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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K

(MARK ONE)

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ________ TO ________

COMMISSION FILE NUMBER 000-25273

INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
(Exact name of registrant as specified in its charter)

FLORIDA 59-3422536
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

360 CENTRAL AVENUE 33701
ST. PETERSBURG, FLORIDA (Zip Code)
(Address of registrant's principal
executive offices)

(Registrant's telephone number, including area code): (727) 803-2040

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

NONE

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

COMMON STOCK, $.01 PAR VALUE
Title of Each Class

Indicate by check mark whether this 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 registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes [X] No [ ]

As of February 25, 2000, there were outstanding 12,800,261 shares of Common
Stock. The aggregate market value of the Common Stock held by non-affiliates of
the registrant based on the last sale price reported on the Nasdaq National
Market as of February 25, 2000 was $31.3 million.

DOCUMENTS INCORPORATED BY REFERENCE:

DOCUMENT FORM 10-K REFERENCE
PROXY STATEMENT, DATED ON OR ABOUT APRIL 19, 2000..........PART III, ITEMS 10-13

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INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.

FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

PAGE
----

PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 16
Item 3. Legal Proceedings........................................... 16
Item 4. Submission of Matters to a Vote of Security Holders......... 17
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 18
Item 6. Selected Financial Data..................................... 19
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 20
Item 7A Quantitative and Qualitative Disclosures About Market
Risk........................................................ 26
Item 8. Financial Statements and Supplementary Data................. 26
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 26
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 27
Item 11. Executive Compensation...................................... 27
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 27
Item 13. Certain Relationships and Related Transactions.............. 27
PART IV
Exhibits, Financial Statement Schedules and Reports on Form
Item 14. 8-K......................................................... 27

The statements contained in this report on Form 10-K that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including statements regarding the Company's expectations, hopes, beliefs,
intentions, or strategies regarding the future. Forward-looking statements
include statements regarding, among other things: (i) the potential loss of
material customers; (ii) the failure to properly manage growth and successfully
integrate acquired businesses; (iii) the Company's financing plans; (iv) trends
affecting the Company's financial condition or results of operations; (v) the
Company's growth and operating strategies; (vi) the ability to attract and
retain qualified sales, information services and management personnel; (vii) the
impact of competition from new and existing competitors; (viii) the financial
condition of the Company's clients; (ix) potential increases in the Company's
costs; (x) the declaration and payment of dividends; (xi) the potential for
unfavorable interpretation of existing government regulations or new government
legislation; (xii) the impact of general economic conditions and interest rate
fluctuations on the demand for the Company's services, including flood zone
determination services; (xiii) the outcome of certain litigation and
administrative proceedings involving the Company's principal customer; (xiv)
uncertainties regarding the market acceptance of the Company's new services;
(xv) difficulties in developing new technological solutions for current and
prospective customers; (xvi) difficulties in establishing positive name
recognition in the market place; (xvii) changes in existing service agreements;
(xviii) difficulties in obtaining new customers and retaining existing
customers; (xix) difficulties in achieving expected expense reductions as a
result of management initiatives; and (xx) difficulties in determining the
potential success of new sales and marketing personnel. Prospective investors
are cautioned that any such forward-looking statements are not guarantees of
future performance and involve risks and uncertainties, and that actual results
may differ materially from those projected in the forward-looking statements as
a result of various factors. All forward-looking statements included in this
document are based on information available to the Company on the date hereof,
and the Company assumes no obligation to update any such forward-looking
statement. Among the factors that could cause actual results to differ
materially are the factors detailed in Items 1 through 3 and 7 of this report
and the risks discussed under the caption "Risk Factors' included in the
Company's Registration Statement on Form S-1, as amended (Reg. No. 333-57747).
Prospective investors should also consult the risks described from time to time
in the Company's Reports on Form 10-Q, 8-K and 10-K and Annual Reports to
Shareholders.

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PART I

ITEM 1. BUSINESS

GENERAL

Insurance Management Solutions Group, Inc. (collectively with its
subsidiaries, the "Company"), through its wholly-owned subsidiaries, Insurance
Management Solutions, Inc., Geotrac of America, Inc. (formerly Bankers Hazard
Determination Services, Inc.) ("Geotrac"), IMS Direct, Inc. and Colonial Claims
Corporation, provides (1) comprehensive policy and claims outsourcing services
to the property and casualty ("P&C") insurance industry, with an emphasis on
providing these services to the flood insurance market, and (2) flood zone
determinations to financial institutions, mortgage lenders and insurance
companies.

Outsourcing Services. The Company's outsourcing services, which are
offered on either a bundled or "a la carte" basis, include policy
administration, claims administration and information technology services.
During 1998 and 1999, the Company processed approximately 660,000 and 767,000
insurance policies, respectively, including approximately 540,000 and 616,000
flood insurance policies, respectively, making it a significant provider of
flood insurance outsourcing services. The Company currently provides flood
outsourcing services to approved write-your-own carriers including its
affiliate, Bankers Insurance Group, Inc. (together with its subsidiaries,
"BIG"), Farmers Insurance Group, Mobile USA Insurance Company, Inc. and AAA Auto
Club South Insurance Company, as well as to insurance companies that offer flood
insurance utilizing BIG as their private label servicing carrier, such as Armed
Forces Insurance Corporation and AMICA Mutual Insurance Company. In conjunction
with BIG, the Company is able to offer insurance companies the ability to create
a turnkey private label flood insurance product. The Company believes this
product is attractive to insurance companies that desire to offer flood
insurance but are not certified by the Federal Emergency Management Agency
("FEMA") to sell and service flood insurance. FEMA estimates that only 25% to
33% of U.S. properties required to be covered by flood insurance are in fact
covered. The Company anticipates continued growth in the demand for flood
insurance, and related flood outsourcing services, over the next several years.

The Company is a 62.7% owned subsidiary of BIG, a holding company chartered
in Florida in 1976. BIG provides multiple lines of P&C insurance, most notably
flood, homeowners and automobile insurance, to individuals and businesses
throughout the United States. From 1994 to 1999, BIG's premiums grew from $131
million to $316 million, representing annual growth rates of 22.5%, 46.8%,
10.4%, 13.8% and 7.3%, respectively, and a compound annual growth rate of 19.3%.
BIG is the largest underwriter of flood insurance policies through independent
agents (and the second largest overall) in the United States. BIG is also the
Company's principal customer, accounting for approximately 56.5% of the
Company's total revenues and 94.8% of the Company's outsourcing revenues in 1998
and approximately 58.1% of the Company's total revenues and 79.5% of the
Company's outsourcing revenues in 1999.

Effective January 7, 1999, the Company acquired Colonial Catastrophe Claims
Corporation ("Colonial Claims"), a Florida corporation. Colonial Claims
contracts with P&C insurance carriers to handle property and casualty claims on
their behalf. Colonial Claims has assembled a large network of independent
claims adjusters who respond to individually reported loss assignments from
Colonial Claims and are compensated based upon a set claims fee schedule.
Colonial Claims reviews and approves claims settlements, assures consistency and
quality of settlement practices, and transmits claims information to the
insurance carriers. The insurers, in turn, approve and remit claims payments to
the insureds. During 1999, Colonial claims accounted for approximately $7.6
million of the Company's outsourcing revenues.

Flood Zone Determination Operations. In July, 1997, the Company acquired a
49% equity interest in Geotrac, Inc., an unaffiliated Ohio corporation ("Old
Geotrac"). In July, 1998, the Company acquired the remaining 51% equity interest
in Geotrac, Inc. The transaction was effected pursuant to the merger of Old
Geotrac into a wholly-owned subsidiary of the Company, with the surviving entity
being known as "Geotrac of America, Inc.". Geotrac of America, Inc. ("Geotrac")
is a leading provider of flood zone determinations. Old Geotrac's President,
Chief Executive Officer and joint majority shareholder, Daniel J. White, now
serves as President, Chief Executive Officer and a director of Geotrac and as a
director of the Company.

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During 1998 and 1999, Geotrac processed approximately 1.6 million and 1.3
million flood zone determinations, respectively, for over 880 and 1,380
customers, respectively, including mortgage lenders and P&C insurance companies.
Flood insurance is required by federal law in connection with virtually all
residential mortgage loans, including refinancing loans, covering properties
located within federally designated high-risk flood zones. A flood zone
determination is necessary in order to ascertain a property's flood zone
classification. In addition, due to more stringent underwriting criteria, P&C
insurers increasingly require flood zone determinations prior to issuing
commercial property policies. Geotrac uses its proprietary database, compiled
and digitized from flood maps distributed by FEMA, to determine whether a
particular property or structure is located within a flood zone classification
that requires flood insurance. The Company estimates that over 92% of U.S.
households are in counties covered by its electronic database.

OVERVIEW OF THE FEDERAL FLOOD INSURANCE PROGRAM AND FLOOD INSURANCE MARKET

The U.S. flood insurance market is regulated by FEMA, which launched the
National Flood Insurance Program (the "Flood Program") in 1968. FEMA created the
Flood Program to provide federally-backed flood insurance to residents in
designated floodplain communities, on the condition that such communities comply
with the Flood Program's floodplain management requirements. The Flood Program,
as it exists today, is administered by the Federal Insurance Administration
("FIA").

The Flood Program was launched in 1968, and in 1983, FIA opened the flood
insurance market to private insurance companies by establishing the National
Flood Insurance Write Your Own ("WYO") program. The WYO program permits private
insurance companies who meet FEMA requirements to sell flood insurance
underwritten by the federal government and subject to federal regulation.

In 1994, Congress passed the National Flood Insurance Reform Act of 1994
(the "1994 Reform Act"). The 1994 Reform Act clarified and strengthened the
obligations of mortgage lenders to oversee and ensure the purchase of flood
insurance by borrowers who obtain federally-insured residential mortgage loans
on properties located in federally designated high-risk flood zones. Under the
1994 Reform Act, mortgage lenders must notify borrowers when flood insurance is
required, require flood insurance as a condition to making certain loans, and
place flood insurance premiums in escrow when other payments are escrowed.
Lenders who fail to comply with the 1994 Reform Act are subject to substantial
monetary penalties.

From 1994 through 1999, the U.S. flood insurance market has grown from $947
million to $1.7 billion in total annual flood premiums representing annual
growth rates of 17.7%, 8.5%, 15.0%, 15.1% and 4.2%, respectively, and a compound
annual growth rate of 12.0%. During that same period, the dollar amount of
annual flood premiums administered by the Company has grown from $59 million in
1994 to $187 million in 1999, representing annual growth rates of 36.1%, 27.6%,
29.5%, 19.6% and 18.3%, respectively, and a compound annual growth rate of
26.0%. Currently, almost 19,000 communities participate in the Flood Program,
and approximately 100 insurance companies are registered to offer WYO flood
insurance.

TREND TOWARD OUTSOURCING IN THE P&C INDUSTRY

The P&C industry provides financial protection for individuals, businesses
and others against losses of property or losses by third parties for which the
insured is liable. P&C insurers underwrite policies that cover various types of
risk, which can generally be divided into personal lines of insurance covering
individuals and commercial lines of insurance covering businesses. Personal
lines are comprised primarily of automobile and homeowners insurance. Commercial
lines cover a wide range of commercial risks that affect businesses.

According to A.M. Best, premium revenues in the P&C industry have increased
by an average of 3.1% annually since 1994. The P&C industry is highly
competitive, with insurance companies competing primarily on the basis of price,
consumer satisfaction and the ability to pay claims. According to A.M. Best, as
of December 31, 1998, there were approximately 2,500 P&C insurance companies in
the United States. These companies generated approximately $282 billion in
annual P&C premium revenues in 1998, of which more than one-half related to
personal lines automobile, homeowners and flood insurance business, the core
markets serviced by the Company. The Company believes there are a significant
number of P&C insurance companies for which outsourcing is a viable alternative
to maintaining in-house processing capabilities. More specifically,

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the Company believes it can offer many of these insurance companies the
opportunity to reduce their processing costs by outsourcing such functions to
the Company for a flat fee.

