UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

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

                   For the fiscal year ended December 31, 2001
                                       OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

                   For the transition period from _______ to ________

                        Commission file number 000-23005
                        INSpire Insurance Solutions, Inc.
             (Exact Name of Registrant as Specified in Its Charter)

           Texas                                           75-2595937
(State or Other Jurisdiction of                          (I.R.S. Employer
Incorporation or Organization)                          Identification No.)

     300 Burnett Street
      Fort Worth, Texas                                       76102
(Address of Principal Executive Offices)                         (Zip Code)

       Registrant's telephone number, including area code: (817) 348-3900

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

    Title of Class                      Name of Exchange on Which Registered
    --------------                      ------------------------------------
        None                                           N/A
Securities registered pursuant to Section 12(g) of the Act:
                     Common Stock, par value $.01 per share
                                (Title of Class)
                 Series A Junior Preferred Stock Purchase Rights
                                (Title of Class)

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

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of registrant's knowledge, in or any amendment to this Form 10-K.

         As of August 31, 2002, the Company has outstanding 19,153,708 shares of
common  stock.   The  aggregate  market  value  of  the  common  stock  held  by
non-affiliates  of the  registrant,  based on the bid price of such stock on the
OTC  Bulletin  Board on  September  9, 2002 was  $483,206.  For purposes of this
computation,  all executive officers, directors and 10% beneficial owners of the
registrant are deemed to be affiliates.  Such determination should not be deemed
an admission that such executive  officers,  directors and 10% beneficial owners
are affiliates.




<PAGE>

<TABLE>
<CAPTION>

                                    INDEX TO
                           ANNUAL REPORT ON FORM 10-K
                                                                                                                Page
<S>      <C>               <C>                                                                                   <C>


PART I............................................................................................................1
         ITEM 1.           BUSINESS...............................................................................1
         ITEM 2.           PROPERTIES.............................................................................9
         ITEM 3.           LEGAL PROCEEDINGS.....................................................................10
         ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS....................................12

PART II..........................................................................................................12
         ITEM 5.           MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.................12
         ITEM 6.           SELECTED FINANCIAL DATA...............................................................13
         ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
                           OF OPERATION..........................................................................15
         ITEM 7A.          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............................29
         ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...........................................29
         ITEM 9.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                           DISCLOSURE............................................................................32

PART III.........................................................................................................32
         ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT....................................32
         ITEM 11.          EXECUTIVE COMPENSATION................................................................35
         ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........................40
         ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................................41

PART IV..........................................................................................................42
         ITEM 14.          EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K......................42

SIGNATURES.......................................................................................................43


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                                       i

<PAGE>



                                     PART I
ITEM 1.  BUSINESS.

                                  Introduction

         INSpire Insurance Solutions,  Inc. ("INSpire," or the "Company"),  is a
Texas  corporation that was formed in April 1995.  INSpire is a leading provider
of policy and claims  administration  outsourcing and software  solutions to the
property  and  casualty  ("P&C")  insurance  industry.   INSpire's   outsourcing
services,  which  generally  are provided for a fee that is  calculated  using a
percentage  of  premium  written  and/or  a  claims   incurred  basis,   include
application of underwriting and rating criteria  defined by the insurer,  policy
issuance,  policyholder  mailings,  customer  service,  billing and collections,
claims  adjusting and processing,  and information  technology  ("IT") services.
INSpire  also  provides  software  and  software  services to the P&C  insurance
industry.  These  products  include  policy and claims  administration  systems,
including  systems that  increase  the  productivity  of insurers by  automating
certain  functions,   such  as  workflow  management,   underwriting  rules  and
guidelines,  document  production,  and rating algorithms.  The Company utilizes
these  same  systems,  which run on a  variety  of  platforms,  to  provide  its
outsourcing solutions.  Software sales typically include a software license fee,
implementation services fees, and ongoing software maintenance fees.

                                 Reorganization

         INSpire and INSpire Claims Management,  Inc., a wholly owned subsidiary
of INSpire, filed voluntary petitions for reorganization under Chapter 11 of the
U.S.  Bankruptcy Code in the Northern District of Texas in Ft. Worth on February
15, 2002.  During 1998 and 1999, the Company  acquired three large contracts and
through those contracts grew revenue to $140 million.  The Company developed the
associated  fixed  infrastructure  to provide the service  required  under these
contracts.  During  2000 and 2001,  those  contracts  were  either  canceled  or
significantly  reduced in scope,  resulting in a severe decline in revenue.  The
Company  also  experienced  significant  declines in business  from its existing
customers,  leaving the Company  with excess  infrastructure  costs.  It was the
unnecessary  infrastructure  costs  that the  Company  was  targeting  with this
restructuring.

         The original  goal of the  reorganization  was to enable the Company to
emerge as a stronger  entity,  of an  efficient  size with  appropriate  expense
levels.  The  Company  has  since  determined  that  the  reorganization  as  an
independent  entity  is  neither  feasible  nor in  the  best  interests  of the
Company's estate,  creditors or shareholders.  After careful deliberation and in
consultation with the Creditors Committee,  the Company determined that the only
viable course of action,  consistent with their fiduciary  duties, is to seek to
maximize  the  value  of  the  Company's  estates  through  a  sale  of  all  or
substantially all of their respective assets.

         The Company has filed with the  Bankruptcy  Court,  a proposed  Plan of
Reorganization (the "Plan"),  and an accompanying  Disclosure  Statement for the
Plan of Reorganization (the "Disclosure Statement").  The following is a summary
of the Plan.

         The Plan  anticipates  a  potential  sale of  substantially  all of the
Company's  assets  including  real  property,   intellectual   property,   cash,
receivables,  other current and long term assets,  contractual rights, and other
assets to CGI Group, Inc.  ("CGI"),  as set forth in a letter of intent that the
Company and CGI executed on or about July 24, 2002 (the "Letter of Intent").  In
exchange for such assets,  CGI agreed to pay the Company $8,200,000 in cash (the
"Cash Purchase Price") and assume up to $14,000,000 in liabilities including pre
and post  petition  obligations  incurred in the  ordinary  course of  business,
contractual  obligations,  unearned  revenue and tax  liabilities.  The specific
assets and  liabilities  to be  included  in a final  definitive  agreement  are
subject  to  ongoing  negotiations.  The  Cash  Purchase  Price  is based on the
assumption  that the "Net Asset Value" (as defined in the Letter of Intent) will
be $7,000,000 (the "Assumed Net Asset Value").  Seven business days prior to the
closing of this  transaction,  which must occur prior to November 15, 2002,  the
Company will  deliver to the CGI a revised  estimate of the Net Asset Value (the
"Estimated Net Asset Value").  The Cash Purchase Price will be adjusted  (upward
or downward,  as  appropriate)  by the amount that the Estimated Net Asset Value

                                       1
<PAGE>

differs from the Assumed Net Asset Value; provided,  however, that no adjustment
will  be  made  to the  extent  that  the  Estimated  Net  Asset  Value  exceeds
$8,400,000.  The  Company  currently  estimates  the Cash  Purchase  Price to be
adjusted to approximately $5,400,000.

         The Company also negotiated with ChoicePoint Inc. ("ChoicePoint"),  for
the potential sale of the Company's assets. Choicepoint filed a letter of intent
with the Bankruptcy  Court on October 24, 2002. Under the terms of the letter of
intent,  ChoicePoint would pay the Company $10,700,000 for all the assets of the
Company and assume $3,146,785 in liabilities, as well as assuming certain future
vendor obligations and leases. The offer was subject to certain  conditions.  On
November  4, 2002,  the  Company  was  informed  by  Choicepoint  that they were
withdrawing their offer

         The cash proceeds from a sale  transaction and any remaining  assets of
the Company, if any (collectively,  the "Trust Assets") will be transferred to a
liquidating trust (the "Trust").  Michael G. Lawrence of NACM SW (the "Trustee")
will be the initial  trustee for the Trust and will  liquidate  the Trust Assets
and distribute the proceeds to the creditors of the Company.

         The Trust  Assets  will be used to pay claims of  creditors  until such
claims (and all expenses  incurred in  implementing  the Plan) are paid in full,
with any remaining assets being distributed to equity security holders.  A total
of $22,965,300 in claims have been filed in the Bankruptcy Court. The Company is
in the process of analyzing these claims and, at this time, cannot give an exact
amount of the claims which will be allowed; however, the Company believes that a
substantial portion of these claims will be disallowed.

         Each equity  security  holder will  receive a pro rata  portion of such
remaining  assets,  if any,  based on the number of shares held as of the record
date. The record date for such  distributions  will be the effective date of the
Plan (the  "Distribution  Record Date"),  which will be a date, as determined by
the  Company,  on or after the date in which (i) a sale has been  completed  and
(ii) the Trust has been  formed,  and the  Trustee has been  appointed.  At such
time, trading of the shares of the equity security interests of the Company will
cease.

         The  Company is  presently  operating  at a  substantial  net cash loss
without any  realistic  prospect of reducing  the rate at which the value of the
estates is eroding.  It is  important to the Company,  the  creditors  and other
interested  constituencies  that an asset  purchase  agreement be finalized  and
accepted as expeditiously as possible.

                              Products and Services

         INSpire offers complete outsourcing, software, and professional service
solutions for P&C insurer's policy and claims administration.

Outsourcing  services.  INSpire  offers a range of services  that are capable of
providing a turnkey  outsourcing  solution to all of a P&C insurer's  policy and
claims  administration  needs.   Outsourcing  services  include  application  of
underwriting  and rating  criteria  defined  by the  insurer,  policy  issuance,
policyholder  mailings,  customer  service,  billing  and  collections,   claims
adjusting and processing, and IT services. The customer determines the extent to
which it uses INSpire's services. A team of INSpire and customer personnel works
closely  together to ensure the  integration  of the  customer's  outsourced and
in-house activities. INSpire's outsourcing services include the following:

         o    Policy  Administration.  INSpire  offers  a suite of  services  to
              customers   that  are   considering   outsourcing   their   policy
              administration.  The customer retains all of the insurance risk or
              risk  associated  with   underwriting   insurance.   The  customer
              typically pays INSpire a percentage of premiums written for policy
              administration services, which include the following:

                o   direct, agency and internet marketing support
                o   policy issuance and acceptance

                                       2
<PAGE>


                o   application of underwriting  and rating criteria  defined by
                    the   insurer
                o   customer service phone center for policyholders and agents
                o   accounting, billing and collections,  commission calculation
                    and   disbursement,   statutory   reporting  and  regulatory
                    compliance
                o   comprehensive management and service bureau reporting

        o   Claims   Administration.   Claims   administration   describes   the
            management  of  appraising,  qualifying  and settling P&C  insurance
            claims.  INSpire maintains a staff of claims adjusters and examiners
            and  also  uses  independent   claims  adjusters.   INSpire  reviews
            insurance coverage,  performs a claim analysis, and prepares a check
            for payment of the claim,  if  warranted.  As part of this  service,
            INSpire provides claim reporting  capabilities 24 hours a day, seven
            days  a  week.   INSpire   also   offers   special   investigations,
            subrogation,  and salvage services as part of claims  administration
            services. The customer typically pays INSpire on either a percentage
            of premiums earned or claims incurred basis.

        o   IT  Outsourcing.  INSpire  offers  services to assist  customers  in
            operating,  maintaining,  and enhancing information systems. INSpire
            migrates  the  customer's   current  system  platform  to  INSpire's
            processing  platform,  including the  installation  of all necessary
            hardware components.  After such migration, the customer administers
            its policies and claims  internally by utilizing  INSpire's  systems
            and other software  productivity  tools. The customer typically pays
            INSpire a one-time  license and  implementation  fee and an on-going
            fee based upon premiums written, subject to a minimum fee.

Software  products.  INSpire's policy and claims software platform is a complete
set of tools to automate the back office of an insurance  company.  The suite is
branded  INSideOUT,  reflecting  the  Company's  belief,  that the tool  enables
carriers to transform  their  operations,  improve  customer  service and reduce
operating expenses. It includes several components:

         INSideOUTSM  policy/claims processing - the heart of INSpire's software
         suite,  offering fully  integrated  functions such as policy and claims
         administration,    billing,   reinsurance,    agency   processing   and
         management/statistical  reporting. All components work together to make
         processing  more  efficient,  accurate and  productive.  Processing  is
         performed online,  in real-time,  so changes to policies and claims are
         available instantly.

         INSideOUTSM  rating  -  an  object-oriented  rating  tool  that  allows
         non-technical  users  create,  build,  test  and  maintain  the  rating
         algorithms used in the insurance industry.

         INSideOUTSM   underwriting   -  rule-based   software  that   automates
         underwriting  analysis  and  ensures  consistent  results  by  applying
         defined rules and associated rule  parameters to policy data.  Policies
         that meet a carrier's  underwriting  criteria will automatically issue.
         Policies that do not meet  underwriting  requirements  will result in a
         referral. A relational database is used to store and report statistical
         information about underwriting results.  Statistics related to concerns
         that are constantly noted on applications and the  accommodations  each
         underwriter is making are  generated.  Extensive  management  reporting
         capabilities are provided.

         INSideOUTSM   web-enablement  -  a  real-time   internet-based  rating,
         underwriting and policy issuance system that allows insurance  carriers
         to sell and service insurance policies either direct to the consumer or
         through  agents.  The tool  permits  consumers  or agents  to  complete
         insurance  transactions  real-time  through  the  Internet,   including
         ordering  third-party  underwriting  reports,  accepting  payments  and
         issuing declaration pages and ID cards.

         INSideOUTSM   third-party   ordering/receiving   -  enables   insurance
         companies to map data from external  agencies to internal  systems.  It
         automates the process of originating and submitting  report requests to
         outside  vendors such as credit  reporting  bureaus,  industry  service
         organizations and driver's license bureaus. It also allows customers to
         receive, display and print reports from outside vendors. The system can
         provide information on a batch or real-time basis.

                                       3
<PAGE>

         INSideOUTSM  workflow/imaging - incorporates  administrative  tools and
         automated workflow to reduce manual handling and to promote a paperless
         insurance  company  environment.  The  software  automates  the flow of
         information  by  integrating  data,  image  and text  into one  system,
         providing real-time access to customer information.  Customers have the
         ability  to know the  disposition  of  business  at any time due to the
         tracking capabilities within the workflow queue.

         INSideOUTSM  agency interface  (TransFluent(R)) - a unique and powerful
         software  tool that allows  customers to exchange  information  between
         existing  legacy  systems,   migrate  data  to  new   applications  and
         upload/download from legacy systems to agency management systems.

         INSideOUTSM  print output - allows for laser quality printing of policy
         declarations,  forms,  endorsements,   billing  notices,  letters,  and
         cancellation and non-renewal notices.  This PC-based  productivity tool
         gives  users  complete  control  over  sorting,  collating  and  policy
         assembly.

The customer typically pays a one-time software license and implementation  fee,
a time and materials fee for custom  modifications (if any), and an on-going fee
for maintenance and enhancements.

                               Product Development

         The market for INSpire's  services is characterized by rapidly changing
technology, new laws and regulations, and frequent introductions of new products
and enhancements. The Company's future success depends in part on its ability to
respond to these  changes  and needs.  INSpire's  development  efforts  focus on
enhancement of information  processing  systems,  expansion of operating  system
compatibility,  and development of new services for emerging  insurance markets.
INSpire regularly surveys users and incorporates their  recommendations into its
product  development plans. In addition to developing and enhancing  proprietary
technologies,  INSpire may enter into  strategic  alliances  with other firms to
utilize  systems  that  complement  INSpire's  business.  The Company  plans two
releases of its product line each year.

         INSpire's  2001  Product   Development   Plan  reduced   implementation
timeframes,  increased quality, and improved operational efficiency. The Company
issued  three   releases  of  its  INSideOUT   software  in  2001,  as  planned,
incorporating more than 135 enhancements to the system. Version 7.0, released in
March 2001, marked the re-establishment of an integrated base system, along with
increased  system   functionality  and  the  addition  of  the  workflow/imaging
component to the base system. The integrated system serves as the starting point
for all future system development.  Version 7.1, released in May 2001, added the
web-enablement  component to the integrated  solution  offering and also brought
additional  component  functionality.  This release also provided the ability to
run all system  components  on a single  server.  Version 7.2,  released in July
2001,  incorporated  the new brand name,  "INSideOUTSM"  (formerly known as WPC)
within the system and its documentation.

         The 2002 Product Development Plan focuses on enhancing commercial lines
functionality  and  increasing  system  flexibility.  Version  8.0,  released in
February 2002, included 200+ system enhancements.  Commercial  capabilities were
enhanced by automated rating and policy  issuance.  Workflow  capabilities  were
enhanced  by  improved  user  interfaces  and  productivity  enhancements.   The
web-enablement tool now has policy and claims inquiry capabilities for all lines
of  business.  Version 8.1 was  released in the second half of 2002 and includes
further processing, billing, and web-enablement enhancements.

         INSpire  has  made  substantial  investments  in  the  enhancement  and
development of its  outsourcing  services and proprietary  software  utilized to
provide those services.  The Company incurred  research and development costs of
approximately  $1.6  million in 2001,  $3.9  million in 2000 and $6.8 million in
1999.  INSpire  currently has  approximately  25 employees that perform  product
development and quality assurance.

                                       4
<PAGE>

                               Sales and Marketing

         INSpire has a three person sales and  marketing  team  dedicated to new
business and customer  development.  This team conducts strategic marketing to a
base  of  customers  identified  on the  basis  of  detailed  customer  criteria
developed by INSpire's marketing personnel.  INSpire conducts marketing programs
that  include  direct mail,  trade shows,  public  relations,  advertising,  and
ongoing customer  communication  programs.  INSpire also markets its outsourcing
services  through  insurance  brokers,  industry  consultants,  managing general
agents, and reinsurers.

         When an  opportunity  is  identified  and a  request  for  proposal  is
received,  INSpire prepares and submits a comprehensive proposal directly to the
prospective  customer.  The prospective  customer is then invited to tour one of
INSpire's service centers and discuss the customer's requirements in detail. The
Company has an on-site  customer  training  room at its  service  center in Fort
Worth that enables INSpire personnel to work with and train both prospective and
current  customers on INSpire's  services  and  products.  While the sales cycle
varies  from  customer to  customer,  it  typically  ranges from three to twelve
months.

                       Existing Customers & Target Market

         INSpire currently provides outsourcing services to insurance companies,
reinsurers, and managing general agents. INSpire's largest customer is Arrowhead
General Insurance Agency ("Arrowhead"), a managing general agent which accounted
for  approximately  41.5% of the  Company's  total  revenues  for the year ended
December 31, 2001.  Effective  December 1, 1998, INSpire entered into a ten-year
agreement  to  provide  policy  administration   services,  and  INSpire  Claims
Management,  Inc. ("ICM") a wholly owned  subsidiary of INSpire,  entered into a
ten-year agreement to provide claims  administration  services to Arrowhead.  In
May 2002, INSpire and Arrowhead agreed to restructure  certain policy and claims
processing  agreements in a way that better serves both companies'  business and
financial objectives.  Under the terms of the restructured  agreements,  INSpire
will  continue  to  provide  policy  and  claims  administration   services  for
Arrowhead's  personal  property  business through December 2008.  Arrowhead will
assume  responsibility  for  policy  administration  of its  personal  auto  and
commercial  lines  businesses.  (In January 2002,  Arrowhead  Claims  Management
resumed responsibility for its personal auto claims  administration.)  Arrowhead
is purchasing from INSpire an INSideOUT software license to support its personal
auto and  commercial  businesses.  INSpire  will provide  software  applications
consulting  services  to  Arrowhead  through  December  2008.  The  restructured
agreements  are expected to increase  INSpire's  profits by  approximately  $1.2
million per year despite a reduction of INSpire's  revenues by  approximately $4
million per year. The agreements  were signed May 14, 2002 and were  immediately
effective.

         The Millers Group  represented  28% of Inspire's  revenues for the year
ended  December  31, 2001.  The Millers  Group  includes  the Millers  Insurance
Company ("Millers  Insurance",  an indirect  wholly-owned  subsidiary of Millers
American Group, Inc. ("Millers American")), which owned approximately 24% of the
outstanding  common  stock  of  INSpire  as of  December  31,  2001,  and  other
subsidiaries  of Millers  American.  The Millers Group has sold certain books of
business  and has begun  processing  other books of business  in-house,  both of
which will reduce The Millers  Group's  need for policy  administration,  claims
administration and other services  currently provided by INSpire.  Also, INSpire
and Millers  American  renegotiated  provisions  of The Millers  Group's  Master
Services  Agreement  ("MSA") and may renegotiate  additional terms of the MSA in
the future.  At this time,  INSpire  estimates that the decrease in services and
the renegotiated  provisions of the MSA will decrease  revenues from The Millers
Group in 2002 to  approximately  $8.3 million when  compared to 2001 revenues of
$19.3 million

         INSpire  entered  into  a  five-year  information  technology  services
agreement with Tokio Marine Management, Inc. in April 2000. At the center of the
information  technology  agreement is the web enabled  client/server  technology
developed by INSpire.

                                       5
<PAGE>

         On July  7,  2001,  INSpire  received  notification  from  E.W.  Blanch
Insurance  Services that it will be  transferring  the processing of Clarendon's
Florida book of business to another company.  This book of business  represented
approximately  12% of 2001  revenues.  INSpire is currently in  negotiations  to
retain  the  processing  of this  book of  business,  however,  there  can be no
assurance  that the Company will retain the  processing,  or that the terms will
not be materially altered.

         During 2001, The Millers  Group,  Arrowhead and E.W.  Blanch  Insurance
Services accounted for 28%, 42%, and 12% of the Company's revenues. As such, the
Company  has  been  dependent  upon  these  customers  for a  major  part of its
revenues. As noted above, the Company expects that revenues from these customers
will be reduced  substantially  from $56.2  million in the  aggregate in 2001 to
$27.4 million in the aggregate in 2002. The contract with E.W. Blanch expired in
2001. Tower Hill is waiting until we emerge from bankruptcy  before  formalizing
our contract for this business.  Inspire does have a verbal  agreement until the
contract is signed.

         There are 5 other active customers for which INSpire currently performs
outsourcing  functions.  In addition,  INSpire  currently has  approximately  40
software and software services customers.

                         Customer Support and Operations

         INSpire provides both policy and claims administration  outsourcing and
technology  services at its service centers in Fort Worth,  Texas and San Diego,
California. The Company also provides claims administration outsourcing services
at its service centers in Tampa,  Florida,  and Las Vegas,  Nevada.  The Company
maintains a customer service call center for policyholders and agents 24 hours a
day, seven days a week.  INSpire employs  approximately 193 people in its policy
and claims administration service centers.

         INSpire  provides  software  services  and  technology  services at its
service centers in Sheboygan,  Wisconsin, Columbia, South Carolina, and Roswell,
Georgia. INSpire employs approximately 76 people in these service centers.

                              Intellectual Property

         INSpire relies on contract rights and copyright and other  intellectual
property  laws to  protect  its  products  as  trade  secrets  and  confidential
proprietary  information.  The  Company  holds no  patents  on its  intellectual
property.  INSpire's  agreements  with its  current  and  prospective  customers
prohibit  disclosure of INSpire's trade secrets and  proprietary  information to
third parties without the consent of the Company and generally  restrict the use
of INSpire's  products to the  customers'  operations.  INSpire also informs its
employees of the proprietary  nature of its products and typically  obtains from
them  agreements  not to disclose  trade  secrets and  proprietary  information.
Notwithstanding  these restrictions,  INSpire cannot assure that its competitors
could not obtain unauthorized access to INSpire's software source code and other
trade secrets and proprietary  information.  INSpire owns common law trademarks,
copyrights,  and service marks which are used in connection with its business in
all segments. These trademarks are important to its business. Depending upon the
jurisdiction,  the  Company's  trademarks  are  valid as long as they are in use
and/or their  registrations are properly maintained and they have not been found
to have become  generic.  Registrations  of these  trademarks  can  generally be
renewed indefinitely as long as the trademarks are in use.

         INSpire is not engaged in any material disputes with other parties with
respect to the ownership or use of INSpire's proprietary technology. The Company
cannot  assure   however,   that  third  parties  will  not  assert   technology
infringement claims against INSpire in the future. The litigation of such claims
may involve  significant  expense and management time. In addition,  if any such
claim were  successful,  INSpire  could be  required  to pay  monetary  damages,
refrain from distributing or using the alleged infringing  product,  or obtain a
license  from the party  asserting  the claim,  which  could be  unavailable  on
commercially reasonable terms. The absence of federal or state registrations for
its  intellectual  property could be detrimental to INSpire in any  infringement
litigation or other disputes regarding intellectual property.

                                       6
<PAGE>

                   COMPETITION, EMPLOYMENT, AND OTHER FACTORS

                                   Competition

         The  markets for policy and claims  administration,  IT  services,  and
software  are highly  competitive.  The policy  administration  and IT  services
outsourcing  markets are  dominated  by a few large  companies,  including  Mynd
Corporation   ("MYND"),   a  wholly  owned   subsidiary  of  Computer   Sciences
Corporation. Other competitors include HUON Corporation, The Freedom Group, Inc.
and Electronic Data Systems.  INSpire competes for outsourcing  customers on the
basis of customer service, performance,  product features, and price. The claims
administration outsourcing market is highly fragmented,  with competition from a
large  number of claims  administration  companies  of  varying  size as well as
independent  contractors.  Competition  in the claims  administration  market is
principally  price  driven.  Two of the larger  competitors  in this  market are
Cunningham  Lindsey and Crawford & Company,  Inc. Software  competitors  include
Allenbrook,   Casetek,   Applied  Systems,  AITE  and  several  others.  INSpire
recognizes that additional competitors could enter the market and the Company is
vigilant in its efforts to compete against new and existing competitors.

         INSpire believes that its most significant  competition for outsourcing
services comes from policy and claims  administration  and  information  systems
development performed in-house by insurance companies,  reinsurers, and managing
general  agencies.  Insurers that fulfill some or all of their policy and claims
administration  needs in-house  typically have made a significant  investment in
their information processing systems and may be less likely to utilize INSpire's
services.  In addition,  insurance  company  personnel have a vested interest in
maintaining these responsibilities in-house.

         Many of  INSpire's  competitors  have longer  operating  histories  and
significantly greater financial,  technical, marketing, and other resources than
INSpire,  including name recognition with current and potential customers.  As a
result,  these  competitors  may  devote  more  resources  to  the  development,
promotion,  and sale of their services or products than INSpire and respond more
quickly to  emerging  technologies  and  changes in  customer  requirements.  In
addition,   current  and  potential   competitors   may  establish   cooperative
relationships  among themselves or with third parties to increase the ability of
their  services  and  products  to  address  customer  needs.  Accordingly,  new
competitors  or  alliances  among  competitors  may emerge and  rapidly  acquire
significant  market  share.  INSpire  cannot be assured  that it will be able to
compete successfully against current and future competitors, or that competitive
pressure  faced by  INSpire  will  not have a  material  adverse  effect  on its
business, financial condition, cash flows, or results of operations.

                                    Employees

         As of August 31, 2002,  INSpire had 322 full time employees,  of whom 3
were employed in sales and marketing  functions,  13 in management  and finance,
186 in claims and policy services, 109 in technology,  and 11 in human resources
and  facilities.  The Company's  employees are not represented by any collective
bargaining  organization  and none of its  employees are covered by a collective
bargaining agreement.

                               Recent Developments

         On November 11, 2001, the Company's Board of Directors  elected Richard
Marxen to serve as President and Chief Executive Officer of the Company.

         On February 15,  2002,  NASDAQ  suspended  trading  pending  receipt of
additional  information  from INSpire about the Company's  reorganization  plan.
Effective  March 8, 2002,  the Company  voluntarily  delisted its stock from the
NASDAQ National Market.

         On February 15, 2002,  the Company and its subsidiary  filed  petitions
for relief under Chapter 11 of the U.S.  Bankruptcy  Code with the United States
Bankruptcy Court for the Northern  District of Texas (Case Nos.  02-41228-DML-11

                                       7
<PAGE>

and  02-41231-DML-11).  Under Chapter 11,  certain claims against the Company in
existence  prior to the filing of the  petitions for relief are stayed while the
Company continues business operations as debtor-in-possession. Additional claims
(liabilities  subject to  compromise)  may arise  subsequent  to the filing date
resulting from rejection of executory contracts,  including leases, and from the
determination  by the court (or  agreed to by parties  in  interest)  of allowed
claims for contingencies and other disputed amounts.  Claims secured against the
debtor's assets ("secured claims") also are stayed, although the holders of such
claims  have the right to move the court for relief  from the stay.  The Company
received approval from the Bankruptcy Court to pay or otherwise honor certain of
its prepetition  obligations,  including employee wages and benefits.  On August
26, 2002 the Company filed the Plan of Reorganization and Disclosure  Statement.
See "Item 1 Business Reorganization."

         On April 30, 2002, INSpire terminated its IT outsourcing  contract with
Lockheed  Martin.  Lockheed  Martin had been providing data center,  networking,
server  support,  desktop  support and help desk  services to INSpire  under the
terms  of  a  ten-year   contract   entered  into  in  2001.  On  May  1,  2002,
responsibility for running all IT functions transitioned from Lockheed Martin to
INSpire.  While Lockheed  brings real value to large,  complex IT  environments,
INSpire has greatly  simplified its systems  environment by  consolidating  data
centers,  servers and other IT services. As a result, INSpire is able to provide
IT services  directly at a lower cost than  working  through  Lockheed.  In June
2002, the Company received Court approval for a settlement on the IT outsourcing
contract with Lockheed  Martin.  The settlement  amount of $1.5 million included
payment of $833,757 for all  prepetition  liabilities  due  Lockheed  Martin and
$729,243 for damages from the contract's cancellation.

         During May 2002,  INSpire  received  approval from the U.S.  Bankruptcy
Court to  restructure  certain  policy and  claims  processing  agreements  with
Arrowhead. Under the terms of the restructured agreements, INSpire will continue
to provide policy and claims  administration  services for Arrowhead's  personal
property  business through December 2008.  Arrowhead will assume  responsibility
for policy  administration of its personal auto and commercial lines businesses.
(In January 2002,  Arrowhead Claims Management  resumed  responsibility  for its
personal auto claims  administration.)  Arrowhead is purchasing  from INSpire an
INSideOUT   software  license  to  support  its  personal  auto  and  commercial
businesses.  INSpire will provide software  applications  consulting services to
Arrowhead  through  December 2008.  The agreements  were signed May 14, 2002 and
were immediately effective.

         The Company was  notified by  Clarendon in August 2002 that it will not
renew  approximately  13,500  policies  with renewal dates from November 1, 2002
through January 31, 2003. The Company estimates that this will decrease revenues
over the next twelve months by approximately $600,000.

         The  Company  announced  on August 15,  2002,  that Tom Slone,  John F.
Pergande,  Gregory  B. Kent and  Daniel E.  Berce  resigned  as  members  of the
Company's  board of directors.  Mr.  Pergande also served as the chairman of the
board of directors.  Mr. Slone's resignation was effective June 6, 2002. Messrs.
Pergande and Kents'  resignations were effective August 13, 2002 and Mr. Berce's
resignation was effective August 14, 2002. None of the resigning directors cited
disagreements with the Company relating to the Company's operations, policies or
practices as a reason for their departure.

