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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                             ---------------------

                                   FORM 10-K
                       FOR ANNUAL AND TRANSITION REPORTS
                    PURSUANT TO SECTIONS 13 OR 15(D) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

<Table>
<C>               <S>
   (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 ____________
</Table>

                         Commission File Number 0-22585

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

<Table>
<S>                                                 <C>
                     DELAWARE                                           61-1141758
          (State or Other Jurisdiction of                            (I.R.S. Employer
          Incorporation or Organization)                          Identification Number)

               1400 WATTERSON TOWER
               LOUISVILLE, KENTUCKY                                        40218
     (Address of principal executive offices)                           (Zip Code)
                                            (502) 454-1340
                         (Registrant's telephone number, including area code)

                                      HEALTHCARE RECOVERIES, INC.
                         (Former name, former address and former fiscal year,
                                     if changed since last report)

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

                                                                   NAME OF EACH EXCHANGE
                TITLE OF EACH CLASS                                 ON WHICH REGISTERED
--------------------------------------------------- ---------------------------------------------------
                       None
</Table>

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

                                 TITLE OF CLASS
                    Common Stock, par value $.001 per share
                      (including rights attached thereto)

     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [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 the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K.  [X]

     As of March 19, 2002, 9,549,466 shares of the Registrant's Common Stock,
$0.001 par value, were outstanding. The aggregate market value of Registrant's
Common Stock held by non-affiliates of the Registrant as of March 19, 2002 was
approximately $58,251,742 (based on the last sale price of a share of Common
Stock as of March 19, 2002 ($6.10)), as reported by The Nasdaq National Market.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 10, 2002 are incorporated herein by reference in
Part III.
--------------------------------------------------------------------------------
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<PAGE>

                               TABLE OF CONTENTS

<Table>
<Caption>
ITEM:                                                                  PAGE
-----                                                                  ----
<C>     <S>                                                            <C>
                                  PART I
  1.    Business....................................................     1
  2.    Properties..................................................    13
  3.    Legal Proceedings...........................................    14
  4.    Submission of Matters to a Vote of Security Holders.........    19
        Supplementary Item. Certain Risk Factors....................    19
                                  PART II
  5.    Market for the Registrant's Common Equity and Related
        Stockholder Matters.........................................    19
  6.    Selected Financial Data.....................................    20
  7.    Management's Discussion and Analysis of Financial Condition
        and Results of Operations...................................    21
 7A.    Quantitative and Qualitative Market Risk Disclosures........    35
  8.    Financial Statements and Supplementary Data.................    36
  9.    Changes in and Disagreements with Accountants on Accounting
        and Financial Disclosures...................................    54
                                 PART III
 10.    Directors and Executive Officers of the Registrant..........    54
 11.    Executive Compensation......................................    54
 12.    Security Ownership of Certain Beneficial Owners and
        Management..................................................    54
 13.    Certain Relationships and Related Transactions..............    54
                                  PART IV
 14.    Exhibits, Financial Statement Schedules and Reports on Form
        8-K.........................................................    54
</Table>

     THIS FORM 10-K AND OTHER STATEMENTS ISSUED OR MADE FROM TIME TO TIME BY THE
COMPANY OR ITS MANAGEMENT TEAM CONTAIN STATEMENTS WHICH MAY CONSTITUTE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE SECURITIES ACT OF 1933,
AS AMENDED, AND THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED BY THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995, 15 U.S.C.A. SECTIONS 77Z-2 AND 78U-5
(SUPP. 1996). THOSE STATEMENTS INCLUDE STATEMENTS REGARDING THE INTENT, BELIEF
OR CURRENT EXPECTATIONS OF THE COMPANY AND MEMBERS OF ITS MANAGEMENT TEAM, AS
WELL AS THE ASSUMPTIONS ON WHICH SUCH STATEMENTS ARE BASED. PROSPECTIVE
INVESTORS ARE CAUTIONED THAT ANY SUCH FORWARD-LOOKING STATEMENTS ARE NOT
GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, AND THAT
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH
FORWARD-LOOKING STATEMENTS. IMPORTANT FACTORS CURRENTLY KNOWN TO MANAGEMENT THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN FORWARD-LOOKING
STATEMENTS ARE SET FORTH IN THE SAFE HARBOR COMPLIANCE STATEMENT FOR
FORWARD-LOOKING STATEMENTS INCLUDED AS EXHIBIT 99.1 TO THIS FORM 10-K, AND ARE
HEREBY INCORPORATED HEREIN BY REFERENCE. THE COMPANY UNDERTAKES NO OBLIGATION TO
UPDATE OR REVISE FORWARD-LOOKING STATEMENTS TO REFLECT CHANGED ASSUMPTIONS OR
CIRCUMSTANCES, THE OCCURRENCE OF UNANTICIPATED EVENTS OR CHANGES TO FUTURE
OPERATING RESULTS OVER TIME.

                                        i
<PAGE>

                                     PART I

ITEM 1.  BUSINESS

GENERAL

     Trover Solutions, Inc. (formerly Healthcare Recoveries, Inc., hereinafter
referred to as the "Company"), a Delaware corporation, believes it is a leading
independent provider of outsourcing of subrogation and certain other medical
claims recovery and cost containment services to the private healthcare payor
industry in the United States, based on the Company's experience and assessment
of its market. The Company's primary business is medical claims recovery, and
its primary product is subrogation recovery, which generally entails the
identification, investigation and recovery of accident-related medical benefits
incurred by its clients on behalf of their insureds, but for which other persons
or entities have primary responsibility. The Company's clients' rights to
recover the value of these medical benefits, arising by law or contract, are
generally known as the right of subrogation and are generally paid from the
proceeds of liability or workers' compensation insurance. The Company's other
medical claims recovery services include (1) the auditing of the bills of
medical providers, particularly hospitals, for accuracy, correctness and
compliance with contract terms ("provider bill audit"), and (2) the recovery of
overpayments attributable to duplicate payments, failures to coordinate benefits
and similar errors in payment. The Company offers its healthcare recovery
services on a nationwide basis to health maintenance organizations ("HMOs"),
indemnity health insurers, self-funded employee health plans, companies that
provide claims administration services to self-funded plans (referred to as
"third-party administrators"), Blue Cross and Blue Shield organizations and
provider organized health plans. Current clients include UnitedHealth Group,
Humana Inc., Kaiser Permanente, The Principal Financial Group and Group Health,
Inc. The Company had 49.1 million lives under contract from its clientele at
December 31, 2001, a 6% decrease from December 31, 2000.

     In February 2001, the Company announced that it had begun offering
subrogation recovery services to the property and casualty insurance industry,
and that it was developing for sale to the healthcare insurance and property and
casualty insurance industries a web-enabled subrogation software application.
See "-- Business Developments".

ORGANIZATIONAL STRUCTURE

     The Company was incorporated on June 30, 1988 under the laws of the State
of Delaware. The Company was co-founded by its present Chief Executive Officer
and was initially funded by two venture capital investors. The Company operated
as an independent entity until August 28, 1995, when Medaphis Corporation
("Medaphis"), a Delaware corporation, acquired the Company for approximately
$79.1 million in a stock-for-stock exchange accounted for as a pooling of
interests. Medaphis sold the Company in an initial public offering in May 1997.
The Company is now publicly held and is traded on The Nasdaq National Market
under the symbol "TROV".

ACQUISITIONS

     On January 25, 1999, the Company acquired the assets and certain
liabilities of Subro-Audit, Inc., a Wisconsin corporation ("SAI"), and a related
entity, O'Donnell Leasing Co., LLP, a Wisconsin limited liability partnership
("ODL" and, together with SAI, "Subro Audit"), for approximately $24.4 million
(the "Subro Audit Acquisition"), using available unrestricted cash. The Company
paid an additional $5.3 million pursuant to an earn-out arrangement. The final
amount of $2.5 million was paid on June 7, 2001, and $2.8 million was paid on
May 18, 2000. Approximately $4.7 million was held in escrow for the potential
earn-out and was included in restricted cash at December 31, 2000. SAI is based
in Wisconsin and provides subrogation recovery services with respect to an
installed base of lives, which are covered by insurers, HMOs and employer-funded
plans, throughout the United States of America. The Subro Audit Acquisition was
accounted for using the purchase method of accounting.

     On February 15, 1999, the Company acquired the assets and certain
liabilities of MedCap Medical Cost Management, Inc., a California corporation
("MedCap"), for approximately $10 million, using available

                                        1
<PAGE>

unrestricted cash and borrowed funds (the "MedCap Acquisition" and, together
with the Subro Audit Acquisition, the "Acquisitions"). The Company paid
approximately $4.8 million from February 15, 2000 through January 15, 2001
pursuant to an amendment to the original earn-out agreement. MedCap provides a
variety of medical cost management services to health insurers and HMOs,
primarily in California. These services include provider bill auditing, contract
compliance review, identification of certain other payments, and cost management
consulting services. The MedCap Acquisition was accounted for using the purchase
method of accounting.

STRATEGY

     The Company intends to pursue a two-fold growth strategy. First, with
respect to its existing healthcare recovery business, the Company will focus on
(i) servicing its existing client base, (ii) selling and installing the
additional lives covered by contracts with existing clients and (iii) selling
and installing new clients and cross-selling expanded product offerings. During
2000, the Company placed in service and began to earn revenue from an internally
developed service that offers its clients the ability to detect, audit and
recover a variety of claims overpayments. The Company will continue to explore
strategic acquisitions which meet its selection criteria and develop new service
products internally. See "-- Business Developments".

     Under the second aspect of its growth strategy, the Company intends to
extend its systems-driven, process-oriented approach, through acquisitions and
internal development, to outsourcing opportunities in the insurance industry,
including both healthcare and property and casualty. The defining
characteristics of the Company's business model are (i) the ability to automate
clerical and administrative tasks, using sophisticated and proprietary computer
applications; and (ii) the ability to standardize and scale work using process
management and classical work measurement techniques. Using this model, the
Company believes that it can dramatically increase the productivity of the
skilled knowledge workers who make up its labor force, and successfully
implement pricing strategies that will reward the Company for those productivity
gains. See "-- Business Developments".

     The Company believes that future development opportunities are likely to be
characterized by outsourcing business services that will produce predictable and
recurring revenue streams; competitive advantages from effective process
management, proprietary systems and the provision of knowledge-rich services;
the development of niche markets; value-based pricing; and a non-exclusive focus
on healthcare information services.

INDUSTRY

     The Company's main focus of business is the outsourcing of recovery
services. The Company believes that in recent years businesses have increasingly
outsourced non-core specialized business functions. Because of expertise and
economies of scale, companies that provide specialized services are often able
to deliver the requisite service at lower costs or with greater effectiveness
than could be achieved by their clients.

     Although the Company has historically provided recovery services to
healthcare payors, in late 2000, it entered the subrogation outsourcing market
that services property and casualty insurers. During 2001, it also began to
offer for sale a web-enabled subrogation software application for sale to both
healthcare payors and property and casualty insurers. See "-- Business
Developments".

     Outsourcing to Healthcare Payors.  Since the late 1980s, healthcare payors
have experienced increasing (i) price competition, (ii) regulatory complexity
and related administrative burdens, (iii) costs of healthcare claims, and (iv)
average age of the insured population. These factors, resulting from the rapid
growth of managed care, improvements in medical technology, consumer-oriented
political pressure and an aging U.S. population, tend to result in healthcare
payors concentrating their resources on their core business. This, in turn,
provides on-going opportunities for enterprises, like the Company, which are
able to perform non-core business functions on behalf of healthcare payors.

     The recovery process is complex and although many healthcare payors operate
internal recovery departments, the Company believes that these departments are
not generally as effective per insured life as the

                                        2
<PAGE>

Company's operations. The Company believes that (i) the relatively small size of
recoverable funds as a percentage of claims paid, (ii) the need for healthcare
payors to focus on core competencies and (iii) the complexity of the recovery
process and economies of scale will continue to provide opportunities for growth
of the Company.

     Subrogation Recovery Rights of Healthcare Payors.  By contract and state
law, healthcare payors are generally entitled to certain rights with respect to
paid healthcare claims that may be the primary obligation of other insurance
carriers. For example, an HMO may pay the hospitalization and related health
expenses of a member who is injured in an automobile accident. However, the
party responsible for the accident is generally liable to the injured person for
the damages arising from the injury, which include lost wages, property loss,
pain and suffering and medical benefits. The responsible party usually has a
liability insurance policy that will pay covered damages, including medical
benefits, upon the acceptance of the injured party's claim. The healthcare payor
actually providing or paying for the medical benefits conferred on the injured
party (in this example, an HMO) may have a variety of rights through which it is
entitled to recover the value of such medical benefits from the responsible
party and the responsible party's liability insurer.

     These recovery rights include:

          (i) the right of subrogation, which allows the healthcare payor to
     recover accident-related medical claims directly from the responsible party
     or the responsible party's insurance carrier;

          (ii) the right of reimbursement, which allows the healthcare payor to
     recover from the injured party any payment received by him or her from the
     responsible party or the responsible party's insurance carrier relating to
     this injury;

          (iii) the right of reimbursement for medical benefits provided for
     work-related injuries, which are typically excluded from the healthcare
     insurer's coverage; and

          (iv) other recovery rights against automobile insurers and other
     liability insurers arising from coordination of benefits provisions in
     healthcare and property and casualty insurance coverages.

     Provider Bill Audit Rights of Healthcare Payors.  By contract, healthcare
payors are generally entitled to certain audit rights with respect to healthcare
claims presented to them for payment by medical providers. Providers may bill
healthcare payors under a variety of pricing regimes, including standard
fee-for-service charges, discounted fee-for-service charges, case rates, per
diem rates, and charges based on stop-loss insurance thresholds. In addition,
Medicare risk claims that are paid under a variety of arrangements, including
federally mandated payment methodologies, are also generally subject to audit by
the payor.

     Overpayment Recovery Rights of Healthcare Payors.  Healthcare payors are
generally entitled to recover from contract providers amounts that have been
paid in error or where the payor's obligation is secondary to that of another
payor (i.e., coordination of benefits). Examples of errors include payment of
claims outside the coverage contract, duplicate payments, and payments on claims
for persons no longer covered by the payor. The recovery of such overpayments
may be through set-off against future claims due to the provider or through a
collection process conducted by the Company for its clients.

     The industry conditions described above have contributed to the growing
need for a cost-effective provider of subrogation and other recovery products
and services. The Company believes that it is a leading independent provider of
outsourcing of subrogation and certain other related medical claims recovery and
cost containment services to the private healthcare payor industry in the United
States. The Company's success is a result of the implementation of its recovery
processes, the skill and knowledge of its employees, its approach to sales and
marketing, its client base, and its proprietary information management systems,
all as described below.

THE RECOVERY PROCESS

     The Company utilizes recovery processes to implement its post-payment cost
containment services, which include subrogation, provider bill audit and
overpayment recovery services. The Company uses proprietary and other software
and various business processes to identify those claims that have recovery
                                        3
<PAGE>

potential. Client-specific threshold dollar amounts are utilized to identify
files where its clients may have a recovery right for subrogation for the
medical benefits provided. In the case of provider bill audit services, the
Company utilizes specific threshold dollar amounts to investigate proper payment
for medical procedures. To identify overpayment recovery opportunities,
typically all paid claims for a fixed period are analyzed on a rolling quarterly
basis.

     Following the identification and investigation of identified claims, the
Company proceeds to recover from the financially responsible party the value of
those covered medical benefits provided. The Company has automated this complex
processing of all raw data and the management, follow-up and generation of
correspondence. The use of automated processes substantially increases
productivity and enables specially trained personnel to focus more intensely on
matters requiring their professional judgement and expertise. The automated
processes also allow the Company to pursue claims that would otherwise be deemed
too small to pursue economically. The Company believes that its ability to
effectively recover a broad range of claim sizes is an important competitive
advantage in the market. In addition to automating the recovery processes, the
Company's proprietary software and other systems generate significant operations
and management information, which enables the Company to employ production and
quality standards in the context of providing specialized services.

     The recovery process has been refined to four major, interrelated steps:
(i) automated identification of potentially recoverable claims provided
electronically by its clients; (ii) investigation of potentially recoverable
claims; (iii) assertion and management of potentially recoverable claims; and
(iv) negotiation and settlement of claims. The Company dedicates staff with
specialized skills to individual services to optimize recoveries. The recovery
process for each healthcare recovery service is described below.

 Healthcare Subrogation Services

     Automated Identification of Claims with Recovery Potential.  The Company's
specialty is using systematic identification methods to determine which files to
pass on to the investigation stage. The automated selection, analysis and
processing of raw claims data are handled primarily through the Company's
proprietary selection software. Information regarding diagnoses, the cost of
treatments, insured demographics (names, addresses and telephone numbers, etc.)
and related claims is provided to the Company electronically by the healthcare
payor. The automated systems include direct connections to the Company's
clients' claims information systems, subject to various security controls to
limit access internally. The Company's trained staff identifies, sorts, vets and
organizes raw claims data into usable form, essentially engaging in "data
mining".

     The primary vehicle for the identification of injured insureds is an
automated analysis of the clients' claims data. This system identifies
potentially recoverable claims and, using client-specific protocols, opens an
on-line electronic file for such claims. After files are opened, the systems
automatically track the addition of medical expenses to these files, so that
they are updated as additional expenses are paid. Since its inception, the
Company has automatically opened over 45.2 million of such on-line files.

     Investigation of Potentially Recoverable Claims.  By focusing
investigations only on those cases with the greatest potential for recovery, the
Company minimizes member contacts and maximizes recovery potential. Subrogation
recoveries are typically related to accidental injuries. Claims may involve
automobile accidents, property and premises injuries, workers' compensation,
product liability or medical malpractice. When a file of claims reaches a value
predetermined by the Company, the system automatically generates a series of
inquiry letters that are sent to the injured insured. These individuals respond
by calling the Company's customer service department to provide the facts of the
accident. The Company also initiates phone calls if the insured does not respond
to the inquiry letters in a reasonable period of time. Historically,
approximately 90% of the injured insureds ultimately respond to the Company's
inquiries and approximately 18% of the claims investigated by customer service
representatives are classified as recoverable. Once a file of related claims is
identified as recoverable, the system updates the backlog and assigns the file
to the appropriate recovery person who begins the assertion and management of
recoverable claims. Since its inception, the Company has investigated over 7.8
million accidents.

                                        4
<PAGE>

     Assertion and Management of Potentially Recoverable Claims.  The workflow
performed by the various recovery personnel is directed and guided step-by-step
by the Company's proprietary and other software. The Company's systems document
activity on the claim files and provide an interconnected record of
correspondence and notes taken by the recovery personnel with respect to each
file. The Company recovery personnel annotate the files on-line, as necessary,
to document progress, developments and status and otherwise maintain the history
of each claim.

     Once a file of claims is classified as recoverable, the Company recovery
personnel, who are required to undergo extensive training, proceed to assert the
recovery rights of the Company's clients and track the claims' history and
development. The employees contact all necessary parties to inform them of the
existence and value of the recovery claim. These parties generally include the
liability insurer for the responsible party, the insured and the insured's
attorney, if any, in conjunction with the claim. Recovery personnel maintain
contact with the parties involved, including the responsible party (or insurance
carrier), until the claim is settled. Settlement may not occur until several
years after the claim was originally paid. During this phase of the recovery
process, approximately 40% of the amounts initially entered into backlog (the
dollar amount of potentially recoverable claims that the Company is pursuing) as
recoverable are rejected, in which case further activity is terminated and
backlog is reduced.

     Negotiation and Settlement of Claims.  The recovery process culminates in
the negotiation and settlement of claim files. Within the settlement guidelines
established by each client and the Company's standard operating procedures,
recovery personnel close recoverable files and remove them from backlog by
making recoveries or by rejecting files and terminating recovery efforts. Once a
settlement is made and recorded in the system, receipt of cash is anticipated
and monitored by the responsible employee. Cash receipts are posted to the
credit of the appropriate client.

     Claims remain the property of the Company's clients and litigation is
commenced solely at their written direction. Similarly, clients may terminate
litigation or other recovery efforts at any time for any reason. The Company
customarily bears the cost of legal services as part of the services to its
clients. The Company has established what it believes are cost-effective
relationships with providers of legal services, including its relationship with
Sharps & Associates, PSC, a law firm solely owned by Douglas R. Sharps, the
Company's Executive Vice President -- Finance and Administration, Chief
Financial Officer and Secretary. This law firm employs 29 attorneys, 18
paralegals and 1 administrative assistant at its offices in Louisville,
Kentucky; Pleasanton, California; Chicago, Illinois; Tampa, Florida; Pittsburgh,
Pennsylvania; Dallas, Texas; Milwaukee, Wisconsin; and Locust Grove, Virginia.
Mr. Sharps receives no financial or other personal benefits from his ownership
of the firm. See Note 7 in Item 8. "Financial Statements and Supplementary
Data".

     Although some subrogation recoveries will be made during the first year of
service, the average time to make a recovery is 18 to 24 months from
installation, with substantially all recoveries made by the sixth year. The
timing of recoveries is driven by the payment cycle of claims (which is the
source of recoveries made by the Company) and circumstances specific to each
claim (e.g., identification of responsible party, responsiveness of responsible
party, cooperation of parties involved, factual complexity and litigation). The
amount of claims recoveries made by the Company on behalf of a client is
generally less than the amount of backlog generated on behalf of such client.
This is for a number of reasons, including (i) the inadequacy of insurance
coverage or other available source of funds to pay the claim; (ii) the absence
of third-party liability; or (iii) the settlement of the claim for less than
full value in accordance with the Company's established policies.

     Historically, approximately 64% of the Company's recoveries on behalf of
clients involved automobile liability insurance, 15% involved premises liability
insurance, 9% involved workers' compensation insurance and 12% involved product
liability or other insurance.

