<PAGE>

                         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 1-13177

                                  INTEGRA, INC.
             (Exact Name of Registrant as Specified in its Charter)

                  DELAWARE                                 13-3605119
        (STATE OR OTHER JURISDICTION                    (I.R.S. EMPLOYER
             OF INCORPORATION OR                      IDENTIFICATION NO.)
                ORGANIZATION)

              1060 FIRST AVENUE                              19406
        KING OF PRUSSIA, PENNSYLVANIA                      (ZIP CODE)
            (ADDRESS OF PRINCIPAL
              EXECUTIVE OFFICES

        REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 610-992-7000
           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

<TABLE>
<CAPTION>
  TITLE OF EACH CLASS                NAME OF EACH EXCHANGE ON WHICH REGISTERED
<S>                                  <C>
  COMMON STOCK, $.01 PAR VALUE                AMERICAN STOCK EXCHANGE
</TABLE>


        SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE


      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 as the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]

      Indicate by check mark if disclosure of delinquent filers, pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

      As of April 22, 2002, 10,251,052 shares of Common Stock, $.01 par value,
were outstanding, and the aggregate market value of the shares of Common Stock,
$.01 par value, held by non-affiliates of the registrant as of April 22, 2002,
was approximately $1,990,000. (Determination of stock ownership by
non-affiliates was made solely for the purpose of responding to this requirement
and registrant is not bound by this determination for any other purpose).



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                       DOCUMENTS INCORPORATED BY REFERENCE

      List hereunder the documents, all or portions of which are incorporated by
reference herein, and the Part of the Form 10-K into which the document is
incorporated:

      Part III of this annual report on Form 10-K incorporates information by
reference from portions of the registrant's Proxy Statement to be filed with
respect to the 2002 Annual Meeting of Stockholders within 120 days after the end
of the fiscal year covered by this annual report on Form 10-K.










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<PAGE>
                                  INTEGRA, INC.
                                    FORM 10-K

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001




                                      INDEX

<TABLE>
<S>        <C>                                                                <C>
PART I
Item 1.    Business........................................................    5
Item 2.    Properties......................................................   20
Item 3.    Legal Proceedings...............................................   20
Item 4.    Submission of Matters to a Vote of Security Holders
           Executive Officers of the Registrant............................   21

PART II
Item 5.    Market for Registrant's Common Stock and Related Stockholder
           Matters.........................................................   22
Item 6.    Selected Financial Data.........................................   23
Item 7.    Management's Discussion and Analysis of Results of Operations
           and Financial Data..............................................   24
Item 7a.   Quantitative and Qualitative Disclosures about Market Risk......   34
Item 8.    Financial Statements and Supplementary Data.....................   36
Item 9.    Changes in and Disagreements with Accountants on Accounting and
           Financial Disclosures...........................................   64

PART III
Item 10.   Directors and Executive Officers of the Registrant..............   64
Item 11.   Executive Compensation..........................................   64
Item 12.   Security Ownership of Certain Beneficial Owners and Management..   64
Item 13.   Certain Relationships and Related Transactions..................   64

PART IV
Item 14.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K   65
           Signatures......................................................   68
           Schedule II Valuation of Qualifying Accounts....................   70
</TABLE>





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FORWARD LOOKING STATEMENTS

      This report contains forward-looking statements (within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended), representing
the Company's current expectations and beliefs concerning future events. When
used in this report, the words "believes," "estimates," "plans," "expects,"
"intends," "anticipates," and similar expressions as they relate to the Company
or its management are intended to identify forward-looking statements. These
include statements regarding the reason many companies have implemented EAPs,
the growth of the EAP/Managed Behavioral Healthcare segment, the Company's
opportunity to increase its covered lives in its Managed Behavioral Healthcare
products, the Company's ability to increase ASO and EAP covered lives with large
corporate customers, the Company's intention to market integrated programs to
the Company's EAP customers and other prospective corporate clients, the
Company's focus on EAP revenue, governmental agencies' implementation of Managed
Care Medicaid programs and HMO's subcontracting to Managed Behavioral Healthcare
organizations, the Company's expectation that it will not be able to rely on
price increases to achieve revenue growth, the Company's belief that
requirements relating to an insurance company would not have a material adverse
effect on the company, the Company's required compliance with various regulatory
statutes, the compliance of healthcare professionals with whom the Company
contracts with state licensing requirements, the ability of other healthcare
professionals with whom the Company contracts to obtain licensure, if required,
the effect on HIPPA regulations on the Company's operations, the compliance of
the Company's outpatient service and provider business with state and federal
restrictions, the Company's ability to renew leases, the adequacy of the size of
the Company's current leased space, the Company's intention to defend itself in
litigation matters, the necessity of reserves for certain potential liabilities,
the impact of the outcome of legal proceedings in which the Company is involved
on its financial position or results of operations, the Company's expectation
with regard to declaration of dividends, the Company's belief regarding the
Integra name, the Company's belief regarding revenues exceeding costs under its
capitated contracts. The actual results of the Company could differ materially
from those indicated by the forward-looking statements because of various risks
and uncertainties related to and including, without limitation, the Company's
effective and timely initiation and development of new client relationships and
programs, the maintenance of existing client relationships and programs, the
restructuring of the Company's infrastructure in view of the March 2002
termination of a contract with one customer representing 55% of the Company's
EAP and Managed Behavioral Healthcare segment revenues, the successful
marketing of the Company's managed behavioral healthcare services, the
achievement of satisfactory levels of both gross and operating margins, the
recruitment and retention of qualified personnel, the continued enhancement of
computer and information technologies and operational and financial systems,
changes in competition, general economic conditions, costs of financing and
leasing of equipment, the adequacy of cash flows from operations and available
financings to fund capital needs and future growth, changes in governmental
rules and regulations applicable to the Company, the outcome of post-payment
reviews of the Company's billing to Medicare patients in long-term care
facilities during the period when the Company provided such services,
indemnification provisions and contingent liabilities pertaining to the
Company's sale and exit of the outpatient operations, utilization and cost of
services under the Company's capitated contracts, the enforcement of contingent
liabilities for which the Company has established reserves and other risks set
forth in this report and in the Company's other filings with the Securities and
Exchange Commission. These risks and uncertainties are not entirely within the
ability of the Company to control. In many cases, the Company cannot predict the
risks and uncertainties that could cause actual results to differ materially
from those indicated by the forward-looking statements.



                                    4 of 70
<PAGE>
                                     PART I

ITEM 1.     BUSINESS.

GENERAL

      Integra, Inc. ("Integra" or the "Company") provides employee assistance
programs ("EAP") and managed behavioral healthcare services through full and
shared risk arrangements with managed care organizations, health plans and
employers typically on a capitated per member (employee) per month basis. In
addition, the Company provides an array of other behavioral health services
including: third party clinical case management and claims administration. In
July 2001, the Company began providing actuarial consulting services with
respect to the design, funding and administration of compensation, benefit and
retirement plans as a result of its acquisition of Global Benefit Solutions, LLC
("GBS"). (See Item 7 for further information regarding the acquisition of GBS in
July 2001 and subsequent sale in April 2002).

      At December 31, 2001, Integra's contract service areas were principally
concentrated in Connecticut, Delaware, Georgia, Maryland, New Jersey, New York,
Pennsylvania, Rhode Island, Virginia and Tennessee. Integra was incorporated in
Delaware in 1991 under the name Apogee, Inc. and changed its name to Integra in
1998. The Company is listed on the American Stock Exchange and trades under the
symbol "IGR."

As discussed in Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations and in Note 1 to the Consolidated Financial
Statements, the Company incurred a net loss of $14,505,000 in 2001 and had a
working capital deficit of $8,770,000 at December 31, 2001. Further, the
Company's lines of credit expire in 2002 and contracts with the Company's two
largest customers have not been renewed. The Company does not anticipate
generating significant cash flows from operations in 2002. As a result, the
Company requires extensions on its lines of credit and/or additional debt or
equity financing. As such, the Company's independent auditors have included an
explanatory paragraph in their report on the Company's December 31, 2001
financial statements relating to the going concern uncertainty. Management's
plans in regard to these matters are also described in Note 1 to the
Consolidated Financial Statements.

EAP AND MANAGED BEHAVIORAL HEALTHCARE MARKET

      Mental illness and substance abuse remain serious health problems in the
United States. In an effort to improve the clinical outcomes of treating these
illnesses and to handle care in a cost-effective manner -- employers, health
plans and managed care organizations have increasingly turned to Managed
Behavioral Healthcare companies ("MBHC").

      In the most recent study by OPEN MINDS, which is an industry research and
consulting firm specializing in the behavioral and social service fields (OPEN
MINDS Yearbook of Managed Behavioral Health Market Share in the United States,
2000-2001), the total managed behavioral healthcare market was approximately
$209 million in 2000. This study estimated that approximately 63% of all
Americans with health insurance are enrolled in a managed behavioral health plan
-- excluding the number of individuals with behavioral health coverage through a
health maintenance organization (HMO) that manages behavioral health benefits
without the assistance of a MBHC program.

      MBHC enrollment, based upon the OPEN MINDS study, has increased
approximately 14% a year -- from 86.3 million in 1993 to 209 million in 2000.
The Company believes that enrollment continues to grow due to:

      (i)   privatization of government/public sector programs such as CHAMPUS
            and Medicaid;

      (ii)  continued emphasis on cost containment by employers and payers;

      (iii) the inherent subjective nature of the diagnosis and treatment of
            mental health disorders;

      (iv)  the advent of recent "parity" laws requiring that behavioral health
            conditions be treated on a par with other medical conditions; and

      (v)   pressure on employers to address the personal problems and needs of
            employees.





                                    5 of 70
<PAGE>
      EAP enrollment has risen 245% since 1994. In fact, according to OPEN MINDS
2000 survey, there are 51 million participants enrolled in stand-alone EAP's and
15.5 million participants enrolled in integrated MBH/EAP models in 2000/2001.

MANAGED BEHAVIORAL HEALTHCARE BUSINESS

      The managed behavioral healthcare business may be divided into five
categories of care. Based on the OPEN MINDS studies, the following table
summarizes these categories as follows:

<TABLE>
                                          BENEFICIARIES
                                           IN MILLIONS
                                          AS OF JANUARY 1           TOTAL
                                          ---------------       ANNUAL GROWTH
CATEGORY OF CARE                      2000/2001    1999/2000    BY CATEGORY
----------------                      ---------    ---------    -----------
<S>                                   <C>          <C>          <C>

Utilization Review/Case Management
  and Non-Risk Based
  Network Services................       79.8         74.1           7.7%
Risk-Based Network Services.......       62.8         49.4          27.1%
Employee Assistance Programs Only.       51.0         43.0          18.3%
Integrated Programs MBHP/EAP......       15.5         15.6           (.1)%
                                       ------       ------         -----
                                        209.1        182.1          14.8%
                                       ======       ======         =====
</TABLE>


      Integra offers programs and services in each of these categories.
According to a study conducted by OPEN MINDS, risk-based network products and
Employee Assistance Programs are the most rapidly growing segments of the
managed behavioral healthcare industry. These product areas are the primary
focus of Integra's development efforts.

Utilization Review/Case Management/Non-Risk-Based Network Services

      As part of its utilization review/case management/non-risk-based network
services, Integra provides managed care services which may include selecting,
credentialing and managing a network of providers (such as psychiatrists,
psychologists, social workers and hospitals), and performing utilization review,
claims administration and care management functions.

      In connection with these arrangements, Integra does not assume financial
responsibility for the cost of providing treatment services. The third party
payer remains responsible for the cost of providing the treatment services
rendered. The Company categorizes its services within this segment of the
managed behavioral healthcare industry as Administrative Services Only (ASO)
services.

Risk-Based Network Services

      As part of its risk-based network services, Integra assumes all or a
portion of the responsibility for the cost of providing behavioral healthcare
treatment services. Specifically, under a risk-based payment arrangement,
Integra agrees to provide services in exchange for a fixed fee per member per
month that may vary depending on the profile of the beneficiary population or to
otherwise share the responsibility for providing all or some portion of the
treatment services at a specific cost per member.



                                    6 of 70
<PAGE>
      Under these arrangements, Integra not only approves and monitors a course
of treatment, but also arranges and pays for the provision of patient care
through its third party network providers. Contractually, Integra assumes the
financial risk for utilization and payment of services. As a result, Integra
must be proficient in contracting with, credentialing and managing a network of
specialized providers and facilities that covers the necessary continuum of
care.

Employee Assistance Programs (EAP)

      An EAP is a worksite-based program designed to assist in the early
identification and resolution of productivity problems associated with
behavioral conditions or other personal concerns of employees and their
dependents. Under its EAPs, Integra's network providers or other affiliated
clinicians provide assessment and referral services to employee beneficiaries
and their dependents. These services consist of evaluating a patient's needs
and, if indicated, providing counseling and/or identifying an appropriate
provider, treatment facility or other resource for more intensive treatment
services. EAP services typically include consultation services, evaluation and
referral services, and employee education/outreach services.

      Integra's EAP contracts generally provide between three and eight sessions
of counseling. The Company believes that federal and state "drug-free workplace"
measures and Federal Occupational Health and Safety Act requirements, together
with the growing public perception of increased violence in the workplace, have
prompted many companies to implement EAPs.

      As reflected in the OPEN MINDS studies, this is a fast growing segment of
the Managed Behavioral Healthcare market in recent years. Although EAPs
originated as a support tool to assist managers in dealing with troubled
employees, payers increasingly regard EAPs as an important component in the
continuum of behavioral healthcare services and to some extent as the portal for
entry into all company sponsored health and benefit programs.

      Through its EAP program, Integra also offers a variety of workplace
intervention programs including crisis intervention services under which it
provides on-site counseling to employees who are experiencing emotional distress
as a result of a severe workplace incident.

Integrated EAP/Managed Behavioral Healthcare Services

      EAPs are typically utilized in a preventive role and in facilitating early
intervention and brief treatment of behavioral healthcare and other employee
problems before more extensive treatment is required. In an effort to both
reduce costs and increase accessibility and ease of treatment, employers are
increasingly attempting to consolidate EAP and managed behavioral healthcare
services into a coordinated program. Consequently, Integra markets and sells EAP
in connection with its managed behavioral healthcare programs through
"integrated" product offerings. Integrated products offer employers
comprehensive treatment services and management of all aspects of behavioral
healthcare.

      Although integrated EAP/Managed Behavioral Healthcare products are
currently only a small component of the overall industry, the Company expects
this market segment to grow and considers this a core competency of the Company.



                                    7 of 70
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SERVICE REVENUES AND THIRD PARTY REIMBURSEMENT

      The Company's service revenues are currently generated exclusively from
managed care companies and employers in connection with the EAP and Managed
Behavioral Healthcare segment. In 2001 and 2000, 55% and 52% of these revenues,
respectively, were related to a contract with one customer.

      The Company currently receives no direct reimbursement from Medicare,
Medicaid or CHAMPUS.

MAJOR CUSTOMERS

      One customer, HealthNow New York -- Blue Cross/Blue Shield of Western New
York (HeathNow), accounted for 55% and 52% of the Company's 2001 and 2000
revenue, respectively. The Company has provided managed behavioral healthcare
services to HealthNow since January 1, 1999. On March 4, 2002 HealthNow notified
the Company that it was terminating its contract effective June 1, 2002.

      The Company's contract with Fidelis Care of New York (Fidelis), which
accounted for 12% and 11% of the Company's 2001 and 2000 revenue respectively,
expired on December 31, 2001. Fidelis informed the Company that it would
directly perform services for its members rather than contract out to a third
party.

EMPLOYEE BENEFIT PLAN CONSULTING

      In July 2001 the Company acquired Global Benefits Solutions, LLC which
enabled the Company to broaden its product offering to its existing client base.
GBS provides consulting services (including actuarial advice) to companies with
respect to the design, funding and administration of compensation, benefit and
retirement plans.

BUSINESS STRATEGY

      Increase Enrollment in EAP and Managed Behavioral Healthcare Products. The
Company believes it has an opportunity to increase covered lives in all of its
Managed Behavioral Healthcare products. In particular, the Company believes its
reputation for high quality in-service delivery and clinical outcomes will
further enhance its ability to increase ASO and EAP covered lives with large
corporate customers. As stated previously, according to OPEN MINDS, EAP is one
of the fastest growing segments of the Managed Behavioral Healthcare market in
recent years. The Company intends to build upon its experience managing programs
for large corporate customers and to market integrated programs to the Company's
existing EAP customers and other prospective corporate clients.

      The Company will continue to make corporate-based customers its priority,
utilizing relationships with brokers and consultants to identify potential
clients and to make proposals to potential customers regarding its services. The
Company added an additional 25,000 lives in 2001 and will continue to focus on
EAP/Work Life revenue. The Company's EAP operations remain strong and service
numbers have increased in all areas of the Company's business. Integra plans to
focus on EAP, and to continue to look for opportunities to expand the business.


                                    8 of 70
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EAP AND MANAGED BEHAVIORAL HEALTHCARE CUSTOMERS

      General. The following table sets forth the revenue and approximate
covered lives for the year ended December 31, 2001 in each of the Company's
customer groups described below:

<TABLE>
<CAPTION>
                                    COVERED        REVENUE          PERCENT OF
MARKET                               LIVES      (IN THOUSANDS)    TOTAL REVENUE
------                             ---------    --------------    -------------
<S>                                <C>          <C>               <C>

Health Plans and MCOs ........       430,000       $  13,408           52.0%
Workplace ....................       690,000           7,960           30.8%
Public Sector ................        80,000           4,434           17.2%
                                   ---------       ---------         ------
           Total .............     1,200,000       $  25,802          100.0%
                                   =========       =========         ======
</TABLE>


      Health Plans and Managed Care Organizations. HMO contracts are full,
limited or shared risk contracts in which the Company generally accepts a fixed
fee per member per month from the HMO in exchange for providing a full or
specified range of behavioral healthcare services for a specific portion of the
HMO's beneficiaries. Although certain large HMOs provide their own managed
behavioral healthcare services, many HMOs "carve out" behavioral healthcare from
their general healthcare services and subcontract such services to managed
behavioral healthcare companies like the Company.

      Workplace. Corporations account for a large number of the Company's
contracts to provide managed behavioral healthcare services and, in particular,
EAP and integrated EAP/Managed Behavioral Healthcare care services. The Company
has structured a variety of fee arrangements with corporate customers to cover
all or a portion of the responsibility of the cost of providing treatment
services. In addition, the Company operates a number of programs for corporate
customers on an administrative services only (ASO) basis.

      Public Sector. The Company provides EAP and Managed Behavioral Healthcare
services to Medicaid and Medicare recipients through subcontracts with HMOs
focused on those beneficiary populations. The Company expects that governmental
agencies will continue to implement a significant number of managed care
Medicaid programs through contracts with HMOs and that many HMOs will
subcontract with Managed Behavioral Healthcare organizations, such as the
Company, for behavioral healthcare services.

EAP AND MANAGED BEHAVIORAL HEALTHCARE NETWORK

      The Company's EAP and Managed Behavioral Healthcare treatment services are
provided by a network of third party providers. The number and type of providers
in a particular area depend upon customer preference, geographic concentration
and demographic make-up of the beneficiary population in that area. Network
providers generally include a variety of specialized behavioral healthcare
personnel, such as psychiatrists, psychologists, licensed clinical social
workers, substance abuse counselors and other professionals.