Over the past decade, many P&C insurance companies have begun using
third-party vendors to provide certain policy and claims administration services
that were traditionally performed in-house. This outsourcing of services allows
insurers to focus on their core competencies, reduce costs and eliminate capital
expenditures for the development, installation, operation and maintenance of
information management and automation systems. The Company believes that
insurance companies will increase their levels of outsourcing as they determine
that policy and claims administration and regulatory compliance are complicated
and too costly to perform efficiently in-house. According to a study conducted
by International Data, the amount spent annually by insurers on outsourcing is
expected to increase from $3.5 billion in 1998 to $4.9 billion by 2003. The
Company believes it will have significant opportunities to market its
outsourcing services for the following reasons:

- Consolidation and Drive for Cost Efficiencies. Providers of outsourcing
services are able to consolidate large volumes of business into automated
and effective processing systems, thereby creating significant cost
efficiencies. The Company believes insurance companies typically
outsource administrative services because outsource providers can provide
better quality services at a lower cost.

- Technological Challenges and Complexities. The investment in the
specialized technical knowledge required to develop, install and operate
information systems necessary for P&C insurers to remain competitive is
often cost prohibitive, particularly for smaller companies and new
entrants to the market. Insurance companies can take advantage of the
economies of technology created by an outsource provider's investment in
information systems.

- Development of Internet Based Solutions. The Company believes that, in
order to compete in an Internet economy, P&C companies will need to
aggressively pursue Internet solutions for their business -- either
directly to consumers or through their insurance agency (direct or
independent) distribution channel. According to The Conning Commentary, a
principal need of independent insurance agents is an effective electronic
interface with insurance carriers. Until recently, most insurance company
web-sites provided information content only; however, the current trend
is toward quoting, rating and issuing policies via the Internet. The
Company believes that there are a substantial number of P&C companies
that have targeted the Internet as their primary initiative in terms of
providing a mechanism for their producers to quote, rate and issue
insurance policies. The Company also believes many of these companies
will need to outsource the development of an Internet insurance
transaction solution because of the proprietary nature of their
information technology ("IT") systems and the difficulty of connecting
them to the Internet.

- Changing Distribution Channels. The Company believes that demand for
outsourcing services will increase as banks, credit unions and other
financial service companies enter the P&C market. These new entrants were
generally precluded from selling insurance until the U.S. Supreme Court
decision in Barnett Bank v. Nelson in 1996. The Company believes that,
following this decision, and despite continuing restrictions and pressure
from state regulators, banks and other financial institutions will enter
the P&C market at an increasing rate, often forming joint ventures and
other alliances with certain insurers to sell P&C insurance. Many new
entrants lack the technology, expertise or desire to perform policy and
claims processing in-house. These so-called "virtual insurance companies"
often focus their resources on the core marketing, underwriting and
financial aspects of the P&C business and seek to outsource their policy
and claims administration to third-party vendors. The Company believes
that it is well-positioned to provide services to new entrants to the P&C
market.

- Regulatory Reporting Requirements. State insurance regulators closely
regulate the product offerings, claims processes and premium rate
structures of insurance companies. To comply with such regulations,
companies must file annual and other reports relating to their financial
condition. Third-party vendors with effective policy and claims
administration systems can facilitate compliance with many regulatory
requirements by automating statutory reporting and other compliance
tasks.

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THE IMSG SOLUTION

The Company believes it has positioned itself to capitalize on the
foregoing market opportunities in the following ways:

- Flood Insurance Experience. The Company is one of the leading providers
of flood insurance outsourcing services in the United States, currently
servicing over 616,000 flood insurance policies. As a result, the Company
has developed substantial expertise and scale in virtually all aspects of
the flood insurance servicing business.

- Flexible, Comprehensive, Turnkey Solutions. The Company offers a
comprehensive range of outsourcing services, both individually and on a
bundled basis, giving clients flexibility in selecting and matching
services to their needs. The Company's turnkey solutions allow clients to
focus on core competencies and better manage costs and allow new market
entrants an opportunity to offer insurance products on a cost-effective
basis by leveraging the Company's systems and business processes.

- Insurance Industry Expertise. Unlike certain of its competitors, the
Company's senior management has substantial experience in the insurance
industry. As a result of this core competence, management believes the
Company is better suited to understand and address its customers' needs.

- Flood Zone Determination Services. The Company offers a highly automated
flood zone determination service based on its proprietary national
database. This service provides an accurate, prompt and relatively low
cost determination of a residential or commercial property's status with
respect to national flood zones. Insurance companies, credit unions,
banks and other financial institutions use this service to comply with
federal laws requiring mortgage lenders to oversee and ensure the
purchase of flood insurance by certain borrowers, create a competitive
advantage in loan approval/insurance underwriting response time and
generate additional fees from their borrowers.

- Modular, Integrated and Real-time Systems. The Company's information
systems are table-driven and modular in design, enabling the Company to
provide systems that address the specific needs of the client, such as
distinct underwriting rules. The core system permits integration of a
client's database, thereby eliminating the need for data re-entry for
multiple applications. The system provides real-time processing of key
functions, such as policy processing and endorsements, that enhances
completeness and accuracy in processing. The Company's system also has a
proven track record of reliability and low system "down-time." The
Company is committed to upgrading and maintaining its systems in an
effort to remain competitive.

- Customer Service to Independent Agent Networks and Policyholders.
Because residential and commercial flood insurance rates are set by FEMA
and therefore are not directly subject to competitive pressures, the
Company believes customer service is a critical consideration for
independent sales agents in determining which carrier's flood insurance
policies to sell. BIG is the largest underwriter of flood insurance
policies through independent agents in the United States, and the Company
processes and services all of BIG's flood insurance policies. The Company
believes that as a result of its affiliation with BIG it has developed a
customer service-oriented culture that strengthens its clients'
relationships with their independent sales agent networks and
policyholders. The Company focuses on providing superior service, such as
timely policy issuance and rapid and professional response to agent and
policyholder inquiries. The Company maintains and monitors quality
service standards and continually seeks to measure customer satisfaction.
The Company believes that its focus on customer service has enabled it to
retain all of its principal outsourcing customers since 1994.

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GROWTH STRATEGY

The Company's objectives are (1) to become a leading provider of
outsourcing services to the P&C industry and (2) to become the leading provider
of flood zone determinations to financial institutions, mortgage lenders and P&C
insurers. The Company's principal strategies for achieving these objectives are
as follows:

- Expand Flood Outsourcing Business. The Company has extensive experience
and expertise in virtually all aspects of the flood insurance servicing
business and occupies a leading position in that market. Key aspects of
the Company's growth strategy include (1) marketing flood outsourcing
services to existing WYO carriers that it believes will benefit for cost
or infrastructure reasons from the Company's services, (2) offering its
outsourcing services to new entrants that lack the infrastructure or
expertise necessary to service flood insurance customers, (3) marketing
its ability, in conjunction with BIG, to provide and service a private
label insurance product to insurance companies that desire to offer flood
insurance but are not approved by FEMA to sell and service flood
insurance, and (4) increasing the volume of flood outsourcing services
business from the Company's existing customer base, which includes over
30 customers under contract, either directly or through BIG.

- Expand Relationships With Existing Customers. The Company intends to
capitalize on its existing outsourcing customer base by cross-marketing
additional outsourcing services to certain of these existing customers.

- Expand E-Solutions Focus. In late 1999, the Company created an
e-solutions division to develop Internet insurance solutions for the P&C
industry. The Company believes that it has the expertise to assist the
P&C industry in its challenge of connecting to the Internet. The Company
also believes that its solution of connecting legacy systems with
Internet browser-based functionality will be an attractive alternative to
P&C companies attempting to develop a solution using their own resources.

- Focus on Maximizing Economies of Scale. The Company believes that demand
for P&C insurance outsourcing services will grow as such services become
more affordable and cost effective. To achieve such affordability and
cost effectiveness, a P&C outsourcing provider must develop certain
economies of scale. The Company currently services over 767,000 insurance
policies annually. As a result, it has developed a large number of
efficiencies in most aspects of its operations, from the receipt of
policy applications to billings and collections. By deploying internally
developed applications software, rating disks for applications input,
lockbox and cash office processing, automated voice response,
computerized forms and automated policy assembly, the Company has
attained expense efficiencies that management believes are characteristic
of insurers processing substantially greater policy volumes. As a
consequence, the Company believes it is well-positioned to capitalize on
the growing trend toward outsourcing administrative functions in the P&C
industry by offering insurers better quality and more cost-effective
"back office" operations. Moreover, the Company intends to continue
expanding these efficiencies by increasing the utilization of its
existing infrastructure and databases.

- Expand Direct Sales Force and Develop Strategic Relationships. The
Company has created a direct sales force and sales support organization
to focus on new customer opportunities and generate additional business
from the Company's current customer base. The Company is also seeking to
develop new business opportunities by creating additional strategic
distribution and marketing alliances with companies primarily involved in
the reinsurance business.

- Generate Recurring Revenues. The Company seeks to generate recurring
revenues by entering into contractual relationships (typically three to
seven years) with its outsourcing customers and by offering services that
are structured to generate revenues based on events that occur frequently
in the normal course of a customer's business, such as claims, mortgage
applications and insurance policy renewals.

- Pursue Strategic Acquisitions. The Company will continue to pursue
potential acquisitions that offer opportunities to increase market share
or expand the Company's menu of outsourcing services.

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SERVICES

Outsourcing Services. The Company's outsourcing services include policy
administration, claims administration and information technology services. The
Company works with each customer in an effort to ensure a seamless integration
of the customer's in-house and outsourced activities.

Policy administration describes the range of services the Company offers
customers that are considering outsourcing their policy administration
functions. When policy administration is outsourced, the customer retains all
financial risk and works with the Company to set underwriting and rating
guidelines. The Company typically receives a percentage of premiums for
performing policy administration services. The Company's policy administration
menu includes the following services: policy processing and related data entry;
policy issuance and acceptance; premium management and distribution; accounting,
billing and collections; customer service phone center for policyholders and
agents; and data collection, statutory reporting and regulatory compliance.

Claims administration describes the range of services the Company offers in
connection with the management of insurance claims. In reviewing a claim, the
Company performs a thorough claim analysis and, if warranted, prepares a check
for payment of the claim. The Company has a special investigative unit that
assists in detecting and deterring fraud in the claim review process. The
Company also offers a fully automated, stand-alone catastrophe claims operation,
distinguishing its outsourcing services in the P&C insurance market. The Company
is typically compensated for claims administration services on either a
percentage of earned premiums or claims-paid basis. The Company's claims
administration menu includes the following services: toll-free claim reporting;
initial coverage confirmation services; loss investigation and determination;
review and appraisal of claims; special investigation services, including fraud
detection; adjustment of claims and vendor management; litigation management;
and settlement and payment of claims.

The Company also offers a range of information technology services to
assist customers in operating, maintaining and enhancing information systems.
The Company integrates the customer's system platform with the Company's
processing platform, including the installation of all necessary hardware
components, depending on the customer's needs. This integration allows the
customer to administer its policies and claims internally by using the Company's
systems and software. The Company typically receives a percentage of premiums as
compensation, subject to a minimum fee. The Company's information technology
menu includes the following services: information management via integrated,
secure computer systems; document imaging; Internet rating and underwriting
services; monetary systems services, including payment processing; automated
printing, packaging and distribution of documents; generation of agent
commission statements and production reports; security administration and access
control; software application enhancement and maintenance; problem resolution
and reporting; and data backup and disaster recovery functions.