 Provider Bill Audit Services

     Automated Identification of Claims with Recovery Potential.  The Company's
database of information captures over 500 data elements of financial,
demographic and clinical data from members, providers and payors. The Company
utilizes this data to project potential savings outcomes and pre-screen claims
for its various audit services. Provider contract terms are also programmed into
the system, which then reviews
                                        5
<PAGE>

claims against the specific contract provisions to identify discrepancies. The
database of statistical information is refined to include the results of each
completed audit. Provider bill claims are selected for audit based upon
statistical analysis and a comparison to previously audited claims. Typically,
claims with billed charges greater than specified thresholds are selected for
audit. Every claim is automatically reviewed in a complete, focused audit to
refine selection criteria.

     Investigation of Potentially Recoverable Claims.  The Company's provider
bill audit service is a process for establishing accurate billing based on the
care and services documented by healthcare professionals and ordered by the
physician in the medical record as compared to the itemized billed charges. When
a claim is identified, it is automatically assigned to a nurse auditor who will
conduct an audit of all the line items that make up the claim at the site of the
provider. Based on historical experience, approximately 91% of reviewed claims
generate recoveries.

     Assertion and Management of Potentially Recoverable Claims.  The workflow
performed by the various audit personnel is directed and guided step-by-step by
the Company's proprietary and other software. Registered nurses review provider
bills line by line to determine if inaccuracies exist. This review is completed
on-site at the provider facility where the medical record exists. These audits
benefit any health plan that pays a portion of a claim based on a percent of
billed charges. Nurse auditors review the total claim file to compare the
medical record to the line item bill to ascertain that a physician ordered the
service performed, the supplies billed were actually used and the medication
billed was actually administered. The nurse auditor also verifies that the
billing is in compliance with the provider contract and that stoploss or outlier
provisions are correctly billed. Historically, provider bill audits have
resulted in savings of approximately 5% to 6% of the aggregate amount of billed
charges audited.

     Negotiation and Settlement of Claims.  Once the audit is completed, the
Company reviews its findings with a provider representative to reach agreement.
If there is no response from the provider within forty-five days, the audit
results are considered final and the claim is closed. The savings are reported
to the client for recoupment or the Company will collect them from the provider.

 Overpayment Recovery Services

     Automated Identification of Claims with Recovery Potential.  Healthcare
payors are generally entitled to recover from contract providers claims paid in
error or where the payor's obligation is secondary to another payor (i.e.
coordination of benefits). The automated selection, analysis and processing of
raw claims data are handled primarily through the Company's proprietary
selection software. This software identifies potential claims adjudication
errors based on the provisions contained in the clients' various health plan and
provider contracts.

     Investigation of Potentially Recoverable Claims.  Suspected overpayments
are identified and classified by type, then reviewed and researched by
experienced claims analysts, who specialize in particularly complex types of
overpayments, including coordination of benefits and Medicare. Based on
historical experience, approximately 10% of reviewed claims generate recoveries.

     Assertion and Management of Potentially Recoverable Claims.  The workflow
performed by the claims recovery personnel is directed and guided step-by-step
by the Company's proprietary and other software. Suspected overpayments are
verified based upon the claims analysts' research.

     Negotiation and Settlement of Claims.  Once an overpayment is verified it
is forwarded to a unit specializing in collections for recovery. Historically,
approximately 80% of verified overpayments have been collected. The Company
recovers the money for its clients through its collection function or reports
the overpayments to the client for recoupment from claims paid to that provider
prospectively, where the right of off-set is present in the payor's contract.

EMPLOYEES

     The Company employs, and facilitates the development of, skilled
knowledge-workers. The Company maintains an extensive in-house training program,
which it believes is attractive to employees and essential in
                                        6
<PAGE>

developing the necessary industry-specific skills. The Company believes a tight
labor market, in general, could affect future hiring. The Company employed
approximately 698 persons as of December 31, 2001.

     The Company requires all employees to enter into confidentiality and
nondisclosure agreements, which generally prohibit them from divulging
confidential information and trade secrets after they terminate employment.
Employees are also required to enter into non-compete agreements, preventing
them from working for a competitor during the first year after employment is
terminated. In addition, the Company's customers generally agree not to employ
the Company's employees during the client's contract term plus a specified
period.

     The Company's employees are not represented by a labor union or a
collective bargaining agreement. The Company regards its employee relations as
good.

MARKETING, SALES AND CLIENT SERVICE

     The Company primarily markets to and contracts with healthcare payors,
including HMOs, other types of managed healthcare plans, indemnity health
insurers, self-funded employee health plans, insured healthcare plans,
third-party administrators, Blue Cross and Blue Shield organizations and
provider organized health plans. The Company employs a staff of sales managers,
a marketing manager and client services managers. Sales are made directly
through contacts with prospective clients, trade show presentations and employer
seminars. Additional business is also generated from existing clients, which
have expanded their business by growth or acquisitions or which have business
segments not already under contract with the Company.

     Due to the nature of the business, the sales process is lengthy and
involves demonstrating to prospective clients that the Company's economies of
scale, proprietary processes and value-added services allow (i) the Company to
generate and return to the clients a greater dollar amount of recoveries than
the clients' in-house recovery department and (ii) the clients to focus greater
resources on core business functions. New customer relationships are often
established through pilot programs, which have typically lasted 12 to 18 months.

     Complementing the technical aspects of the recovery process, the client
support function is primarily responsible for communications with clients and
problem resolution. To facilitate strong working relationships, individual
members of the client services staff are assigned to specific clients. The
Company believes that its investment in resources to resolve a wide variety of
business issues with clients is an important factor in obtaining customers and
maintaining good business relationships. During the year ended December 31,
2001, the Company lost eight clients representing approximately 6.3 million
lives. Terminations occurred due to, among other things, consolidations of
healthcare payors, bankruptcy, the selection of another vendor, or because the
process was taken in-house. See Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Results of Operations -- Key
Operating Indicators".

CLIENT BASE

     The Company provides services to healthcare plans that as of December 31,
2001 covered approximately 49.1 million lives. The Company's clients are
national and regional healthcare payors, large third-party administrators or
self-insured corporations.

     Major clients include the following:

<Table>
<S>                              <C>
HealthNet                        UnitedHealth Group
Humana Inc.                      The Principal Financial Group
General American Life Insurance  Blue Cross of California, a division of
Group Health, Inc.               WellPoint Health Network Inc.
FIRST HEALTH                     Kaiser Permanente
</Table>

     The Company's largest client is UnitedHealth Group. During the years ended
December 31, 2001, 2000 and 1999, UnitedHealth Group generated 27%, 24% and 23%
of the Company's revenues, respectively. The loss of this account could have a
material adverse effect on the Company's business, results of operations and
financial condition.

                                        7
<PAGE>

     The Company received from UnitedHealth Group ("UHG"), through its Uniprise
strategic business unit, termination notices regarding subrogation recovery
services covering approximately 1.3 million lives as to which the Company ceased
during 2001 to receive new claims data and, therefore, to identify new
recoverable files. These terminations are reported as "lost" in the Key
Operating Indicators table (See Item 7. "Management's Discussion and Analysis of
Financial Conditions and Results of Operations -- Results of Operations"), but
are offset by the approximately 1.8 million UHG lives added to service during
the year ended December 31, 2001. The total UHG lives sold and installed at
December 31, 2001 were approximately 14.8 million.

     Moreover, the Company received from Uniprise termination notices regarding
subrogation recovery services covering approximately 4.7 million lives as to
which the Company will cease during 2002 to receive new claims data and,
therefore, to identify new recoverable files. These terminations are not
reported as "lost" in the Key Operating Indicators table referred to above
because the effective dates of the terminations occur in 2002. The Company has
learned from UHG that all of this terminated business (i.e., 6 million lives)
will be serviced by UGH's Ingenix strategic business unit.

     The Company expects that it will continue to recover from the backlog it
has created for the terminated portions of the UHG business for 5 to 6 years
after the effective dates of the terminations. The Company further expects that
60% to 70% of that UHG backlog will be recovered within 36 months of the
effective dates of the terminations. Moreover, the Company does not anticipate
that any of these UHG terminations will affect its previously published guidance
on 2002 financial results from subrogation services. However, to the extent that
the Company does not replace the business terminated by UHG, future subrogation
recoveries and revenues will be diminished by the UHG terminations.

     The Company believes, based on information derived from Uniprise, that
approximately 55% of the total UHG book of business that the Company serviced at
December 31, 2001 -- approximately 14.8 million lives -- are from either
self-insured employer groups that receive claims administration services from
Uniprise or health plans that are under a management contract with UHG. The
Company believes that neither UHG nor Uniprise controls these self-insured
employer groups and managed health plans (i.e., "external clients") in the
selection of their subrogation vendor and that the Company may, therefore, sell
its recovery services directly to these external clients following any current
or future UHG terminations. The Company intends to compete vigorously for the
subrogation and other recovery business of these external clients against
Ingenix as well as any other vendors.

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

     The Company performs its services on a reasonable efforts basis and does
not obligate itself to deliver any specific result. Contracts with its customers
are generally terminable on 60 to 180 days' notice by either party, although in
a few cases the contracts extend over a period of years. The Company's contracts
generally provide that in the event of termination, the Company is entitled to
complete the recovery process on the existing backlog or to receive a cash
payment designed to approximate the gross margin that would otherwise have been
earned from the recovery on the backlog of the terminating client. On December
31, 2001, the Company had backlog of $1,414.8 million.

COMPETITION

     The Company competes primarily with the internal recovery departments of
potential customers and other outsource recovery service vendors. To the
Company's knowledge, there are two smaller, but significant, independent
providers of subrogation recovery services in addition to the Company. There are
two different vendors that provide competitive overpayment recovery outsourcing
services, as well as three national companies that provide competing provider
bill auditing services.

                                        8
<PAGE>

     The Company believes that there are barriers to entry in the bulk of its
market, including process expertise, capital requirements necessitated by the
unusually long revenue cycle in the recovery industry, assembling and training a
qualified and productive employee base possessing appropriate industry
expertise, and an information processing system designed to aid investigators
and examiners engaged in the recovery process. However, there are participants
in the healthcare, insurance, transaction processing and software development
industries that possess sufficient capital, and managerial and technical
expertise to develop competitive services.

PROPRIETARY INFORMATION MANAGEMENT SYSTEMS

     General.  The Company's computer systems consist of inter-related
proprietary software programs that function as automated data and process
management systems. The Company holds a copyright registration from the United
States Copyright Office on the software (the "SubroSystem") that supports its
subrogation operations. The Company utilizes other proprietary systems to
support its provider bill audit operations. See also "-- Business Developments".

     Quality and Management Controls.  The computer systems control, measure and
generate reports on the recovery processes. From data recorded in these systems,
a series of financial reports are generated for clients that allow them to
monitor the Company's success in making recoveries on their behalf. The data
used for financial reports are also used to produce a wide array of accounting
and management information used by the Company to operate its business. The
Company employs a variety of quality control techniques to ensure consistently
high-quality service.

LEGAL AND REGULATORY ENVIRONMENT

     The healthcare industry is subject to numerous regulations, which may
adversely affect the Company's business. In addition to laws and regulations
affecting healthcare and insurance, changes in federal fair debt collection
regulations may also adversely affect the Company's business.

     General.  From time to time, legislation is introduced in Congress and in
various state legislatures which would materially affect the Company's business.
The most significant legislation, laws and regulations may, for clarity, be
grouped into three categories: (i) legislation that would substantially limit
the ability of healthcare insurers to recover from third-parties
accident-related medical benefits incurred by injured insureds ("Health
Insurance Primacy Laws"); (ii) legislation that would substantially limit the
Company's ability to receive and utilize individual claim information from
healthcare insurers ("Confidentiality Laws"); and (iii) other federal and state
laws. The following identifies specific risks in these three categories:

  Health Insurance Primacy Laws

     Auto Choice Reform Act.  During May 2001, Congress proposed legislation
known as the Auto Choice Reform Act of 2001 (the "Proposed Act"). Similar bills
were introduced but not enacted in each of the two previous Congresses. Under
the Proposed Act, in those states not opting out of its provisions, individual
drivers would be able to choose to be covered by an auto insurance system in
which healthcare insurers, with some exceptions, may be unable to recover for
healthcare costs incurred by those injured in automobile accidents.
Consequently, even if the insured's injuries were caused by the negligence of
another driver, the healthcare insurer might have no rights of recovery against
the negligent party or that party's liability insurer. Revenue generated from
recoveries against automobile liability insurers historically represented
approximately 64% of the Company's revenues. Should similar legislation be
enacted, it could have a material adverse effect on the Company's business,
results of operations and financial condition.

     Proponents of the Proposed Act assert that (i) the costs of operating a
motor vehicle are excessive due to legal and administrative costs associated
with the processing of claims under the fault-based liability system; and (ii)
the costly fault-based liability insurance system often fails to provide
compensation commensurate with loss and takes too long to pay benefits. Even if
the Proposed Act is not introduced in Congress again in the future, these policy
reasons may result in future legislation designed to significantly alter the
fault-based

                                        9
<PAGE>

liability system used in most states, eliminate recovery rights of healthcare
insurers and materially adversely affect the Company's business.

     Certain No Fault Insurance Systems.  Certain states have adopted versions
of automobile "no fault" insurance systems in which the injured party's health
insurance carrier or provider is primarily responsible for healthcare related
expenses (and not the responsible party and his or her insurer or the injured
insured's automobile liability insurer). In 1996, California voters rejected a
no-fault automobile insurance measure, Proposition 200, which would have
required drivers with bodily injuries to be compensated by their healthcare
insurers. Although Proposition 200 was rejected by the voters, there can be no
assurance that similar measures will not again be presented in a ballot
initiative or as legislation in California or elsewhere in the future. Growth in
the number of states adopting similar systems could significantly reduce the
amounts otherwise recoverable by the Company in connection with automobile
injuries in such states.

  Confidentiality Laws

     Confidentiality Provisions of the Health Insurance Portability and
Accountability Act of 1996 and Related Regulations.  On December 28, 2000, the
Secretary (the "Secretary") of Health and Human Services ("HHS") published the
Standards for Privacy of Individually Identifiable Health Information (65 Fed.
Reg. 82462 (2000)) (the "Rules"). The Rules, which deal with the use and
disclosure of health information, implement certain requirements of the
Administrative Simplification subtitle of the Health Insurance Portability and
Accountability Act of 1996 ("HIPAA"). The Rules became effective on April 14,
2001. Health plans, health care clearinghouses, and certain health care
providers covered by the Rules ("Covered Entities") generally have to comply by
April 14, 2003. The Rules prescribe the manner in which Covered Entities are
permitted or required to use and disclose individually identifiable health
information subject to the Rule's requirements, known as "protected health
information." The Rules also require Covered Entities to implement certain
"administrative" requirements, such as establishing relevant policies and
procedures, designating a privacy official responsible for the development and
implementation of the policies and procedures, and training affected members of
the workforce regarding the policies and procedures. The Rules establish a
complex regulatory framework on a variety of subjects, including, but not
limited to, (a) disclosures and uses of protected health information that
require patient consent or authorization, (b) individuals' rights to access and
to amend their protected health information, and (c) individuals' rights to
receive notice of Covered Entities' practices with respect to protected health
information.

     In addition, the Rules affect third parties to the extent any of them acts
as a "business associate" of a Covered Entity. The Company will be a business
associate of customers that are Covered Entities, such as health plans. For a
Covered Entity to meet its business associate obligations under the Rules, the
Covered Entity and its business associates must enter into contracts that meet
certain requirements the Rules set forth. A business associate to a Covered
Entity is not directly subject to the Rules, but it will be subject to certain
similar requirements imposed through its business associate contract.
Significantly, however, the Rules do not require business associate contracts to
obligate business associates to implement the "administrative" requirements the
Rules impose upon Covered Entities. If, however, a Covered Entity becomes aware
of a pattern of activity or practice of a business associate that constitutes a
material violation of the business associate's obligations under the contract,
the Rules require the Covered Entity to take reasonable steps to end the
violation and, if such steps are not successful, terminate the contract with the
business associate.

     In August 2000, HHS also issued, pursuant to HIPAA, a final rule
establishing transaction standards and code sets. The final rule, which has a
compliance deadline of October 16, 2003, adopts standards that must be used if
one health care provider or health plan conducts certain electronic transactions
with another health care provider or health plan. The final rule mandates the
use of certain code sets in connection with the standard transactions. In
addition to the transaction standards and code sets, HHS has published a set of
regulations dealing with the physical security of health information maintained
or transmitted electronically by health plans and certain clearinghouses and
providers. 63 Fed. Reg. 43242 (Aug. 12, 1998). The so-called security
regulations were proposed on August 12, 1998, but have not been issued in final
form and, therefore, currently have no compliance deadline. Once HHS issues
final security regulations, they likely will impose additional requirements upon
Covered Entities and their business associates. In July 2001, HHS issued the
                                        10
<PAGE>

first in an anticipated series of guidance materials explaining and clarifying
key provisions of the Rules. In December 2001, President Bush signed the
Administrative Simplification Compliance Act (Pub. L. No. 107-105), which
permits Covered Entities to receive a one-year extension for complying with
HIPAA's transaction standards. For these reasons, the Company anticipates that
additional revisions to the Rules may occur in the future.

     Whether or not the Rules change, HIPAA and the Rules could impair the
Company's subrogation recovery practices by creating administrative burdens (for
example, by requiring business associates of Covered Entities to amend health
information in certain circumstances or to restrict subsequent uses of protected
health information) or liability risks that lead health plans to voluntarily
restrict their subrogation recovery practices. The provisions of the Rules or of
future federal legislation and regulations could impair or prevent the
acquisition and use by the Company of claims and insurance information necessary
to process recovery claims on behalf of its clients. However, the Company
believes that it will be able to comply fully with HIPAA and the Rules, in the
forms now known to the Company, on a timely basis and without material adverse
effect.

     In addition, state laws governing privacy of medical or insurance records
and related matters may significantly affect the Company's business. Most states
have enacted health care information confidentiality laws that limit the
disclosure of confidential medical information. The Rules do not preempt state
laws regarding health information privacy that are more restrictive than the
Rules.

  Other Federal and State Laws

     Changes in the regulation of insurance and debt collection could also
affect the Company's business. Similarly, changes in law that would bar
healthcare subrogation or impair an injured party's ability to collect insured
damages (that is, an injured person would be prevented from recovering from the
wrongdoer damages for accident-related medical benefits covered by health
insurance) could similarly adversely affect the Company's business. Existing
debt collection laws also may be amended or interpreted in a manner that could
adversely affect the Company's business. Additionally, although the Company does
not believe that it engages in the unauthorized practice of law, changes in the
law or a judicial or administrative decision defining some of the Company's
activities as the practice of law, could have a material adverse effect on the
Company's business.

  Certain Legal Doctrines

     With respect to recoverable claims, the rights of healthcare subrogation
and reimbursement may be limited in some cases by (i) the "made whole doctrine,"
which subordinates the healthcare provider's ability to recover to that of the
injured party when the settlement damage award received by the injured party is
inadequate to cover the injured party's damages, and (ii) the "common fund
doctrine," which permits plaintiff's attorneys to deduct their fees for the
claim based on the entire amount covered by a damage award and may, in some
cases, proportionally diminish the amount recoverable by the Company on behalf
of the healthcare payor out of that damage award.

BUSINESS DEVELOPMENTS

  Services to the Property & Casualty Insurance Industry

     During 2001, the Company entered into the subrogation outsourcing market
that serves property and casualty ("P&C") insurers. The Company is offering its
services to the P&C market under the brand name "TransPaC Solutions". The
Company currently provides subrogation outsourcing services to nine P&C clients,
under various contractual arrangements, including closed claims studies,
referrals and full outsourcing. The Company has established a full-time direct
sales force of three individuals experienced in P&C sales and marketing. The
Company's target market for its P&C subrogation services is P&C insurers that
have reported below average subrogation recovery results, are small regional
insurers or for various other reasons are interested in outsourcing either all
or a portion of their subrogation work.

                                        11
<PAGE>

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

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

     The Company has assessed the competitive environment for P&C subrogation
outsourcing, and believes that the competition is fragmented and characterized
by claims adjusting companies that operate on a local or regional basis and law
firms that specialize in low volume, but legally complex, subrogation claims.
The Company has identified only one competitor that attempts to serve a national
market. It believes this competitor has enjoyed limited success because it is
owned and controlled by a P&C insurer.

     As previously disclosed, the Company estimates that the operating results
for TransPaC Solutions in 2002 will range from a pretax loss of approximately
$0.2 million to pretax income of approximately $0.2 million, but that TransPaC
Solutions will be operating at break-even by the end of the year. The Company
estimates that it will earn gross margins comparable to its healthcare recovery
services in providing P&C subrogation recovery services. The Company cautions
that the foregoing forecasts and estimates are not guarantees of future
performance and that actual results of TransPaC Solutions will be dependent
upon, among other things, future facts and circumstances, many of which are
outside the control of management of the Company. See "Safe Harbor Compliance
Statement on Forward Looking Statements" included as Exhibit 99.1.

  Technology Development

     During 2001 and 2000, the Company incurred expenses of approximately
$537,000 and $366,000, respectively, for research and development costs to
develop new products for the insurance industry. In 2002, the Company expects to
incur additional expenses of between $1.2 million and $1.6 million for research
and development with respect to these products. In addition, in 2002, the
Company expects to capitalize approximately $0.6 million of costs for the
development of software for sale to unrelated parties.