      As of December 31, 2001, the Company had contractual arrangements covering
over 15,000 individual third party network providers. The Company's network
providers are independent contractors located throughout the local areas in
which the Company's customers' beneficiary populations reside. Network providers
work out of their own facilities and include individual practitioners with a
variety of healthcare licenses (e.g., physicians, psychologists,


                                    9 of 70
<PAGE>
licensed clinical social workers), individuals who are members of group
practices or other licensed centers or programs, inpatient psychiatric and
substance abuse hospitals, intensive outpatient facilities, partial
hospitalization facilities and community health centers. Network providers
typically execute standard contracts with the Company for which they are
typically paid by the Company on a fee-for-service basis. In some cases, network
providers are paid on a "case rate" basis, whereby the provider is paid a set
rate for an entire course of treatment, or through other risk sharing
arrangements. In the EAP segment, a network provider's contract with the Company
typically has a three-year term, with automatic renewal at the Company's option
for successive terms, while the health plan providers must be re-credentialed
every two years.

COMPETITION

      The managed behavioral health business is highly competitive. The Company
competes with large insurance companies, HMOs, preferred provider organizations
(PPO), third party administrators (TPA), multi-disciplinary medical groups and
other managed behavioral health companies.

      Many of the Company's competitors are significantly larger and have
greater financial, marketing and other resources than the Company, and some of
the Company's competitors provide a broader range of services. The Company may
also encounter substantial competition in the future from new market entrants.

      Many of the Company's customers that are managed care companies may, in
the future, seek to provide managed behavioral healthcare and EAP services to
their employees or subscribers directly, rather than by contracting with the
Company for such services.

      Because of competition, the Company does not expect to be able to rely on
price increases to achieve revenue growth and expects to continue experiencing
pressure on direct operating margins.

SALE AND EXIT OF OUTPATIENT OPERATIONS

      In December 1997, the Company announced its plans to exit outpatient
provider behavioral health group practice operations. In connection with this
plan, the Company entered into an Agreement of Purchase and Sale (the "Purchase
Agreement") to sell to PsychPartners, L.L.C., an Alabama limited liability
company, through two subsidiaries of PsychPartners, substantially all the assets
of the outpatient provider behavioral health group practice business (hereafter
referred to as the Sale). Practices located in the Western region of the United
States were not included in the Sale and as a result, during 1998, the Company
sold, divested or shut down all of these remaining operations.

      On December 26, 1997, the Company entered into an agreement of Purchase
and Sale (the "Purchase Agreement") with PsychPartners MidAtlantic, Inc.,
PsychPartners, Inc., and PsychPartners, L.L.C. (collectively "PsychPartners" or
the "Purchasers"). Pursuant to the Purchase Agreement, the Company sold to the
Purchasers substantially all of the assets and business of the Company's
outpatient behavioral health provider business, which consisted of (i) all of
the capital stock of one of the subsidiaries of the Company (the "Subsidiary
Stock") operating two outpatient behavioral health practices and (ii)
substantially all of the assets (the "Assets") relating to 19 of the Company's
outpatient behavioral health practices (the 21 practices are collectively, the
"Practices").



                                    10 of 70
<PAGE>
      On May 14, 1998, at a Special Meeting of the Shareholders of the Company,
the shareholders approved and adopted the terms of the Purchase Agreement with
PsychPartners. Effective on May 18, 1998, the Company completed the Sale. The
purchase price paid at closing consisted of: (a) $26,400,000 in cash, (b) a
warrant contingently issuable to purchase 230,000 Common Units of PsychPartners,
L.L.C. at a purchase price of $.05 per Common Unit and (c) the assumption of
certain liabilities. The purchase price was subject to adjustment if the cash,
accounts receivable, deposits and prepaid expenses of the Practices were less
than the liabilities and future contingent payment obligations of the Practices.
In March 1999, the Company made a payment to PsychPartners for a purchase price
adjustment of approximately $94,000.

      In January 2000, PsychPartners filed for protection under Chapter 11 of
the Federal Bankruptcy Code. As discussed in Note 10 of the Company's Notes to
Consolidated Financial Statements, the Company recorded a reserve of $1,700,000
at December 31, 1999 for potential exposures relating to certain obligations
assigned in the Sale. During 2001 and 2000, the Company recognized $129,000 and
$440,000, respectively, of income that was attributable to the amount by which
previously recorded reserves exceeded the estimated settlement payments.

REGULATION

General

      The health care industry is highly dependent on a number of factors that
may limit the ability of Integra to meet its obligations, a number of which are
beyond its control. Among other things, participants in the health care industry
are subject to significant regulatory requirements of federal, state and local
government agencies and independent professional organizations and accrediting
bodies, changes in treatment modes, various competitive factors and changes in
third party reimbursement programs. Discussed below are certain of these
factors, which could have a significant impact on the future operations and
financial condition of Integra. It is difficult to predict the effect of these
factors on the operations of Integra; however, the factors described below could
have a negative impact on such operations and such effect could be material.

State Licensure and Regulation

      Generally, regulatory agencies have broad discretionary powers when
granting, renewing or revoking licenses or granting approvals. In addition, the
time necessary to obtain licenses varies from state to state. In certain cases,
more than one regulatory agency in a jurisdiction may assert that it has
authority over the activities of the Company. State licensing laws and other
regulations are subject to amendment and to interpretation by regulatory
agencies with broad discretionary powers. Any such licensure and/or regulation
could require Integra to modify its operations materially in order to comply
with applicable regulatory requirements and may have a material adverse effect
on the Company's business, financial condition or results of operations.

State Insurance Laws

      To the extent that Integra operates or is deemed to operate in one or more
states as a prepaid limited health service organization, insurance company, HMO,
PPO, prepaid health plan, or other similar entity, it will be required to comply
with certain statutes and regulations that, among other things, may require it
to maintain minimum levels of deposits, capital, surplus, reserves or net worth,
and also may limit the ability of the Company and its subsidiaries to pay


                                    11 of 70
<PAGE>
dividends, make certain investments, and repay certain indebtedness. Licensure
as an insurance company, HMO or similar entity could also subject the Company to
regulations covering reporting and disclosure, mandated benefits, and other
traditional insurance regulatory requirements. PPO regulations may require the
Company to register with a state authority and provide information concerning
its operations, particularly relating to provider and payor contracting.

The imposition of any such requirements could significantly increase the
Company's costs of doing business and could delay the Company's conduct or
expansion of its business in some areas. The licensure process under state
insurance laws can be lengthy and, unless the applicable state regulatory agency
allows the Company to continue to operate while the licensure process is
ongoing, the Company could experience a material adverse effect on its operating
results and financial condition while its licensure application is pending.
Failure by Integra to obtain or maintain required licenses typically also
constitutes an event of default under Integra's contracts with its customers.
The loss of business from one or more of Integra's major customers as a result
of such an event of default or otherwise could have a material adverse effect on
Integra's business, financial condition or results of operations.

      The National Association of Insurance Commissioners (the "NAIC") has
undertaken a comprehensive review of the regulatory status of entities arranging
for the provision of healthcare services through a network of providers that,
like the Company, may assume risk for the cost and quality of healthcare
services, but that are not currently licensed as an HMO or similar entity. As a
result of this review, the NAIC developed a "health organizations risk-based
capital" formula, designed specifically for managed care organizations, that
establishes a minimum amount of capital necessary for a managed care
organization to support its overall operations, allowing consideration for the
organization's size and risk profile. The NAIC initiative also may result in the
adoption of a model NAIC regulation in the area of health plan standards, which
could be adopted by individual states in whole or in part, and could result in
the Company being required to meet additional or new standards in connection
with its existing operations.

      Based on the information presently available to it, the Company does not
know whether the imposition of requirements related to maintaining certain types
of assets, prescribed levels of deposits, capital, surplus, reserves or net
worth, or complying with other regulatory requirements applicable to an
insurance company, HMO, PPO or similar operations, would have a material adverse
effect on the Company. Notwithstanding the foregoing, the imposition of such
requirements could increase the Company's costs of doing business and could
delay the Company's conduct or expansion of its business in some areas.

Utilization Review/Third Party Administrator ("TPA") Laws

      Several of the states in which Integra conducts its business have enacted
legislation-requiring organizations engaged in utilization review to register
and to meet certain operating standards. Utilization review regulations
typically impose requirements with respect to qualifications of personnel,
appeal procedures, confidentiality and other matters relating to utilization
review services. Integra is currently registered in Maryland, New York,
Pennsylvania, Tennessee and Texas for such services. Integra has been able to
comply with the applicable legislation without significant expense to date.
Integra may be required to comply with similar statutes if other states in which
it conducts its business impose such requirements or if the Company begins doing
business in a state that has such requirements.



                                    12 of 70
<PAGE>
      Several states have adopted statutes to regulate third party health claims
administrators, which may include aspects of the Company's business. These
statutes typically impose requirements with respect to the financial solvency
and operation of the administrator. The Company may be required to comply with
similar statutes if other states in which it conducts business impose such
requirements or if the Company begins doing business in a state that has such
requirements.

ERISA

      Certain of the Company's services are subject to the provisions of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"). ERISA
governs certain aspects of the relationship between employer-sponsored health
benefit plans and certain providers of services to such plans through a series
of complex statutes and regulations that are subject to periodic interpretation
by the Internal Revenue Service and the United States Department of Labor. In
general, these regulations impose, among other things, an obligation on Integra
to act as a fiduciary with respect to some of the health benefit plans to which
it provides services. However, there is little direct authority governing the
application of ERISA to many of the activities and arrangements of managed
behavioral healthcare and substance abuse treatment companies such as those
operated by Integra.

      Certain federal courts have held that utilization review and third party
administrator licensure requirements are preempted by ERISA. ERISA preempts
state laws that mandate employee benefit structures or their administration, as
well as those that provide alternative enforcement mechanisms. The Company
believes that its utilization review and TPA activities performed for its
self-insured employee benefit plan customers in some states are exempt from
otherwise applicable state licensing or registration requirements based upon
federal preemption under ERISA and has relied on this general principle in
determining not to seek licensure for certain of its activities in some states.
Existing case law is not uniform on the applicability of ERISA preemption with
respect to state regulation of utilization review or TPA activities. There can
be no assurance that additional licensure will not be required with respect to
utilization review or TPA activities in certain states.

Any Willing Provider Laws

      Several states have adopted, or are expected to adopt, "any willing
provider" laws. Such laws typically impose upon insurance companies, PPOs, HMOs
or other types of third party payors an obligation to contract with, or pay for
the services of, any healthcare provider willing to meet the terms of the
payor's contracts with similar providers. Compliance with any willing provider
laws could increase the Company's costs of assembling and administering provider
networks and could, therefore, have a material adverse effect on its operations.

Provider Regulation

      Integra is also affected directly by regulations imposed upon healthcare
providers. The provision of behavioral healthcare treatment services by
psychiatrists, psychologists and other providers is subject to state regulation
with respect to the licensing of healthcare professionals. The Company believes
that the healthcare professionals who provide behavioral healthcare treatment on
behalf of, or under contracts with the Company, are in compliance with the
applicable state licensing requirements and current interpretations thereof;
however, there can be no assurance that changes in such state licensing
requirements or interpretations thereof will not


                                    13 of 70
<PAGE>
adversely affect the Company's existing operations or limit expansion.
Additional licensure of clinicians who provide telephonic assessment or
stabilization services to individuals who are calling from out-of-state may be
required if such assessment or stabilization services are deemed by regulatory
agencies to be treatment provided in the state of such individual's residence.
The Company believes that any such additional licensure could be obtained;
however, there can be no assurance that such licensing requirements will not
adversely affect the Company's existing operation or limit expansion.

      Regulations imposed upon healthcare providers also include provisions
relating to the conduct of, and ethics in, the practice of psychiatry,
psychology, social work and related mental healthcare professions, and, in
certain cases, the common law duty to warn others of danger or to prevent
patient self-injury. In addition, there are federal and state laws that require
providers of mental health or substance abuse treatment services to maintain the
confidentiality of treatment records and information with respect to such
patients. These laws generally specify the conditions under which
patient-specific information may be disclosed, and may be enforced through the
imposition of criminal fines and other penalties.


HIPAA

      The Health Insurance Portability and Accountability Act of 1996 ("HIPAA")
includes a provision that prohibits the wrongful disclosure of certain
"individually identifiable health information." HIPAA requires the Secretary of
the United States Department of Health and Human Services ("HHS") to adopt
standards relating to the transmission of such health information by healthcare
providers and healthcare plans. On December 28, 2000, the Department issued
final HIPAA privacy and confidentiality regulations (the "Privacy Rule"). The
Privacy Rule will require the Company to adopt and implement certain
administrative safeguard policies and procedures to comply with the HIPAA
regulations. The effective date of the Privacy Rule is April 4, 2001 and the
compliance date is April 14, 2003.

      On March 21, 2002, HHS released a Notice of Proposed Rule Making that
would amend the Privacy Rule. The proposed amendments are a formal response to
the voluminous comments and criticism HHS received concerning the Privacy Rule,
and they offer corrections to many of the problems discussed in HHS Guidance
published in July 2001. The Notice of Proposed Rule Making is consistent with
the Bush Administration's pronouncements in favor of simplifying the Privacy
Rule in response to health care industry pressure. It also carefully attempts to
balance the need to reduce the industry's administrative burden with the need to
retain protection for individual privacy.

      Recognizing the limited time remaining before the statutorily mandated
compliance date for most covered entities, the Notice of Proposed Rule Making
requires that comments on the proposed amendments be submitted to HHS within 30
days from its publication in the Federal Register on March 27, 2002.

      The Company cannot predict at the present time the estimated cost to
comply with the Privacy Rule or the proposed regulations. Although the Company
believes that the Privacy Rule and the proposed regulations will not materially
impair the Company's operations, there can be no assurance that such indirect
regulation will not have a material adverse effect on the Company in the future.


                                    14 of 70
<PAGE>
      In certain states, the employment of psychiatrists, psychologists and
certain other mental healthcare professionals by business corporations is a
permissible practice. However, other states have legislation or regulations or
have interpreted existing medical practice licensing laws to restrict business
corporations from providing mental health services or from the direct employment
of psychiatrists and, in a few states, psychologists and other mental healthcare
professionals. For example, various state boards of medical examiners have
regulations which prohibit psychiatrists, and in a few cases, psychologists,
from being employed by business corporations and only permit employment by
professional corporations. In addition, the laws of some states prohibit
psychiatrists, psychologists, or other behavioral healthcare professionals from
splitting fees with other persons or entities. Corporate practice and
fee-splitting statutes vary from state to state, and have seldom been recently
interpreted by the courts or regulatory agencies. Although the Company believes
it has appropriately structured its arrangements with healthcare providers to
comply with the relevant state statutes, there can be no assurance that (i)
governmental officials charged with responsibility for enforcing these laws will
not assert that the Company or certain transactions in which it is involved are
in violation of such laws, (ii) such state laws will ultimately be interpreted
by the courts in a manner inconsistent with the practices of the Company or
(iii) evolving interpretations of such state laws or the adoption of other state
laws or regulations will not make it necessary for the Company to restructure
certain of its arrangements.

Customer Regulation

      Integra is indirectly affected by regulations imposed on its customers
which include, among other things, benefits mandated by statute, exclusions from
coverage prohibited by statute "parity" requirements, procedures governing the
payment and processing of claims, record keeping and reporting requirements,
requirements for and payment rates applicable to coverage of Medicare and
Medicaid beneficiaries, provider contracting and enrollee rights, and
confidentiality requirements. Any such direct and indirect regulation could have
a material adverse effect on the Company's business, financial condition or
results of operation.

Government Reimbursement

      Medicare

      Medicare is a federal program administered by the Centers for Medicare and
Medicaid Services ("CMS"), formerly known as HCFA, an agency within HHS, through
fiscal intermediaries and carriers. Available to individuals 65 or over, and
certain other classes of individuals, the Medicare program provides, among other
things health care benefits that cover, within prescribed limits, the major
costs of most medically necessary care for such individuals, subject to certain
deductibles and co-payments. There are three components to the Medicare program:
Part A which covers inpatient services, home healthcare and hospice care, Part B
which covers physician services, and Part C or Medicare+Choice which is a
program for managed care plans.

      At present, the Company does not directly bill the government for services
under Medicare. However, prior to the sale and exit of the Patient Service and
Provider segment, the Company provided direct clinical services to some patients
who were beneficiaries of the federal Medicare and Medicaid programs. The
compensation received by the Company for such services was established by fee
schedules and other similar cost containment measures. In order to receive
Medicare reimbursement, the local operations of the Company's outpatient service
and


                                    15 of 70
<PAGE>
provider business were required to be registered with Medicare as a group
provider. In addition, each individual provider had to be certified as an
independently practicing provider and be assigned an individual provider number.
The certification criteria, which are established by HHS, are interpreted and
administered by each state.

      Government and other third-party payors' healthcare policies and programs
have been subject to changes in payment levels and payment methodologies during
past years, including determinations of medical necessity for behavioral health
services. There can be no assurance that future changes will not reduce
reimbursement from those sources for behavioral healthcare services.

Medicaid

      Medicaid is a state administered and state and federally funded program
which provides health insurance coverage for certain low-income individuals. For
qualified Medicare beneficiaries, "dual eligibles," the Medicaid program pays
the beneficiary's Part B premiums and may reimburse all deductibles and
co-payment portions of the approved Medicare charge up to an allowable amount
established by each Medicaid program. The extent of actual co-payment
contributions varies widely by state. Most Medicaid programs cover behavioral
healthcare services but may limit the number of approved visits per year. There
has been an increasing trend for Medicaid programs to contract with managed care
organizations to administer care and control costs for its beneficiaries. In
these situations, the Company and its providers must be approved to participate
on the select provider panel in order to treat patients. Medicaid programs do
not generally require certification of the Company or its providers over and
above the requirements of Medicare.

      Anti-Fraud and Abuse Laws. In addition to Medicare and Medicaid
reimbursement limitations, other aspects of the Medicare and/or Medicaid
programs may negatively affect health care entities. In 1977, Congress adopted
the Medicare and Medicaid Anti-Fraud and Abuse Amendments of 1977, which have
been strengthened by subsequent amendments and the creation of the Office of
Inspector General ("OIG") to enforce compliance with the statute, as amended
(the "Anti-Fraud and Abuse Law"). The Anti-Fraud and Abuse Law prohibits the
knowing and willful offer, payment, solicitation, or receipt of any remuneration
in any form as an inducement or reward for either the referral of patients or
the arranging for reimbursable services. A violation of the status is a felony
and could result in civil penalties, including exclusion from the federal and
state health care programs, even if no criminal prosecution is initiated.

      HHS has issued regulations from time to time setting forth so-called "safe
harbors", which would protect certain limited types of arrangements from
prosecution under the statute. To date, twenty-one final safe harbors have been
developed. Failure to comply with each element of a particular safe harbor does
not mean that an arrangement is per se in violation if the Anti-Fraud and Abuse
Law. As the comments to the safe harbor indicate, the purpose of the safe harbor
is not to describe all illegal conduct, but to set forth standards for certain
non-violative a arrangements. Nevertheless, if an arrangement implicated the
Anti-Fraud and Abuse Law and full compliance with a safe harbor cannot be
achieved, an entity risks greater scrutiny by the OIG and, potentially, civil
and/or criminal sanctions. The Company believes its arrangements are in
compliance with the federal Anti-Fraud and Abuse Law; however; no assurance can
be given that regulatory and/or enforcement authorities will not take a contrary
position.