Because the Company is affiliated with and provides comprehensive
outsourcing services to BIG, an approved WYO carrier under the Flood Program, it
emphasizes to prospective customers its ability to provide third-party
administration outsourcing for flood insurance. The Company offers its flood
outsourcing services, including software and processing functions, policy
administration, claims administration and statistical reporting, on either a
bundled or "a la carte" basis. New market entrants and certain other insurers
may prefer to purchase unbundled services, allowing them to retain in-house
control over specific aspects of their businesses. The Company makes available
virtually any combination of outsourcing services required by the customer.

The Company also offers flood outsourcing services to insurance companies
that seek to provide flood insurance, but do not want to become certified WYO
carriers. In this case, the services are provided in conjunction with a
proprietary flood product. An insurance company can establish a private label
insurance product written through BIG whereby the customer's name and logo
appear on the policy documents, while BIG acts as the servicing carrier. The
Company also intends to market its outsourcing services to banks, credit unions
and other financial institutions as they become increasingly involved in the
sale of insurance.

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Flood Zone Determination Business. For a fixed fee, the Company will
provide a customer -- typically a mortgage loan originator or an insurance
company -- with a determination as to whether a specified property is located
within a federally-designated flood zone classification. The Company uses its
proprietary national flood zone database to make flood zone determinations. This
database, which is continually updated, allows the Company to determine if a
particular structure is located within the special flood hazard areas
established by FEMA. These determinations assist mortgage lenders in complying
with federal regulations under which they must require borrowers to purchase the
appropriate level of flood insurance. Management estimates that over 92% of U.S.
households are located in counties covered by the Company's electronic flood
zone database. For approximately 75% of determinations requested, the Company is
able to perform automated flood zone determinations in a matter of seconds.
Determinations made on a fully-automated basis are significantly more cost
effective than manual determinations. In some cases, particularly where a
property is not clearly within or outside a flood hazard area, the database
search will not produce an automatic determination, or "hit," and a manual
search becomes necessary. Manual searches require extra time and labor and are
not nearly as cost effective as fully-automated searches.

The Company provides both one-time and life-of-loan flood zone
determinations. Under a "life-of-loan" determination, the Company is responsible
for updating the initial flood zone determination based on revisions to the
federal flood maps occurring during the term of the loan. The Company also
provides portfolio analyses and audits for mortgage service agencies by
reviewing blocks of loans that usually require between 100 and 50,000 flood zone
determinations.

In addition to flood zone determinations, the Company provides
flood-related ancillary services. For example, the Company provides a standard
flood compliance packet to lenders which includes information on community
status, mapping, specific structure location, amount of flood insurance
required, secondary market and government program restrictions, and floodway and
coastal zone barrier restrictions. The life-of-loan product tracks both
community status and FEMA map changes on a daily basis for the life of the loan.
If changes occur that affect the subject property, a new report is automatically
generated for no additional charge. Certain ancillary services are transferable
if the mortgage loan for which the flood zone determination was done is sold or
transferred. Through its GeoCompass(R) service, the Company provides certain
CD-ROM services on-site at customer locations. The CD-ROM delivery system offers
customers the ability to perform certain flood zone determinations at their own
desktops.

The Company also actively seeks to leverage its expertise in mapping
technology by providing ancillary mapping services. For example, the Company has
been engaged by various municipalities or has partnered with software firms to
digitize manual property tax maps and then integrate these maps with appraisal
data. Most municipality property tax maps have not been digitized and the
Company believes there is a significant opportunity to penetrate this market.
The Company believes there are numerous other related opportunities to apply its
core mapping technology expertise.

The Company has established a relationship with Kirloskar Computer Services
("KCS"), located in India, which provides certain services that have increased
the efficiency and cost effectiveness of the Company's flood zone determination
business. Under a Secrecy and Confidentiality Agreement, KCS has agreed, for a
period of five years from the date of termination of its relationship with
Geotrac, not to engage, directly or indirectly, in certain activities relating
to Geotrac's business. KCS currently builds databases and creates digitized maps
that the Company uses in connection with its flood zone determination business.
In addition, Geotrac presently uses KCS to perform manual flood zone
determination searches at costs significantly below U.S. market rates. KCS
currently performs approximately 600 manual searches per day. As the Company
continues to shift its manual search processing to India, it expects to have
approximately 1,000 manual searches per day performed in that country by June,
2000. These plans are subject to change based upon various factors, including
the demand for manual searches as well as political and economic conditions in
India. The Company also has retained three KCS systems analysts on a consulting
basis at its Norwalk, Ohio headquarters to assist in the design and programming
of new technologies. Each of these consultants directs a team of programmers in
Bangalore, India.

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The Company uses different pricing and contractual arrangements for
one-time and life-of-loan flood zone determinations. The Company performs flood
zone determinations for both residential and commercial properties, with
determinations for residential properties comprising approximately 85% of such
business.

CUSTOMER SUPPORT AND INSTALLATION

The Company's outsourcing services are provided from three separate
customer service centers in St. Petersburg, Florida -- one for policy and claims
administration and two for catastrophic claims administration.

The policy administration center has approximately 250 employees, most of
whom are trained customer service representatives. Customer service
representatives are responsible for the timely handling and resolution of
incoming phone calls related to underwriting, rating, billing, policy status and
other policy administration matters. While most calls come from insurance
agents, the phone center also handles calls from mortgage companies,
policyholders and insureds.

The claims administration customer service center is responsible primarily
for handling calls from claimants and insureds reporting property losses. The
center also handles calls from agents and others related to coverage of existing
claims. The center has approximately 182 employees, approximately half of which
are licensed claims representatives responsible for the adjustment of claims.
Incoming calls are taken by 16 customer service representatives who are trained
to handle all types of insurance claims. Unlike many other claims administration
centers, the Company's service center is able to immediately assign each claim
to a licensed adjuster for processing. The claims administration switchboard is
open weekdays from 7:30 a.m. to 9:00 p.m. (Eastern time), and customer service
representatives and licensed adjusters are available 24 hours a day, seven days
a week, to handle emergency claims.

The Company currently maintains a separate customer service center relating
exclusively to its flood zone determination business. The Company believes its
service center is one of the largest flood zone determination service centers in
the industry. A team comprised of a senior manager and up to four service
representatives is assigned to each customer account. The team advises the
customer in all matters of flood compliance and will train a customer's staff at
their own or the Company's offices. The team also provides direct support to
their customers' independent direct sales agent networks.

The Company installs its GeoCompass(R) CD-ROM system on site at customer
locations. GeoCompass(R), which enables customers to make their own flood zone
determinations, is based on the Windows operating system, operates on the
customer's network and is relatively simple for customers to learn to use.

SALES AND MARKETING

The Company seeks to market its outsourcing capabilities by leveraging its
existing expertise in flood insurance administration and by targeting
prospective customers, such as insurers with high expense ratios or limited
expertise in certain P&C lines. The Company's sales and marketing division
includes a vice president, two full-time sales representatives and a marketing
assistant. In addition to direct marketing, the Company markets its P&C
outsourcing services through insurance brokers, reinsurers and other strategic
partners. The Company also advertises in various trade publications and
participates in industry conventions and trade shows to enhance the penetration
of its flood and non-flood markets.

The Company markets its flood zone determination services both directly
through its own sales personnel and indirectly through its alliances with other
service providers.

INFORMATION SYSTEMS

The Company utilizes fully-integrated, real-time, processing systems at its
St. Petersburg, Florida facilities to provide many of its outsourcing services.
These systems, which run on an IBM AS/400 platform coupled with a relational
database, enable the Company to provide on-line ratings and underwriting
information, issue required insurance forms to policyholders and agents and
produce renewal and non-renewal

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notices. The processing systems interface with a disbursement system which
enables the Company to generate checks automatically.

A separate IBM AS/400 is used to develop, enhance, and test new and
existing systems. In the event of a power failure, the AS/400 site is supported
by a fully-functional backup system that provides additional processing time of
one hour under full load. Insurance policies and related documents are scanned
to optical disks, and are retrievable at most LAN workstations. The Company also
has an optical jukebox that can store approximately 10 million documents. The
Company's data center has controls to ensure security and a disaster recovery
plan which is tested regularly.

The Company also utilizes computer systems at its Geotrac location,
including two IBM AS/400 processors. Geotrac also has several major production
systems, including GeoCompass(R) and life-of-loan tracking.

The Company is capable of developing modifications or enhancements to its
licensed software to meet its outsourcing customers' particular needs. Business
analysts from the Company work with each customer to ensure that the Company
understands the customer's system requirements. Once the system requirements
have been documented, the Company dedicates a team of systems analysts to
develop the appropriate modifications or enhancements to its software system.

CUSTOMERS

The Company currently provides outsourcing services to approximately 30
customers. The Company's largest customer, BIG, accounted for approximately 76%,
57%, and 58% of the Company's revenues in 1997, 1998 and 1999, respectively.
Consequently, any material decrease in the outsourcing business from BIG would
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company provides outsourcing services to other
WYO carriers, including Farmers Insurance Group, AAA Auto Club South Insurance
Company and Mobile USA Insurance Company, Inc. The Company also provides
outsourcing services to various insurance companies, such as Armed Forces
Insurance Corporation and AMICA Mutual Insurance Company, that utilize BIG as
their servicing carrier.

The Company provides flood zone determination services to over 1,380 banks,
credit unions, mortgage lenders, insurance companies and, other financial
institutions. The Company's principal insurance company customers for such
services include FM Global and Wausau Underwriters Insurance Company. In
addition, the Company provides flood zone determination services to numerous
credit unions, a number of which became customers as a result of the Company's
alliance with CUNA Mutual Group, the nation's largest provider of insurance
products to credit unions. The Company also provides such services to mortgage
lenders such as ABN Amro North America, Inc. primarily through its alliance with
Equifax Mortgage Services, believed by the Company to be the largest mortgage
credit reporting agency in the U.S.

COMPETITION

The Company competes principally in three markets: (1) the market for flood
insurance outsourcing services, (2) the market for other P&C insurance
outsourcing services and (3) the market for flood zone determination services.
The markets for these services are highly competitive.

The market for flood insurance outsourcing services is dominated by the
Company and several principal competitors, including National Con-Serv, Inc. and
Electronic Data Systems, Inc. The Company competes for these outsourcing
customers largely on the basis of price, customer service and responsiveness.

The market for other P&C insurance outsourcing services is fragmented. In
the policy administration services segment of this market, principal competitors
include Policy Management Services Corporation and INSpire Insurance Solutions,
Inc. In this segment of the market, the Company competes for customers on the
basis of customer service, performance and price. The claims administration
services segment of the P&C outsourcing market also is highly fragmented, with
competition from a large number of claims administration companies of varying
size, as well as independent contractors. Competition in this segment of the
outsourcing

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market is principally price driven. Competitors include Lindsey Morden Claim
Services, Inc., Crawford & Company, Inc. and INSpire Insurance Solutions, Inc.

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

The market for flood zone determination services is dominated by the
Company and several principal competitors, including First American Financial,
Transamerica, Chicago Title Corp. and Palma Lazar & Ulsh. The Company believes
that the principal competitive factors in the market for flood zone
determinations include price, quality and reliability of services, and response
time.

Certain of the Company's competitors in each of these markets have longer
operating histories and significantly greater financial, technical, marketing
and other resources than the Company, including name recognition with current
and potential customers. As a result, these competitors may devote more
resources to the development, promotion and sale of their services or products
than the Company and respond more quickly to emerging technologies and changes
in customer requirements. There can be no assurance that the Company will be
able to compete successfully against current and future competitors, or that
competitive pressure faced by the Company will not have a material adverse
effect on its business, financial condition and results of operations.

EMPLOYEES

As of March 20, 2000, the Company had 708 full-time and 34 part-time
employees, consisting of 42 in sales and marketing, 513 in customer service and
support, 125 in technical support, and 62 in management, administration and
finance. None of the Company's employees is subject to a collective bargaining
agreement, and the Company considers its relations with its employees generally
to be good.

RISK FACTORS

The Company's financial condition and results of operations may be impacted
by a number of factors, including, but not limited to the following risk
factors, any of which could cause actual results to materially differ from
historical or anticipated future results.