     Many participants in the health insurance market do not outsource
subrogation services. The Company currently estimates that 40% to 50% of the
private health insurance and health benefits markets do not outsource
subrogation recoveries. Public sector markets, such as Medicaid and Medicare,
have virtually no outsourcing of subrogation recoveries. These programs
typically rely on their claims administration contractors to provide subrogation
services as part of a bundled service contract. Like the health insurance
market, the Company believes that certain participants in the P&C insurance
market are less likely to outsource subrogation services. The Company believes
that mutual insurers have organizational and cultural biases against outsourcing
and that larger P&C insurers have sufficient resources to develop relatively
sophisticated internal departments.

     In light of these market conditions, the Company began the internal
development of a web-enabled subrogation software application. The Company will
sell these products as an application service provider ("ASP"), under the trade
name "Troveris", both to the health insurance and benefits market and to the P&C
market. During the second quarter of 2001, the Company completed and offered for
sale a commercially available health insurance application. During the third
quarter of 2001, the Company completed and offered for sale a commercially
available P&C application. Through December 31, 2001, the Company had not yet

                                        12
<PAGE>

sold either the health insurance application or the P&C application although the
Company has received indications of interest from potential purchasers.

     The Troveris marketing strategy combines the opportunity for an internal
subrogation department to gain operating efficiency through the functionality of
state-of-the-art desktop software and to leverage its ability to produce
recoveries through the purchase of unbundled components of the Company's
traditional subrogation outsourcing services. The Troveris software application
allows the Company to administer these customized relationships using the same
proprietary processes as it uses for those customers who purchase turnkey
subrogation outsourcing services. An additional benefit of the Troveris software
application is that the Company believes that it will substantially reduce its
own future expenses for maintaining software applications that it uses to
provide turnkey outsourcing services.

     During the fourth quarter of 2001, the Company began migrating its own
subrogation operations to the Troveris application. The Company currently
expects the migration to be completed during the fourth quarter of 2002. The
Company previously expected this to be completed by the end of the third quarter
but has changed the schedule to allow additional time for testing and training.
At that time, the Company expects to abandon its legacy subrogation system,
thereby reducing its technology expense, net of the expense of maintaining the
Troveris application, by approximately $600,000 per year. The Troveris
application will also enable the Company to expand its ability to manage its
knowledge workers via telecommuting arrangements. While the Company believes it
can achieve the foregoing transition and corresponding reduction of expenses in
the outlined timeframe, future facts and circumstances could change these
estimates. See "Safe Harbor Compliance Statement for Forward-Looking Statements"
included as Exhibit 99.1.

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

  Acquisition Activities

     The Company is actively pursuing acquisition opportunities to provide
additional growth in revenues and net income. The Company's acquisition strategy
is two-fold. First, it plans to acquire additional claims recovery services that
it can sell into its installed base of health insurers, managed care companies,
benefits administrators, and P&C insurers. This will allow the Company to
leverage its sales and marketing resources and to acquire the necessary core
knowledge workers to provide service.

     Second, the Company is seeking opportunities to acquire businesses that
offer knowledge-based services into market segments not currently served by the
Company. The Company believes that these types of acquisitions will enable it to
sell its existing services to current customers of the acquired business and
create an opportunity to serve new customers in that market segment. In
particular, the Company is interested in pursuing the acquisition of businesses
that provide cost containment services to various health benefit programs funded
by state and federal government agencies.

     The Company has identified certain target companies that fit in with the
foregoing acquisition strategy. The Company believes that if consummated under
the right terms and conditions, these acquisition opportunities would increase
the reported earnings per share of the Company. See Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Safe Harbor Compliance
Statement for Forward-Looking Statements" included as Exhibit 99.1.

ITEM 2.  PROPERTIES

     As of December 31, 2001, the Company leased property at the following five
locations: (i) approximately 105,718 square feet of space for its executive
offices and main operations in Louisville, Kentucky, under a lease agreement and
amendment expiring in 2009; (ii) approximately 10,206 square feet at a regional

                                        13
<PAGE>

operating office in Pittsburgh, Pennsylvania, under a lease agreement with a
five-year term expiring in 2006; (iii) approximately 8,125 square feet at its
Encino, California location under a 5-year term expiring in 2004; (iv)
approximately 4,670 square feet at a regional operating office in Atlanta,
Georgia, under a lease agreement with a five-year term expiring in 2005; and (v)
approximately 20,500 square feet at its New Berlin, Wisconsin location under a
5-year term expiring in 2006.

ITEM 3.  LEGAL PROCEEDINGS

     The Company is engaged in the business of identifying and recovering
subrogation and related claims of its clients, many of which arise in the
context of personal injury lawsuits. As such, the Company operates in a
litigation-intensive environment. Moreover, management of the Company has
observed that, in parallel with widely-reported legislative concerns with the
healthcare payment system, there also has occurred an increase in litigation,
actual and threatened, including class actions brought by nationally prominent
attorneys, directed at healthcare payors and related parties.

     The Company has, since its founding in 1988, been involved with many
litigation matters related to its subrogation business, sometimes as a defendant
and sometimes through its defendant client. Plaintiffs' attorneys attempting to
defeat the clients' subrogation liens often threaten litigation against the
Company and its clients as a negotiating tactic. Most of the lawsuits that have
been filed against the Company or its clients concern the entitlement to recover
a specific, individual subrogation claim or the amount of the subrogation claim.
Typically, these actions do not ask for punitive damages, are not pled as class
actions, and do not have wide implications with respect to the Company's ongoing
business practices.

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

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

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

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

     Although the Company was not named as a defendant in any of them, there
have been three other lawsuits involving the Company's clients that implicated
the Company's business practices. The complaints in

                                        14
<PAGE>

these cases alleged, among other things, violation of state law with respect to
the payment of plaintiffs' attorneys' fees and unfair trade practices, violation
of the federal Health Maintenance Organization Act of 1973, misrepresentation of
the rightful amounts of subrogation claims, and impermissible enforcement of
recovery rights. Two of these cases resulted in judgments in favor of the
Company's clients after litigation of the merits before trial and appellate
courts. The other case was settled for an immaterial amount.

     Management believes that the lawsuits described above will not, as a
general matter, have precedential value for either the cases described below
under the caption "-- Current Litigation" or for any future litigation matters
(all these cases being referred to as the "Pending and Potential Cases").
Indeed, the courts hearing the Pending and Potential Cases may not even become
aware of the outcomes in the seven lawsuits described above. Management expects
that each of the Pending and Potential Cases will be decided on its own merits
under the relevant state and federal laws, which will vary from case to case and
jurisdiction to jurisdiction. The descriptions of the outcomes in the seven
cases dealing with business practices are included here in order to describe the
contexts for this kind of litigation and the Company's relative successes in
handling past business practices litigation, but are not necessarily predictive
of the outcomes of any of the Pending and Potential Cases.

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

CURRENT LITIGATION

  Conte v. Healthcare Recoveries

     On October 1, 1999, a First Amended Class Action Complaint ("Amended
Complaint") was filed against the Company in the United States District Court
for the Southern District of Florida, in a putative class action brought by
William Conte and Aaron Gideon, individually and on behalf of all others
similarly situated. In that complaint, Conte v. Healthcare Recoveries, Inc., No.
99-10062, plaintiffs assert that the Company's subrogation recovery efforts on
behalf of its clients violate a number of state and federal laws, including the
Fair Debt Collection Practices Act and the Florida Consumer Collection Practices
Act. The Amended Complaint also seeks a declaratory judgment that the Company,
as the subrogation agent for various healthcare payors, is not entitled to
assert and recover upon subrogation or reimbursement liens it asserts on
settlements obtained from third party tortfeasors when the settlement is in an
amount less than the amount required to fully compensate (or "make whole") the
injured party for all elements of damage caused by the tortfeasor. Plaintiffs
purport to represent a class consisting of all participants or beneficiaries of
ERISA plans nationwide whose net recovery of damages through judgments,
settlements or otherwise against liable third parties has been reduced or
potentially reduced by the Company's alleged assertion and/or recovery of
unlawful subrogation/reimbursement rights of its clients. Each count of the
Amended Complaint seeks compensatory and/or statutory damages as well as
exemplary and punitive damages. Plaintiffs also seek injunctive relief,
prejudgment interest, costs and attorneys' fees.

     On November 5, 1999, the Company filed a motion to dismiss the Amended
Complaint. On June 29, 2001, the court issued a decision dismissing plaintiffs'
common law claims for fraud and unjust enrichment as well as plaintiffs' claims
under the federal Fair Debt Collection Practices Act and the Florida Consumer
Collection Practices Act. The court did not, however, dismiss the remaining
count of the Amended Complaint ("Count I"), which seeks a declaratory judgment
and damages under ERISA based on the Company's alleged violation of the "make
whole" rule. On July 16, 2001, the Company filed a motion for reconsideration or
reargument with respect to that portion of the court's June 29, 2001 opinion on
the motion to dismiss that sustained, as a pleading matter, Count I. The motion
for reconsideration or reargument was denied on December 21, 2001, and the
Company has now filed an answer with respect to Count I of the Amended
Complaint.

     Plaintiffs' motion to certify a nationwide class, which the Company
opposed, has been fully briefed and was submitted to the court on September 11,
2000. In an order entered January 8, 2002, the court referred the
                                        15
<PAGE>

class certification motion to the Chief Magistrate Judge for a Report and
Recommendation. In early March 2002, the parties completed supplemental briefing
with respect to the propriety of class certification. The Chief Magistrate Judge
has not yet submitted a Report and Recommendation.

  Baker v. Healthcare Recoveries, United Healthcare of Alabama, and Fictitious
  Party Defendants A,B,C et al.

     On October 20, 1999, a class action complaint was filed against the Company
and one of the Company's clients in the Circuit Court of Jefferson County,
Alabama, Darrell DeWayne Baker v. Healthcare Recoveries, Inc., United Healthcare
of Alabama, and Fictitious Party Defendants A, B, C et al. On December 6, 1999,
the defendants removed the lawsuit to the United States District Court for the
Northern District of Alabama, Southern Division. On January 3, 2000, a First
Amended Complaint was filed, retaining all counts from the original complaint
and seeking an additional declaratory judgment that the health plan and the
Company have a right to recover through subrogation only the actual benefits
paid to medical providers on behalf of the class. The First Amended Complaint
asserted claims on behalf of two putative subclasses, both consisting of members
nationwide of the client health plan, who either: (1) allegedly paid inflated
subrogation claims due to alleged failure by the health plan or by the Company
to disclose discounts in the health plan's payments to medical providers; or (2)
allegedly were denied coverage of certain claims by the health plan. The
plaintiffs asserted claims against the Company under a variety of theories
including unjust enrichment, breach of contract, breach of fiduciary duty and
violations of RICO. Plaintiffs demand, on behalf of the putative classes,
compensatory damages, punitive damages, treble damages under RICO, and
reasonable attorneys' fees.

     On January 10, 2002, the court granted defendants' motion to dismiss the
First Amended Complaint. The plaintiffs did not appeal the order and the case is
now concluded.

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

     On October 28, 1999, a class action Plaintiff's Original Petition
("Petition") was filed against the Company and one of the Company's clients in
the District Court for the 150th Judicial District, Bexar County, Texas, Joseph
R. Cajas, on behalf of himself and all others similarly situated v. Prudential
Health Care Plan, Inc. and Healthcare Recoveries, Inc. The plaintiff asserts
that the Company's subrogation recovery efforts on behalf of its client
Prudential Health Care Plan, Inc. ("Prudential") violated a number of common law
duties, as well as the Texas Insurance Code and the Texas Business and Commerce
Code. The Petition alleges that the Company, as the subrogation agent for
Prudential, made fraudulent misrepresentations in the course of unlawfully
pursuing subrogation and reimbursement claims that plaintiffs assert are
unenforceable because (1) prepaid medical service plans may not exercise rights
of subrogation and reimbursement; (2) the subrogation and reimbursement claims
asserted by the Company are not supported by contract documents that provide
enforceable recovery rights and/or do not adequately describe the recovery
rights; and (3) the sums recovered pursuant to such claims unlawfully exceed the
amount Prudential paid for medical goods and services. The Company was served
with the Petition in early November 1999, and has answered, denying all
allegations. The court has not yet addressed the question of whether to certify
the putative class. On January 8, 2002, the defendants filed a motion for
summary judgment. That motion has not yet been ruled on by the court.

  Franks et al. v. Prudential Health Care Plan and Healthcare Recoveries

     In late 1999, the Cajas plaintiff's counsel filed two lawsuits in Texas and
South Carolina that raise issues similar to those in the Cajas lawsuit. On
December 7, 1999, a class action complaint ("Complaint") was filed against the
Company and one of the Company's clients in the United States District Court for
the Western District of Texas, San Antonio Division, Timothy Patrick Franks, on
behalf of himself and similarly situated persons v. Prudential Health Care Plan,
Inc. and Healthcare Recoveries, Inc. The Complaint asserted claims on behalf of
members of ERISA governed health plans and alleged that the Company's
subrogation recovery efforts on behalf of its client Prudential violated a
number of common law duties, as well as the terms of certain ERISA plan
documents, RICO, the federal Fair Debt Collection Practices Act, the Texas
Insurance Code and the Texas Business and Commerce Code. The Complaint alleged
that the Company, as the
                                        16
<PAGE>

subrogation agent for Prudential, made fraudulent misrepresentations in the
course of unlawfully pursuing subrogation and reimbursement claims that
plaintiffs assert are unenforceable because (1) prepaid medical service plans
may not exercise rights of subrogation and reimbursement; (2) the subrogation
and reimbursement claims asserted by the Company are not supported by contract
documents that provide enforceable recovery rights and/or do not adequately
describe the recovery rights; and (3) the sums recovered pursuant to such claims
unlawfully exceed the amount Prudential paid for medical goods and services. The
Complaint further alleged that the Company unlawfully pursued subrogation and
reimbursement claims by (1) failing to pay pro rata attorney's fees to attorneys
who represented purported class members with respect to tort claims underlying
the subrogation and reimbursement claims; and (2) recovering subrogation and
reimbursement claims from purported class members who have not been fully
compensated for their injuries. Plaintiffs, on behalf of the purported class,
demanded compensatory damages, punitive damages, and treble damages under RICO,
costs and reasonable attorneys' fees. On January 18, 2000, the defendants filed
a motion to dismiss the Complaint.

     In response to the defendants' motion, on February 28, 2001, the court
rendered its opinion and entered an order dismissing all of the plaintiff's
claims with the exception of the plaintiff's claim for attorney fees, which
remains pending before the court for disposition. On March 14, 2001, the Company
filed an answer to the Complaint denying all of the plaintiff's allegations.
Also on March 14, 2001, the plaintiff filed a motion to alter or amend the
court's ruling on the motion to dismiss. The court has ordered additional
discovery related to the motion but has not yet ruled on the motion, nor has the
court addressed the issue of class certification.

  Martin et al. vs. Companion Health Care and Healthcare Recoveries, Inc.

     On December 22, 1999, a purported class action complaint ("Complaint") was
filed against the Company and one of the Company's clients in the Court of
Common Pleas of Richland County, South Carolina, Estalita Martin et al. vs.
Companion Health Care Corp., and Healthcare Recoveries, Inc. On January 21,
2000, defendant Companion Healthcare Corp. ("CHC") filed an Answer and
Counterclaim and plaintiff Martin filed a First Amended Complaint ("Amended
Complaint"). The Amended Complaint asserts that the Company's subrogation
recovery efforts on behalf of its client CHC violated a number of common law
duties, as well as the South Carolina Unfair Trade Practices Act. The Amended
Complaint alleges that the Company, as the subrogation agent for CHC, made
fraudulent misrepresentations in the course of unlawfully pursuing subrogation
and reimbursement claims that plaintiffs assert are unenforceable because (1)
prepaid medical service plans may not exercise rights of subrogation and
reimbursement; (2) the subrogation and reimbursement claims asserted by the
Company are not supported by contract documents that provide enforceable
recovery rights and/or do not adequately describe the recovery rights; and (3)
the sums recovered pursuant to such claims unlawfully exceed the amount CHC was
entitled to collect for such medical goods and services. The Amended Complaint
further alleges that the Company and CHC unlawfully pursued subrogation and
reimbursement claims by (1) failing to pay pro rata costs and attorney's fees to
attorneys who represented purported class members with respect to tort claims
underlying the subrogation and reimbursement claims; and (2) failing to include
in subrogation and reimbursement claims all applicable discounts that CHC
received for such medical goods and services. Plaintiffs, on behalf of the
purported class, demand compensatory damages, punitive damages, and treble
damages, disgorgement of unjust profits, costs, prejudgment interest and
attorneys' fees. The Company was served with the original Complaint in late
December 1999 and answered denying all allegations. The Company filed a motion
to dismiss in August 2000. During June 2001, the court granted the Company's
motion to dismiss. Plaintiffs filed a notice of appeal on July 20, 2001. The
appeal is pending but has not been briefed or argued.

  Hamilton v. Healthcare Recoveries

     On March 12, 2001, a Complaint ("Complaint") was filed against the Company
in the United States District Court for the Eastern District of Louisiana, in a
putative class action brought by Kyle M. Hamilton. In that action, Hamilton v.
Healthcare Recoveries, Inc., No. 01-650, plaintiff asserts that the Company's
subrogation recovery efforts on behalf of its clients violate certain Louisiana
state laws, the federal Fair Debt Collection Practices Act and the Louisiana
Unfair Trade Practices Act. The Complaint alleges that the

                                        17
<PAGE>

Company intentionally and negligently interfered with the plaintiff's and the
putative class members' rights to settle certain personal injury claims. The
Complaint further alleges that the Company unlawfully pursued subrogation and
reimbursement claims that plaintiff asserts are unenforceable because the
clauses in the Company's clients' coverage documents that create such recovery
rights are rendered null and void by Louisiana statutes that generally prohibit
coordination of benefits with individually underwritten insurance coverages.
Plaintiff purports to represent a class consisting of all persons covered under
group health policies that were issued or delivered in the State of Louisiana
and who received any communication from the Company attempting to enforce any
clauses that allegedly were rendered null and void by Louisiana law. Plaintiff
seeks on behalf of the purported class compensatory and statutory damages,
interest, costs, attorneys' fees and such additional damages and relief as may
be allowed by any applicable law. On July 17, 2001, the court granted a Motion
for Summary Judgment filed by the Company as concerned the plaintiff's Fair Debt
Collection Practices Act claim, dismissing those claims with prejudice. The
Court denied the Company's Motion for Summary Judgment, without prejudice to the
right of the Company to reassert its Motion, with respect to the plaintiff's
state law claims. The Court ordered that the parties submit Memoranda addressing
whether the Court still had subject matter jurisdiction, given dismissal of the
federal claim. On August 21, 2001, the Court ruled that it lacked subject matter
jurisdiction, thus dismissing the remaining claims, without prejudice. Plaintiff
filed an appeal to the United States Fifth Circuit Court of Appeals. The parties
completed appellate briefing during January 2002.

     In addition to filing the appeal in federal court, the Hamilton plaintiff
on October 1, 2001 filed a new complaint in the Civil District Court for the
Parish of Orleans, Louisiana, in a putative class action styled Hamilton v.
Healthcare Recoveries, Inc., 2001-15989. This state court action asserts claims
substantially similar to those in the federal court action. During November
2001, the Company filed preliminary exceptions to this new complaint.

  Rogalla v. Christie Clinic, PersonalCare Health Management and Healthcare
  Recoveries

     On December 14, 2001, Valerie Rogalla, the plaintiff in a putative class
action against a health care provider, amended her complaint to add Healthcare
Recoveries, Inc. as a defendant in Valerie Rogalla v. Christie Clinic, P.C.,
PersonalCare Health Management, Inc. and Healthcare Recoveries, Inc., No.
01-L-203, Circuit Court of the Sixth Judicial Circuit, Champaign County,
Illinois. In her complaint, the plaintiff makes allegations on behalf of herself
and all others similarly situated. The complaint asserts that the Company, as
subrogation agent for PersonalCare Health Management, made fraudulent
misrepresentations in the course of unlawfully pursuing subrogation and
reimbursement claims. The complaint alleges that the subrogation and
reimbursement claims pursued were not supported by contract documents that
provide enforceable recovery rights. The complaint seeks a declaratory judgment,
compensatory damages, punitive damages and costs. The Company disputes the
plaintiff's allegations and intends to vigorously defend its position in this
case.

     The Cajas, Franks, and Martin lawsuits, or any one of them, if successful,
could prevent the Company from recovering the "reasonable value" of medical
treatment under discounted fee for service ("DFS"), capitation and other payment
arrangements. The Conte, Cajas, Franks, Baker, Martin, Hamilton and Rogalla
lawsuits, or any one or more of them, if successful, could require the Company
to refund, on behalf of its clients, recoveries in a material number of cases.
In addition, an adverse outcome in any of the above referenced lawsuits could
impair materially the Company's ability to assert subrogation or reimbursement
claims on behalf of its clients in the future.

     In terms of the Company's business practices and the allegations underlying
the Cajas, Franks, and Martin cases, at the end of 1993 the Company had ceased
the practice of recovering the "reasonable value" of medical treatment provided
by medical providers under DFS arrangements with the Company's clients. From
that date, the Company's policy has been not to recover the "reasonable value"
of medical treatment in DFS arrangements. However, the Company historically and
currently recovers the "reasonable value" of medical treatment provided under
capitation arrangements and other payment arrangements with medical providers on
behalf of those clients that compensate medical providers under these payment
mechanisms, to the extent that these benefits are related to treatment of the
injuries as to which clients have recovery rights. The Company believes that its
clients' contracts, including the contracts that provide for recovery under DFS,
capitation and
                                        18
<PAGE>

other payment arrangements are enforceable under the laws potentially applicable
in these cases. As a result, and taking into account the underlying facts in
each of these cases, the Company believes it has meritorious grounds to defend
these lawsuits, it intends to defend the cases vigorously, and it believes that
the defense and ultimate resolution of the lawsuits should not have a material
adverse effect upon the business, results of operations or financial condition
of the Company. Nevertheless, if any of these lawsuits or one or more other
lawsuits seeking relief under similar theories were to be successful, it is
likely that such resolution would have a material adverse effect on the
Company's business, results of operations and financial condition.