      HIPAA created a new program operated jointly by the Secretary of HHS and
the Attorney General to coordinate federal, state and local law enforcement with
respect to fraud and


                                    16 of 70
<PAGE>
abuse. HIPAA also provides for minimum periods of exclusion from a federal
health care program for fraud as related to that program, provides for
intermediate sanctions and expands the scope of civil monetary penalties
applicable to any federal health care program. The Balanced Budget Act of 1997
("the BBA") (discussed in more detail below) expanded the authority of HHS to
exclude persons from the Medicare program, increased certain civil and monetary
penalties for violations of the Anti-Fraud and Abuse Laws and added a new
monetary penalty for persons who contract with a provider that the person knows
or should know are excluded from the Medicare program.

      Actions that violate the Anti-Fraud and abuse Law or similar laws may also
involve liability under the federal Civil False Claims Act which prohibits
knowingly presenting false, fictitious or fraudulent claim for payment to the
United States. Actions under the Civil False Claims Act may be brought by the
Attorney General or as a qui tam action by a private individual in the name of
the government. Violations of the False Claims Act can result in very
significant monetary penalties and treble damages. The federal government is
using the Civil False Claims Act, and the threat of significant liability, in
its investigations of health care entities throughout the country for a wide
variety of Medicare billing practices, and has obtained several settlements in
excess of $10 million with providers. Given the significant size of actual and
potential settlements, it is expected that the government will continue to
devote substantial resources in investigating healthcare providers' potential
violations of the anti-fraud and Abuse Law.

      Many states have laws that prohibit payment to physicians for patient
referrals with statutory language similar to the Anti-Fraud and Abuse Law. In
many cases, these laws have broader effect because they apply regardless of the
source of payment for care. These statutes typically provide criminal and civil
penalties as well as loss of licensure. The scope of these state laws is broad,
and little precedent exists for their implementation or enforcement.

      Any investigation or sanctions under state or federal fraud and abuse laws
could have a materially adverse effect on the Corporation.

      Stark Self-Referral and Payment Prohibitions. The federal physician
self-referral and payment prohibitions (codified in 42 U.S.C. Section 1395nn,
Section 1977 of the Social Security act) generally forbid, absent qualifying for
one of the exceptions, a physician from making referrals for the furnishing of
any "designated health services" for which payment may be made under the
Medicare or Medicaid programs, to any entity with which the physician (or an
immediate family member) has a "financial relationship". The Stark law became
effective January 1, 1992 with respect to clinical laboratory services ("Stark
1") and January 1, 1995 with respect to ten other designated health services
("Stark II"). (Stark I and Stark II are often collectively referred to as the
"Stark Law.") A "financial relationship" under Stark includes any direct or
indirect "compensation arrangement" with an entity for payment of any
remuneration, and any direct or indirect "ownership or investment interest" in
the entity.

      Penalties for violating the Stark Law include denial of payment for any
services rendered by an entity in violation of the prohibition, civil monetary
penalties up to $15,000 for each offense, and exclusion from the Medicare and
Medicaid programs. Additionally, if an individual knowingly enters into an
arrangement or scheme that the person knows has a principal purpose of assuring
referrals to an entity which, if the individual directly made referrals to such
entity, would violate the Stark Law, the person is subject to a civil monetary
penalty of up to $100,000 for each such circumvention arrangement. Penalties may
be assessed against either or both of the referring physician or entity that
receives a prohibited referral.


                                    17 of 70
<PAGE>
      On January 4, 2001, HHS issued final regulations, subject to notice and
comment, to clarify parts of the Stark Law and some of the exceptions to it. The
Company cannot predict what final form phase of the regulations will take effect
or the effect that the final regulations will have on its operations.

       Many states have similar laws to the Stark Law. In many cases, these laws
have broader effect because they apply regardless of the source of payment for
care. Little precedent exists for the interpretation and enforcement of state
versions of the Stark Law.

      Integra believes that all arrangements currently in place with its
physicians have been appropriately structured so as to avoid violating the Stark
Law and state versions of the Stark Law.

      Health Care Reform. Many bills have been proposed, introduced and enhanced
to alter the financing of, payment for and delivery of healthcare services.
Although there are wide variations among these bills, provisions affecting
payment for services and imposing new requirements for compliance are common
themes.

      BBA contains some of the most substantial cost-savings measures to affect
the Medicare and Medicaid programs since 1983 and has significantly reduced
reimbursement levels for certain health care entities. The BBA requires, among
other things, that certain providers transition from reasonable cost
reimbursement to reimbursement through Prospective Payment System. The BBA also
created Medicare Part C or Medicare+Choice, which is a program for managed care
plans. Prior to adoption of BBA, states generally were prohibited from requiring
Medicaid recipients to enroll in managed care products that covered only
Medicaid recipients. The Medicaid-related provisions of the BBA gives states
broad flexibility to require most Medicaid recipients to enroll in managed care
products that only cover Medicaid recipients. The BBA also allows states to
limit the number of managed care organizations with which the state will
contract to deliver care to Medicaid beneficiaries. These changes could have a
positive impact on the Company's business if they result in increased enrollment
of Medicaid beneficiaries in managed care organizations and increased Medicaid
spending on managed care. However, these changes also may result in significant
competition for such contracts. The BBA contains further measures that led to
reductions in reimbursement for Medicare-covered therapy services and decreased
Medicaid payment rates.

      The Balanced Budget Reform Act of 1999 (the "BBRA") and the Benefits
Improvement and Protection Act of 2000 ("the BIPA") amended the BBA to provide
legislative relief through increases in certain Medicare payment rates during
2000 and 2001, respectively. The Company cannot guarantee that the relief
provided by the BBRA and BIPA will be sufficient to cover the losses sustained
due to the BBA.

      In addition, the George W. Bush administration has made the modernization
and reform of the Medicare program a priority. Key provisions of the President's
initiative for Medicare include a requirement that Medicare cover expenses for
low-income seniors, a requirement that Medicare payroll taxes not be increased
and, a promise to increase health plan choices for beneficiaries. It is unclear
at this time whether or how the President's initiative, and any resulting
legislation, will not have a materially adverse affect on the Company. Further,
the Company cannot predict the effect of other existing healthcare reform
measures on its managed care operations.



                                    18 of 70
<PAGE>
Other Legislation

      In the last five years, legislation has periodically been introduced at
the state and federal level providing for new regulatory programs and materially
revising existing regulatory programs. Any such legislation, if enacted, could
materially adversely affect the Company's business or financial condition or
results of operations. Such legislation could include both federal and state
bills affecting the Medicaid programs which may be pending in or recently passed
by state legislatures and which are not yet available for review and analysis.
Such legislation could also include proposals for national health insurance and
other forms of federal regulation of health insurance and healthcare delivery.
It is not possible at this time to predict whether any such legislation will be
adopted at the federal or state level, or the nature, scope or applicability to
the Company's business of any such legislation, or when any particular
legislation might be implemented. No assurance can be given that any such
federal or state legislation will not have a material adverse effect on the
Company.

      The Mental Health Parity Act of 1996 ("MHPA") requires employer sponsored
group health plans that provide both mental health benefits and medical/surgical
benefits to have the same aggregate lifetime and annual dollar limits for mental
health benefits as they do for medical and surgical benefits. MHPA is effective
for plan years beginning in 1998. Because MHPA does not affect the amount,
duration or scope of mental health benefits provided by a plan, other than
annual and lifetime dollar limits, or even require group health plans to provide
mental health benefits if they do not already, its impact on the Company has
been negligible. For example, the MHPA parity requirement does not apply to a
plan if its application will raise plan costs by 1% or more. Another limitation
is the use of benefit design features, other than dollar limitations, for
controlling costs for mental health, such as limited visits or days of coverage,
requirements related to medical necessity, or prior authorization or referrals
by primary care physicians. Many states already have mental health parity laws
that vary with regard to coverage.

      Pending parity legislation, in Congress and numerous state legislatures,
would generally require health insurers to offer mental health coverage on equal
terms as their coverage of physical ailments. The Company cannot predict whether
these legislative initiatives will be passed or, if so, the effect on the
Company. However, the Company believes that, if legislation is enacted, many
affected group health plans will not be capable of administering mental health
plans. The Company is uniquely situated and skilled in this area to manage
mental health benefit plans and the effect of the enactment of any such
legislation may have a favorable impact on the operations of the Company.

PATENTS

      The Company's ComPass(R) decision support system is protected by a patent
in the United States that expires in 2013. The use of this outcome measurement
tool is one means by which the Company differentiates its services in the
marketplace.

EMPLOYEES

      At December 31, 2001, the Company employed approximately 122 full time
equivalent employees. In March 2002, the Company reduced its workforce to 92
full time employees in anticipation of the termination of the HealthNow contract
on June 1, 2002. The Company has not experienced any significant difficulty in
filling open positions with qualified employees. None of the Company's employees
are represented by a labor union and the company is not aware of any current
activities to organize any of its employees. The Company considers its
relationship with its employees to be good.


                                    19 of 70
<PAGE>
ITEM 2.     PROPERTIES.

      The Company's principal executive office is located in approximately
27,000 square feet of leased facilities at 1060 First Avenue, King of Prussia,
Pennsylvania. The Company does not anticipate that it will experience any
difficulty in renewing its lease upon its expiration on July 31, 2006, or
obtaining different space on comparable terms if such lease is not renewed. The
Company believes that these facilities are well maintained and are of sufficient
size for its needs at December 31, 2001. However, the Company is negotiating to
vacate 50% of the facility, which is no longer needed as a result of its 2002
restructuring. In addition, see Note 1 and Note 13 to the Company's Consolidated
Financial Statements for further information regarding leased facilities.

ITEM 3.     LEGAL PROCEEDINGS.

      The following discussions of legal matters relate to the Company's
discontinued operations which were sold and exited in May 1998.

      In March 1998, the Company received notification that the Medicare
Intermediary in California had completed a post payment medical review of
billings previously submitted and paid between 1990 and 1994. Based upon the
results of their review, the Intermediary has requested a refund of
approximately $1,200,000. Services were denied primarily on the basis of medical
necessity and incomplete documentation. The Company fully reserved for the above
amount as of December 31, 1997. The reserve remains accrued at December 31,
2001.

      Hearings were held in April, September and November 2000 before an
Administrative Law Judge. At the hearings, the Company objected to the
Intermediary's sampling methodology and its adjudication of the individual cases
in the sample. In July 2001, the Company was notified that the Administrative
Law Judge had upheld the Intermediary's sampling methodology, as well as a
majority of its determinations denying payment for individual cases within the
sample. The Administrative Law Judge remanded the case to the Intermediary for a
recalculation of the overpayment amount projected from the revised statistical
sampling results. The Company intends to continue to vigorously defend itself in
this matter and has filed an appeal of the Administrative Law Judge's decision
with the Medicare Appeals Council. As of April 15, 2002 there has been no action
taken by the Council with respect to the Appeal.

      In 1998, the Company entered into a Corporate Integrity Agreement (the
"Agreement") with the Office of the Inspector General of the Department of
Health and Human Services ("OIG") whereby the Company agreed to undertake
certain compliance obligations for a five-year period. In August 2001, the
Company received notification from the OIG that its second annual report was
accepted as filed. The Company filed its third annual report in November 2001 as
required under the terms of the Agreement and with the assistance of its outside
counsel and auditors. The Company believes that no reserve for potential
liability was required at December 31, 2001.

      In January 2000, PsychPartners filed for protection under Chapter 11 of
the Federal Bankruptcy Code. (See "Restructuring Charges" under Item 7 for
further disclosure of the PsychPartners Chapter 11 bankruptcy filing and other
related legal matters).

      The Company is subject to other legal proceedings and claims that have
arisen in the ordinary course of its business and have not been finally
adjudicated, including malpractice claims covered under the Company's insurance
policy. In the opinion of management, the


                                    20 of 70
<PAGE>
outcome of these actions will not have a material effect on the financial
position or results of operations of the Company.

      Although management believes that established reserves for the above
matters are sufficient, it is possible that the final resolution of these
matters may exceed the established reserves by an amount which could be material
to the Company's results of operations. Due to the nature of these matters the
Company cannot predict when these matters will be resolved. The Company does not
believe the ultimate outcome of these matters will have a material adverse
effect on the Company's overall financial condition, liquidity or operations.

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

      None:

Executive Officers of the Company

      Certain information with respect to the executive officers of the Company
is set forth below:


<TABLE>
<CAPTION>
      NAME                       POSITION WITH THE COMPANY                      AGE
      ----                       -------------------------                      ---
<S>                              <C>                                           <C>
      Gregory R. Santore         President and CEO                              39
      Rhonda Matlack             Executive Vice President                       37
      Mary W. Tindall            Acting Chief Financial Officer                 55
</TABLE>


GREGORY R. SANTORE was named President and CEO of Integra on March 15, 2002. Mr.
Santore was the Company's Vice President of Sales from February 2001 to August
2001 when he was named President, Corporate Services Division. Prior to coming
to Integra, Inc., Mr. Santore served as Chief Executive Officer of ScreenFriends
Corporation, a start-up venture in the entertainment/technology arena, from
August 1999 to February 2001. Mr. Santore was Chief Operating Officer of
Physician Practice Management Group from April 1998 to August 1999. He served as
Executive Vice President of Sales of NovaCare from August 1997 to April 1998, a
billion dollar medical services corporation.  He has 18 years of successful
sales, sales management marketing and operations experience.  Mr. Santore
received his MBA from Rutgers University.


RHONDA MATLACK was named Integra's Executive Vice President on March 15, 2002.
Ms. Matlack joined the company in November 1998 and served in several positions
with the most recent being President of Health Plan from August 2001 to March
2002. Ms. Matlack has 15 years of clinical and administrative health care
experience, including consultation and project management experience with an
HMO, and individual, group, and family therapy and counseling. Ms. Matlack has a
master's degree in counseling and a bachelor's degree in psychology.

MARY W. TINDALL, CPA, was named acting Chief Financial Officer on April 1, 2002.
For the period July 17, 2000 until March 31, 2002, Ms. Tindall was the Company's
Controller. Ms. Tindall was Controller of The Wyomissing Group from May 1999 to
May 2000. Prior to that


                                    21 of 70
<PAGE>
she was Assistant Controller of Suburban Cable from November 1995 until March
1998. She has 19 years of public and industry accounting experience. Her focus
has been spent in management advisory roles building and restructuring finance
and accounting departments. Ms.Tindall has a degree in business administration
from Stephen F. Austin State University and is a member of the AICPA and PICPA
accounting organizations.

      No family relationship exists between any of the directors or executive
officers of the Company. Executive officers serve at the discretion of the Board
of Directors.

                                     PART II

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

      The Company's common stock is quoted on the American Stock Exchange under
the symbol IGR. As of April 15, 2002, there were approximately 900 shareholders
of record. The following table sets forth the reported high and low sales prices
of the Company's common stock for the periods indicated.

<TABLE>
<CAPTION>
                                                          HIGH      LOW
                                                          ----      ---
<S>                                                      <C>       <C>
      Fiscal Year Ended December 31, 2000
            First Quarter..........................      $1.69     $.56
            Second Quarter.........................        .94      .56
            Third Quarter..........................       1.38      .50
            Fourth Quarter.........................       1.25      .50
      Fiscal Year Ended December 31, 2001
            First Quarter..........................      $1.07     $.60
            Second Quarter.........................        .86      .65
            Third Quarter..........................       1.30      .56
            Fourth Quarter.........................       2.15      .85
</TABLE>

      Over the past several years, the Company's common stock price has been
subject to significant volatility. If net revenues or earnings fail to meet
expectations of the investment community, there could be an immediate and
significant adverse impact on the trading price for the Company's common stock.

      No dividends have been declared on the common stock since the Company's
inception. The Company does not expect to declare any cash dividends in the
foreseeable future.



                                    22 of 70
<PAGE>
RECENT SALES OF UNREGISTERED SECURITIES

      (1) In July 2001, the Board of Directors approved the issuance of a
warrant to purchase 50,000 shares of Common Stock to a significant stockholder
and a member of the Company's Board of Directors in connection with a loan of
$1,000,000 to the Company. The warrants, which were granted on July 2, 2001,
have a ten-year term and are exercisable at a price per share equal to the fair
market value of a share of Common Stock ($.70), which was the closing price of
the Company's common stock as reported on the American Stock Exchange, on the
date the warrants were granted. The warrants were exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933. In 2000, the same
individual was issued two warrants each to purchase 50,000 share of Common
stock.

      (2) On July 27, 2001 the Company acquired 100% of the membership units of
Global Benefits Solutions LLC ("GBS") from Stuart Piltch in a transaction valued
at approximately $4,500. The purchase price was satisfied via the issuance of
1,000,000 shares of the Company's common stock and 97,600 shares of the
Company's Redeemable Convertible Preferred Stock - Series SP (Preferred Stock),
which were exempt from registration under Section 4(2) of the Securities Act of
1933. The terms of the Preferred Stock require dividends on a quarterly basis at
a rate of eight percent (8%) per annum and is subject to mandatory redemption at
$40 per share on July 27, 2006. Each share of Preferred Stock was convertible at
the option of the holder, into a number of shares of common stock determined by
dividing the original purchase price of the Preferred Stock by the conversion
price then in effect. The holder had the option to convert the Preferred Stock
until the fifth anniversary of the date it was originally issued. In April 2002
Mr. Piltch surrendered the Preferred Stock and common stock and agreed to pay
$180,000 to the Company in exchange for 100% of the membership units in GBS.


ITEM 6.     SELECTED FINANCIAL DATA.

      The following selected financial data should be read in conjunction with
the Company's Consolidated Financial Statements and the accompanying Notes
presented elsewhere herein.

<TABLE>
<CAPTION>
                                                     YEARS ENDED DECEMBER 31,
                              --------------------------------------------------------------------
                                  2001           2000          1999          1998          1997
                              -----------    -----------   -----------   -----------   -----------
                                           DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
<S>                           <C>            <C>           <C>           <C>           <C>
INCOME STATEMENT DATA
Net revenues(1) .........     $    26,485    $    26,429   $    25,455   $    32,569   $    70,144
Gross profit ............           5,243          7,962         8,695         9,021        15,942
(Loss) income from
   operations ...........         (14,646)           948           375           590       (59,672)
Net (loss) income .......         (14,505)         1,150           303          (935)      (61,218)
Basic and diluted net
   (loss) income per
   common share(2) ......     $     (1.38)   $      0.11   $      0.03   $     (0.09)  $     (6.17)
Weighted average
   Shares outstanding(2):
   Basic ................      10,602,525     10,138,552    10,138,552    10,104,999     9,921,374
   Diluted ..............      10,602,525     10,806,675    10,532,109    10,104,999     9,921,374
</TABLE>


                                    23 of 70
<PAGE>
<TABLE>
<CAPTION>
                                                    AS OF DECEMBER 31,
                                  -----------------------------------------------------
                                    2001        2000       1999       1998       1997
                                  --------    --------   --------   --------   --------
<S>                               <C>         <C>        <C>        <C>        <C>
BALANCE SHEET DATA
Current assets ................   $  2,760    $  3,122   $  3,362   $  4,016   $  9,958
Total assets ..................      8,065      14,693     15,230     16,035     43,600
Current liabilities ...........     11,530       8,108      9,664      9,464     37,604
Total long-term debt ..........        146          --         --      1,663     14,700
Redeemable Preferred Stock ....      3,904          --         --         --         --
Stockholders' (deficit) equity      (7,515)      6,425      5,270      4,962      4,713
</TABLE>


(1)   Net revenues for 2001 reflect service revenue and consulting revenue. Net
      revenues for 1999-2000 reflect service revenue. Net revenues for 1997-1998
      reflect service revenue and patient service revenue.