                             Government Regulations

         The P&C insurance industry is subject to extensive  regulation by state
governments.  Certain  aspects  of  INSpire's  business  are  affected  by  such
regulations,  requiring  the  Company to  periodically  update its  software  to
reflect  changes  in  regulations.  In  addition,  changes in  regulations  that
adversely  affect  INSpire's  existing  and  potential  customers  could  have a
material adverse effect on the Company's  business,  financial  condition,  cash
flows, and results of operations.  Although  INSpire's services and the products
are not directly  subject to insurance  regulations  in the states where INSpire
currently  provides them, the Company's  outsourcing  services may be subject to
insurance  regulations  in states  where  INSpire may do business in the future.
Such regulations could require INSpire to obtain a license as a managing general
agent or third  party  administrator.  INSpire  cannot give any  assurance  with
respect  to the  extent to which it may  become  subject  to  regulation  in the
future,  the ability of the Company to comply with any such  regulation,  or the
cost of compliance.

                                       8
<PAGE>

    Special Note Regarding Forward-Looking Statements and Other Risk Factors

         This Form 10-K contains certain  forward-looking  statements within the
meaning  of  Section  27A of  the  Securities  Act  of  1933,  as  amended  (the
"Securities  Act"),  and Section 21E of the Securities  Exchange Act of 1934, as
amended.  When  used in this  Report,  words  such as  "anticipate,"  "believe,"
"estimate,"  "expect,"  "intend"  and  similar  expressions,  as they  relate to
INSpire  or  its  management,   identify   forward-looking   statements.   These
forward-looking  statements  are based on  information  currently  available  to
INSpire's  management.   Actual  results  could  differ  materially  from  those
contemplated by the  forward-looking  statements as a result of certain factors,
including  but not limited to  difficulties  associated  with the conduct of its
business as a debtor-in-possession,  INSpire's dependence on major customers and
limited operating history, technological change, competitive factors and pricing
pressures,   product   development  risks,   changes  in  legal  and  regulatory
requirements,  general economic conditions, and other factors described in "Item
7--Management's  Discussion  and Analysis of Financial  Condition and Results of
Operations." Such statements  reflect the current views of INSpire's  management
with  respect  to future  events  and are  subject  to these  and  other  risks,
uncertainties,   and  assumptions   relating  to  the  operations,   results  of
operations,  growth strategy,  and liquidity of INSpire.  All subsequent written
and oral forward-looking statements attributable to INSpire or persons acting on
its behalf are expressly qualified in their entirety by this paragraph.

         The risks  included  above are not  exhaustive.  Other sections of this
report  may  include   additional   factors  that  could  adversely  impact  the
Registrant's  business and financial  performance.  Moreover,  the Registrant is
currently a  debtor-in-possession  under the  Chapter 11 of the U.S.  Bankruptcy
Code,  which limits many aspects of its business and entails  supervision by the
Bankruptcy Court, which constrains  aspects of its business  activity.  Further,
the Registrant operates in a very competitive and rapidly changing  environment.
The Company's ability to compete is adversely affected by its bankruptcy filing.
New risk factors emerge from time to time, and it is not possible for management
to  predict  all such risk  factors,  nor can it assess the impact of known risk
factors  on the  Registrant's  business  or the  extent to which  any  factor or
combination of factors may cause actual results to differ  materially from those
contained  in  any  forward-looking  statement.  The  Registrant  undertakes  no
obligation  to revise or  publicly  release  the  results  of any  revisions  to
forward-looking  statements  or to identify any new risk factors that may arise.
Given these risks and  uncertainties,  investors should not place undue reliance
on forward-looking statements as a prediction of actual future results.

         Investors  should also be aware that while the  Registrant  does,  from
time  to  time,   communicate  with  securities  analysts,  it  is  against  the
Registrant's policy to disclose to them any material,  non-public information or
other confidential  commercial  information.  Accordingly,  investors should not
assume that the  Registrant  agrees with any  statement or report  issued by any
analyst irrespective of the content of the statement or report. Furthermore, the
Registrant has a policy  against  issuing or confirming  financial  forecasts or
projections  issued by others.  Thus,  to the extent that the reports  issued by
securities  analysts  contain any  projections,  forecasts,  or  opinions,  such
reports are not the responsibility of the Registrant.

                              Available Information

         INSpire files annual,  quarterly and special reports,  proxy statements
and other  information with the Securities and Exchange  Commission (the "SEC").
You may read and copy any document  INSpire files at the SEC's Public  Reference
Room at 450 Fifth Street, N.W.,  Washington,  D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further  information on the public reference room.  INSpire's
SEC  filings  are  also  available  to the  public  at  INSpire's  web  site  at
http://www.nspr.com or at the SEC's web site at http://www.sec.gov. You may also
obtain copies of INSpire's  filings with the Bankruptcy Court from INSpire's web
site.

                                       9
<PAGE>

ITEM 2.  PROPERTIES.

         The following table sets forth certain  information with respect to the
principal facilities used in INSpire's operations as of June 30, 2002:
<TABLE>
<CAPTION>

                                                                  Current        Approximate
                                                                  Monthly          Square               Lease
          Location                       Function                  Rent            Footage         Expiration Date
--------------------------    -----------------------------  --------------  -----------------  ------------------
<S>                           <C>                            <C>                    <C>         <C>
Fort Worth, Texas.........    Corporate headquarters and     $   82,500             55,000      March 2004
                              outsourcing services
San Diego, California.....    Outsourcing services               98,453             93,000      April 2007
Columbia, South Carolina..    Product development,               12,337             12,493      August 2004
                              software services, and
                              technical support
Sheboygan, Wisconsin......    Product development,                8,112              7,488      October 2005
                              software services, and
                              technical support
Tampa, Florida............    Claims center                      14,225              8,863      January  2006
Roswell, Georgia..........    Product development,                  541                325      September 2003
                              software services, and
                              technical support

</TABLE>

         The aggregate monthly rental expense for the properties listed above is
$216,524.  INSpire also leases  satellite  facilities with an aggregate  monthly
lease rate of $600.

         INSpire  sublets  part  of the  property  in  San  Diego  to  Arrowhead
Insurance  Group for $85,000 a month.  INSpire also  subleases  part of the same
property to Plus Orthopedics for $19,107 a month.

         INSpire believes that its existing  facilities are adequate to meet its
requirements for the foreseeable future.

ITEM 3.  LEGAL PROCEEDINGS.

         In December 1997, the Company  entered into a contract with Sul America
Cia Nacional de Seguros ("Sul  America") to provide a license for WPC (now known
as  INSideoutSM)  and other  software  products,  and software  services for the
implementation of such products. In conjunction with this contract,  the Company
was required to arrange a surety to provide Sul America with a performance  bond
in the amount of $3.7 million,  the proceeds of which could be used in the event
that INSpire did not fulfill its  obligations  under the contract.  The contract
was  segregated  into  three  phases  of  deliverables,  two of which  have been
accepted and paid for in the amount of $2.5  million by Sul  America.  In August
1999, Sul America terminated its contract with the Company, and demanded payment
under the performance  bond. Under its agreement to indemnify the surety against
losses under the performance  bond, the Company arranged an irrevocable  standby
letter of credit in October  1999 with Bank of  America,  N.A.  in the amount of
$3.7 million. The Letter of Credit expired on September 1, 2000. On December 21,
1999,  INSpire filed a lawsuit in the 8th Civil Court of Rio de Janeiro (INSpire
Insurance  Solutions,  Inc. vs. Sul America Seguros S.A. and INA Seguradora S.A.
(99.001.175.210-6))  requesting a preliminary  injunction,  which was granted in
January 2000,  to restrict Sul America from drawing down on a performance  bond.
The Company  has also  asserted a  counterclaim  for the  nonpayment  of various
amounts by Sul  America.  Sul  America  filed a motion for relief  from the stay
which was heard by the Bankruptcy Court on October 2, 2002. The Bankruptcy court
denied the motion  without  prejudice to its being  reasserted  after January 1,
2003. In the meantime the parties are directed to mediation, which is to include
ACE Seguradora, S.A., the bonding company.

         On December 3, 1999, a  shareholder  class action  lawsuit was filed in
the United States District Court for the Northern District of Texas on behalf of
all purchasers of the Company's  common stock during the period between  January
28,  1998 and  October  14, 1999  (Southland  Securities  Corporation  et al. v.
INSpire Insurance Solutions, Inc. et. al. (7-99CV-243-R)).  The named defendants

                                       10
<PAGE>

include the Company,  certain officers and directors of the Company, and Millers
Insurance.  The complaint  alleged  violations under Sections 10(b) and 20(a) of
the  Securities  Exchange Act of 1934 and Rule 10b-5  promulgated  thereunder by
making false and misleading  statements  and failing to disclose  material facts
necessary in order to make the  statements  made, in light of the  circumstances
under  which they were made,  not  misleading.  The  plaintiff  sought  monetary
damages and interest. Two additional  shareholder class action lawsuits,  nearly
identical  to the one  described  above,  were filed  against the Company in the
United States District Court for the Northern District of Texas:  Larry Altobell
and  Lawrence J. Miller et. al. v.  INSpire  Insurance  Solutions,  Inc. et. al.
(7-99CV-248-R) filed on December 16, 1999, and Stacy B. and Rhonda K. Lofton et.
al. v. INSpire Insurance Solutions, Inc. et. al. (7-00CV-001-R) filed on January
3, 2000. The lawsuits were filed in the Wichita Falls  Division.  They have been
consolidated,   lead  plaintiffs  and  counsel  have  been  appointed,  and  the
consolidation  action  has been  transferred  to the Fort  Worth  Division.  The
Company, together with the other defendants, filed a motion to dismiss. In March
2001, the Court granted the Company's motion to dismiss.  As a result,  an order
was entered  dismissing  the case without  prejudice  and giving the  Plaintiffs
leave to amend their lawsuit.  In June 2001, this suit was refiled.  This matter
was  dismissed  with  prejudice and without the right to re-plead in April 2002.
The  Plaintiffs  have  appealed the matter to the United States Court of Appeals
for the Fifth Circuit.

         On March 2, 2000,  the Company filed an  arbitration  claim against The
Doctor's Company with the American Arbitration Association to collect $1,546,095
as the  amount  due to the  Company  under a License  Agreement,  Implementation
Support  Agreement,  and Accelerated  Enhancement  Plan Agreement.  On March 21,
2000, The Doctor's Company  submitted a claim for breach of contract against the
Company with the  American  Arbitration  Association  and filed suit against the
Company in the Superior  Court of the State of California to compel  arbitration
in  California.  On August 30,  2000,  the Court  denied the  petition to compel
arbitration in California.  The Doctor's Company  arbitration claim alleged that
as a result of the Company's  failure to meet  obligations  under its agreements
The Doctor's  Company was entitled to the return of $912,507  previously paid to
the Company plus direct costs and  consequential  damages.  In August 2000,  the
American Arbitration  Association  consolidated the arbitration proceeding filed
by The  Doctor's  Company  with  the  arbitration  proceeding  commenced  by the
Company.  This case was settled  November 22, 2001 after paying  $400,000 to The
Doctor's Company.

         On June 13,  2000,  a lawsuit  was filed in the  Superior  Court of the
State of  California  for the  County of San Diego by Western  Family  Insurance
Company,  Inc. ("Western  Family") (Western Family Insurance  Company,  Inc. vs.
Arrowhead General Insurance Agency, Inc., et. al.  (GIC749525)).  Western Family
was  seeking  approximately  $4.0  million  in  damages  for  alleged  breach of
contract,  negligence,  breach of fiduciary duty, and express indemnity,  plus a
claim for  unspecified  punitive  damages.  The allegations of this lawsuit were
based on an agency agreement by and between  Arrowhead General Insurance Agency,
Inc,  ("Arrowhead") and Western Family and a claims management  agreement by and
between Arrow Claims  Management,  Inc. (a subsidiary of Arrowhead)  and Western
Family,  each entered  into in September  1996.  The Company  purchased  certain
assets of Arrowhead and the stock of Arrow Claims  Management,  Inc. in December
1998. This case was dismissed on June 5, 2001.

         On August 22, 2000, a cross  complaint was filed in the Superior  Court
of the State of California for the County of Los Angeles by Clarendon (Clarendon
National  Insurance  Company  v. Nora  Sauceda,  Louis  Sauceda,  David  Garcia,
Arrowhead Claims Management,  Inc., et. al.  (BC199918)).  Clarendon was seeking
reimbursement  against  Arrowhead  Claims  Management,   Inc  ("Arrow")  for  an
arbitration  award in the  amount  of $14.5  million  that  was  awarded  to the
plaintiffs  against  Clarendon  in a  lawsuit  that  alleged  liability  against
Clarendon for bad faith in denying a claim and which was allegedly mishandled by
Arrow prior to the  acquisition of Arrow by the Company on December 1, 1998. The
claims were based on an agency agreement between Arrowhead General Agency,  Inc.
and Clarendon and a claims management agreement between Arrow (then a subsidiary
of Arrowhead General Agency, Inc.) and Clarendon. In January 2002, this case was
settled and the Company was formally dismissed.

         On February 6, 2001,  the Company filed suit against  Motors  Insurance
Company  ("MIC") and General Motors  Acceptance  Corporation  ("GMAC")  alleging
breach  of  contract  under  three  separate   agreements  claiming  damages  of
$3,036,925,  $405,000,  and $373,000,  respectively.  On April 11, 2001, MIC and
GMAC filed an answer and counterclaim against the Company alleging they received

                                       11
<PAGE>

no working software and were seeking amounts paid to the Company  (approximately
$9.4 million),  treble damages and court costs. During September 2001, this case
was settled and the Company received $1 million in settlement of its claim.

         On May 14, 2001,  Benchmark General Agency  ("Benchmark") filed suit in
the 101st Judicial  District Court of Dallas County,  Texas seeking  damages for
breach of  contract.  The suit  alleges  that  INSpire  failed  to  successfully
implement a system  conversion and as a result  Benchmark  suffered  damages for
costs incurred and loss of business.  The Company  asserted  claims for past-due
monies owed to the Company for the sale of the system implementation.  This case
was dismissed without prejudice on September 20, 2002.

         On July 17, 2001, a class  action  lawsuit  brought on behalf of claims
adjusters allegedly employed by the Company was filed against the Company in the
Superior  Court of  California,  County of San  Diego.  The  plaintiffs  seek to
recover  overtime  compensation  allegedly  earned  but not paid by the  Company
during their  employment  or upon their  departure,  as well as civil  statutory
penalties.  At  this  time  the  Company  cannot  predict  the  outcome  of this
litigation  although  the Company  intends to  vigorously  defend  against  this
action.

         On January 18, 2002  Shelia and Jamie  Codova  filed suit in the Second
Judicial  District Court,  County of Bernalillo,  New Mexico against INSpire and
other  parties  for  emotional  distress as a result of their  automobile  claim
allegedly not being  handled  properly.  (The client  involved with this suit is
Phoenix  Indemnity,  the  insurer.)  The  dispute  arose  over the  value of the
plaintiff's automobile and whether it was a total loss. The plaintiff is seeking
$50,000 plus punitive damages and costs. At this time the Company cannot predict
the outcome of this  litigation  and is seeking to be dismissed from this action
or make a nominal settlement.

         On February 15, 2002,  the Company and its subsidiary  filed  petitions
for relief under Chapter 11 of the U.S.  Bankruptcy  Code with the United States
Bankruptcy Court for the Northern  District of Texas (Case Nos.  02-41228-DML-11
and  02-41231-DML-11).  Under Chapter 11,  certain claims against the Company in
existence  prior to the filing of the  petitions for relief are stayed while the
Company continues business operations as debtor-in-possession. Additional claims
(liabilities  subject to  compromise)  may arise  subsequent  to the filing date
resulting from rejection of executory contracts,  including leases, and from the
determination  by the court (or  agreed to by parties  in  interest)  of allowed
claims for contingencies and other disputed amounts.  Claims secured against the
debtor's assets ("secured claims") also are stayed, although the holders of such
claims  have the right to move the court for relief  from the stay.  The Company
received approval from the Bankruptcy Court to pay or otherwise honor certain of
its prepetition  obligations,  including employee wages and benefits.  On August
26, 2002 the Company filed the Plan of Reorganization and Disclosure  Statement.
See "Item 1 - Business - Reorganization"

         From time to time the  Company is involved  in other  lawsuits  that it
considers to be in the ordinary course of business.  The Company is not aware of
any other legal proceedings that it expects would have a material adverse effect
on the  Company's  business,  financial  condition,  cash  flows,  or results of
operations.

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

         During the fourth quarter of 2001, the Company  submitted no matters to
shareholders for votes.

                                       12
<PAGE>


                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER  MATTERS.

                           Price Range of Common Stock

         The Common  Stock was  traded  throughout  2001 on the Nasdaq  National
Market under the trading  symbol NSPR.  The following  table sets forth the high
and low closing sales prices as reported by the Nasdaq  National  Market for the
common stock for the periods indicated.

           2000                                           High            Low

           First Quarter.............................  $  4.63       $   2.63
           Second Quarter............................  $  3.88       $   2.09
           Third Quarter.............................  $  2.88       $   1.13
           Fourth Quarter............................  $  1.31       $   0.16

           2001

           First Quarter.............................  $  1.50       $   0.22
           Second Quarter............................  $  1.00       $   0.46
           Third Quarter.............................  $  0.80       $   0.35
           Fourth Quarter............................  $  0.60       $   0.27

         On February 15,  2002,  NASDAQ  suspended  trading  pending  receipt of
additional information about the Company's  reorganization plan. Effective March
8, 2002, the Company  voluntarily  delisted its stock from trading on the Nasdaq
National Market System.

         As of August 31, 2002, there were  approximately 291 record holders and
approximately 2,300 beneficial holders of the common stock.

                                 Dividend Policy

         INSpire  has never  declared or paid any cash  dividends  on the common
stock.  INSpire does not anticipate paying any cash dividends in the foreseeable
future.

ITEM 6.               SELECTED FINANCIAL DATA

         The selected  financial data of INSpire  presented below as of December
31, 2001, 2000, 1999, 1998, and 1997, and for the years ended December 31, 2001,
2000,  1999,  1998,  and 1997  have  been  derived  from the  audited  financial
statements of INSpire. The selected financial data should be read in conjunction
with "Item  7--Management's  Discussion and Analysis of Financial  Condition and
Results of  Operations"  and  INSpire's  Financial  Statements.  The  results of
operations  presented  below are not  necessarily  indicative  of the results of
operations that may be achieved in the future.

                                       13
<PAGE>
<TABLE>
<CAPTION>


                                                                      Year Ended December 31,
                                            ----------------------------------------------------------------------------
                                                2001          2000 (1)        1999(2)        1998(3)         1997(4)
                                            --------------  -------------  -------------- --------------  --------------
                                                                 (in thousands, except share data)
<S>                                             <C>            <C>             <C>            <C>             <C>

Statement of Operations Data:
Revenues:
     Outsourcing services                       $  62,908      $ 114,340       $ 111,700      $  50,901       $  32,458
     Software and software services                 5,054
                                                                  11,087          26,940         33,988          21,101
     Other                                            903          1,173           1,918          2,290           3,010
                                            --------------  -------------  -------------- --------------  --------------
     Total revenues
                                                   68,865        126,600         140,558         87,179          56,569
                                            --------------  -------------  -------------- --------------  --------------

Expenses:
     Cost of outsourcing services
                                                   65,009        100,718          81,458         26,303          20,798
     Cost of  software  and  software
     services                                       2,678          5,401          19,184         19,120          10,681

     Cost of other revenues                           253            401           1,154          1,606           2,413

     Selling, general and administrative           11,368          9,957          18,308         14,581           8,643

     Research and development, net                  1,570          2,139           5,195          2,983           1,190

     Depreciation and amortization                  6,340          8,345           9,186          6,210           4,001

     Purchased research and development                --             --              --            500           3,000
     Deferred compensation                             --             --              --             --           3,949
     Provision for severance costs                    644          1,905           1,721             --              --

     Provision for bad debts                          598          2,293          10,991            275              71

     Litigation                                     1,528          1,023           1,229             --              --

     Intangible assets impairment                  31,545         31,647          16,757             --              --

     Management fees to shareholder                    --             --              --             --           1,290
     Gain on sale of subsidiary                        --             --              --             --          (1,634)
     Other                                             --             --             804             --              --
                                            --------------  -------------  -------------- --------------  --------------
     Total expenses                               121,533        163,830         165,987         71,578          54,402
                                            --------------  -------------  -------------- --------------  --------------
Operating income (loss)                          (52,669)       (37,230)        (25,429)         15,601           2,167
Other income                                          399            522           1,396          2,675             350
                                            --------------  -------------  -------------- --------------  --------------
Income (loss) before income tax and
    cumulative effect of accounting
    change                                       (52,270)       (36,708)        (24,033)         18,276           2,517
Income tax benefit (expense)                     (15,844)         11,374           4,343        (6,706)           (801)
                                            --------------  -------------  -------------- --------------  --------------
Net income (loss) before cumulative
    effect of accounting change                  (68,113)       (25,334)        (19,690)         11,570           1,716
Cumulative effect of change in
    accounting for outsourcing
    services, net of $2,184 income tax
    benefit                                            --        (4,862)              --             --              --
                                            --------------- -------------- -------------- --------------  --------------
Net income (loss)                               $ (68,113)     $ (30,196)     $ (19,690)      $  11,570       $   1,716
                                            ==============  =============  ============== ==============  ==============

Net income (loss) per share (basic)
      before cumulative effect of
      accounting change                        $   (3.61)      $  (1.33)      $   (1.04)       $   0.65        $   0.14
                                            --------------  -------------  -------------- --------------  --------------

                                       14
<PAGE>

Cumulative effect of change in
      accounting for outsourcing
      services, net of income tax
      benefit                                          --         (0.25)              --             --              --
                                            --------------  -------------  -------------- --------------  --------------
Net income (loss) per share (basic)          $      (3.61)   $    (1.58)      $    (1.04)      $   0.65   $        0.14
                                            ==============  =============  ============== ==============  ==============
Net income (loss) per share (diluted)
       before cumulative effect of
       accounting change                     $      (3.61)   $    (1.33)      $    (1.04)      $   0.58   $         0.13
Cumulative effect of change in
       in accounting for outsourcing
       services, net of income tax benefit             --         (0.25)              --              --             --
                                            --------------  -------------  -------------- --------------  --------------

Net income (loss) per share (diluted)        $     (3.61)    $    (1.58)      $   (1.04)       $   0.58   $        0.13
                                            ==============  =============  ============== ==============  ==============

Weighted average shares (basic)                18,884,957     19,111,658      18,930,371     17,854,390      12,206,055

Weighted average shares (diluted)              18,884,957     19,111,658      18,930,371     19,838,583      13,173,746

Balance Sheet Data:
Cash and cash equivalents                       $   5,778    $    13,486       $  17,674      $  48,094       $  28,039

Working capital                                     (968)         23,537          36,407         68,387          30,375

Total assets                                       22,680         97,892         132,028        132,808          67,897

Current portion of long-term debt                      --             --              --            383             610
Long-term debt, excluding current
     portion                                           --             --              --             --             373
Shareholders' equity                                7,681         75,482         104,471        120,345          48,766

<FN>

(1)  Includes $41.7 million in charges primarily  relating to the termination of
     the Island Agreement and the Robert Plan contract.  These charges included:
     (i) bad debt  expense  of $2.3  million,  (ii)  litigation  expense of $1.0
     million,  (iii)  severance  costs of $1.9  million,  (iv) $31.6  million in
     intangible  assets  impairment   charges  and  (v)  $4.9  million  for  the
     cumulative  effect  of  accounting  change.  Excluding  the  effect of such
     charges,  and the tax effects thereof,  operating expenses,  operating loss
     and net income  would have been  $127.0  million,  $400,000  and  $110,000,
     respectively,  and net income per share (basic and diluted) would have been
     $0.01.

(2)  Includes  $31.5  million in charges  primarily  relating  to the  Company's
     assessment of the  recoverability  of assets  associated  with its software
     business,  including $11.0 million to increase the allowance for bad debts,
     $1.2 million of litigation  expenses,  $16.8 million for the  impairment of
     intangible  assets,  $1.7  million for  severance  costs and  approximately
     $800,000 of other  charges.  Excluding the effect of such charges,  and the
     tax effects thereof,  operating  expenses,  operating income and net income
     would  have  been  $134.5   million,   $6.1   million  and  $4.0   million,
     respectively,  and net income per share  (basic)  would have been $0.21 and
     net income per share (diluted) would have been $0.20.

(3)  Includes $500,000 of purchased  research and development  expenses relating
     to the acquisition of Paragon Interface,  Inc. on April 20, 1998. Excluding
     the effect of this charge,  operating  expenses,  operating  income and net
     income  would have been $71.1  million,  $16.1  million and $12.1  million,
     respectively,  and net income per share  (basic)  would have been $0.68 and
     net income per share (diluted) would have been $0.61.

(4)  Includes  $3.0  million of  purchased  research  and  development  expenses
     relating to the  acquisition of Strategic  Data Systems,  Inc. on March 17,
     1997, $3.9 million of deferred  compensation  expense relating to the grant
     of stock  options to  executive  officers  and $1.6 million gain on sale of
     Applied Quoting  Systems,  Inc., a wholly-owned  subsidiary of INSpire that
     was sold by INSpire on  September  15, 1997.  Excluding  the effect of such
     items, operating expenses,  operating income and net income would have been
     $49.1 million, $7.5 million and $5.1 million,  respectively, and net income
     per share (basic) would have been $0.42 and net income per share  (diluted)
     would have been $0.39

</FN>
</TABLE>

                                       15
<PAGE>

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

                                    Overview

         INSpire's   revenues   historically   are  derived   principally   from
outsourcing   services  and  software  and  software  services.   Revenues  from
outsourcing  services are derived from policy  administration  services,  claims
administration  services,  and IT services.  Revenues from software and software
services  are  derived  from  contracts  that grant  customers  a license to use
INSpire's  software  products  and  contracts  that  provide  for  installation,
customization, enhancement, conversion, and maintenance services. Other revenues
principally represent hardware sold in connection with software installations.

         Revenues  from  outsourcing  services  are  recognized  as services are
rendered. INSpire is typically paid a percentage of premiums written or premiums
collected for policy administration services, a percentage of premiums earned or
claims incurred for claims administration services, and a percentage of premiums
written subject to a minimum fee for IT services. Outsourcing services contracts
generally are for terms of two to ten years.  Due to the ongoing nature of these
outsourcing  services  and the  length  of the terms of the  service  contracts,
outsourcing  services  generate  recurring  revenues.  Initial  installations of
software systems generally include a one-time license fee and a contract for the
installation   and   customization   of  the  system  to  meet  the   customer's
specifications,  which INSpire bills at an hourly rate.  Amounts charged for the
initial license and the installation and customization of systems are recognized
as revenue  during the  installation  period in proportion to the hours expended
for  installation  compared to the total hours  projected for  installation.  In
other  instances,  revenues  are  recognized  based  on  performance  milestones
specified  in the  contract.  INSpire  recognizes  the  annual fee  charged  for
maintenance  of the  customer's  system over the  maintenance  contract  period.
Revenues from computer hardware and equipment sales, included in other revenues,
are recognized when INSpire  receives  notification  that the equipment has been
shipped by the  manufacturer  and title has passed to the  customer.  Changes in
estimates  of  percentage  of  completion  or losses,  if any,  associated  with
outsourcing or software  services are recognized in the period in which they are
determined.  Unearned  revenues  consist of billings to  customers in advance of
revenues recognized on such services.  Unbilled  receivables consist of revenues
recognized in advance of billings due to timing  differences  related to billing
schedules specified in contracts.

         INSpire incurs research and development  costs that relate primarily to
the development of new services and products and major  enhancements to existing
services and products. Research and development costs are comprised primarily of
salaries.  INSpire  expenses  or  capitalizes,  as  appropriate,  these costs in
accordance  with Statement of Financial  Accounting  Standards  ("SFAS") No. 86,
"Accounting for the Costs of Computer Software to be Sold,  Leased, or Otherwise
Marketed." All costs incurred  prior to the time  management  believes a project
has reached "technological  feasibility" are expensed. Software production costs
incurred subsequent to reaching  technological  feasibility are capitalized,  if
material, and reported at the lower of unamortized cost or net realizable value.
Capitalized  costs are amortized  over the expected  service life of the related
software,  generally three to seven years,  using the straight-line  method. The
cost and related  accumulated  amortization  of projects are written off as they
become fully amortized.

         INSpire  also  capitalizes  certain  incremental  fees and direct costs
associated with long-term  outsourcing  service  agreements,  including contract
acquisition and system  implementation costs. These deferred costs are amortized
over the  related  contract  period of up to ten years  using the  straight-line
method.

         The Company  periodically  assesses the  recoverability  of capitalized
software production costs and deferred contract costs by determining whether the
carrying amount of those long lived assets can be recovered through undiscounted
future operating cash flows and, if warranted, an impairment is recognized.  The
impairment,  if any, is measured  by the  difference  between net book value and
estimated  discounted future cash flows, and is charged to expense in the period
identified.

                                       16
<PAGE>

                     Summary of Critical Accounting Policies

         Revenue Recognition - Revenues from outsourcing services are recognized
as services are  rendered.  INSpire is typically  paid a percentage  of premiums
written for policy  administration  services, a percentage of premiums earned or
claims incurred for claims administration  services and a percentage of premiums
written,  subject  to a  minimum  fee,  for IT  services.  Outsourcing  services
contracts generally are for terms of two to ten years. Due to the ongoing nature
of these  outsourcing  services  and the  length  of the  terms  of the  service
contracts,   outsourcing   services   generate   recurring   revenues.   Initial
installations of software systems generally include a one-time license fee and a
contract  for the  installation  and  customization  of the  system  to meet the
customer's  specifications,  which  INSpire  bills at an  hourly  rate.  Amounts
charged  for the initial  license  and the  installation  and  customization  of
systems are recognized as revenue during the  installation  period in proportion
to the hours expended for installation compared to the total hours projected for
installation.  In other instances,  revenues are recognized based on performance
milestones specified in the contract.  INSpire recognizes the annual fee charged
for maintenance of the customer's  system over the maintenance  contract period.
Revenues from computer hardware and equipment sales, included in other revenues,
are recognized when INSpire  receives  notification  that the equipment has been
shipped by the  manufacturer  and title has passed to the  customer.  Changes in
estimates  of  percentage  of  completion  or losses  associated  with  software
services  are  recognized  in the  period in which they are  determined.  Losses
associated with outsourcing  services are recognized in the period in which they
are determined. Unearned revenues consist of billings to customers in advance of
revenues recognized on such services.  Unbilled  receivables consist of revenues
recognized in advance of billings due to timing  differences  related to billing
schedules specified in contracts.

         Intangibles  and Other Assets - Costs in excess of net assets  acquired
are  amortized  over  periods  ranging  from  five to  twenty  years  using  the
straight-line method. Acquired software and other intangibles are amortized over
a period of three to ten years using the straight-line method. Deferred contract
costs are comprised of the  incremental  fees and direct costs  associated  with
long-term  outsourcing  service  agreements  and are amortized  over the related
contract period of up to ten years using the straight-line  method.  The Company
periodically  evaluates the carrying  value of long lived assets to determine if
impairment  exists  based upon  estimated  undiscounted  future cash flows.  The
impairment,  if any, is measured  by the  difference  between net book value and
estimated  discounted future cash flows, and is charged to expense in the period
identified.

