to complete
the recovery process on the existing backlog or to receive a
cash payment designed to approximate the gross margin that would
otherwise have been earned from the recovery on the backlog of
the terminating client. On March 31, 2004 , the Company had
Healthcare Recovery Services segment backlog of
$1,497.4 million.

During 2002, UHG management informed the Company
of its intention to terminate subrogation services with respect
to all but 1.8 million lives of the 9.7 million lives
then subject to the Companys services under a contract
with UHG. UHGs termination of these services resulted from
its decision to bring subrogation recovery services back inside
UHG, where they are being performed by its Ingenix strategic
business unit. The Companys contract with UHG expired in
accordance with its terms on February 1, 2003, except with
respect to the 1.8 million lives. In December 2003, UHG
gave notice of the termination of the remaining business under
contract, effective February 1, 2004. The Company expects
to continue recovering on the backlog as to which UHG terminated
the Companys services, a process that the Company expects
will be completed in 5 to 6 years from the dates of
termination.

Critical Accounting Policies

The Company has identified critical accounting
policies that, as a result of the judgments, uncertainties,
uniqueness and complexities of the underlying accounting
standards and operations involved, could result in material
changes to its financial condition or results of operations
under different conditions or using different assumptions. The
Company believes its most significant accounting policies are
related to the following areas, among others: revenue
recognition, accounts receivable and collectibility,
capitalization of software costs, valuation of long-lived and
intangible assets, accrued expenses and common stock options.
Details regarding

22



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the Companys use of these policies and the
related estimates are described more fully in the Companys
Annual Report on Form 10-K for the year ended
December 31, 2003, filed with the Securities and Exchange
Commission on March 19, 2004. During the first quarter of
2004, there have been no material changes to the Companys
critical accounting policies that impacted the Companys
financial condition or results of operations.


Stock Repurchase Plan

The Companys Board of Directors authorized
the repurchase of up to $20 million of the Companys
Common Stock in the open market at prices per share deemed
favorable by the Company. Shares may be repurchased using cash
from operations and borrowed funds and may continue until such
time as the Company has repurchased $20 million of the
Companys Common Stock or until it otherwise terminates the
stock repurchase plan. The Company did not repurchase any shares
of Common Stock during the three months ended March 31,
2004. From inception of the program through March 31, 2004,
the Company repurchased 3,269,630 shares at a cost of
$14.5 million, or an average cost of $4.43 per share.
Except for 8,874 shares previously repurchased but reissued
in connection with an employee restricted stock award, all of
the reacquired shares of Common Stock through March 31,
2004 are reflected as treasury stock on the accompanying Balance
Sheets.

Adoption of a Rights Plan

On February 12, 1999, the Board of Directors
adopted a Stockholder Rights Plan and declared a dividend of one
preferred stock purchase right (a Right) for each
outstanding share of Common Stock of the Company. The dividend
was payable to stockholders of record on March 1, 1999. The
Rights, which initially trade with the Common Stock, separate
and become exercisable only upon the earlier to occur of
(i) 10 days after the date (the Stock
Acquisition Date) of a public announcement that a person
or group of affiliated persons has acquired 20% or more of the
Common Stock (such person or group being hereinafter referred to
as an Acquiring Person) or (ii) 10 days
(or such later date as the Board of Directors shall determine)
after the commencement of, or announcement of an intention to
make, a tender offer or exchange offer that could result in such
person or group owning 20% or more of the Common Stock (the
earlier of such dates being called the Distribution
Date). When exercisable, each Right initially entitles the
registered holder to purchase from the Company one one-hundredth
of a share of a newly created class of preferred stock of the
Company at a purchase price of $65 (the Purchase
Price). The Rights are redeemable for $0.001 per
Right at the option of the Board of Directors. The Rights expire
on March 1, 2009.