(2)   Basic earnings per share includes no dilution and is computed by dividing
      income available to common shareholders by the weighted-average number of
      common shares outstanding for the period. Diluted earnings per share
      reflects the dilutive effect of all stock options, shares contingently
      payable in connection with certain acquisitions and redeemable preferred
      stock.

ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS. (DOLLARS IN THOUSANDS)

CRITICAL ACCOUNTING POLICIES

      Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses the Company's consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires management
to make estimates that affect the amounts reported in the financial statements
and accompanying notes. On an on-going basis, management evaluates its estimates
and judgments, including those related to bad debts, intangible assets, income
taxes, contingencies and litigation. Management bases its estimates and
judgments on historical experience and on various other factors that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.

      The following accounting policies are the most critical and could impact
our results of operations.

REVENUE RECOGNITION

      Service revenue pertains to the Company's EAP and Managed Behavioral
Healthcare segment primarily generated by capitated managed behavioral
health and employee assistance programs. The fees are defined by contract and
are primarily calculated on a fixed per-member per-month fee as services are
performed. Capitated revenues are recognized in the


                                    24 of 70
<PAGE>
month for which the member is entitled to services. Consulting revenues are
associated with fees received for the design, funding and administration of
compensation, benefit and retirement plans and are recorded as revenue as
performed.

MEDICAL CLAIMS PAYABLE

      The Company records a liability for amounts owed for healthcare services
incurred and not yet paid by the Company. Medical claims payable are estimated
based upon authorized healthcare services, past claim payment experience for
member groups, patient census data, actuarial data, and other factors. While the
Company believes the estimate of this liability is adequate, actual results
could differ from such estimates.

BAD DEBTS.

      The Company maintains an allowance for estimated losses resulting from the
non-payment of accounts receivable. If the estimate is not sufficient to cover
actual losses, the Company is required to take charges to its earnings.

DEFERRED TAXES

      A valuation allowance is established, if based on the weight of available
evidence, it is more likely than not that some or all of the deferred tax asset
will not be realized.

IMPAIRMENT OF INTANGIBLE ASSETS

      The Company reviews the realizability of long-lived assets, certain
intangible assets and excess cost over fair value of net assets acquired
whenever events or circumstances occur which indicate recorded cost may not be
recoverable. If the expected undiscounted future cash flows are less than the
carrying amount of such assets, the Company recognizes an impairment loss for
the difference between the carrying amount of the assets and their estimated
fair value.

OVERVIEW

      The Company provides EAP and Managed Behavioral Healthcare services
through full and shared risk arrangements with employers; health plans and
managed care organizations to perform behavioral health services on a capitated
per member per month basis. In addition, the Company provides an array of
behavioral health services including: employee assistance programs ("EAP's"),
third party clinical case management and claims administration. At December 31,
2001, Integra's contract service areas were principally concentrated in
Connecticut, Delaware, Maryland, New Jersey, New York, Pennsylvania, Rhode
Island, Virginia and Tennessee.

ACQUISITION OF GLOBAL BENEFITS SOLUTIONS, LLC AND SUBSEQUENT DISPOSITION

      On July 27, 2001, the Company acquired 100% of the membership units of
Global Benefits Solutions LLC ("GBS") in a transaction valued at approximately
$4,500. Through its GBS division, the Company provides consulting services with
respect to the design, funding and administration of compensation, benefit and
retirement plans. (See Note 5.)

      As more fully described in Note 1 and Note 20 to the Company's
Consolidated Financial Statements, the Company subsequently sold this segment in
April 2002 pursuant to a comprehensive restructuring plan.



                                    25 of 70
<PAGE>
EAP AND MANAGED BEHAVIORAL HEALTHCARE

      Prior to 1994, the Company was not a direct provider of managed behavioral
healthcare services. In 1994, the Company acquired the Integra managed
behavioral healthcare company, which, at the time, was principally a regional
provider of employee assistance programs. Subsequent to the acquisition of
Integra, the Company continued to invest in additional systems and management
infrastructure and began actively seeking full-risk capitation arrangements with
health plans and other managed care organizations. With the completion of its
sale and exit of the outpatient provider behavioral health group practice
operations in 1998, the Company elected to change the name of the parent company
from Apogee, Inc. to Integra, Inc. The Company believes the Integra name is well
established and respected in the behavioral health market.

SEGMENT REPORTING

      Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS No. 131"), was adopted
by the Company for 1998. This standard requires disclosure of segment
information on the same basis used internally for evaluating segment performance
and deciding how to allocate resources to segments. The Company's operating
segments are organized by product line. During 1999 and 2000, the Company had
only one operating segment, EAP and Managed Behavioral Healthcare, for purposes
of SFAS No. 131. In 2001, the Company began providing consulting and benefit
plan design services as an additional segment.

      The Company's revenues derived from its EAP and Managed Behavioral
Healthcare segment are primarily generated through capitated contracts. Revenues
are generated entirely in the United States. Approximately 84% of this segment's
revenues were generated by 10 customers of which 55% and 12% come from two
specific health plan customers, respectively.

RESULTS OF OPERATIONS

      The Company's Consolidated Financial Statements include the accounts of
the Company and all wholly-owned and beneficially-owned subsidiaries. All
significant inter-company accounts and transactions, including management fees,
have been eliminated.

      The following table sets forth, for the periods indicated, operating
results of the Company:

<TABLE>
<CAPTION>
                                                 YEARS ENDED DECEMBER 31,
                                             --------------------------------
                                               2001        2000        1999
                                             --------    --------    --------
                                                  (DOLLARS IN THOUSANDS)
<S>                                          <C>         <C>         <C>
      Net revenues:
        Service revenue ..................   $ 25,802    $ 26,429    $ 25,455
        Consulting revenue ...............        683           0           0
                                             --------    --------    --------
        Total net revenues ...............     26,485      26,429      25,455

      Cost of revenues:
        Service costs ....................     21,012      18,467      16,760
        Consulting costs .................        230           0           0
                                             --------    --------    --------
        Total cost of revenues ...........     21,242      18,467      16,760

      Gross profit .......................      5,243       7,962       8,695
</TABLE>


                                    26 of 70
<PAGE>
<TABLE>
<S>                                          <C>         <C>         <C>
      Selling and administrative expenses       8,954       6,784       6,632
      Provision for doubtful accounts ....        444         176          --
      Amortization of intangible assets
        and excess cost over fair value of
        net assets acquired ..............     10,620         494         488
      Restructuring and other charges, net       (129)       (440)      1,200
                                             --------    --------    --------
      (Loss) income from operations ......   $(14,646)   $    948    $    375
                                             ========    ========    ========
</TABLE>

EAP and Managed Behavioral Healthcare Segment Revenue

      Service revenue for the EAP and Managed Behavioral Healthcare segment is
comprised of the Company's portfolio of agreements with health plans, managed
care organizations and employers to provide inpatient and outpatient behavioral
health services. Revenues are primarily generated through capitated managed
behavioral health and employee assistance programs. The fees are defined by
contract and are primarily calculated on a fixed per member per month fee.
Revenues under these contracts are recorded in the month for which the member is
entitled to services. Generally, these membership contracts are on a one to
three-year basis and are subject to various cancellation provisions which are
typical of industry practice.

This segment had approximately 1,200,000, 1,150,000 and 1,200,000, covered lives
at December 31, 2001, 2000 and 1999, respectively.

      The Company estimates the cost of providing services under these
agreements, including a reserve for services incurred, but not reported, based
upon authorized services, past claim payment experience for member groups,
patient census data and other facts. The Company typically does not subcapitate
the risk of providing services under these contracts, but arranges discounted
fee-for-service rates with independent inpatient and outpatient behavioral
health providers.

      Under capitated contracts, the Company is responsible for ensuring
appropriate access to care for the covered participants and bears the risk for
utilization levels and its pricing of the services performed under these
contracts. The Company believes the future revenues under these contracts will
exceed the costs of services it will be required to provide under the terms of
the contracts. An underestimation in the utilization or price of services for
these contracts could result in material losses to the Company. The Company
maintains no re-insurance against the risk of loss under these contracts.

      EAP and Managed Behavioral Healthcare service revenue for 2001 decreased
2.4% to $25,802 from $26,429 in 2000. This decrease was primarily the result of
the loss of two large EAP contracts, offset in part by the growth in membership
in the Company's health plan customers. Service revenue for 2000 increased 3.8%
to $26,429 from $25,455 in 1999. This increase was primarily a result of a net
increase in membership for the capitated contracts.

Cost of Revenues

      EAP and Managed Behavioral Healthcare segment cost of revenues increased
in 2001 to $21,012 from $18,467 in 2000. This increase was primarily the result
of increased utilization by the population of contract members and included a
significant increase subsequent to the events of September 11, 2001. EAP and
Managed Behavioral Healthcare segment cost of revenues increased in 2000 to
$18,467 from $16,760 in 1999. This increase was primarily a result of an


                                    27 of 70
<PAGE>
additional investment by the Company in internal clinical and claims personnel
as well as increased utilization by a larger population of contract members.

Consulting Segment Revenue and Related Costs

      With its acquisition of Global Benefits Solutions, LLC in August 2001, the
Company began earning consulting revenue from the design, funding and
administration of compensation, benefit and retirement plans. Revenue for the
period ended December 31, 2001 totaled $683 with related cost of sales of $230.

      As more fully described in Note 1 and Note 20 of the Company's
Consolidated Financial Statements, the Company later sold this division in April
2002 pursuant to a comprehensive restructuring plan.

Selling and Administrative Expenses

      Selling and administrative expenses are primarily comprised of corporate
office, sales and administration. These expenses increased to $8,954 in 2001
from $6,784 in 2000 as a result of additional depreciation expense associated
with the impairment of assets, severance payments to former executive officers,
increased employee health benefit costs and travel expenses. Selling and
administrative expenses increased to $6,784 in 2000 from $6,632 in 1999 as a
result of increased investments in information systems personnel and
consultants, and information systems-related depreciation.

Provision for Doubtful Accounts

      In 2001, the Company's provision for doubtful accounts of $444 was largely
attributable to a billing dispute with one customer and the settlement of
billing dispute with another customer. In 2000, the Company's provision for
doubtful accounts of $176 was largely attributable to a billing dispute with one
customer. The Company made no provision for doubtful accounts in 1999. The
Company's EAP and Managed Behavioral Healthcare segment has historically had
minimal provision for doubtful accounts.

Amortization of Intangible Assets and Excess Cost Over Fair Value of Net Assets
Acquired

      Amortization and impairment charge of intangible assets and excess cost
over fair value of net assets acquired was $10,620, $494 and $488 in 2001, 2000
and 1999, respectively. Approximately $130 of the increase in 2001 is
attributable to amortization of the intangible asset associated with a
significant contract acquired in the purchase of Global Benefits Solutions, LLC.
Included in the 2001 total above is an impairment charge of excess cost over
fair value of net assets acquired of $9,990.

The Company applies Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" ("SFAS 121"), which established accounting standards for the
impairment of long-lived assets, certain identified intangible assets and
goodwill related to those assets to be held and used and for long-lived assets
and certain intangible assets to be disposed of. In accordance with SFAS 121,
the Company reviews the realization of long-lived assets, certain intangible
assets and goodwill whenever events or circumstances occur that indicate
recorded costs may not be recoverable. The Company also reviews the overall
recoverability of goodwill based primarily on estimated future undiscounted cash
flows.


                                    28 of 70
<PAGE>
      If over the remaining useful life of such assets, the expected
undiscounted future cash flows are less than the carrying amount of such assets,
the Company recognizes an impairment loss for the difference between the
carrying amount of the assets and their estimated fair value. In estimating
future cash flows, the Company uses a combination of recent operating results,
financial forecasts and budgets, and management estimates and assumptions of
factors such as growth and potential future changes when determining whether an
asset is impaired.

      In view of the termination of a contract by its largest customer (more
fully described in Note 1 and Note 20 to the company's Consolidated Financial
Statements), the Company has determined that the undiscounted future cash flow
from its EAP and Managed Behavioral Healthcare segment is insufficient to
warrant the full recoverability of the recorded excess cost over fair value of
net assets acquired and other intangible assets. Consequently, the Company
recorded an impairment charge of $9,170 associated with this business segment as
of December 31, 2001. In addition, the Company has written off $765 of
capitalized internal use software associated with this business segment as of
December 31, 2001, based on its estimated future cash flows.

      As a result of the loss of its major customers in its EAP and Managed
Behavioral Healthcare segment, and the increased overhead burden that was
expected to be borne by the Consulting segment, the Company determined that the
excess cost over fair value of net assets acquired associated with GBS was not
fully recoverable. In view of the sale of GBS in April 2002, the Company has
determined that the undiscounted future cash flow from that segment was best
evidenced by the net sale proceeds of that transaction. Consequently, the
Company has written off excess cost over fair value of net assets acquired of
$820 as of December 31, 2001 associated with the GBS segment.

Restructuring and Other Charges

      This charge is comprised of the following:

<TABLE>
<CAPTION>
                                                   YEARS ENDED DECEMBER 31,
                                                  --------------------------
                                                   2001      2000      1999
                                                  ------    ------    ------
<S>                                               <C>       <C>       <C>
Restructuring charges .........................   $   --    $   --    $1,700
Long-term care and provider billing reserves ..   $   --    $   --       200
Change in estimate (restructuring of $129, $440
and $266 in 2001, 2000 and 1999 respectively,
provider billing of $434 in 1999) .............     (129)     (440)     (700)
                                                  ------    ------    ------
                                                  $ (129)   $ (440)   $1,200
                                                  ======    ======    ======
</TABLE>

Restructuring Charges

      In January 2000, PsychPartners filed for protection under Chapter 11 of
the Federal Bankruptcy Code. Based on discussions with PsychPartners personnel,
as well as developments in the bankruptcy court, the Company understood that
PsychPartners intended to discontinue all future operations and liquidate all
existing assets to satisfy outstanding obligations. Under the terms of the
Purchase Agreement, PsychPartners assumed responsibility for all facility leases
associated with the practices sold. While the Company obtained assignment
letters for many of those leases, due to the nature of both real estate and
bankruptcy law, it is possible that the Company could be held responsible for a
portion of those remaining lease obligations. The Company engaged special
counsel and has evaluated its exposure with regard to this matter on an ongoing
basis. There were approximately 35 open leases with approximately $2,500 in
remaining payments under the lease terms, not including certain fees and
expenses. The Company aggressively pursued resolution of this matter in terms
most favorable to the Company.


                                    29 of 70
<PAGE>
The Company recorded a charge of $1,700 at December 31, 1999, for this potential
exposure. During 2001 and 2000 the Company paid $66 and $228 relating to both
lease obligations and legal costs in connection with the settlement of these
leases. The Company recognized $129 and $440 respectively in 2001 and 2000 in
income to the extent that the amounts previously reserved exceeded the required
settlement payments.

      In addition, PsychPartners defaulted on certain deferred contingent
purchase price obligations which were part of the original acquisition
agreements for practices previously purchased by Integra. These liabilities were
assumed by PsychPartners under the terms of the Purchase Agreement. The Company
believes that it has no remaining responsibility for these obligations, however,
the former owners of these practices may choose to assert a claim against the
Company. The Company estimates these claims may aggregate to $1,000. In February
2002, the Company received a demand for arbitration from an individual owner.
The Company intends to vigorously contest any claims related to this matter.

      At December 31, 2001 and 2000, the Company had reserved $981 and $1,558,
respectively, with respect to all PsychPartners related matters.

      In December 1997, the Company recorded a provision for restructuring
pertaining to the Company's decision to divest the outpatient provider group
practices operations that were not sold to PsychPartners, and to reorganize
corporate office functions to reflect the exit from the outpatient business.

The following summarizes the Company's restructuring activity with regard to its
divestiture of outpatient operations:


<TABLE>
<CAPTION>
                                   BALANCE AT    CHANGE IN   AMOUNTS     BALANCE AT    CHANGE IN   AMOUNTS     BALANCE AT
                                  DECEMBER 31,   ESTIMATE    UTILIZED   DECEMBER 31,   ESTIMATE    UTILIZED   DECEMBER 31,
                                      1999         2000      IN 2000        2000         2001      IN 2001         2001
                                  ------------   --------    --------   ------------   --------    --------   ------------
<S>                               <C>            <C>         <C>        <C>            <C>         <C>        <C>

Restructure and related charges      $2,284       $ (440)    $ (286)       $1,558       $ (129)    $ (448)       $  981
</TABLE>

Long-term Care and Provider Billing Reserves

      In March 1998, the Company received notification that the Medicare
Intermediary in California completed a post payment medical review of billings
previously submitted and paid between 1990 and 1994. Based on the results of its
review, the Intermediary has requested a refund of approximately $1,200.
Services were denied primarily on the basis of medical necessity and incomplete
documentation. The Company fully reserved for the above amount as of December
31, 1997. As more fully described under Legal Proceedings, the Company intends
to continue to vigorously defend itself in this matter and has filed an appeal
with the Medical Appeals Council. As of April 15, 2002, the Council has taken no
action with respect to the Appeal.

      During the first half of 1999, the Company received notification of
potential Medicaid program billing issues in Nevada in connection with services
performed at the Company's former Nevada outpatient group practice subsidiaries
that were sold by the Company at the end of 1997. Upon further review of the
Company's former Nevada Medicaid billings, the Company determined that certain
Nevada Medicaid billings of these former outpatient practices were not in
accordance with Medicaid program regulations. In accordance with the Company's
full disclosure policy, the Company disclosed this matter to the Nevada Medicaid
program. In December 1999, the Company entered into a settlement agreement with
the State of Nevada which resolved all claims against the Company relating to
this matter. Terms of the settlement


                                    30 of 70
<PAGE>
included a total payment of $455 plus interest at a simple rate of 7%. The
Company paid the first installment payment of $228 in December 1999. The
remaining installments that had been previously accrued were paid in June 2000
and January 2001.

      Although management believes that established reserves for the above
matters are sufficient, it is possible that the final resolution of these
matters may exceed the established reserves by an amount which could be material
to the Company's results of operations. Due to the nature of these matters the
Company cannot predict when they will be resolved. As noted below, the Company
has incurred substantial net operating losses and has negative working capital.
As such, failure to achieve a satisfactory outcome with respect to the Medicaid
Intermediary matter discussed above could have a material adverse effect on the
Company's financial condition.