                         Liquidity and Capital Resources

         Cash and cash  equivalents and investments  decreased $7.7 million from
December 31, 2000 to December 31, 2001.  This decrease was primarily due to $3.9
million in cash used to fund operations and $2.1 million  property and equipment
purchases, as well as $1.4 million in cash used to fund contract costs.

         The Company  incurred  negative net cash flows from declining  contract
revenues without a proportional decrease in expenses. The Company may experience
material  declines  in  future  revenues  due to  the  expected  decline  in the
Company's outsourcing business with Millers American and the Arrowhead Group. As
of August 1, 2002, the Company has  approximately  eight months of cash and cash
equivalents and investments on hand. This assumes no expense savings, new sales,
or accounts receivable  collection.  The Company's liquidity  difficulties could
increase with the loss of any additional clients. There can be no assurance that
the Company can successfully manage its current liquidity requirements.

         Since   February  15,  2002,   the  Company  as  been  operating  as  a
debtor-in-possession,  subject to Chapter 11 of the U.S.  bankruptcy  Code. As a
result,   the  Company's   business   activities  have  been  disrupted  by  the
distractions  resulting  from this  bankruptcy  filing.  This  filing has led to
management  distraction  from  business  activity  as the  Company has sought to
devote efforts to a successful reorganization.  Further, the Company's resources
have been constrained and personnel reduced by virtue of the bankruptcy  filing.
These  distractions  have had and may continue to have a material adverse affect
on the Company's  business.  In addition,  there is a risk of continued customer
defections  and  inability to obtain new customers as a result of the filing for
bankruptcy.

                                       17
<PAGE>

         The original  goal of the  reorganization  was to enable the Company to
emerge as a stronger  entity,  of an  efficient  size with  appropriate  expense
levels.  The  Company  has  since  determined  that  the  reorganization  as  an
independent  entity  is  neither  feasible  nor in  the  best  interests  of the
Company's estate,  creditors or shareholders.  After careful deliberation and in
consultation with the Creditors Committee,  the Company determined that the only
viable course of action,  consistent with their fiduciary  duties, is to seek to
maximize  the  value  of  the  Company's  estates,  through  a  sale  of  all or
substantially all of their respective assets.

         The Company has filed with the  Bankruptcy  Court,  a proposed  Plan of
Reorganization (the "Plan"),  and an accompanying  Disclosure  Statement for the
Plan of Reorganization (the "Disclosure Statement").  The following is a summary
of the Plan.

         The Plan  anticipates  a  potential  sale of  substantially  all of the
Company's  assets  including  real  property,   intellectual   property,   cash,
receivables,  other current and long term assets,  contractual rights, and other
assets to CGI Group, Inc.  ("CGI"),  as set forth in a letter of intent that the
Company and CGI executed on or about July 24, 2002 (the "Letter of Intent").  In
exchange for such assets,  CGI agreed to pay the Company $8,200,000 in cash (the
"Cash Purchase Price") and assume up to $14,000,000 in liabilities including pre
and post  petition  obligations  incurred in the  ordinary  course of  business,
contractual  obligations,  unearned  revenue and tax  liabilities.  The specific
assets and  liabilities  to be  included  in a final  definitive  agreement  are
subject  to  ongoing  negotiations.  The  Cash  Purchase  Price  is based on the
assumption  that the "Net Asset Value" (as defined in the Letter of Intent) will
be $7,000,000 (the "Assumed Net Asset Value").  Seven business days prior to the
closing of this  transaction,  which must occur prior to November 15, 2002,  the
Company will  deliver to the CGI a revised  estimate of the Net Asset Value (the
"Estimated Net Asset Value").  The Cash Purchase Price will be adjusted  (upward
or downward,  as  appropriate)  by the amount that the Estimated Net Asset Value
differs from the Assumed Net Asset Value; provided,  however, that no adjustment
will  be  made  to the  extent  that  the  Estimated  Net  Asset  Value  exceeds
$8,400,000.  The  Company  currently  estimates  the Cash  Purchase  Price to be
adjusted to approximately $5,400,000.

         The Company also negotiated with ChoicePoint Inc. ("ChoicePoint"),  for
the potential sale of the Company's assets. Choicepoint filed a letter of intent
with the Bankruptcy  Court on October 24, 2002. Under the terms of the letter of
intent,  ChoicePoint would pay the Company $10,700,000 for all the assets of the
Company and assume $3,146,785 in liabilities, as well as assuming certain future
vendor obligations and leases. The offer was subject to certain  conditions.  On
November  4, 2002,  the  Company  was  informed  by  Choicepoint  that they were
withdrawing their offer.

         The cash proceeds from a sale  transaction and any remaining  assets of
the Company, if any (collectively, the "Trust Assets"), will be transferred to a
liquidating trust (the "Trust").  Michael G. Lawrence of NACM SW (the "Trustee")
will be the initial  trustee for the Trust and will  liquidate  the Trust Assets
and distribute the proceeds to the creditors of the Company.

         The Trust  Assets  will be used to pay claims of  creditors  until such
claims (and all expenses  incurred in  implementing  the Plan) are paid in full,
with any remaining assets being distributed to equity security holders.  A total
of $22,965,300 in claims have been filed in the Bankruptcy Court. The Company is
in the process of analyzing these claims and, at this time, cannot give an exact
amount of the claims which will be allowed; however, the Company believes that a
substantial portion of these claims will be disallowed.

         Each equity  security  holder will  receive a pro rata  portion of such
remaining  assets,  if any,  based on the number of shares held as of the record
date. The record date for such  distributions  will be the effective date of the
Plan (the  "Distribution  Record Date"),  which will be a date, as determined by
the  Company,  on or after the date in which (i) a sale has been  completed  and
(ii) the Trust has been  formed,  and the  Trustee has been  appointed.  At such
time, trading of the shares of the equity security interests of the Company will
cease.

         The  Company is  presently  operating  at a  substantial  net cash loss
without any  realistic  prospect of reducing  the rate at which the value of the

                                       18
<PAGE>

estates is eroding.  It is  important to the Company,  the  creditors  and other
interested  constituencies  that an asset  purchase  agreement be finalized  and
accepted as expeditiously as possible.


                              Results of Operations

         The  following  table sets forth,  with  respect to INSpire and for the
periods  indicated,  the  percentage of total  revenues  represented  by certain
revenue, expense and income items:
<TABLE>
<CAPTION>

                                                                          Year Ended December 31,
                                                     -------------------------------------------------------------------
                                                         2001         2000          1999         1998         1997
                                                     ------------- ------------ ------------- ------------ ------------
<S>                                                       <C>           <C>          <C>          <C>          <C>

Revenues:
     Outsourcing services..........................       91.4%         90.3%        79.5%        58.4%        57.4%
     Software and software services................        7.3           8.8         19.2         39.0         37.3
     Other.........................................        1.3           0.9          1.3          2.6          5.3
                                                     ------------- ------------ ------------- ------------ ------------
                Total revenues.....................      100.0         100.0        100.0       100.0         100.0
                                                     ------------- ------------ ------------- ------------ ------------
Expenses:
     Cost of outsourcing services..................       94.4          80.1         58.0           30.2       36.8
     Cost of software and software services........        3.9           4.3         13.7           21.9       18.9
     Cost of other revenues........................        0.4           0.3          0.8            1.8        4.3
     Selling, general and administrative...........       16.5           7.9         13.0           16.8       15.3
     Research and development......................        2.3           1.7          3.7            3.4        2.1
     Depreciation and amortization.................        9.2           6.6          6.5            7.1        7.0
     Purchased research and development............        0.0           0.0          0.0            0.6        5.3
     Deferred compensation.........................        0.0           0.0          0.0            0.0        7.0
     Provision for severance costs.................        0.9           1.5          1.2            0.0        0.0
     Provision for bad debts.......................        0.9           1.8          7.8            0.3        0.1
     Litigation....................................        2.2           0.8          0.9            0.0        0.0
     Intangible assets impairment..................       45.8          25.2         11.9            0.0        0.0
     Management fees to shareholder................        0.0           0.0          0.0            0.0        2.3
     Gain (loss) on sale of subsidiary.............        0.0           0.0          0.0            0.0       (2.9)
     Other.........................................        0.0           0.0          0.6            0.0        0.0
                                                     ------------- ------------ ------------- ------------ ------------
                Total expenses.....................      176.5         130.3        118.1          82.1        96.2
                                                     ------------- ------------ ------------- ------------ ------------
Operating income (loss)............................      (76.5)        (30.3)       (18.1)         17.9         3.8
Other income (expense).............................        0.6           0.4          1.0           3.1         0.6
                                                     ------------- ------------ ------------- ------------ ------------
Income (loss) before income tax and cumulative           (75.9)        (29.9)       (17.1)         21.0         4.4
     effect of accounting change...................
Income taxes benefit (expense).....................      (23.0)          9.3          3.1          (7.7)       (1.4)
                                                     ------------- ------------ ------------- ------------ ------------
Net  income   (loss)   before   cumulative   effect
of accounting change...............................      (98.9)        (20.6)       (14.0)         13.3         3.0
Cumulative effect of change in accounting for
     outsourcing services, net of income
     tax benefit...................................        0.0          (3.9)         0.0           0.0         0.0
                                                     ------------- ------------ ------------- ------------ ------------
Net income (loss)..................................      (98.9)        (20.9)       (14.0)         13.3         3.0
                                                     ============= ============ ============= ============ ============

</TABLE>

            Comparison of the Years Ended December 31, 2001 and 2000

         Revenues. Total revenues were $68.8 million for the year ended December
31, 2001  compared to $126.6  million for the year ended  December  31,  2000, a
decrease of $57.7  million or 45.6%.  Outsourcing  services  revenues were $62.9
million for the year ended  December 31, 2001 compared to $114.3 million for the
year ended  December 31, 2000, a decrease of $51.4  million or 45%. The decrease

                                       19
<PAGE>

in outsourcing  services  revenue is due in part to the  termination of both the
Island  Group and Robert Plan  contracts  during the second  half of 2000.  This
decrease is also the result of contractual rate decreases on two contracts and a
reduction in The Millers  Group's  business.  The Millers Group has sold certain
books of business  and has begun  processing  other books of business  in-house,
both of which will reduce The Millers  Group's  need for policy  administration,
claims  administration  and other  services  currently  provided by the Company.
Also,  the Company and Millers  American  have  renegotiated  provisions  of The
Millers  Group's  MSA and may  renegotiate  additional  terms  of the MSA in the
future. At this time, the Company estimates that the decrease in services to The
Millers  Group and the  impact of the  renegotiated  provisions  of The  Millers
Group's MSA will result in decreased  revenues from The Millers Group in 2002 to
approximately  $8.2 million  compared to 2001 revenues of $19.3 million.  If the
Company does not replace these revenues or decrease expenses proportional to the
decline in revenue,  these  reductions will continue to have a material  adverse
impact on the Company's  results of operations.  Software and software  services
revenues  were $5 million for the year ended  December 31, 2001  compared to $11
million  for the year ended  December  31,  2000,  a  decrease  of $6 million or
54.41%.  The decrease in software and  software  services  revenues is primarily
attributable to the decision the Company made in December 1999 to reduce efforts
directed toward  increasing  licensed software packages and services in order to
focus on its  outsourcing  business.  The Company  has  recently  reversed  this
decision and is placing a renewed focus on software licensing and services.

         As  described  in Note  13 to the  consolidated  financial  statements,
Transactions with Major Customers, the Company is dependent on revenues from The
Millers  Group,  Arrowhead  and  Clarendon  National  Insurance  Company,  which
accounted  for  approximately  28%,  42%, and 12% of revenues for the year ended
December 31, 2001,  respectively.  The loss of any one of these  customers could
result in a material  reduction  in Company  revenues  and could have a material
adverse effect on the Company's business. As noted elsewhere herein, The Millers
Group,  Arrowhead and Clarendon  have notified the Company that they each intend
to reduce  business with the Company,  and aggregate  revenues in 2002 for these
customers are expected to decline from $56.2 million in 2001 to $ 23.7million in
2002.  If these  revenues are not replaced  this revenue  reduction  will have a
material  adverse effect on the Company's  future results of operations and cash
flows.

         Cost of  Revenues.  Cost of  revenues,  which is  comprised  mainly  of
personnel costs, was $67.9 million for the year ended December 31, 2001 compared
to $106.5  million for the year ended  December  31,  2000,  a decrease of $38.6
million or 36.2%.  Cost of  outsourcing  services  was $65  million for the year
ended  December 31, 2001 compared to $100.7  million for the year ended December
31,  2000,  a decrease of $35.7  million or 35.5%.  This  decrease is  primarily
attributable to a decrease in staffing, equipment and data processing costs as a
result of the  termination  of both the Island Group and Robert Plan  contracts,
combined with a company-wide  initiative to reduce expenses. Cost of outsourcing
services as a percentage of outsourcing  services  revenues  increased to 103.3%
for the year ended  December 31, 2001 from 88.1% for the year ended December 31,
2000. Cost of software and software services was $2.6 million for the year ended
December 31, 2001 compared to $5.4 million for the year ended December 31, 2000,
a decrease of $2.7 million or 50.4%. This decrease is primarily  attributable to
the  decline  in sales of  licensed  software  packages  and  services.  Cost of
software and software services as a percentage of software and software services
revenues  increased  to 53% for the year ended  December 31, 2001 from 48.7% for
the year ended December 31, 2000.

         Selling,    General   and   Administrative.    Selling,   general   and
administrative  expenses were $11.4 million for the year ended December 31, 2001
compared to $10 million for the year ended  December  31,  2000,  an increase of
$1.4  million or 14%.  The  increase is  principally  the result of additions to
senior management and a more aggressive marketing strategy. Selling, general and
administrative expenses as a percentage of total revenues increased to 16.5% for
the year ended December 31, 2001 from 7.9% for the year ended December 31, 2000.
This  increase is due to a decrease in total  revenues  without a  corresponding
decrease  in  the  costs  incurred  for  selling,   general  and  administrative
functions.

         Research and Development. Research and development expense decreased to
$1.6 million for the year ended December 31, 2001 from $2.1 million for the year
ended December 31, 2000. The decrease was primarily the result of a reduction in
staffing costs.

                                       20
<PAGE>

         Depreciation and  Amortization.  Depreciation and amortization  expense
was $6.3 million for the year ended  December 31, 2001  compared to $8.3 million
for the year ended December 31, 2000, a decrease of  approximately  $2.0 million
or 24%. This decline is primarily  due to the write-off of intangible  and other
assets  associated with the termination of both the Island Group and Robert Plan
contracts in 2000.

         Intangible Assets Impairment. For the year ended December 31, 2001, the
Company recorded an impairment charge of $31.5 million for contract  acquisition
costs in excess of net assets acquired and capitalized  contract  implementation
costs related to the  Arrowhead and Millers  Phoenix  Indemnity  contracts.  The
Company  re-evaluated the future cash flows under these contracts and determined
that such  intangible  assets were in excess of the expected  future cash flows.
See Note 5, Intangibles and Other Assets.  For the year ended December 31, 2000,
the  Company  recorded  an  impairment  charge  of  $31.6  million  for  certain
intangible and other assets  associated with the termination of Island Group and
the Robert Plan contracts.

         Other  Income.  Other  income,  consisting  principally  of  investment
income, decreased to $0.4 million for the year ended December 31, 2001 from $0.8
million for the year ended December 31, 2000. This decrease is due to a decrease
in cash equivalents and investments.

         Income  Tax  Benefit/Expense.  For the  year  ended  2001  the  Company
recorded a $ 15.8 million charge and includes the  establishment  of a valuation
allowance for deferred tax assets as a result of the Company's  assessment  that
it is more likely than not the deferred tax asset will not be realized. See Note
7, to the Consolidated Financial Statements, Income Taxes.

         Cumulative Effect of Change in Accounting Principle. For the year ended
December 31, 2000,  the Company  recognized  a $4.9 million  charge,  net of the
related tax benefit,  for the cumulative effect of an accounting  change,  which
resulted  from  the  adoption  of  Staff  Accounting  Bulletin  101  -  "Revenue
Recognition in Financial Statements."

         Net Loss.  Net loss was $68.1  million,  or $3.61 per basic and diluted
share,  for the year  December 31, 2001 compared to net loss of $30.2 million or
$1.58 per basic and diluted share, for the year ended December 31, 2000. The net
loss for the year ended  December  31, 2001  includes the  aforementioned  asset
impairment charges of $31.5 million as well as a charge of $19.1 million related
to the establishment of a valuation  allowance for deferred tax assets.  The net
loss for the year ended  December  31, 2000  includes the  aforementioned  asset
impairment  charges of $31.5 million as well as the $4.9 million  charge for the
cumulative effect of the accounting change described above. Excluding the impact
from these charges, the net loss for the year ended December 31, 2001 would have
been $17.5  million,  or $0.91 per basic and diluted  share versus net income of
$6.2  million or $0.33 per basic and diluted  share for the year ended  December
31, 2000. The year-over-year decline in results is attributable to the reduction
in revenues previously discussed, combined with an increased cost of outsourcing
services  and  selling,  general  and  administrative  expenses  expressed  as a
percentage of revenue.

                                       21
<PAGE>

            Comparison of the Years Ended December 31, 2000 and 1999

         Revenues.  Total  revenues  decreased  10.0% from  December 31, 1999 to
December 31, 2000. This decrease is primarily  attributable to the $15.9 million
decrease in software and software  services  revenues.  The decrease in software
and software services revenues is due to the Company's decision in December 1999
to discontinue efforts directed toward increasing licensed software packages and
services in order to focus on its  outsourcing  business.  Outsourcing  services
revenues  increased  $2.6 million for the year ended  December  31,  2000.  This
increase resulted from: (i) the Company performing outsourcing services under an
agreement with The Robert Plan entered into effective April 1, 1999 and (ii) the
Company performing services under five additional  outsourcing contracts entered
into  after  March 31,  1999.  These  increases  were  partially  offset  due to
decreases in revenues  during the third and fourth  quarters  resulting from the
following  actions:  (i) contractual rate decreases on two contracts and (ii) an
overall decrease in Millers American business. In December 2000 INSpire received
notice  from  the  Robert  Plan  that it would be  terminating  its  outsourcing
contract agreement.  As a result of the termination of both the Island Group and
Robert Plan contracts,  the Company had $33.2 million in outsourcing revenues in
2000, which will not continue.

         Cost of  Revenues.  Cost of  revenues,  which is  comprised  mainly  of
personnel  costs,  increased  $1.5 million,  or 1.5%,  over the prior year ended
December  31,  1999.  The  increase  resulted  from an increase in staffing  and
equipment to support the above  mentioned  contracts.  Cost of  outsourcing as a
percentage  of  outsourcing  revenues  increased  to 84.1%  for the  year  ended
December 31, 2000 from 73.0% for the year ended December 31, 1999. This increase
is primarily a result of the contractual  rate decreases  without a proportional
decrease in costs incurred to provide outsourcing services under these contracts
and the overall  decrease in Millers  American  business  without a proportional
decrease in staffing.  The increase in  outsourcing  services cost was partially
offset by a decrease in cost of software and software services.  The decrease is
due to the Company shifting its focus from software  licensing.  As a percentage
of software revenue,  cost of software and software services  decreased to 59.9%
for the year ended  December 31, 2000 from 71.0% for the year ended December 31,
1999.  This  decrease  is due to lower  costs  associated  with  sustaining  the
software contracts than the initial installation process.

         Selling,  General, and Administrative Expenses.  Selling,  general, and
administrative  expenses  declined  $6.2 million,  or 33.9%,  for the year ended
December 31, 2000. The decrease is due to a reduction of staff and  management's
overall attempt to reduce administrative costs such as travel and entertainment,
advertising, and other expenses.

         Research and  Development.  Research and  development  expense was $3.2
million for the year ended  December  31, 2000  compared to $5.2 million for the
year ended December 31, 1999, a decrease of $2.0 million or 38.5%. This decrease
is the result of a reduction in staff in response to the  Company's  decision to
turn its focus from software licensing.

         Depreciation and  Amortization.  Depreciation and amortization  expense
decreased  $842,000 for the year ended December 31, 2000.  This decrease of 9.2%
was primarily due to the  impairment of intangible  and other assets  associated
with the Island Agreement which no longer had amortization  expense after August
of 2000 and the  Robert  Plan  which did not incur any  amortization  expense in
December 2000.

         Unusual Operating Expenses.  Unusual operating expenses incurred by the
Company during the year ended December 31, 2000 included:  (i) bad debt expense,
(ii) litigation expense,  (iii) severance expense, (iv) impairment of intangible
assets, (v) the cumulative effect of change in accounting policy, and (vi) other
charges. For the year ended December 31, 2000 unusual operating expenses totaled
$41.7 million.  These charges consisted of: (i) bad debt expense of $2.3 million
which  reflected  management's  best  estimate of  collectibility  of receivable
balances;  (ii) litigation expense of $1.0 million relating to lawsuits in which
the Company defended  itself;  (iii) severance costs of $1.9 million relating to
the  separation of several  employees;  (iv) $31.6 million in intangible  assets
impairment  charges  resulting from the termination of both the Island Group and
Robert  Plan  contracts,  and (v) $4.9  million  for the  cumulative  effect  of
accounting change.  During 1999, the Company recognized $31.5 million in charges
primarily  relating to the Company's  assessment of the recoverability of assets

                                       22
<PAGE>

associated  with its  software  business.  These  charges  consist of: (i) $11.0
million to increase the allowance for bad debts, (ii) $1.2 million of litigation
expenses, (iii) $16.8 million for the impairment of intangible assets, (iv) $1.7
million for severance costs, and (v) approximately $800,000 in other charges.

         Bad Debt Expense.  In the normal course of business,  INSpire  provides
software,  software services,  and outsourcing  services in advance of receiving
payment for such  products and  services.  Customers  are invoiced in accordance
with the  terms of their  contracts  with the  Company.  During  the year  ended
December 31, 2000,  management assessed those accounts with significant past due
balances  and  recognized  $2.3  million of bad debt expense in response to that
assessment.  During the year ended  December  31, 1999,  management  took action
relative to specific software  installation  contracts that had significant past
due balances and ceased  further  work,  pending  resolution of the balances due
under the terms of the contracts.  The Company  recognized  $11.0 million of bad
debt expense in response to that assessment. The Company continues to vigorously
pursue collection of these accounts. However, management assessed the likelihood
as probable that these amounts would be uncollectible.

         Litigation  Expense.  During  2000,  the  Company  incurred  litigation
expenses  of  $1.0  million  to  defend  lawsuits  filed  against  the  Company.
Litigation  expenses  of $1.2  million  incurred  during 1999  include  expenses
associated with the collection of accounts  receivable,  as well as penalties or
settlements to be paid in connection with various pending matters.

         Intangible  Asset  Impairment.  The Company  recognized  an  impairment
charge in August 2000 of approximately  $14.0 million for certain intangible and
other assets associated with the Island Insurance policy and claims  outsourcing
agreement and the Pacific Service Center. The impairment charge was necessitated
by the  termination of the Island  Agreement and closing of the Pacific  Service
Center.  In  December  2000,  the Company  recognized  an  impairment  charge of
approximately  $17.6 million for intangible and other assets associated with the
termination of the Robert Plan  outsourcing  contract.  During 1999, the Company
recognized an impairment charge of $16.8 million for certain  intangible assets,
including a  substantial  portion of the goodwill  and software  acquired in the
purchases of Strategic Data Systems,  Inc. in March 1997 and Paragon  Interface,
Inc. in April 1998, the software license associated with the Company's agreement
with  Cover-All  Systems,  Inc.  entered into in October  1997,  and  internally
capitalized  software  development costs. The impairment was necessitated by the
Company's  determination  that  future  expected  sales and cash  flows from the
Company's  software  operations  would be  significantly  lower than  previously
expected.

         Severance Expense.  During 2000 the Company incurred severance costs of
$1.9 million primarily  relating to separation  payments and related expenses to
former CEO, F. George  Dunham,  III.  Severance  costs of $1.7 million  incurred
during 1999 represent  expenses  associated with staff  reductions and executive
resignations,  primarily as a result of the Company's  decision in December 1999
to discontinue efforts toward licensing new software systems.

         Other Expense. Other operating expenses for the year ended December 31,
1999  of  approximately   $800,000  represent  the  accrual  of  future  payment
obligations  under  operating  leases  for fixed  assets no longer in use by the
Company.

         Other Income. Other income, consisting principally of investment income
and the loss  incurred  from the sale of the  Company's  interest in two planes,
decreased to $521,000 for the year ended December 31, 2000 from $1.4 million for
the year ended December 31, 1999. The decrease of $900,000,  or 64.3%, is due to
a  decrease  in cash  equivalents  and  investments  primarily  as a  result  of
liquidating these investments to fund operations and deferred contract costs.

         Cumulative Effect of Change in Accounting Principle.  In December 1999,
the Securities and Exchange  Commission  issued Staff  Accounting  Bulletin 101,
"Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 was effective
no later  than the  fourth  quarter  of fiscal  year  2000.  Effective  with the
beginning  of the fourth  quarter of fiscal year 2000,  the Company  adopted SAB
101. The cumulative  effect of the adoption of SAB 101 had a negative  impact of
$4.9  million on net income  after tax effects for the year ended  December  31,
2000.

                                       23
<PAGE>

         Net Income  (Loss).  Net loss was $30.2  million,  or $1.58 per diluted
share ($1.58 per basic share),  for the year ended December 31, 2000 compared to
a net loss of $19.7 million, or $1.04 per diluted share ($1.04 per basic share),
for the year  ended  December  31,  1999.  Excluding  the  impact on net  income
resulting  from the $41.7  million  nonrecurring  operating  expenses  discussed
above, and the tax effects  thereof,  net income for the year ended December 31,
2000 would  have been  $110,000,  or $0.01 per  diluted  share  ($0.01 per basic
share).  Excluding  the impact on net income  resulting  from the $31.5  million
nonrecurring  operating  expenses  discussed above, and the tax effects thereof,
net income for the year ended  December 31, 1999 would have been $4.0 million or
$.20 per diluted share ($.21 per basic share).

                   Risk Factors That May Affect Future Results

         INSpire's  business,  financial  condition,  cash flows, and results of
operations  may be impacted by a number of factors,  including,  but not limited
to, the following,  any of which could cause actual  results to vary  materially
from current and historical results or INSpire's anticipated future results.

         Debtor-in-Possession.  Since  February  15,  2002,  the Company as been
operating  as  a  debtor-in-possession,  subject  to  Chapter  11  of  the  U.S.
bankruptcy  Code.  As a result,  the  Company's  business  activities  have been
disrupted by the distractions resulting from this bankruptcy filing. This filing
has led to  management  distraction  from  business  activity as the Company has
sought to devote efforts to a successful reorganization.  Further, the Company's
resources  have  been  constrained  and  personnel  reduced  by  virtue  of  the
bankruptcy  filing.  These  distractions  have  had and may  continue  to have a
material adverse affect on the Company's business. In addition,  there is a risk
of continued  customer  defections  and  inability to obtain new  customers as a
result of the bankruptcy filing.

         The original  goal of the  reorganization  was to enable the Company to
emerge as a stronger  entity,  of an  efficient  size with  appropriate  expense
levels.  The  Company  has  since  determined  that  the  reorganization  as  an
independent  entity  is  neither  feasible  nor in  the  best  interests  of the
Company's estate,  creditors or shareholders.  After careful deliberation and in
consultation with the Creditors Committee,  the Company determined that the only
viable course of action,  consistent with their fiduciary  duties, is to seek to
maximize  the  value  of  the  Company's  estates,  through  a  sale  of  all or
substantially all of their respective assets.

         The Company has filed with the  Bankruptcy  Court,  a proposed  Plan of
Reorganization (the "Plan"),  and an accompanying  Disclosure  Statement for the
Plan of Reorganization (the "Disclosure Statement").  The following is a summary
of the Plan.

         The Plan  anticipates  a  potential  sale of  substantially  all of the
Company's  assets  including  real  property,   intellectual   property,   cash,
receivables,  other current and long term assets,  contractual rights, and other
assets to CGI Group, Inc.  ("CGI"),  as set forth in a letter of intent that the
Company and CGI executed on or about July 24, 2002 (the "Letter of Intent").  In
exchange for such assets,  CGI agreed to pay the Company $8,200,000 in cash (the
"Cash Purchase Price") and assume up to $14,000,000 in liabilities including pre
and post  petition  obligations  incurred in the  ordinary  course of  business,
contractual  obligations,  unearned  revenue and tax  liabilities.  The specific
assets and  liabilities  to be  included  in a final  definitive  agreement  are
subject  to  ongoing  negotiations.  The  Cash  Purchase  Price  is based on the
assumption  that the "Net Asset Value" (as defined in the Letter of Intent) will
be $7,000,000 (the "Assumed Net Asset Value").  Seven business days prior to the
closing of this  transaction,  which must occur prior to November 15, 2002,  the
Company will  deliver to the CGI a revised  estimate of the Net Asset Value (the
"Estimated Net Asset Value").  The Cash Purchase Price will be adjusted  (upward
or downward,  as  appropriate)  by the amount that the Estimated Net Asset Value
differs from the Assumed Net Asset Value; provided,  however, that no adjustment
will  be  made  to the  extent  that  the  Estimated  Net  Asset  Value  exceeds
$8,400,000.  The  Company  currently  estimates  the Cash  Purchase  Price to be
adjusted to approximately $5,400,000.

         The Company also negotiated with ChoicePoint Inc. ("ChoicePoint"),  for
the potential sale of the Company's assets. Choicepoint filed a letter of intent
with the Bankruptcy  Court on October 24, 2002. Under the terms of the letter of

                                       24
<PAGE>

intent,  ChoicePoint would pay the Company $10,700,000 for all the assets of the
Company and assume $3,146,785 in liabilities, as well as assuming certain future
vendor obligations and leases. The offer was subject to certain  conditions.  On
November  4, 2002,  the  Company  was  informed  by  Choicepoint  that they were
withdrawing their offer.

         The cash proceeds from a sale  transaction and any remaining  assets of
the Company, if any (collectively,  the "Trust Assets") will be transferred to a
liquidating trust (the "Trust").  Michael G. Lawrence of NACM SW (the "Trustee")
will be the initial  trustee for the Trust and will  liquidate  the Trust Assets
and distribute the proceeds to the creditors of the Company.

         The Trust  Assets  will be used to pay claims of  creditors  until such
claims (and all expenses  incurred in  implementing  the Plan) are paid in full,
with any remaining assets being distributed to equity security holders.  A total
of $22,965,300 in claims have been filed in the Bankruptcy Court. The Company is
in the process of analyzing these claims and, at this time, cannot give an exact
amount of the claims which will be allowed; however, the Company believes that a
substantial portion of these claims will be disallowed.

         Each equity  security  holder will  receive a pro rata  portion of such
remaining  assets,  if any,  based on the number of shares held as of the record
date. The record date for such  distributions  will be the effective date of the
Plan (the  "Distribution  Record Date"),  which will be a date, as determined by
the  Company,  on or after the date in which (i) a sale has been  completed  and
(ii) the Trust has been  formed,  and the  Trustee has been  appointed.  At such
time, trading of the shares of the equity security interests of the Company will
cease.