If any person becomes an Acquiring Person, each
holder of a Right will thereafter have the right (the
Flip-In Right) to receive, in lieu of shares of
preferred stock and upon payment of the Purchase Price, shares
of Common Stock having a value equal to two times the Purchase
Price of the Right. Also, if at any time on or after the Stock
Acquisition Date, (i) the Company is acquired in a
transaction in which the holders of all the outstanding shares
of Common Stock immediately prior to the consummation of the
transaction are not the holders of all of the surviving
corporations voting power, or (ii) more than 50% of
the Companys assets, cash flow or earning power is sold or
transferred other than in the ordinary course of business, then
each holder of a Right shall thereafter have the right (the
Flip-Over Right) to receive, in lieu of shares of
preferred stock and upon exercise and payment of the Purchase
Price, common shares of the acquiring company having a value
equal to two times the Purchase Price. If a transaction would
otherwise result in a holder having a Flip-In as well as a
Flip-Over Right, then only the Flip-Over Right will be
exercisable. If a transaction results in a holder having a
Flip-Over Right subsequent to a transaction resulting in the
holder having a Flip-In Right, a holder will have a Flip-Over
Right only to the extent such holders Flip-In Rights have
not been exercised.

On February 19, 2004, in connection with the
Proposed Transaction, the Company and National City Bank, as
Rights Agent, executed a First Amendment to Rights Agreement,
which amends the Stockholders Rights Plan and renders the Rights
inapplicable to the transactions contemplated by the definitive
agreement announced by the Company on February 20, 2004.
See Item 1. Financial Statements
(Unaudited)  Note 16  Recent
Developments.

23



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|        |                                                               
|------- | --------------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosures
    About Market Risk

The Company is subject to interest rate risk
arising from the impact of changes in interest rates on its
variable rate Revolving Credit Facility, which matures
October 31, 2004. The impact on earnings and the value of
any debt on the Companys balance sheets are subject to
change as a result of movements in market rates and prices.
However, the Company does not expect changes in interest rates
to have a material effect on its financial position, results of
operations or cash flows in 2004. As of March 31, 2004, the
Company had $4.0 million outstanding under its Revolving
Credit Facility. Through the interest rate swap contract the
Company has entered into, the Company has fixed the interest
rate on the entire $4.0 million of the Revolving Credit
Facility at 5.41% or 5.66% (contingent on the status of a
financial ratio). Because of the Companys interest rate
swap agreement, changes in interest rates would have no effect
on the Companys interest expense on an annual basis. See
Item 1. Financial Statements (Unaudited) 
Note 8  Derivatives and
 Note 9  Credit Facility
and Item 2. Managements Discussion and Analysis
of Financial Condition and Results of Operations 
Liquidity and Capital Resources.






|        |                        
|------- | -----------------------
|Item 4. | Controls and Procedures

Based on their evaluation of the Companys
disclosure controls and procedures (as defined in
Rules 13a-14 and 15d-14 under the Securities Exchange Act
of 1934), as of a date within 90 days of the filing of this
Form 10-Q, the Companys Chief Executive Officer and
Chief Financial Officer have concluded that these controls and
procedures are effective. There have been no changes in internal
controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation, nor
have there been any significant deficiencies or material
weaknesses. As a result, no corrective actions were required or
undertaken.

24



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PART II:     OTHER
INFORMATION





|        |                  
|------- | -----------------
|Item 1. | Legal Proceedings

The Company is engaged in the business of
identifying and recovering subrogation and related claims of its
clients, many of which arise in the context of personal injury
lawsuits. As such, the Company operates in a
litigation-intensive environment. Consequently, since its
founding in 1988 the Company has been involved with many
litigation matters related to its subrogation business,
sometimes as a defendant and sometimes through a defendant
client. The plaintiffs attorneys attempting to defeat the
clients subrogation liens often threaten litigation
against the Company and its clients as a negotiating tactic.
Most of the lawsuits that have been filed against the Company or
its clients concern the entitlement to recover a specific,
individual subrogation claim or the amount of the subrogation
claim. Typically, these actions do not ask for punitive damages,
are not pled as class actions, and do not have wide implications
with respect to the Companys ongoing business practices.

To date, however, the Company has encountered
eight noteworthy instances in addition to the pending lawsuits
described under Current Litigation, in which
lawsuits were filed against it or its clients that sought
punitive damages, were pled as class actions, or otherwise made
claims or requested relief that could have materially affected
the Companys business practices. The risk profile for this
sort of business practices litigation includes not only the
usual considerations of the potential amount, effect, and
likelihood of loss, but also specifically the potential for
punitive damages and class certification, the possible effects
of an adverse verdict on the Companys business practices,
and the likelihood of specific plaintiffs attorneys
bringing similar actions in other jurisdictions.