Reliance on Key Customer

The Company derives a substantial portion of its revenues from outsourcing
services provided to its principal shareholder, BIG. For the years ended
December 31, 1997, 1998 and 1999, revenues from services provided to BIG
accounted for approximately 76%, 57% and 58%, respectively, of the Company's
total revenues and approximately 98%, 95% and 80%, respectively, of the
Company's revenues from outsourcing services. The Company has contracts with BIG
pursuant to which it will continue to provide administrative services to BIG.
The Company's future financial condition and results of operations will depend
to a significant extent upon the commercial success of BIG and its continued
willingness to utilize the Company's services. Any significant downturn in the
business of BIG or its commitment to utilize the Company's services could have a
material adverse effect on the Company's business, financial condition and
results of operations.

Dependence on Economic and Other Factors; Fluctuations in Quarterly Operating
Results

The Company's business is dependent upon various factors, such as general
economic conditions and weather patterns, that are beyond its control. For
example, the demand for flood zone determinations by lenders and their customers
is directly related to the affordability of mortgage financing and refinancing.
Current interest rates, which increased during 1999, are less conducive to a
higher volume of mortgage lending

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and flood zone determinations. A continued increase in interest rates could have
a further negative impact on mortgage lending and consequently also on the level
of flood zone determinations requested. Fluctuations in interest rates will
likely produce fluctuations in the Company's quarterly earnings and operating
results. Likewise, natural disasters such as hurricanes, tornadoes, and floods,
all of which are unpredictable, directly impact the demand for both the
Company's outsourcing, particularly claims outsourcing, and flood zone
determination services.

Regulatory Matters

Bankers Insurance Company ("BIC"), a subsidiary of BIG, the Company's
principal shareholder and customer, and Bankers Life Insurance Company ("BLIC")
and Bankers Security Insurance Company ("BSIC"), subsidiaries of BIC, have been
subject to an investigation by the Florida Department of Insurance (the "DOI"),
the principal regulator of insurance activities in the State of Florida,
stemming from their use of a private investigator to gather information on a DOI
employee and the private investigator's unauthorized use of illegal wiretaps in
connection therewith. On March 23, 2000, the Treasurer and Insurance
Commissioner of the State of Florida, as head of the DOI, filed an
administrative complaint against BIC, BLIC and BSIC based upon the results of
such investigation. The administrative complaint charges BIC, BLIC and BSIC with
violating various provisions of the Florida Insurance Code including, among
other things, a provision requiring insurance companies to have management,
officers or directors that are, among other things, trustworthy. The complaint
further notified BIC, BLIC and BSIC that the Insurance Commissioner intends to
impose such penalties or take such other administrative actions as may be proper
or appropriate under applicable law, including possibly entering an order
suspending or revoking the certificates of authority of BIC, BLIC and BSIC to
conduct business as insurance companies in the State of Florida.

BIC, BLIC and BSIC have informed the Company that they intend to vigorously
defend against such action, but no assurances can be given as to the outcome
thereof. In the event the DOI were to enter an order suspending or revoking the
certificates of authority of BIC, BLIC and BSIC to conduct business as insurance
companies in the State of Florida, or impose other significant penalties on any
of them, it would materially adversely affect the business and/or operations of
BIG and, in turn, could result in the loss of or material decrease in the
Company's business from BIG, which would have a material adverse effect on the
Company's business, financial condition and results of operations.

On November 19, 1999, the United States, on behalf of FEMA, filed a civil
action against BIC in the U.S. District Court for the District of Maryland
stemming from FEMA's investigation of certain cash management and claims
processing practices of BIC in connection with its participation in the National
Flood Insurance Program ("NFIP"). The complaint alleges, among other things,
that BIC knowingly failed to report and pay interest income it had earned on
NFIP funds to the United States in violation of the False Claims Act as well as
various common law theories, including fraud, breach of contract, unjust
enrichment and negligent misrepresentation. The complaint seeks civil penalties
of $1.08 million and actual damages of approximately $1.1 million, as well as
treble, punitive and consequential damages, costs and interest. BIC has informed
the Company that it intends to vigorously defend against this action, but no
assurances can be given as to the outcome thereof. However, BIG and its legal
counsel have advised the Company that an adverse judgment in this action would
not have a material adverse affect on the business and/or operations of BIC,
although no assurances can be given in this regard.

FEMA's investigation of certain claims processing practices of BIC in
connection with its participation in the NFIP is continuing, and BIC has
produced documentation in connection therewith. If the parties are unable to
reach agreement in these matters, the United States could amend its complaint
against BIC to add additional claims under the False Claims Act and/or various
common law and equitable theories relating to such matters. In the event such
continuing investigation or any consequence thereof materially adversely affects
the business or operations of BIC, it could result in the loss of or material
decrease in the Company's business from BIC, which would have a material adverse
effect on the Company's business, financial condition and results of operations.

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Government Regulation

As a provider of policy and claims processing to the flood insurance
industry, the Company is subject to extensive and continuously changing
guidelines of the Federal Insurance Administration. No assurance can be given
with respect to the extent to which the Company may become subject to regulation
in the future, the ability of the Company to comply with any such regulation,
the cost of compliance or an abrupt change in the overall concept or delivery of
the flood insurance product on behalf of the federal government. Moreover, if
the federal government were to curtail the current federal flood program, it
could have a material adverse effect on the Company's business, financial
condition and results of operations.

The P&C insurance industry is subject to extensive regulation by state
governments. Because the Company markets and sells its services to P&C insurers,
certain aspects of the Company's business are affected by such regulation. The
Company must continuously update its software to reflect changes in regulations.
In addition, changes in regulations that adversely affect the Company's existing
and potential customers could have a material adverse effect on the Company's
business, financial condition and results of operations. Although the Company's
services are not directly subject to insurance regulations in the states where
the Company currently provides such services, the Company's outsourcing services
may be subject to insurance regulations in states where the Company may do
business in the future. Such regulations could require the Company to obtain a
license as a managing general agent or third-party administrator. Failure to
perform in accordance with state regulations could result in the loss of
significant insurance clients. No assurance can be given with respect to the
extent to which the Company may become subject to regulation in the future, the
ability of the Company to comply with any such regulation, or the cost of
compliance.

Control by Principal Shareholder; Conflicts of Interest

BIG currently owns approximately 62.7% of the outstanding shares of Common
Stock. As a result, BIG is able to elect the Company's directors and determine
the outcome of other matters requiring shareholder approval. BIG's ultimate
parent, Bankers International Financial Corporation, Ltd., is wholly owned by a
discretionary charitable trust. David K. Meehan, the Company's Chairman of the
Board, and Robert M. Menke and Robert G. Menke, directors of the Company,
presently serve on the board of directors of a corporation that possesses
discretionary power with respect to this trust to (i) direct the trustee to
appoint the trust fund to another trust for the benefit of one or more of the
beneficiaries of the trust and (ii) remove the trustee and appoint one or more
new trustees.

The ownership of BIG of shares of Common Stock may discourage or prevent
unsolicited mergers, acquisitions, tender offers, proxy contests or changes of
incumbent management, even when shareholders other than BIG consider such a
transaction or event to be in their best interests. Accordingly, holders of
Common Stock may be deprived of an opportunity to sell their shares at a premium
over the trading price of the shares.

Certain officers and directors of the Company, including David K. Meehan,
the Company's Chairman of the Board, also serve as officers and directors of
BIG. Mr. Meehan serves as Vice Chairman of the Board of Directors of BIG, Robert
M. Menke serves as Chairman of the Board of Directors of BIG, and Robert G.
Menke serves as President of BIG. In addition, as described below, the Company
will continue to have a variety of contractual relationships with BIG. As the
interests of the Company and BIG may differ, Messrs. Meehan, Robert M. Menke and
Robert G. Menke may face certain conflicts of interests.

The Company's relationship with BIG is governed by various agreements,
including (i) an administration services agreement pursuant to which BIG
provides benefits administration, cash management, and certain limited
accounting and legal services to the Company, (ii) service agreements pursuant
to which the Company provides policy and claims administration services for BIG,
and (iii) lease agreements pursuant to which BIG leases certain facilities to
the Company. The agreements generally are intended to maintain the relationship
between the Company and BIG in a manner consistent in material respects with
past practice, except that certain changes in the fee structure for the
Company's services have been implemented and the Company does not anticipate
receiving any loans or capital contributions from BIG. None of these agreements

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resulted from arm's-length negotiations and, as a result, the terms of such
agreements may be more or less favorable to the Company than could be obtained
from an independent third party. See Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

Rights of Former Geotrac Shareholder

The Company has entered into a Corporate Governance Agreement with Geotrac
and Daniel J. White setting forth certain terms and conditions pertaining to the
operation of Geotrac following the acquisition of the remaining 51% interest in
Geotrac in July, 1998. The Corporate Governance Agreement provides, in part,
that for so long as Mr. White is a shareholder of the Company or Geotrac or has
an option to purchase Geotrac stock, (i) the Company will vote all of its shares
of Geotrac stock to fix and maintain the number of Geotrac directors at five,
(ii) the Company will vote its shares of Geotrac stock to elect as directors of
Geotrac two persons designated by Mr. White, (iii) Mr. White's termination as a
Geotrac employee will require the vote of four out of five members of the Board
of Directors, and (iv) certain actions by Geotrac will require the unanimous
approval of the Geotrac Board of Directors, including any merger or
consolidation, the payment of management or similar fees to the Company, or its
subsidiaries or affiliates, the sale or issuance of Geotrac stock, and the sale
of Geotrac assets outside the ordinary course of business to anyone other than
an affiliate of Geotrac. Mr. White also has a right of first refusal to purchase
the assets of Geotrac in the event such assets are to be sold. The Corporate
Governance Agreement therefore allows Mr. White to block certain transactions
involving Geotrac even if such transactions are approved by all of the other
directors of Geotrac and may be in the best interest of the Company and its
shareholders. Mr. White is a director and shareholder of the Company.

Dependence on Senior Management

The success of the Company is largely dependent upon the efforts, direction
and guidance of its senior management, and in particular David K. Meehan, the
Company's Chairman of the Board, David M. Howard, the Company's President and
Chief Executive Officer, Robert G. Gantley, the Company's Vice President and
Chief Operating Officer, Christopher P. Breakiron, the Company's Chief Financial
Officer, Treasurer and Secretary, and Daniel J. White, Geotrac's President and
Chief Executive Officer. The Company's continued growth and success depends in
part on its ability to attract and retain qualified managers, and on the ability
of its executive officers and key employees to manage its operations
successfully. The loss of any of the Company's senior management or key
personnel, or its inability to attract and retain key management personnel in
the future, could have a material adverse effect on the Company's business,
financial condition and results of operations.

Limited Operating History in Third-Party Outsourcing

Since its inception, the Company has provided outsourcing services to BIG,
the largest underwriter of flood insurance policies through independent agents
(and the second largest overall) in the United States. As BIG's outsourcing
provider, the Company has become a significant provider of flood insurance
outsourcing services; however, to date it has not derived significant revenue
from unaffiliated third-party outsourcing customers. A key element of the
Company's growth strategy is to leverage its experience and expertise in
servicing BIG's flood, homeowners and automobile business to market its
outsourcing capabilities in various P&C lines, including flood, homeowners and
automobile insurance, to other insurance companies and financial institutions.
There can be no assurance that the Company will be successful in implementing
this growth strategy, and the failure to do so could have a material adverse
effect on the business, financial condition and results of operations of the
Company.