Interest Expense-Related Party

      In March 2000, the Board of Directors approved the issuance of a warrant
to purchase 50,000 shares of common stock to a significant stockholder who also
serves on the Board of Directors of the Company, as well as the conditional
issuance of an additional warrant to purchase 50,000 shares of common stock,
with both issuances subject to the approval of the Company's stockholders. The
Company's stockholders approved the issuances at the June 27, 2000 stockholders
meeting. The warrant for the initial 50,000 shares of common stock was issued in
connection with a temporary line of credit of $2,000 (the line of credit expired
on March 1, 2001), which was extended to the Company by the stockholder/Board
member in March 2000. The conditional warrant was subsequently issued because
the Company was not able to obtain a line of credit from a financial institution
to replace the line of credit extended by the stockholder/Board member prior to
June 30, 2000. The warrants, which were granted on June 27, 2000 and June 30,
2000, respectively, each have a ten-year term and are exercisable at a price per
share equal to the fair market value of a share of Common Stock on the date the
warrants were granted ($.625 and $.6875, respectively). During the fourth
Quarter of 2000, the significant stockholder advanced $300 that was repaid prior
to December 31, 2000. Interest of $4 was paid with respect to this advance.

      In July 2001, the Board of Directors approved the issuance of a warrant to
purchase 50,000 shares of Common Stock to the significant stockholder/Board
member. The stockholder/Board member issued the warrants in connection with his
loan of $1,000 to the Company. The warrants, which were granted on July 18,
2001, have a ten-year term and are exercisable at a price per share equal to the
fair market value of a share of Common Stock ($1.20) on the date the warrants
were granted. Generally accepted accounting principles call for the cost of the
warrants to be treated as interest expense and accordingly, $22 and $5 of
interest expense has been recognized for 2001 and 2000 respectively.

      In 2001, interest of $26 was paid with respect to the $1,000 loan, which
is more fully described in Note 18 to the Company's Consolidated Financial
Statements.

Liquidity and Capital Resources

      Net cash used in operations was $1,282 in 2001, compared to net cash
provided by operations of $1,268 in 2000. Cash and cash equivalents decreased by
$713 to $99 at December 31, 2001 from $812 at December 31, 2000. The December
31, 2000 balance was $106 more than the amount of cash and cash equivalents of
$706 at December 31, 1999. Capital expenditures principally relate to property,
software and equipment of $962, $1,005 and $936 in 2001, 2000 and 1999
respectively.



                                    31 of 70
<PAGE>
      As of December 31, 1999, the Company was in default of certain covenants
contained in its credit facility with a Bank (the "Facility"), principally
related to capital expenditures for computer equipment. There were no borrowings
outstanding under the Facility at December 31, 1999. The Company was not able to
obtain a waiver from the Bank, and the Bank subsequently withdrew the Facility.
In order to meet potential cash flow demands through December 31, 2000, the
Company obtained a commitment from a significant stockholder and member of the
Company's Board of Directors to advance the Company up to $2,000 through March
1, 2001 (refer to Note 18 of the Notes to the Company's Consolidated Financial
Statements for discussion of the terms of the commitment). During the Fourth
Quarter of 2000, $300 was advanced under this line of credit that was repaid in
full prior to December 31, 2000. Consequently there were no amounts outstanding
as of December 31, 2000 with respect to this commitment.

      In order to meet potential cash flow demands for 2001, in March 2001 the
Company, obtained a commitment from the significant stockholder/Board member to
advance up to $1,000 through March 2002. In July 2001, the Company drew the
entire amount available under the $1,000 line of credit provided by the
significant stockholder/Board member to reduce its medical claims payable.

      At December 31, 2001 the Company had a working capital deficit of $8,770.
Of this amount, $4,466 pertains to medical claims payable attributable to two
customers (HeathNow and Fidelis) of the Company. In accordance with New York
State Law, these customers remain primarily liable for these amounts. The
Company is in negotiation with the above customers to establish a payment plan
to reimburse the customers for these amounts, but there can be no assurance that
a satisfactory payment plan can be arranged. Failure to achieve a satisfactory
payment plan could have a material adverse effect on the Company's financial
condition. The Company's working capital deficit was also attributable in part
to accrued liabilities aggregating to $2,204 that pertain to reserves
established for restructuring as well as long-term care and other provider
billing matters.

      As further discussed in Note 8 of the Notes to the Company's Consolidated
Financial Statements, in December 2000, the Company entered into a credit
facility with a local bank that allows for up to $650 ($625 outstanding at
December 31, 2001) in borrowings subject to a formula based upon eligible
accounts receivable.

      As of December 31, 2001, the Company is in default with respect to the
minimum net income covenant of that facility. The facility is scheduled to
expire on May 31, 2002 and the Bank has indicated its unwillingness to extend
the facility beyond that date.

      The Company's current ratio and working capital are set forth below for
the dates indicated:

<TABLE>
<CAPTION>
                                   DECEMBER 31,      DECEMBER 31,
                                       2001              2000
                                   ------------      ------------
<S>                                <C>               <C>
      Current Ratio                    .24:1             .38:1
      Working Capital deficit        $(8,770)          $(4,988)
</TABLE>

      The Company incurred a net loss of $14,505 during 2001. The Company has
reported negative working capital of $8,770, $4,988 and $6,302 in 2001, 2000,
and 1999, respectively.


                                    32 of 70
<PAGE>
As of December 31,2001, the Company had outstanding lines of credit of $1,625
(See Note 8 to the Consolidated Financial Statements for more detailed
information) that expire during 2002. In addition, the Company anticipates that
it will not generate significant cash from operations during 2002.

      On March 4, 2002, the Company received notification from its largest
customer (representing approximately 55% of its 2001 revenue) that it was
terminating its contract with the Company effective June 1, 2002. In response to
the termination of the service contract, the Company began the implementation of
a comprehensive restructuring plan more fully described in Note 1 of the
Consolidated Financial Statements. The effects of the plan will be to
significantly reduce the Company's expenditures to be commensurate with the
significantly reduced revenues as compared with 2001. Consequently, the Company
will be significantly smaller in terms of revenues, assets and employees in
2002.

      The Company will require the extension and or renewal of its current lines
of credit, as well as additional debt or equity financing, which all of may not
be readily available to support its operations.

      All of these factors raise substantial doubt about the Company's ability
to continue as a going concern. The Company's Consolidated Financial Statements
do not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty. As such, the
Company's independent auditors have included an explanatory paragraph in their
report on the Company's December 31, 2001 financial statements relating to the
going concern uncertainty.

Inflation

      A significant portion of the Company's operating expenses have been
subject to inflationary increases, including clinical and administrative
salaries and rent expense. Based upon management's assessment, the Company has
historically been unable to substantially offset inflationary increases through
price increases. There can be no assurance that the Company will be able to
offset future inflationary increases in expenses, if any, which would result in
a dilutive impact on the Company's future earnings.

Recent Accounting Pronouncements

      In July 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No.'s 141 and 142, "Business combinations" and "Goodwill and Other
Intangibles." FASB 141 requires all business combinations initiated after July
1, 2001 to be accounted for using the purchase method. FASB 142 concluded that
purchased goodwill would not be amortized but would be reviewed for impairment
when certain events indicate that the goodwill of a reporting unit is impaired.
The impairment test will use a fair-value based approach, whereby if the implied
fair value of a reporting unit's goodwill is less than its carrying amount,
goodwill would be considered impaired. FASB 142 does not require that goodwill
be tested for impairment upon adoption unless an indicator of impairment exists
at that date. However, it would require that a benchmark assessment be performed
for all existing reporting units within six months of the date of adoption. The
new goodwill applies not only to goodwill arising from acquisitions completed
after the effective date, but also to goodwill previously recorded. In
accordance with SFAS 141, the Company did not amortize the goodwill associated
with the acquisition of GBS on July 27, 2002. The Company will adopt FASB 142 in
the first quarter of 2002 and is in the process of determining the impact, if
any, of these pronouncements on its financial position and results of
operations.


                                    33 of 70
<PAGE>
      In August 2001, Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No.
144") was issued, which significantly changes the criteria that would have to be
met to classify an asset as held-for-sale. This statement supersedes Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of", and the
provisions of Accounting Principles Board Opinion 30 "Reporting the Results of
Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions" that
relate to reporting the effects of a disposal of a segment of a business. The
Company does not anticipate any adjustment associated with the adoption of SFAS
No. 144 effective January 1, 2002.


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

      Not applicable.

ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                         <C>
Reports of Independent Auditors.........................................     35
Consolidated Balance Sheets as of December 31, 2001
and December 31, 2000...................................................     37
Consolidated Statements of Operations For the Years
Ended December 31, 2001, 2000, and 1999.................................     38
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
For the Years Ended December 31, 2001, 2000, and 1999...................     39
Consolidated Statements of Cash Flows For the Years
Ended December 31, 2001, 2000, and 1999.................................     40
Notes to Consolidated Financial Statements..............................     41
Schedule II Valuation and Qualifying Accounts...........................     70
</TABLE>


                                    34 of 70
<PAGE>
                         REPORT OF INDEPENDENT AUDITORS


To the Stockholders and Board of Directors of Integra, Inc.

We have audited the accompanying consolidated balance sheet of Integra, Inc. as
of December 31, 2001, and the related consolidated statements of operations,
stockholders' equity (deficit), and cash flows for the year then ended. Our
audit also included the 2001 financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.

We conducted our audit in accordance with auditing standards generally accepted
in the United States. 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 audit provides a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Integra, Inc. at December 31, 2001, and the consolidated results of its
operations and its cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related 2001 financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note 1, the
Company incurred a net loss of $14,505,000 in 2001 and had a working capital
deficit of $8,770,000 at December 31, 2001. Further, the Company's lines of
credit expire in 2002 and contracts with the Company's two largest customers
have not been renewed. The Company does not anticipate generating significant
cash flows from operations in 2002. As a result, the Company requires extensions
on its lines of credit and/or additional debt for equity financing. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 1. The financial statements do not include any adjustments to reflect
the possible future effects on the recoverability and classification of assets
or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.






                                       /s/ Ernst & Young LLP

Philadelphia, PA
April 8, 2002



                                    35 of 70
<PAGE>
                       REPORT OF INDEPENDENT ACCOUNTANTS


To the Stockholders and Board of Directors of Integra, Inc.

In our opinion, the consolidated financial statements listed in the accompanying
index appearing under Item 14(a)(1) on page 70 present fairly, in all material
respects, the financial position of Integra, Inc. and its subsidiaries at
December 31, 2000, and the results of their operations and their cash flows for
each of the two years in the period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States. In addition, in
our opinion, the financial statement schedule listed in the accompanying index
appearing under Item 14(a)(2) present fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits. We conducted our audits in accordance with
auditing standards generally accepted in the United States. 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 the opinion expressed above.



                                                /s/ Pricewaterhouse Coopers LLP

Philadelphia, PA
March 30, 2001

                                    36 of 70

<PAGE>

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                      DECEMBER 31,
                                                                        -----------------------------------------
                                                                        (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
                               ASSETS                                             2001           2000
                                                                                --------       --------
<S>                                                                             <C>            <C>
Current assets:
     Cash and cash equivalents                                                  $     99       $    812
     Assets restricted for the settlement of unpaid claims                           901          1,000
     Accounts receivable, net of allowance for doubtful
         accounts                                                                  1,101            605
     Other accounts receivable                                                       342            359
     Other current assets                                                            317            346
                                                                                --------       --------

          Total current assets                                                     2,760          3,122

Property and equipment, net                                                        1,238          1,902
Intangible assets, net                                                               470              0
Excess cost over fair value of net assets acquired, net                            3,597          9,669
                                                                                --------       --------
                                                                                $  8,065       $ 14,693
                                                                                ========       ========

                    LIABILITIES AND STOCKHOLDERS'
                           EQUITY(DEFICIT)
Current liabilities:
     Accounts payable                                                           $  1,861       $  1,054
     Medical claims payable                                                        4,700          3,321
     Line of credit - bank                                                           625              0
     Line of credit - related party                                                1,000              0
     Current portion of long term debt                                               176              0
     Accrued expenses and other current liabilities                                3,168          3,733
                                                                                --------       --------
          Total current liabilities                                               11,530          8,108

Long-term debt                                                                       146              0
Deferred income tax liability                                                          0            160
                                                                                --------       --------

                  Total liabilities                                               11,676          8,268
                                                                                --------       --------

Commitments and contingencies
Redeemable convertible preferred stock                                             3,904              0
Stockholders' equity (deficit):
     Common stock, $.01 par value, 20,000,000
        shares authorized; issued and outstanding
        11,251,052 and 10,138,552, in 2001 and 2000, respectively                    112            101
     Capital in excess of par value                                               88,197         87,513
     Accumulated deficit                                                         (95,824)       (81,189)
                                                                                --------       --------
                  Total stockholders' equity (deficit)                            (7,515)         6,425
                                                                                --------       --------
                                                                                $  8,065       $ 14,693
                                                                                ========       ========
</TABLE>

The accompanying notes are an integral part of these financial statements

                                    37 of 70
<PAGE>
                                  INTEGRA, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                    YEARS ENDED DECEMBER 31,
                                                                      -------------------------------------------------------
                                                                      (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
                                                                            2001               2000               1999
                                                                        ------------       ------------       ------------
<S>                                                                     <C>                <C>                <C>
Revenue                                                                 $     26,485       $     26,429       $     25,455
Costs of sales                                                                21,242             18,467             16,760
                                                                        ------------       ------------       ------------

Gross profit                                                                   5,243              7,962              8,695
Selling and administrative expenses                                            8,954              6,784              6,632
Restructuring and other charges                                                 (129)              (440)             1,200
Provision for doubtful accounts                                                  444                176                 --
Amortization and impairment charge of intangible assets and excess
      cost over fair value of net assets acquired                             10,620                494                488
                                                                        ------------       ------------       ------------
(Loss) income from operations                                                (14,646)               948                375
Non-operating (income)expenses:
      Interest expense - related party                                            26                  9                 --
      Interest income                                                            (56)               (75)
      Interest expense                                                            49                                    26
                                                                        ------------       ------------       ------------
(Loss) income before income taxes                                            (14,665)             1,014                349
Income tax (benefit)provision                                                   (160)              (136)                46
                                                                        ------------       ------------       ------------
Net (loss) income                                                            (14,505)      $      1,150       $        303
Preferred stock dividend                                                         130                  0                  0
                                                                        ------------       ------------       ------------
Net (loss) income allocable to common shareholders                      $    (14,635)      $      1,150       $        303
                                                                        ============       ============       ============
Basic and diluted net (loss) income per common share                    $      (1.38)      $       0.11       $       0.03
                                                                        ============       ============       ============
Weighted average shares outstanding:
      Basic                                                               10,602,525         10,138,552         10,138,552
                                                                        ============       ============       ============
      Diluted                                                             10,602,525         10,806,675         10,532,109
                                                                        ============       ============       ============
</TABLE>

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

                                    38 of 70
<PAGE>
                                  INTEGRA, INC.
               CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
                                 EQUITY(DEFICIT)
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                   COMMON SHARES
                                                ---------------------    CAPITAL IN
                                                                          EXCESS OF     ACCUMULATED     DEFERRED
                                                NUMBER      PAR VALUE     PAR VALUE       DEFICIT     COMPENSATION      TOTAL
                                                ------      ---------     ---------       -------     ------------      -----
<S>                                            <C>          <C>           <C>           <C>           <C>              <C>
Balance at December 31, 1998                     10,139           101        87,508       (82,642)            (5)         4,962
Amortization of deferred compensation                                                                          5              5
Net income                                                                                    303                           303
                                               --------      --------      --------      --------       --------       --------
Balance at December 31, 1999                     10,139      $    101      $ 87,508      $(82,339)            --       $  5,270
Issuance of warrants for financing
guarantee                                                                         5                                           5

Net income                                                                                  1,150                         1,150
                                               --------      --------      --------      --------       --------       --------
Balance at December 31, 2000                     10,139      $    101      $ 87,513      $(81,189)            --       $  6,425

Preferred dividends paid                                                                     (130)                         (130)
Issuance of warrants for issuance of debt                                        22                                          22
Issuance of common stock                          1,112            11           662                                         673


Net loss                                                                                  (14,505)                      (14,505)
                                               --------      --------      --------      --------       --------       --------
Balance at December 31, 2001                     11,251           112        88,197       (95,824)            --         (7,515)
                                               ========      ========      ========      ========       ========       ========
</TABLE>


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

                                    39 of 70
<PAGE>
                                  INTEGRA, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                          YEARS ENDED DECEMBER 31,
                                                                                          ------------------------
                                                                                     2001          2000           1999
                                                                                     ----          ----           ----
                                                                                           (DOLLARS IN THOUSANDS)
<S>                                                                                <C>           <C>            <C>
Cash flows from operating activities:
  Net (loss) income                                                                (14,505)      $  1,150       $    303
  Adjustments to reconcile net (loss)income to net cash (used in)provided by
  operations:
    Depreciation and amortization                                                    2,364          1,426          1,248
    Loss on abandonment of equipment                                                    --             31             --
    Provision for doubtful accounts                                                    444            176             --
    Issue of warrant for financing guarantee                                            22              5             --
    Deferred tax provision                                                            (160)          (136)           (60)
    Impairment of intangible assets                                                  9,990             --             --
    Restructuring and other charges                                                   (129)          (440)         1,200
  Changes in assets and liabilities, net of effects of businesses
    acquired:
    Decrease(increase) in assets restricted for the settlement of
    unpaid claims                                                                       99             --         (1,000)
    (Increase)decrease in accounts receivable                                         (290)           217           (323)
    Decrease(increase) in other current assets                                          29            (45)          (161)
    Increase(decrease) in accounts payable                                             503            777           (317)
    Increase(decrease) in reserve for unpaid claims                                  1,379            (64)            --
    (Decrease)increase in accrued expenses and other current liabilities
                                                                                    (1,028)        (1,829)           383
    (Decrease) increase in other assets and
      other liabilities                                                                 --             --             58
                                                                                  --------       --------       --------
    Net cash (used in) provided by operating activities                             (1,282)         1,268          1,331
                                                                                  --------       --------       --------

Cash flows from investing activities:
   Additional payments for businesses
     acquired in prior years                                                            --           (157)          (591)
   Purchases of property and equipment                                                (962)        (1,005)          (936)
                                                                                  --------       --------       --------

  Net cash used in investing activities                                               (962)        (1,162)        (1,527)
                                                                                  --------       --------       --------

Cash flows from financing activities:
  Proceeds from lines of credit                                                      1,625             --             --
  Principal payments on debt obligations                                               (37)            --         (1,550)
   Payment of preferred stock dividends                                               (130)            --             --
   Proceeds from issuance of common stock                                               73             --             --
                                                                                  --------       --------       --------

  Net cash provided by (used in) financing activities                                1,531             --         (1,550)
                                                                                  --------       --------       --------

Net (decrease) increase in cash and cash equivalents                                  (713)           106         (1,746)
Cash and cash equivalents at beginning of period                                       812            706          2,452
                                                                                  --------       --------       --------
Cash and cash equivalents at end of period                                        $     99       $    812       $    706
                                                                                  ========       ========       ========
Supplemental disclosures of cash flow information:
         Interest paid                                                            $     75       $      4       $     77
                                                                                  ========       ========       ========
         Income taxes paid                                                        $      0       $      4       $    210
                                                                                  ========       ========       ========
</TABLE>

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

                                    40 of 70
<PAGE>
                                  INTEGRA, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                             (Dollars in Thousands)

NOTE 1 -- ORGANIZATION AND OPERATION

         Integra, Inc. ("Integra" or the "Company"), a Delaware corporation, was
formed to provide behavioral health services and commenced operations on March
15, 1991. Until 1998, the Company was called Apogee, Inc. Apogee purchased
substantially all of the assets of Integra, Inc. in 1994. The Company today
provides employee assistance programs ("EAP") and managed behavioral health
services through full and shared risk arrangements with employers, health plans
and managed care organizations. In addition, during 2001, by virtue of an
acquisition (more fully described in Note 5), the Company began providing
consulting services with respect to the design, funding and administration of
compensation, benefit and retirement plans. At December 31, 2001, Integra's
contract service areas were principally concentrated in Connecticut, Delaware,
Maryland, New Jersey, New York, Pennsylvania, Rhode Island, Virginia and
Tennessee.