Each of these cases has been completely resolved,
by decision of a court or settlement by the parties, but prior
to resolution the Company did not regard all of these cases as
being material in and of themselves. In managements
opinion, these eight cases share a common profile with each
other and with the lawsuits described below under the caption
Current Litigation.

Five of the eight lawsuits named the Company as a
defendant and were pled as class actions. Two of these five
cases, one in federal court and the other in state court,
alleged that the Company violated state and federal laws on fair
debt collection practices. In the state court action, the court
granted the Companys motion for summary judgment on all
claims in the complaint, which the court of appeals affirmed. In
the federal court action, the Company settled the matter, prior
to the courts ruling on the Companys motion for
summary judgment, for a nominal amount.

Three of those five lawsuits, pled as class
actions and naming the Company as a defendant, were filed in
federal court and charged the Company with a variety of
violations of laws and sought punitive damages. The complaints
alleged, among other things, that the Company committed
negligence, fraud and breach of its duties under ERISA by
attempting to recover and actually recovering, by subrogation,
the reasonable value of medical benefits which were provided by
the Companys clients under capitation or
discounted-fee-for-service arrangements. One of these lawsuits
was dismissed in a ruling on the merits. Another was settled,
after the court denied class certification, for a nominal amount
paid by the Companys client, a co-defendant in the case.
The third case, DeGarmo et al. v. Healthcare
Recoveries, Inc., was concluded in mid-July 2001 for a
settlement payment of $3 million and nonmonetary terms that
management regards as immaterial to the Companys ongoing
business.

The remaining three lawsuits did not name the
Company as a defendant. These three lawsuits did, however,
involve the Companys clients and implicate important
Company business practices. The complaints in these cases
alleged, among other things, violation of state law with respect
to the payment of plaintiffs attorneys fees and
unfair trade practices, violation of the federal Health
Maintenance Organization Act of 1973, misrepresentation of the
rightful amounts of subrogation claims, and impermissible
enforcement of recovery rights. Two of these cases resulted in
judgments in favor of the Companys clients after
litigation of the merits before trial and appellate courts. The
other case was settled for an immaterial amount.

Management believes that the lawsuits described
above will not, as a general matter, have precedential value for
either the cases described below under the caption Current
Litigation or for any future litigation

25



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##### 



matters (all these cases being referred to as the
Pending and Potential Cases). Indeed, the courts
hearing the Pending and Potential Cases may not even become
aware of the outcomes in the eight lawsuits described above.
Management expects that each of the Pending and Potential Cases
will be decided on its own merits under the relevant state and
federal laws, which will vary from case to case and jurisdiction
to jurisdiction. The descriptions of the outcomes in the eight
cases dealing with business practices are included here in order
to describe the context for these kinds of litigation and the
Companys relative successes in handling past business
practices litigation, but are not necessarily predictive of the
outcomes of any of the Pending and Potential Cases.


Moreover, there can be no assurance that the
Company will not be subject to further class action litigation
similar to that described below under the caption Current
Litigation, that existing and/or future class action
litigation against the Company and its clients will not consume
significant management time and/or attention or that the cost of
defending and resolving such litigation will not be material.

Current Litigation



| |                                                                          
| | -------------------------------------------------------------------------
| | Cajas et al. v. Prudential Health
    Care Plan and Healthcare Recoveries