         The  Company is  presently  operating  at a  substantial  net cash loss
without any  realistic  prospect of reducing  the rate at which the value of the
estates is eroding.  It is  important to The Company,  the  creditors  and other
interested  constituencies  that an asset  purchase  agreement be finalized  and
accepted as expeditiously as possible.

         Negative cash flows. The Company  incurred  negative net cash flows due
to declining revenues without a proportional  decrease in expenses.  The Company
expects to experience  material  declines in future revenues due to the expected
decline  in  the  Company's  outsourcing  business  with  Millers  American  and
Arrowhead and other customers and the  terminations of both the Island Group and
Robert  Plan  contracts.  If the  Company  is unable to  replace  its  declining
revenues or to proportionately reduce its expenses, the Company's liquidity will
be adversely affected. As of August 1, 2002, the Company has approximately eight
months of cash and cash  equivalents  and  investments  on hand.  The  Company's
liquidity  difficulties could increase with the loss of any additional  clients.
There can be no assurance that the Company can  successfully  manage its current
liquidity requirements.

         Replacement  of current  business.  In order to maintain the  Company's
operations it will have to replace  revenues lost due to the termination of both
the  Island  Group and  Robert  Plan  contracts  and the  reduction  of  Millers
American,  Clarendon and Arrowhead  business.  Without the  replacement of these
revenues  the Company  will need to  significantly  reduce  expenses to meet its
liquidity  requirements.  If the Company cannot meet its liquidity requirements,
its  operations  and  financial  conditions  will be  materially  and  adversely
affected. The Company's Chapter 11 filing makes it much more difficult to obtain
new customers.

         Timely conversion of new customers. When INSpire enters into agreements
with  customers the time for  conversion  from the  customers  system to INSpire
systems  may or may  not be  specified.  Conversions  of the  customers  systems
generally  include an assessment  of the  requirements  of  conversion  from the
customers  system to INSpire's  systems,  implementation  of data and processing
software,  validation  of the  processes  and  software,  and  acceptance by the
customer.  In cases of conversion  where a specified  time is given,  failure to
complete  the  conversion  on time  allows the  customer  to  withdraw  from the
contract and claim INSpire is in breach of the contract. In cases where there is
no specified time for  conversion,  if INSpire is untimely in the conversion the
Company is exposed to financial  risks due to having to continue  operating  the
customer's legacy system and investing additional time in the system conversion.



                                       25
<PAGE>

         Limited operating history and net losses.  INSpire commenced operations
in 1995 and has a limited  operating  history in the P&C  insurance  outsourcing
business.  The Company cannot assure that it will be successful in  implementing
its long-term operating strategy.  The Company's operations generated net losses
for the last three years.  Net losses were  approximately  $68.1 million for the
year ended  December 31,  2001,  $30.2  million for the year ended  December 31,
2000,  and $19.7  million for the year ended  December 31, 1999. On February 15,
2002, the Company filed for relief under Chapter 11 of the U.S. Bankruptcy Code.
INSpire  cannot assure that it will be able to attain revenue growth or that the
Company will not sustain net losses in the future. See "Management's  Discussion
and Analysis of Financial Condition and Results of Operations."

         Pending legal  proceedings.  From time to time INSpire receives various
claims  alleging  breach  of  warranty,  breach  of  contract,  deceptive  trade
practices, and similar claims under license agreements and other agreements with
customers of the Company. An adverse determination in any of these or any future
legal  proceedings  could  have a  material  adverse  effect  on  the  Company's
business,  financial condition, cash flows, and results of operations. See "Item
3 - Legal Proceedings."

         Fluctuations in quarterly operating results. INSpire has experienced in
the past and will experience in the future quarterly  variations in net revenues
and net  income.  Thus,  operating  results for any  particular  quarter are not
necessarily  indicative  of results  for any future  period.  Factors  that have
affected  quarterly  operating  results include:  (i) the introduction of new or
enhanced  services and  products by INSpire or its  competitors,  (ii)  customer
acceptance or rejection of new services and products,  (iii) product development
expenses,  (iv) the timing of new contract signings,  (v) the volume of usage of
INSpire's  services,  (vi)  acquisitions,  (vii)  competitive  conditions in its
industry, (viii) general economic conditions,  and (ix) the level of selling and
administrative expenses. Many of these factors are beyond INSpire's control.

         The sales cycles for INSpire's services are generally between three and
twelve months and subject to a number of factors  beyond the Company's  control.
Customer  decisions  to  enter  into  outsourcing  services  agreements  may  be
significantly  affected  by their  decisions  to  replace  current  systems.  In
addition, demand for INSpire's claims administration services fluctuates greatly
depending on the concentration of large-scale catastrophes,  such as hurricanes.
For these and other  reasons,  the  revenues  of the Company  are  difficult  to
forecast,  and INSpire believes that period-to-period  comparisons of results of
operations  are not  necessarily  meaningful  or  indicative of the results that
INSpire may achieve for any subsequent quarter or fiscal year.  Therefore,  past
operating  results  should  not be  considered  a reliable  indicator  of future
performance.

         Volatility  of trading  price.  The trading  price of INSpire's  common
stock has  fluctuated  widely in response to variations  in INSpire's  quarterly
operating results, changes in earnings estimates by securities analysts, changes
in  the  Company's  business,   and  changes  in  general  market  and  economic
conditions.  In  addition,  in recent  years the stock  market  has  experienced
extreme price and volume  fluctuations.  These  fluctuations have  significantly
affected the trading prices of the securities of many emerging growth  companies
without regard to their specific operating performance. Such market fluctuations
could have a material  adverse  effect on the trading price of the common stock.
See "Management's  Discussion and Analysis of Financial Condition and Results of
Operations."

         NASDAQ  regulations  require a Company's  common stock trading price to
remain  above  $1.00.  The  NASDAQ  closely  monitors  the  compliance  with its
financial and corporate governance requirements,  including the requirement that
Company's  maintain a $1.00 share  price.  The  closing bid price for  Company's
common stock has been less than $1.00 for more than 30 consecutive  trading days
and the Company  therefore has not been in compliance  with NASDAQ  requirements
for continued  listing.  On September 27, 2001,  the Company was informed by the
staff of NASDAQ Stock  Market,  Inc.  that they would delay  enforcing the $1.00
minimum  bid price  requirement.  The  Company  has been  unable  to meet  these
requirements and effective March 8, 2002 requested a voluntary de-listing of its
common stock from the NASDAQ National Market. As a result, there is no assurance
that an active market will be sustained for trading in the Company's  stock,  in
which case the shares may be difficult or impossible to sell.

         Dependence on major customers. INSpire derives a substantial portion of
its  revenues  from  outsourcing  services  provided  to a few large  customers,
including The Millers Group, Arrowhead, and Clarendon, who represented 28%, 42%,

                                       26
<PAGE>

and 12% of 2001 revenues.  Any loss of or material decrease in the business from
any of these  customers  would have a material  adverse  effect on the Company's
business,  financial  condition,  cash  flows,  and results of  operations.  The
Company has  renegotiated  contracts  with The  Millers  Group,  Arrowhead,  and
Clarendon and will experience  reduced  revenues from these customers as a group
from approximately $56.2 million to $23.7 million in 2002.

         Ability to grow and expand  services.  The  Company's  growth  strategy
depends  on its  ability  to  increase  its  share  of  the  policy  and  claims
administration market through the enhancement of existing services,  development
of new services,  and the  marketing of its services.  There can be no assurance
that INSpire will have the financial, managerial, administrative,  marketing, or
other resources  necessary to achieve these  objectives.  The success of INSpire
depends in large  part on its  ability to  attract  and  retain  highly  skilled
managerial,  sales, marketing, and professional personnel. In addition,  INSpire
believes  it may need to hire  additional  technical  personnel  to enhance  and
develop its  services.  Competition  for such  personnel is intense,  and should
INSpire be unable to hire the necessary  personnel,  the development and sale of
new or enhanced  services  would likely be delayed or prevented.  INSpire cannot
assure that it will be able to attract, integrate, and retain skilled personnel,
manage its  infrastructure,  or  overcome  other  difficulties  associated  with
growth. If INSpire were to encounter  difficulties in implementing the expansion
or development of its services, or in attracting,  integrating and retaining its
personnel,  such  difficulties  could  have a  material  adverse  effect  on the
Company's business, financial condition, cash flows, and results of operations.

         Technological  change and new product development risks. The market for
INSpire's  services is characterized by rapidly  changing  technology,  evolving
industry standards, and frequent introductions of new products and enhancements.
INSpire's  future success depends in part on its ability to enhance its existing
services and develop new services to meet changing  customer  requirements.  The
introduction of competing  services or products  incorporating  new technologies
could render some or all of INSpire's  services  obsolete or unmarketable.  As a
result,  INSpire has expended  substantial  resources for the enhancement of its
services  and  for  product  development.  The  development  of new or  enhanced
services or products  results in expenditures  and capital costs that may not be
recovered if the service or product is unsuccessful. Development projects can be
lengthy and subject to changing  market  requirements  and unforeseen  costs and
delays. The failure of INSpire to develop and introduce new or enhanced services
or products in a timely and cost-effective  manner could have a material adverse
effect on the Company's business,  financial condition,  cash flows, and results
of operations.  See "Item 1 - Business Product Development."

         Competition.  The markets for policy and claims  administration  and IT
service are highly competitive.  Accordingly, new competitors or alliances among
competitors may emerge and rapidly acquire  significant  market share.  Although
the Company remains vigilant in assessing its competitors, the Company faces the
chance of a sudden entrant from an unknown  source into the market.  The Company
cannot assure that it will be able to compete  successfully  against current and
future competitors. See " Item 1 - Business Competition."

         Dependence  on key  personnel.  INSpire's  future  success  will depend
largely on the efforts and abilities of its  executive  officers and certain key
technical,  managerial,  and  sales  employees.  The  loss of any of  these  key
employees  could  have a  material  adverse  effect on the  Company's  business,
financial  condition,  cash flows,  and results of  operations.  INSpire  cannot
assure that it will be  successful in retaining  key  personnel.  See "Item 10 -
Directors and Executive Officers of the Registrant."

         Risks of software defects.  The sale and support of software by INSpire
entails  the risks of product  liability  and  warranty  claims,  which could be
substantial.  Software  products may contain errors or defects,  especially when
first  introduced or when new versions or  enhancements  are released.  Any such
defects in INSpire's  software  products  could  result in product  liability or
warranty  claims,  which could have a material  adverse  effect on the Company's
business, financial condition, cash flows, and results of operations.  INSpire's
license agreements with its customers  typically contain provisions  designed to
limit  INSpire's  exposure  to  product  liability  or  warranty  claims.  These
limitations of liability  provisions,  however,  may be  ineffective  because of
existing  or  future  federal,  state,  or local  laws or  unfavorable  judicial
decisions.  From time to time INSpire receives various claims alleging breach of
warranty,  breach of contract,  deceptive  trade  practices,  and similar claims

                                       27
<PAGE>

under license agreements and other agreements with customers of the Company, and
several such claims are currently pending. See "Item 3 - Legal Proceedings."

         Reliance  on  information  processing  systems.  INSpire's  outsourcing
services  depend  on  its  ability  to  store,  retrieve,  process,  and  manage
significant  databases,  and expand and  upgrade  periodically  its  information
processing  capabilities.  INSpire's  principal  computer equipment and software
systems are  maintained  at INSpire's  facilities  in Fort Worth,  Texas and San
Diego,  California.  Interruption  or loss of INSpire's  information  processing
capabilities  through  loss of  stored  data,  breakdown  or  malfunctioning  of
computer  equipment and software systems,  telecommunications  failure or damage
caused  by  fire,  tornadoes,  lightning,  electrical  power  outage,  or  other
disruption could have a material adverse effect on INSpire's business, financial
condition,  cash flows, and results of operations.  Although  INSpire  maintains
business  interruption  insurance  with an aggregate  limit of $12.5 million per
occurrence,  and has  entered  into an  agreement  with  International  Business
Machines, Inc., which was rejected as part of the bankruptcy process and SunGard
Recovery Services LP to provide disaster recovery services,  if needed,  INSpire
cannot  assure that such  insurance or services will continue to be available at
reasonable  prices,  cover all such losses,  or  compensate  the Company for the
possible loss of customers occurring during any period that INSpire is unable to
provide services. See " Item 1 - Business Customer Support and Operations".

         Dependence on  proprietary  rights and risks of  infringement.  INSpire
relies on contract rights and copyright and other intellectual  property laws to
protect its  products,  including  software  source code,  as trade  secrets and
confidential  proprietary  information.  See "  Item 1 -  Business  Intellectual
Property."

         Government  regulation.  The  P&C  insurance  industry  is  subject  to
extensive regulation by state governments. Certain aspects of INSpire's business
are affected by such regulations,  requiring the Company to periodically  update
its  software  to  reflect  changes  in  regulations.  In  addition,  changes in
regulations  that adversely affect  INSpire's  existing and potential  customers
could  have a  material  adverse  effect on the  Company's  business,  financial
condition, cash flows and results of operations. Although INSpire's services and
its  products are not directly  subject to insurance  regulations  in the states
where INSpire currently provides them, the Company's outsourcing services may be
subject to insurance  regulations in states where INSpire may do business in the
future. Such regulations could require INSpire to obtain a license as a managing
general agent or third party  administrator.  INSpire  cannot give any assurance
with respect to the extent to which it may become  subject to  regulation in the
future,  the ability of the Company to comply with any such  regulation,  or the
cost of compliance. See "Business -- Government Regulation."

         Shares  eligible  for future  sale.  Sales of a  substantial  number of
shares of common  stock in the open market  could  adversely  affect the trading
price of the common stock.  Millers Insurance  currently holds 4,606,875 shares,
representing  approximately  24% of the  outstanding  shares of common stock.  A
decision by Millers  Insurance  to sell shares of common  stock could  adversely
affect the  trading  price of the common  stock.  INSpire  has an  aggregate  of
27,033,906  shares of common stock  authorized but unissued and not reserved for
specific  purposes.  All of such  shares  may be issued  without  any  action or
approval  by  INSpire's  shareholders.   Any  shares  issued  would  dilute  the
percentage  ownership of the Company held by the current investors.  INSpire has
19,153,708  shares  of  common  stock  outstanding,  all  of  which  are  freely
transferable.  In  addition,  4,575,000  shares of common stock are reserved for
issuance  under the Stock Option Plan,  2,353,908 of which will be issuable upon
exercise of outstanding  options,  including  currently  exercisable  options to
purchase  1,221,323 shares, and 75,000 of those shares are reserved for issuance
under the  Director's  Plan,  37,500 of which will be issuable  upon exercise of
options that are  currently  outstanding.].  An  additional  637,500  shares are
reserved for issuance to Inspire  employees upon their purchase  pursuant to the
Employee  Stock Purchase Plan.  INSpire  currently has 155,727 shares  available
that have been  purchased to support  future  offerings  of the  Employee  Stock
Purchase  Plan.  INSpire has registered on Form S-8 under the Securities Act the
offering and sale of common  stock  issuable  under the Stock  Option Plan,  the
Director Plan and the Stock Purchase Plan.

         Anti-takeover considerations.  Certain provisions of INSpire's Restated
Articles of  Incorporation  (the  "Restated  Articles"),  INSpire's  Bylaws (the
"Bylaws") and the Texas Business Corporation Act ("TBCA") may have the effect of
discouraging  unsolicited proposals for acquisition of the Company. The Restated
Articles and the Bylaws divide the Board of Directors into three classes serving
staggered  three-year  terms.  Pursuant  to the  Restated  Articles,  shares  of

                                       28
<PAGE>

preferred  stock may be issued by  INSpire  in the  future  without  shareholder
approval and upon such terms and conditions, and having such rights, privileges,
and  preferences,  as the Board of Directors  may  determine.  The rights of the
holders of common  stock will be subject to, and may be  adversely  affected by,
any such  preferred  stock.  The issuance of preferred  stock,  while  providing
desirable flexibility in connection with possible acquisitions,  financings, and
other  corporate  transactions,  could have the effect of  discouraging  a third
party's  acquisition  of a majority of the common stock.  INSpire has no present
plans to issue any shares of preferred stock. In addition, INSpire has adopted a
shareholder  rights  plan that  could  further  discourage  attempts  to acquire
control  of  the  Company.   Finally,   the  TBCA  restricts   certain  business
combinations with any "affiliated  shareholder," as defined therein and provides
that directors  serving on staggered boards of directors may be removed only for
cause unless the articles of incorporation otherwise provide. INSpire's Restated
Articles do not otherwise so provide.

         Recession. The U.S. economy is experiencing a significant business slow
down and is in recession,  which adversely affects the ability of the Company to
obtain new  business,  to obtain  financing  for its  business  and to  maintain
operating  margins. A further  contraction in business  conditions may adversely
affect the Company's operations and business condition.

                    Recently Issued Accounting Pronouncements

         In June 1998, the Financial  Accounting Standards Board ("FASB") issued
Statement of Financial  Accounting Standards No. 133, "Accounting for Derivative
Instruments  and Hedging  Activities"  ("SFAS  133").  SFAS 133, as amended,  is
effective for fiscal years  beginning after June 15, 2000. SFAS 133 requires all
derivative  instruments to be recorded on the balance sheet at their fair value.
Changes in the fair value of  derivatives  are  recorded  each period in current
earnings or other  comprehensive  income,  depending on whether a derivative  is
designed  as  part of a hedge  transaction  and,  if it is,  the  type of  hedge
transaction. The adoption of SFAS 133 did not have an impact on the consolidated
financial statements because the Company holds no derivative instruments.

         The FASB has issued  Statements of Financial  Accounting  Standards No.
141  "Business  Combinations"  ("SFAS  141")  and No.  142  "Goodwill  and Other
Intangible  Assets"("SFAS  142").  SFAS 141  prohibits the use of the pooling of
interests  method for business  combinations  initiated  after June 30, 2001 and
also applies to all business  combinations  accounted for by the purchase method
that are completed  after June 30, 2001.  There are also  transition  provisions
that apply to  business  combinations  completed  before  July 1, 2001 that were
accounted  for by the purchase  method.  SFAS 142 is effective  for fiscal years
beginning  after  December  15,  2001 for all  goodwill  and  intangible  assets
recognized  in  an  entity's  statement  of  financial  position  at  that  date
regardless of when those assets were initially recognized.  The Company does not
expect the  adoption  of SFAS 141 and SFAS 142 to have a material  effect on its
consolidated financial statements.

         The FASB issued  Statement No. 143,  "Accounting  for Asset  Retirement
Obligations" ("SFAS 143") in August 2001 and Statement No. 144,  "Accounting for
the  Impairment or Disposal of Long-Lived  Assets" ("SFAS 144") in October 2001.
SFAS 143 addresses  reporting for obligations  associated with the retirement of
tangible  long-lived  assets and the related asset retirement costs. SFAS 143 is
effective  for  fiscal  years   beginning  after  June  15,  2002  with  earlier
application permitted. SFAS 144 supercedes earlier guidance with respect to such
accounting  and is effective for years  beginning  after  December 15, 2001. The
Company does not expect the adoption of SFAS 143 and SFAS 144 to have a material
effect on its consolidated financial statements.

         In April  2002,  the FASB  issued  Statement  of  Financial  Accounting
Standards,  No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment
of FASB  Statement No. 13, and  Technical  Corrections"  ("SFAS 145").  SFAS 145
rescinds FASB Statement No. 4, Reporting Gains and Losses from Extinguishment of
Debt, and an amendment of that Statement, FASB Statement No. 64, Extinguishments
of Debt Made to Satisfy Sinking-Fund requirements.  This Statement also rescinds
FASB Statement No. 44, Accounting for Intangible Assets of Motor Carriers.  This
Statement  amends  FASB  No.  13,   Accounting  for  Leases,   to  eliminate  an
inconsistency  between the required  accounting for sale-leaseback  transactions
and the required  accounting for certain lease  modifications that have economic
effects that are similar to  sale-leaseback  transactions.  This  Statement also
amends other existing  authoritative  pronouncements  to make various  technical

                                       29
<PAGE>

corrections,  clarify meanings,  or describe their  applicability  under changed
conditions.  SFAS 145 is effective for financial  statements  issued on or after
May 15,  2002.  The Company  does not expect the  adoption of SFAS 145 to have a
material effect on its consolidated financial statements.

         In June  2002,  The  FASB  issued  Statement  of  Financial  Accounting
Standards,  No 146,  "Accounting  for Costs  Associated  With  Exit or  Disposal
Activities" (SFAS 146"). SFAS 146 addresses  financial  accounting and reporting
for costs  associated  with exit or disposal  activities and nullifies  Emerging
Issues Task Force  (EITF)  Issue No. 94-3,  "Liability  Recognition  for Certain
Employee  Termination  Benefits  and Other Costs to Exit an Activity  (including
Certain Costs Incurred in a  Restructuring)."  SFAS 146 is effective for exit or
disposal activities that are initiated after December 31, 2002. The Company does
not  expect  the  adoption  of  SFAS  146  to  have  a  material  effect  on its
consolidated financial statements.

ITEM 7A.          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

         INSpire  does not  maintain  any  long-term  investments,  nor does the
Company  foresee being in the position of acquiring  any  long-term  investments
within the next year. Due to only having short-term  investments with maturities
of 90 days or less,  INSpire is not  subject to the risk  involved  with  market
interest rates changes.

         INSpire does not engage in trading  market risk  sensitive  instruments
and does not  purchase  as  investments,  hedges,  or for  purposes  "other than
trading" financial instruments that are likely to expose INSpire to market risk,
whether it be from interest rate, foreign currency exchange, commodity price, or
equity  price risk.  INSpire  has issued no debt  instruments,  entered  into no
forward or futures contracts, purchased no options, and entered into no swaps.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         The Financial Statements of INSpire appear at pages F-1 to F-23.

              Quarterly Results of Operations on a Historical Basis

         The following table sets forth certain unaudited  historical  quarterly
financial  data for each of the eight  consecutive  quarters  in fiscal 2001 and
2000.  This  information is derived from  unaudited  financial  statements  that
include,  in the  opinion of  INSpire,  all  adjustments  (consisting  of normal
recurring   adjustments)   necessary  for  a  fair  presentation  when  read  in
conjunction with the financial  statements of INSpire and notes thereto included
elsewhere in this Form 10-K.
<TABLE>
<CAPTION>

                                                                      Three Months Ended
                                      Dec. 31,   Sep. 30    Jun. 30    Mar. 31   Dec. 31,   Sep. 30,    Jun. 30,   Mar.31
                                       2001       2001      2001       2001      2000 (1)    2000       2000       2000
                                     ------------------------------------------------------------------------------------
                                                              (in thousands, except share data)
<S>                                   <C>        <C>       <C>        <C>       <C>        <C>        <C>        <C>

Revenues:

   Outsourcing services               $ 14,458   $ 14,733  $ 16,298   $ 17,420  $ 23,924   $ 25,545   $ 32,069   $ 32,801

   Software and software services          947      1,642     1,378      1,087      1,274     3,920      2,163      3,731

   Other                                   181        205       359        156        288       217        360      308
                                     ---------- --------- ---------  --------- ---------- ---------  ---------   --------
   Total revenues                       15,586     16,580    18,035     18,663     25,486    29,682     34,592     36,840
                                     ---------- --------- ---------  --------- ---------- ---------  ---------   --------

Expenses :

   Cost of outsourcing services         15,163    15,318    16,635     17,893     24,803    23,113     26,188     26,613

   Cost of software and software
   services                                657       609       648        764      1,007     1,002      1,271      2,122

   Cost of other revenues                   33        60       141         19        122        26        136        119
   Selling, general and
   administrative                        3,040     2,386     3,101      2,840      2,652     2,091      2,395      2,819

   Research and development                325       321       427        497        694       520        312        614

   Depreciation and amortization         1,135     1,739     1,761      1,704      1,994     2,030      2,208      2,113



                                       30
<PAGE>

   Provision for severance costs           120       157       283         84        423        53      1,350         79

   Provision for bad debts                 150       150       148        150      2,061       232          -          -

   Litigation                              521       441       484         83        853       170          -          -

   Intangible assets impairment          1,611    29,934         -          -     17,668    13,978          -          -
                                     ---------- --------- ---------  --------- ---------- ---------  ---------   --------
   Total expenses                       22,755    51,115    23,628     24,034     52,276    43,215     33,861     34,479
                                     ---------- --------- ---------  --------- ---------- ---------  ---------   --------
Operating income (loss)                (7,169)  (34,535)   (5,593)    (5,371)   (26,790)  (13,533)        731      2,361

Other income                                19        55       104        221         18       166        142        196
                                     ---------- --------- ---------  --------- ---------- ---------  ---------   --------

Income (loss) before income tax and
cumulative effect of accounting
change                                 (7,150)  (34,480)   (5,489)    (5,150)   (26,772)  (13,367)        873      2,558

Income taxes benefit (expense)                  (19,145)     1,706      1,596      8,476     4,267      (367)    (1,002)
                                     ---------- --------- ---------  --------- ---------- ---------  ---------   --------
Income (loss) before cumulative
  effect of accounting change          (7,150)  (53,625)   (3,783)    (3,554)   (18,296)   (9,100)        506      1,556
Cumulative   effect  of  accounting
  change 2                                   -         -         -          -          -         -          -    (4,862)
                                     ---------- --------- ---------  ---------  --------  ---------   ---------  --------
Net income (loss)                    $ (7,150)  $(53,625) $  (3,783) $ (3,554)  (18,296)   (9,100)       506      (3,306)
                                     ========== ========= =========  =========  ========= =========   =========  ========

Income (loss) per share (basic)
before cumulative effect of
accounting change                    $  (0.38)  $  (2.83)   $ (0.20) $  (0.19)     $(0.96)  $ (0.48)    $  0.03    (0.08)
Cumulative effect of change in
accounting for outsourcing
  services net of tax benefit               --         --        --         --         --        --         --     (0.25)
                                      ---------  ---------  ---------  ---------  --------  ---------   ---------  --------
Net income (loss) per share basic     $ (0.38) $   (2.83) $  (0.20)    $(0.19)    $ (0.96)  $  (0.48)   $   0.03  $(0.17)
    and diluted
                                      =========  ========= =========  ========= ========== ===========  =========  ========

                                       31
<PAGE>

<FN>

(1) Previously  stated 2000 results included an expense  allocation for internal
    technical  services  and  reported  gain or loss  on  sale  of  assets  with
    operating  expenses.  These  practices  were not continued in 2001.  Certain
    amounts  have been  reclassified  in the 2000  quarters  to  conform  to the
    current year presentation.

(2) During the fourth quarter of 2000, the Company  adopted SAB 101. As a result
    of this adoption results reported in previous filings were effected and were
    restated in the 2000 10-K. Additionally, previously restated amounts did not
    include the quarterly effect on taxes of the adoption of SAB 101.
</FN>
</TABLE>

    The following table reconciles the previously  reported amounts to the above
    disclosed  for the these  changes  (amounts in  thousands,  except per share
    data).

<TABLE>
<CAPTION>


                                                                                        Restatement       Restated
                                                                     10-Q Stated          Effect           Amount
                                                                     -----------        -----------       --------
<S>                                                                   <C>               <C>              <C>

September 30, 2000
     Outsourcing services revenue                                     $     25,289      $      256       $   25,545
     Total revenues                                                         29,426             256           29,682
     Operating income (loss)                                              (13,782)             256         (13,526)
     Income (loss) before income tax and cumulative effect of
       accounting change                                                  (13,623)             256         (13,367)
     Income tax benefit (expense)                                            4,346            (79)            4,267
     Income (loss) before cumulative effect of accounting
       change                                                              (9,277)             177          (9,100)
     Net income (loss)                                                     (9,277)             177          (9,100)
     Income (loss) per share (basic and diluted) before
       cumulative effect of accounting change                               (0.48)                           (0.48)
     Net income (loss) per share (basic and diluted) after
       cumulative effect of accounting change                               (0.48)                           (0.48)

June 30, 2000
     Outsourcing services revenue                                           32,272           (203)           32,069
     Total revenues                                                         34,795            203)           34,592
     Operating income (loss)                                                   895           (203)              692
     Income (loss) before income tax and cumulative effect of
       accounting change                                                     1,076           (203)              873
     Income tax benefit (expense)                                            (430)              63            (367)
     Income (loss) before cumulative effect of accounting
       change                                                                  646           (140)              506
     Net income (loss)                                                         646           (140)              506
     Income (loss) per share (basic and diluted) before
       cumulative effect of accounting change                                 0.03               -             0.03
     Net income (loss) per share (basic and diluted) after
       cumulative effect of accounting change                                 0.03               -             0.03

March 31, 2000
     Outsourcing services revenue                                           32,560             241           32,801
     Total revenues                                                         36,599             241           36,840
     Operating income (loss)                                                 2,131             241            2,372
     Income (loss) before income tax and cumulative effect of
       accounting change                                                     2,317             241            2,558
     Income tax benefit (expense)                                            (927)            (75)          (1,022)
     Income (loss) before cumulative effect of accounting
       change                                                                1,390             166            1,556
     Cumulative effect of accounting change                                      -         (4,862)          (4,862)
     Net income (loss)                                                       1,390         (4,696)          (3,306)
     Income (loss) per share (basic and diluted) before
       cumulative effect of accounting change                                 0.07            0.01             0.08
     Per share (basic and diluted) amount of cumulative
       effect of accounting change                                               -          (0.25)           (0.25)
     Net income (loss) per share (basic and diluted)                          0.07          (0.24)           (0.17)

</TABLE>


                                       32
<PAGE>



         The  following  table sets forth,  with  respect to INSpire and for the
periods  indicated,  the  percentage of total  revenues  represented  by certain
revenue, expense, and income items:
<TABLE>
<CAPTION>

                                                          Three Months Ended
                          ----------------------------------------------------------------------------------------------
                          Sep. 30,      Jun.30,   Mar. 31,   Dec. 31,     Sep. 30,  Jun. 30,       Dec. 31,    Mar. 31,
                            2001         2001       2001      2001         2000       2000           2000       2000
                          ----------- ----------- -------  ----------  ------------ ---------       -------    ---------
<S>                         <C>         <C>        <C>       <C>          <C>         <C>           <C>          <C>

Revenues:
   Outsourcing services.     92.7%       88.9%      90.4%     93.4%        93.9 %      86.1%         92.7%        89.0%
   Software and software
   Services.............      6.1         9.9        7.6       5.8          5.0        13.2           6.3         10.1
   Other................      1.2         1.2        2.0       0.8          1.1         0.7           1.0          0.8
                            -----       -----     ------     ------       -------     ------        ------       ------
Total revenues..........    100.0       100.0      100.0     100.0        100.0       100.0         100.0        100.0
                            -----       -----     ------     ------       -------     ------        ------       ------
Expenses:
   Cost of outsourcing
     services...........     97.3        92.4       92.1      95.9         97.3        77.9          75.7         72.2
   Cost of software and
     software services..      4.2         3.7        3.6       4.1          4.0         3.4           3.7          5.8
   Cost of other revenues     0.2         0.4        0.8       0.1          0.5         0.1           0.4          0.3
   Selling, general and
     administrative.....     19.5        14.4      17.2       15.3         10.4         7.0           6.9          7.7
   Research and development,
     net................      2.1         1.9       2.4        2.7          2.7         1.8           0.9          1.7
   Depreciation and
     amortization.......      7.3        10.5       9.8        9.1          7.8         6.8           6.4          5.7
   Provision for severance
     costs..............      0.8         0.9       1.6        0.4          1.7         0.2           3.9          0.2
   Provision for bad debts    1.0         0.9       0.8        0.8          8.1         0.8           0.0          0.0
   Litigation...........      3.3         2.7       2.7        0.4          3.3         0.6           0.0          0.0
   Intangible assets
    impairment..........     10.3       180.5       0.0        0.0         69.3        47.1           0.0          0.0
   Other................      0.0         0.0       0.0        0.0          0.0         0.0           0.0          0.0
                            -----       -----     ------     ------       -------     ------        ------       ------
   Total expenses.......    146.0       308.3     131.0      128.8        205.1       145.6          97.9         93.6
                            -----       -----     ------     ------       -------     ------        ------       ------

Operating income (loss).    (46.0)     (208.3)    (31.0)     (28.8)      (105.1)      (45.6)          2.1          6.4
Other income.............     0.1         0.3       0.6        1.2          1.0         0.6           0.5          0.5
                            -----       -----     ------     ------       -------     ------        ------       ------

Income (loss) before income
   tax and cumulative effect
   of accounting change.    (45.9)      (208.0)   (30.4)     (27.6)      (105.1)      (45.0)          2.5          6.9
Income taxes benefit
   (expense)............      0.0       (115.4)     9.4        8.6         33.3        14.4          (1.1)        (2.7)
                            -----       -----     ------     ------       -------     ------        ------       ------

Loss before cumulative
   effect of accounting
   change...............    (45.9)      (323.4)   (21.0)     (19.0)       (71.8)      (30.7)          1.5         (4.2)
Cumulative effect of change
   in accounting for
   outsourcing services, net
   of income tax benefit      0.0          0.0      0.0       (0.0)         0.0         0.0           0.0        (13.2)
Net income (loss).......    (45.9)%     (323.4)%  (21.0)%    (19.0)%      (71.8)%      (30.7)%        1.5%        (9.0)%
                            ======      =====     =====      =======      =======     =======      =======       =======
</TABLE>


         INSpire has  experienced in the past and will  experience in the future
quarterly variations in net revenues and net income. Thus, operating results for
any particular quarter are not necessarily  indicative of results for any future
period.  Factors that have  affected  quarterly  operating  results  include the
introduction  of new  or  enhanced  services  and  products  by  INSpire  or its
competitors,  customer  acceptance  or rejection  of new services and  products,
product development expenses, the timing of new contract signings, the timing of
large  scale  catastrophes,  the  volume  of usage  of  INSpire's  services  and
products, acquisitions, competitive conditions in its industry, general economic
conditions and the level of selling and administrative expenses.