Existence of Well-Positioned Competitors

The Company competes principally in three markets -- the market for flood
insurance outsourcing services, the market for other P&C insurance outsourcing
services and the market for flood zone determinations and related services. The
markets for these services are highly competitive. Management believes the
market for flood insurance outsourcing services is dominated by several
principal competitors. The Company

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competes for flood insurance outsourcing customers largely on the basis of
price, customer service and responsiveness. The market for other P&C insurance
outsourcing services is fragmented. In the policy administration services
segment of this market, the Company competes for customers on the basis of
customer service, performance and price. The claims administration services
segment of the outsourcing market is also highly fragmented, with competition
from a large number of claims administration companies of varying size as well
as independent contractors. Competition in this segment of the outsourcing
market is principally price driven. The Company believes, however, that its most
significant competition for outsourcing services comes from policy and claims
administration performed in-house by insurance companies. Insurers that fulfill
some or all of their policy and claims administration needs in-house typically
have made a significant investment in their information processing systems and
may be less likely to utilize the Company's services. In addition, insurance
company personnel may have a vested interest in maintaining these
responsibilities in-house. Management believes the market for flood zone
determination services is dominated by several principal competitors. The
Company believes that the principal competitive factors in the market for flood
zone determinations include quality and reliability of services, response time
and price.

Certain of the Company's competitors in each of these markets have longer
operating histories and significantly greater financial, technical, marketing
and other resources than the Company, including name recognition with current
and potential customers. As a result, these competitors may devote more
resources to the development, promotion and sale of their services or products
than the Company and respond more quickly to emerging technologies and changes
in customer requirements. In addition, current and potential competitors may
establish cooperative relationships among themselves or with third parties to
increase the ability of their services and products to address customer needs.
Accordingly, new competitors or alliances among competitors may emerge and
rapidly acquire significant market share. There can be no assurance that the
Company will be able to compete successfully against current and future
competitors, or that competitive pressure faced by the Company will not have a
material adverse effect on its business, financial condition and results of
operations.

Implementation of Acquisition Strategy

The Company intends to pursue potential acquisitions that offer
opportunities to increase market share or expand the Company's menu of
outsourcing services. Nevertheless, there can be no assurance that the Company
will be able to locate and consummate or, if consummated, successfully integrate
future acquisitions. Acquisitions involve significant risks which could have a
material adverse effect on the Company, including: (i) the diversion of
management's time and attention to the negotiation of the acquisition and to the
assimilation of the businesses acquired; (ii) the need to modify financial and
other systems and add management resources; (iii) potential liabilities of the
acquired business; (iv) unforeseen difficulties in the acquired operations; (v)
possible adverse short-term effects on the Company's results of operations; (vi)
the dilutive effect of the issuance of additional equity securities; and (vii)
the financial reporting effects of the amortization of goodwill and other
intangible assets. Furthermore, there can be no assurance that any business
interest acquired in the future will achieve acceptable levels of revenue and
profitability or otherwise perform as expected.

Potential Liability to Clients

Many of the Company's contractual engagements involved projects that are
critical to the operations of its clients' business and provide benefits that
may be difficult to quantify. Any failure in a client's system could result in a
claim for substantial damages against the Company, regardless of the Company's
responsibility for such failure. Although the Company may attempt to limit
contractually its liability for damages arising from negligent acts, errors,
mistakes or omissions in rendering its services, there can be no assurance that
the limitations of liability, if any, set forth in its service contracts will be
enforceable in all instances or would otherwise protect the Company from
liability for damages. Although the Company maintains general liability
insurance coverage, including coverage for errors or omissions, there can be no
assurance that such coverage will continue to be available on reasonable terms
or in sufficient amounts to cover one or more large claims, or that the insurer
will not disclaim coverage as to any future claim. The successful assertion of
one or more large

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claims against the Company that exceed available insurance coverage, or changes
in the Company's insurance policies, including premium increases or the
imposition of large deductible or co-insurance requirements, could have a
material adverse effect on the Company's business, financial condition and
results of operations.

Dependence on Trend Toward Outsourcing

The Company's business and growth depend in large part on the insurance
industry's trend toward outsourcing administration and information technology
services. There can be no assurance that this trend will continue, as
organizations may elect to perform such services in-house. A significant change
in the direction of this trend could have a material adverse effect on the
Company's business, financial condition and results of operations.

Reliance on Technology and Computer Systems

The Company currently licenses its primary processing software systems from
BIG. Under the terms of its licensing agreement, the Company is responsible for
maintaining and upgrading such systems. The Company anticipates that it will be
necessary to continue to invest in and develop new technology to maintain its
competitiveness. Significant capital expenditures may be required to keep its
technology up-to-date. The Company's future success will also depend in part on
its ability to anticipate and develop information technology solutions which
keep pace with evolving industry standards and changing customer demands. The
temporary or permanent loss of any such equipment or systems, through operating
malfunction or otherwise, could have a material adverse effect on the Company's
business, financial condition and results of operations.

In addition, the nature of the Company's business requires that it recruit
and retain qualified technical personnel. The Company generally experiences
significant turnover of its information technology personnel and is continuously
required to recruit and train replacement personnel. The demand for qualified
personnel conversant with certain technologies is intense and may exceed supply
as new and additional skills are required to keep pace with evolving computer
technology. There can be no assurance that the Company will be successful in
attracting and retaining the information technology personnel it requires to
conduct its operations successfully. Failure to attract and retain such
personnel could have a material adverse effect on the Company's business,
financial condition and results of operations.

Volatility of Stock Price

The Company believes that various factors such as general economic
conditions and changes or volatility in the financial markets, changing market
conditions, and quarterly or annual variations in the Company's financial
results, some of which are unrelated to the Company's performance, could cause
the market price of the Common Stock to fluctuate substantially.

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ITEM 2. PROPERTIES

The following table sets forth certain information with respect to the
principal facilities used in the Company's operations:

SQUARE LEASE
LOCATION FEET FUNCTIONS EXPIRATION
- -------- ------ --------- ----------

St. Petersburg, Florida(1)....... 76,700 Corporate Headquarters December 2001
and Outsourcing
St. Petersburg, Florida(1)....... 7,400 Outsourcing December 2001
St. Petersburg, Florida.......... 35,507 Outsourcing February 2005(2)
St. Petersburg, Florida.......... 6,600 Outsourcing May, 2000
Bozeman, Montana................. 4,000 Outsourcing December, 2001(3)
Dunedin, Florida................. 5,200 Outsourcing February 2004
Norwalk, Ohio.................... 12,400 Flood Zone Determination August 2004(2)
Norwalk, Ohio.................... 21,000 Flood Zone Determination November 2002(2)

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

(1) Each of these facilities is leased or subleased from BIG.
(2) The Company has the option to renew each of these leases for an additional
five-year period.
(3) The Company has the option to renew this lease for two additional one-year
periods.

The Company believes that its existing facilities and additional or
alternate space available to it are adequate to meet its requirements for the
foreseeable future.

ITEM 3. LEGAL PROCEEDINGS

The Company is not involved in any pending legal proceedings other than
routine litigation arising in the ordinary course of business. The Company does
not believe that the results of such litigation, even if the outcome were
unfavorable to the Company, would have a material adverse effect on the
Company's business, financial condition or results of operations.

BIC, a subsidiary of BIG, the Company's principal shareholder and customer,
and BLIC and BSIC, subsidiaries of BIC, have been subject to an investigation by
the Florida DOI, the principal regulator of insurance activities in the State of
Florida, stemming from their use of a private investigator to gather information
on a DOI employee and the private investigator's unauthorized use of illegal
wiretaps in connection therewith. On March 23, 2000, the Treasurer and Insurance
Commissioner of the State of Florida, as head of the DOI, filed an
administrative complaint against BIC, BLIC and BSIC based upon the results of
such investigation. The administrative complaint charges BIC, BLIC and BSIC with
violating various provisions of the Florida Insurance Code including, among
other things, a provision requiring insurance companies to have management,
officers or directors that are, among other things, trustworthy. The complaint
further notifies BIC, BLIC and BSIC that the Insurance Commissioner intends to
impose such penalties or take such other administrative actions as may be proper
or appropriate under applicable law, including possibly entering an order
suspending or revoking the certificates of authority of BIC, BLIC and BSIC to
conduct business as insurance companies in the State of Florida.

BIC, BLIC and BSIC have informed the Company that they intend to vigorously
defend against such action, but no assurances can be given as to the outcome
thereof. In the event the DOI were to enter an order suspending or revoking the
certificates of authority of BIC, BLIC and BSIC to conduct business as insurance
companies in the State of Florida, or impose other significant penalties on any
of them, it would materially adversely affect the business and/or operations of
BIC and, in turn, could result in the loss of or material decrease in the
Company's business from BIC, which would have a material adverse effect on the
Company's business, financial condition and results of operations.

On November 19, 1999, the United States, on behalf of FEMA, filed a civil
action against BIC in the U.S. District Court for the District of Maryland
stemming from FEMA's investigation of certain cash

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management and claims processing practices of BIC in connection with its
participation in the NFIP. The complaint alleges, among other things, that BIC
knowingly failed to report and pay interest income it had earned on NFIP funds
to the United States in violation of the False Claims Act as well as various
common law theories, including fraud, breach of contract, unjust enrichment and
negligent misrepresentation. The complaint seeks civil penalties of $1.08
million and actual damages of approximately $1.1 million, as well as treble,
punitive and consequential damages, costs and interest. BIC has informed the
Company that it intends to vigorously defend against this action, but no
assurances can be given as to the outcome thereof. However, BIG and its legal
counsel have advised the Company that an adverse judgment in this action would
not have a material adverse affect on the business and/or operations of BIC,
although no asurances can be given in this regard.

During 1999, BIG, together with certain of its affiliates, including the
Company, was subject to a wage and hour audit conducted by the Department of
Labor ("DOL"). The Company has responded to the DOL's inquiries relating to the
classification of its employees for the purpose of determining overtime
compensation. The Company and BIG are in the process of jointly negotiating with
representatives of the DOL in an effort to fairly determine the proper
classification of certain employees and the amount of the past wages owed.
Although management cannot currently determine the amount of any past wages to
be awarded in this case, they believe any assessment will be shared with BIG and
its affiliates. Management believes that the amount of any past wages to be
awarded in this case will not have a material adverse effect on business,
financial condition and results of operations of the Company, although no
assurances can be given in this regard.

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

No matters were submitted to a vote of security holders during the fourth
quarter of 1999.

EXECUTIVE OFFICERS OF THE REGISTRANT

As of December 31, 1999 there was one executive officer who was not also a
director of the Company. Christopher P. Breakiron, age 33, served as the acting
Chief Financial Officer, Treasurer and Secretary of the Company from August,
1999 through October, 1999, when he assumed all three positions on a permanent
basis. Mr. Breakiron is also a Vice President of the Company and has served in
such capacity since April, 1999. From July, 1997 to August, 1999, he served as
Controller of the Company. Prior to joining the Company, Mr. Breakiron worked as
a senior auditor with Arthur Andersen LLP. He is a certified public accountant.

On January 18, 2000, Robert G. Gantley was appointed as Chief Operating
Officer and Vice President of the Company. Mr. Gantley, age 45, served as Vice
President -- Claims of Insurance Management Solutions, Inc., the Company's
principal outsourcing subsidiary, since August, 1997. From August, 1997 to June,
1998, he also served as Vice President -- Claims of the Company. Mr. Gantley
joined BIG in October, 1996 and served as Vice President -- Claims of Bankers
Insurance Company, a wholly-owned subsidiary of BIG, until February, 1999. Prior
to joining BIG, he was Assistant Director of the Massachusetts State Lottery
from 1993 to 1996 and spent over fifteen years with Allstate Insurance Group,
most recently as a Territorial Claims Manager from 1989 to 1993. Mr. Gantley is
a 1977 graduate of Harvard College and has over eighteen years experience in the
insurance industry.

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PART II

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

In February, 1999, the Company completed an initial public offering of its
Common Stock at an initial price of $11.00 per share. The Company's Common Stock
is traded on the Nasdaq National Market under the symbol of "INMG". The
following table sets forth the high and low closing sales price per share as
reported by the Nasdaq National Stock Market for the Common Stock for the
periods indicated.