Going Concern

         The Company incurred a net loss of $14,505 during 2001 and had a
working capital deficit of $8,770 at December 31, 2001. (See Note 3) The
contract with the Company's second largest customer expired on December 31,
2001. On March 4, 2002, the Company received notification from its largest
customer (representing approximately 55% of its 2001 revenue) that it was
terminating its contract with the Company effective June 1, 2002. Furthermore,
the Company has outstanding lines of credit of $1,625 that expire during 2002.
(See Note 8 and Note 18) In addition, the Company anticipates that it will not
generate significant cash from operations during 2002. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
The consolidated financial statements do not include any adjustments to reflect
the possible future effects on the recoverability and classification of assets
or the amounts and classification of liabilities that may result from the
outcome of this uncertainty. Consequently, the Company will require the
extension and or renewal of its current lines of credit as well as additional
debt or equity financing, which may not be readily available, to support its
operations.

     Further, in response to the termination of this service contract, the
Company began the implementation of a comprehensive restructuring plan in 2002.
The plan is based upon an evaluation of the Company's current services, existing
contracts, available technology, customer relationships, position in the
marketplace and its financial position. A summary of management's actions
completed thus far, as well as certain actions initiated to date, are expected
to address the financial conditions described above, include the following:

    -    Commenced discussions with its significant stockholder/Board member
         with respect to extending the maturity date of the $1,500 line of
         credit;

    -    Reduced the Company's cash usage through workforce reductions to
         achieve personnel levels commensurate with continuing revenue;

    -    Commenced negotiations with the Company's landlord to reduce leased
         space by 50%;

                                    41 of 70
<PAGE>
                                  INTEGRA, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


    -    Commenced discussions with two former customers to establish payment
         schedules with respect to medical claims payable assumed by these
         customers in connection with the cessation of the contracts with these
         customers;

    -    Sold a subsidiary that performed services that were inconsistent with
         the Company's core business and eliminated $3,904 in redeemable
         convertible preferred stock and approximately $550 in other related
         liabilities associated with this subsidiary;

    -    Establish a detailed budget to manage the upcoming year's operating
         activity with strict adherence to budgeted amounts; and

    -    Abandoned recently instituted operating system technology with return
         to previous system with a performance level that is better suited to
         the volume of continuing business.

The Company believes that these actions will allow it to continue as a going
concern.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation

         The Consolidated Financial Statements include the accounts of the
Company and all wholly-owned subsidiaries. All significant intercompany accounts
and transactions, including management fees, have been eliminated.

Use of estimates

         The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses. Actual results could differ from those estimates.

Cash and cash equivalents

         Cash and cash equivalents include cash on hand and short-term
investments with original maturities of 90 days or less.


Assets restricted for the settlement of unpaid claims

         At December 31, 2001 and 2000, $901 and $1,000 respectively of
interest-bearing cash was held for the payment of claims under the terms of a
managed care contract and was classified as an asset restricted for the
settlement of unpaid medical claims on the balance sheet.

Allowance for doubtful accounts

         The Company establishes an allowance for doubtful accounts based upon
factors surrounding the credit risk of specific payors, historical trends and
other information.

                                    42 of 70
<PAGE>
                                  INTEGRA, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Management believes the allowance for doubtful accounts is adequate to provide
for normal credit losses.

Revenue recognition

         Service revenue pertains to the Company's EAP and Managed Behavioral
Healthcare segment and is primarily generated by capitated managed behavioral
health and employee assistance programs. The fees are defined by contract and
are primarily calculated on a fixed per-member per-month fee. Capitated revenues
are recorded and typically received in the month for which the member is
entitled to services.

         Consulting revenue is associated with respect to fees received for the
design, funding and administration of compensation, benefit and retirement
plans. Consulting revenues are earned as the services are performed.

Property and equipment

         Property and equipment are stated at cost less accumulated depreciation
and amortization. Additions and betterments are capitalized and maintenance and
repairs are charged to current operations. Internal-use software is capitalized
in accordance with AICPA Statement of Position 98-1 (SOP 98-1). The cost of
assets retired or otherwise disposed of and the related accumulated depreciation
and amortization are removed from the accounts and the gain or loss on such
dispositions is reflected in current operations. Depreciation is provided using
the straight-line method. Estimated useful lives of the assets are:


<TABLE>
<S>                                                          <C>
         Furniture and fixtures..........................    5 to 7 years
         Office equipment................................    3 to 5 years
         Computer hardware and software..................    3 to 5 years
</TABLE>

Long lived and intangible assets

         Identifiable assets and liabilities acquired in connection with
business combinations accounted for under the purchase method are recorded at
their respective fair values. Deferred taxes have been recorded to the extent of
differences between the fair value and the tax basis of the assets acquired and
liabilities assumed. The excess of the purchase price over the fair value of
tangible net assets acquired is amortized on a straight-line basis over the
estimated useful life of the intangible assets. Allocation of intangible assets
between identifiable intangibles and goodwill was performed by Company
management with the assistance of independent appraisers. The Company amortizes
the excess of cost over fair value of assets acquired over 25 years.

         The Company applies Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be

                                    43 of 70
<PAGE>
                                  INTEGRA, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Disposed of" ("SFAS 121"), which establishes accounting standards for the
impairment of long-lived assets, certain identified intangible assets and
goodwill related to those assets to be held and used and for long-lived assets
and certain intangible assets to be disposed of. In accordance with SFAS 121,
the Company reviews the realizability of long-lived assets, certain intangible
assets and goodwill whenever events or circumstances occur which indicate
recorded cost may not be recoverable.

         If the expected future cash flows (undiscounted) are less than the
carrying amount of such assets, the Company recognizes an impairment loss for
the difference between the carrying amount of the assets and their estimated
fair value. When appropriate, in estimating future cash flows for determining
whether an asset is impaired, and in measuring assets that are impaired, assets
are grouped by geographic region.

         In view of the Company's performance in 2001 and termination of
contracts by its largest customers (more fully described at Note 1 and Note 20),
the Company has determined that the undiscounted future cash flow from its EAP
and Managed Behavioral Healthcare segment is insufficient to warrant the full
recoverability of the recorded excess cost over fair value of net assets
acquired and other intangible assets. Consequently, the Company has recorded an
impairment charge of $9,170 associated with this business segment as of December
31, 2001. In addition, the Company has written off $765 of capitalized internal
use software associated with this business segment as of December 31, 2001,
based on its estimated future cash flows.

         As a result of the loss of its largest customer in its EAP and Managed
Behavioral Healthcare segment, and the increased overhead burden that was
expected to be borne by the Consulting segment, the Company determined that the
excess cost over fair value of net assets acquired associated with GBS was not
fully recoverable. In view of the sale of GBS in April 2002, the Company has
determined that the undiscounted future cash flow from that segment was best
evidenced by the net sale proceeds of that transaction. Consequently, the
Company has written off excess cost over fair value of net assets acquired of
$820 as of December 31, 2001, associated with the GBS segment.

Financial instruments

         The carrying value of cash and cash equivalents, accounts receivable
and payable and accrued liabilities approximates fair value due to the
short-term maturities of these assets and liabilities.

Medical Claims Payable

         This liability relates to amounts owed for healthcare services
authorized or incurred and not yet paid by the Company. Medical claims payable
are estimated based upon authorized healthcare services, past claim payment
experience for member groups, patient census data, actuarial data, and other
factors. While the Company believes the estimate of this liability is adequate,
actual results could differ from such estimates.

                                    44 of 70
<PAGE>
                                  INTEGRA, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Income taxes

         The Company accounts for certain items of income and expense in
different time periods for financial reporting and income tax purposes.
Provisions for deferred income taxes are made in recognition of such temporary
differences, where applicable. A valuation allowance has been established
against the Company's deferred tax assets as the Company has concluded that it
is unlikely the benefit will be realized.

Earnings per share

         Basic earnings per share includes no dilution and is computed by
dividing income available to common shareholders by the weighted-average number
of common shares outstanding for the period. Diluted earnings per share reflects
the dilutive effect of all stock options and warrants, convertible preferred
stock, and shares contingently payable in connection with certain acquisitions.
The difference between the basic average number of shares outstanding and the
diluted average number of shares outstanding at December 31, 2000 and 1999 is
due to the treasury stock method calculation of the impact of unexercised stock
options granted under the Company's stock option plan and warrants issued in
1998 in connection with a financing guarantee made by certain investment
partnerships which were significant stockholders of the Company which is
discussed further in Note 19. Basic and diluted earnings per share are the same
for 2001 as the conversion of preferred stock and exercise of options and
warrants would be anti-dilutive as a result of the current year loss. The
computation of dilutive earnings per share excludes approximately 2,200,000,
348,000 and 261,000, for 2001, 2000, and 1999, respectively, of common stock
equivalents because their inclusion would have been anti-dilutive in the periods
presented.

Recent Accounting Pronouncements

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement for financial position and measure those
instruments at fair value. SFAS No. 133 was adopted by the Company beginning
with its fiscal quarter ending March 31, 2001 and it did not have a material
effect on the Company's consolidated financial statements.

         In March 2000, the FASB issued interpretation No. 44, or Fin 44
"Accounting for Certain Transactions Involving Stock Compensation," which is an
interpretation of Accounting Principles Board Opinion No. 25, or APB Opinion 25.
This interpretation clarifies the definition of an employee noncompensatory
plan, accounting consequences of various modifications to previously fixed stock
options or awards and the exchange of stock compensation awards in a business
combination. The adoption of FIN 44 did not have an impact on the Company's
consolidated financial statements.

      In July 2001 the Financial Accounting Standards Board ("FASB") issued SFAS
No.'s 141 and 142, "Business combinations" and "Goodwill and Other Intangibles."
FASB 141 requires all

                                    45 of 70
<PAGE>
                                  INTEGRA, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


business combinations initiated after July 1, 2001 to be accounted for using the
purchase method. FASB 142 concluded that purchased goodwill would not be
amortized but would be reviewed for impairment when certain events indicate that
the goodwill of a reporting unit is impaired. The impairment test will use a
fair-value based approach, whereby if the implied fair value of a reporting
unit's goodwill is less than its carrying amount, goodwill would be considered
impaired. FASB 142 does not require that goodwill be tested for impairment upon
adoption unless an indicator of impairment exists at that date. However, it
would require that a benchmark assessment be performed for all existing
reporting units within six months of the date of adoption. The new goodwill
applies not only to goodwill arising from acquisitions completed after the
effective date, but also to goodwill previously recorded. In accordance with
SFAS 141, the Company did not amortize the goodwill associated with the
acquisition of GBS on July 27, 2002. The Company will adopt FASB 142 in the
first quarter of 2002 and is in the process of determining the impact, if any,
of these pronouncements on its financial position and results of operations.

         In August 2001, Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No.
144") was issued, which significantly changes the criteria that would have to be
met to classify an asset as held-for-sale. This statement supersedes Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of", and the
provisions of Accounting Principles Board Opinion 30 "Reporting the Results of
Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions" that
relate to reporting the effects of a disposal of a segment of a business. The
Company does not anticipate any adjustment associated with the adoption of SFAS
No. 144 effective January 1, 2002.


NOTE 3 -- LIQUIDITY AND CAPITAL RESOURCES

         At December 31, 2001, the Company had a working capital deficit of
$8,770. Of this amount $4,466 pertains to medical claims payable attributable to
two former customers of the Company. In accordance with New York State Law,
these customers remain primarily liable for these amounts and have assumed the
responsibility for satisfying these claims. The Company is in negotiation with
these former customers to establish a payment plan to reimburse the customers
for these amounts, but there can be no assurance that a satisfactory payment
plan can be arranged. Failure to achieve a satisfactory plan could have a
materially adverse effect on the Company's financial condition. The working
capital deficit was also attributable in part to accrued liabilities of $2,204
that relate to reserves established for restructuring matters as well as
long-term care and other provider billing matters.

         As further discussed in Note 8 of the Notes to the Company's
Consolidated Financial Statements, in December 2000, the Company entered into a
credit facility with a local bank that allows for up to $650 ($625 outstanding
at December 31, 2001) in borrowings subject to a formula based upon eligible
accounts receivable).

                                    46 of 70
<PAGE>
                                  INTEGRA, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


         The Company is in default with respect to the minimum net income
covenant of that facility. The facility is scheduled to expire on May 31, 2002,
and the Bank has indicated its unwillingness to extend the facility beyond that
date.


NOTE 4 -- ACCOUNTS RECEIVABLE

         Accounts receivable consist of the following:

<TABLE>
<CAPTION>
                                                                            DECEMBER 31,
                                                                           --------------
                                                                           2001      2000
                                                                           ----      ----
<S>                                                                       <C>        <C>
        Service revenue receivables..............................           $792     $826
        Consulting and commission revenue receivables............            684        0
                                                                          ------     ----
           Total accounts receivable.............................          1,476      826
                  Less:  Allowance for doubtful accounts.........            375      221
                                                                             ---      ---
        Accounts receivable, net.................................         $1,101     $605
                                                                          ======     ====
</TABLE>


NOTE 5 -- BUSINESS ACQUISITIONS

         On July 27, 2001 the Company acquired 100% of the membership units of
Global Benefits Solution, LLC ("GBS") in a transaction valued at approximately
$4,500. The acquisition was accounted for using the purchase method of
accounting. The results of operations of the acquired business is included in
the Consolidated Financial Statements from the date of acquisition.

         The purchase price was satisfied via the issuance of 1,000,000 shares
of the Company's common stock and 97,600 shares of the Company's Preferred Stock
valued at $600 and $3,904, respectively. The Preferred Stock pays dividends on a
quarterly basis at a rate of eight percent (8%) per annum and is subject to
mandatory redemption at $40 per share on July 27, 2006. In addition, the
Preferred Stock is convertible into common stock of the Company at a rate of 1
common share for each $4 of preferred stock.

See Note 20 for information regarding disposition of GBS in April 2002.

         The following financial information illustrates the condensed
post-acquisition balance sheet as of the acquisition date and the results of
operations as though the company had acquired GBS at the beginning of the year
ended December 31, 2001 and as of August 1, 2000 (date of GBS' inception) for
the year ended December 31, 2000.

                                    47 of 70
<PAGE>
                                  INTEGRA, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


<TABLE>
<CAPTION>
                                             JULY 27, 2001
                                             -------------
<S>                                          <C>
Accounts receivable, net                          633
Computer, software and hardware, net               45
Intangible asset and excess cost over
  fair value of net assets acquired             5,017
                                                -----
Total Assets                                   $5,695
                                               ======

Current liabilities                               304
Accrued liabilities                               592
Long-term debt                                    295
Total Stockholders Equity                       4,504
                                                -----
Total Liabilities and equity                   $5,695
                                               ======
</TABLE>

<TABLE>
                                         YEAR ENDED DECEMBER 31,
                                         -----------------------
                                            2001           2000
                                         --------       --------
<S>                                      <C>            <C>
Revenues                                 $ 26,976       $ 26,504
Net (loss) income                        $(13,984)      $  1,206
                                         --------       --------
Net (loss) income per diluted share      $  (1.32)      $    .11
                                         ========       ========
</TABLE>

         In connection with certain prior acquisitions, the Company entered into
contractual arrangements whereby additional shares of the Company's common stock
and cash may be issued to former owners of acquired companies upon attainment of
specified financial criteria. The number of shares of common stock to be issued
cannot be determined until the earn-out periods expire and the attainment of
criteria is established. If such criteria are attained, but not exceeded, the
Company will be obligated to make cash payments. Under the terms of the Purchase
and Sale Agreement with PsychPartners, the Company's obligation for contingent
consideration for periods subsequent to the closing date for the practices
acquired was assumed by PsychPartners.

         The Company paid $0, $150, and $591 in cash and issued no shares of
common stock in 2001, 2000, and 1999, respectively, in connection with
businesses acquired in prior years. This consideration was accounted for as
additional excess cost over fair value of net assets acquired.

                                    48 of 70
<PAGE>
                                  INTEGRA, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 6 -- PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
                                                       DECEMBER 31,
                                                    ------------------
                                                     2001        2000
                                                    ------      ------
<S>                                                 <C>         <C>
Furniture, fixtures and leasehold improvements      $  514      $  427
Office equipment                                       244         237
Computer hardware                                    1,400       1,255
Computer software                                    3,268       2,436
                                                    ------      ------
                                                     5,426       4,355
Less: Accumulated depreciation                       4,188       2,453
                                                    ------      ------
                                                    $1,238      $1,902
                                                    ======      ======
</TABLE>

Computer Software includes $667 and $358 of costs capitalized in 2001 and 2000,
respectively pursuant to SOP 98-1.

Depreciation expense was $1,735, $864, and $760, for 2001, 2000, and 1999,
respectively. The Company evaluated its software for impairment on December 31,
2001 based on estimated future cash flows and recorded a write down of $765 as
part of the total asset impairment charge.

NOTE 7 -- INTANGIBLE ASSETS AND EXCESS COST OVER FAIR VALUE OF NET ASSETS
          ACQUIRED

<TABLE>
<CAPTION>
INTANGIBLE ASSETS                                            DECEMBER 31,
-----------------                                           --------------
                                                            2001      2000
                                                            ----      ----
<S>                                                         <C>       <C>
Separately identifiable asset - GBS long-term contract      $600      $  0
Covenants not to compete                                       0        39
                                                            ----      ----
                                                             600        39
Less: Accumulated amortization                               130        39
                                                            ----      ----
                                                            $470      $  0
                                                            ====      ====
</TABLE>

<TABLE>
<CAPTION>
EXCESS COST OVER FAIR VALUE OF NET ASSETS ACQUIRED                             DECEMBER 31,
                                                                            --------------------
                                                                             2001         2000
                                                                            -------      -------
<S>                                                                         <C>          <C>
  Excess cost over fair value of net assets acquired - EAP and Managed
  Behavioral Healthcare segment                                             $     0      $11,814
  Excess cost over fair value of net assets acquired - GBS segment            3,597            0
                                                                            -------      -------
                                                                              3,597       11,814
  Less: Accumulated amortization                                                  0        2,145
                                                                            -------      -------
                                                                            $ 3,597      $ 9,669
                                                                            =======      =======
</TABLE>

                                    49 of 70
<PAGE>
                                  INTEGRA, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


         In view of the termination of contracts by its largest customers (more
fully described at Note 1 and Note 20), the Company has determined that the
undiscounted future cash flow from its EAP and Managed Behavioral Healthcare
segment is insufficient to warrant the full recoverability of the recorded
excess cost over fair value of net assets acquired and other intangible assets.
Consequently, the Company has recorded an impairment charge for the remaining
unamortized balance of $9,170 associated with this business segment as of
December 31, 2001.