                                       33
<PAGE>



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

         The Company has had no  disagreements  with its  accountants  to report
under this item.




                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

                                    Directors

         The  following  persons  were the  directors of INSpire at December 31,
2001and will  continue to serve until their terms of office expire (as indicated
below), they resign, or until their successors are elected and qualified.
<TABLE>
<CAPTION>

                                                                                     Served as
                   Name                    Age         Position with Company       Director Since    Term Expires
      -------------------------------  -------------  -------------------------  ----------------------------------
      <S>                                   <C>       <C>                              <C>               <C>

      John F. Pergande                      39        Chairman and Director            2000              2003
      Harry Bartel (A),(C), (D)             59        Director                         1996              2003
      Gregory B. Kent  (A)                  54        Director                         2000              2003
      Daniel E. Berce (A), (C)              48        Director                         1999              2004
      R. Earl Cox, III (A), (C),(D)         68        Director                         1996              2004
      Tom Slone                             59        Director                         2001              2002
      Jo Ann Howard (D)                     62        Director                         2001              2002
      Richard J. Marxen (D)                 55        President, Chief                 2001              2002
                                                      Executive Officer and
                                                      Director

         (A) Audit Committee,  (C) Compensation Committee, (D) Current Director
</TABLE>

         John F.  Pergande,  39, served as a director of INSpire since May 2000.
Mr.  Pergande  was also  appointed  as  Chairman  of the  Board by the  Board of
Directors  effective  August  28,  2000.  He served as interim  Chief  Executive
Officer from September 2000 through  October 2001. Mr.  Pergande is a partner in
Buena  Venture  Associates.  From  1997 to  1998,  Mr.  Pergande  was the  Chief
Financial Officer of Pyramid Services,  Inc. From 1995 to 1997, Mr. Pergande was
a member of the Corporate  Finance Group of Electronic Data Systems,  Inc. Prior
to 1995, Mr. Pergande was a corporate banker for Citibank. Mr. Pergande resigned
from  the  board  of  directors  on  August  13,  2002.  He  did  not  cite  any
disagreements with the Company relating to the Company's operations, policies or
practices as a reason for his departure.

         Harry E.  Bartel,  59, has served as a director of INSpire  since 1996,
and his current term as director  expires in 2003.  Mr.  Bartel also served as a
director of Millers Insurance and Millers Casualty from March 1995 to June 1997.
Mr.  Bartel has been a partner  with the law firm of Cantey & Hanger,  LLP since
1968.

         Gregory B. Kent,  54, served as a director of INSpire  since 2000.  Mr.
Kent has served as the risk manager for Bass  Enterprises  Production  Co. since
1989.  Mr. Kent served as a director of National  Reinsurance  Corporation  from
1991 through  1996.  Mr Kent  resigned from the board of directors on August 13,
2002.  He did not  cite  any  disagreements  with the  Company  relating  to the
Company's operations, policies or practices as a reason for his departure.

                                       34
<PAGE>

         Daniel E. Berce,  48, served as a director of INSpire since March 1999.
Since November 1996, Mr. Berce has served as Vice Chairman of AmeriCredit Corp.,
a publicly traded consumer finance company  ("AmeriCredit").  Mr. Berce also has
served as Chief Financial  Officer and a director of AmeriCredit since May 1990,
and Treasurer of AmeriCredit  from May 1990 to November 1996. Mr. Berce has also
served as a director of Curative Health Services, Inc., a publicly traded health
services  company,  since  February  2000  and  A22,  Inc.,  a  publicly  traded
manufacturing and services company since August 2000. Previously,  Mr. Berce was
a partner with  PricewaterhouseCoopers LLP. Mr. Berce resigned from the board of
directors on August 14, 2002. He did not cite any disagreements with the Company
relating to the Company's operations,  policies or practices as a reason for his
departure.

         R. Earl Cox,  III, 68, has served as a director of INSpire  since 1996,
and his  current  term as  director  expires in 2004.  Mr. Cox also  served as a
director of Millers Insurance and Millers Casualty from March 1987 to June 1997.
Since 1977, Mr. Cox has served as president of R. E. Cox Realty Co. and has been
a co-owner of OFCO Office  Furniture,  Inc.  since 1985. Mr. Cox has served as a
director of KBK Capital Corp., a factoring company, since 1995 and a director of
Tandycraft, Inc., a manufacturer and retailer of craft products, since 1985. Mr.
Cox served as Chairman of the Board of Tandycraft, Inc. from 1985 until November
1999.

         Tom Slone,  59,  served as a director  of INSpire  since June 2001.  He
recently retired as senior executive vice president-U.S.  Consumer Operations of
Associates  First Capital  Corporation,  a leading  diversified  finance company
providing  consumer  and  commercial  finance,  leasing,  insurance  and related
services worldwide.  During his tenure at Associates,  Mr. Slone was responsible
for the company's network of consumer finance offices,  its broker operation and
its  centralized  processing  centers in the U.S.  Mr.  Slone is active with Big
Brothers Big Sisters of Tarrant County, a nationwide  social agency that matches
caring  adults  with  children at risk.  Mr.  Slone  resigned  from the board of
directors on June 6, 2002.  He did not cite any  disagreements  with the Company
relating to the Company's operations,  policies or practices as a reason for his
departure.

         Jo Ann Howard, 62, is an attorney in private practice and has served as
a director  of INSpire  since June 2001.  She was  appointed  Federal  Insurance
Administrator  from 1998 to 2001 by President  Clinton and was  responsible  for
managing  more than $523  billion of flood  insurance  in force in the  National
Flood  Insurance  Program.  Earlier,  Mrs. Howard was appointed legal counsel to
several insurance  receiverships  from 1992 to 1997. She was chief regulator for
the Texas Department of Insurance from 1989 to 1991.

         Richard "Dic" Marxen,  55, was appointed  president and chief executive
officer and director of INSpire Insurance Solutions in November 2001. Mr. Marxen
was founder and CEO of  Connective  Technologies,  Inc., a  profitable  software
development  company  providing  electronic  data  interchange  and  Web-enabled
solutions to 18 property and casualty insurance carriers.  In 2000, he served as
CEO of Wheatley Insurance Systems and ultimately assisted in the successful sale
of the  software  company to AIG.  From 1984 to 1995,  he was founder and CEO of
Marxen  &  Associates,   a  consulting  and  investment  firm   specializing  in
turnarounds.  Mr. Marxen was also founder,  CEO and president of Matrix Systems,
Inc. a provider of agency management systems to independent insurance agents and
brokers.  Matrix installed  automated systems in over 2000 agencies  nationwide.
Mr.  Marxen was with Matrix from 1969 to 1991 until it was sold to the  Republic
Insurance Group, a subsidiary of Winterthur.

                               Executive Officers

         Gordon  Gaar,  39, has served as Vice  President  and Chief  Technology
Officer of INSpire  since July 2001.  From  August  1999 to June 2000,  Mr. Gaar
served as the Director of Advanced  Application  Development  for INSpire.  From
January 1995 to July 1999,  Mr. Gaar served as a Senior  Consultant  focusing in
new systems  development for insurance  companies at IBM. Mr. Gaar served as the
Development Manager for the Tools and Framework group for HBOC, a leading health
care information  systems provider from 1994 to 1995. Also at HBOC, Mr. Gaar led
many  research  and  development  efforts  involving  new  technology,   product
development,  and implementations from 1985 to 1994. From 1982 to 1985, Mr. Gaar
held several  positions with Citicorp  Credit  Services,  the last position held
being MIS  manager.  Mr.  Gaar  studied  Information  Systems at  Georgia  State
University  and has  seventeen  years  experience  in software  development  and
implementation.

                                       35
<PAGE>

         Ann Mirabito,  47, served as Vice President and Chief Marketing Officer
of INSpire since October 2000.  From 1996 to 2000, Ms. Mirabito served as Senior
Vice President of Rapidforms, Inc., heading up strategy and marketing operations
for the business-to-business products and services direct marketer. From 1992 to
1996, Ms.  Mirabito  served as President of Greater Fulton (New York) Chamber of
Commerce,  where she led the business  community in attracting  investments  and
growth  opportunities.  From 1988 to 1992, Ms. Mirabito served as Vice President
and Associate  Publisher  directing Time Warner's Time Life Books narrative book
operations,  where she introduced the fastest  selling product in the division's
history.  Ms. Mirabito also held marketing  management  positions with Frito Lay
from 1983 to 1987. Ms.  Mirabito has a bachelor's  degree in economics from Duke
University  and an MBA  from  Stanford  University,  and  has  twenty  years  of
experience in marketing  strategy and brand  development.  Ms. Mirabito resigned
from the Company August 15, 2002 to pursue other interests.

         Eric Lundby, 57, Vice President of Insurance Operations for INSpire, is
a veteran of more than 33 years in the property and casualty industry. He joined
INSpire in February 1997 as vice president and senior claims  officer.  Prior to
joining  INSpire,  Mr. Lundby served as president of Omaha Property and Casualty
and Omaha Indemnity Companies,  as well as serving on the board of directors for
both  companies.  He has also served in  management  positions  for the American
National  Property and Casualty and Houston General  Companies.  Mr. Lundby is a
former  member of the NAII  Executive  Council.  He has served on the  Insurance
Faculty of Southwest  Missouri  State  University  and earned a Bachelor of Arts
from Simpson College.

         Andrea  Goodrich,  37, has served as Vice  President and Controller for
INSpire  since  February  2001.  Beginning in January  2002,  she was  appointed
Interim  CFO until  promoted  to the role in June 2002.  From 1991 to 2000,  Ms.
Goodrich held  controller  duties with Republic Group of Insurance  Companies in
Dallas,  American  General  Corporation  in  Houston  and  Central  United  Life
Insurance Company in Houston. She also spent four years as an auditor, including
experience  with a Big 5 public  accounting  firm. Ms. Goodrich has a bachelor's
degree in accounting from the University of Houston and is a member of the AICPA
and the Texas Society of CPA's.

         Larry  Stern,  41,  joined  INSpire  in  1999  and was  appointed  Vice
President,  Professional  Services  in  2002.  He  spent  16  years  with EDS in
technical,  leadership and business  development  positions.  This included five
years during which he led EDS' Insurance Services Division. Mr. Stern received a
bachelor's  degree in  management  information  systems and  marketing  from the
University of Virginia.

         Greg Vick,  47, joined  INSpire in December  2000 as Vice  President of
Human Resources. He has 20 years of experience in human resources. From May 1997
to December  2000,  Mr. Vick worked at Brink's Home Security  where he served as
director of human resources. He also served as compensation and benefits manager
for Lockheed Martin  Logistics from May 1993 to May 1997, and various  corporate
benefits leadership  positions with Bank One, Champlin Petroleum and Bank Texas.
He has a Bachelor of Arts degree in business  administration from the University
of Texas at Arlington and an MBA from Texas Christian University.

             Section 16(a) Beneficial Ownership Reporting Compliance

         Section 16(a) of the  Securities  Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's officers and directors,  and persons who
own more than 10% of a registered class of the Company's equity  securities (the
"10% Shareholders"),  to file reports of ownership and changes of ownership with
the Securities and Exchange Commission. Officers, directors and 10% Shareholders
of the Company are required by Securities and Exchange Commission  regulation to
furnish the Company with copies of all Section 16(a) forms so filed.

         Based solely on review of copies of such forms  received from executive
officers and directors,  the Company believes that, during the last fiscal year,
all  filing  requirements  under  Section  16(a)  applicable  to  its  officers,
directors  and 10%  Shareholders  were  timely met except for the late filing of
Richard  Marxen's  Form 3 and the  failure  to file of Forms 5 for stock  option
grants to: Harry E. Bartel,  Daniel E. Berce, R. Earl Cox, III, Gregory B. Kent,
Jo Ann  Howard,  Thomas R.  Slone,  Gordon L. Gaar,  Darren W.  Horn,  Robert G.
Milburn and John F. Pergande.

                                       36
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

         The following  table sets forth the annual and  long-term  compensation
with  respect to the Chief  Executive  Officer  of  INSpire,  the  former  Chief
Executive  Officer  of  INSpire,  and  INSpire's  four most  highly  compensated
executive  officers other than the Chief Executive  Officer and former executive
officers  required by SEC  Regulation S-K (the "named  executive  officers") for
services rendered during 2001.
<TABLE>
<CAPTION>
                                                              Annual                    Long Term
                                                           Compensation                Compensation
                                                         ------------------           ---------------
         Name and Principal Position             Year         Salary         Bonus      Securities      All Other
                                                                                        Underlying
                                                                                         Options       Compensation

<S>                                                 <C>         <C>            <C>           <C>             <C>

Richard  Marxen                                     2001        $   76,464     $    -        200,000         $      -
   Chief Executive Officer and President            2000                 -          -              -                -
                                                    1999                 -          -              -                -


John F. Pergande (2)                                2001           356,083          -        200,000                -
  Former Chairman of the Board and Former           2000           107,461          -        400,000                -
 Chief Executive Officer                            1999                 -          -              -                -


Gordon L. Gaar                                      2001           220,315          -        100,000                -
   Vice President and Chief Technology              2000           221,036          -        100,000                -
     Officer                                        1999                 -          -              -                -


Patrick E. Grady                                    2001           247,237          -              -                -
   Former Chief Financial Officer                   2000            26,538          -              -                -
                                                    1999                 -          -              -                -


Darren W. Horn                                      2001           257,050          -         30,000                -
   Former Vice President                            2000           214,604          -              -                -
                                                    1999                 -          -              -                -


Robert G.  Milburn                                  2001           200,410          -         30,000                -
   Former Vice President                            2000                 -          -              -                -
                                                    1999                 -          -              -                -
</TABLE>


Employment and Indemnification Agreements

         In October 2001, INSpire entered into an employment  agreement with Mr.
Marxen.  The  agreement  provides for an annual salary of $325,000 and a monthly
car  allowance of $1,000.  Mr.  Marxen was granted  options to purchase  200,000
shares  of common  stock at an  exercise  price of $.38,  which  options  vested
immediately.  Mr. Marxen is additionally entitled to receive options to purchase
600,000  shares of common stock at various  exercise  prices,  to participate in
INSpire's  employment benefit programs and to reimbursement of expenditures made
by him in the performance of his services and duties.  INSpire may terminate Mr.
Marxen without  notice for "cause" (as defined in the employment  agreement) and
may  terminate  him with six  months  notice  for any  reason.  Mr.  Marxen  may
terminate  his  employment  at any time and for any reason  provided that he has
provided  INSpire with at least six months prior  written  notice.  In the event
that INSpire or Mr. Marxen  terminate the agreement with six months notice,  Mr.
Marxen is entitled to a severance  payment  equal to six months  salary.  In any
other event, Mr. Marxen is not entitled to a severance payment. Upon a change of

                                       37
<PAGE>

control of INSpire,  which  definition  includes,  among other items,  a sale of
substantially  all of the assets of  INSpire,  all  options not vested as of the
date of the change of control will  immediately  vest. Mr. Marxen is not subject
to any noncompetition prohibitions upon termination of the agreement.

         In September 2000,  INSpire  entered into an employment  agreement with
Mr. Pergande,  which terminates on September 4, 2003. The agreement provides for
an annual  salary of  $325,000.  Mr.  Pergande  was granted  options to purchase
200,000  shares of common  stock under the Stock  Option Plan on the date of the
agreement and options to purchase an additional  200,000  shares on December 31,
2000 and 2001.  Also  pursuant  to the  agreement,  Mr.  Pergande  is subject to
noncompetition and confidentiality  provisions.  The options to purchase 600,000
shares were cancelled  when Mr.  Pergande was terminated as an employee on March
2, 2002.  He  continued  as  Chairman  of the Board  until  August 15,  2002 and
received options to purchase 3,750 shares under the Directors Stock Option Plan.

           In July 2000,  INSpire entered into an employment  agreement with Mr.
Gaar, which terminated on July 1, 2001. The agreement  automatically renews each
July 1 unless  notice is given  three  months  prior to the  renewal  date.  The
agreement,  which would have automatically renewed on July 1, 2002, and provided
for an  annual  salary  of  $220,000,  has not been  assumed  in the  bankruptcy
proceedings.

Option Grants in the Last Fiscal Year

          The following  table sets forth  certain  information  concerning  the
options granted to the named executive officers during 2001.
<TABLE>
<CAPTION>


                                                                                           Potential Realizable Value
                                Number of        % of Total                                at Assumed Annual Rates of
                               Securities     Options Granted                               Stock Price Appreciation
                               Underlying        in Fiscal       Exercise     Expiration               of
                                 Options          Year(1)          Price         Date            Option Term (2)
                                 -------          -------          -----         ----            ---------------
                                                                                                5%            10%
                                                                                                --            ---
<S>                               <C>              <C>             <C>        <C>               <C>            <C>

Richard Marxen                    200,000(3)       18.6%           $0.38      10/18/2006        --             --
John F. Pergande                  200,000(3)       18.6%           $5.00      12/31/2006        --             --
Gordon L. Gaar                    100,000(4)        9.3%           $1.31      12/31/2006        --             --
Patrick E. Grady                   --                --             --            --            --             --
Darren W. Horn                     30,000(5)        2.8%           $1.31      12/31/2004        --             --
Robert G. Milburn                  30,000(5)        2.8%           $1.31      12/31/2004        --             --
------------------
<FN>
(1)      Options to purchase a total of  1,076,500  shares of common  stock were
         granted in 2001.
(2)      The amounts  under the columns  labeled  "5%" and "10%" are included by
         the Company pursuant to certain rules promulgated by the Securities and
         Exchange Commission (the "SEC") and are not intended to forecast future
         appreciation,  if any, in the price of the common  stock.  Such amounts
         are based on the assumption that the named persons hold the options for
         the full term of the options. The actual value of the options will vary
         in accordance  with the market price of the common stock.  These fields
         are left blank in accordance  with SEC regulations as a 10% increase in
         the market  price of common stock would still be less than the exercise
         price  of all  options  listed.
(3)      Mr.  Pergande's and Mr. Marxen's  options were fully vested on the date
         of grant.
(4)      Vesting 25,000 shares on 12/31/2002,  37,500 shares on 12/31/2003,  and
         37,500 shares on 12/31/2004.
(5)      Vesting 10,000 shares per year.

</FN>
</TABLE>


                                       38
<PAGE>

Exercises of Options

         The following  table sets forth  information  with respect to the Named
Executive  Officers  concerning  the exercise of options  during fiscal 2001 and
unexercised  options held as of December 31, 2001. No options were  exercised by
the Named Executive Officers during 2001.
<TABLE>
<CAPTION>

               Aggregated Option Exercises in Last Fiscal Year and
                          Fiscal Year-End Option Values
                                                                                                  Value of
                                                                           Number of             Unexercised
                                      Number of                           Unexercised           in-the-money
                                       Shares                               Options                options
                                      Acquired                            at FY-end:             at FY-end:
                                         on                              Exercisable/           Exercisable/
               Name                   Exercise     Value Realized        Unexercisable        Unexercisable(1)
<S>                                      <C>             <C>            <C>                          <C>


Richard Marxen.................          --              --                200,000/0                 --

John F. Pergande...............          --              --                600,000/0                 --

Gordon L. Gaar.................          --              --             25,000/175,000               --

Patrick E. Grady...............          --              --                   --                     --

Darren W. Horn.................          --              --                0/30,000                  --

Robert G. Milburn..............          --              --                0/30,000                  --
-----------
<FN>

(1)      Values are stated  based upon the  closing  price of $0.33 per share of
         the common  stock on the NASDAQ  National  Market on December 31, 2001,
         the last trading day of the Company's fiscal year.
</FN>
</TABLE>

Compensation of Directors.

         During  2001,  Harry E. Bartel,  Daniel E. Berce,  R. Earl Cox, III and
Gregory B. Kent were each  granted  options to purchase  375 shares of INSpire's
common stock and Jo Ann Howard and Thomas R. Slone were each granted  options to
purchase 3,750 shares of INSpire's  common stock. All options were granted under
INSpire's  Director Stock Option Plan and were immediately vested on the date of
grant at an exercise price of $0.70.

Compensation Committee Interlocks and Insider Participation

Messrs.  Bartel and Cox served on INSPire's  compensation  committee  and have a
business  relationship  with INSpire that is required to be disclosed  under the
applicable  rules of the  Securities  and  Exchange  Commission.  See  "Item 13.
Certain  Relationships  and  Related  Transactions"  for a  description  of  the
business relationship.

Board Compensation Committee Report on Executive Compensation


      JOINT REPORT OF THE COMPENSATION COMMITTEE AND THE BOARD OF DIRECTORS
                                       ON
                             EXECUTIVE COMPENSATION
                                November 12, 2001


General

In 2001, the  Compensation  Committee was comprised of Messrs.  Cox  (Chairman),
Bartel and Berce,  each of whom is an outside  independent  director.  Mr. Berce
resigned in August 2002 and did not review this Joint Report.

The  Compensation  Committee is responsible for establishing the compensation of
INSpire's  directors,   officers  and  other  managerial  personnel,   including
salaries,  bonuses,  termination agreements and other executive officer benefits
as well as certain grants of stock options.

                                       39
<PAGE>

Although the Board of Directors delegated certain  responsibilities as described
above to the Compensation Committee, in determining  compensation for directors,
officers and other  managerial  personnel for 2001,  the Board of Directors as a
whole  either  ratified  the  actions  of the  Compensation  Committee  or acted
directly  with respect to such  decisions.  As of the date of this joint report,
the Board of Directors was comprised of Messrs.  Berce,  Cox, Bartel,  Pergande,
Kent, Slone, Marxen and Ms. Howard. Messrs. Berce, Cox ,Pergande, Kent and Slone
resigned in August 2002 and did not review this Joint Report.  Messrs.  Pergande
and Marxen abstained from all compensation  decisions with respect to themselves
for their respective service as Chairman of the Board of Directors and President
and Chief Executive Officer.

2001 Compensation

Base  Salary.  The base  salaries  of  executive  officers  are  established  in
consideration of the competitive  market for executives of comparable  levels at
companies of a comparable  stage of development.  In establishing  base salaries
for INSpire's  executive  officers,  INSpire has engaged a consulting group (the
"Consultant") to prepare independent job evaluations and market research reports
for INSpire.  The Consultant uses a formal compensation point factor system that
evaluates  appropriate  compensation  for an  executive  position  based  on the
know-how and  problem-solving  abilities  required in connection  with,  and the
accountability  with respect to, such position.  INSpire obtains a salary survey
from the Consultant at least once each year to ensure that  INSpire's  executive
compensation is competitive in the marketplace.

The Board of Directors  caused INSpire to enter into employment  agreements with
Mr. Pergande and Mr. Marxen. Mr. Gaar also has an employment  agreement with the
Company.  The Board of Directors  believes the annual  compensation  provided to
each  of  INSpire's  executive  officers,  whether  pursuant  to  an  employment
agreement or otherwise,  is commensurate with the  responsibilities,  experience
and individual performance of such executive officer.

Bonuses.  The criteria in awarding bonuses to executive  officers is established
by the  Compensation  Committee  pursuant to the 1998 Annual Bonus Plan. If such
criteria  are not met,  no bonuses  will be granted to  executive  officers.  No
performance awards were paid in 2001 under the 1998 Annual Bonus Plan.

Stock Options.  The Board of Directors believes that equity ownership in INSpire
provides important incentives to INSpire's  directors,  officers and significant
employees to enhance the  financial  performance  of INSpire and  encourage  the
continued  creation of shareholder value. The Stock Option Plan is also designed
to enhance  INSpire's  ability to attract and retain  qualified  management  and
other personnel necessary for the success and progress of INSpire. Stock options
are  granted  to the  executive  officers  on a  discretionary  basis  based  on
INSpire's performance and the executive officer's  contributions to INSpire. The
number of stock options granted to each of the named executive  officers in 2001
is set forth under "Executive Compensation - Option Grants in Last Fiscal Year."
These grants were made in 2001 to reward the  performance  of these  individuals
for their past performance and to encourage  retention of these individuals in a
competitive  marketplace  for such executive  talent.  The amounts of the grants
were based on each  individual's  responsibilities  and contributions to INSpire
without establishing any specific quantitative formula.

2001 Compensation of Chief Executive Officer

The base salary,  bonus and grants of options for Mr. Pergande was determined in
accordance  with  the same  procedures  and  standards  as for  other  executive
officers of INSpire, as set forth in his employment agreement.  See "-Employment
and  Indemnification  Agreements."  Mr.  Marxen  replaced  Mr.  Pergande  as the
Company's  Chief  Executive  Officer on November 11,  2001.  Mr.  Marxen's  base
salary,  bonus and grants of options was also  determined in accordance the same
procedures  and  standards as for other  executive  officers of INSpire,  as set
forth in his employment agreement.

Compliance with Internal Revenue Code Section 162(m)

In 2001,  INSpire was subject to compliance  with Section 162(m) of the Internal
Revenue Code of 1986, as amended  ("Section  162(m)").  Section 162 (m) provides
that  compensation in excess of $ 1,000,000 paid to the chief executive  officer
of INSpire and the four highest compensated  officers of INSpire (other than the
chief  executive  officer)  cannot be deducted by INSpire for federal income tax
purposes  unless,  in  general,  such  compensation  is  performance  based,  is
established by a committee of outside directors,  is objectively  determined and
the plan or agreement  providing  for such  performance  based  compensation  is
approved by  shareholders.  All compensation  paid to executive  officers during
2001 was tax  deductible  to INSpire.  The  Compensation  Committee  expects all
compensation  paid to executive  officers  during 2002 to be tax  deductible  to
INSpire.  In the future,  however,  the Compensation  Committee may determine to
adopt a  compensation  program that does not satisfy the  conditions  of Section
162(m)  if,  in its  judgment  after  considering  the  additional  costs of not
satisfying Section 162(m), such program is appropriate.

                                       40
<PAGE>

COMPENSATION COMMITTEE                               BOARD OF DIRECTORS
R. Earl Cox, III, Chairman                           Harry E. Bartel
Harry E. Bartel                                      R. Earl Cox, III
                                                     JoAnn Howard
                                                     Richard J. Marxen

Common Stock Performance Graph

     The following performance graph sets forth the cumulative total shareholder
return for the common  stock,  the S&P 500 Index and the Nasdaq  Computer & Data
Processing Index for the period  indicated.  The performance  graph assumes $100
invested in the common stock at its closing  price on August 22, 1997,  the date
on which the common stock commenced  trading on the Nasdaq National Market,  and
in each of the S&P 500 Index and the Nasdaq Computer & Data Processing  Index on
the same date.  The  performance  graph also  assumes  the  reinvestment  of all
dividends, if any. The dates on the performance graph represent the last trading
day of each month indicated.




                                       41
<PAGE>






                   Comparison of Cumulative Total Return Among
     INSpire, the S&P 500 Index, and Nasdaq Computer & Data Processing Index

[CHART OMITTED]


ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The  following  table  sets  forth,  as  of  September  17,  2002,  certain
information with respect to the beneficial  ownership of the common stock by (i)
each person known by INSpire to own beneficially more than 5% of the outstanding
shares of common stock,  (ii) each director of INSpire as of September 17, 2002,
(iii)  each  named  executive  officer  as of  December  31,  2001  and (iv) all
directors and executive officers as a group.
<TABLE>
<CAPTION>

                                                               Number of Shares                  Percent of Shares
Name of Beneficial Owner                                       Beneficially Owned (1)            Beneficially  Owned (2)
------------------------                                       ----------------------            -----------------------
<S>                                                                   <C>                               <C>

Millers Insurance............................................         4,606,875 (3)                     24.05%
         777 Main Street, Suite 1000
         Fort Worth, Texas 76102
Buena Venture Associates, L.P ...............................         2,341,000 (4)                     12.22%
         201 Main Street, Suite 3200
         Fort Worth, Texas 76102
Dimensional Fund Advisors...................................          1,284,650 (5)                     6.71%
         1299 Ocean Avenue Street 2, 11th Floor
         Santa Monica, California 90401
Newcastle Partners, L.P......................................         1,805,650 (6)                     9.43%
         200 Crescent Court, Suite 670
         Dallas, TX  75201
Harry E. Bartel..............................................            12,125 (7)                       *
R. Earl Cox, III.............................................             8,725 (7)                       *
Gordon L. Gaar...............................................            67,000 (8)                       *
Patrick E. Grady.............................................                 0 (9)                       *
Darren W. Horn...............................................                 0 (9)                       *
Jo Ann Howard................................................            3,750  (10)                      *
Richard Marxen...............................................           200,000 (11)                    1.03%

                                       42
<PAGE>

Robert G. Milburn............................................                 0 (9)                       *
John F. Pergande.............................................             3,750 (9)(10),(12)              *
All  directors  and  executive   officers  as  a  group  ((9)           295,350                         1.51%
individuals)
<FN>
*        Less than 1%.