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

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

     No matters were submitted to a vote of stockholders of the Company during
the quarter ended December 31, 2001.

SUPPLEMENTARY ITEM.  CERTAIN RISK FACTORS

     See "Safe Harbor Compliance Statement For Forward-Looking Statements,"
included as Exhibit 99.1 to this Form 10-K and incorporated herein by reference.

                                    PART II

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

     The Company's Common Stock is traded on The Nasdaq National Market under
the symbol "TROV". The following tables set forth the high and low closing
prices for the Company's Common Stock for the periods indicated, as reflected in
The Nasdaq National Market.

<Table>
<Caption>
QUARTER ENDED:                                               HIGH     LOW
--------------                                               -----   -----
<S>                                                          <C>     <C>
March 31, 2001.............................................  $4.22   $3.03
June 30, 2001..............................................   5.50    3.88
September 30, 2001.........................................   6.54    4.00
December 31, 2001..........................................   4.67    4.01
</Table>

<Table>
<Caption>
QUARTER ENDED:                                               HIGH     LOW
--------------                                               -----   -----
<S>                                                          <C>     <C>
March 31, 2000.............................................  $5.03   $3.13
June 30, 2000..............................................   3.88    2.75
September 30, 2000.........................................   4.44    3.50
December 31, 2000..........................................   4.44    2.75
</Table>

     On March 19, 2002, there were approximately 45 holders of record of the
Company's Common Stock.

     The Company has paid no cash dividends since the sale of the Company by
Medaphis Corporation in May 1997. Any future determination to pay cash dividends
will be at the discretion of the Board of Directors (the "Board") and will be
dependent upon the Company's financial condition, results of operations, credit
agreements, capital requirements and such other factors as the Board deems
relevant. The Company's current credit facility limits its ability to pay
dividends on its Common Stock. See Item 7. "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources".

                                        19
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

                           STATEMENTS OF INCOME DATA
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<Table>
<Caption>
                                                                    DECEMBER 31,
                                                   -----------------------------------------------
                                                    2001      2000      1999      1998      1997
                                                   -------   -------   -------   -------   -------
<S>                                                <C>       <C>       <C>       <C>       <C>
Claims revenues..................................  $64,147   $63,627   $61,409   $48,734   $39,277
Cost of services.................................   31,589    30,432    31,451    22,199    18,523
                                                   -------   -------   -------   -------   -------
          Gross profit...........................   32,558    33,195    29,958    26,535    20,754
Support expenses.................................   17,499    17,061    15,870    10,692     8,922
Depreciation and amortization....................    6,701     6,372     4,954     2,334     1,181
Research and development.........................      537       366        --        --        --
Other charges(1).................................       --        --        --        --     2,848
                                                   -------   -------   -------   -------   -------
          Operating income.......................    7,821     9,396     9,134    13,509     7,803
Other -- Special Committee expenses..............       --       (90)     (451)       --        --
Interest (expense) income, net...................     (118)     (237)      144     1,657     1,158
Other -- Loss on disposal of assets..............   (1,010)       --        --        --        --
Other -- Litigation settlement...................       --    (3,000)       --        --        --
                                                   -------   -------   -------   -------   -------
          Income before income taxes.............    6,693     6,069     8,827    15,166     8,961
Provision for income taxes.......................    2,097     2,519     3,665     6,266     4,959
                                                   -------   -------   -------   -------   -------
          Net income.............................  $ 4,596   $ 3,550   $ 5,162   $ 8,900   $ 4,002
                                                   =======   =======   =======   =======   =======
Earnings per common share (basic)................  $  0.47   $  0.33   $  0.46   $  0.78   $  0.37
                                                   =======   =======   =======   =======   =======
Earnings per common share (diluted)..............  $  0.46   $  0.33   $  0.46   $  0.77   $  0.37
                                                   =======   =======   =======   =======   =======
</Table>

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

(1) In connection with the sale of the Company by Medaphis Corporation in May
    1997, the Company incurred a one-time $2.8 million non-cash compensation
    charge. This charge was from the issuance by the Company of 200,000 shares
    of Common Stock to the Company's management group, as a bonus for the
    successful completion of the sale of the Company by Medaphis. This
    represents 2% of the shares of Common Stock outstanding after the Company's
    initial public offering and 1.7% of the shares of Common Stock outstanding
    following the exercise of the underwriters' over-allotment option.

            STATEMENTS OF INCOME AS A PERCENTAGE OF CLAIMS REVENUES

<Table>
<Caption>
                                                              YEAR ENDED DECEMBER 31,
                                                              ------------------------
                                                               2001     2000     1999
                                                              ------   ------   ------
<S>                                                           <C>      <C>      <C>
Claims revenues.............................................  100.0%   100.0%   100.0%
Cost of services............................................   49.2     47.8     51.2
Support expenses............................................   27.3     26.8     25.8
Depreciation and amortization...............................   10.4     10.0      8.1
Research and development....................................    0.8      0.6      0.0
Operating income............................................   12.2     14.8     14.9
Interest (expense) income, net..............................    0.2      0.4      0.2
Other -- Loss on disposal of assets.........................    1.6      0.0      0.0
Other -- Litigation settlement..............................    0.0      4.7      0.0
Other -- Special Committee expenses.........................    0.0      0.1      0.7
Income before income taxes..................................   10.4      9.5     14.4
Net income..................................................    7.2      5.6      8.4
</Table>

                                        20
<PAGE>

                               BALANCE SHEET DATA
                             (DOLLARS IN THOUSANDS)

<Table>
<Caption>
                                                                    DECEMBER 31,
                                                   -----------------------------------------------
                                                    2001      2000      1999      1998      1997
                                                   -------   -------   -------   -------   -------
<S>                                                <C>       <C>       <C>       <C>       <C>
Cash and cash equivalents........................  $ 2,547   $ 1,297   $ 1,467   $31,133   $24,674
Working capital..................................   10,427     7,798     7,865    30,898    22,911(1)
Total assets.....................................   74,463    79,445    82,034    61,003    48,170
Long-term borrowings.............................    8,000    14,000    11,000        --        --
Stockholders' equity.............................   42,766    38,162    40,723    37,193    27,865
</Table>

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

(1) The increase in working capital, including cash and cash equivalents, is
    primarily attributable to the $19.2 million of proceeds received by the
    Company from the exercise of the underwriters' over-allotment option granted
    by the Company in connection with the May 1997 initial public offering.

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

OVERVIEW OF COMPANY

     The Company's primary business is to provide medical claims recovery and
cost containment services to the private healthcare payor industry. Its primary
product is subrogation recovery, which generally entails the identification,
investigation and recovery of accident-related medical benefits incurred by its
clients on behalf of their insureds, but for which other persons or entities
have primary responsibility. The Company's clients' rights to recover the value
of these medical benefits, arising by law or contract, are known generally as
the right of subrogation and are generally paid from the proceeds of liability
or workers' compensation insurance. The Company's other medical claims recovery
services include provider bill auditing and overpayment recovery services. The
Company offers its services on a nationwide basis to health maintenance
organizations, indemnity health insurers, self-funded employee health plans and
companies that provide claims administration services to self-funded plans
(referred to as "third-party administrators"). The Company had 49.1 million
lives under contract from its healthcare clientele at December 31, 2001, a 6%
decrease from December 31, 2000. See "-- Results of Operations -- Key Operating
Indicators".

ACQUISITIONS

     On January 25, 1999, the Company acquired the assets and certain
liabilities of Subro-Audit, Inc., a Wisconsin corporation ("SAI"), and a related
entity, O'Donnell Leasing Co., LLP, a Wisconsin limited liability partnership
("ODL" and, together with SAI, "Subro Audit"), for approximately $24.4 million
(the "Subro Audit Acquisition"), using available unrestricted cash. The Company
paid an additional $5.3 million pursuant to an earn-out arrangement. The final
amount of $2.5 million was paid on June 7, 2001, and $2.8 million was paid on
May 18, 2000. Approximately $4.7 million was held in escrow for the potential
earn-out and was included in restricted cash at December 31, 2000. SAI is based
in Wisconsin and provides subrogation recovery services with respect to an
installed base of lives, which are covered by insurers, HMOs and employer-funded
plans, throughout the United States of America. The Subro Audit Acquisition was
accounted for using the purchase method of accounting.

     On February 15, 1999, the Company acquired the assets and certain
liabilities of MedCap Medical Cost Management, Inc., a California corporation
("MedCap"), for approximately $10 million, using available unrestricted cash and
borrowed funds (the "MedCap Acquisition" and, together with the Subro Audit
Acquisition, the "Acquisitions"). The Company paid approximately $4.8 million
from February 15, 2000 through January 15, 2001 pursuant to an amendment to the
original earn-out agreement. MedCap provides a variety of medical cost
management services to health insurers and HMOs, primarily in California. These
services include provider bill auditing, contract compliance review,
identification of certain other payments, and cost management consulting
services. The MedCap Acquisition was accounted for using the purchase method of
accounting.

                                        21
<PAGE>

CRITICAL ACCOUNTING POLICIES

     This discussion and analysis of financial condition and results of
operations is based upon the Company's financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
the use of estimates and judgments that affect the reported amounts and related
disclosures of commitments and contingencies. The Company relies on historical
experience, established fact-gathering procedures, and various assumptions that
the Company believes to be reasonable under the circumstances to make judgments
about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates.

     The Company believes that the following critical accounting policies affect
the more significant judgments and estimates used in the preparation of the
Company's financial statements.

REVENUE RECOGNITION

     Subrogation revenues are generally derived from contingent fee arrangements
based on the recoveries effected by the Company on behalf of its clients.
Revenue is recognized when a fee is earned based on the settlement of a case. A
case is deemed settled when the Company can confirm that the parties agree on
all material terms associated with the settlement.

     In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB
101). SAB 101 provides guidance on revenue recognition and related disclosures
and was effective beginning October 1, 2000. The Company was previously
following the requirements provided under SAB 101 and, accordingly, the
implementation of this pronouncement had no impact on the Company's financial
position or results of operations for 2001 or 2000.

ACCOUNTS RECEIVABLE AND COLLECTIBILITY

     Approximately $4.7 million of the Company's accounts receivable balance of
$9.4 million at December 31, 2001 is attributable to subrogation services. The
subrogation accounts receivable represents the Company's fees for cases in which
the parties have reached settlements (including settlements of the subrogation
claims of the Company's clients) but the Company has not yet received the cash
from the settlement of the subrogation claim. The Company withholds its fee from
the gross recovery proceeds of the subrogation claims that it collects on behalf
of its clients. An allowance for doubtful accounts is maintained for the
estimated loss from settlements that are later broken or significantly delayed,
based on the Company's historical experience. The accounts receivable balance
that at December 31, 2001 was attributable to subrogation claims represented
approximately 3,800 settled cases for approximately 150 clients, each one
subject to its own settlement agreement with its own settling parties. If the
receipt of cash from a significant number of the settled cases comprising the
subrogation accounts receivable balance were significantly delayed by third
parties to those settled cases (because of broken settlement agreements, for
example), additional allowances may be required.

     Approximately $4.6 million of the Company's accounts receivable balance of
$9.4 million at December 31, 2001 is attributable to provider bill audit
services. The provider bill audit accounts receivable represents the amounts
invoiced by the Company to its clients for its fee for completed provider
audits. For each completed audit, prior to invoicing, the Company obtains a
sign-off from the provider representative as evidence of agreement with the
audit findings. The Company maintains an allowance for doubtful accounts for the
estimated losses arising from adjustments the client may make to invoiced
amounts based on the client's inability to recoup the claim overpayment from the
provider. The amount of the allowance is based on the Company's historical
experience related to client adjustments. However, the Company's fee for
provider bill audit services is self-funding in that the client is able to
adjust future claim payments made to the providers for the audit discrepancies
identified. The accounts receivable balance that at December 31, 2001 was
attributable to provider bill audits completed represented approximately 3,000
completed audits for nine clients. If the Company's provider bill audit clients
were to increase the value of negative adjustments made to audit results,
additional allowances may be required.
                                        22
<PAGE>

VALUATION OF LONG-LIVED AND INTANGIBLE ASSETS

     The Company regularly reviews the carrying value of long-lived and
identifiable intangible assets with respect to any events or circumstances that
indicate an impairment or an adjustment to the depreciation or amortization
period is necessary. If circumstances suggest the recorded amounts cannot be
recovered based on estimated future undiscounted cash flows, the carrying values
of such assets are reduced to fair value.

PROVISION FOR INCOME TAXES

     Provision for income taxes is based upon the Company's estimate of taxable
income or loss for each respective accounting period. An asset or liability is
recognized for the deferred tax consequences of temporary differences between
the tax bases of assets and liabilities and their reported amounts in the
financial statements. These temporary differences will result in taxable or
deductible amounts in future periods when the reported amounts of assets are
recovered or liabilities are settled. The Company regularly reviews its deferred
tax assets to determine the amount that is more likely than not to be realized.
When this amount is less than the deferred tax asset recorded, the Company
records a valuation allowance to reduce the asset to its estimated realizable
value. If the Company determined that it was not going to be able to fully
realize its recorded deferred tax assets, it would make an adjustment to the
valuation allowance. This would reduce net income in the period that the Company
made its determination. Similarly, if the Company realized that it was going to
be able to fully realize a deferred tax asset in excess of its net recorded
value, net income would be increased in the period that the Company made its
determination.

     The Company also reviews its deferred tax liabilities on a regular basis to
determine that the amount recorded is adequate to cover the expected reversal of
temporary income tax liabilities. In the event that the amount recorded was less
than adequate, the deferred tax liability would be increased to its estimated
realizable value and net income would be decreased accordingly. In the event
that the deferred tax liability was determined to be overstated, it would be
reduced to its estimated realizable value and net income would increase
accordingly.

     The Company generally determines its effective tax rate by considering the
statutory federal income tax rate, the statutory state and local tax rates (net
of the federal income tax benefit) and any nondeductible expenses. This rate
could also be affected by increases or decreases to deferred tax assets or
liabilities as described above.

ACCRUED EXPENSES

     The Company reviews its contingent liabilities, which arise primarily from
litigation and litigation defense costs, in accordance with Statement of
Financial Accounting Standards No. 5 (SFAS 5), "Accounting for Contingencies".
Contingent liabilities are recorded as liabilities when it is probable that a
liability has been incurred and the amount of the loss is reasonably estimable.
Contingent liabilities are often resolved over long periods. Estimating probable
losses requires judgments about both the amount of liability, which may or may
not be readily determinable, and the likelihood of liability, which involves
ranges of probability that can at times be broad and depend on the potential
actions of third parties.

COMMON STOCK OPTIONS

     The Company accounts for options granted under its employee stock-based
compensation plans in accordance with Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees". As a result, the Company has not
recognized compensation expense for stock options granted with an exercise price
equal to the quoted market price of the common stock on the date of grant and
that vest based solely on continuation of employment by the recipient of the
option award. The Company adopted Statement of Financial Accounting Standards
No. 123 (SFAS No. 123) for disclosure purposes in 1996. For SFAS No. 123
purposes, the fair value of each option grant and stock-based award has been
estimated as of the date of grant using the Black-Scholes option pricing model.
If the Company were to adopt SFAS No. 123 to account for options, compensation
expense would be recognized resulting in a decrease in net income and earnings
per

                                        23
<PAGE>

share for the years ended December 31, 2001, 2000 and 1999, as set forth in Note
12 in Item 8. "Financial Statements and Supplementary Data".

IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

     In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 141 (FAS 141), "Business
Combinations", which provides that all business combinations should be accounted
for using the purchase method of accounting and establishes criteria for the
initial recognition and measurement of goodwill and other intangible assets
recorded in connection with a business combination. The provisions of FAS 141
apply to all business combinations initiated after June 30, 2001 and to all
business combinations accounted for by the purchase method that are completed
after June 30, 2001. The Company will apply the provisions of FAS 141 to any
future business combinations.

     Also, in June 2001, the FASB issued Statement of Financial Accounting
Standards No. 142 (FAS 142), "Goodwill and Other Intangible Assets", which
establishes the accounting for goodwill and other intangible assets following
their recognition. FAS 142 applies to all goodwill and other intangible assets
whether acquired singly, as part of a group, or in a business combination. FAS
142 provides that goodwill should not be amortized but should be tested for
impairment annually using a fair-value based approach. In addition, FAS 142
provides that other intangible assets other than goodwill should be amortized
over their useful lives and reviewed for impairment in accordance with Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". FAS 142 is
effective for the Company beginning on January 1, 2002. The Company will now be
required to perform a transitional impairment test under FAS 142 for all
goodwill recorded as of January 1, 2002. Any impairment loss recorded as a
result of completing the transitional impairment test will be treated as a
change in accounting principle. The impact of the adoption of FAS 142 on the
Company's results of operations for all periods beginning on or after January 1,
2002 will be to eliminate amortization of goodwill. Management of the Company
has not performed a transitional impairment test under FAS 142 and accordingly
cannot estimate the impact of the adoption of FAS 142 as of January 1, 2002.

     In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 143 (FAS 143), "Accounting for Asset Retirement Obligations". FAS 143 is
effective for fiscal years beginning after June 15, 2002, and provides
accounting requirements for asset retirement obligations associated with
tangible long-lived assets. The Company has not yet determined the effects of
this standard on its financial statements.

     In October 2001, the FASB issued Statement of Financial Accounting
Standards No. 144 (FAS 144), "Accounting for the Impairment or Disposal of
Long-Lived Assets". FAS 144 is effective for fiscal years beginning after
December 15, 2001. This statement supersedes FAS 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of",
and the accounting and reporting provisions of APB Opinion No. 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", for the disposal of a business segment. FAS 144 establishes a
single accounting model, based on the framework established in FAS 121. The
Company has not yet determined the effect of this standard on its financial
statements.

OVERVIEW OF OPERATIONS

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

     "Backlog" is the total dollar amount of potentially recoverable claims that
the Company is pursuing or auditing on behalf of its clients at a given point in
time. These claims are gross figures, prior to estimates of claim settlements
and rejections. Backlog increases when the Company opens new files of
potentially recoverable claims and decreases when files are recovered and closed
or, after further investigation,
                                        24
<PAGE>

determined to be nonrecoverable. Backlog for a client will range from newly
identified potential recoveries to potential recoveries that are in the late
stages of the recovery process. Historically, recoveries (the amount actually
recovered for the Company's clients prior to the Company's fee) have been
produced from backlog in a generally predictable cycle. Any group of potential
recoveries, sufficiently large in number to display statistically significant
characteristics and that originates from a defined time period, tend to produce
recovery results that are comparable to other groups having similar
characteristics.

     For the most part, the Company is paid contingency fees from the amount of
claims recoveries it makes from backlog or recoveries it identifies through
other cost containment and related recovery services on behalf of its clients.
The Company's revenues are a function of recoveries and effective fee rates.
Effective fee rates vary depending on the mix between services provided and
client fee schedules. The fee schedules for each client are separately
negotiated and reflect the Company's standard fee rates, the services to be
provided and anticipated volume of services. The Company grants volume discounts
and, for its recovery services, negotiates a lower fee when it assumes backlog
from a client because the client will have already completed some of the
recovery work. Because the Company records expenses as costs are incurred and
records revenues only when a file is settled, there is a lag between the
recording of expenses and related revenue recognition.

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

                                        25
<PAGE>

RESULTS OF OPERATIONS

     The following tables present certain key operating indicators and results
of operations data for the Company for the periods indicated:

                          KEY OPERATING INDICATORS(1)
                         LIVES AND DOLLARS IN MILLIONS

<Table>
<Caption>
                                                                         DECEMBER 31,
                                                              ----------------------------------
                                                                2001         2000       1999(2)
                                                              --------   ------------   --------
<S>                                                           <C>        <C>            <C>
Cumulative lives sold, beginning of period..................      52.5         55.6         40.5
  Lives from acquisitions...................................        --           --         18.6
  Lives from existing client loss, net(3)...................     (10.6)        (6.6)        (7.7)
  Lives added from contracts with existing clients..........       2.0          1.4          0.7
  Lives added from new contracts with new clients...........       5.2          2.1          3.5
                                                              --------     --------     --------
Cumulative lives sold, end of period........................      49.1         52.5         55.6
                                                              ========     ========     ========
Lives installed.............................................      45.5         48.7         51.9
Backlog(4)..................................................  $1,414.8     $1,182.0     $1,084.5
Claims recoveries...........................................  $  238.5     $  237.3     $  226.1
Throughput(5)...............................................      18.4%        20.9%        20.8%
Effective fee rate..........................................      26.8%        26.8%        27.2%
Claims revenues.............................................  $   64.0     $   63.6     $   61.4
Employees:
  Direct operations.........................................       555          536          597
  Support...................................................       143          141          144
                                                              --------     --------     --------
          Total employees...................................       698          677          741
                                                              ========     ========     ========
</Table>

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

(1) Excludes the operational results of TransPaC Solutions and Troveris, except
    number of employees. See Item 1. "Business -- Business
    Developments -- Services to the Property and Casualty Insurance Industry"
    and "-- Technology Development".
(2) The 1999 key operating indicators include the operating performance of Subro
    Audit and MedCap from their respective acquisition dates of January 25, 1999
    and February 15, 1999.
(3) Represents the net of: losses from contract terminations and organic
    declines in the clients' installed base measured in the number of persons
    covered by clients; and gains from organic growth in the clients' installed
    base measured in the number of persons covered by clients.
(4) Backlog is the total dollar amount of potentially recoverable claims that
    the Company is pursuing or auditing on behalf of clients at a given point in
    time.
(5) Throughput equals claims recoveries for the period divided by the average of
    backlog at the beginning and end of the period.