         In conjunction with the acquisition of Global Benefit Solution LLC on
July 27, 2001, the Company recorded an intangible associated with a specific
contract with 23 months remaining as of the date of the acquisition. The Company
is amortizing the intangible asset ratably over the remaining term of the
contract. In addition, the Company recorded $4,417 of excess cost over fair
value of net assets acquired associated with the acquisition. As a result of the
loss of its largest customer in its EAP and Managed Behavioral Healthcare
segment, and the increased overhead burden that was expected to be borne by the
consulting segment, the Company determined that the excess cost over fair value
of net assets acquired was not fully recoverable. In view of the sale of GBS in
April 2002, the Company has determined that the undiscounted future cash flow
from that segment was best evidenced by the net sale proceeds of that
transaction. Consequently, the Company has written off excess cost over fair
value of net assets acquired of $820 as of December 31, 2001 associated with
this segment.

NOTE 8 - LINES OF CREDIT AND DEBT

         In December 2000, the Company entered into a credit facility with a
local bank that allows for up to $500 (subsequently increased to $650 in March
2001) in borrowings based upon eligible accounts receivable. Interest at prime
plus 1 1/2% is due on a monthly basis. There were borrowings outstanding as of
December 31, 2001, of $625. The loan is collateralized by substantially all of
the assets of the Company and expires on May 31, 2002. The credit facility
requires the Company to comply with certain financial covenants including
achieving minimum levels of net income and net worth. The Company was not in
compliance with the minimum net income covenant at December 31, 2001.

         See Note 18, Related Party Transactions, for a discussion of borrowings
associated with a significant shareholder.

         In connection with the acquisition of Global Benefits Solutions, LLC,
the Company assumed long term debt due a prior shareholder of that entity. The
note payable balance was $295 at the date of acquisition and $258 at December
31, 2001, of which $148 and $110 is payable in 2002 and 2003, respectively.
Principal and interest on the note is due quarterly through August 2, 2003 at
6.5% per annum.

                                    50 of 70
<PAGE>
                                  INTEGRA, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


         In addition, the Company entered into capital lease obligation for
computer equipment. As of December 31, 2001, the capital lease obligation was
$64, of which $28 and $36 is payable in 2002 and 2003, respectively.

NOTE 9 -- INCOME TAXES

         The components of the provision for income tax expense for 2001, 2000,
and 1999 are as follows:

<TABLE>
<CAPTION>
                         YEARS ENDED DECEMBER 31,
                         ------------------------
                       2001        2000        1999
                      -----       -----       -----
<S>                   <C>         <C>         <C>
Current:
         Federal         --          --          --
         State           --          --         106
                      -----       -----       -----
                          0           0         106
                      -----       -----       -----
Deferred:
         Federal       (136)       (150)         --
         State          (24)         14         (60)
                      -----       -----       -----
                       (160)       (136)        (60)
                      -----       -----       -----
                      $  (0)      $(136)      $  46
                      =====       =====       =====
</TABLE>

Deferred tax assets (liabilities) comprise the following:

<TABLE>
<CAPTION>
                                                                                             DECEMBER 31,
                                                                                       -----------------------

                                                                                         2001           2000
                                                                                         ----           ----
<S>                                                                                    <C>            <C>
Net operating loss carryforwards                                                       $ 18,337       $ 15,157
Temporary differences pertaining to amortization and
     depreciation                                                                         2,014             --
Accruals and reserves not currently deductible
     for tax purposes                                                                       884          1,306
                                                                                        -------       --------
Gross deferred tax assets                                                                21,235         16,463
Valuation allowance                                                                     (21,235)       (15,663)
                                                                                        -------       --------
Total deferred tax assets                                                                    --            800
Temporary differences pertaining to amortization and depreciation                            --           (960)
                                                                                        -------       --------
Net deferred tax liabilities                                                           $     --       $   (160)
                                                                                       ========       ========
</TABLE>

The reconciliation of the federal statutory tax rate to the effective tax rate
is as follows:

                                    51 of 70
<PAGE>
                                  INTEGRA, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>
                                                                              YEARS ENDED DECEMBER 31,
                                                                             --------------------------
                                                                             2001       2000       1999
                                                                             ----       ----       ----
<S>                                                                          <C>        <C>        <C>
Federal statutory tax rate                                                    (34)%       34%        34%
State income taxes, less related federal tax benefit                           (1)         1         13
Non-deductible amortization of excess cost over fair value of net assets
  acquired                                                                     (2)         1          1
Business expense disallowance                                                  --          1          1
Loss for which no tax benefit was recognized                                  35.9       (50)       (36)
                                                                              ---        ---        ---
                                                                              (1.1)%     (13)%       13%
                                                                              ===        ===        ===
</TABLE>

         At December 31, 2001 the Company had net operating loss carry forwards
for federal income tax purposes of approximately $45,000. Their use is limited
to future taxable earnings of the Company and, as specified in the Internal
Revenue Code, use of certain of the net operating loss carryforwards is limited
as they were acquired by the Company in a purchase of the stock of other
companies. The carryforwards expire in varying dates through 2021. A full
valuation allowance has been established against the Company's deferred tax
assets as it was concluded that based on the weight of available evidence, it is
more likely than not that the dererred tax assets will not be realized.

         The valuation allowance increased (decreased) by $5,572 and $(1,163) in
2001 and 2000, respectively.

NOTE 10 -- RESTRUCTURING AND OTHER CHARGES

         On December 26, 1997, the Company entered into an agreement of Purchase
and Sale (the "Purchase Agreement") with PsychPartners MidAtlantic, Inc.,
PsychPartners, Inc., and PsychPartners, LLC (collectively "PsychPartners" or the
"Purchasers"). Pursuant to the Purchase Agreement, the Company sold to the
Purchasers substantially all of the assets and business of the Company's
outpatient behavioral health provider business, which consisted of (i) all of
the capital stock of one of the subsidiaries of the Company (the "Subsidiary
Stock") operating two outpatient behavioral health practices and (ii)
substantially all of the assets (the "Assets") relating to 19 of the Company's
outpatient behavioral health practices (the 21 practices are collectively, the
"Practices").

         On May 14, 1998, at a Special Meeting of the Shareholders of the
Company, the shareholders approved and adopted the terms of the Purchase
Agreement with PsychPartners. Effective on May 18, 1998, the Company completed
the Sale. The purchase price paid at closing primarily consisted of: (a) $26,400
in cash, and (b) the assumption of certain liabilities.

                                    52 of 70
<PAGE>
                                  INTEGRA, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


         In January 2000, PsychPartners filed for protection under Chapter 11 of
the Federal Bankruptcy Code. Based on discussions with PsychPartners personnel,
as well as developments in the bankruptcy court, the Company understood that
PsychPartners intended to discontinue all future operations and liquidate all
existing assets to satisfy outstanding obligations. Under the terms of the
Purchase Agreement, PsychPartners assumed responsibility for all facility leases
associated with the practices sold. While the Company obtained assignment
letters for many of those leases, due to the nature of both real estate and
bankruptcy law, it is possible that the Company could be held responsible for a
portion of those remaining lease obligations. The Company engaged special
counsel and evaluated its exposure with regard to this matter on an ongoing
basis. There were approximately 35 open leases with approximately $2,500 in
remaining payments under the lease terms, not including certain fees and
expenses. The Company aggressively pursued resolution of this matter in terms
most favorable to the Company. The Company recorded a charge of $1,700 at
December 31, 1999, for this potential exposure. During 2001 and 2000 the Company
paid $66 and $228, respectively, relating to both lease obligations and legal
costs in connection with the settlement of these leases. The Company recognized
$129 and $440 respectively in 2001 and 2000 in income to the extent that the
amounts previously reserved exceeded the estimated settlement payments.

         In addition, PsychPartners defaulted on certain deferred contingent
purchase price obligations which were part of the original acquisition
agreements for practices previously purchased by Integra. These liabilities were
assumed by PsychPartners under the terms of the Purchase Agreement. The Company
believes that it has no remaining responsibility for these obligations, however,
the former owners of these practices may choose to assert a claim against the
Company. The Company estimates these claims may aggregate to $1,000. In February
2002, the Company received a demand for arbitration from an individual owner.
The Company intends to vigorously contest any claims related to this matter.

         In December 1997, the Company recorded a provision for restructuring of
$14,200 pertaining to the Company's decision to divest the outpatient provider
group practices operations that were not sold to PsychPartners, and to
reorganize corporate office functions to reflect the exit from the outpatient
business. At December 31, 2001 and 2000, the Company had reserved $981 and
$1,558, respectively, with respect to all PsychPartners related matters.

         The following summarizes the Company's restructuring activity:

<TABLE>
<CAPTION>
                      BALANCE AT   CHANGE IN     AMOUNTS      BALANCE AT    CHANGE IN   BALANCE AT      AMOUNTS
                     DECEMBER 31,  ESTIMATE      UTILIZED      DECEMBER     ESTIMATE     UTILIZED      DECEMBER
                        1999         2000        IN 2000       31, 2000       2001        IN 2001      31, 2001
                        ----         ----        -------       --------       ----        -------      --------
<S>                  <C>          <C>           <C>           <C>          <C>           <C>           <C>
Restructuring and
related charges      $   2,284    $    (440)    $    (286)    $   1,558    $    (129)    $    (448)    $     981
</TABLE>

Long-term care and provider billing reserves

                                    53 of 70
<PAGE>
                                  INTEGRA, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


         In March 1998, the Company received notification that the Medicare
Intermediary in California had completed a post-payment medical review of
billings previously submitted and paid between 1990 and 1994. Based upon the
results of their review, the Intermediary has requested a refund of
approximately $1,200. Services were denied primarily on the basis of medical
necessity and incomplete documentation. The Company fully reserved for the above
amount as of December 31, 1997.

         In April 1998, the Company received notice that the Office of the
Attorney General of New York State ("the State") was conducting an audit of the
New York Medicaid billings of one of the outpatient provider operations with
which it had an Administrative Services Agreement. The State was investigating
whether the Company had any liability arising from the operation of, or its
relationship with, that provider. In October 1998, the Company terminated its
agreements with that provider. In May 1999, the Company reached a settlement
with the State that resolved all claims against the Company relating to this
matter. The terms of the settlement agreement included a total payment of $382
plus $18 of interest. These amounts were fully accrued at December 31, 1999 and
were paid in full during 2000.

         During the first half of 1999, the Company received notification of
potential Medicaid program billing issues in Nevada in connection with services
performed at the Company's former Nevada outpatient group practice subsidiaries
which were sold by the Company at the end of 1997. Upon further review of the
Company's former Nevada Medicaid billings, the Company determined that certain
Nevada Medicaid billings of these former outpatient practices were not in
accordance with Medicaid program regulations. In accordance with the Company's
full disclosure policy, the Company disclosed this matter to the Nevada Medicaid
program. In December 1999, the Company reached a settlement with the State of
Nevada that resolved all claims against the Company relating to this matter. The
terms of the settlement agreement included a total payment of $455 plus interest
at a simple rate of 7%. The Company paid the first installment payment of $228
in December 1999. The remaining installments, which had been previously accrued,
were paid in June 2000 and January 2001.

         Although management believes that established reserves for the above
matters are sufficient, it is possible that the final resolution of these
matters may exceed the established reserves by an amount which could be material
to the Company's results of operations. Due to the nature of these matters, the
Company cannot predict when these matters will be resolved. The Company does not
believe the ultimate outcome of these matters will have a material adverse
effect on the Company's overall financial condition, liquidity or operations.

NOTE 11 -- MAJOR CUSTOMERS

         Certain of the Company's at risk contracts account for a significant
percentage of sales volume, as follows:

                                    54 of 70
<PAGE>
                                  INTEGRA, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


<TABLE>
<CAPTION>
                                             2001   2000   1999
                                             ----   ----   ----
<S>                                          <C>    <C>    <C>
HealthNow New York - Blue Cross/Blue Shield
of  Western New York                           55%    52%    50%
Fidelis Care of New York                       12%    11%    10%

NOTE 12 -- SEGMENT REPORTING

         Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information," ("SFAS 131"), requires
disclosure of segment information on the same basis used internally for
evaluating segment performance and deciding how to allocate resources to
segments. The Company's operating segments are organized by product line. During
2000 and 1999, the Company had only one operating segment, EAP and Managed
Behavioral Healthcare, for purposes of SFAS No. 131. During 2001, the Company
had two segments: EAP and Managed Behavioral Healthcare and Consulting revenue.
Accordingly, segment information below is presented only for those periods in
which the Company operated more than one segment.

         The Company's contract with Fidelis Care expired on December 31, 2001.
As more fully explained in Note 20, on March 4, 2002, HealthNow terminated its
contract effective June 1, 2002.

         The Company's continuing EAP and Managed Behavioral Healthcare segment
provides managed behavioral healthcare services through full and shared risk
arrangements with employers, health plans and managed care organizations. The
Company's revenues are primarily generated through capitated contracts. Revenues
are generated entirely in the United States. Approximately 84% of this segment's
revenues were generated by 10 customers. The Company believes this concentration
of revenue over a small customer base is fairly consistent with industry trends
though management continues to seek to diversify its customer base.

         In general, the accounting policies of the segments are the same as
those described in Note 2, Summary of Significant Accounting Policies. The
Company evaluates the performance of its segments based on profit or loss from
operations before interest and income tax expense. The Company does not allocate
corporate expenses, interest income/expense and non-recurring charges such as
restructuring and asset writedowns for management reporting purposes.
Unallocated assets consist principally of cash and cash equivalents, other
account receivables and other assets.

                                 EAP AND
                                 MANAGED
                                BEHAVIORAL
                                HEALTHCARE   CONSULTING    CORPORATE      TOTAL
                                ----------   ----------    ---------    --------
<S>                             <C>          <C>           <C>          <C>
2001
----
Net revenues                     $ 25,802     $    683      $           $ 26,485
Operating expenses                 31,065        1,471        8,595       41,131
Income (loss) from operations      (5,263)        (788)      (8,595)     (14,646)
Total Assets                        2,870        4,821          374        8,065
</TABLE>

                                    55 of 70
<PAGE>
                                  INTEGRA, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



NOTE 13 -- COMMITMENTS AND CONTINGENCIES

Operating leases

         The Company leases office facilities as well as equipment under
non-cancelable operating leases that require future minimum annual rentals as
follows:

<TABLE>
<S>                                            <C>
         2002..............................    $787
         2003..............................     808
         2004..............................     779
         2005..............................     768
         2006..............................     325
</TABLE>

         Certain of the leases contain renewal options and escalation clauses
that require payments of additional rent to the extent of increases in related
operating costs. Rent expense was $650, $520, and $494, for the years ended
December 31, 2001, 2000, and 1999, respectively.

     Capitated contracts

         The Company has a portfolio of agreements with managed care
organizations and corporations to provide EAP and managed behavioral healthcare
programs. Revenues are primarily generated by capitated managed behavioral
health and employee assistance programs. The fees are defined by contract and
are primarily calculated on a fixed per member/employee per month fee. Revenues
under these contracts are recorded in the month for which the member/employee is
entitled to services. Generally, these contracts are for one to three years and
are subject to various cancellation provisions that are typical of industry
practice.

         As further explained in Note 20, the Company's largest customer has an
agreement that provides for a 90-day cancellation provision. Integra's EAP and
Managed Behavioral Healthcare segment had approximately 1,200,000, 1,150,000,
and 1,200,000, covered lives at December 31, 2001, 2000, and 1999, respectively.
Service revenues in the Company's EAP and Managed Behavioral Healthcare segment
were approximately 98%, 100%, and 100% of the Company's total net revenues in
2001, 2000, and 1999, respectively.

         The Company estimates the cost of providing services under these
agreements, including a reserve for services incurred, but not reported, based
upon authorized services, past claim payment experience for member groups
patient census data and other factors. The Company typically does not
subcapitate the risk of providing services under these contracts, but arranges
discounted fee-for-service rates with independent inpatient and outpatient
behavioral health providers, which the Company manages.

                                    56 of 70
<PAGE>
                                  INTEGRA, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


         Under capitated contracts, the Company is responsible for ensuring
appropriate access to care and bears the risk for utilization levels and pricing
of the cost of services performed under these contracts. The Company believes
the future revenues under these contracts will exceed the costs of services it
will be required to provide under the terms of the contracts. An underestimation
in the utilization or price of services for these contracts could result in
material losses to the Company. Historically, Integra has managed these
capitated contracts profitably. The Company maintains no reinsurance against
the risk of loss under these contracts.

Corporate Integrity Agreement

         During 1998 the Company entered into a Corporate Integrity Agreement
(the "Agreement") with the Office of the Inspector General of the Department of
Health and Human Services ("OIG") whereby the Company agreed to undertake
certain compliance obligations for a five-year period. In August 2001, the
Company received notification from the OIG that its second annual report was
accepted as filed. The Company, as required under the terms of the Agreement and
with the assistance of outside counsel and auditors, filed its third annual
report in November 2001. The Company believes that no reserve for potential
liability was required at December 31, 2001.

Legal Proceedings

         The Company is subject to legal proceedings and claims that have arisen
in the ordinary course of its business and have not been finally adjudicated,
which include malpractice claims covered under the Company's insurance policy.
In the opinion of management, the outcome of these actions will not have a
material effect on the financial position or results of operations of the
Company.

NOTE 14 -- OTHER CURRENT ASSETS

<TABLE>
<CAPTION>
                     DECEMBER 31,
                     ------------
                     2001    2000
                     ----    ----
<S>                  <C>     <C>
Prepaid insurance      53    $142
Other                 264     204
                     ----    ----
                     $317    $346
                     ====    ====
</TABLE>

NOTE 15 -- ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

                                    57 of 70
<PAGE>
                                  INTEGRA, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



<TABLE>
<CAPTION>
                                                  DECEMBER 31,
                                                ----------------
                                                 2001      2000
                                                ------    ------
<S>                                             <C>       <C>
Salaries and vacation                              386       389
Restructuring costs                                981     1,558
Long-term care and provider billing reserves     1,223     1,339
Other                                              578       447
                                                ------    ------
                                                $3,168    $3,733
                                                ======    ======
</TABLE>

NOTE 16 -- REDEEMABLE CONVERTIBLE PREFERRED STOCK

         The Company's Board of Directors may, without further action of the
Company's stockholders, direct the issuance of shares of redeemable convertible
preferred stock. Satisfaction of dividend preferences on preferred stock would
reduce the amount of funds available for the payment of dividends on the
Company's common stock. Holders of preferred stock would be entitled to
preference payments in the event of any liquidation, dissolution or winding-up
of the Company. At December 31, 2001, 107,500 of such shares were authorized and
97,600 were issued and outstanding in connection with the acquisition of Global
Benefit Solutions, LLC more fully described at Note 5.

NOTE 17 -- BENEFIT PLANS

 Stock Option Plan

         Effective April 19, 1994, the Company's Board of Directors ratified and
approved the establishment of an employee stock option plan (the "1994 Plan")
under which options to purchase up to 400,000 shares of the Company's common
stock may be granted to employees, officers and directors. Each option granted
under the 1994 Plan must be exercised within a fixed period which may not exceed
10 years and may not have an exercise price which is less than the fair market
value on the date of grant. Options granted vest over four years and, at
December 31, 2001, there were no options outstanding under the plan.