On October 28, 1999, a class action
plaintiffs Original Petition (Petition) was
filed against the Company and one of the Companys clients
in the District Court for the 150th Judicial District, Bexar
County, Texas, Joseph R. Cajas, on behalf of himself and all
others similarly situated v. Prudential Health Care Plan,
Inc. and Healthcare Recoveries, Inc. The plaintiff asserts
that the Companys subrogation recovery efforts on behalf
of its client Prudential Health Care Plan, Inc.
(Prudential) violated a number of common law duties,
as well as the Texas Insurance Code and the Texas Business and
Commerce Code. The Petition alleges that the Company, as the
subrogation agent for Prudential, made fraudulent
misrepresentations in the course of unlawfully pursuing
subrogation and reimbursement claims that the plaintiff asserts
are unenforceable because (1) prepaid medical service plans
may not exercise rights of subrogation and reimbursement;
(2) the subrogation and reimbursement claims asserted by
the Company are not supported by contract documents that provide
enforceable recovery rights and/or do not adequately describe
the recovery rights; and (3) the sums recovered pursuant to
such claims unlawfully exceed the amount Prudential paid for
medical goods and services. The Company was served with the
Petition in November 1999, and has answered, denying all
allegations. After the defendants filed a motion for summary
judgment in January 2002, the plaintiff moved the court to delay
consideration of the motion until the plaintiff could complete
additional discovery. The plaintiffs motion to delay
consideration was granted. On October 25, 2002, the
plaintiff filed an amended petition naming one additional
plaintiff as a purported class representative. The amended
petition did not add any new claims. The defendants filed a
motion for summary judgment on January 24, 2003, and the
plaintiffs filed a cross motion for summary judgment. On
February 25, 2003, a state court judge denied the
defendants motion for summary judgment that the defendants
were entitled to enforce the terms of Prudentials
policies. The same judge granted the plaintiffs partial
motion for summary judgment to the effect that Prudential could
not recover more than its costs. That ruling is not final nor
yet appealable. The plaintiffs have not yet moved the court to
certify the case as a class action.



| |                                                                     
| | --------------------------------------------------------------------
| | Martin et al. v. Companion Health
    Care and Healthcare Recoveries

In December 1999, a purported class action
complaint (Complaint) was filed against the Company
and one of the Companys clients in the Court of Common
Pleas of Richland County, South Carolina, Estalita Martin
et al. vs. Companion Health Care Corp., and Healthcare
Recoveries, Inc. In January 2000, the defendant Companion
Healthcare Corp. (CHC) filed an Answer and
Counterclaim and the plaintiff Martin filed a First Amended
Complaint (Amended Complaint). The Amended Complaint
asserts that the Companys subrogation recovery efforts on
behalf of its client, CHC, violated a number of common law
duties, as well as the South Carolina Unfair Trade Practices
Act. The Amended Complaint alleges that the Company, as the
subrogation agent for CHC, made fraudulent misrepresentations in
the course of unlawfully pursuing subrogation and reimbursement
claims that the plaintiffs assert are unenforceable because
(1) prepaid medical service plans may not exercise rights
of subrogation and reimbursement; (2) the subrogation and
reimbursement claims asserted by the Company are not supported
by contract documents that provide

26



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##### 



enforceable recovery rights and/or do not
adequately describe the recovery rights; and (3) the sums
recovered pursuant to such claims unlawfully exceed the amount
CHC was entitled to collect for such medical goods and services.
The Amended Complaint further alleges that the Company and CHC
unlawfully pursued subrogation and reimbursement claims by
(1) failing to pay pro rata costs and attorneys fees
to attorneys who represented purported class members with
respect to tort claims underlying the subrogation and
reimbursement claims; and (2) failing to include in
subrogation and reimbursement claims all applicable discounts
that CHC received for such medical goods and services. The
plaintiffs, on behalf of the purported class, demand
compensatory damages, punitive damages, and treble damages,
disgorgement of unjust profits, costs, prejudgment interest and
attorneys fees. The Company was served with the original
Complaint in late December 1999 and answered denying all
allegations. The Company filed a motion to dismiss in August
2000 and in June 2001 the court granted the Companys
motion to dismiss. The plaintiffs filed a notice of appeal in
July 2001. On March 1, 2004, the Court of Appeals of South
Carolina filed an order and opinion affirming the trial
courts order dismissing the case. On April 22, 2004
the Court of Appeals denied plaintiffs motion for a
rehearing. The time period in which the plaintiff may pursue a
further appeal to the South Carolina Supreme Court has not
expired.




| |                                      
| | -------------------------------------
| | Hamilton v. Healthcare
    Recoveries