(1)      Beneficial  ownership is determined in accordance with the rules of the
         Securities  and Exchange  Commission and generally  includes  voting or
         investment power with respect to securities. Except as indicated in the
         footnotes to this table and subject to  applicable  community  property
         laws,  the persons  named in the table have sole voting and  investment
         power with respect to all shares of Common Stock beneficially owned.
(2)      Percentages  are based on 19,153,708  shares of common stock issued and
         outstanding on August 31, 2002, except for percentages of those parties
         that are based on  presently  exercisable  options as  indicated in the
         following   footnotes.   In  the  case  of  parties  holding  presently
         exercisable  options,  the  percentage  ownership is  calculated on the
         assumption that the shares  underlying those options  presently held or
         purchasable  within the next 60 days are outstanding for the purpose of
         computing  percentage  ownership  of  that  individual  but not for the
         purpose of computing  percentage ownership of any other person or group
         shown in the table.
(3)      Based on the  Schedule  13G/A filed by Millers  American  Group,  Inc.,
         Trilogy  Holdings,  Inc. and Millers  Insurance with the SEC on January
         21, 2000.
(4)      Based on the  Schedule  13D and three  Form 4's filed by Buena  Venture
         Associates,  L.P. with the SEC on October 28, 1999, July 10, 2000, July
         11, 2000 and July 13, 2000, respectively.
(5)      Based on the Schedule 13G/A filed by Dimensional Fund Advisors with the
         SEC on February 12, 2002.
(6)      Based on the Schedule 13D/A filed by Newcastle  Partners,  L.P. and its
         affiliates with the Securities and Exchange Commission on September 17,
         2002.
(7)      Includes  8,625 shares of common stock stock issuable upon the exercise
         of options that are  currently  exercisable  or  exercisable  within 60
         days.
(8)      Includes  options to purchase  67,000  shares of common stock  issuable
         upon  the  exercise  of  options  that  are  currently  exercisable  or
         exercisable within 60 days.
(9)      Messrs. Grady, Horn Millburn and Pergande were named executive officers
         of INSpire as of December 31, 2001.
(10)     Includes  3,750  shares of common stock  issuable  upon the exercise of
         options that are currently exercisable or exercisable within 60 days.
(11)     Includes  200,000  shares  of  common  stock  stock  issuable  upon the
         exercise  of options  that are  currently  exercisable  or  exercisable
         within 60 days.
(12)     In addition,  2,341,000  shares are held by Buena  Venture  Associates,
         L.P. Mr.  Pergande is a partner in Buena Venture  Associates,  L.P. and
         may be deemed to be the beneficial owner of the shares.

</FN>
</TABLE>


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Higginbotham and Associates, Inc., which is partly owned by InsureZone,
Ltd.,  that is in turn is 42% owned by Buena Venture  Associates,  L.P., a 12.2%
shareholder  of  INSpire,  provides  insurance  services to the  Company.  As of
December  31,  2001,  the Company has paid  approximately  $578,000 for services
provided in 2001. Mr. Pergande, INSpire's former Chairman, is a partner in Buena
Venture Associates, L.P.

           INSpire  leases  its  approximately  129,400  square  foot  corporate
headquarters  in Fort  Worth,  Texas  from IIS  Realty,  Ltd.,  a Texas  limited
partnership  (the  "Partnership")  pursuant  to a lease  agreement,  dated as of
November 13, 1998 (the "Lease  Agreement") and amendments to the Lease Agreement
effective  May 1, 1999 and  November  1, 1999.  F.  George  Dunham,  III (former
Chairman and CEO) owns a 50% interest in the Partnership and Messrs. Bartel, Cox
and Wynne,  who are directors of INSpire with the  exception of Mr.  Wynne,  who
resigned as a director in January 2000,  own the remaining 50% interest in equal
parts. The term of the Lease Agreement is ten years,  with one renewal option of
five years.  The Lease  Agreement,  as  amended,  provides  for  monthly  rental

                                       43
<PAGE>

payments of approximately $86,250 for the first five years, $97,000 for the next
five years, and $108,000 for the five-year renewal period, plus taxes, insurance
and maintenance costs. For the year ended December 31, 2001, INSpire made rental
payments  of  approximately  $1,035,000  to  the  Partnership  under  the  Lease
Agreement.

         INSpire and Millers Insurance,  an entity that owns 24.26% of Inspire's
common stock, are parties to a sublease agreement,  dated as of January 1, 1997,
pursuant to which  Millers  Insurance  subleases to Inspire  certain  furniture,
equipment and other  personal  property  that Millers  Insurance has leased from
third  parties under various  equipment  leases for the benefit of INSpire.  The
sublease  payments by INSpire to Millers  Insurance under the sublease equal the
lease payments by Millers Insurance to the lessors under the respective  leases.
For  the  year  ended  December  31,  2001,   INSpire  made  lease  payments  of
approximately $104,000. The Company provides outsourcing services, software, and
software services to Millers American Group, Inc. ("Millers American"),  Millers
Insurance,  an  indirect  wholly-owned  subsidiary  of Millers  and the  Millers
Casualty Insurance Company ("Millers Casualty"), an indirect 99.5% subsidiary of
Millers Insurance, under the terms of a five-year Master Services Agreement (the
"Millers' MSA").  Millers Insurance is a 24.2%  shareholder of the Company.  The
Company and various Millers American  subsidiaries entered into the Millers' MSA
in December  1999.  For the years ended  December 31, 2001,  2000 and 1999,  the
Company  earned  total  fees  of  $19,282,000,   $25,354,000  and   $28,458,000,
respectively,  under the  Millers'  MSA.  See Note 13,  Dependence  on Customers
regarding the Millers business.




                                       44
<PAGE>


                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

         (a)      The following documents are filed as part of this report:

                  (1)      Financial Statements

                           Independent Auditors' Report
                           Consolidated Balance Sheets as of December 31, 2001
                             and 2000
                           Consolidated Statements of Operations for each of the
                             three years ended December 31, 2001, 2000 and 1999.
                           Consolidated  Statements of Shareholders'  Equity for
                             each of the three years ended  December  31,  2001,
                             2000 and 1999.
                           Consolidated Statements of Cash Flows for each of the
                             three years ended December 31, 2001, 2000 and 1999.
                           Notes to the Consolidated Financial Statements

                  (2)      Financial Statement Schedules

                           None.

                           Schedules not listed above have been omitted  because
                           they are not required or are not applicable.

                  (3)      Exhibits

                           The information required by this Item 14(a)(3) is set
                           forth  in the  Exhibit  Index  immediately  following
                           INSpire's financial  statements.  The exhibits listed
                           herein will be furnished upon written  request to the
                           Investor  Relations  Department of INSpire located at
                           INSpire's  headquarters  and payment of a  reasonable
                           fee that  will be  limited  to  INSpire's  reasonable
                           expense in furnishing such exhibits.

         (b)      The  Company  filed no Current  Reports on Form 8-K during the
                  three months ended December 31, 2001.

                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended,  the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.

                                           INSPIRE INSURANCE SOLUTIONS, INC.


                                           By: /s/ Richard Marxen
                                              ----------------------------------
                                              Name:    Richard Marxen
Date  November 7, 2002                        Title:   Chief Executive Officer
    ----------------------------


         Each person  whose  signature  appears  below  hereby  constitutes  and
appoints Richard Marxen his true and lawful attorney-in-fact, for him and in his
name,  place and stead,  to sign any and all  amendments  to this  Report and to
cause the same to be filed with the Securities and Exchange  Commission,  hereby
granting to said attorney-in-fact full power and authority to do and perform all
and every act and thing  whatsoever  requisite  or  desirable  to be done in and
about the premises as fully to all intents and purposes as the undersigned might

                                       45
<PAGE>

or could do in person,  hereby ratifying and confirming all acts and things that
said attorney-in-fact may do or cause to be done by virtue of these presents.

         Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>

                          Signature                                          Title                          Date
<S>                                                          <C>                                          <C>



/s/ Richard Marxen                                           Chief Executive Officer (principal           November 7, 2002
---------------------------------------------------          executive officer)
 Richard Marxen

/s/ Andrea Goodrich
----------------------------------------------------         Chief Financial Officer (principal           November 7, 2002
Andrea Goodrich                                              financial officer and principal
                                                             accounting officer)


/s/ Harry E. Bartel
----------------------------------------------------         Director                                     November 7, 2002
Harry E. Bartel


/s/ R. E. Cox, III
----------------------------------------------------         Director                                     November 7, 2002
R. E. Cox, III

/s/ Jo Ann Howard
----------------------------------------------------         Director                                     November 7, 2002
Jo Ann Howard


</TABLE>




                                       46
<PAGE>


                                 CERTIFICATIONS

I, Richard Marxen, certify that:

1.       I have reviewed  this annual  report on Form 10-K of Inspire  Insurance
         Solutions, Inc.;

2.       Based on my  knowledge,  this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances  under which
         such  statements  were made, not misleading  with respect to the period
         covered by this annual report; and

3.       Based on my knowledge,  the financial  statements,  and other financial
         information  included  in this  annual  report,  fairly  present in all
         material  respects the financial  condition,  results of operations and
         cash flows of the  registrant as of, and for, the periods  presented in
         this annual report.

Date:  November 7, 2002

                                                    /s/ Richard Marxen
                                                   -----------------------------
                                                   Richard Marxen
                                                   Chief Executive Officer

I, Andrea Goodrich, certify that:

1.       I have reviewed  this annual  report on Form 10-K of Inspire  Insurance
         Solutions, Inc.;

2.       Based on my  knowledge,  this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances  under which
         such  statements  were made, not misleading  with respect to the period
         covered by this annual report; and

3.       Based on my knowledge,  the financial  statements,  and other financial
         information  included  in this  annual  report,  fairly  present in all
         material  respects the financial  condition,  results of operations and
         cash flows of the  registrant as of, and for, the periods  presented in
         this annual report.

Date:  November 7, 2002


                                                    /s/ Andrea Goodrich
                                                    ----------------------------
                                                    Andrea Goodrich
                                                    Chief Financial Officer






                                       47
<PAGE>


                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                    Page

Independent Auditors' Report..................................      F-2
Consolidated Financial Statements:
      Consolidated Balance Sheets.............................      F-3
      Consolidated Statements of Operations...................      F-4
      Consolidated Statements of Shareholders' Equity.........      F-5
      Consolidated Statements of Cash Flows...................      F-6
      Notes to Consolidated Financial Statements..............      F-7







                                       F1
<PAGE>



                          INDEPENDENT AUDITORS' REPORT


Board of Directors and Shareholders
INSpire Insurance Solutions, Inc.
Fort Worth, Texas

         We have audited the accompanying consolidated balance sheets of INSpire
Insurance Solutions, Inc. and subsidiary (the "Company") as of December 31, 2001
and 2000, and the related consolidated  statements of operations,  shareholders'
equity,  and cash flows for each of the three years in the period ended December
31, 2001.  These financial  statements are the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

         We conducted our audits in accordance with auditing standards generally
accepted in the United States of America.  Those standards  require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

         In our opinion, such consolidated  financial statements present fairly,
in all material respects, the financial position of INSpire Insurance Solutions,
Inc. and  subsidiary as of December 31, 2001 and 2000,  and the results of their
operations  and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting  principles  generally accepted
in the United States of America.

         As  discussed in Notes 1 and 15, the Company  filed for  reorganization
under  Chapter  11  of  the  Federal  Bankruptcy  Code  in  February  2002.  The
accompanying  consolidated  financial  statements  do not  purport to reflect or
provide for the consequences of the bankruptcy proceedings.  In particular, such
consolidated financial statements do not purport to show (a) as to assets, their
realizable  value  on a  liquidation  basis  or their  availability  to  satisfy
liabilities;  (b) as to prepetition liabilities, the amounts that may be allowed
for  claims or  contingencies,  or the status and  priority  thereof;  (c) as to
shareholder  accounts,  the  effect  of any  changes  that  may be  made  in the
capitalization  of the  Company;  or (d) as to  operations,  the  effect  of any
changes that may be made in its business.

         The accompanying  consolidated  financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1, the Company's  recurring  losses from operations and negative working capital
raise  substantial  doubt  about its  ability to  continue  as a going  concern.
Management's  plans  concerning  these matters are also discussed in Note 1. The
consolidated  financial  statements do not include adjustments that might result
from the outcome of this uncertainty.



DELOITTE & TOUCHE LLP

Fort Worth, Texas
February 15,2002
(November 4, 2002 as to Notes 1, 14 and 15)

                                      F-2
<PAGE>
<TABLE>
<CAPTION>


                                    INSpire Insurance Solutions, Inc.
                                       Consolidated Balance Sheets


----------------------------------------------------------------------------------------------------------

                                                            December 31,               December 31,
                                                                2001                       2000
                                                       ------------------------  -------------------------

                      ASSETS
<S>                                                          <C>                        <C>

CURRENT ASSETS:
   Cash and cash equivalents                                 $       4,913,975          $       8,619,072
   Short term investments                                              864,011                  4,867,269
   Accounts receivable                                               6,387,000                 19,761,284
   Income taxes receivable                                                 423                  1,882,467
   Deferred income taxes                                                     -                  8,782,861
   Prepaid expenses and other current assets                         1,506,586                  1,663,358
                                                       ------------------------  -------------------------
Total current assets                                                13,671,995                 45,576,310
                                                       ------------------------  -------------------------

Deferred income taxes                                                        -                  7,060,939
Property and equipment, net                                          5,399,011                  7,863,203
Intangibles and other assets, net
   Capitalized contract costs                                                -                 33,779,974
   Acquired software costs                                           2,330,934                  1,915,487
   Capitalized software development                                    517,870                    761,705
   Other assets                                                        759,866                    934,025
                                                       ------------------------  -------------------------
TOTAL                                                        $      22,679,676          $      97,891,643
                                                       ========================  =========================

       LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
   Accounts payable                                           $      3,007,406           $      2,924,290
   Accrued payroll and compensation                                  1,550,016                  1,804,280
   Accrued liabilities for terminated contracts                        935,687                          -
   Accrued property and sales tax                                    1,149,848                    826,050
   Other accrued expenses                                            2,421,418                  8,376,313
   Unearned revenue                                                  5,564,422                  7,286,896
   Deferred compensation                                                10,771                    821,855
                                                       ------------------------  -------------------------
Total current liabilities                                           14,639,568                 22,039,684
                                                       ------------------------  -------------------------

Deferred compensation                                                  359,458                    370,229
                                                       ------------------------  -------------------------
TOTAL LIABILITIES
                                                                    14,999,026                 22,409,913
                                                       ------------------------  -------------------------

SHAREHOLDERS' EQUITY:
Preferred  stock,  $1.00 par value;  1,000,000  shares
authorized, d                                                                -                          -
Common  stock,  $.01  par  value;   50,000,000  shares
authorized, 19,167,735 shares issued in 2001;
19,138,001 shares issued in 2000                                       191,678                    191,380
Additional paid in capital                                         114,503,245                113,729,020
Treasury stock                                                       (271,055)                          -
Accumulated deficit                                              (106,743,218)               (38,438,670)
                                                       ------------------------  -------------------------
Total shareholders' equity                                           7,680,650                 75,481,730
                                                       ------------------------  -------------------------
TOTAL                                                        $      22,679,676           $     97,891,643
                                                       ========================  =========================

</TABLE>

          See accompanying notes to consolidated financial statements.


                                      F-3



<PAGE>
<TABLE>
<CAPTION>


                                         INSPIRE INSURANCE SOLUTIONS, INC.
                                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                                              Year Ended December 31,
                                                     --------------------------------------------------------------------------
                                                             2001                    2000                       1999
                                                     ---------------------    --------------------     ------------------------
<S>                                                    <C>                      <C>                      <C>
REVENUES:
     Outsourcing services                              $      62,908,031        $    114,339,552         $      111,700,370
     Software and software services                            5,053,505              11,087,444                 26,939,783
     Other                                                       902,858               1,172,684                  1,917,424
                                                     ---------------------    --------------------     ------------------------
         Total revenues                                       68,864,394             126,599,680                140,557,577
                                                     ---------------------    --------------------     ------------------------

EXPENSES:
     Cost of outsourcing services, net                        65,009,490             100,718,100                 81,458,067
     Cost of software and software services, net               2,677,632               5,401,462                 19,184,026
     Cost of other revenues, net                                 252,592                 401,440                  1,154,209
     Selling, general and administrative                      11,367,657               9,957,188                 18,308,059
     Research and development, net                             1,570,368               2,139,310                  5,195,214
     Severance expense                                           644,274               1,905,167                  1,720,586
     Depreciation and amortization                             6,339,962               8,344,740                  9,186,295
     Bad debt expense                                            597,800               2,292,810                 10,990,519
     Litigation expense                                        1,528,199               1,022,977                  1,229,442
     Impairment charges                                       31,545,290              31,646,700                 16,756,701
     Other                                                             -                       -                    804,000
                                                     ---------------------    --------------------     ------------------------
         Total expenses                                      121,533,265             163,829,895                165,987,118
                                                     ---------------------    --------------------     ------------------------
OPERATING LOSS                                              (52,668,871)            (37,230,215)               (25,429,541)
OTHER INCOME (EXPENSE):
     Interest income                                             400,011                 765,260                  1,410,306
     Other                                                         (751)               (243,663)                   (14,150)
                                                     ---------------------    --------------------     ------------------------
         Total other income (expense)                            399,260                 521,597                  1,396,156
                                                     ---------------------    --------------------     ------------------------
LOSS BEFORE INCOME TAX AND
  CUMULATIVE EFFECT OF ACCOUNTING
  CHANGE                                                    (52,269,611)            (36,708,618)               (24,033,385)
INCOME TAX BENEFIT (EXPENSE)                                (15,843,799)              11,374,063                  4,343,299
                                                     ---------------------    --------------------     ------------------------
LOSS BEFORE CUMULATIVE EFFECT OF                            (68,113,410)            (25,334,555)               (19,690,086)
  ACCOUNTING CHANGE
Cumulative effect of change in accounting
  for outsourcing services, net of income
  tax benefit                                                          -             (4,861,697)                          -
                                                     ---------------------    --------------------     ------------------------
NET LOSS                                               $    (68,113,410)        $   (30,196,252)         $     (19,690,086)
                                                     =====================    ====================     ========================

SHARES OUTSTANDING (BASIC AND
  DILUTED)                                                    18,884,957              19,111,658                 18,998,270
                                                     =====================    ====================     ========================
Net loss per share before cumulative effect
  of accounting change                                            (3.61)                  (1.33)                     (1.04)
Cumulative effect of change in accounting
  for outsourcing services, net of income
  tax benefit                                                          -                  (0.25)                          -
                                                     ---------------------    --------------------     ------------------------
NET LOSS PER SHARE (BASIC AND
  DILUTED)                                             $          (3.61)        $         (1.58)         $           (1.04)
                                                     =====================    ====================     ========================

</TABLE>
          See accompanying notes to consolidated financial statements.



                                      F-4
<PAGE>

<TABLE>
<CAPTION>

                                         INSPIRE INSURANCE SOLUTIONS, INC.
                                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                               FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

                                                                                  Retained
                                                             Additional           Earnings
                                          Common              Paid-In           (Accumulated         Treasury
                                           Stock              Capital             Deficit)             Stock              Total
                                      ----------------    -----------------    ----------------    --------------     --------------
<S>                                     <C>                <C>                   <C>                <C>

Balance, January 1, 1999                $   186,858        $  108,710,195        $ 11,447,668       $         -        $120,344,721
Shares issued for exercise of
312,457 Options                               3,125             1,445,272                   -                             1,448,397
Shares purchased for employee stock
    purchase plan 32,309 shares, net              -                32,321                   -                                32,321
Income tax  effect  related to stock
    options                                       -             1,384,025                   -                             1,384,025
Options issued (or vested) for contract
    Acquisition                                   -               951,300                   -                               951,300
Net loss                                          -                     -        (19,690,086)                          (19,690,086)
                                      ----------------    -----------------    ----------------    --------------     --------------
Balance, December 31, 1999                  189,983           112,523,113         (8,242,418)                 -         104,470,678

Shares issued for exercise of
139,731 Options                               1,397               537,615                   -                               539,012
Shares purchased for employee stock
    purchase plan 28,000 shares, net              -               (9,021)                   -                               (9,021)
Vesting   of   options   issued  for
  contract Acquisition                            -               677,313                   -                               677,313
Net loss                                          -                     -        (30,196,252)                          (30,196,252)
                                      ----------------    -----------------    ----------------    --------------     --------------
Balance, December 31, 2000                  191,380           113,729,020        (38,438,670)                 -          75,481,730

Stock option cancellations                        -               265,336                   -                               265,336
Deferred compensation
  reclassification                                -               486,886                   -                               486,886
Treasury stock purchased                          -                     -                   -         (504,060)           (504,060)
Stock issuance/release for employee
    stock purchase plan                         298                22,003           (191,138)           233,005              64,168
Net loss                                          -                     -        (68,113,410)                          (68,113,410)
                                      ----------------    -----------------    ----------------    --------------     --------------
Balance, December 31, 2001              $   191,678        $  114,503,245      $ (106,743,218)      $ (271,055)        $  7,680,650
                                      ================    =================    ================    ==============     ==============
</TABLE>


           See accompanying notes to consolidated financial statements


                                      F-5
<PAGE>
<TABLE>
<CAPTION>

                        INSPIRE INSURANCE SOLUTIONS, INC.
                      CONSOLIDATED STATEMENTS OF CASHFLOWS


                                                                         Year ended December 31,
                                                             2001                  2000                  1999
                                                       ----------------      ----------------      ----------------
<S>                                                    <C>                   <C>                   <C>

Operating Activities:
   Net income                                          $   (68,113,410)      $   (30,196,252)      $   (19,690,086)
       Adjustments  to reconcile  net income to net
           cash provided by operating activities:
       Depreciation and amortization                          6,339,963             8,344,740             9,186,295
       Deferred income taxes                                 15,843,799          (12,115,597)           (6,178,373)
       Bad debts                                                597,800             2,292,810            10,990,519
       Loss on sale of assets                                       751               243,663                     -
       Intangible asset impairment                           31,545,290            31,646,700            16,756,701
       Cumulative effect of change in accounting                      -             7,045,938                     -
       Change in operating assets and liabilities:
           Accounts receivable                               12,276,484           (5,358,448)          (16,981,967)
           Unbilled receivables                                       -             4,814,894               936,511
           Prepaid expenses and other current
             assets                                             156,772               180,476             (352,844)
           Other assets                                         177,589             1,886,049               466,781
           Accounts payable                                      83,117               869,353               668,497
           Accrued payroll and compensation                   (154,230)               457,909               337,942
           Accrued liabilities for terminated
             contracts                                          935,687                     -                     -
           Accrued property and sales tax                       323,798                     -                     -
           Other accrued expenses                           (3,756,801)           (3,703,980)             7,487,826
           Unearned revenue                                 (1,722,474)           (1,251,096)              (53,826)
           Income taxes payable/receivable                    1,882,044             4,979,269           (3,646,843)
           Deferred compensation                              (169,667)             (505,110)               186,768
                                                        ---------------       ----------------       ---------------
   Net cash provided by (used in) operating
       activities                                           (3,753,488)             9,631,318               113,901
Investing Activities:
       Purchases of property, equipment and
          software                                          (2,141,348)           (1,831,173)           (6,418,278)
       Sale of property and equipment                                 -             2,579,570                     -
       Sale of investments                                    4,003,258            11,907,434             3,719,740
       Capitalized R&D costs                                   (13,335)             (703,521)           (1,611,650)
       Deferred contract costs                              (1,360,292)          (14,402,600)          (22,953,518)
                                                        ---------------       ----------------       ---------------
   Net cash provided (used) by investing activities             488,283           (2,450,290)          (27,263,706)
Financing Activities:
       Issuance of common stock                                       -                     -             (383,402)
       Purchase of treasury stock                             (504,060)                     -                     -
       Proceeds from  exercises  under stock plans,
         net                                                    64,168               539,012               832,272
                                                        ---------------       ----------------       ---------------
   Net cash provided by financing activities                  (439,892)               539,012               448,870
                                                        ---------------       ----------------       ---------------
Net increase/(decrease) in cash and cash
  equivalents                                               (3,705,097)             7,720,040          (26,700,935)
Cash and cash equivalents at beginning of period             8,619,072                899,032            27,599,967
                                                        ---------------       ----------------       ---------------
Cash and cash equivalents at end of period             $     4,913,975       $      8,619,072      $        899,032
                                                        ===============       ================       ===============

SUPPLEMENTAL CASH FLOW INFORMATION
           Interest paid                               $        24,886       $            289      $         14,150
                                                        ===============       ================       ===============
           Income taxes paid (refunded)                $     1,786,212       $    (4,771,459)      $      5,481,917
                                                        ===============       ================       ===============
NON CASH INVESTING ACTIVITIES
           Options issued for contract acquisition     $             -       $        677,313      $        951,300
                                                        ===============       ================       ===============
</TABLE>

               See accompanying notes to the financial statements.


                                      F-6
<PAGE>

                        INSPIRE INSURANCE SOLUTIONS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  NATURE OF OPERATIONS

         General - INSpire Insurance Solutions,  Inc. and subsidiary  ("INSpire"
or the "Company") is a provider of policy and claims  administration  solutions,
including  outsourcing  services  and  software  products  to the  property  and
casualty ("P&C") insurance industry. The Company sells its services and products
directly to the customer. The majority of sales are in North America.

         On February  15, 2002,  the Company  filed  petitions  for relief under
Chapter 11 of the U. S. Bankruptcy Code with the United States  Bankruptcy Court
for the Northern District of Texas. Under Chapter 11, certain claims against the
Company in existence  prior to the filing of the petitions for relief are stayed
while  the  Company  continues  business  operations  as   Debtor-in-possession.
Additional  claims  (liabilities  subject to compromise) may arise subsequent to
the filing date  resulting  from  rejection  of executory  contracts,  including
leases,  and from the  determination  by the court (or  agreed to by  parties in
interest) of allowed claims for contingencies  and other disputed  amounts.  The
Company  received  approval from the Bankruptcy  Court to pay or otherwise honor
certain of its prepetition  obligations,  including employee wages and benefits.
The Company has also  experienced net losses of approximately  $68 million,  $30
million,  and $20 million for the years ended December 31, 2001,  2000 and 1999,
respectively. These factors create substantial doubt about the Company's ability
to continue as a going concern.

         The accompanying  consolidated  financial statements have been prepared
on a going concern basis, which assumes continuity of operations, realization of
assets and  satisfaction of liabilities in the ordinary  course of business.  As
stated previously,  the Company acquired three large contracts and through those
contracts  grew  revenue  to $140  million  during  1998 and 1999.  The  Company
developed the associated  fixed  infrastructure  to provide the service required
under  these  contracts.  During  2000 and 2001,  those  contracts  were  either
canceled or  significantly  reduced in scope,  resulting in a severe  decline in
revenue. The Company also experienced  significant declines in business from its
existing customers,  leaving the Company with excess infrastructure costs. It is
the  unnecessary  infrastructure  costs that the Company is targeting by seeking
judicial reorganization.

         The original  goal of the  reorganization  was to enable the Company to
emerge as a stronger  entity,  of an  efficient  size with  appropriate  expense
levels.  The  Company  has  since  determined  that  the  reorganization  as  an
independent  entity  is  neither  feasible  nor in  the  best  interests  of the
Company's estate,  creditors or shareholders.  After careful deliberation and in
consultation with the Creditors Committee,  the Company determined that the only
viable course of action,  consistent with their fiduciary  duties, is to seek to
maximize  the  value  of  the  Company's  estates,  through  a  sale  of  all or
substantially all of their respective assets.

         The Company has filed with the  Bankruptcy  Court,  a proposed  Plan of
Reorganization (the "Plan"),  and an accompanying  Disclosure  Statement for the
Plan of Reorganization (the "Disclosure Statement").  The following is a summary
of the Plan.

         The Plan  anticipates  a  potential  sale of  substantially  all of the
Company's  assets  including  real  property,   intellectual   property,   cash,
receivables,  other current and long term assets,  contractual rights, and other
assets to CGI Group, Inc.  ("CGI"),  as set forth in a letter of intent that the
Company and CGI executed on or about July 24, 2002 (the "Letter of Intent").  In
exchange for such assets,  CGI agreed to pay the Company $8,200,000 in cash (the
"Cash Purchase Price") and assume up to $14,000,000 in liabilities including pre
and post  petition  obligations  incurred in the  ordinary  course of  business,
contractual  obligations,  unearned  revenue and tax  liabilities.  The specific
assets and  liabilities  to be  included  in a final  definitive  agreement  are
subject  to  ongoing  negotiations.  The  Cash  Purchase  Price  is based on the
assumption  that the "Net Asset Value" (as defined in the Letter of Intent) will
be $7,000,000 (the "Assumed Net Asset Value").  Seven business days prior to the
closing of this  transaction,  which must occur prior to November 15, 2002,  the
Company will  deliver to the CGI a revised  estimate of the Net Asset Value (the
"Estimated Net Asset Value").  The Cash Purchase Price will be adjusted  (upward
or downward,  as  appropriate)  by the amount that the Estimated Net Asset Value
differs from the Assumed Net Asset Value; provided,  however, that no adjustment

                                      F-7
<PAGE>

will  be  made  to the  extent  that  the  Estimated  Net  Asset  Value  exceeds
$8,400,000.  The  Company  currently  estimates  the Cash  Purchase  Price to be
adjusted to approximately $5,400,000.

         The Company also negotiated with ChoicePoint Inc. ("ChoicePoint"),  for
the potential sale of the Company's assets. Choicepoint filed a letter of intent
with the Bankruptcy  Court on October 24, 2002. Under the terms of the letter of
intent,  ChoicePoint would pay the Company $10,700,000 for all the assets of the
Company and assume $3,146,785 in liabilities, as well as assuming certain future
vendor obligations and leases. The offer was subject to certain  conditions.  On
November  4, 2002,  the  Company  was  informed  by  Choicepoint  that they were
withdrawing their offer.

         The cash proceeds from a sale  transaction and any remaining  assets of
the Company, if any (collectively,  the "Trust Assets") will be transferred to a
liquidating trust (the "Trust").  Michael G. Lawrence of NACM SW (the "Trustee")
will be the initial  trustee for the Trust and will  liquidate  the Trust Assets
and distribute the proceeds to the creditors of the Company.

         The Trust  Assets  will be used to pay claims of  creditors  until such
claims (and all expenses  incurred in  implementing  the Plan) are paid in full,
with any remaining assets being distributed to equity security holders.  A total
of $22,965,300 in claims have been filed in the Bankruptcy Court. The Company is
in the process of analyzing these claims and, at this time, cannot give an exact
amount of the claims which will be allowed; however, the Company believes that a
substantial portion of these claims will be disallowed.

         Each equity  security  holder will  receive a pro rata  portion of such
remaining  assets,  if any,  based on the number of shares held as of the record
date. The record date for such  distributions  will be the effective date of the
Plan (the  "Distribution  Record Date"),  which will be a date, as determined by
the  Company,  on or after the date in which (i) a sale has been  completed  and
(ii) the Trust has been  formed,  and the  Trustee has been  appointed.  At such
time, trading of the shares of the equity security interests of the Company will
cease.