2001 COMPARED TO 2000

     Claims Revenues.  Claims revenues for the year ended December 31, 2001
(which include TransPac Solutions revenues of approximately $187,000) increased
0.8%, to $64.1 million from $63.6 million in 2000. This growth in claims
revenues occurred primarily because of a 0.5% growth in claims recoveries, from
$237.3 million in 2000 to $238.5 million in 2001. The effective fee rate
remained the same between the two years at 26.8%.

     Total claims recoveries for 2001 increased approximately $1.2 million, or
0.5%, from 2000 claims recoveries. Subrogation recoveries for 2001 were about
$2.0 million, or 1.0%, more than in the prior year, primarily due to an increase
in throughput. Provider bill audit recoveries decreased about $1.2 million, or
3.9%, compared to 2001, in large part due to hospital access issues encountered
during the first three quarters of 2001. These access issues, which mainly stem
from the delaying tactics of hospitals that want to minimize the costs of being
audited and potential negative audit adjustments, were the primary reason that
provider bill audit backlog grew to be approximately 35% of total backlog as of
December 31, 2001 compared to only 24%

                                        26
<PAGE>

of total backlog as of December 31, 2000. Total backlog increased 19.7% to
$1,414.8 million as of December 31, 2001 from $1,182.0 million as of December
31, 2000. Although most of the backlog growth related to provider bill audit,
subrogation backlog increased approximately $12.0 million, or 1.3%, compared to
the prior year. The decline in total throughput from 20.9% in 2000 to 18.4% in
2001, was entirely attributable to the increase in provider bill audit backlog,
while related recoveries decreased.

     The decrease in installed lives from 48.7 million at December 31, 2000 to
45.5 million at December 31, 2001 was caused by three factors. First,
approximately 2.6 million lives were lost because clients were acquired by
non-clients. Second, approximately 2.0 million lives associated with provider
bill audit service clients which were not furnishing electronic claims data to
the Company and were, therefore, relatively unproductive, were removed from the
installed lives count. Third, approximately 1.3 million lives from UnitedHealth
Group and 1.5 million lives from a managed care health organization based in the
Northeast were terminated. These terminations did not, as a matter of contract,
result in a decrease to the backlog.

     Cost of Services.  Cost of services increased 3.8% in 2001 to $31.6 million
from $30.4 million in 2000. As a percentage of claims revenues, cost of services
increased to 49.2% in 2001 from 47.8% in 2000. The increase in cost of services
in total and as a percentage of claims revenues in 2001 compared to 2000 was
primarily due to additional expenses for the investigation of files, including
increases in staffing levels for the provider bill audit and overpayment
recovery services related to new business sold during the year. In addition the
Company incurred approximately $0.5 million in costs for services related to the
Company's property and casualty recovery services.

     Support Expenses.  Support expenses increased 2.6% to $17.5 million for the
year ended December 31, 2001, from $17.1 million for 2000. Support expenses as a
percentage of claims revenues increased from 26.8% for the year ended December
31, 2000 to 27.3% for 2001. The increase in support expenses in total and as a
percentage of claims revenues resulted primarily from an increase in sales and
marketing and management expenses related to the Company's business development
activities.

     During 2001, the Company entered into the subrogation outsourcing market
that serves property and casualty ("P&C") insurers. The Company is offering its
services to the P&C market under the brand name "TransPaC Solutions". The
Company has established a full-time direct sales force of three individuals
experienced in P&C sales and marketing. Development of TransPaC Solutions during
the year ended December 31, 2001, cost the Company approximately $0.8 million in
support expenses, with approximately 61.6% of that related to sales and
marketing.

     The Company also began the internal development of a web-enabled
subrogation software application. The Company will sell these products as an
application service provider ("ASP"), under the trade name "Troveris", both to
the health insurance and benefits market and to the P&C market. During the
second quarter of 2001, the Company completed and offered for sale a
commercially available health insurance application. During the third quarter of
2001, the Company completed and offered for sale a commercially available P&C
application. Through December 31, 2001, the Company had not yet sold either the
health insurance application or the P&C application. Development of Troveris
during the year ended December 31, 2001 cost the Company approximately $0.5
million in support expenses with approximately 68.0% of that related to sales
and marketing.

     Research and Development.  The Company incurred approximately $0.5 million
of expenses in 2001 related to research and development activities in connection
with the creation of new products for the insurance industry compared to
approximately $0.4 million in 2000.

     Depreciation and Amortization.  Depreciation and amortization expenses
increased 5.2% to $6.7 million for the year ended December 31, 2001 from $6.4
million for 2000. The increase in depreciation expense was attributable to the
purchased property and equipment and internally developed software related to
the system upgrades. The increase in amortization expense was attributable to
the addition of intangible assets related to the Subro Audit Acquisition final
earnout payment.

                                        27
<PAGE>

     Interest Income.  Interest income decreased $0.3 million, or 28.9%, for the
year ended December 31, 2001 as compared to the year ended December 31, 2000.
The decrease was primarily due to the release of the restricted cash from the
Subro Audit Acquisition escrow account which was used to pay down long-term
debt.

     Interest Expense.  Interest expense totaled $0.9 million and $1.3 million
for the years ended December 31, 2001 and 2000, respectively. The decrease in
interest expense for 2001 resulted primarily from a decrease in long-term
borrowings due to the sale of the Wisconsin building and the release of
restricted cash from the Subro Audit Acquisition escrow account. Additionally,
the effective interest rate was approximately 2.1% lower during 2001 than during
2000.

     Other -- Loss on Disposal of Assets.  In November 2001, the Company sold
its building in New Berlin, Wisconsin to a third party at a loss of $1.0
million. The Company acquired the building on January 25, 1999 in the Subro
Audit Acquisition.

     Other -- Special Committee Expenses.  In August 1999, the Company's Board
of Directors appointed the Special Committee to evaluate strategic alternatives
available to the Company, including its possible sale. During the first quarter
of 2000, the Company incurred $90,000 of expenses related to the work of the
committee. In March 2000, after determining that the interests of the Company's
shareholders would be best served by focusing on building the Company's
business, the Special Committee ceased seeking a buyer for the Company and its
efforts to enhance shareholder value were assumed by the full Board of
Directors. See "-- Other Matters -- Special Committee".

     Other -- Litigation Settlement.  In the fourth quarter of 2000, the Company
recorded a litigation settlement of approximately $3.0 million after it had
reached an agreement in principle to settle the DeGarmo class action litigation
against the Company in federal court in West Virginia. The settlement was paid
in July 2001. See Item 3. "Legal Proceedings".

     Tax.  The provision for income taxes was approximately 31.3% of pre-tax
income for the year ended December 31, 2001 compared to 41.5% for the year ended
December 31, 2000. In September 2001, the Company concluded that in light of the
passage of time with respect to the filing of the Company's tax returns for
years up to and including 1997, it was proper to reverse previously accrued
taxes reducing the tax provision for the third quarter by $681,000, net, or
approximately $0.07 per share. This accrual related primarily to certain
non-cash compensation charges taken in connection with the initial public
offering of the Company's stock in 1997. Management believes that adequate
amounts of tax and related interest and penalties, if any, have been provided
for any adjustments that may result. The effective tax rates for 2001 (excluding
the reversal of previously accrued taxes described above) and 2000 exceeded the
Federal statutory tax rate as a consequence of state and local taxes and
non-deductible expenses.

     Net Income.  Net income for the year ended December 31, 2001 increased $1.0
million, or 29.5%, to $4.6 million or $0.46 per diluted share, from $3.6
million, or $0.33 per diluted share, for the year ended December 31, 2000. Net
income increased primarily as a result of the accrual of $1.8 million of
expenses, net of income taxes, at December 31, 2000 related to the DeGarmo
litigation settlement described above. However, the increase in net income
resulting from the DeGarmo litigation settlement was partially offset by an
increase in net after tax expenses related to the Company's business development
activities of approximately $1.1 million. See Item 1. "Business -- Business
Developments -- Services to the Property and Casualty Industry" and
"-- Technology Development". In addition, there were two significant,
non-recurring items in 2001 which together resulted in an increase to net income
of $90,000: the loss on the disposal of property of approximately $591,000, net
of tax; and the reversal of income taxes previously accrued for the non-cash
compensation charge in 1997 of approximately $681,000, net of tax.

2000 COMPARED TO 1999

     Revenues.  Claims revenues for the year ended December 31, 2000 increased
3.6%, to $63.6 million from $61.4 million in 1999. This growth in claims
revenues occurred primarily because of a 4.9% growth in claims recoveries, from
$226.1 million in 1999 to $237.3 million in 2000. Claims revenues grew at a
slower rate than claims recoveries between the two periods due to a decrease in
the effective fee rate from 27.2% in 1999 to

                                        28
<PAGE>

26.8% in 2000. The effective fee rate decreased in 2000 because of the recovery
mix during the year, with relatively more recoveries coming from the provider
bill audit and overpayments services and relatively more subrogation recoveries
for clients with lower fee rates.

     The 4.9% increase in recoveries for the year ended December 31, 2000
compared to 1999 resulted primarily from an increase in backlog, which grew 9.0%
over the year ended December 31, 1999, and due to the Acquisitions. Because both
Acquisitions were closed in the first quarter of 1999, a full year of activity
related to the Acquisitions is reported in the results for the year ended
December 31, 2000, while slightly less than a full year of activity was included
in the 1999 results. This reporting anomaly caused an increase in the recovery
growth rate from 1999 to 2000. Recoveries for 2000 grew more slowly than did
backlog primarily because the backlog growth was related to the provider bill
audit and overpayment recovery services, which typically yield less recoveries
than subrogation backlog. Improved productivity in the Company's operations,
particularly in a subrogation unit that specializes in large files, resulted in
a slight improvement in throughput from 20.8% for 1999 to 20.9% for 2000.
Although installed lives decreased from 51.9 million at December 31, 1999 to
48.7 million at December 31, 2000, backlog increased $97.5 million from $1,084.5
million at December 31, 1999 to $1,182.0 million at December 31, 2000. The
reason that backlog increased during the same period in which lives installed
decreased is that the Company typically continues to make recoveries on the
backlog of terminated clients that exists as of the contract termination date,
until that backlog is exhausted (i.e., usually 5 to 6 years), but removes
terminated clients from the category of "lives installed" as of the contract
termination date.

     Cost of Services.  Cost of services decreased 3.2% in 2000 to $30.4 million
from $31.5 million in 1999. As a percentage of claims revenues, cost of services
decreased to 47.8% in 2000 from 51.2% in 1999. The decrease in cost of services
in total and as a percentage of claims revenues in 2000 compared to 1999
resulted primarily from certain productivity enhancements instituted early in
2000 and management of labor costs.

     Support Expenses.  Support expenses increased 7.5% to $17.1 million for the
year ended December 31, 2000, from $15.9 million for 1999 due to hiring
additional staff to support the planned growth and development of new
operations. Support expenses as a percentage of claims revenues increased from
25.8% for the year ended December 31, 1999 to 26.8% for 2000. The increase in
support expenses as a percentage of claims revenues resulted primarily from
expenses incurred in the development of new operations. Support expenses
typically do not vary in proportion to revenues.

     Research and Development.  The Company incurred $366,000 of expenses
related to research and development activities in connection with the creation
of new products for the insurance industry. See Item 1. "Business -- Business
Developments -- Technology Development".

     Depreciation and Amortization.  Depreciation and amortization expenses
increased 28.6% to $6.4 million for the year ended December 31, 2000 from $5.0
million for 1999. The increase in depreciation expense was attributable to the
purchased property and equipment related to the Acquisitions and system
upgrades. The increase in amortization expense was attributable to the addition
of intangible assets acquired in the Acquisitions.

     Interest Expense.  Interest expense totaled $1.3 million and $0.9 million
for the years ended December 31, 2000 and 1999, respectively. The increase in
interest expense for 2000 resulted primarily from an increase in borrowed funds
related to the stock repurchase program and the MedCap earn-out payment, and was
impacted by higher effective interest rates during 2000.

     Other -- Special Committee Expenses.  In August 1999, the Board of
Directors appointed the Special Committee to evaluate strategic alternatives
available to the Company, including its possible sale. The Company incurred
$451,000 in expenses related to the work of the committee during 1999 and
$90,000 in expenses during the first quarter of 2000. In March 2000, after
determining that the interests of the Company's shareholders would be best
served by focusing on building the Company's business, the Special Committee
ceased seeking a buyer for the Company and its efforts to enhance shareholder
value were assumed by the full Board of Directors. See "-- Other
Matters -- Special Committee".

                                        29
<PAGE>

     Other -- Litigation Settlement.  In the fourth quarter of 2000, the Company
recorded a litigation settlement of approximately $3.0 million after it had
reached an agreement in principle to settle the DeGarmo class action litigation
against the Company in federal court in West Virginia. The settlement was paid
in July 2001. See Item 3. "Legal Proceedings".

     Tax.  Provision for income taxes was approximately 41.5% of pre-tax income
for each of the years ended December 31, 2000 and 1999. The effective tax rate
exceeded the Federal statutory tax rate as a consequence of state and local
taxes and non-deductible expenses.

     Net Income.  Net income for the year ended December 31, 2000 decreased $1.6
million, or 31.2%, to $3.6 million or $0.33 per diluted share, from $5.2
million, or $0.46 per diluted share, for the year ended December 31, 1999. Net
income decreased primarily as a result of the year to year increases in support
expenses and depreciation and amortization as well as the litigation settlement
expense described above, which collectively more than offset the increase in
claims revenues between the two years.

LIQUIDITY AND CAPITAL RESOURCES

     The Company's statements of cash flows for the years ended December 31,
2001, 2000 and 1999 are summarized below:

<Table>
<Caption>
                                                                   DECEMBER 31,
                                                           ----------------------------
                                                            2001      2000       1999
                                                           -------   -------   --------
                                                                  (IN THOUSANDS)
<S>                                                        <C>       <C>       <C>
Net cash provided by operating activities................  $ 5,952   $ 8,445   $  9,056
Net cash provided by (used in) investing activities......    1,327    (5,500)   (48,078)
Net cash (used in) provided by financing activities......   (6,029)   (3,115)     9,356
                                                           -------   -------   --------
Net increase (decrease) in cash and cash equivalents.....  $ 1,250   $  (170)  $(29,666)
                                                           =======   =======   ========
</Table>

     The Company had working capital of $10.4 million at December 31, 2001,
including cash and cash equivalents of $2.5 million, compared with working
capital of $7.8 million at December 31, 2000.

     Net cash provided by operating activities decreased $2.5 million for the
year ended December 31, 2001, compared to the year ended December 31, 2000,
primarily as a result of the $3.0 million litigation settlement which was
expensed in 2000 and paid in 2001. The remainder of net cash provided by
operations was used to repay amounts outstanding under the Company's Revolving
Credit Facility.

     Net cash provided by investing activities in the year ended December 31,
2001 includes $2.6 million released from restricted cash related to the earnout
provision of the Subro Audit Acquisition. Capital expenditures for the year
ended December 31, 2001 were approximately $3.8 million. Disposals of property
and equipment of $2.6 million included the sale of a building owned in
Wisconsin. During 2002, the Company anticipates capital expenditures
approximating $3.5 million to meet the requirements of the Company's growing
revenue base and development activities.

     Net cash provided by financing activities for the year ended December 31,
2001 reflects $6.0 million in net cash repayments with respect to the Company's
credit facility as discussed below.

     On November 1, 2001, the Company entered into a revolving credit facility
with National City Bank of Kentucky, Bank One Kentucky, N.A. and Fifth Third
Bank (the "Revolving Credit Facility"). The Company's obligations under the
Revolving Credit Facility are secured by substantially all of the Company's
assets, subject to certain permitted exceptions. The Revolving Credit Facility
carries a maximum borrowing capacity of $40 million and will mature October 31,
2004. Principal amounts outstanding under the Revolving Credit Facility will
bear interest at a variable rate based on the Prime Rate or Eurodollar Rate, as
applicable, plus a pre-determined fixed margin. At December 31, 2001, the
interest rate was 3.84% based on the one-month Eurodollar Rate plus the fixed
margin. The Revolving Credit Facility contains customary covenants and events of
default including, but not limited to, financial tests for interest coverage,
net worth levels and leverage that may limit the Company's ability to pay
dividends. It also contains a material adverse change clause. At December 31,
2001, $8 million was outstanding under the Revolving Credit Facility.

                                        30
<PAGE>

     At December 31, 2001 and 2000, the Company reported as a current asset on
its balance sheets, restricted cash of $18.0 million and $21.6 million,
respectively. Restricted cash at December 31, 2001 and 2000 represented claims
recoveries effected by the Company for its clients and also included an escrowed
amount of $4.7 million at December 31, 2000 for a potential earn-out in
connection with the Subro Audit Acquisition. At December 31, 2001 and December
31, 2000, the Company reported on its balance sheets, as a current liability,
funds due clients of $12.9 million and $12.4 million, respectively, representing
recoveries to be distributed to clients, net of the fee earned on such
recoveries.

     In light of its acquisition strategy, the Company is currently assessing
its opportunities for capital formation. The Company believes that its available
cash resources, together with the borrowings available under the Revolving
Credit Facility, will be sufficient to meet its current operating requirements
and acquisition and internal development activities. See Item 1.
"Business -- Business Developments".

     The following summarizes the Company's contractual obligations at December
31, 2001, and the effect such obligations are expected to have on its liquidity
and cash flows in future periods.

<Table>
<Caption>
                                                       LESS THAN     1-3      4-5      AFTER
                                              TOTAL     1 YEAR      YEARS    YEARS    5 YEARS
                                             -------   ---------   -------   ------   -------
<S>                                          <C>       <C>         <C>       <C>      <C>
Contractual Obligations:
  Long-term debt...........................  $ 8,000    $   --     $ 8,000   $   --   $   --
  Operating leases.........................   14,438     2,139       4,625    4,528    3,146
                                             -------    ------     -------   ------   ------
  Total contractual obligations............  $22,438    $2,139     $12,625   $4,528   $3,146
                                             =======    ======     =======   ======   ======
</Table>

EXTERNAL FACTORS

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

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

CONCENTRATION OF CLIENTS

     The Company provides services to healthcare plans that as of December 31,
2001 covered approximately 49.1 million lives. The Company's clients are
national and regional healthcare payors, large third-party administrators or
self-insured corporations. The Company's largest client is UnitedHealth Group.
During the years ended December 31, 2001, 2000 and 1999, UnitedHealth Group
generated 27%, 24% and 23% of the Company's revenues, respectively. The loss of
this account could have a material adverse effect on the Company's business,
results of operations and financial condition.

     The Company received from UnitedHealth Group ("UHG"), through its Uniprise
strategic business unit, termination notices regarding subrogation recovery
services covering approximately 1.3 million lives as to which the Company ceased
during 2001 to receive new claims data and, therefore, to identify new
recoverable files. These terminations are reported as "lost" in the Key
Operating Indicators table (See "-- Results of
                                        31
<PAGE>

Operations"), but are offset by the approximately 1.8 million UHG lives added to
service during the year ended December 31, 2001. The total UHG lives sold and
installed at December 31, 2001 were approximately 14.8 million.

     Moreover, the Company received from Uniprise termination notices regarding
subrogation recovery services covering approximately 4.7 million lives as to
which the Company will cease during 2002 to receive new claims data and,
therefore, to identify new recoverable files. These terminations are not
reported as "lost" in the Key Operating Indicators table above because the
effective dates of the terminations occur in 2002. The Company has learned from
UHG that all of this terminated business (i.e., 6 million lives) will be
serviced by UHG's Ingenix strategic business unit.

     The Company expects that it will continue to recover from the backlog it
has created for the terminated portions of the UHG business for 5 to 6 years
after the effective dates of the terminations. The Company further expects that
60% to 70% of that UHG backlog will be recovered within 36 months of the
effective dates of the terminations. Moreover, the Company does not anticipate
that any of these UHG terminations will affect its previously published guidance
on 2002 financial results from subrogation services. However, to the extent that
the Company does not replace the business terminated by UHG, future subrogation
recoveries and revenues will be diminished by the UHG terminations.

     The Company believes, based on information derived from Uniprise, that
approximately 55% of the total UHG book of business that the Company serviced at
December 31, 2001 -- approximately 14.8 million lives -- are from either
self-insured employer groups that receive claims administration services from
Uniprise or health plans that are under a management contract with UHG. The
Company believes that neither UHG nor Uniprise controls these self-insured
employer groups and managed health plans (i.e., "external clients") in the
selection of their subrogation vendor and that the Company may, therefore, sell
its recovery services directly to these external clients following any current
or future UHG terminations. The Company intends to compete vigorously for the
subrogation and other recovery business of these external clients against
Ingenix as well as any other vendors.

     Wellpoint Health Networks accounted for 40% and 29% of the Company's
accounts receivable balance at December 31, 2001 and 2000, respectively.
Wellpoint Health Networks represents approximately 70% of the Company's revenue
earned from its provider bill audit service.

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

     The Company performs its services on a reasonable efforts basis and does
not obligate itself to deliver any specific result. Contracts with its customers
are generally terminable on 60 to 180 days' notice by either party, although in
a few cases the contracts extend over a period of years. The Company's contracts
generally provide that in the event of termination, the Company is entitled to
complete the recovery process on the existing backlog or to receive a cash
payment designed to approximate the gross margin that would otherwise have been
earned from the recovery on the backlog of the terminating client. On December
31, 2001, the Company had backlog of $1,414.8 million.