On March 12, 2001, a Complaint
(Complaint) was filed against the Company in the
United States District Court for the Eastern District of
Louisiana, in a putative class action brought by Kyle M.
Hamilton. In that action, Hamilton v. Healthcare
Recoveries, Inc., No. 01-650, the plaintiff asserts
that the Companys subrogation recovery efforts on behalf
of its clients violate certain Louisiana state laws, the federal
Fair Debt Collection Practices Act and the Louisiana Unfair
Trade Practices Act. The Complaint alleges that the Company
intentionally and negligently interfered with the
plaintiffs and the putative class members rights to
settle certain personal injury claims. The Complaint further
alleges that the Company unlawfully pursued subrogation and
reimbursement claims that the plaintiff asserts are
unenforceable because the clauses in the Companys
clients coverage documents that create such recovery
rights are rendered null and void by Louisiana statutes that
generally prohibit coordination of benefits with individually
underwritten insurance coverages. The plaintiff purports to
represent a class consisting of all persons covered under group
health policies that were issued or delivered in the State of
Louisiana and who received any communication from the Company
attempting to enforce any clauses that allegedly were rendered
null and void by Louisiana law. The plaintiff seeks on behalf of
the purported class compensatory and statutory damages,
interest, costs, attorneys fees and such additional
damages and relief as may be allowed by any applicable law. In
July 2001, the court granted a motion for summary judgment
filed by the Company as concerned the plaintiffs Fair Debt
Collection Practices Act (FDCPA) claim, dismissing
those claims with prejudice. The court denied the Companys
motion for summary judgment, without prejudice to the right of
the Company to reassert its motion, with respect to the
plaintiffs state law claims. The court ordered that the
parties submit memoranda addressing whether the court still had
subject matter jurisdiction, given dismissal of the federal
claim. In August 2001, the court ruled that it lacked subject
matter jurisdiction, thus dismissing the remaining claims,
without prejudice. The plaintiff filed an appeal to the United
States Fifth Circuit Court of Appeals. In November 2002,
the Court of Appeals rendered its opinion reversing the
dismissal of the FDCPA claims. The court also affirmed the trial
courts determination that diversity jurisdiction did not
exist in the case. The court remanded the case to the federal
district court for further proceedings. On April 29, 2003,
the Company filed a Petition for Writ of Certiorari asking the
U.S. Supreme Court to accept an appeal of the Court of
Appeals ruling. The Supreme Court denied the Petition on
June 9, 2003.

After the case was remanded to the trial court,
the Company filed a second Motion for Summary Judgment. On
May 13, 2003, the Court entered an Order granting the
Companys Motion for Summary Judgment, dismissing with
prejudice the Plaintiffs claims under the FDCPA and
dismissing without prejudice the Plaintiffs remaining
state law claims. On May 27, 2003, the plaintiff filed a
Notice of Appeal to the United States Fifth Circuit Court of
Appeals, which heard oral argument of the appeal on
December 3, 2003. The Court has not yet ruled on the appeal.

27



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##### 



The Company disputes the plaintiffs
allegations regarding the applicability of the FDCPA and intends
to vigorously defend its position in this case.

In addition to filing the appeal in federal
court, the Hamilton plaintiff in October 2001 filed a new
complaint in the Civil District Court for the Parish of Orleans,
Louisiana, in a putative class action styled Hamilton v.
Healthcare Recoveries, Inc., 2001-15989. This state court
action asserts claims substantially similar to those in the
federal court action. In November 2001, the Company filed
preliminary exceptions to this new complaint. There were no
further proceedings in the case until March 2003 when the
Company filed a motion to stay any further proceedings in that
case due to the related case pending in federal court. On
April 25, 2003, the state court entered an order granting
the Companys motion to stay the lawsuit. Thereafter, the
Company removed the case from state court to Federal court on
August 5, 2003. On September 4, 2003, the plaintiff
filed a Motion to Remand the case back to state court, which
motion was granted on November 21, 2003. Thus, the case
remains in the state court.



| |                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------
| | Bruun et al. v. Prudential Health
    Care Plan, Prudential Insurance Company of America, Aetna, Inc.
    and Trover Solutions

On October 30, 2002, plaintiffs
counsel in the Cajas and Franks cases filed a
class action lawsuit in the United States District Court for the
District of New Jersey on behalf of two Texas residents against
the Company, Prudential Insurance Company, one of the
Companys clients, PruCare HMO, a subsidiary of Prudential
Insurance Company, and Aetna, a company which had acquired the
business of another of the Companys clients. The complaint
was served on the Company on February 27, 2003.