         The  Company is  presently  operating  at a  substantial  net cash loss
without any  realistic  prospect of reducing  the rate at which the value of the
estates is eroding.  It is  important to the Company,  the  creditors  and other
interested  constituencies  that an asset  purchase  agreement be finalized  and
accepted as expeditiously as possible.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Basis of Presentation - The consolidated  financial  statements include
the  financial  statements of INSpire and its wholly owned  subsidiary,  INSpire
Claims Management,  Inc. All significant  intercompany balances and transactions
have been eliminated in consolidation.

         Property and Equipment - The Company records  property and equipment at
cost  less  accumulated  depreciation.  Depreciation  is  calculated  using  the
straight-line  method based on the estimated useful lives of assets, which range
from three to ten years.  Leasehold  improvements are amortized over the term of
the  lease or their  estimated  useful  life  whichever  is  less.  Repairs  and
maintenance are charged to operating expenses as incurred.

         Revenue Recognition - Revenues from outsourcing services are recognized
as services are  rendered.  INSpire is typically  paid a percentage  of premiums
written for policy  administration  services, a percentage of premiums earned or
claims incurred for claims administration  services and a percentage of premiums
written,  subject  to a  minimum  fee,  for IT  services.  Outsourcing  services
contracts generally are for terms of two to ten years. Due to the ongoing nature
of these  outsourcing  services  and the  length  of the  terms  of the  service
contracts,   outsourcing   services   generate   recurring   revenues.   Initial
installations of software systems generally include a one-time license fee and a
contract  for the  installation  and  customization  of the  system  to meet the
customer's  specifications,  which  INSpire  bills at an  hourly  rate.  Amounts
charged  for the initial  license  and the  installation  and  customization  of
systems are recognized as revenue during the  installation  period in proportion
to the hours expended for installation compared to the total hours projected for
installation.  In other instances,  revenues are recognized based on performance

                                      F-8
<PAGE>

milestones specified in the contract.  INSpire recognizes the annual fee charged
for maintenance of the customer's  system over the maintenance  contract period.
Revenues from computer hardware and equipment sales, included in other revenues,
are recognized when INSpire  receives  notification  that the equipment has been
shipped by the  manufacturer  and title has passed to the  customer.  Changes in
estimates  of  percentage  of  completion  or losses  associated  with  software
services  are  recognized  in the  period in which they are  determined.  Losses
associated with outsourcing  services are recognized in the period in which they
are determined. Unearned revenues consist of billings to customers in advance of
revenues recognized on such services.  Unbilled  receivables consist of revenues
recognized in advance of billings due to timing  differences  related to billing
schedules specified in contracts.

         Income Taxes -The Company uses the liability  method in accounting  for
income  taxes.  Under this  method,  deferred  tax assets  and  liabilities  are
recognized for the future tax consequences  attributable to differences  between
the financial  statement carrying amounts of existing assets and liabilities and
their  respective tax bases.  Deferred tax assets and  liabilities  are measured
using  enacted  tax rates  expected  to apply to taxable  income in the years in
which those  temporary  differences  are  expected to be  recovered  or settled.
Valuation  allowances are  established  when  necessary,  to reduce deferred tax
assets to the amount  expected to be realized.  The  provision  for income taxes
represents  the tax  payable  for the period  and the change  during the year in
deferred tax assets and liabilities.

         Industry Concentration - The Company's revenues and accounts receivable
are derived primarily from the United States P&C insurance industry.

         Research and  Development  - INSpire  incurs  research and  development
costs that relate  primarily to the  development  of new  services  products and
major  enhancements to existing services and products.  Research and development
costs are comprised primarily of salaries.  INSpire expenses or capitalizes,  as
appropriate,  these costs in accordance  with Statement of Financial  Accounting
Standards  ("SFAS") No. 86, "Accounting for the Costs of Computer Software to be
Sold,  Leased,  or Otherwise  Marketed."  All costs  incurred  prior to the time
management  believes  a project  has  reached  "technological  feasibility"  are
expensed.   Software   production   costs   incurred   subsequent   to  reaching
technological  feasibility  are  capitalized,  if material,  and reported at the
lower  of  unamortized  cost or net  realizable  value.  Capitalized  costs  are
amortized  over the  expected  service life of the related  software,  generally
three to seven  years,  using the  straight-line  method.  The cost and  related
accumulated  amortization  of projects  are  written  off as they  become  fully
amortized. The Company assesses the recoverability of these costs by determining
whether the carrying  amount of the capitalized  costs can be recovered  through
undiscounted future cash flows.

         Cash and Cash  Equivalents - For the purposes of reporting  cash flows,
cash and cash equivalents  includes investments readily convertible to cash with
remaining maturities at date of purchase of three months or less.

         Intangibles  and Other Assets - Costs in excess of net assets  acquired
are  amortized  over  periods  ranging  from  five to  twenty  years  using  the
straight-line method. Acquired software and other intangibles are amortized over
a period of three to ten years using the straight-line method. Deferred contract
costs are comprised of the  incremental  fees and direct costs  associated  with
long-term  outsourcing  service  agreements  and are amortized  over the related
contract period of up to ten years using the straight-line  method.  The Company
periodically  evaluates the carrying  value of long lived assets to determine if
impairment  exists  based upon  estimated  undiscounted  future cash flows.  The
impairment,  if any, is measured  by the  difference  between net book value and
estimated  discounted future cash flows, and is charged to expense in the period
identified.

         Financial  Instruments  - The  Company  did  not  have  any  derivative
financial  instruments as of December 31, 2001 or 2000. The carrying amounts for
the Company's cash, investments,  and accounts receivable approximate fair value
at December 31, 2001 and 2000 due to the  short-term  nature of these  financial
instruments.

         Concentrations   of  Credit   Risk  -  Financial   instruments,   which
potentially  subject  the  Company to  concentrations  of credit  risk,  consist
principally  of its holdings of cash and  marketable  securities.  The Company's

                                      F-9
<PAGE>

credit risk is managed by investing its cash and marketable  securities in money
market  instruments  and  securities  of the U.S.  government  and its agencies,
municipalities  and  high-quality  corporate  issuers.  At December 31, 2001 and
2000, the Company had no significant concentrations of credit risk.

         Cumulative  Effect of  Change in  Accounting  Principle  - The  Company
adopted SAB 101 -- Revenue  Recognition in Financial  Statements  effective with
the fourth  quarter of 2000.  The Company  evaluated its  accounting  method for
deferred revenue and assessed the time frame for completion of claims and policy
processing.  Revenues from claims and policy processing services were previously
recognized as they became  billable to the customer since the Company had either
substantially  fulfilled  its  contractual  service  commitment  or the costs to
fulfill its future obligations under outsourcing contracts were not significant.
As a result of  adoption  of SAB 101,  outsourcing  revenues  are  deferred  and
recognized over the period that services are expected to be provided.

         Net  Income  (Loss)  Per  Share - Net  income  (loss)  per share of the
Company is computed by dividing net income (loss) by the weighted average number
of shares outstanding.  Diluted net income (loss) per share considers the impact
of potential  common  shares,  unless the inclusion of such shares would have an
antidilutive  effect.  The weighted average number of shares (basic and diluted)
was 18,884,957 in 2001,  19,111,658 in 2000 and  18,930,371 in 1999.  There were
1,954,558,  2,363,623, and 3,175,147 stock options that were not included in the
weighted average number of shares (diluted) in 2001, 2000 and 1999 respectively,
because they would have been antidilutive in those periods.

<TABLE>
<CAPTION>

                                                                              Year Ended December 31,
                                                                      2001                  2000           1999
                                                                ------------------     --------------- --------------
<S>                                                                    <C>                 <C>            <C>
Basic
    Average shares outstanding                                             18,885              19,112         18,930
    Net income (loss)                                                  $ (68,113)          $ (30,196)     $ (19,690)
    Per share amount                                                   $   (3.61)          $   (1.58)     $   (1.04)
Diluted
    Average shares outstanding                                             18,885              19,112         18,930
    Net income (loss)                                                  $ (68,113)          $ (30,196)     $ (19,690)
    Per share amount                                                   $ (  3.61)          $   (1.58)     $   (1.04)
</TABLE>

         Accounting  Estimates - The  preparation  of  financial  statements  in
conformity with accounting principles generally accepted in the United States of
America  requires  management to make estimates and assumptions  that affect the
reported amounts of assets and liabilities,  the disclosure of contingent assets
and  liabilities  at the date of the  financial  statements,  and the amounts of
revenues and expenses reported during the reporting period. Actual results could
differ from these amounts.

         Certain Reclassifications - Certain reclassifications have been made to
the prior  period  consolidated  financial  statements  to  conform  them to the
current year classifications.

         Recently Issued Accounting Pronouncements - In June 1998, the Financial
Accounting  Standards Board issued Statement of Financial  Accounting  Standards
No. 133,  "Accounting for Derivative  Instruments and Hedging Activities" ("SFAS
133").  SFAS  133,  as  amended  by SFAS No.  137,  "Accounting  for  Derivative
Instruments  and Hedging  Activities  - Deferral of the  Effective  Date of FASB
Statement  No.  133"  ("SFAS  137") and SFAS No.  138,  "Accounting  for Certain
Derivative  Instruments  and Certain  Hedging  Activities - an amendment to FASB
Statement No. 133" ("SFAS 138"),  is effective for fiscal years  beginning after
June 15, 2000.  SFAS 133 requires all  derivative  instruments to be recorded on
the balance sheet at their fair value.  Changes in the fair value of derivatives
are  recorded  each period in current  earnings or other  comprehensive  income,
depending  on whether a  derivative  is designed as part of a hedge  transaction
and, if it is, the type of hedge  transaction.  The adoption of SFAS 133 did not
have an  impact  on its  financial  statements  because  the  Company  holds  no
derivative instruments.

                                      F-10
<PAGE>

         The Financial Accounting Standards Board ("FASB") has issued Statements
of Financial  Accounting  Standards No. 141 "Business  Combinations" ("SFAS 141)
and No. 142  "Goodwill  and Other  Intangible  Assets"  ("SFAS  142").  SFAS 141
prohibits the use of the pooling of interests  method for business  combinations
initiated  after June 30,  2001 and also  applies to all  business  combinations
accounted  for by the purchase  method that are  completed  after June 30, 2001.
There  are  also  transition  provisions  that  apply to  business  combinations
completed  before July 1, 2001 that were  accounted for by the purchase  method.
SFAS 142 is effective for fiscal years beginning after December 15, 2001 for all
goodwill and intangible assets recognized in an entity's  statement of financial
position at that date regardless of when those assets were initially recognized.
The Company does not expect that the adoption of SFAS 141 and SFAS 142 will have
a material impact on its consolidated financial statements.

         The FASB issued  Statement No. 143,  "Accounting  for Asset  Retirement
Obligations" ("SFAS 143") in August 2001 and Statement No. 144,  "Accounting for
the  Impairment or Disposal of Long-Lived  Assets" ("SFAS 144") in October 2001.
SFAS 143 addresses  reporting for obligations  associated with the retirement of
tangible  long-lived  assets and the related asset retirement costs. SFAS 143 is
effective  for  fiscal  years   beginning  after  June  15,  2002  with  earlier
application permitted. SFAS 144 supercedes earlier guidance with respect to such
accounting and is effective for fiscal years  beginning after December 15, 2001.
The  Company  does not  expect the  adoption  of SFAS 143 and SFAS 144 to have a
material effect on its consolidated financial statements.

         In April  2002,  the FASB  issued  Statement  of  Financial  Accounting
Standards,  No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment
of FASB  Statement No. 13, and  Technical  Corrections"  ("SFAS 145").  SFAS 145
rescinds FASB Statement No. 4, Reporting Gains and Losses from Extinguishment of
Debt, and an amendment of that Statement, FASB Statement No. 64, Extinguishments
of Debt Made to Satisfy Sinking-Fund Requirements.  This Statement also rescinds
FASB Statement No. 44, Accounting for Intangible Assets of Motor Carriers.  This
Statement amends FASB Statement No. 13,  Accounting for Leases,  to eliminate an
inconsistency  between the required  accounting for sale-leaseback  transactions
and the required  accounting for certain lease  modifications that have economic
effects that are similar to  sale-leaseback  transactions.  This  Statement also
amends other existing  authoritative  pronouncements  to make various  technical
corrections,  clarify meanings,  or describe their  applicability  under changed
conditions.  SFAS 145 is effective for financial  statements  issued on or after
May 15,  2002.  The Company  does not expect the  adoption of SFAS 145 to have a
material effect on its consolidated financial statements.

         In June  2002,  The  FASB  issued  Statement  of  Financial  Accounting
Standards,  No 146,  "Accounting  for Costs  Associated  With  Exit or  Disposal
Activities" (SFAS 146"). SFAS 146 addresses  financial  accounting and reporting
for costs  associated  with exit or disposal  activities and nullifies  Emerging
Issues Task Force  (EITF)  Issue No. 94-3,  "Liability  Recognition  for Certain
Employee  Termination  Benefits  and Other Costs to Exit an Activity  (including
Certain Costs Incurred in a  Restructuring)."  SFAS 146 is effective for exit or
disposal activities that are initiated after December 31, 2002. The Company does
not  expect  the  adoption  of  SFAS  146  to  have  a  material  effect  on its
consolidated financial statements.

3.  ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>

         Accounts receivable consists of the following:

                                                                            December 31,
                                                                 -----------------------------------
                                                                       2001               2000
                                                                 -----------------   ---------------
          <S>                                                    <C>                 <C>

          Accounts receivable - trade...................         $ 10,826,364        $28,291,760
          Other.........................................                                 133,223
                                                                 -----------------   ---------------
                                                                    10,826,364         28,424,983
          Allowance for doubtful accounts.................             (4,439,364)    (8,663,699)
                                                                 -----------------   ---------------
                                                                 $    6,387,000      $ 19,761,284
                                                                 =================   ===============
</TABLE>

                                      F-11
<PAGE>

         The following table  summarizes  activity in the allowance for doubtful
accounts for the three years ended December 31, 2001:
<TABLE>
<CAPTION>

                                                                       2001               2000               1999
                                                                 -----------------    --------------     --------------
          <S>                                                      <C>               <C>                 <C>

          Balance at beginning of year...........................  $  8,663,699      $ 9,538,878         $     494,542
          Additions..............................................       597,800        2,292,810            10,990,519
          Deductions.............................................     4,822,135        3,167,989             1,946,183
                                                                 -----------------    --------------     --------------
          Balance at end of year.................................   $ 4,439,364      $ 8,663,699         $   9,538,878
                                                                 =================    ==============     ==============
<CAPTION>

  4.   PROPERTY AND EQUIPMENT

         Property and equipment consists of the following:

                                                                             December 31,
                                                                 -----------------------------------
                                                                       2001               2000
                                                                 -----------------    --------------
          <S>                                                   <C>                  <C>

          Computer equipment........................            $ 20,642,161         $  20,025,786
          Office equipment..........................               4,323,052             3,976,694
          Automobiles...............................                 145,042               172,971
          Leasehold improvements....................               4,229,131             4,128,906
                                                              ------------------   ---------------
                                                                     29,339,386         28,357,653
          Accumulated depreciation..................               (23,940,374)        (20,494,450)
                                                              ------------------   ---------------
                                                                $    5,399,011       $   7,863,203
                                                              ==================   ===============
</TABLE>

         Depreciation  expense  was  approximately  $3,551,801,  $4,291,000  and
$4,063,000 for 2001, 2000 and 1999, respectively.

5.  Research and Development

         Research  and   development   costs  were   approximately   $1,583,000,
$2,843,000 and $6,807,000 for the years ended December 31, 2001,  2000 and 1999,
respectively,  including  capitalized  software costs of approximately  $13,000,
$704,000 and $1,612,000.

6.  INTANGIBLES AND OTHER ASSETS
<TABLE>
<CAPTION>

     Intangibles and other assets consist of the following:

                                                                                      December 31,
                                                                         -------------------------------------
                                                                                 2001                2000
                                                                         -----------------    ----------------
     <S>                                                                <C>                  <C>

     Capitalized  contract costs in excess of net assets acquired, net  $      -             $33,779,974
        of accumulated  amortization of $  -0- and $3,622,500
     Acquired software, net of accumulated amortization of
          $1,319,932 and $660,423..................................       2,330,934            1,915,487
     Developed software costs, net of accumulated amortization of
          $294,020 and $117,608....................................         517,870              761,705
     Other assets, at cost.........................................         759,866              934,025
                                                                        -------------------  -------------------
                                                                        $ 3,608,670          $37,391,191
                                                                        ===================  ===================
</TABLE>

                                      F-12
<PAGE>

         Amortization  expense  was  approximately  $2,788,000,  $4,053,000  and
$5,123,000 for the years ended December 31, 2001, 2000 and 1999 respectively.

         The  Company   recognized  an  impairment  charge  in  August  2000  of
approximately  $14.0 million for certain  intangible and other assets associated
with the  Island  Insurance  policy  and claims  outsourcing  agreement  and the
Pacific  Service  Center.   The  impairment   charge  was  necessitated  by  the
termination of the Island Insurance policy and claims outsourcing  agreement and
closing of the Pacific Service Center. In December 2000, the Company  recognized
an impairment  charge of  approximately  $17.6 million for  intangible and other
assets associated with the termination of the Robert Plan outsourcing contract.

         During the third  quarter  2001,  the Company  recognized an impairment
charge of approximately  $29.9 million for contract  acquisition costs in excess
of net assets acquired and capitalized contract  implementation costs related to
the Arrowhead  General  Agency,  Inc.  ("Arrowhead")  contract.  The Company was
notified  by  Arrowhead  in July 2001 that it would not be able to meet  minimum
premium levels required in the contract and that Arrowhead would like to explore
a possible  restructuring  of its contract with the Company.  As a result of the
notification,  the Company re-evaluated the future cash flows under the contract
and determined that such intangible assets were in excess of the expected future
cash flows.  During the fourth  quarter of 2001,  the Company  determined  that,
based on estimated future cash flows, the carrying amount of $1,610,000  related
to the "Phoenix Acquisition", should be recognized as an impairment loss of that
amount and is included in impairment  charges in the  consolidated  statement of
operations.

7.   INCOME TAXES

         Federal  income  tax  benefit  (expense)   consists  of  the  following
components:
<TABLE>
<CAPTION>

                                                                        Year Ended December 31,
                                                                     2001             2000             1999
                                                               ----------------- ---------------- ----------------
   <S>                                                         <C>               <C>              <C>

   Current:
        Federal                                                $         -       $   1,400,000    $ (409,709)
        State                                                            -                   -       (41,340)
   Deferred:
        Federal                                                  (15,843,799)        9,974,063     5,363,885
        State                                                             -                 -        814,488
   Other:
         Tax deduction from the exercise of stock options
             Credited to paid in capital                                  -                 -     (1,384,025)
                                                               ----------------- ---------------- ----------------
                                                               $ (15,843,799)    $  11,374,063    $4,343,299
                                                               ================= ================ ================
<CAPTION>


         A reconciliation of income tax benefit  (expense)  computed by applying
the federal  statutory tax rate of 34% to income  before  income  taxes,  to the
reported income taxes is as follows:

                                                                               Year Ended December 31,
                                                                   -------------------------------------------------
                                                                         2001            2000              1999
                                                                   --------------- ---------------- -- --------------
   <S>                                                                <C>              <C>               <C>

   Income tax benefit (expense) at statutory rate                     $17,771,667      $12,480,930       $ 8,171,351
   State income taxes, net of federal income tax benefit                        -                -           386,566
   Tax-exempt interest                                                     26,596          208,697           417,168
   Goodwill                                                             (313,365)        (369,367)       (4,205,245)
   Non-deductible impairment charges                                  (3,235,455)                -                 -
                                                                                                 -
   Other                                                                (701,924)        (974,321)         (426,541)
   Change in valuation allowance                                     (29,391,318)                -                 -
                                                                   --------------- ----------------    --------------
                                                                    $(15,843,799)     $ 11,374,063        $4,343,299
                                                                   =============== ================    ==============
</TABLE>

                                      F-13
<PAGE>

         The tax effects of temporary  differences that give rise to significant
portions of the deferred  income tax assets and deferred  income tax liabilities
are presented below:


<TABLE>
<CAPTION>

                                                                                           December 31,
                                                                                    2001                   2000
                                                                                --------------         --------------
<S>                                                                             <C>                    <C>

Deferred income tax assets:
     Current:
         Accounts receivable                                                    $    1,731,352         $    3,378,842
         Prepaid royalties                                                             633,263                633,263
         Deferred revenue                                                            2,039,550              2,695,200
         Accrued expenses                                                            1,346,909              2,075,555
         Property & equipment                                                          227,619
                                                                                --------------         --------------
                                                                                     5,978,693              8,782,860
                                                                                --------------         --------------
     Non Current:
         Software development expenses                                                 323,561                247,123
         Acquired software costs                                                     1,980,985             11,940,574
         Capitalized contract implementation costs                                   1,086,172                      -
              Net operating losses                                                  20,223,876                      -
                                                                                --------------         --------------
                                                                                    23,614,594             12,187,697
                                                                                --------------         --------------
Total deferred income tax assets                                                    29,593,287             20,970,557
Valuation allowance                                                                 29,391,318                      -
                                                                                --------------         --------------
Net deferred tax assets                                                                201,969             20,970,557
                                                                                --------------         --------------

Deferred income tax liabilities:
     Non Current:
         Property & equipment                                                                                  44,657
         Capitalized contract implementation costs                                     201,969              4,007,029
         Capitalized software development                                                                     297,065
         Acquired software costs                                                                              778,007
                                                                                --------------         --------------
Total deferred income tax liabilities                                                  201,969              5,126,758
                                                                                --------------         --------------
Net deferred income tax assets                                                  $            -         $   15,843,799
                                                                                ==============         ==============
</TABLE>

         In  assessing  the  realizability  of deferred  tax assets,  management
considers  whether it is more  likely  than not that some  portion or all of the
deferred tax assets will not be realized.  The ultimate  realization of deferred
tax assets is dependent  upon the generation of future taxable income during the
periods in which  those  temporary  differences  become  deductible.  Management
considers the level of historical taxable income, scheduled reversal of deferred
tax liabilities,  projected future taxable income and tax planning strategies in
making this assessment. Based upon the continuing significant taxable losses and
the  uncertainty  inherent in  projections  for future  taxable  income over the
periods with respect to which the deferred tax assets are deductible, management
established  a valuation  allowance  for the excess of deferred  tax assets over
deferred  tax  liabilities  in the  amount  of  $29,391,318.  The  change in the
valuation  allowance was $29.4 million  during the year ended December 31, 2001.
The Company has a net operating loss  carryforward of approximately  $60 million
that will begin to expire in 2015 if not used to offset  taxable  income by that
time.

8.  RELATED PARTY TRANSACTIONS

         The Company  provides  outsourcing  services,  software,  and  software
services to Millers  American  Group,  Inc.  ("Millers  American"),  The Millers
Insurance Company ("Millers Insurance"),  an indirect wholly-owned subsidiary of
Millers  American  and  the  Millers  Casualty   Insurance   Company   ("Millers
Casualty"),  an indirect 99.5% subsidiary of Millers Insurance,  under the terms
of a five-year Master Services Agreement (the "Millers' MSA"). Millers Insurance
is a 24.2% shareholder of the Company.  The Company and various Millers American
subsidiaries entered into the Millers' MSA in December 1999. For the years ended
December 31, 2001,  2000 and 1999, the Company earned total fees of $19,282,000,
$25,354,000 and $28,458,000,  respectively, under the Millers' MSA. See Note 13,
Dependence on Customers regarding the Millers business.

                                      F-14

<PAGE>

         On  September 1, 1999,  the Company  entered into an Asset and Employee
Transfer Agreement with Millers American (the "Phoenix  Acquisition"),  pursuant
to which Company agreed to acquire from Millers American for $3,500,000  certain
assets and employees used in the conduct of its policy and claims administration
with  respect to its policies  written by Phoenix  Indemnity  Insurance  Company
("Phoenix   Indemnity"),a   wholly-owned  subsidiary  of  Millers  American.  In
conjunction with this  transaction,  the Company entered into a Service Addendum
to the Millers' MSA with Millers  American to provide  certain policy and claims
administration  services with respect to the Phoenix  Indemnity book of business
for a period of ten years beginning September 1, 1999.

         Effective  January 1, 1998, the Company and Millers  Insurance  entered
into an agreement whereby the Company provided employee benefits  administration
services to Millers Insurance and Millers Casualty for a monthly fee of $15,000.
As of December 31, 2000,  Millers Insurance  terminated this arrangement.  Total
fees  earned  under this  agreement  were  $180,000  for each of the years ended
December 31, 2000 and 1999.

         Receivables due from Millers American were approximately  $1,276,000 as
of December 31, 2001  declining  from  $6,238,000 as of December 31, 2000. As of
December 31, 2001 the receivables due from Millers  American  represented 20% of
the Company's accounts receivable.

         The Company provided software and software services to InsureZone, Ltd.
which is 42%  owned by Buena  Venture  Associates,  a 12.3%  shareholder  of the
Company.  For the year ended December 31, 2001, the Company earned approximately
$15,000 in revenue from license fees and services performed.  As of December 31,
2001, a receivable  was due from  InsureZone  of  approximately  $327,000 all of
which is over 90 days past due and was fully  reserved.  The  Company  collected
$200,000 of this receivable in the first quarter of 2002.

         The  Company's  headquarters  is  located  in  a  building  owned  by a
partnership  that includes  certain  current and former members of the Company's
Board of Directors. For each of the years ended December 31, 2001, 2000 and 1999
the Company incurred $1,035,040 of rental expense under this agreement.

9.  EMPLOYEE BENEFIT PLANS

         The Company  sponsors a 401(k) plan (the "Plan") covering all employees
who meet  certain  minimum  age and  length of  service  requirements.  The Plan
provides  for  payment  of  the  employee's  vested  portion  of the  Plan  upon
retirement,  termination,  disability, or death. Discretionary contributions may
be made to the Plan under the direction of the Company's Board of Directors. The
Company made contributions of approximately $130,000, $681,000 and $973,000, and
incurred expenses of approximately  $13,000,  $32,000 and $51,000 related to the
Plan for the years ended  December 31, 2001,  2000,  and 1999  respectively.  On
February 7, 2002, the Company notified its employees that the Company's matching
fund contributions to the 401K plan were being suspended  effective February 15,
2002.

10.  EMPLOYEE AND DIRECTOR STOCK OPTION PLANS

         As of December  31, 2001,  the  Company's  employee and director  stock
option  plans have  authorized  the grant of options to  employees  and  outside
directors  for up to 4,575,000  shares of the Company's  common  stock.  Options
granted vest over a period  ranging from  immediately  to six years of continued
employment or service with the Company. The Company sponsors a Stock Option Plan
which provides for the grant of incentive and  nonqualified  options to purchase
up to  4,500,000  shares of common  stock  subject  to  certain  adjustments  as
described in the Stock Option Plan.  Stock options are issuable only to eligible

                                      F-15
<PAGE>

directors,  officers and employees of the Company.  Options  granted vest over a
period ranging from immediately to six years of continued  employment or service
to the Company.

         The per share  exercise  price of an  incentive  option may not be less
than the  greater of par value or 100% of the fair value of the common  stock on
the date the option is granted.  Incentive  options  granted to an employee  who
owns in excess of 10% of the voting  stock of the Company  must have an exercise
price of at  least  110% of the fair  value of the  common  stock at the date of
grant.  Options may be exercised only if the option holder remains  continuously
associated  with the  Company  from  the date of grant to the date of  exercise,
subject to certain conditions as specified in the Stock Option Plan. Any options
that expire  unexercised or that terminate upon an optionee's ceasing his or her
association with the Company become available once again for issuance.

         The Company sponsors the Director Stock Option Plan, ("Director Plan").
A total of 75,000  shares  have  been  reserved  for  issuance  pursuant  to the
Director Plan.  Each new  non-employee  director who is elected (or appointed to
fill any vacancy) as a director of the Company will be granted options under the
Director Plan to purchase  3,750 shares of common stock at the fair market value
of the common stock on the date of grant.  Also, each non-employee  director who
has previously  been granted  options under the Director Plan will be granted an
additional  option to purchase  375 shares of common stock on the day after each
annual meeting of shareholders of the Company. The Director must be serving as a
director  on the date of the grant.  Options  under the  Director  Plan vest and
become exercisable as of the date of grant.

         The following  table  summarizes  the stock option  activity  under the
Stock Option Plan and Director Plan for the three years ended December 31, 2001:

<TABLE>
<CAPTION>


                                                                                                              Weighted
                                                                    Number of          Exercise Price          Average
                                                                     Options           Per Option           Exercise Price
                                                                  --------------       -----------------    --------------
<S>                                                                 <C>                  <C>                <C>

Options outstanding as of January 1, 1999                             3,224,847          $0.87 -  $26.5     $   11.00
     Options granted                                                  2,004,407           4.11 - 19.06           8.97
     Options exercised                                                (312,457)           0.87 - 8.00            3.28
     Options forfeited                                              (1,741,650)           6.00 - 26.50          16.55
                                                                  --------------
Options outstanding as of December 31, 1999                           3,175,147           0.87 - 26.50           8.07
     Options granted                                                  1,382,925           0.16 - 2.97            0.97
     Options exercised                                                (139,731)           0.87 - 0.87            0.87
     Options forfeited                                              (2,054,718)           2.44 - 26.50          10.35
                                                                  --------------
Options outstanding as of December 13, 2000                           2,363,623           0.16 - 6.00            2.24
     Options granted                                                  1,076,500           0.38 - 5.00            1.81
     Options exercised                                                        -
     Options forfeited                                              (1,086,215)           0.01 - 6.00            2.45
                                                                  --------------
Options outstanding as of December 31, 2001                           2,353,908
                                                                  ==============

Exercisable as of December 31, 2001                                   1,221,323           0.25 - 6.00            2.54
                                                                  ==============
Exercisable as of December 31, 2000                                     669,975           0.34 - 6.00            4.07
                                                                  ==============
Exercisable as of December 31, 1999                                   1,617,785           0.87 - 26.50           6.36
                                                                  ==============
Options available for grant as of December 31, 2001                   2,221,092
                                                                  ==============

</TABLE>

         Under Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees",  the Company  recognized no  compensation  expense for the
years ended December 31, 2001, 2000 and 1999, as the exercise price of all stock
options  granted  under the terms of the Stock  Option  Plan was at or above the
fair  market  value of the common  stock at the date of grant.  Had the  Company
implemented SFAS 123,  "Accounting for Stock-Based  Compensation," the Company's

                                      F-16
<PAGE>

compensation  expense would have decreased by  approximately  $1,161,000 for the
year ended  December 31, 2001,  and increased by  approximately  $4,961,000  and
$8,317,000 for the years ended December 31, 2000 and 1999, respectively.