OTHER MATTERS

 Special Committee

     In August 1999, the Company's management approached the Company's Board of
Directors to propose a transaction in which a private equity firm would acquire
the Company for cash and the Company's management would acquire equity
participation in the acquisition vehicle. In response, the Board of Directors
appointed a Special Committee composed of the non-management directors and gave
it a broad mandate to evaluate the strategic alternatives available to the
Company and to explore those alternatives, as the committee deemed appropriate.
After consulting with its own legal and financial advisers, the Special

                                        32
<PAGE>

Committee directed its financial adviser to solicit indications of interest from
potential acquirers regarding a possible sale or business combination.
Subsequently, 22 third parties entered into confidentiality agreements and
although several of them conducted significant "due diligence" investigations of
the Company, all but one of the participants declined to pursue a transaction.
The Special Committee's financial advisor then informed the Special Committee
that it would be unwilling to render its opinion that a transaction based on the
single proposal that was submitted (by the management-allied private equity
firm) would be fair to the Company's stockholders. In light of the financial
advisor's position, the Special Committee decided to terminate the process of
actively seeking an acquirer or a strategic merger partner and to focus on
building the Company's business.

     Since that time, the Company has taken steps to enhance shareholder value
through a variety of business development efforts and a continuation of the
stock repurchase plan authorized by the Board in March 1999. See "-- Stock
Repurchase Plan" and Item 1. "Business -- Business Developments".

 Appointment of Directors

     On August 3, 2001, the Board of Directors, through its Nominating
Committee, nominated Lauren N. Patch to the Board of Directors to fill a newly
created directorship. Mr. Patch's nomination was approved by the Board of
Directors on August 3, 2001, as permitted under the Company's Certificate of
Incorporation and Bylaws. Mr. Patch will hold office until the next succeeding
Annual Meeting, at which time his directorship will be subject to a vote of the
Company's shareholders.

     In 2001, the Board of Directors, through its Nominating Committee,
nominated Herbert A. Denton to fill a vacant position on the Board. Mr. Denton's
nomination was approved by the remaining directors on May 11, 2001. Under the
Company's Certificate of Incorporation and Bylaws, a vacancy on the Board of
Directors created by a resignation may be filled by a majority vote of the
remaining directors. A director so chosen to fill the vacancy would hold office
until the next succeeding Annual Meeting.

 Stock Repurchase Plan

     The Company's Board approved a stock repurchase plan on March 12, 1999
under which the Company is authorized to repurchase, from time to time, up to
$10 million of the Company's Common Stock in the open market, at prices per
share deemed favorable by the Company. Shares may be repurchased using cash from
operations and borrowed funds and may continue until such time as the Company
has repurchased $10 million of the Company's Common Stock or until it otherwise
determines to terminate the stock repurchase plan. The Company repurchased
19,500 shares of its own stock during the year ended December 31, 2001 at an
average price of $4.02. From inception of the program through December 31, 2001,
total repurchased shares are 1,792,265 at a cost of $7.1 million, or an average
cost of $3.97 per share. All of the reacquired shares of Common Stock through
December 31, 2001 are reflected as treasury stock on the accompanying Balance
Sheets.

 Adoption of a Rights Plan

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

                                        33
<PAGE>

Company at a purchase price of $65 (the "Purchase Price"). The Rights are
redeemable for $0.001 per Right at the option of the Board of Directors. The
Rights expire on March 1, 2009.

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

 Related Party Transactions

     The Company has entered into a contract for legal services with a
professional service corporation, Sharps & Associates, PSC, that is wholly owned
by Douglas R. Sharps, the Company's Executive Vice President -- Finance and
Administration, Chief Financial Officer and Secretary. This arrangement exists
solely for the benefit of the Company and its purpose is to minimize the costs
of legal services purchased by the Company on behalf of its clients. Mr. Sharps
receives no financial or other personal benefits from his ownership of this
firm. For the year ended December 31, 2001, approximately $3,385,000 was paid to
this law firm for such legal services (which equates to a rate of approximately
$40 per hour), including all employees and expenses.

     On February 12, 1999, the Board of Directors approved a loan in the amount
of $350,000 to Patrick B. McGinnis, the Chairman and Chief Executive Officer of
the Company, in exchange for a full recourse promissory note in the same amount
from Mr. McGinnis. On June 30, 2000, at the direction of the Board of Directors
and in accordance with terms authorized by it, the Company loaned Mr. McGinnis
an additional $500,000. Under these terms, the $500,000 loan to Mr. McGinnis was
combined with his existing debt to the Company of $350,000 of principal and
$36,520 of accrued interest. Mr. McGinnis delivered to the Company his full
recourse promissory note in the amount of $886,520, bearing interest at a fixed
rate of 6.62% per annum, compounded annually (the "Amended Promissory Note"),
and the Company cancelled the old promissory note evidencing the prior debt. The
Amended Promissory Note provides for mandatory prepayments from certain of the
proceeds received by Mr. McGinnis from his sale of the Company's securities and
any related transactions. At December 31, 2001, the promissory note of $886,520
and accrued interest of $86,195 were outstanding. Mr. McGinnis used the proceeds
of these loans to repay debts originally incurred by him to pay income taxes
related to the ordinary income deemed to have been received by him on account of
Common Stock granted to him in connection with the initial public offering of
the Company's stock in May 1997 and to purchase additional stock in the initial
public offering.

     On June 30, 2000, pursuant to Board authorization and in accordance with
the terms of the Amended Promissory Note, the Company and Mr. McGinnis entered
into a deferred compensation agreement (the "Agreement"). Under the Agreement,
50% of the amount otherwise payable to Mr. McGinnis under the Company's
Management Group Incentive Compensation Plan is to be deferred until the Amended
Promissory Note is paid in full, with such deferred compensation then being paid
in full to Mr. McGinnis within 30 days thereafter. The Company has full right of
set-off against any deferred compensation under the Agreement should Mr.
McGinnis default under the Amended Promissory Note. At the election of Mr.
McGinnis, the payment of the deferred compensation, upon payment of the Amended
Promissory Note, may be extended for a period of not more than ten years. At
December 31, 2001, the amount of deferred compensation was $52,648, with accrued
interest of $2,779.
                                        34
<PAGE>

ITEM 7A.  QUANTITATIVE & QUALITATIVE MARKET RISK DISCLOSURES

     An element of market risk exists for the Company from changes in interest
rates related to its Revolving Credit Facility, which matures October 31, 2004.
The impact on earnings and the value of any debt on the Company's balance sheets
are subject to change as a result of movements in market rates and prices as a
portion of the Revolving Credit Facility is subject to variable interest rates.
However, the Company does not expect changes in interest rates to have a
material effect on its financial position, results of operations or cash flows
in 2002. As of December 31, 2001, the Company had $8.0 million outstanding under
its Revolving Credit Facility. Through an interest rate swap contract the
Company has entered into, the Company has fixed the interest rate on $4.0
million of the Revolving Credit Facility at 5.41% or 5.66% (contingent on the
status of a financial ratio). The remaining $4.0 million outstanding had an
interest rate of 3.84% at December 31, 2001. See Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources".

                                        35
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
Trover Solutions, Inc.

     In our opinion, the accompanying balance sheets and the related statements
of income, changes in stockholders' equity and comprehensive income and cash
flows appearing on pages 37 through 40 of this annual report on Form 10-K
present fairly, in all material respects, the financial position of Trover
Solutions, Inc. (the "Company") at December 31, 2001 and 2000, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

Louisville, Kentucky
January 25, 2002

                                        36
<PAGE>

                             TROVER SOLUTIONS, INC.

                                 BALANCE SHEETS
                           DECEMBER 31, 2001 AND 2000
                  (IN THOUSANDS, EXCEPT PER SHARE INFORMATION)

<Table>
<Caption>
                                                                2001       2000
                                                              --------   --------
<S>                                                           <C>        <C>
                                     ASSETS
Current assets:
  Cash and cash equivalents.................................  $  2,547   $  1,297
  Restricted cash...........................................    18,035     21,647
  Accounts receivable, less allowance for doubtful accounts
    of $509 in 2001 and $434 in 2000........................     9,382      7,660
  Other current assets......................................     1,805      2,153
                                                              --------   --------
         Total current assets...............................    31,769     32,757
                                                              --------   --------
Property and equipment, at cost:
  Buildings and land........................................        --      4,001
  Furniture and fixtures....................................     3,112      3,230
  Office equipment..........................................     2,041      1,992
  Computer equipment........................................    10,256      9,039
  Software..................................................     7,119      4,844
  Leasehold improvements....................................     1,500      1,308
                                                              --------   --------
                                                                24,028     24,414
  Accumulated depreciation and amortization.................   (17,409)   (13,781)
                                                              --------   --------
         Property and equipment, net........................     6,619     10,633
                                                              --------   --------
Cost in excess of net assets acquired, net..................    29,146     29,143
Identifiable intangibles, net...............................     4,372      4,934
Other assets................................................     2,557      1,978
                                                              --------   --------
         Total assets.......................................  $ 74,463   $ 79,445
                                                              ========   ========
                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Trade accounts payable....................................  $  1,308   $  1,231
  Accrued expenses..........................................     3,612      4,535
  Accrued litigation settlement.............................        --      3,000
  Accrued bonuses...........................................     2,239      2,371
  Funds due clients.........................................    12,876     12,437
  Income taxes payable......................................       300      1,385
  Deferred income tax liability.............................     1,007         --
                                                              --------   --------
         Total current liabilities..........................    21,342     24,959
Other liabilities...........................................     2,355      2,324
Long-term borrowings........................................     8,000     14,000
                                                              --------   --------
         Total liabilities..................................    31,697     41,283
                                                              --------   --------
Commitments and contingencies
Stockholders' equity:
  Preferred stock, $.001 par value; 2,000 shares authorized;
    no shares issued or outstanding.........................        --         --
  Common stock, $.001 par value; 20,000 shares authorized;
    9,791 shares and 9,771 shares outstanding at December
    31, 2001 and 2000, respectively.........................        12         12
  Capital in excess of par value............................    22,758     22,637
  Other.....................................................      (973)      (912)
  Treasury stock at cost; 1,792 shares and 1,773 shares at
    December 31, 2001 and 2000, respectively................    (7,116)    (7,037)
  Accumulated other comprehensive income....................        27         --
  Retained earnings.........................................    28,058     23,462
                                                              --------   --------
         Total stockholders' equity.........................    42,766     38,162
                                                              --------   --------
         Total liabilities and stockholders' equity.........  $ 74,463   $ 79,445
                                                              ========   ========
</Table>

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

                                        37
<PAGE>

                             TROVER SOLUTIONS, INC.

                              STATEMENTS OF INCOME
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
              (DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)

<Table>
<Caption>
                                                               2001      2000      1999
                                                              -------   -------   -------
<S>                                                           <C>       <C>       <C>
Claims revenues.............................................  $64,147   $63,627   $61,409
Cost of services............................................   31,589    30,432    31,451
                                                              -------   -------   -------
          Gross profit......................................   32,558    33,195    29,958
Support expenses............................................   17,499    17,061    15,870
Depreciation and amortization...............................    6,701     6,372     4,954
Research and development....................................      537       366        --
                                                              -------   -------   -------
          Operating income..................................    7,821     9,396     9,134
Interest income.............................................      785     1,104     1,084
Interest expense............................................     (903)   (1,341)     (940)
Other -- Loss on disposal of assets.........................   (1,010)       --        --
Other -- Litigation settlement..............................       --    (3,000)       --
Other -- Special Committee expenses.........................       --       (90)     (451)
                                                              -------   -------   -------
          Income before income taxes........................    6,693     6,069     8,827
Provision for income taxes..................................    2,097     2,519     3,665
                                                              -------   -------   -------
          Net income........................................  $ 4,596   $ 3,550   $ 5,162
                                                              =======   =======   =======
Earnings per common share (basic)...........................  $  0.47   $  0.33   $  0.46
                                                              =======   =======   =======
Earnings per common share (diluted).........................  $  0.46   $  0.33   $  0.46
                                                              =======   =======   =======
</Table>

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

                                        38
<PAGE>

                             TROVER SOLUTIONS, INC.

               STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND
                              COMPREHENSIVE INCOME
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
                             (DOLLARS IN THOUSANDS)

<Table>
<Caption>
                                                      CAPITAL IN                           ACCUMULATED
                                   COMMON STOCK       EXCESS OF    RETAINED                   OTHER
                                -------------------      PAR       EARNINGS    TREASURY   COMPREHENSIVE
                                  SHARES     AMOUNT     VALUE      (DEFICIT)    STOCK        INCOME       OTHER    TOTAL
                                ----------   ------   ----------   ---------   --------   -------------   -----   -------
<S>                             <C>          <C>      <C>          <C>         <C>        <C>             <C>     <C>
Balances, December 31, 1998...  11,502,987    $12      $22,428      $14,753    $    --         $--        $  --   $37,193
  Net Income..................                                        5,162                                         5,162
  Issuance of Common Stock....      10,720                  98                                                         98
  Repurchase of Common Stock..    (305,000)                                     (1,373)                            (1,373)
  Other.......................                              15           (3)                               (369)     (357)
                                ----------    ---      -------      -------    -------         ---        -----   -------
Balances, December 31, 1999...  11,208,707     12       22,541       19,912     (1,373)         --         (369)   40,723
  Net income..................                                        3,550                                         3,550
  Issuance of Common Stock....      29,929                  92                                                         92
  Repurchase of Common Stock..  (1,467,765)                                     (5,664)                            (5,664)
  Other.......................                               4                                             (543)     (539)
                                ----------    ---      -------      -------    -------         ---        -----   -------
Balances, December 31, 2000...   9,770,871     12       22,637       23,462     (7,037)         --         (912)   38,162
  Comprehensive income:
  Net income..................                                        4,596                                         4,596
  Other comprehensive income:
  Cash flow hedge (net of
    related tax expense of
    $19)......................                                                                  27                     27
                                ----------    ---      -------      -------    -------         ---        -----   -------
  Total comprehensive
    income....................                                                                                      4,623
  Issuance of Common Stock....      39,829                 111                                                        111
  Repurchase of Common Stock..     (19,500)                                        (79)                               (79)
  Other.......................                              10                                              (61)      (51)
                                ----------    ---      -------      -------    -------         ---        -----   -------
Balances, December 31, 2001...   9,791,200    $12      $22,758      $28,058    $(7,116)        $27        $(973)  $42,766
                                ==========    ===      =======      =======    =======         ===        =====   =======
</Table>

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

                                        39
<PAGE>

                             TROVER SOLUTIONS, INC.

                            STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
                             (DOLLARS IN THOUSANDS)

<Table>
<Caption>
                                                               2001      2000       1999
                                                              -------   -------   --------
<S>                                                           <C>       <C>       <C>
Cash flows from operating activities:
  Net income................................................  $ 4,596   $ 3,550   $  5,162
  Adjustments to reconcile net income to net cash provided
     by operating activities:
  Depreciation and amortization.............................    6,701     6,372      4,954
  Deferred income taxes.....................................    1,449      (640)       511
  Other.....................................................       37         4         15
  Loss on disposal of assets................................    1,010        --         --
  Changes in operating assets and liabilities:
     Restricted cash........................................   (1,384)      287        603
     Accounts receivable....................................   (1,722)     (790)    (2,153)
     Other current assets...................................     (282)      268         51
     Other assets...........................................     (970)   (1,229)        41
     Trade accounts payable.................................       77      (683)     1,175
     Accrued expenses.......................................   (3,095)    1,682      1,487
     Funds due clients......................................      439      (741)      (852)
     Income taxes payable...................................   (1,085)      367     (1,466)
     Other liabilities......................................      181        (2)      (472)
                                                              -------   -------   --------
          Net cash provided by operating activities.........    5,952     8,445      9,056
                                                              -------   -------   --------
Cash flows from investing activities:
  Acquisitions, net of cash acquired........................    2,551    (3,765)   (44,215)
  Purchases of property and equipment.......................   (2,004)   (1,684)    (3,109)
  Capitalization of internally developed software...........   (1,831)   (1,392)      (754)
  Disposals of property and equipment.......................    2,611     1,341         --
                                                              -------   -------   --------
          Net cash provided by (used in) investing
            activities......................................    1,327    (5,500)   (48,078)
                                                              -------   -------   --------
Cash flows from financing activities:
  Issuance of common stock..................................      111        92         98
  Repurchase of common stock................................      (79)   (5,664)    (1,373)
  Line of credit proceeds...................................    1,500     8,700     14,300
  Line of credit repayments.................................   (7,500)   (5,700)    (3,300)
  Other.....................................................      (61)     (543)      (369)
                                                              -------   -------   --------
Net cash (used in) provided by financing activities.........   (6,029)   (3,115)     9,356
                                                              -------   -------   --------
Net increase (decrease) in cash and cash equivalents........    1,250      (170)   (29,666)
Cash and cash equivalents, beginning of period..............    1,297     1,467     31,133
                                                              -------   -------   --------
Cash and cash equivalents, end of period....................  $ 2,547   $ 1,297   $  1,467
                                                              =======   =======   ========
Supplemental cash flows disclosure:
Income tax payments.........................................  $ 1,734   $ 2,896   $  4,819
                                                              =======   =======   ========
Cash paid for interest expense..............................  $ 1,073   $ 1,140   $    844
                                                              =======   =======   ========
Details of businesses acquired in purchase transactions:
  Fair value of assets acquired.............................  $    --   $    --   $ 45,813
  Less: liabilities assumed.................................       --        --      1,598
                                                              -------   -------   --------
  Cash paid for acquired businesses, net of cash acquired...  $    --   $    --   $ 44,215
                                                              =======   =======   ========
</Table>

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

                                        40
<PAGE>

                             TROVER SOLUTIONS, INC.

                         NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND BASIS OF PRESENTATION

     Healthcare Recoveries, Inc. changed its name to Trover Solutions, Inc.
(hereinafter referred to as the "Company") effective January 15, 2002. The
Company, a Delaware corporation, was incorporated on June 30, 1988. The Company
is a provider of outsourcing of subrogation and certain other medical claims
recovery and cost containment services to the private healthcare payor industry.
Its primary business is medical claims recovery, and its primary product is
subrogation recovery, which generally entails the identification, investigation
and recovery of accident-related medical benefits incurred by its clients on
behalf of their insureds, but for which other persons or entities have primary
responsibility. The Company's clients' rights to recover the value of these
medical benefits, arising by law or contract, are generally known as the right
of subrogation and are generally paid from the proceeds of liability or workers'
compensation insurance. The Company's other medical claims recovery services
include (1) the auditing of the bills of medical providers, particularly
hospitals, for accuracy, correctness and compliance with contract terms
("provider bill audit"), and (2) the recovery of overpayments attributable to
duplicate payments, failures to coordinate benefits and similar errors in
payment.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH, CASH EQUIVALENTS AND RESTRICTED CASH

     Cash and cash equivalents include cash, demand deposits and highly liquid
investments with an original maturity of three months or less. Carrying values
of cash and cash equivalents approximate fair value due to the short-term nature
of the instruments.

     Restricted cash represents the balance in client-specific bank accounts of
amounts collected on behalf of certain clients. A portion of the balance will be
disbursed to clients in accordance with the terms of the contracts between the
Company and its clients, while the remainder will be released to the Company.
Restricted cash at December 31, 2000 included $4.7 million which was held in
escrow for the Subro Audit (as defined herein) earn-out. See Note 3
"Acquisitions".

     Substantially all of the Company's cash, cash equivalents and restricted
cash have been placed with one financial institution.

FAIR VALUE OF FINANCIAL INSTRUMENTS

     The financial instruments of the Company consist mainly of cash and cash
equivalents, trade receivables, short-term debt and long-term debt. The fair
value of cash and cash equivalents, trade receivables and short-term debt
approximates their carrying values due to the relatively short-term nature of
the instruments. The fair value of long-term debt is based on current rates
available to the Company for debt with similar characteristics.

PROPERTY AND EQUIPMENT

     Property and equipment are recorded at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the respective
assets. Estimated useful lives of property and equipment are as follows:

<Table>
<S>                                                            <C>
Buildings...................................................   40 Years
Furniture and fixtures......................................   3-5 Years
Office equipment............................................   3-5 Years
Computer equipment..........................................   3-5 Years
Software....................................................   3-5 Years
Leasehold improvements......................................   5-7 Years
</Table>

                                        41
<PAGE>
                             TROVER SOLUTIONS, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Depreciation expense for the years ended 2001, 2000 and 1999 was $4.0 million,
$3.8 million, and $3.1 million, respectively.

INTANGIBLE ASSETS

     Cost in excess of net assets acquired represents the unamortized excess of
cost over the fair value of tangible and identifiable intangible assets acquired
and is being amortized on a straight-line basis over twenty years. Identifiable
intangible assets are being amortized on a straight-line basis over varying
periods, ranging from four to fifteen years. Amortization expense for the years
ended 2001, 2000 and 1999 was $2.7 million, $2.6 million, and $1.9 million,
respectively.

REVENUE RECOGNITION

     Subrogation revenues are generally derived from contingent fee arrangements
based on the recoveries effected by the Company on behalf of its clients.
Revenue is recognized when a fee is earned based on the settlement of a case. A
case is deemed settled when the Company can confirm that the parties agree on
all material terms associated with the settlement.

     In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB
101). SAB 101 provides guidance on revenue recognition and related disclosures
and was effective beginning October 1, 2000. The Company was previously
following the requirements provided under SAB 101 and, accordingly, the
implementation of this pronouncement had no impact on the Company's financial
position or results of operations for 2001 or 2000.

SPECIAL COMMITTEE

     In August 1999, the Board of Directors appointed a Special Committee to
evaluate strategic alternatives available to the Company, including its possible
sale. In March 2000, the Special Committee ceased seeking a buyer for the
Company and its efforts to enhance shareholder value were assumed by the full
Board of Directors. The Company incurred $90,000 and $451,000 of expenses
related to the work of the Special Committee during 2000 and 1999, respectively.