QUARTER ENDED HIGH LOW
------------- ------ -----

March 31, 1999.............................................. $11.88 $8.25
June 30, 1999............................................... 11.19 8.00
September 30, 1999.......................................... 9.75 2.88
December 31, 1999........................................... 3.56 1.88

As of February 25, 2000, there were 22 record holders of the Common Stock.

In June, 1998, the Company paid a dividend of $1.1 million to BIG. The
Company currently anticipates that any future earnings will be retained for
development and expansion of the Company's business and does not anticipate
declaring or paying any cash dividends in the foreseeable future.

On June 11, 1999, the Company entered into a revolving line of credit
agreement ("LOC") with a financial institution that provides for borrowings of
up to $12,000,000. Under the LOC, the Company is restricted from making any
distributions or dividends payable in cash or capital stock of the Company on
any shares of any class of its capital stock or applying any of its property or
assets to the purchase, redemption or other retirement of any shares of any
class of capital stock or any partnership interest when the ratio of interest
earning debt to earnings before interest, taxes, depreciation, and amortization
exceeds 1.0 either before or as a result of the distribution.

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ITEM 6. SELECTED FINANCIAL DATA

The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements of the Company and Notes
thereto and "Item 7: Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company." The following selected consolidated
financial data of the Company as of and for the years ended December 31, 1995,
1996, 1997, 1998 and 1999 has been derived from the Company's audited
consolidated financial statements. The results of operations presented below are
not necessarily indicative of the results of operations that may be achieved in
the future.

YEAR ENDED DECEMBER 31,
-----------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENT OF OPERATIONS DATA:
Revenues
Outsourcing services........................... $ 3,444 $ 5,125 $29,714 $38,058 $52,168
Flood zone determination services.............. 5,127 7,705 8,792 25,734 19,161
------- ------- ------- ------- -------
Total revenues......................... 8,571 12,830 38,506 63,792 71,329
------- ------- ------- ------- -------
Expenses
Cost of outsourcing services................... 2,955 3,896 21,989 26,875 37,428
Cost of flood zone determination services...... 3,415 5,362 4,764 11,131 8,102
Selling, general and administrative............ 804 1,121 3,026 8,381 11,857
Management services from Parent................ 725 1,054 2,344 3,260 2,256
Deferred compensation (non-recurring item)..... -- -- -- 728 --
Depreciation and amortization.................. 184 309 684 4,311 5,498
------- ------- ------- ------- -------
Total expenses......................... 8,083 11,742 32,807 54,686 65,141
------- ------- ------- ------- -------
Operating income................................. 488 1,088 5,699 9,106 6,188
Equity in earnings of Geotrac, Inc.(1)........... -- -- 201 -- --
Minority interest(1)............................. -- -- -- (473) --
Interest income.................................. -- -- -- 456 350
Interest expense(2).............................. (72) (75) (378) (2,194) (809)
------- ------- ------- ------- -------
Income before income taxes....................... 416 1,013 5,522 6,895 5,729
Provision for income taxes....................... 162 396 2,112 3,042 2,534
------- ------- ------- ------- -------
Net income....................................... $ 254 $ 617 $ 3,410 $ 3,853 $ 3,195
======= ======= ======= ======= =======
Net income per common share...................... $ .03 $ .06 $ .34 $ .38 $ .26
======= ======= ======= ======= =======
Weighted average common shares outstanding(3).... 10,000 10,000 10,000 10,264 12,448
------- ------- ------- ------- -------
Dividends declared on common stock(4)............ $ -- $ 1,000 $ 3,500 $ 1,100 $ --
======= ======= ======= ======= =======

DECEMBER 31,
---------------------------------------------
1995 1996 1997 1998 1999
------ ------ ------- ------- -------
(IN THOUSANDS)

BALANCE SHEET DATA:
Working capital (deficiency)....................... $ (141) $ (425) $ (148) $(4,295) $ 7,117
Total assets....................................... 2,649 3,441 19,532 39,902 39,491
Long-term debt, less current portion............... 156 894 2,187 7,471 220
Notes payable--affiliates, less current portion.... -- -- -- 5,528 --
Preferred stock of subsidiary...................... -- -- 6,750 -- --
Total shareholders' equity(3)...................... 529 260 170 8,689 32,885

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

(1) In 1997, the Company's investment in Old Geotrac was accounted for using the
equity method of accounting, since the Company owned less than 50% and had a
significant but not controlling influence. In July, 1998, the Company
acquired the remaining 51% of Geotrac. As a result, the operations of

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22

Geotrac for the year ended December 31, 1998 are consolidated with that of
the Company, with the portion of Geotrac's net income allocable to the 51%
interest held by the majority stockholders prior to June 30, 1998 reflected
as a minority interest.
(2) Dividends declared on Preferred Stock for the years ended December 31, 1997
and 1998 were $229,315 and $189,370, respectively, and are included in
interest expense. See Note 7 to the Company's Consolidated Financial
Statements.
(3) In February, 1999, the Company completed an initial public offering ("IPO")
of 3,350,000 shares of Common Stock at a price of $11 per share. Of the
3,350,000 shares sold in the IPO, 1,350,000 were sold by the Venture Capital
Corporation, a Cayman Islands company, and the remaining 2,000,000 shares
were sold by the Company. The offering generated net proceeds to the Company
of $19,164,000, after deducting offering expenses of approximately
$1,296,000 paid by the Company.
(4) In December, 1996, December, 1997, and June, 1998, the Company paid
dividends of $1.0 million, $3.5 million, and $1.1 million, respectively, to
BIG. The Company currently anticipates that all of its earnings will be
retained for development and expansion of the Company's business and does
not anticipate declaring or paying any cash dividends in the foreseeable
future.

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

The following discussion and analysis should be read in conjunction with
the Company's Consolidated Financial Statements and the Notes thereto.

OVERVIEW

Insurance Management Solutions Group, Inc. (together with its subsidiaries,
the "Company") is a holding company that was incorporated in the State of
Florida in December, 1996 by Bankers Insurance Group, Inc. (together with its
subsidiaries, "BIG"), which contributed to the Company two of its wholly-owned
operating subsidiaries, Insurance Management Solutions, Inc. ("IMS") and Bankers
Hazard Determination Services, Inc. ("BHDS"), that were previously formed in
August, 1991 and June, 1988, respectively. In July, 1997, the Company acquired a
49% interest in Geotrac, Inc. and, in July, 1998, acquired the remaining 51%
interest. Geotrac was subsequently merged into BHDS with the surviving company
being known as Geotrac of America, Inc. In September, 1998, IMS Direct, Inc. was
formed as a wholly owned subsidiary of IMSG and in January, 1999, the Company
acquired Colonial Claims Catastrophe Corporation. BIG is a diversified group of
P&C insurance companies with premium writings in all fifty states. BIG's
principal lines of business include flood, homeowners and automobile insurance
lines. From 1994 to 1999, BIG experienced substantial growth in total written
premiums from $131 million to $316 million.

Prior to 1997, the Company's outsourcing services principally related to
information technology services provided to BIG on a cost reimbursement basis.
In 1997, the Company entered into service arrangements with BIG to provide a
broader menu of outsourcing services. These services primarily consisted of
policy and claims administration (including policy issuance, billing and
collection functions, claims adjusting and processing) and information
technology services provided for BIG's flood and homeowners insurance lines of
business. Revenues for these services were derived based on a percentage of
direct written premiums for policy administration services and direct paid
claims for claims administration services. The Company also provided claims
administration services for BIG's other insurance lines, excluding flood and
homeowners, on a cost reimbursement basis in 1997.

Effective January 1, 1998, the Company entered into written service
agreements with BIG which modified the existing arrangements to (i) expand the
services provided by the Company to include policy administration for certain
automobile lines of business, (ii) recognize claims outsourcing revenue based
not on a cost reimbursement basis, but rather on a percentage of earned premiums
and, with respect to certain types of claims, a percentage of incurred losses,
and (iii) implement a change in fee structure from a percentage of incurred loss
to a percentage of earned premiums with respect to homeowners claims services.
These changes were negotiated in order to effect more uniform revenue
recognition. To obtain BIG's agreement to such changes, the Company, in turn,
agreed to the revised fee structure with respect to homeowners claims services.
BIG presently accounts for approximately 79.5% of the Company's outsourcing
services revenues and is

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23

expected to continue to account for a significant majority of the Company's
outsourcing revenues in the near future.

Outsourcing service revenues are principally derived from written and
earned insurance premiums. Such premiums are affected by seasonal fluctuations
in volume of new and renewal policies received. Outsourcing service revenues
generated from the flood and homeowners lines of business increase in the late
second quarter and peak during the third quarter in conjunction with home sales.
In the Company's experience, increased levels of flood insurance purchases occur
in the Southeastern United States during the second and third quarters in
anticipation of the onset of the hurricane season.

Federal residential flood insurance rates are set by FEMA and are the same
for all flood insurance carriers. Consequently, policyholder retention is
typically dependent upon the quality of customer service being offered. Higher
retention or renewal rates provide more consistent recurring revenues. Flood
insurance carriers often utilize independent agents to sell their product.
Competing flood insurance carriers offering more attractive commissions to such
agents pose a significant risk for declines in business.

During periods of peak demand for flood and homeowners insurance, the
number of policies waiting to be issued increases. This backlog represents
future service fee income to be earned, generally within one month.

Flood zone determination revenues, which are recognized as services are
performed, are cyclically impacted by both changes in mortgage interest rates
and trends in home sales.

The cost of outsourcing services primarily includes wages and related
benefits associated with personnel who perform policy and claims administration
services, as well as postage and telephone charges, data processing and other
direct costs associated with providing service to customers.

Cost of flood zone determination services primarily includes wages and
related benefits associated with personnel who perform flood zone determination
services, telephone expenses, general liability insurance, data processing and
other direct costs associated with providing service to customers. Due to the
ongoing automation of the Company's flood zone database, a gradual increase in
the number of automated flood zone determinations, versus manually determined
flood zones, has occurred. Automated flood zone determinations cost less for the
Company to perform than manually generated determinations.

Selling, general and administrative expenses include the wages and related
benefits of sales and marketing, executive, finance and accounting personnel, as
well as other general operating costs. In addition, wages and related benefits
of the management staff of each processing department (i.e. Customer Service,
Claims, and Information Services) are included in selling, general and
administrative expenses.

Management services from Parent are charged to the Company under a
management agreement with BIG for common costs that are incurred by BIG. These
common costs include human resources, legal, corporate planning and
communications, cash management, certain executive management and rent. Charges
for management services is based upon contractually agreed upon amounts. If the
Company develops the capability to provide these services internally, certain
sales and administrative support costs may fluctuate.

In 1997, the Company's investment in Geotrac was accounted for using the
equity method of accounting, since the Company owned less than 50% and had a
significant but not controlling influence. In July, 1998, the Company acquired
the remaining 51% of Geotrac. As a result, the operations of Geotrac for the
year ended December 31, 1998 are consolidated with that of the Company, with the
portion of Geotrac's net income allocable to the 51% interest held by the
majority stockholder prior to June 30, 1998 reflected as a minority interest.