                                    58 of 70
<PAGE>
                                  INTEGRA, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


         The following summarizes the activity of the 1994 stock option plan:

<TABLE>
<CAPTION>
                                                               YEARS ENDED DECEMBER 31,
                                                     ----------------------------------------------
                                                        2001            2000               1999
                                                     ---------      ------------       ------------
<S>                                                  <C>            <C>                <C>
Options:
     Outstanding at beginning of year                  225,000           280,500            278,000
     Granted                                                --                --             20,000
     Exercised                                              --                --                 --
     Canceled                                         (225,000)          (55,500)           (17,500)
                                                     ---------      ------------       ------------
     Outstanding at end of year                            -0-           225,000            280,500
                                                     =========      ============       ============

Option Price Per Share Ranges:
     Outstanding at beginning of year                $    2.25      $1.25-$12.25       $1.25-$12.25
     Granted                                                --                --       $       1.25
     Exercised                                              --                --                 --
     Outstanding at end of year                             --      $       2.25       $1.25-$12.25
     Options exercisable at end of year                    -0-            56,250             67,875
     Exercisable option price ranges                       N/A      $       2.25       $1.25-$12.25
     Options available for grant at end of year
         under the 1994 Stock Option Plan              400,000           175,000            119,500
                                                     =========      ============       ============
</TABLE>

         During 1999, the Company's Board of Directors ratified and approved the
establishment of an employee stock option plan (the "1999 Plan") under which
options to purchase up to 1,000,000 shares of the Company's common stock may be
granted to employees, officers, consultants and directors. The plan was approved
by the Company's stockholders at the June 2000 stockholders' meeting. Each
option granted under the 1999 Plan must be exercised within a fixed period which
may not exceed 10 years and may not have an exercise price that is less than the
fair market value on the date of grant. Options granted vest over various
periods, as determined by the Compensation Committee of the Company's Board of
Directors. At December 31, 1999 no options under the 1999 Plan were granted.
During 2001 and 2000, the following plan activity took place:

                                    59 of 70
<PAGE>
                                  INTEGRA, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


<TABLE>
<CAPTION>
                                                        2001           2000
                                                     ----------       --------
<S>                                                  <C>              <C>
Options:
     Outstanding at beginning of year                   799,000              0
     Granted                                            445,000        824,000
     Exercised                                         (112,500)            --
     Canceled                                          (441,500)       (25,000)
                                                     ----------       --------
     Outstanding at end of year                         690,000        799,000
                                                     ==========       ========

Option Price Per Share Ranges:
     Outstanding at beginning of year                $     .625             --
     Granted                                          $.60-$.86       $   .625
     Exercised                                       $.625-$.86             --
     Outstanding at end of year                       $.60-$.86       $   .625
     Options exercisable at end of year                 240,000        323,500
     Exercisable option price ranges                  $.60-$.86       $   .625
     Options available for grant at end of year
         under the 1999 Stock Option Plan               197,500        206,000
                                                     ==========       ========
</TABLE>

         The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), but applies Accounting Principles Board Opinion No.
25 and related interpretations in accounting for the Plan. The table below sets
forth the pro forma information as if the Company had adopted the compensation
recognition provisions of SFAS 123:

<TABLE>
<CAPTION>
                                              YEARS ENDED DECEMBER 31,
                                      ----------------------------------------
                                        2001            2000            1999
                                      --------        --------        --------
<S>                                   <C>             <C>             <C>
Increase (decrease) to:
     Net income (loss)                $   (176)       $   (120)       $    (46)
     Net income (loss) per share      $   (.02)       $   (.01)       $   (.00)
Assumptions:
     Expected life (years)                 4.0             4.0             4.0
     Risk-free interest rate               4.8%            6.1%            5.1%
     Volatility                          84.46%           69.1%           58.2%
     Dividend yield                        N/A             N/A             N/A
</TABLE>

         The weighted average fair value of the stock options, calculated using
the Black-Scholes option pricing model, granted in 2001, 2000, and 1999 were
$0.52, $0.36, and $0.62, respectively.

                                    60 of 70
<PAGE>
                                  INTEGRA, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Retirement Plan

         The Company has a defined contribution 401(k) plan covering
substantially all of its employees. In general, eligible employees may
contribute up to 15% of their compensation to this plan. During 2001, 2000, and
1999, employee contributions were matched at the rate of 30% of the first 6% of
employee contributions. Company matching contributions were $48, $44, and $46,
for 2001, 2000, and 1999 respectively.

NOTE 18 -- RELATED PARTY TRANSACTIONS

         A significant stockholder and member of the Board of Directors of the
Company committed to advance up to $2,000 to the Company through March 1, 2001
to fund the Company's working capital deficits. The Company issued warrants to
purchase an aggregrate of 100,000 shares of the Company's common stock on June
27, 2000 and June 30, 2000 in exchange for the commitment. The warrants have a
ten-year term and are exercisable at a price per share of $.625 and $.6875,
respectively which was the fair market value of the Common Stock (based on the
closing price of the Company's Common Stock as reported on the American Stock
Exchange) on the date the warrants were granted.

         During the fourth Quarter of 2000, the significant stockholder advanced
$300 which was repaid prior to December 31, 2000. Interest of $4 was paid with
respect to this advance.

         In order to meet potential cash flow demands through December 31, 2001,
in March 2001, the Company obtained a commitment from the same stockholder/Board
member to advance up to $1,000 to the Company through March 2002. The Company
borrowed the full amount of the commitment, $1,000, on July 2, 2001 in order to
pay down its medical claims payable. The loan is due on July 2, 2002, with
interest payable monthly at LIBOR plus 3.5%. In consideration, for the loan, the
Company issued warrants to purchase 50,000 shares of the Company's common stock.
The warrants have a ten-year term and are exercisable at a price per share of
$.70.

         Commencing July 1993 through 1999, the Company leased space from an
affiliated entity. The rent under this lease was equal to the amount paid by the
affiliated party under the leasehold agreement and was $121 for 1999. In
addition, the Company provided services under an Employee Assistance Plan to an
affiliated entity. The revenues from this contract were $301 in 1999.

         The Company issued warrants to purchase 400,000 shares of common stock
with an exercise price of $.05 per share in 1998 in connection with a financing
commitment provided by certain investment partnerships which, at the time, were
significant stockholders of the Company. Subsequent to the issuance of the
warrants, the common shares held by the partnerships were distributed to the
partners. However, the General Partner has asserted the position that such
warrants inure only to the benefit of the General Partner and in early 2000


                                    61 of 70
<PAGE>
                                  INTEGRA, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


attempted to exercise the warrants. Consequently, the Company rejected the
exercise of the warrants and continues to evaluate the matter with the
assistance of outside counsel.


NOTE 19 - SELECTED QUARTERLY FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                       FOR QUARTERS ENDED IN 2001
                                                 ------------------------------------------------------------------
                                                 TOTAL       DECEMBER 31   SEPTEMBER 30      JUNE 30       MARCH 31
                                                 -----       -----------   ------------      -------       --------
<S>                                            <C>           <C>           <C>              <C>            <C>
Net revenue                                      26,485       $  6,975       $  6,639       $  6,396       $  6,475
Cost of revenues                                 21,242          7,912          4,770          4,308          4,252
Gross profit                                      5,243           (937)         1,869          2,088          2,223
Net income (loss)                               (14,505)       (13,445)          (586)          (488)            14
Basic net(loss)income  per common share        $  (1.38)      $  (1.27)      $  (0.06)      $  (0.05)      $    0.0
Diluted net (loss)income per common share      $  (1.38)      $  (1.27)      $  (0.06)      $  (0.05)      $    0.0
</TABLE>

<TABLE>
<CAPTION>
                                                                       FOR QUARTERS  ENDED IN 2000
                                                 ------------------------------------------------------------------
                                                 TOTAL       DECEMBER 31   SEPTEMBER 30      JUNE 30       MARCH 31
                                                 -----       -----------   ------------      -------       --------
<S>                                            <C>           <C>           <C>              <C>            <C>
Net revenue                                     $26,429      $ 6,455      $ 6,747      $ 6,747      $ 6,480
Cost of revenues                                 18,467        4,193        4,539        4,960        4,775
Gross profit                                      7,962        2,262        2,208        1,787        1,705
Net income (loss)                                 1,150        1,042          317          144         (353)
Basic net income (loss) per common share        $   .11      $   .10      $   .03      $   .01      $  (.03)
Diluted net income (loss) per common share      $   .11      $   .10      $   .03      $   .01      $  (.03)
</TABLE>

NOTE 20 - SUBSEQUENT EVENTS

         On January 18, 2002, a Board member and significant stockholder loaned
$500 to the Company for a one year period with interest due monthly at LIBOR
plus 3.5%. The Board of Directors approved the issuance of a warrant to purchase
50,000 shares of common stock in connection with this transaction. The warrant,
was granted on January 18, 2002, have a ten-year term and is exercisable at a
price per share equal to the fair market value of a share of common stock $1.20
on the date the warrant was granted.

         On March 4, 2002, the Company received notification from its largest
customer (representing 55% of 2001 revenue) that it was terminating its contract
with the Company effective June 1, 2002. As more fully described in Note 1 of
the financial statements, the Company immediately began a comprehensive
restructuring plan to better align the Company's resources with its continuing
revenue.

                                    62 of 70
<PAGE>
                                  INTEGRA, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


         On April 4, 2002 the Company sold 100% of the membership units of
Global Business Solutions, LLC back to the party from whom the business was
acquired in exchange for $180,000 and the return of 1,000,000 shares of common
stock and 97,600 shares of preferred stock. There was no material gain or loss
on the sale.

                                    63 of 70
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

         None, except as reported on a Form 8-K filed on April 17, 2001.


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

         Information regarding the Company's executive officers is contained in
Part I under "Item 1. Business -- Executive Officers of the Company."
Information regarding directors of the Company will be contained in the
Company's definitive Proxy Statement (the "Proxy Statement") for its 2002 Annual
Meeting of Stockholders under the caption "Election of Directors" and is
incorporated herein by reference. Information regarding compliance with Section
16(a) of the Securities Exchange Act of 1934 will be set forth under the caption
"Compliance with Section 16(a) of the Exchange Act" in the Proxy Statement.

ITEM 11. EXECUTIVE COMPENSATION.

         For the information concerning this Item, see the tables and text under
the captions "Matters Concerning Directors" and "Executive Compensation" to be
contained in the Proxy Statement, which information is incorporated herein by
reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         For the information concerning this Item, see the table and text under
the caption "Security Ownership of Certain Beneficial Owners and Management" to
be contained in the Proxy Statement, which information is incorporated herein by
reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         For the information concerning this Item, see the text under the
caption "Certain Transactions" to be contained in the Proxy Statement, which
information is incorporated herein by reference.

                                    64 of 70
<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

<TABLE>
<CAPTION>
                                DESCRIPTION                                        PAGE
                                                                                   ----
<S>                                                                                <C>
Report of Independent Auditors.....................................                  35
Consolidated Balance Sheets as of December 31, 2001 and December 31, 2000...         37
Consolidated Statements of Operations for the Years Ended December 31,
 2001, 2000 and 1999........................................................         38
Consolidated Statements of Changes in Stockholders' Equity for the Years
 Ended December 31, 2001, 2000 and 1999.....................................         39
Consolidated Statements of Cash Flows for the Years Ended December 31,
 2001, 2000 and 1999........................................................         40
Notes to Consolidated Financial Statements..................................         41
</TABLE>

              2.  Financial Statement Schedule

<TABLE>
<CAPTION>
                                                                                   Page
                                                                                   ----
<S>                                                                                <C>
Schedule II Valuation and Qualifying Accounts.................................       70
</TABLE>

              (b) Current Reports on Form 8-K:

                  None.

              (c) The following is a list of exhibits filed as part of this
                  Annual Report on Form 10-K:

<TABLE>
<S>           <C>
    2(a)      Agreement of Purchase and Sale ("PsychPartners Purchase
              Agreement") dated as of December 26, 1997 by and among
              PsychPartners, L.L.C., PsychPartners, Inc., PsychPartners
              MidAtlantic, Inc., the Company and certain subsidiaries of the
              Company (incorporated by reference to the Company's Current Report
              on Form 8-K dated December 26, 1997).

    2(b)      Extension Letter with respect to PsychPartners Purchase Agreement
              (incorporated by reference to the Company's Current Report on Form
              8-K dated May 19, 1998).
</TABLE>

                                    65 of 70
<PAGE>

<TABLE>
<S>           <C>
    2(c)      First Amendment to PsychPartners Purchase Agreement dated May 14,
              1998 (incorporated by reference to the Company's Current Report on
              Form 8-K dated May 19, 1998).

    2(d)      Second Amendment to PsychPartners Purchase Agreement dated as of
              May 18, 1998 (incorporated by reference to the Company's Current
              Report on Form 8-K dated May 19, 1998).

    2(e)      Purchase Agreement dated July 27, 2001 between the Company and
              Stuart Piltch (incorporated by reference to the Company Form 8-K
              dated August 10, 2001).

    2(f)      Unit Repurchase Agreement dated July 27, 2001 among Integra, Inc.,
              Global Benefit Solutions and Stuart Piltch (incorporated by
              reference to the Company's Current Report on Form 8-K dated August
              10, 2001).

    2(g)      Amendment to Unit Repurchase Agreement dated April 4, 2002
              between the Company and, Stuart Piltch (incorporated by reference
              to the Company's Current Report on Form 8-K dated April 19, 2002.

    3(a)      Certificate of Incorporation of the Company, as amended to date
              (incorporated by reference to Exhibit 3 to the Company's Current
              Report on Form 8-K dated August 14, 1998).

    3(b)      By-Laws of the Company as amended and restated as of October 2,
              1998 (incorporated by reference to Exhibit 3(b) to the Company's
              Annual Report on Form 10-K for the year ended December 31, 1998).

    4(a)      Warrant to purchase 50,000 shares of Integra, Inc. common stock
              issued by the Company to Charles Henri-Weil dated June 27, 2000.
              (incorporated by reference to the the Company's Annual Report on
              Form 10-K for the year ended December 31, 2000.)

    4(b)      Warrant to purchase 50,000 shares of Integra, Inc. common stock
              issued by the Company to Charles Henri-Weil dated June 30, 2000.
              (incorporated by reference to the the Company's Annual Report on
              Form 10-K for the year ended December 31, 2000.)

    4(c)      Warrant to purchase 50,000 shares of Integra, Inc. common stock
              issued by the Company to Charles Henri-Weil dated July 2, 2001.
              (1)

    10(a)     Stock Option Plan (incorporated by reference to Exhibit 4 to the
              Company's Registration Statement on Form S-1 (Registration No.
              33-78034) filed with the Commission on April 22, 1994). (2)

    10(b)     Integra, Inc. 1999 Stock Option Plan (incorporated by reference to
              the Company's Registration Statement on Form S-8 (Registration No.
              333-46710) filed with the Commission on September 27, 2000.) (2)

    10(c)     Separation Agreement dated November 12, 1999 and between the
              Company and Lawrence M. Davies (incorporated by reference to
              Exhibit 10(j) to the Company's Annual Report on Form 10-K for the
              year ended December 31, 1999). (2)

    10(d)     Separation Agreement dated November 12, 1999 and between the
              Company and Mark D. Gibson (incorporated by reference to Exhibit
              10(k) to the Company's Annual Report on Form 10-K for the year
              ended December 31, 1999). (2)

    10(e)     Employment Agreement dated November 17, 1999 and between the
              Company and Eric E. Anderson, Ph.D. (incorporated by reference to
              Exhibit 10(1) to the Company's Annual Report on Form 10-K for the
              year ended December 31, 1999). (2)

    10(f)     Loan Commitment dated March 23, 2000 and between the Company and
              Charles-Henri Weil (incorporated by reference to Exhibit 10(m) to
              the Company's Annual Report on Form 10-K for the year December 31,
              1999).
</TABLE>

                                    66 of 70
<PAGE>

<TABLE>
<S>           <C>
    10(g)     Loan Commitment dated March 26, 2001 between the Company and
              Charles Henri-Weil (incorporated by reference to the Company's
              Annual Report on Form 10-K for the year December 31, 2000.

    10(i)     Employment Agreement dated July 27, 2001 between the Company and
              Stuart Plitch. (1)

    10(j)     Promissory Note dated July 2, 2001 between the Company and Charles
              Henri-Weil. (1)

    21        Subsidiaries of the Company. (1)

    23        Consent of Independent Accountants. (1)
</TABLE>

(1) Filed herewith.

(2) Management contract or compensatory plan or arrangement required to be filed
or incorporated as an exhibit.

* Copies of exhibits filed with this Annual Report on Form 10-K or incorporated
by reference herein do not accompany copies hereof for distribution to
stockholders of the Company. The Company will furnish a copy of any such
exhibits to any stockholder requesting the same for a nominal charge to cover
duplicating costs.

                                    67 of 70
<PAGE>
                                   SIGNATURES

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

<TABLE>
<S>                                     <C>
Dated: April 24, 2002                   INTEGRA, INC.


                                        By: /s/ GREGORY R. SANTORE
                                        Gregory R. Santore
                                        Chief Executive Officer
</TABLE>

Pursuant to the requirements of the Securities and Exchange Act of 1934, 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>
<S>                                     <C>
Dated:  April 24, 2002                  /s/    GREGORY R. SANTORE
                                        Gregory R. Santore
                                        Chief Executive Officer
                                        Principal Executive Officer


Dated:  April 24, 2002                  /s/    SHAWKAT RASLAN
                                        Shawkat Raslan
                                        Chairman of the Board and Director

Dated:  April 24, 2002                  /s/    ELLIOT SAINER
                                        Elliot Sainer
                                        Director


Dated:  April 24, 2002                  /s/    CHARLES HENRI WEIL
                                        Charles Henri Weil
                                        Director


Dated:  April 24, 2002                  /s/    MARY W. TINDALL
                                        Mary W. Tindall
                                        Chief Financial Officer
                                        Principal Financial and Accounting
                                          Officer
</TABLE>

                                    68 of 70
<PAGE>
ACCOUNTANTS REPORT ON SCHEDULES

         None.

                                    69 of 70
<PAGE>
                                                                     SCHEDULE II

                                  INTEGRA, INC.
                        VALUATION AND QUALIFYING ACCOUNTS
                  YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999


<TABLE>
<CAPTION>
                                               BALANCE AT   ADDITIONS
                                               BEGINNING    CHARGED TO                  BALANCE AT END
Description                                    OF PERIOD     EXPENSES    DEDUCTIONS(A)    OF PERIOD
-----------                                    ---------     --------    -------------    ---------
                                                            (DOLLARS IN THOUSANDS)
<S>                                            <C>          <C>          <C>            <C>
Year ended December 31, 2001:
    Allowance for doubtful accounts             $   221      $   444       $   290         $   375
    Deferred tax asset valuation allowance       15,663        5,572            --          21,235
Year ended December 31, 2000:
    Allowance for doubtful accounts                  71          176            26             221

    Deferred tax asset valuation allowance       16,826       (1,163)           --          15,663
Year ended December 31, 1999:
    Allowance for doubtful accounts                  71           --            --              71

    Deferred tax asset valuation allowance       17,098         (272)           --          16,826
</TABLE>

     (A) Write off of accounts deemed uncollectible including balances sold.


                                    70 of 70