RESEARCH AND DEVELOPMENT

     During 2000, the Company began research and development activities in
connection with the creation of new products for the insurance industry. The
Company charges all research and development costs to expense when incurred. The
Company incurred $537,000 and $366,000 of expenses related to research and
development during 2001 and 2000, respectively.

LITIGATION SETTLEMENT

     In January 2001, the Company reached an agreement in principle to settle
the DeGarmo class action litigation for $3.0 million which was reported in the
fourth quarter of 2000. The settlement was paid in July 2001.

PROVISION FOR INCOME TAXES

     The provision for income taxes has been prepared in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes".

                                        42
<PAGE>
                             TROVER SOLUTIONS, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

STOCK-BASED COMPENSATION PLANS

     The Company accounts for its employee stock-based compensation plans under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB No. 25). Effective in 1996, the Company implemented the
disclosure requirements of SFAS No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 123 requires companies that elect not to account for
stock-based compensation as prescribed by SFAS No. 123, to disclose the pro
forma effects on earnings and earnings per share as if SFAS No. 123 had been
adopted. Additionally, certain other disclosures are required with respect to
stock compensation and the assumptions used in determining the pro forma effects
of SFAS No. 123.

EARNINGS PER COMMON SHARE

     A reconciliation of the numerators and denominators of the basic and
diluted earnings per common share calculations follows (dollars in thousands,
except per share results):

<Table>
<Caption>
                                                                                PER-SHARE
                                                      NET INCOME     SHARES      RESULTS
                                                      ----------   ----------   ---------
<S>                                                   <C>          <C>          <C>
YEAR ENDED DECEMBER 31, 2001:
  Basic earnings per common share...................    $4,596      9,794,343     $0.47
  Effect of dilutive stock options..................        --        160,447      (.01)
  Diluted earnings per common share.................     4,596      9,954,790      0.46
YEAR ENDED DECEMBER 31, 2000:
  Basic earnings per common share...................     3,550     10,654,995      0.33
  Effect of dilutive stock options..................        --         72,627        --
  Diluted earnings per common share.................     3,550     10,727,622      0.33
YEAR ENDED DECEMBER 31, 1999:
  Basic earnings per common share...................     5,162     11,287,724      0.46
  Effect of dilutive stock options..................        --         43,547        --
  Diluted earnings per common share.................     5,162     11,331,271      0.46
</Table>

     Basic earnings per common share were computed based on the weighted-average
number of shares outstanding during the year. The dilutive effect of stock
options is calculated using the treasury stock method. Options to purchase
1,298,653, 1,470,978 and 1,088,358 shares for the years ended December 31, 2001,
2000 and 1999, respectively, were not included in the computation of diluted
earnings per common share because the exercise prices of these options were
greater than the average market price of the common shares during the respective
years.

DERIVATIVES

     Effective November 6, 2001, the Company adopted Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133), as amended by Statement of Financial Account Standard No
138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities -- an Amendment of FAS 133". SFAS 133 requires that all derivatives,
including interest rate swap agreements, be recognized on the balance sheet at
their fair value. Derivatives that are not hedges must be recorded at fair value
through earnings. If a derivative is a hedge, depending on the nature of the
hedge, changes in the fair value of the derivative are either offset against the
change in fair value of the underlying assets or liabilities through earnings or
recognized in other comprehensive income until the underlying hedge item is
recognized in earnings. The ineffective portion of a derivative's change in fair
value is to be immediately recognized in earnings. See Note 11 "Derivatives".

                                        43
<PAGE>
                             TROVER SOLUTIONS, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

OTHER COMPREHENSIVE INCOME (LOSS)

     Other comprehensive income (loss) refers to revenues, expenses, gains and
losses that under accounting principles generally accepted in the United States
of America are included in comprehensive income (loss) but are excluded from net
income as these amounts are recorded directly as an adjustment to stockholders'
equity, net of tax. The Company's other comprehensive income is composed of a
deferred gain on a cash flow hedge. See Note 11 "Derivatives".

SEGMENT INFORMATION

     Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information", established standards for
reporting information about operating segments in the Company's financial
statements. It also established standards for related disclosures about products
and services, and geographic areas. Operating segments are defined as components
of an enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker, or decision making
group, in deciding how to allocate resources and in assessing performance. The
Company's chief operating decision making group is the Board of Directors of the
Company.

     The Company reports one segment which is Healthcare Services. The Company
does not have any products or services which meet the quantitative or
qualitative guidelines for segment reporting at December 31, 2001. Effective
January 1, 2002, the Company will have three segments which qualify as
reportable segments based on qualitative guidelines. The segments include:
Healthcare Recovery Services, Property and Casualty Recovery Services and
Troveris Software.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

     In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 141 (FAS 141), "Business
Combinations", which provides that all business combinations should be accounted
for using the purchase method of accounting and establishes criteria for the
initial recognition and measurement of goodwill and other intangible assets
recorded in connection with a business combination. The provisions of FAS 141
apply to all business combinations initiated after June 30, 2001 and to all
business combinations accounted for by the purchase method that are completed
after June 30, 2001. The Company will apply the provisions of FAS 141 to any
future business combinations.

     Also, in June 2001, the FASB issued Statement of Financial Accounting
Standards No. 142 (FAS 142), "Goodwill and Other Intangible Assets", which
establishes the accounting for goodwill and other intangible assets following
their recognition. FAS 142 applies to all goodwill and other intangible assets
whether acquired singly, as part of a group, or in a business combination. FAS
142 provides that goodwill should not be amortized but should be tested for
impairment annually using a fair-value based approach. In addition, FAS 142
provides that other intangible assets other than goodwill should be amortized
over their useful lives and reviewed for impairment in accordance with Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". FAS 142 is
effective for the Company beginning on January 1, 2002. The Company will now be
required to perform a transitional impairment test under FAS 142 for all
goodwill recorded as of January 1, 2002. Management of the Company has not
performed a transitional impairment test under FAS 142 and accordingly cannot
estimate the impact of the adoption of FAS 142 as of January 1, 2002.

     In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 143 (FAS 143), "Accounting for Asset Retirement Obligations". FAS 143 is
effective for fiscal years beginning after June 15, 2002, and provides
accounting requirements for asset retirement obligations associated with
tangible long-lived assets. The Company has not yet determined the effects of
this standard on its financial statements.

                                        44
<PAGE>
                             TROVER SOLUTIONS, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

     In October 2001, the FASB issued Statement of Financial Accounting
Standards No. 144 (FAS 144), "Accounting for the Impairment or Disposal of
Long-Lived Assets". FAS 144 is effective for fiscal years beginning after
December 15, 2001. This statement supersedes FAS 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of",
and the accounting and reporting provisions of APB Opinion No. 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", for the disposal of a business segment. FAS 144 establishes a
single accounting model, based on the framework established in FAS 121. The
Company has not yet determined the effect of this standard on its financial
statements.

USE OF ESTIMATES AND ASSUMPTIONS

     Preparation of the Company's financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions. These estimates and
assumptions affect (i) reported amounts of assets and liabilities, (ii)
disclosure of contingent assets and liabilities at the date of the financial
statements and (iii) reported amounts of revenues and expenditures during the
reporting period. Actual results may differ from those estimates.

RECLASSIFICATIONS

     Certain prior year items have been reclassified to conform to the 2001
presentation. These reclassifications had no effect on previously reported
assets, liabilities, stockholders' equity, net income, accumulated comprehensive
income (loss) or cash flows.

3. ACQUISITIONS

     On January 25, 1999, the Company acquired the assets and certain
liabilities of Subro-Audit, Inc., a Wisconsin corporation ("SAI"), and a related
entity, O'Donnell Leasing Co., LLP, a Wisconsin limited liability partnership
("ODL" and, together with SAI, "Subro Audit"), for approximately $24.4 million
(the "Subro Audit Acquisition"), using available unrestricted cash. The Company
paid an additional $5.3 million pursuant to an earn-out arrangement. The final
amount of $2.5 million was paid on June 7, 2001, and $2.8 million was paid on
May 18, 2000. Approximately $4.7 million was held in escrow for the potential
earn-out and was included in restricted cash at December 31, 2000. SAI is based
in Wisconsin and provides subrogation recovery services with respect to an
installed base of lives, which are covered by insurers, HMOs and employer-funded
plans, throughout the United States of America. The Subro Audit Acquisition was
accounted for using the purchase method of accounting.

     On February 15, 1999, the Company acquired the assets and certain
liabilities of MedCap Medical Cost Management, Inc., a California corporation
("MedCap"), for approximately $10 million, using available unrestricted cash and
borrowed funds (the "MedCap Acquisition" and, together with the Subro Audit
Acquisition, the "Acquisitions"). The Company paid approximately $4.8 million
from February 15, 2000 through January 15, 2001 pursuant to an amendment to the
original earn-out agreement. MedCap provides a variety of medical cost
management services to health insurers and HMOs, primarily in California. These
services include provider bill auditing, contract compliance review,
identification of certain other payments, and cost management consulting
services. The MedCap Acquisition was accounted for using the purchase method of
accounting.

     If the Acquisitions had taken place on January 1, 1999, approximate claims
revenues, net income and earnings per common share for the year ended December
31, 1999 would have been $62.7 million, $5.1 million and $0.45 per share,
respectively. The cost in excess of net tangible and identifiable intangible
assets acquired, allocated and recorded in connection with the Acquisitions, was
approximately $30.8 million and is being amortized over a 20-year period. These
results may not necessarily reflect future results of operations or what
                                        45
<PAGE>
                             TROVER SOLUTIONS, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

the results of operations would have been had the Acquisitions actually been
consummated at the beginning of the periods presented.

4. LEASE COMMITMENTS

     Future minimum lease payments for office space, by year, under
noncancelable operating leases with initial or remaining terms in excess of one
year at December 31, 2001 are as follows (in thousands):

<Table>
<S>                                                           <C>
2002........................................................  $2,139
2003........................................................   2,333
2004........................................................   2,292
2005........................................................   2,227
2006........................................................   2,301
Thereafter..................................................   3,146
</Table>

     Rental expense, which includes amounts applicable to short-term leases, was
approximately $2,092,000, $1,951,000, and $1,302,000 for the years ended
December 31, 2001, 2000 and 1999, respectively.

5. INCOME TAXES

     In September 2001, the Company concluded that, in light of the passage of
time with respect to the filing of the Company's income tax returns for years up
to and including 1997, it was proper to reverse previously accrued taxes by
reducing the tax provision for the year ended December 31, 2001 by $681,000,
net. This accrual related primarily to certain non-cash compensation charges
taken in connection with the initial public offering of the Company's stock in
1997. Management believes that adequate amounts of tax and related interest and
penalties, if any, have been provided for any adjustments that may be required.

     The provision (benefit) for income taxes for the years ended December 31,
2001, 2000 and 1999 consists of the following (in thousands):

<Table>
<Caption>
                                                               2001     2000     1999
                                                              ------   ------   ------
<S>                                                           <C>      <C>      <C>
Current:
  Federal...................................................  $  486   $2,395   $2,310
  State and local...........................................     162      764      844
                                                              ------   ------   ------
                                                                 648    3,159    3,154
                                                              ------   ------   ------
Deferred:
  Federal (benefit).........................................   1,091     (531)     428
  State and local (benefit).................................     358     (109)      83
                                                              ------   ------   ------
                                                               1,449     (640)     511
                                                              ------   ------   ------
                                                              $2,097   $2,519   $3,665
                                                              ======   ======   ======
</Table>

     The following is a reconciliation of the effective tax rate to the federal
statutory rate for the years ended December 31, 2001, 2000 and 1999:

<Table>
<Caption>
                                                              2001     2000    1999
                                                              -----    ----    ----
<S>                                                           <C>      <C>     <C>
Federal statutory rate......................................   34.0%   34.0%   34.0%
State and local taxes, net of federal tax benefit...........    6.9     6.9     6.9
Reversal of previously accrued income taxes for 1997
  non-cash compensation charge..............................  (10.2)     --      --
Other, net..................................................    0.6     0.6     0.6
                                                              -----    ----    ----
                                                               31.3%   41.5%   41.5%
                                                              =====    ====    ====
</Table>

                                        46
<PAGE>
                             TROVER SOLUTIONS, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

     Temporary differences giving rise to deferred taxes in the accompanying
balance sheets at December 31, 2001 and 2000 consist of the following (in
thousands):

<Table>
<Caption>
                                                             2001                   2000
                                                     --------------------   --------------------
                                                     ASSETS   LIABILITIES   ASSETS   LIABILITIES
                                                     ------   -----------   ------   -----------
<S>                                                  <C>      <C>           <C>      <C>
Accrued bonuses....................................  $  539                 $  620
Accounts receivable................................             $1,924                 $1,986
Accrued litigation.................................     385                  1,849
Property and equipment.............................                257                    341
Intangible assets..................................                684                    417
Accrued vacation...................................     279                    191
Deferred rent......................................     256                    130
Cash flow hedge....................................                 19
Other..............................................      19                     17
                                                     ------     ------      ------     ------
                                                     $1,478     $2,884      $2,807     $2,744
                                                     ======     ======      ======     ======
</Table>

     Management believes that the deferred tax assets are realizable based
primarily on the existence of sufficient taxable income within the allowable
carryback period.

6. MAJOR CLIENTS

     UnitedHealth Group accounted for 27%, 24% and 23% of the Company's total
revenues for the years ended December 31, 2001, 2000 and 1999, respectively. No
other client accounted for more than 10% of the Company's total revenues. The
loss of this client could have a material adverse effect on the Company's
results of operations, financial position and cash flows.

     Wellpoint Health Network, which accounted for more than 70% of the
Company's revenue from its provider bill audit product in 2001 and 2000,
accounted for 40% and 29% of the Company's accounts receivable balance at
December 31, 2001 and 2000, respectively. Should a substantial portion of the
current balance of this client's account receivable become uncollectible, it
could have a material adverse effect on the Company's results of operations and
cash flows. No other client accounted for 10% or more of accounts receivable at
December 31, 2001 or 2000.

7. RELATED PARTY TRANSACTIONS

     The Company has entered into a contract for legal services with a
professional service corporation, Sharps & Associates, PSC, that is wholly owned
by one of the Company's officers. This arrangement exists solely for the benefit
of the Company and its purpose is to minimize the costs of legal services
purchased by the Company on behalf of its clients. Mr. Sharps receives no
financial or other personal benefit from his ownership of the firm. For the
years ended December 31, 2001, 2000 and 1999, approximately $3,385,000,
$2,484,000 and $2,040,000, respectively, was paid to this law firm for such
legal services (which equates to a rate of approximately $40 per hour),
including all employees and expenses.

     On February 12, 1999, the Board of Directors approved a loan in the amount
of $350,000 to Patrick B. McGinnis, the Chairman and Chief Executive Officer of
the Company, in exchange for a full recourse promissory note in the same amount
from Mr. McGinnis. On June 30, 2000, at the direction of the Board of Directors
and in accordance with terms authorized by it, the Company loaned Mr. McGinnis
an additional $500,000. Under these terms, the $500,000 loan to Mr. McGinnis was
combined with his existing debt to the Company of $350,000 of principal and
$36,520 of accrued interest. Mr. McGinnis delivered to the Company his full
recourse promissory note in the amount of $886,520, bearing interest at a fixed
rate of 6.62% per annum, compounded annually (the "Amended Promissory Note"),
and the Company cancelled the old

                                        47
<PAGE>
                             TROVER SOLUTIONS, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

promissory note evidencing the prior debt. The Amended Promissory Note provides
for mandatory prepayments from certain of the proceeds received by Mr. McGinnis
from his sale of the Company's securities and any related transactions. At
December 31, 2001 and 2000, the promissory note of $886,520 and accrued interest
of $86,195 and $25,800 were outstanding, respectively. Mr. McGinnis used the
proceeds of these loans to repay debts originally incurred by him to pay income
taxes related to the ordinary income deemed to have been received by him on
account of Common Stock granted to him in connection with the initial public
offering of the Company's stock in May 1997, and to purchase additional stock in
the initial public offering.

     On June 30, 2000, pursuant to Board authorization and in accordance with
the terms of the Amended Promissory Note, the Company and Mr. McGinnis entered
into a deferred compensation agreement (the "Agreement"). Under the Agreement,
50% of the amount otherwise payable to Mr. McGinnis under the Company's
Management Group Incentive Compensation Plan is to be deferred until the Amended
Promissory Note is paid in full, with such deferred compensation then being paid
in full to Mr. McGinnis within 30 days thereafter. The Company has full right of
set-off against any deferred compensation under the Agreement should Mr.
McGinnis default under the Amended Promissory Note. At the election of Mr.
McGinnis, the payment of the deferred compensation, upon payment of the Amended
Promissory Note, may be extended for a period of not more than ten years. At
December 31, 2001, the amount of deferred compensation was $52,648, with accrued
interest of $2,779.

8. EMPLOYEE BENEFIT PLAN

PENSION PLAN

     Effective on January 1, 1997, the Company's employees began participation
in the Company's 401(k) defined contribution pension plan. An annual expense
provision for the plan is based upon the level of employee participation, as the
plan requires the Company to match a certain portion of the employees'
contributions. For the year ended December 31, 2001, participants were given the
option of receiving their match in cash or in common stock of the Company. For
participants choosing the stock match, the Company contributed up to 100% of the
participant's contribution, not to exceed 6% of the participant's annual
compensation. For participants choosing the cash match, the Company contributed
up to 50% of the participant's contribution, not to exceed 6% of the
participant's annual compensation. For the years ended December 31, 2000 and
1999, the Company match was made in common stock of the Company, up to 6% of the
participant's annual compensation. Total retirement plan expense was
approximately $707,100, $818,300 and $877,200 for the years ended December 31,
2001, 2000 and 1999, respectively.

OTHER

     Accrued bonuses included in the accompanying balance sheets at December 31,
2001 and 2000 approximate $3.5 million and $3.9 million, respectively.

9. CONTINGENCIES

     The Company is engaged in the business of identifying and recovering
subrogation and related claims of its clients, many of which arise in the
context of personal injury lawsuits. As such, the Company operates in a
litigation-intensive environment. The Company has, from time to time, been, and
in the future expects to be, named as a party in litigation incidental to its
business operations. There can be no assurance that pending litigation or future
litigation will not have a material adverse effect on the Company's business,
results of operations and financial condition.

                                        48
<PAGE>
                             TROVER SOLUTIONS, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

10. CREDIT FACILITY

     On May 15, 2000, the Company entered into a third amendment (the
"Amendment") to its February 1, 1998 revolving credit facility with National
City Bank of Kentucky and the lenders named therein (the "Credit Facility"). The
Company's obligations under the Credit Facility are secured by substantially all
of the Company's assets, subject to certain permitted exceptions. Under the
Amendment, the maturity date was extended to April 30, 2002 from January 31,
2001, the maximum borrowing capacity decreased to $40 million from $50 million,
and certain other financial terms and covenants were amended. Principal amounts
outstanding under the Credit Facility bear interest at a variable rate based on
the Prime Rate or Eurodollar Rate, as applicable, plus the pre-determined fixed
margin. At December 31, 2000, $14 million was outstanding under the Credit
Facility.

     On November 1, 2001, the Company entered into a revolving credit facility
with National City Bank of Kentucky, Bank One Kentucky, N.A. and Fifth Third
Bank (the "Revolving Credit Facility"), and the existing Credit Facility was
terminated. The Company's obligations under the Revolving Credit Facility are
secured by substantially all of the Company's assets, subject to certain
permitted exceptions. The Revolving Credit Facility carries a maximum borrowing
capacity of $40 million and will mature October 31, 2004. Principal amounts
outstanding under the Revolving Credit Facility bear interest at a variable rate
based on the Prime Rate or Eurodollar Rate, as applicable, plus a pre-determined
fixed margin. At December 31, 2001, the interest rate was 3.84% based on the
one-month Eurodollar Rate plus the fixed margin. The Revolving Credit Facility
contains customary covenants and events of default including, but not limited
to, financial tests for interest coverage, net worth levels and leverage that
may limit the Company's ability to pay dividends. It also contains a material
adverse change clause. At December 31, 2001, $8 million was outstanding under
the Revolving Credit Facility.

11. DERIVATIVES

     On November 6, 2001, the Company entered into an interest rate swap
contract to pay 3.66% and to receive the one-month LIBOR rate on a $4 million
notional amount of the Revolving Credit Facility. The Company uses derivative
financial instruments to manage the risk that changes in interest rates will
affect the amount of its future interest payments. Under the interest rate swap
contract, the Company agrees to pay an amount equal to a specified fixed rate of
interest times a notional principal amount, and to receive in return an amount
equal to a variable rate of interest times the same notional principal amount.
The notional amounts of the contract are not exchanged. No other cash payments
are made unless the contract is terminated prior to maturity, in which case the
amount paid or received in settlement is established by agreement at the time of
termination, and represents the net present value, at current rates of interest,
of the remaining obligations to exchange payments under the terms of the
contract. The interest rate swap contract was entered into with a major
financial institution in order to minimize counterparty credit risk.