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RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain selected
operating results of the Company as a percentage of total revenues:

YEAR ENDED
DECEMBER 31,
---------------------
1997 1998 1999
----- ----- -----

REVENUES:
Outsourcing services........................................ 77.2% 59.7% 73.1%
Flood zone determination services........................... 22.8 40.3 26.9
----- ----- -----
Total revenues.................................... 100.0 100.0 100.0
----- ----- -----
EXPENSES:
Cost of outsourcing services................................ 57.1 42.2 52.5
Cost of flood zone determination services................... 12.4 17.4 11.3
Selling, general and administrative......................... 7.8 13.1 16.6
Management services from Parent............................. 6.1 5.1 3.2
Deferred compensation (non-recurring item).................. -- 1.1 --
Depreciation and amortization............................... 1.8 6.8 7.7
----- ----- -----
Total expenses.................................... 85.2 85.7 91.3
----- ----- -----
Operating income............................................ 14.8 14.3 8.7
Equity in earnings of Geotrac, Inc.......................... 0.5 -- --
Minority interest........................................... -- (0.7) --
Interest income............................................. -- 0.7 0.5
Interest expense............................................ (1.0) (3.5) (1.1)
----- ----- -----
Income before income taxes.................................. 14.3 10.8 8.1
Provision for income taxes.................................. 5.5 4.8 3.6
----- ----- -----
Net income........................................ 8.8% 6.0% 4.5%
===== ===== =====

COMPARISON OF THE YEARS ENDED DECEMBER 31, 1999 AND 1998

Outsourcing Services Revenues. Outsourcing services revenues increased
37.1% to $52.2 million in 1999 from $38.1 million in 1998. The increase was
primarily attributable to (i) incremental revenues from Colonial Claims, which
was acquired in January, 1999, (ii) revenue generated under an affiliated
technical support services arrangement for both personal and commercial lines of
insurance entered into on April 1, 1999, (iii) claims fee income recognized
during 1999 associated with the settlement of flood and wind damage claims
resulting from Hurricane Georges in late September, 1998, and from Hurricanes
Floyd and Irene during 1999 and, (iv) incremental revenues from the Company's
direct marketing subsidiary, which was formed in August, 1998. Effective April
1, 1999, the Company amended its existing service agreements with affiliated
insurers to provide for minimum aggregate quarterly service fee payments through
December 31, 1999 with respect to certain lines of business. If such minimum
service fee requirements with respect to said lines of business under the
agreements had not been implemented as of April 1, 1999, aggregate affiliated
outsourcing services revenues, which totaled $41.5 million in 1999, would have
been $39.7 million in accordance with the terms of the affiliated service
agreements as in effect prior to April 1, 1999. For the year ended December 31,
1999, the Company will not recognize approximately $500,000 of additional
affiliated service fees under the minimum service fee agreement as the Company
did not meet certain specified milestones on a timely basis. Such minimums were
established to compensate the Company for maintaining an infrastructure to
process certain lines of business of affiliated insurers that have not grown as
rapidly as originally forecasted.

Flood Zone Determination Services Revenues. Flood zone determination
services revenues decreased 25.5% to $19.2 million in 1999 from $25.7 in 1998.
The decrease in flood zone determination services revenues was primarily
attributable to increases in interest rates from the corresponding period of the
prior year and a

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25

resulting decline in loan originations and mortgage refinancings, which fuel the
demand for flood zone determinations. Additionally, during 1999, the Company
experienced a reduction in flood zone determination revenue from several large
customers that are experiencing financial difficulties. The decrease in flood
zone determination services revenues in 1999 was partially offset by a novation
of the Company's life-of-loan insurance policy in which an estimate of the
present value of future losses to be claimed under the policy (approximately
$500,000) was paid to the Company in exchange for a release of liability for
such future losses under the policy.

Cost of Outsourcing Services. Cost of outsourcing services increased 39.3%
to $37.4 million in 1999 from $26.9 million in 1998. The increase in cost of
outsourcing services was primarily attributable to (i) incremental expenses
incurred by the recently acquired Colonial Claims, (ii) increases in information
technology costs due to staff additions and use of contract programmers to
develop new unaffiliated programs, and (iii) incremental direct costs (primarily
personnel) incurred to service the growth of both affiliated and unaffiliated
flood premium. These increases were partially offset by a decrease in the lease
cost of fixed assets that were purchased by the Company from BIG on April 1,
1998. Prior to April 1, 1998, the depreciation for such equipment, which totaled
$282,015 during the three months ended March 31, 1998, was charged to the
Company under an arrangement similar to an operating lease and is included in
cost of outsourcing services. Such costs are now included in depreciation and
amortization.

Cost of Flood Zone Determination Services. Cost of flood zone
determination services decreased 27.2% to $8.1 million in 1999 from $11.1
million in 1998. The decrease in cost of flood zone determination services is
primarily due to (i) a decrease in flood zone determination services revenue
from the corresponding period in 1998, (ii) the merger of BHDS and Geotrac in
July, 1998 and a subsequent elimination of certain duplicated functions and
facilities, and (iii) a redesign of certain production workflows in April, 1999
that enabled the Company to increase employee productivity and reduce expenses.

Selling General and Administrative Expense. Selling, general and
administrative expenses increased 41.5% to $11.9 million in 1999 from $8.4
million in 1998. The increase in selling, general and administrative expenses
was primarily attributable to (i) additional wages and related benefits
associated with adding executive management, accounting, sales and marketing and
other administrative staff to support the Company's expanded operations, (ii)
incremental expenses incurred by the Company's direct marketing subsidiary,
which was formed in August, 1998, (iii) incremental expenses incurred by
Colonial Claims, which was acquired in January, 1999, (iv) and severance costs
relating to the resignations of certain officers.

Management Services from Parent. Management services from Parent decreased
30.8% to $2.3 million in 1999 from $3.3 million in 1998. The decrease was
primarily related to an employment practices judgment that was settled during
the third quarter of 1998 on behalf of the Company and its affiliates. Also
contributing to the decrease in management services from Parent was an amendment
to the management service agreement, which became effective January 1, 1999,
pursuant to which certain accounting and internal audit functions are no longer
performed by the Parent (such functions are currently performed by the Company
directly).

Depreciation and Amortization Expense. Depreciation and amortization
expense increased 27.5% to $5.5 million in 1999 from $4.3 million in 1998. The
increase was primarily related to (i) additional goodwill amortization
recognized during 1999 as a result of the purchase of the remaining 51% of
Geotrac, Inc. in July, 1998, (ii) goodwill amortization resulting from the
purchase of Colonial Claims in January, 1999, (iii) amortization of software
costs capitalized in accordance with SOP 98-1, which the Company began
amortizing in January, 1999 and (iv) depreciation related to assets, consisting
of telephone equipment and computer hardware and software, that were purchased
by the Company from BIG in April, 1998 for use in its business. Prior to April
1, 1998, the depreciation for such equipment, which totaled $282,015 during the
three months ended March 31, 1998, was charged to the Company under an
arrangement similar to an operating lease and was included in cost of
outsourcing services.

Minority Interest. During July, 1998, the Company purchased the remaining
51% of Geotrac. However, the Company has elected to reflect the operations of
Geotrac prior to the July, 1998 acquisition on a

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26

consolidated basis with the Company, with the net income of Geotrac allocable to
the 51% interest held by the prior majority stockholders reflected as minority
interest.

Interest Expense. Interest expense decreased 63.1% to $809,000 in 1999
from $2.2 million in 1998. The decrease was primarily related to the early
repayment of most of the Company's debt obligations from net proceeds received
by the Company from its initial public offering in February, 1999, partially
offset by the write-off of deferred financing costs during 1999 as a result of
the early repayment of a term loan.

Provision for Income Taxes. The Company's effective income tax rates were
44.2% and 44.1% in 1999 and 1998, respectively. The effective tax rates reflect
non-deductible goodwill recognized in connection with the acquisition of Geotrac
in July, 1998 and Colonial Claims in January, 1999. Income before provision for
income taxes in 1998, excluding minority interest which is presented net of tax
in the accompanying consolidated financial statements, resulted in an effective
income tax rate of 41.3% in 1998.

COMPARISON OF THE YEARS ENDED DECEMBER 31, 1998 AND 1997

Outsourcing Services Revenues. Outsourcing services revenues increased
$8.3 million, or 28.1%, to $38.0 million in 1998 from $29.7 million in 1997. The
increase was primarily attributable to (i) the expansion of the services
provided to BIG to include policy administration for certain of BIG's automobile
lines of insurance, (ii) the change in fee structure for claims administration
(excluding BIG's flood and homeowners lines) from a cost reimbursement basis to
a percentage of earned premium and, in certain instances, incurred losses, (iii)
increased services provided to BIG due to the growth in the volume of BIG's
flood insurance business, and (iv) a substantial influx of claims fee income
during the fourth quarter of 1998 associated with the settlement of flood and
wind damage claims resulting from Hurricane Georges in late September, 1998. The
increase was partially offset by the revised fee structure pertaining to policy
administration and claims administration for BIG's homeowners insurance line.

Flood Zone Determination Services Revenues. Flood zone determination
services revenues increased $16.9 million, or 192.7%, to $25.7 million in 1998
from $8.8 million in 1997. The revenue growth was primarily attributable to the
inclusion of the consolidated revenues of both Geotrac and BHDS for 1998 as
compared with the revenues of BHDS only for 1997. This was partially offset by a
continued decline in the volume of flood zone determinations performed in the
second half of 1998 as the demand for refinancing of existing mortgage loans
decreased.

Cost of Outsourcing Services. Cost of outsourcing services increased $4.9
million, or 22.2%, to $26.9 million in 1998 from $22.0 million in 1997. The
increase in cost of outsourcing services was primarily attributable to (i)
increases in staffing due to the expansion of the services provided to BIG to
include policy administration for certain of BIG's automobile lines of
insurance, (ii) increases in information services personnel costs due to
additions to staff, (iii) increased services provided to BIG due to the growth
in the volume of BIG's insurance business and (iv) the Company assuming
responsibility for claims costs for independent adjusters and appraisers that
were previously borne by BIG. These increases were partially offset by a
decrease in the lease cost of fixed assets that were purchased by the Company
from BIG on April 1, 1998. Prior to April 1, 1998, the depreciation for such
equipment, which totaled $282,015 and $762,260 during 1998 and 1997,
respectively, was charged to the Company under an arrangement similar to an
operating lease and is included in cost of outsourcing services. Such costs are
now included in depreciation and amortization.

Cost of Flood Zone Determination Services. Cost of flood zone
determination services increased $6.4 million, or 133.7%, to $11.1 million in
1998 from $4.8 million in 1997. The increase in cost of flood zone
determinations was primarily attributable to the inclusion of the consolidated
expenses of both Geotrac and BHDS for 1998 as compared with the expenses of BHDS
only for 1997. As a percentage of flood zone determination services revenue, the
decrease in cost of flood zone determination services resulted primarily from a
reduction during 1998 of approximately $822,000 in insurance costs due to the
Company terminating its insurance policy associated with its life of loan
program effective June 1, 1998. Consequently, from such date forward, the
Company deferred a portion of each life of loan fee received in order to account
for its obligation to perform future flood zone redeterminations.

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Selling, General and Administrative Expense. Selling, general and
administrative expenses increased $5.4 million, or 176.9%, to $8.4 million in
1998 from $3.0 million in 1997. The increase is primarily related to additional
wages and related benefits associated with adding executive management,
accounting, sales and marketing and other administrative staff during 1998 to
support the Company's expanded operations, as well as the inclusion of the
consolidated expenses of both Geotrac and BHDS for 1998 as compared with the
expenses of BHDS only for 1997.

Management Services from Parent. Management services from Parent increased
$916,000, or 39.1%, to $3.3 million in 1998 from $2.3 million in 1997. The
increase is primarily related to the Company's portion of an employment
practices judgment totaling approximately $400,000 rendered in the third quarter
of 1998 and an increase in management services provided to the Company due to
the Company's expanded operations. Such increased services primarily include
agency accounting, audit services, cash management services and legal services.

Depreciation and Amortization Expense. Depreciation and amortization
expense increased $3.6 million, or 530.6%, to $4.3 million in 1998 from $684,000
in 1997 primarily as a result of depreciation related to assets consisting of
telephone equipment and computer hardware and software, transferred and assigned
to the Company in April, 1998 for use in its business. Prior to April 1, 1998,
the depreciation for such equipment, which totaled $282,015 and $762,260 during
1998 and 1997, respectively, was charged to the Company under an arrangement
similar to an operating lease and is included in cost of outsourcing services.
Also, 1998 reflects amortization of additional goodwill related to the purchase
of the remaining 51% of Geotrac in July, 1998, as well as amortization of
goodwill and depreciation related to the inclusion of both Geotrac and BHDS for
1998 as compared with the expenses of BHDS only for 1997.