In the complaint, plaintiffs Kimberly Bruun and
Ashley Emanis, on behalf of themselves and similarly situated
persons, asserted claims on behalf of a putative nationwide
class of persons who were members of PruCare HMO health plans
governed by ERISA from whom the Company, under its contract with
the client, recovered reimbursement. The complaint alleged that
reimbursement recoveries made by PruCare HMO and the Company
violate the terms of the standard PruCare HMO plan documents,
and that reimbursement recoveries violate the Conformity with
Law provision in the standard plan documents because subrogation
and reimbursement are prohibited under the federal HMO Act. The
complaint further alleged that the defendants subrogation
and reimbursement recoveries resulted in a double recovery to
PruCare HMO because PruCare HMO did not account for subrogation
and reimbursement recoveries as offsets to expenses when setting
premium rates. The complaint further alleged that the defendants
improperly recovered in subrogation or reimbursement for
services provided by capitated providers, or that in the
alternative, the defendants improperly recovered more for
capitated services than was paid for the services, or
alternatively, that the defendants improperly collected amounts
that exceeded the reasonable cash value of capitated services.
The plaintiffs allege that PruCare HMO, Prudential, Aetna and
the Company are fiduciaries and that they each have breached
their fiduciary duty to the plaintiffs. Alternatively, the
plaintiffs allege that if Aetna, Prudential and the Company are
not fiduciaries, that they knowingly participated in PruCare
HMOs breach of fiduciary duty.

The plaintiffs, on behalf of the class, demand
enforcement of the plan documents under certain sections of
ERISA. The plaintiffs also demand restitution and disgorgement
of sums recovered by defendants and the establishment of a
constructive trust. The plaintiffs also demand an accounting of
PruCare HMOs and Aetnas rate documents, the
subrogation and reimbursement claims for capitated services,
and/or the actual costs paid by PruCare HMO and Aetna for the
capitated services.

On April 16, 2003, the defendants filed
motions seeking to dismiss the lawsuit or to change the venue of
the lawsuit to a federal court in Texas. On October 16,
2003, the court entered an order granting the defendants
motions to dismiss and dismissing all of the plaintiffs
claims. On November 13, 2003, the plaintiffs filed a Notice
of Appeal to the United States Third Circuit Court of Appeals.
The plaintiffs filed their appellate brief on February 23,
2004. The Company filed its appellate brief on March 24,
2004. The Third Circuit has not issued a ruling.

28



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##### 





| |                                                                                  
| | ---------------------------------------------------------------------------------
| | Godair v. American Home Assurance
    Company, Trover Solutions, and HMO Partners

On March 14, 2003, Lawrence Godair, the
plaintiff in a putative class action against a motor vehicle
insurer, amended his complaint to add the Company, and a client
of the company, HMO Partners, as defendants in Lawrence
Godair v. American Home Assurance Company, Trover
Solutions, Inc. and HMO Partners, Inc., No. 4:02 CV
00407 SMR, United States District Court for the Eastern District
of Arkansas, Western Division. On December 12, 2003, the
plaintiff again amended his complaint to add additional causes
of action. In the third amended complaint (the Amended
Complaint), the plaintiff makes allegations on behalf of
himself and a purported class of others similarly situated. The
complaint asserts that the Company, as subrogation agent for HMO
Partners, unlawfully demanded payment of a subrogation claim
against proceeds of a medical payments insurance policy issued
to the plaintiff by American Home. The Amended Complaint also
alleges that the Company was unjustly enriched because the
plaintiff was not fully compensated (made whole) for
his injuries in violation of the Arkansas no-fault motor vehicle
insurance statute and because the payment constituted a double
recovery to the Company and to HMO Partners, in violation of the
Arkansas Health Maintenance Organizations Act. The Amended
Complaint further alleges that in recovering the subrogation
claim the Company acted negligently, that it interfered with the
plaintiffs contractual relationship with the motor vehicle
insurer and that the Company may be directly or vicariously
liable for the acts of other defendants. The Amended Complaint
includes additional causes of action against the Company for
interference with a contractual relationship, violation of the
Arkansas Deceptive Trade Practices Act, fraud, breach of
contract, conversion and improperly recovering amounts in excess
of the cost of providing the health benefits that are the
subject of subrogation claims. The Amended Complaint demands
relief on behalf of a purported class of persons who purchased
medical payments coverage as required by the Arkansas no-fault
motor vehicle insurance statute and who were entitled to but did
not receive benefits under such policies due to the payment of
those benefits to third parties, including the Company and HMO
Partners. The Court has not yet considered whether to certify a
class of plaintiffs. The Amended Complaint demands compensatory
and punitive damages, declaratory and injunctive relief, 12%
statutory penalties, costs, expenses, interest and
attorneys fees.