     The interest rate contract under which the Company agrees to pay fixed
rates of interest is considered a hedge against changes in the amount of future
cash flows associated with the Company's interest payments on its variable rate
Revolving Credit Facility. Accordingly, the interest rate swap contract is
considered a cash flow hedge and is reported at fair value on the balance sheet
in "Other Assets" and the related gain (or loss) on the contract is deferred in
shareholders' equity (as a component of accumulated other comprehensive income).
This deferred gain (or loss) is then amortized as an adjustment to interest
expense over the same period in which the related interest payments being hedged
are recognized in income. However, to the extent that any of these contracts are
not considered to be perfectly effective in offsetting the change in the value
of the interest payments being hedged, any changes in fair value relating to the
ineffective portion of this contract is immediately recognized in income. The
net effect of this accounting on the Company's operating results is that
interest expense on the portion of the variable rate Revolving Credit Facility
being hedged is generally recorded based on fixed interest rates. At the
inception of the interest rate contract, the fair value of the hedge

                                        49
<PAGE>
                             TROVER SOLUTIONS, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

was $0. At December 31, 2001, the fair value of the hedge was $45,446 ($26,586,
net of tax, included in Other Comprehensive Income).

12. COMMON STOCK OPTIONS

     In May 1997, the Company adopted the Trover Solutions, Inc. Non-Qualified
Stock Option Plan for Eligible Employees (the "Employees' Plan"), the Trover
Solutions, Inc. Amended and Restated Directors' Stock Option Plan (the
"Directors' Plan") and the Trover Solutions, Inc. Employee Stock Purchase Plan
(the "Purchase Plan"). On December 8, 1997, the Company adopted the Trover
Solutions, Inc. 1997 Stock Option Plan for Eligible Participants (the "1997
Plan").

     The Employees' Plan provides for the award of stock options to certain
officers and key employees of the Company. Options under the Employees' Plan may
be granted with an exercise price greater than or less than the market value of
the Company's Common Stock on the date of grant. Awards under the Employees'
Plan expire ten years from the date of grant, and pursuant to individual option
agreements under the Employees' Plan, vest ratably over at least a three-year
period. As provided in the Employees' Plan, all options granted to the Company's
employees automatically vest in the event of a change in control. At December
31, 2001, 673,750 shares of Common Stock were reserved for issuance under the
Employees' Plan, including 154,233 shares available for future award.

     The Directors' Plan provides for the grant of options to purchase the
Company's Common Stock to each non-employee director of the Company. Options
under the Directors' Plan are exercisable at 100% of the market value of the
Company's Common Stock on the date of grant. Pursuant to the Directors' Plan,
each eligible director is to be granted on the date he or she first becomes a
director an option to purchase 10,000 shares of Common Stock, and each eligible
director is to be granted on the date of each annual meeting of stockholders of
the Company beginning in 1998 an option to purchase 2,000 shares of Common
Stock, for so long as shares are available under the Directors' Plan, but not
after March 31, 2002. Terms of options granted under this plan commence on the
date of grant and expire on the tenth anniversary of the grant date. Each option
is to become exercisable when vested. Pursuant to individual option agreements
under the Directors' Plan, options granted under the Directors' Plan vest
ratably over a three-year period, provided that the optionee must be a
non-employee director of the Company on each such anniversary in order for
options to vest on such date. At December 31, 2001, 150,000 shares of Common
Stock were reserved for issuance under the Directors' Plan, including 58,000
shares available for future award.

     Under the Purchase Plan, eligible employees may purchase shares of the
Company's Common Stock, subject to certain limitations, at 85% of its market
value. Purchases are made from payroll deductions up to a maximum of 15% of an
employee's eligible annual compensation. During the year ended December 31,
2001, 35,782 shares of the Company's Common Stock were purchased under the
Purchase Plan, resulting in 216,832 reserved shares of Common Stock being
available for purchase at December 31, 2001.

     The 1997 Plan provides for the grant of options to purchase the Company's
Common Stock to eligible participants of the Company at 100% of the market value
of the Company's Common Stock on the date of grant. Awards under the 1997 Plan
expire ten years from the date of grant and vest according to the terms that the
compensation committee of the Board of Directors determines in its sole
discretion. As provided in the 1997 Plan, all options granted to the Company's
employees automatically vest in the event of a change in control. At December
31, 2001, 1,755,953 shares of Common Stock have been reserved under the 1997
Plan, of which 101,034 shares are available for future award.

                                        50
<PAGE>
                             TROVER SOLUTIONS, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

     Activity related to the Employees' Plan, Directors' Plan and 1997 Plan for
the years ended December 31, 2001, 2000 and 1999 is summarized as follows:

<Table>
<Caption>
                                      2001                        2000                        1999
                            -------------------------   -------------------------   -------------------------
                            SHARES   WEIGHTED-AVERAGE   SHARES   WEIGHTED-AVERAGE   SHARES   WEIGHTED-AVERAGE
                            (000)     EXERCISE PRICE    (000)     EXERCISE PRICE    (000)     EXERCISE PRICE
                            ------   ----------------   ------   ----------------   ------   ----------------
<S>                         <C>      <C>                <C>      <C>                <C>      <C>
Options outstanding as of
  January 1...............   2,336        $ 9.13         1,562        $12.55         1,085        $16.58
  Granted.................     103        $ 4.57           859        $ 3.10           640        $ 6.01
  Exercised...............      (4)       $ 3.75            --            --            --            --
  Canceled................    (161)       $10.91           (85)       $10.94          (163)       $13.51
                            ------                      ------                      ------
Options outstanding as of
  December 31.............   2,274        $ 8.82         2,336        $ 9.13         1,562        $12.55
                            ======                      ======                      ======
Weighted-average fair
  value of options granted
  during the year (per
  share)..................  $ 2.91                      $ 3.00                      $ 1.94
                            ======                      ======                      ======
</Table>

     The following table summarizes information about options outstanding under
the Employees' Plan, Directors' Plan and 1997 Plan at December 31, 2001:

<Table>
<Caption>
                                        OPTIONS OUTSTANDING               OPTIONS EXERCISABLE
                              ---------------------------------------   ------------------------
                                 NUMBER       WEIGHTED-                    NUMBER
                              OUTSTANDING      AVERAGE      WEIGHTED-   OUTSTANDING    WEIGHTED-
                              DECEMBER 31,    REMAINING      AVERAGE    DECEMBER 31,    AVERAGE
                                  2001       CONTRACTUAL    EXERCISE        2001       EXERCISE
RANGE OF EXERCISE PRICES         (000)       LIFE (YEARS)     PRICE        (000)         PRICE
------------------------      ------------   ------------   ---------   ------------   ---------
<S>                           <C>            <C>            <C>         <C>            <C>
$2.75 - $16.36..............     1,898           7.3         $ 6.67        1,013        $ 9.45
$16.37 - $23.50.............       376           6.2          19.67          375         19.68
                                 -----                                     -----
                                 2,274           7.2           8.82        1,388         12.22
                                 =====                                     =====
</Table>

     The Company accounts for options granted under its employee stock-based
compensation plans in accordance with APB No. 25. As a result, the Company has
not recognized compensation expense for stock options granted with an exercise
price equal to the quoted market price of the common stock on the date of grant
and that vest based solely on continuation of employment by the recipient of the
option award. The Company adopted SFAS No. 123 for disclosure purposes in 1996.
For SFAS No. 123 purposes, the fair value of each option grant and stock-based
award has been estimated as of the date of grant using the Black-Scholes option
pricing model. The following summarizes the weighted average assumptions used in
valuing awards under the Employees' Plan, Directors' Plan and 1997 Plan:

<Table>
<Caption>
                                                              2001   2000    1999
                                                              ----   -----   -----
<S>                                                           <C>    <C>     <C>
Expected life (years).......................................   5.0     5.0     5.0
Risk-free interest rate.....................................   4.7%    6.5%    5.7%
Dividend yield..............................................   0.0     0.0     0.0
Expected volatility.........................................  75.5   187.6   137.3
</Table>

     Had compensation expense been recognized under the provisions of SFAS No.
123, utilizing the assumptions in the table above, the Company's net income for
the years ended December 31, 2001, 2000 and

                                        51
<PAGE>
                             TROVER SOLUTIONS, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

1999 and earnings per common share (basic and diluted) for the years ended
December 31, 2001, 2000 and 1999 would have decreased to the following pro forma
amounts:

<Table>
<Caption>
                                                              2001     2000     1999
                                                             ------   ------   ------
<S>                                                          <C>      <C>      <C>
Net income as reported.....................................  $4,596   $3,550   $5,162
Proforma...................................................   3,298    1,434    3,021
Earnings per common share:
As reported (basic)........................................    0.47     0.33     0.46
As reported (diluted)......................................    0.46     0.33     0.46
Proforma (basic)...........................................    0.34     0.13     0.27
Proforma (diluted).........................................    0.33     0.13     0.27
</Table>

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

13. STOCK REPURCHASE PLAN

     The Company's Board approved a stock repurchase plan on March 12, 1999
under which the Company is authorized to repurchase, from time to time, up to
$10 million of the Company's Common Stock in the open market, at prices per
share deemed favorable by the Company. Shares may be repurchased using cash from
operations and borrowed funds and may continue until such time as the Company
has repurchased $10 million of the Company's Common Stock or until it otherwise
determines to terminate the stock repurchase plan. The Company repurchased
19,500 shares of its own stock during the year ended December 31, 2001 at an
average price of $4.02. From inception of the program through December 31, 2001,
the total repurchased shares are 1,792,265 at a cost of $7.1 million, or an
average cost of $3.97 per share. All of the reacquired shares of Common Stock
are reflected as treasury stock on the accompanying Balance Sheets.

14. LOSS ON DISPOSAL OF ASSETS

     On November 13, 2001, the Company sold its building in New Berlin,
Wisconsin to a third party. The building was acquired on January 25, 1999 in the
Subro Audit Acquisition. The Company recorded a loss on the disposal of the
building of approximately $1.0 million during the year ended December 31, 2001.

15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

     A summary of the Company's quarterly results of operations follows (dollars
in thousands, except per share amounts):

<Table>
<Caption>
                                                  FIRST    SECOND     THIRD    FOURTH
                                                 -------   -------   -------   -------
<S>                                              <C>       <C>       <C>       <C>
YEAR ENDED DECEMBER 31, 2001:
Claims revenues................................  $16,255   $15,757   $15,093   $17,042
Income before income taxes.....................    2,349     1,828       587     1,929
Net income.....................................    1,375     1,069     1,024     1,128
Earnings per common share (basic)..............     0.14      0.11      0.10      0.12
Earnings per common share (diluted)............     0.14      0.11      0.10      0.11
</Table>

                                        52
<PAGE>
                             TROVER SOLUTIONS, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

<Table>
<Caption>
                                                 FIRST    SECOND     THIRD    FOURTH(1)
                                                -------   -------   -------   ---------
<S>                                             <C>       <C>       <C>       <C>
YEAR ENDED DECEMBER 31, 2000:
Claims revenues...............................  $16,567   $15,950   $15,113    $15,997
Income (loss) before income taxes.............    1,931     2,209     2,128       (199)
Net income (loss).............................    1,130     1,292     1,245       (117)
Earnings (loss) per common share (basic)......     0.10      0.12      0.12      (0.01)
Earnings (loss) per common share (diluted)....     0.10      0.12      0.12      (0.01)
</Table>

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

(1) Includes expense of $3.0 million pretax ($1.755 million after tax, or $0.18
    per diluted share) related to a litigation settlement and $263,000 pretax
    ($154,000 after tax, or $0.01 per diluted share) related to research and
    development.

                                        53
<PAGE>

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

     None

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information required by this Item with respect to Directors and
Executive Officers of the Registrant is included in the sections entitled
"Management of the Company", "Executive Officers", and "Other Matters -- Section
16(a) Beneficial Ownership Reporting Compliance" of the Proxy Statement for the
Annual Meeting of Stockholders to be held on May 10, 2002 and is incorporated
herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION

     The information required by this Item is included in the sections entitled
"Executive Compensation", "Stock Option Grants", "Stock Option Exercises",
"Management of the Company -- Directors' Compensation", "Employment Agreements",
and "Compensation Committee Interlocks and Insider Participation" of the Proxy
Statement for the Annual Meeting of Stockholders to be held on May 10, 2002 and
is incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this Item is included in the sections entitled
"Management Common Stock Ownership" and "Principal Stockholders" of the Proxy
Statement for the Annual Meeting of Stockholders to be held on May 10, 2002 and
is incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this Item is included in the sections entitled
"Executive Compensation" and "Certain Relationships and Related Transactions" of
the Proxy Statement for the Annual Meeting of Stockholders to be held on May 10,
2002 and is incorporated herein by reference.

                                    PART IV

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

     (a) 1. Financial Statements

          Report of Independent Accountants

          Balance Sheets -- years ended December 31, 2001 and 2000

          Statements of Income -- years ended December 31, 2001, 2000 and 1999

          Statements of Changes in Stockholders' Equity and Comprehensive
     Income -- years ended December 31, 2001, 2000 and 1999

          Statements of Cash Flow -- years ended December 31, 2001, 2000 and
     1999

     2. Financial Statement Schedules (none required)

                                        54
<PAGE>

     3. Exhibits

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

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

 2.1   --   Asset Purchase Agreement, dated as of December 4, 1998, by
            and among the Registrant, MedCap Medical Cost Management,
            Inc. and Marcia Deutsch (incorporated by reference to
            Exhibit 2.1 of Registrant's Current Report on Form 8-K,
            filed December 11, 1998, File No. 000-22585).
 2.2   --   Amendment to Asset Purchase Agreement, dated as of December
            8, 1999, by and among the Registrant, MedCap Medical Cost
            Management and Marcia Deutsch (incorporated by reference to
            Exhibit 2.1 of Registrant's Current Report on Form 8-K,
            filed December 20, 1999, File No. 0-22585).
 2.3   --   Asset Purchase Agreement, dated as of January 3, 1999, by
            and among the Registrant, Subro-Audit, Inc., O'Donnell
            Leasing Co., LLP, Kevin M. O'Donnell and Leah Lampone
            (incorporated by reference to Exhibit 2.1 of Registrant's
            Current Report on Form 8-K, filed January 11, 1999, File No.
            000-22585).
 2.4   --   Amendment to Asset Purchase Agreement by and among the
            Registrant, Subro-Audit, Inc., O'Donnell Leasing Co., LLP,
            Kevin O'Donnell and Leah Lampone, dated as of January 25,
            1999 (incorporated by reference to Exhibit 2.2 of
            Registrant's Current Report on Form 8-K, filed February 3,
            1999, File No. 000-22585).
 3.1   --   Amended and Restated Certificate of Incorporation of the
            Registrant (incorporated by reference to Exhibit 3.1 of
            Registrant's Amendment No. 2 to Registration Statement on
            Form S-1, File No. 333-23287).
 3.2   --   Amended and Restated Bylaws of the Registrant (incorporated
            by reference to Exhibit 3.2 of Registrant's Annual Report on
            Form 10-K for the fiscal year ended December 31, 2000).
 4.1   --   Specimen Common Stock Certificate (incorporated by reference
            to Exhibit 4.1 of Registrant's Amendment No. 1 to
            Registration Statement on Form S-1, File No. 333-23287).
 4.2   --   Rights Agreement, dated February 12, 1999, between the
            Registrant and National City Bank, as Rights Agent, which
            includes as Exhibit A the Form of Certificate of
            Designations of the Preferred Stock, as Exhibit B the Form
            of Right Certificate and as Exhibit C the Summary of Rights
            to Purchase Preferred Stock (incorporated by reference to
            Exhibit 4.1 of Registrant's Form 8-A, filed February 16,
            1999, File No. 000-22585).
10.1   --   Trover Solutions, Inc. Non-Qualified Stock Option Plan for
            Eligible Employees (incorporated by reference to Exhibit 4.2
            of Registrant's Registration Statement on Form S-1, File No.
            333-23287).
10.2   --   Trover Solutions, Inc. Amended and Restated Directors' Stock
            Option Plan (incorporated by reference to Exhibit 10.2 of
            Registrant's Annual Report on Form 10-K for the fiscal year
            ended December 31, 1998).
10.3   --   Trover Solutions, Inc. 1997 Stock Option Plan for Eligible
            Participants (incorporated by reference to Annex A of
            Registrant's Proxy Statement for a Special Meeting, dated
            November 10, 1997).
10.4   --   Trover Solutions, Inc. Employee Stock Purchase Plan
            (incorporated by reference to Exhibit 99.1 of Registrant's
            Registration Statement on Form S-8, File No. 333-41559).
10.5   --   2001 Management Group Incentive Compensation Plan.
            (incorporated by reference to Exhibit 10.5 of Registrant's
            Annual Report on Form 10-K for the fiscal year ended
            December 31, 2000).
10.6   --   Employment Agreement between the Registrant and Patrick B.
            McGinnis (incorporated by reference to Exhibit 10.2 to
            Registrant's Registration Statement on Form S-1, File No.
            333-23287).
</Table>

                                        55
<PAGE>
<Table>
<C>    <C>  <S>
10.7   --   Amendment No. 1 to Employment Agreement between the
            Registrant and Patrick B. McGinnis, dated February 12, 1999
            (incorporated by reference to Exhibit 10.6 of Registrant's
            Annual Report on Form 10-K for the fiscal year ended
            December 31, 1998).
10.8   --   Separation Agreement between Medaphis and the Registrant
            (incorporated by reference to Exhibit 10.1 of Registrant's
            Amendment No. 2 to Registration Statement on Form S-1, File
            No. 333-23287).
10.9   --   Supplemental Retirement Savings Plan (incorporated by
            reference to Exhibit 10.5 of Registrant's Amendment No. 2 to
            Registration Statement on Form S-1, File No. 333-23287).
10.10  --   Lease between W&M Kentucky, Inc. and the Registrant
            (incorporated by reference to Exhibit 10.6 of Registrant's
            Registration Statement on Form S-1, File No. 333-23287).
10.11  --   Lease Addendum VI between W&M of Kentucky, Inc. and the
            Registrant, dated December 22, 1999 (incorporated by
            reference to Exhibit 10.12 of Registrant's Annual Report on
            Form 10-K for the fiscal year ended December 31, 1999).
10.12  --   Amended and Restated Credit Agreement, dated as of November
            1, 2001, by and among the Registrant and the Lending
            Institutions named therein.
10.13  --   Form of Change-in-Control Agreement between the Registrant
            and Douglas R. Sharps, Debra M. Murphy, Mark J. Bates and
            Robert G. Bader, dated February 24, 2000 (incorporated by
            reference to Exhibit 10.19 of Registrant's Annual Report on
            Form 10-K for the fiscal year ended December 31, 1999).
10.14  --   Form of Severance Agreement between the Registrant and
            Douglas R. Sharps, Debra M. Murphy, Mark J. Bates and Robert
            G. Bader dated February 24, 2000 (incorporated by reference
            to Exhibit 10.20 of Registrant's Annual Report on Form 10-K
            for the fiscal year ended December 31, 1999).
10.15  --   Promissory Note Payable to the Registrant from Patrick B.
            McGinnis (incorporated by reference to Exhibit 10.21 of
            Registrant's Annual Report on Form 10-K for the fiscal ended
            December 31, 1999).
10.16  --   Amended and Restated Promissory Note Payable to the
            Registrant from Patrick B. McGinnis, dated June 30, 2000
            (incorporated by reference to Exhibit 10.3 of Registrant's
            Quarterly Report on Form 10-Q for the quarter ended June 30,
            2000).
10.17  --   Deferred Compensation Agreement, dated June 30, 2000, by and
            between the Registrant and Patrick B. McGinnis (incorporated
            by reference to Exhibit 10.4 of Registrant's Quarterly
            Report on Form 10-Q for the quarter ended June 30, 2000).
10.18  --   Purchase Agreement, dated as of June 29, 2001, between the
            Registrant and GCG Acquisitions, LLP.
10.19  --   Amendment to Purchase Agreement, dated as of July 29, 2001,
            between the Registrant and GCG Acquisitions, LLP.
10.20  --   Second Amendment to Purchase Agreement, dated as of November
            8, 2001, between the Registrant and GCG Acquisitions, LLP.
23.1   --   Consent of PricewaterhouseCoopers LLP.
99.1   --   Trover Solutions, Inc. Private Securities Litigation Reform
            Act of 1995 Safe Harbor Compliance Statement for
            Forward-Looking Statement.
</Table>

     (b) Reports on Form 8-K

     No reports filed during the fourth quarter of 2001.

                                        56
<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.

                                          TROVER SOLUTIONS, INC.

                                          By:    /s/ PATRICK B. MCGINNIS
                                            ------------------------------------
                                                    Patrick B. McGinnis
                                               Chairman, President and Chief
                                                      Executive Officer

                                          Dated: March 27, 2002

     Pursuant to the requirements of the Securities 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>
<Caption>
                       SIGNATURE                                      TITLE                   DATE
                       ---------                                      -----                   ----
<C>                                                       <S>                            <C>

                /s/ PATRICK B. MCGINNIS                   Chairman, President and Chief  March 27, 2002
--------------------------------------------------------    Executive Officer
                  Patrick B. McGinnis                       (Principal Executive
                                                            Officer)

                 /s/ DOUGLAS R. SHARPS                    Executive Vice President and   March 27, 2002
--------------------------------------------------------    Chief Financial Officer
                   Douglas R. Sharps                        (Principal Financial and
                                                            Accounting Officer)

              /s/ WILLIAM C. BALLARD, JR.                 Director                       March 27, 2002
--------------------------------------------------------
                William C. Ballard, Jr.

                 /s/ HERBERT A. DENTON                    Director                       March 27, 2002
--------------------------------------------------------
                   Herbert A. Denton

                   /s/ JILL L. FORCE                      Director                       March 27, 2002
--------------------------------------------------------
                     Jill L. Force

                   /s/ JOHN H. NEWMAN                     Director                       March 27, 2002
--------------------------------------------------------
                     John H. Newman

                  /s/ LAUREN N. PATCH                     Director                       March 27, 2002
--------------------------------------------------------
                    Lauren N. Patch

                /s/ CHRIS B. VAN ARSDEL                   Director                       March 27, 2002
--------------------------------------------------------
                  Chris B. Van Arsdel
</Table>

                                        57