         The  Company's  pro forma net loss and net loss per  share  (basic  and
diluted)  considering the effects of implementing  SFAS 123, net of tax effects,
would have been as follows:


<TABLE>
<CAPTION>

                                                                         Year ended December 31,
                                                             2001                  2000                  1999
                                                     ------------------      ----------------      ----------------
<S>                                                  <C>                     <C>                   <C>

Pro forma net loss                                   $     (66,952,000)      $   (33,371,000)      $   (25,013,000)
Pro forma net loss per share (basic and diluted)                 (3.55)                (1.75)                (1.32)

</TABLE>


         The fair value of each option  grant is  estimated on the date of grant
using the Black-Scholes option-pricing model, based on the following assumptions
for options granted in 2001,  2000 and 1999,  respectively:  risk-free  interest
rates of 3.6%,  5.5%, and 6.7%;  expected lives of 4.7 years, 5.7 years, and 4.5
years; volatility factors of 140%, 115%, and 70%; and no dividends.

         The  weighted  average fair value of options  granted  during the years
ended  December  31,  2001,  2000  and  1999  were  $1.10,  $  0.64  and  $4.83,
respectively. There were no options granted during 2001, 2000 or 1999 at a value
less than market value on the date of grant.

         The following table summarizes the stock options  outstanding under the
Stock Option Plan and Director Plan as of December 31, 2001:

<TABLE>
<CAPTION>

                                              Weighted
                                              Average
                          Number of          Remaining           Weighted           Number of           Weighted
      Range of            Options           Contractual           Average            Options             Average
  Exercise Prices        Outstanding      Life (in Years)     Exercise Price       Exercisable       Exercise Price
  ---------------        -----------      ---------------     --------------       ------------      --------------
<S>                       <C>                      <C>         <C>                  <C>                <C>

$  0.00 - $2.65           1,902,323                3.4         $      1.22              861,523        $      1.47
    2.65 - 5.30             295,570                5.0                4.71              263,005               4.79
    5.30 - 7.95             156,015                1.8                6.00               96,795               6.00
                         -----------      ---------------     --------------       ------------      --------------
                          2,353,908                3.5         $      1.98          $ 1,221,323        $      2.54
                         ===========      ===============     ==============       ============      ==============
</TABLE>


11.  EMPLOYEE STOCK PURCHASE PLAN

         The  Company  sponsors  an  Employee  Stock  Purchase  Plan (the "Stock
Purchase Plan"),  under which a total of 637,500 shares of Common stock has been
reserved for issuance.  Any employee who has been employed by the Company for 90
days is eligible to participate in offerings under the Stock Purchase Plan.

         During 2001, 2000 and 1999 offerings of 75,000 shares each were made on
January 1 and July 1, respectively.  The maximum number of shares issued in each
semi-annual  offering  will be  75,000  shares  plus the  cumulative  number  of
unissued  shares from prior offerings under the Stock Purchase Plan. As a result
of these offerings,  participants  purchased  215,822 and 75,015 shares in 2001,
30,520 and 227,112 shares in 2000, and 18,455 and 30,961 in 1999,  respectively,
of common stock.

                                      F-17
<PAGE>

         On the  commencement  date of each  offering  under the Stock  Purchase
Plan,  a  participating  employee  is deemed to have been  granted  an option to
purchase a maximum number of shares of common stock equal to: (i) the percentage
of the employee's base pay that such employee has elected to be withheld (not to
exceed 10%),  (ii)  multiplied by such  employee's base pay during the period of
such offering and (iii) divided by the lower of 85% of the closing  market price
of the common stock on the applicable  offering  commencement date or 85% of the
closing  market  price of the common  stock on the  offering  termination  date.
Options held by a participant are exercisable only by that participant.

         No employee may be granted options to participate in the Stock Purchase
Plan if, as a result of such grant,  such  employee  would (i) own stock or hold
options to purchase  stock  possessing 5% or more of the total  combined  voting
power or value of all  classes of stock of the  Company  or (ii) have  rights to
purchase  stock under all  employee  stock  purchase  plans of the Company  that
accrue at a rate in excess of  $25,000  in fair  market  value for any  calendar
year.

         Unless  a  participant  gives  written  notice  to  the  Company,  such
participant's  option for the purchase of Common  stock with payroll  deductions
made during an offering shall be deemed to have been exercised  automatically on
the offering  termination date applicable to such offering,  for the purchase of
the  number  of full  shares  of  common  stock  that  the  accumulated  payroll
deductions  at that  time  will  purchase  at the  applicable  option  price.  A
participant may withdraw  payroll  deductions  credited to his account under the
Stock Purchase Plan at any time prior to the offering termination date.

12.  SHAREHOLDERS' EQUITY

         The  Company is  authorized  to issue up to 300,000  shares of Series A
Junior  Preferred  Stock with a par value of $1.00 per share.  The  Company  has
issued one Right for each share of Common stock  outstanding under the Company's
Rights Agreement.  Each Right represents the right to purchase one one-hundredth
of a share of Series A Junior Preferred Stock at a price of $100.00,  subject to
adjustment.  The Rights are exercisable only in the event that a person or group
(with certain  exceptions)  becomes the beneficial owner of shares  representing
15% or more of the voting  power of the  Company,  or  announces  or commences a
tender or exchange offer that would result in the  acquisition of such number of
shares. The Rights Agreement expires ten years from the date of adoption.

13.   TRANSACTIONS WITH  MAJOR CUSTOMERS

         A major portion of the Company's  revenue is  concentrated  among three
customers.  As such, the Company is subject to all the risks  associated  with a
business  that has a high degree of business  concentrated  in a small number of
customers. This includes the risk that the loss of business from any one or more
of its major customers for any reason,  including,  but not limited to, business
difficulties encountered by its customers,  could have a material adverse effect
on the Company's business. For the years ended December 30, 2001, 2000 and 1999,
Millers American,  Arrowhead and Clarendon accounted for approximately 28%, 42%,
and 12%; 21%, 30%, and 7%; and 20%, 22%, and 7%, respectively,  of the Company's
revenues.

         Millers  American  has sold  certain  books of  business  and has begun
processing  other books of business  in-house both of which will reduce  Millers
American's  need for  policy  administration,  claims  administration  and other
services  currently  provided  by the  Company.  Also,  the  Company and Millers
American  renegotiated  provisions  of the  Millers'  MSA  and  may  renegotiate
additional  terms of the Millers' MSA in the future.  At this time,  the Company
estimates that the decrease in services and the  renegotiated  provisions of the
Millers' MSA will result in decreased  revenues from Millers American in 2002 of
approximately  $9.0 million when compared to 2001 revenues of $19.3 million.  If
the Company does not replace these revenues or decrease expenses proportional to
the decline in revenue,  this decrease in services to Millers American will have
a material adverse impact on the Company's results of operations in the future.

                                      F-18
<PAGE>

         On July 7, 2001, a the Company received  notification  from E.W. Blanch
Insurance  Services that it will be  transferring  the processing of Clarendon's
Florida  book of  business  to another  company.  The  Company is  currently  in
negotiations to retain the processing of this book of business,  however,  there
can be no  assurance  that the Company will retain the  processing,  or that the
terms will not be materially altered.  Revenues from Clarendon's Florida book of
business are approximately 7% of the Company's revenues.

14.  COMMITMENTS AND CONTINGENCIES

         Operating  Leases  -  The  Company  leases  certain  office  space  and
equipment under operating  leases and a sublease for periods ranging from one to
ten  years.  Rentals  on  operating  leases  (exclusive  of real  estate  taxes,
insurance and other expenses payable under the leases) amounted to approximately
$6,205,000,  $9,116,000  and  $9,368,000  for the years ended December 31, 2001,
2000 and 1999,  respectively.  These leases  generally  contain optional renewal
provisions for one or more periods. Future annual minimum lease payments without
adjustment  that might result from the  bankruptcy  proceedings  for each of the
next five years and in the aggregate therefore are:

                   2002....................................  $     5,644,474
                   2003....................................        4,447,337
                   2004....................................        3,262,916
                   2005....................................        3,039,022
                   2006....................................        2,550,929
                   Thereafter..............................        3,950,116
                                                             -----------------
                                                             $    22,894,794
                                                             =================

         Other  - The  Company  participates  in a  self-insurance  program  for
certain of its employees that provides for the payment of employee health claims
that are greater  than the  maximum  benefit  provided by the Company  sponsored
health  insurance  plan. The Company  accrues the estimated  liabilities for the
ultimate costs of both reported claims and incurred but not reported claims. The
program  provides  specific excess loss  reinsurance for those aggregate  claims
greater than the maximum amount for any one claimant.

         Litigation - In December 1997, the Company entered into a contract with
Sul America Cia Nacional de Seguros ("Sul America") to provide a license for WPC
(now known as INSideoutSM) and other software  products,  and software  services
for the implementation of such products. In conjunction with this contract,  the
Company  was  required  to  arrange  a surety  to  provide  Sul  America  with a
performance  bond in the amount of $3.7 million,  the proceeds of which could be
used in the  event  that  INSpire  did not  fulfill  its  obligations  under the
contract. The contract was segregated into three phases of deliverables,  two of
which  have been  accepted  and paid for in the  amount of $2.5  million  by Sul
America.  In August 1999, Sul America  terminated its contract with the Company,
and  demanded  payment  under  the  performance  bond.  Under its  agreement  to
indemnify the surety  against  losses under the  performance  bond,  the Company
arranged an  irrevocable  standby  letter of credit in October 1999 with Bank of
America,  N.A. in the amount of $3.7  million.  The letter of credit  expired on
September  1, 2000.  On December 21,  1999,  INSpire  filed a lawsuit in the 8th
Civil Court of Rio de Janeiro (INSpire Insurance Solutions, Inc. vs. Sul America
Seguros  S.A.  and  INA  Seguradora   S.A.   (99.001.175.210-6))   requesting  a
preliminary  injunction,  which was granted in January  2000,  to  restrict  Sul
America from drawing down on a performance bond. The Company has also asserted a
counterclaim  for the nonpayment of various amounts by Sul America.  Sul America
filed a motion for relief from the stay which was heard by the Bankruptcy  Court
on October 2, 2002. The Bankruptcy court denied the motion without  prejudice to
its being  reasserted  after  January 1, 2003.  In the  meantime the parties are
directed to mediation,  which is to include ACE  Seguradora,  S.A.,  the bonding
company.

         On December 3, 1999, a  shareholder  class action  lawsuit was filed in
the United States District Court for the Northern District of Texas on behalf of
all purchasers of the Company's  common stock during the period between  January
28,  1998 and  October  14, 1999  (Southland  Securities  Corporation  et al. v.
INSpire Insurance Solutions, Inc. et. al. (7-99CV-243-R)).  The named defendants

                                      F-19
<PAGE>

include the Company,  certain officers and directors of the Company, and Millers
Insurance.  The complaint  alleged  violations under Sections 10(b) and 20(a) of
the  Securities  Exchange Act of 1934 and Rule 10b-5  promulgated  thereunder by
making false and misleading  statements  and failing to disclose  material facts
necessary in order to make the  statements  made, in light of the  circumstances
under  which they were made,  not  misleading.  The  plaintiff  sought  monetary
damages and interest. Two additional  shareholder class action lawsuits,  nearly
identical  to the one  described  above,  were filed  against the Company in the
United States District Court for the Northern District of Texas:  Larry Altobell
and  Lawrence J. Miller et. al. v.  INSpire  Insurance  Solutions,  Inc. et. al.
(7-99CV-248-R) filed on December 16, 1999, and Stacy B. and Rhonda K. Lofton et.
al. v. INSpire Insurance Solutions, Inc. et. al. (7-00CV-001-R) filed on January
3, 2000. The lawsuits were filed in the Wichita Falls  Division.  They have been
consolidated,   lead  plaintiffs  and  counsel  have  been  appointed,  and  the
consolidation  action  has been  transferred  to the Fort  Worth  Division.  The
Company, together with the other defendants, filed a motion to dismiss. In March
2001, the Court granted the Company's motion to dismiss.  As a result,  an order
was entered  dismissing  the case without  prejudice  and giving the  Plaintiffs
leave to amend their lawsuit.  In June 2001, this suit was refiled.  This matter
was dismissed with  prejudice and without the right to re-plead in April,  2002.
The  Plaintiffs  have  appealed the matter to the United States Court of Appeals
for the Fifth Circuit.  The ultimate  outcome of this matter cannot presently be
determined.

         On March 2, 2000,  the Company filed an  arbitration  claim against The
Doctor's Company with the American Arbitration Association to collect $1,546,095
as the  amount  due to the  Company  under a License  Agreement,  Implementation
Support  Agreement,  and Accelerated  Enhancement  Plan Agreement.  On March 21,
2000, The Doctor's Company  submitted a claim for breach of contract against the
Company with the  American  Arbitration  Association  and filed suit against the
Company in the Superior  Court of the State of California to compel  arbitration
in  California.  On August 30,  2000,  the Court  denied the  petition to compel
arbitration in California.  The Doctor's Company  arbitration claim alleged that
as a result of the Company's  failure to meet  obligations  under its agreements
The Doctor's  Company was entitled to the return of $912,507  previously paid to
the Company plus direct costs and  consequential  damages.  In August 2000,  the
American Arbitration  Association  consolidated the arbitration proceeding filed
by The  Doctor's  Company  with  the  arbitration  proceeding  commenced  by the
Company.  This case was  settled on November  27,  2001 with the Company  paying
$400,000 to The Doctor's Company.

         On June 13,  2000,  a lawsuit  was filed in the  Superior  Court of the
State of  California  for the  County of San Diego by Western  Family  Insurance
Company,  Inc. ("Western  Family") (Western Family Insurance  Company,  Inc. vs.
Arrowhead General Insurance Agency, Inc., et. al.  (GIC749525)).  Western Family
was  seeking  approximately  $4.0  million  in  damages  for  alleged  breach of
contract,  negligence,  breach of fiduciary duty, and express indemnity,  plus a
claim for  unspecified  punitive  damages.  The allegations of this lawsuit were
based on an agency agreement by and between  Arrowhead General Insurance Agency,
Inc,  ("Arrowhead") and Western Family and a claims management  agreement by and
between Arrow Claims  Management,  Inc. (a subsidiary of Arrowhead)  and Western
Family,  each entered  into in September  1996.  The Company  purchased  certain
assets of Arrowhead and the stock of Arrow Claims  Management,  Inc. in December
1998. This case was dismissed on June 5, 2001.

         On August 22, 2000, a cross  complaint was filed in the Superior  Court
of the State of California for the County of Los Angeles by Clarendon (Clarendon
National  Insurance  Company  v. Nora  Sauceda,  Louis  Sauceda,  David  Garcia,
Arrowhead Claims Management,  Inc., et. al.  (BC199918)).  Clarendon was seeking
reimbursement  against  Arrowhead  Claims  Management,   Inc  ("Arrow")  for  an
arbitration  award in the  amount  of $14.5  million  that  was  awarded  to the
plaintiffs  against  Clarendon  in a  lawsuit  that  alleged  liability  against
Clarendon for bad faith in denying a claim and which was allegedly mishandled by
Arrow prior to the  acquisition of Arrow by the Company on December 1, 1998. The
claims were based on an agency agreement between Arrowhead General Agency,  Inc.
and Clarendon and a claims management agreement between Arrow (then a subsidiary
of Arrowhead General Agency, Inc.) and Clarendon. In January 2002, this case was
settled and the Company has been formally dismissed.

         On February 6, 2001,  the Company filed suit against  Motors  Insurance
Company  ("MIC") and General Motors  Acceptance  Corporation  ("GMAC")  alleging
breach  of  contract  under  three  separate   agreements  claiming  damages  of
$3,036,925,  $405,000,  and $373,000,  respectively.  On April 11, 2001, MIC and


                                      F-20
<PAGE>

GMAC filed an answer and counterclaim against the Company alleging they received
no working  software and are seeking amounts paid to the Company  (approximately
$9.4 million),  treble damages and court costs. During September 2001, this case
was settled and the Company received $1 million in settlement of its claim.

         On May 14,  2001,  Benchmark  General  Agency  filed  suit in the 101st
Judicial  District Court of Dallas County,  Texas seeking  damages for breach of
contract.  The suit  alleges  that INSpire  failed to  successfully  implement a
system conversion and as a result Benchmark  suffered damages for costs incurred
and loss of business.  The Company  asserted  claims for past-due monies owed to
the Company for the sale of the system  implementation.  This case was dismissed
without prejudice on September 20, 2002.

         On July 17, 2001, a class  action  lawsuit  brought on behalf of claims
adjusters allegedly employed by the Company was filed against the Company in the
Superior  Court of  California,  County of San  Diego.  The  plaintiffs  seek to
recover  overtime  compensation  allegedly  earned  but not paid by the  Company
during their  employment  or upon their  departure,  as well as civil  statutory
penalties.  At  this  time  the  Company  cannot  predict  the  outcome  of this
litigation  although  the Company  intends to  vigorously  defend  against  this
action.

         From time to time the  Company is involved  in other  lawsuits  that it
considers to be in the ordinary course of business.  The Company is not aware of
any other legal proceedings that it expects would have a material adverse effect
on the  Company's  business,  financial  condition,  cash  flows,  or results of
operations.

15.      SUBSEQUENT EVENTS

         On January 18,  2002,  Shelia and Jamie Codova filed suit in the Second
Judicial  District Court,  County of Bernalillo,  New Mexico against INSpire and
other  parties  for  emotional  distress as a result of their  automobile  claim
allegedly  not being handled  properly.  The dispute arose over the value of the
plaintiff's automobile and whether it was a total loss. The plaintiff is seeking
$50,000 plus punitive damages and costs. At this time the Company cannot predict
the outcome of this  litigation  and is seeking to be dismissed from this action
or make a nominal settlement.

         On February  15, 2002,  the Company  filed  petitions  for relief under
Chapter 11 of the U. S. Bankruptcy Code with the United States  Bankruptcy Court
for the Northern District of Texas. Under Chapter 11, certain claims against the
Company in existence  prior to the filing of the petitions for relief are stayed
while  the  Company  continues  business  operations  as   Debtor-in-Possession.
Additional  claims  (liabilities  subject to compromise) may arise subsequent to
the filing date  resulting  from  rejection  of executory  contracts,  including
leases,  and from the  determination  by the court (or  agreed to by  parties in
interest) of allowed claims for contingencies and other disputed amounts. Claims
secured against the Debtor's assets ("secured claims") also are stayed, although
the  holders of such claims have the right to move the court for relief from the
stay.  The  Company  received  approval  from  the  Bankruptcy  Court  to pay or
otherwise honor certain of its prepetition obligations, including employee wages
and benefits.  On August 26, 2002 the Company  filed the Plan of  Reorganization
and Disclosure Statement. See the discussion of the Plan under Reorganization in
Note 1.

         The Company signed a renegotiated  lease for the Fort Worth, Texas home
office with IIS Realty,  LTD.  effective April 2002.  Under the terms of the new
lease, which expires April 1, 2004, the Company is leasing  approximately 55,000
square feet for the amount of $82,500 per month. Also, INSpire will no longer be
responsible  for all utility,  property tax, and insurance  costs related to the
building at 300 Burnett Street.

         On April 30, 2002, INSpire terminated its IT outsourcing  contract with
Lockheed  Martin.  Lockheed  Martin  provided  data center,  networking,  server
support,  desktop support and help desk services to INSpire under the terms of a
ten-year  contract  established  in 2001.  On May 1,  2002,  responsibility  for
running all IT functions  transitioned from Lockheed Martin to INSpire.  In June
2002, the Company received Court approval for a settlement on the IT outsourcing
contract with Lockheed  Martin.  The settlement  amount of $1.5 million included
payment of $827,757 for all  prepetition  liabilities  due  Lockheed  Martin and
$729,243 for damages from the contract's cancellation.

                                      F-21
<PAGE>

         During May 2002,  INSpire  received  approval from the U.S.  Bankruptcy
Court to  restructure  certain  policy and  claims  processing  agreements  with
Arrowhead. Under the terms of the restructured agreements, INSpire will continue
to provide policy and claims  administration  services for Arrowhead's  personal
property  business through December 2008.  Arrowhead will assume  responsibility
for policy  administration of its personal auto and commercial lines businesses.
(In January 2002,  Arrowhead Claims Management  resumed  responsibility  for its
personal auto claims  administration.)  Arrowhead is purchasing  from INSpire an
INSideOUT   software  license  to  support  its  personal  auto  and  commercial
businesses.  INSpire will provide software  applications  consulting services to
Arrowhead  through  December 2008. The  restructured  agreements are expected to
increase  INSpire's  profits by  approximately  $1.2 million each year despite a
reduction  of  INSpire's  revenues by  approximately  $4 million  per year.  The
agreements were signed May 14, 2002 and were immediately effective.

         In July 2002,  the Company  received  Court approval to implement a Key
Employee Retention Plan ("KERP") which provides cash incentives to key employees
of the Company.  The KERP is expected to encourage  employees to continue  their
employment  with INSpire  through the  reorganization.  Total payments under the
KERP are expected to be $286,000 and the first installment was paid in July.

         The  Company  was  notified by  Clarendon  in August 2002 to  non-renew
approximately  13,500  policies with renewal dates from November 1, 2002 through
January 31, 2003. The Company  estimates  that this will decrease  revenues over
the next twelve months by approximately $600,000.

         The Company announced that Tom Slone, John F. Pergande, Gregory B. Kent
and Daniel E. Berce resigned as members of the Company's board of directors. Mr.
Pergande  also served as the  chairman of the board of  directors.  Mr.  Slone's
resignation  was  effective  as of June 6,  2002.  Messrs.  Pergande  and Kents'
resignations  were  effective  August 13, 2002 and Mr.  Berce's  resignation  is
effective August 14, 2002. None of the resigning  directors cited  disagreements
with the Company relating to the Company's operations,  policies or practices as
a reason for their departure.



                                      F-22


<PAGE>


                                  EXHIBIT INDEX

   Exhibit No.                          Description
-----------------  -------------------------------------------------------------


          2.1       --Stock Purchase Agreement, dated as of October 29, 1998, by
                    and  among  INSpire,   ACM  and  the   shareholders  of  ACM
                    (Incorporated  by reference to Exhibit 2.1 of INSpire's Form
                    8-K, dated December 1, 1998 and filed on December 14, 1998).
          2.2       --Asset Purchase Agreement, dated as of October 29, 1998, by
                    and between INSpire and AGIA.  (Incorporated by reference to
                    Exhibit 2.2 of INSpire's  Form 8-K,  dated  December 1, 1998
                    and filed on December 14, 1998).
          2.3       --Form of Stock Purchase Agreement, dated April 20, 1998, by
                    and among INSpire,  Paragon and the  shareholders of Paragon
                    (Incorporated  by reference to Exhibit 2.1 of INSpire's Form
                    10-Q for the three months ended March 31, 1998, filed on May
                    14, 1998).
          2.4       --Plan   of   Reorganization   and   Disclosure    Statement
                    (Incorporated  by  referenced  to  Exhibits  2.1  and 2.2 of
                    INSpire's  Form  8-K,  dated  August  27,  2002 and filed on
                    September 4, 2002).
          3.1       --Restated Articles of Incorporation of INSpire and Articles
                    of  Amendment  No. 1 thereto  (Incorporated  by reference to
                    Exhibit 3.1 of INSpire's Registration Statement on Form S-1,
                    Registration No. 333-31173).
          3.2*      --Amended and Restated Bylaws of INSpire.
          4.1       --Specimen Certificate for shares of common stock of INSpire
                    (Incorporated  by  reference  to  Exhibit  4.1 of  INSpire's
                    Registration   Statement  on  Form  S-1,   Registration  No.
                    333-31173).
          4.2       --Form of Amended  and  Restated  Rights  Agreement,  by and
                    between INSpire and U.S. Trust Company of Texas, N.A., dated
                    as of  December  18,  1998  (Incorporated  by  reference  to
                    Exhibit  4.2 of  INSpire's  From  10-K  for the  year  ended
                    December 31, 1998, filed on March 25, 1999).

<PAGE>


          10.1*     --Master Service Agreement and Customer Addendums,  dated as
                    of December 30, 1999 by and between INSpire and each Millers
                    entity that signs a Service Addendum.
          10.2*     --Comprehensive Escrow Agreement,  dated as of September 28,
                    2001 by and between INSpire and Millers American Group, Inc.
          10.3*     --First  Amended  and  Restated  Policy  Processing  Service
                    Addendum,  dated as of  November  1, 2001 by and between the
                    Company, The Millers Insurance Company, The Millers Casualty
                    Insurance Company and Millers General Agency.
          10.4*     --Amendment  to  Master  Service  Agreement,   dated  as  of
                    February 1, 2002 and  effective  as of November 1, 2001,  by
                    and  between  INSpire and each  Millers  entity that signs a
                    Service Addendum.
          10.5*     --Claims  Management  System and Support Services  Agreement
                    and  First  Amendment  to  Claims  Administration   Services
                    Agreement,  dated  as of  January  12,  2002 by and  between
                    INSpire and Arrowhead Claims Management, Inc.
          10.6*     --Claims Administration Agreement,  dated as of May 14, 2002
                    by and between INSpire and Arrowhead Claims Management, Inc.
          10.7*     --Policy Processing and Administration  Agreement,  dated as
                    of May 14, 2002 by and between INSpire and Arrowhead General
                    Insurance Agency, Inc.
          10.8*     --Software  License  Agreement,  dated as of May 14, 2002 by
                    and between INSpire and Arrowhead  General Insurance Agency,
                    Inc.

<PAGE>

          10.9*     --Professional Services Agreement,  dated as of May 14, 2002
                    by and among INSpire,  Arrowhead  General  Insurance Agency,
                    Inc. and Arrowhead Claims Management, Inc.
          10.10*    --Asset Purchase Agreement,  dated as of May 14, 2002 by and
                    between INSpire and Arrowhead General Insurance Agency, Inc.
          10.11*    --Comprehensive Preferred Escrow Agreement,  dated as of May
                    14,  2002  by  and  among  INSpire,  DSI  Technology  Escrow
                    Services, Inc. and Arrowhead General Insurance Agency, Inc.
          10.12*    --Sublease, dated as of May 14, 2002, by and between INSpire
                    and Arrowhead General Insurance Agency, Inc.
          10.13*    --Services  Agreement,  dated as of August  22,  2001 by and
                    among  INSpire,  Clarendon  National  Insurance  Company and
                    Harbor Specialty Insurance Company.
          10.14     --Form of  Sublease  Agreement,  effective  as of January 1,
                    1997,   by  and   between   INSpire   and   Millers   Mutual
                    (Incorporated  by  reference  to Exhibit  10.5 of  INSpire's
                    Registration   Statement  on  Form  S-1,   Registration  No.
                    333-31173).
          10.15     --Administration  Services Agreement,  effective as of March
                    12, 1996, by and among State  Corporation  Commission of the
                    Commonwealth   of  Virginia  as  Deputy   Receiver  for  HOW
                    Insurance  Company,  Home  Warranty  Corporation,  and  Home
                    Owners Warranty  Corporation,  In Receivership,  and INSpire
                    (Incorporated  by  reference  to Exhibit  10.10 of INSpire's
                    Registration   Statement  on  Form  S-1,   Registration  No.
                    333-31173).
          10.16     --Form of Contract to Provide  Services and Acquire  License
                    to Use Software,  dated December 29, 1997,  between  INSpire
                    and Sul America Cia  Nacional  de Seguros  (Incorporated  by
                    reference  to  Exhibit   10.45  of  INSpire's   Registration
                    Statement on Form S-1, Registration No. 333-47413).
          10.17     --Form  of  Indemnification  Agreement  with a  schedule  of
                    director  signatories  (Incorporated by reference to Exhibit
                    10.11  of  INSpire's  Registration  Statement  on Form  S-1,
                    Registration No. 333-31173).
          10.18     --Director  Stock Option Plan  (Incorporated by reference to
                    Exhibit  10.36 of INSpire's  Registration  Statement on Form
                    S-1, Registration No. 333-31173).
          10.19     --Form of Director Stock Option  Agreement  (Incorporated by
                    reference  to  Exhibit   10.37  of  INSpire's   Registration
                    Statement on Form S-1, Registration No. 333-31173).
          10.20     --Form of First  Amendment to the Director Stock Option Plan
                    (Incorporated by reference to Exhibit 10.3 of INSpire's Form
                    10-Q for the three months ended March 31, 1998, filed on May
                    14, 1998).
          10.21     --Employee Stock Purchase Plan (Incorporated by reference to
                    Exhibit  10.38 of INSpire's  Registration  Statement on Form
                    S-1, Registration No. 333-31173).
          10.22     --Second   Amended  and  Restated  1997  Stock  Option  Plan
                    (Incorporated by reference to Exhibit 10.2 of INSpire's Form
                    10-Q for the three months ended March 31, 1998, filed on May
                    14, 1998).
          10.23     --1998  Annual  Bonus Plan  (Incorporated  by  reference  to
                    Exhibit  10.48 of INSpire's  Registration  Statement on Form
                    S-1, Registration No. 333-47413).
          10.24     --Form of executive  employment  agreement  (Incorporated by
                    reference to Exhibit  10.46 of  INSpire's  Form 10-K for the
                    year ended December 31, 1998, filed on March 25, 1999).
          10.25     --Registration  Rights  Agreement,  dated as of  December 1,
                    1998 between INSpire and AGIA  (Incorporated by reference to
                    Exhibit  10.2 of INSpire's  Form 8-K dated  December 1, 1998
                    and filed on December 14, 1998).

<PAGE>

          10.26     --Commercial  Lease  Agreement,  dated  November  13,  1998,
                    between  IIS  Realty  Ltd.  And  INSpire   (Incorporated  by
                    reference to Exhibit  10.50 of  INSpire's  Form 10-K for the
                    year ended December 31, 1998, filed on March 25, 1999).
          10.27     --Amendment  No.  1  to  the  Commercial   Lease  Agreement,
                    effective  May 1, 1999,  between IIS Realty Ltd. And INSpire
                    (Incorporated  by  reference  to Exhibit  10.50 of INSpire's
                    Form 10-K for the year ended  December  31,  1999,  filed on
                    March 9, 2000).
          10.28     --Amendment  No.  2  to  the  Commercial   Lease  Agreement,
                    effective  November 1, 1999,  between  IIS Realty  Ltd.  And
                    INSpire  (Incorporated  by  reference  to  Exhibit  10.51 of
                    INSpire's  Form 10-K for the year ended  December  31, 1999,
                    filed on March 9, 2000).
          10.29     --Employment  Agreement,   dated  and  effective  as  of
                    September  4,  2000,  by and  between  INSpire  and  John F.
                    Pergande  (Incorporated  by  reference  to Exhibit  10-56 of
                    Inspire's  Form 10-k for the year ended  December  31, 2000,
                    filed on April 2, 2001.
          10.30*    --Employment  Agreement,  dated and  effective as of October
                    18, 2001, by and between INSpire and Richard Marxen
          11*       --Statement regarding Computation of Per Share Earnings.
          21*       --Subsidiaries of the Registrant.
          23*       --Consent of Deloitte & Touche LLP.
          24*       --Power of Attorney (included on signature page of this Form
                    10-K).
          99.1*     --Certification  by  Richard  Marxen  pursuant  to 18 U.S.C.
                    Section  1350 as  adopted  pursuant  to  Section  906 of the
                    Sarbanes-Oxley Act of 2002.
          99.2*     --Certification  by Andrea  Goodrich  pursuant  to 18 U.S.C.
                    Section  1350 as  adopted  pursuant  to  Section  906 of the
                    Sarbanes-Oxley Act of 2002.



*  Filed herewith