The Company filed an Answer to the Amended
Complaint denying the plaintiffs claims on
December 30, 2003. The Company intends to vigorously defend
itself against these allegations. On April 21, 2004, the
company filed a motion for partial judgment on the pleadings
seeking dismissal of some, but not all, of the Plaintiffs
claims. The court has not yet ruled on the motion. The Company
and the plaintiff are currently engaged in the discovery process.

The Cajas, Martin or Bruun
lawsuits, or any one of them, if successful, could prevent the
Company from recovering the reasonable value of
medical treatment under discounted fee for service
(DFS), capitation and other payment arrangements.
The Cajas, Martin, Hamilton, and Bruun lawsuits,
or any one or more of them, if successful, could require the
Company to refund, on behalf of its clients, recoveries in a
material number of cases. In addition, an adverse outcome in any
of the above referenced lawsuits could impair materially the
Companys ability to assert subrogation or reimbursement
claims on behalf of its clients in the future. Based on the
current disposition of these lawsuits, the Company regards such
an adverse outcome to be a remote possibility.

In terms of the Companys business practices
and the allegations underlying the Cajas, Martinand
Bruuncases, at the end of 1993 the Company had ceased
the practice of recovering the reasonable value of
medical treatment provided by medical providers under DFS
arrangements with the Companys clients. From that date,
the Companys policy has been not to recover the
reasonable value of medical treatment in DFS
arrangements. However, the Company historically and currently
recovers the reasonable value of medical treatment
provided under capitation arrangements and other payment
arrangements with medical providers on behalf of those clients
that compensate medical providers under these payment
mechanisms, to the extent that these benefits are related to
treatment of the injuries as to which clients have recovery
rights. The Company believes that its clients contracts,
including the contracts that provide for recovery under DFS,
capitation and other payment arrangements are enforceable under
the laws potentially applicable in these cases. As a result, and
taking into account the underlying facts in each of these cases,
the Company believes it has meritorious grounds to defend these
lawsuits, it intends to defend the cases vigorously, and it
believes that the defense and

29



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##### 



ultimate resolution of the lawsuits should not
have a material adverse effect upon the business, results of
operations or financial condition of the Company. Nevertheless,
if any of these lawsuits or one or more other lawsuits seeking
relief under similar theories were to be successful, it is
likely that such resolution would have a material adverse effect
on the Companys business, results of operations and
financial condition.


Management of the Company has observed that, in
parallel with widely-reported legislative concerns with the
healthcare payment system, there also has occurred an increase
in litigation, actual and threatened, including class actions
brought by nationally prominent attorneys, directed at
healthcare payors and related parties. As a result of the
foregoing, there can be no assurance that the Company will not
be subject to further class action litigation, that existing
and/or future class action litigation against the Company and
its clients will not consume significant management time and/or
attention or that the cost of defending and resolving such
litigation will not be material.






|        |                                                                                     
|------- | ------------------------------------------------------------------------------------
|Item 2. | Changes in Securities, Use of Proceeds and
    Issuer Purchases of Equity Securities

On February 19, 2004, in connection with the
Proposed Transaction, the Company and National City Bank, as
Rights Agent, executed a First Amendment to Rights Agreement,
which amends the Stockholders Rights Plan and renders the Rights
inapplicable to the transactions contemplated by the definitive
agreement announced by the Company on February 20, 2004.
See Part I: Financial Information. Item 2.
Managements Discussion and Analysis of Financial
Condition and Results of Operations  Adoption of a
Rights Plan.






|        |                                     
|------- | ------------------------------------
|Item 6. | Exhibits and Reports on
    Form 8-K

(a) Exhibits

The following list of Exhibits includes both
exhibits submitted with this Form 10-Q as filed with the
Commission and those incorporated by reference to other filings:

| |      |  |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ---- |  |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2.1  |  |  |  |  | Merger Agreement, dated as of February 19,
    2004, by and among the Registrant, TSI Holding Co., Inc. and TSI
    Acquisition Co., Inc. (incorporated by reference to
    Exhibit A of Registrants Preliminary Proxy Statement
    for a Special Meeting, dated March 11, 2004).                                                                                                                                                                                             
| | 3.1  |  |  |  |  | Restated Certificate of Incorporation of the
    Registrant (incorporated by reference to Exhibit 3.1 of the
    Registrants Quarterly Report on Form 10-Q for the quarter
    ended June 30, 2002).                                                                                                                                                                                                                                                                           
| | 3.2  |  |  |  |  | Amended and Restated Bylaws of the Registrant
    (incorporated by reference to Exhibit 3.2 of
    Registrants Annual Report on Form 10-K for the fiscal year
    ended December 31, 2000).                                                                                                                                                                                                                                                                                    
| | 4.1  |  |  |  |  | Specimen Common Stock Certificate (incorporated
    by reference to Exhibit 4.1 of Registrants Amendment
    No. 1 to Registration Statement on Form S-1, File
    No. 333-23287).                                                                                                                                                                                                                                                                                             
| | 4.2  |  |  |  |  | Rights Agreement, dated February 12, 1999,
    between the Registrant and National City Bank of Kentucky, as
    Rights Agent, which includes as Exhibit A the Form of
    Certificate of Designations of the Preferred Stock, as
    Exhibit B the Form of Right Certificate and as
    Exhibit C the Summary of Rights to Purchase Preferred Stock
    (incorporated by reference to Exhibit 4.1 of
    Registrants Form 8-A, filed February 16, 1999,
    File No. 0-22585).
| | 4.3  |  |  |  |  | First Amendment to Rights Agreement, dated
    February 19, 2004, between the Registrant and National City
    Bank, as Rights Agent (incorporated by reference to
    Exhibit 4.3 of Registrants Annual Report on Form 10-K
    for the fiscal year ended December 31, 2003.                                                                                                                                                                                                  
| | 10.1 |  |  |  |  | Employment Agreement, dated February 19,
    2004, by and between TSI Holding Co., Inc. and Patrick B.
    McGinnis.                                                                                                                                                                                                                                                                                                                                                            
| | 31.1 |  |  |  |  | Certification of Chief Executive Officer pursuant
    to Rule 13a-14(a) or Rule 15d-14(a) of the Securities
    Exchange Act as adopted under Section 302 of the
    Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                
| | 31.2 |  |  |  |  | Certification of Chief Financial Officer pursuant
    to Rule 13a-14(a) or Rule 15d-14(a) of the Securities
    Exchange Act as adopted under Section 302 of the
    Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                

30



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##### 



| |      |  |  |   |  |                                                                                                                                                                                                                                                                                            
| | ---- |  |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 32   |  |  |  |  | Certifications pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002.                                                                                                                                                           
| | 99.1 |  |  |  |  | Trover Solutions, Inc. Private Securities
    Litigation Reform Act of 1995 Safe Harbor Compliance Statement
    for Forward-Looking Statements (incorporated by reference to
    Exhibit 99.1 of Registrants Annual Report on Form
    10-K for the fiscal year ended December 31, 2003).

(b) Reports on Form 8-K

|                                                                             |  |                  
|---------------------------------------------------------------------------- |  | -----------------
|Item Reported                                                                |  | Date Furnished   
|                                                                             |  |                  
|Items 7, 9 and 12  Text of
    Earnings Release and Slide Show Presentation |  | February 4, 2004 
|Items 5 and 7  Text of Press
    Release and Merger Agreement               |  | February 20, 2004

31



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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.



| |                       
| | ----------------------
| | TROVER SOLUTIONS, INC.

|                   |  |                                                                                                                                          
|------------------ |  | -----------------------------------------------------------------------------------------------------------------------------------------
|Date: May 14, 2004 |  | /s/ PATRICK B. MCGINNISPatrick B. McGinnisChairman, President and Chief Executive Officer                                                
|                  
|Date: May 14, 2004 |  | /s/ DOUGLAS R. SHARPSDouglas R. SharpsExecutive Vice President and Chief Financial Officer
    Principal Financial and Accounting Officer

32