Equity in Earnings of Geotrac, Inc. During July, 1997, the Company
purchased a 49% interest in Old Geotrac. Equity in earnings of Old Geotrac
contributed $201,009 to the Company in 1997. During 1998, Geotrac was shown on a
consolidated basis.

Provision for Income Taxes. The Company's effective income tax rates were
44.1% and 38.3%, in 1998 and 1997, respectively. Income before income taxes in
1998, excluding minority interest, resulted in an effective income tax rate of
41.3%. This effective rate reflects the impact of a minority interest presented
net of tax and other items discussed in Note 9 to the Consolidated Financial
Statements of the Company.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1999, the Company's principal sources of liquidity
consisted of cash on-hand, cash flows from operations and available borrowings
under the Company's revolving credit facility. Prior to 1999, the Company funded
its operations through cash generated from operations and receipt of service
fees advanced from BIG. Bank borrowings were used to finance fixed asset
purchases.

In February, 1999, the Company completed an initial public offering ("IPO")
of 3,350,000 shares of Common Stock at a price of $11 per share. Of the
3,350,000 shares sold, 1,350,000 were sold by Venture Capital Corporation (the
"Selling Shareholder"), a Cayman Islands company. The offering generated net
proceeds to the Company of approximately $19.2 million after deducting offering
expenses paid by the Company of approximately $1.3 million. The Company used a
portion of the net proceeds from the offering, together with funds received from
BIG from proceeds made available to BIG by a subsidiary of the Selling
Shareholder, to repay all obligations with BIG and its affiliates. Additionally,
the Company used a portion of the IPO proceeds to repay certain debt
obligations.

25
28

ratios: (i) interest bearing debt to EBITDA of not more than 2.0 to 1.0; (ii)
total liabilities to tangible net worth of not more than 1.0 to 1.0; and (iii)
fixed charge coverage (as defined) or not less than 2.5 to 1.0. In June, 1999,
the Company used $6.7 million of the available LOC to repay an existing term
loan. Subsequent to June, 1999, the Company used the remaining IPO proceeds,
together with excess cash reserves, to repay the LOC. Consequently, as of
December 31, 1999, there was no outstanding balance under the LOC.

The Company believes that cash on-hand, cash flows from operations and
available borrowings under the Company's LOC facility will be sufficient to
satisfy currently anticipated working capital and capital expenditure
requirements for the next twelve months. Unanticipated rapid expansion, business
or systems development, or potential acquisitions may cause the Company to
require additional funds. The Company identifies and assesses, in the normal
course of business, potential acquisitions of technologies or businesses which
it believes to strategically fit is business plan. The Company may enter into
such transactions should opportunities present themselves in the future.

YEAR 2000 COMPLIANCE

During 1999, the Company continued remediation program to prepare for a
universal situation commonly referred to as the "Year 2000 Problem." The Year
2000 Problem relates to the inability of certain computer software programs to
properly recognize and process date-sensitive information relative to the Year
2000 and beyond, and the inability of non-information technology systems to
function properly when the Year 2000 arrives. As of the date of this report, the
Company has not experienced any significant problems related the Year 2000
Problem. Additionally, the Company has not become aware of any significant Year
2000 issues affecting the Company's major customers or suppliers, nor has it
received any material complaints regarding Year 2000 Problems related to its
services.

To date, nearly all costs associated with addressing the Year 2000 Problem
have been internal expenses, with the exception of the costs of engaging an
independent accounting firm to validate the Company's Year 2000 remediation
plan. The Company estimates that total costs incurred to date regarding the Year
2000 Problem to be in the range of $500,000 to $900,000. The remaining estimated
costs to address any additional Year 2000 Problems is not expected to be
significant, although no assurances can be given in this regard.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company has not entered into any transactions using derivative
financial instruments or derivative commodity instruments and believes that its
exposure to market risk associated with other financial instruments (such as
variable rate debt) are not material.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following financial statements of the Company and its independent
certified public accountants' report are set forth on pages 36 through 61 of
this report:

Report of Independent Certified Public Accountants.
Consolidated Balance Sheets as of December 31, 1998 and 1999.
Consolidated Statements of Income for the years ended December 31, 1997,
1998 and 1999.
Consolidated Statement of Shareholders' Equity for the years ended December
31, 1997, 1998 and 1999.
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999.
Notes to Consolidated Financial Statements.

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

None.

26
29

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information to be set forth under the caption "Item 1: Election of
Directors" in the Company's Proxy Statement, dated on or about April 19, 2000
for the Annual Meeting of Shareholders to be held June 1, 2000 (the "Proxy
Statement"), and the information to be set forth under the caption "Section
16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement, are
incorporated herein by reference. The information set forth under "Executive
Officers of the Registrant" in Part I hereof is also incorporated herein by
reference.

ITEM 11. EXECUTIVE COMPENSATION

The information to be set forth under the caption "Executive Compensation"
in the Proxy Statement is incorporated herein by reference; provided, however
that the Company specifically excludes from such incorporation by reference any
information set forth under the caption "Compensation Committee Report on
Executive Compensation" in the Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Security ownership of certain beneficial owners and management to be set
forth under the caption "Principal Shareholders" in the Proxy Statement is
incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information to be set forth under the caption "Certain Transactions" in
the Proxy Statement is incorporated herein by reference.

PART IV

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

(a) List of documents filed as part of this report:

(1)Financial Statements.

Insurance Management Solutions Group, Inc. Consolidated Financial
Statements.
Report of Independent Certified Public Accountants.
Consolidated Balance Sheets as of December 31, 1998 and 1999.
Consolidated Statements of Income for the years ended December 31,
1997, 1998 and 1999.
Consolidated Statement of Shareholders' Equity for the years ended
December 31, 1997, 1998 and 1999.
Consolidated Statements of Cash Flows for the years ended December
31, 1997, 1998 and 1999.
Notes to Consolidated Financial Statements.

(2) Financial Statement Schedules.

None.

27
30

(3) Exhibits.

EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------

3.1 -- Amended and Restated Articles of Incorporation of Insurance
Management Solutions Group, Inc.*
3.2 -- Amended and Restated Bylaws of Insurance Management
Solutions Group, Inc.*
4.1 -- Specimen certificate for the Common Stock of Insurance
Management Solutions Group, Inc.*
10.1 -- Employment Agreement, dated August 10, 1998, between David
K. Meehan and Insurance Management Solutions Group, Inc.*
10.2 -- Insurance Management Solutions Group, Inc. Long Term
Incentive Plan.*
10.3 -- Insurance Management Solutions Group, Inc. Non-Employee
Directors' Stock Option Plan.*
10.4 -- Snell Arcade Building Lease, dated May 15, 1996, between
Snell Arcade Limited Company and BankersInsurance Group,
Inc., as revised and assigned to Insurance Management
Solutions Group, Inc., effective January 1, 1998.*
10.5 -- Bankers Building -- 5th Street North Lease Agreement, dated
January 1, 1997, between Bankers Insurance Group, Inc. and
Insurance Management Solutions Group, Inc.*
10.6 -- Bankers Financial Center Lease Agreement, dated January 1,
1997, between Bankers Insurance Company and Insurance
Management Solutions Group, Inc.*
10.7 -- Lease, dated September 2, 1994, between DanYo LLC (as
successor to Sandan) and SMS Geotrac, Inc.*
10.8 -- Indenture of Lease, dated September 23, 1994, between
Southview Business Center, Ltd., an Ohio limited
partnership, and SMS Geotrac, Inc., including Addendum I,
dated March 20, 1995, and Addendum II, dated December 8,
1995.*
10.9 -- Master Equipment Lease Agreement, dated May 11, 1995, and
executed on May 15, 1995, between National City Leasing
Corporation and SMS Geotrac, Inc.*
10.10 -- Term Lease Master Agreement, dated June 30, 1995, between
IBM Credit Corporation and SMS Geotrac, Inc.*
10.11 -- Employee Leasing Agreement, dated May 19, 1998, between
Bankers Insurance Company and Insurance Management Solutions
Group, Inc.*
10.12 -- Administration Services Agreement, dated January 1, 1998,
between Bankers Insurance Group, Inc. and Insurance
Management Solutions Group, Inc., including Addendum to
Administration Services Agreement, dated December 2, 1998
and effective January 1, 1998, and Addendum to
Administration Services Agreement, effective January 1,
1999.*
10.13 -- Service Agreement, dated January 1, 1998, between Insurance
Management Solutions, Inc. and Bankers Insurance Company,
including Addendum dated April 1, 1998 and form of Addendum
to Service Agreements effective January 1, 1999.*
10.14 -- Service Agreement dated January 1, 1998 between Insurance
Management Solutions, Inc. and Bankers Security Insurance
Company, including form of Addendum to Service Agreements
effective January 1, 1999.*
10.15 -- Service Agreement dated January 1, 1998 between Insurance
Management Solutions, Inc. and First Community Insurance
Company, including form of Addendum to Service Agreements
effective January 1, 1999.*
10.16 -- Vendor Flood Insurance Agreement, dated January 1, 1996,
between Insurance Management Solutions, Inc. (as successor
to Insurance Management Information Services, Inc.) and
Mobile USA Insurance Company, Inc.*
10.17 -- Vendor Flood Insurance Agreement, dated November 10, 1995,
between AAA Auto Club South Insurance Company and Insurance
Management Information Services, Inc.*

28
31

EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------

10.18 -- Flood Insurance Program Services Agreement by and among
Insurance Management Information Services, Inc., American
Alternative Insurance Corporation, and Corporate Insurance
Agency Services.*
10.19 -- Loan and Security Agreement, dated July 31, 1997, between
Huntington National Bank, YoSystems, Inc. and SMS Geotrac,
Inc.*
10.20 -- Pledge and Security Agreement, dated May 8, 1998, by
Insurance Management Solutions Group, Inc. in favor of South
Trust Bank, N.A.*
10.21 -- Agreement and Plan of Merger, dated May 12, 1998, by and
among Geotrac, Inc., Insurance Management Solutions, Inc.,
Daniel J. and Sandra White, Bankers Insurance Group, Inc.
and Bankers Hazard Determination Services, Inc.*
10.22 -- Employment Agreement, dated July 31, 1998, between Geotrac
of America, Inc. (as successor to Geotrac, Inc.) and Daniel
J. White.*
10.23 -- Term Lease Master Agreement, dated August 6, 1996, between
IBM Credit Corporation and Bankers Insurance Company,
assigned by Bankers Insurance Company to Insurance
Management Solutions, Inc., effective April 1, 1998,
pursuant to Sales and Assignment Agreement, dated May 6,
1998.*
10.24 -- Sales and Assignment Agreement, dated May 6, 1998, by and
between Insurance Management Solutions Group, Inc.,
Insurance Management Solutions, Inc., Bankers Insurance
Group, Inc., Bankers Insurance Services, Inc., Bankers Life
Insurance Company, Southern Rental & Leasing Corporation,
Bankers Insurance Company and Insurance Management
Information Services, Inc.*
10.25 -- Software Maintenance and Enhancement Agreement, dated
January 7, 1997 between Systems Integration and Imaging
Technologies Incorporated and Insurance Management
Information Services, Inc.*
10.26 -- Corporate Governance Agreement, dated July 31, 1998, between
Geotrac, Inc., Daniel J. White and Insurance Management
Solutions Group, Inc.*
10.27 -- Tax Indemnity Agreement dated July 31, 1998 between Bankers
Insurance Group, Inc., Insurance Management Solutions Group,
Inc. and Daniel J. and Sandra White.*
10.28 -- Flood Insurance Agreement, dated January 6, 1998, between
First Community Insurance Company and Keystone Insurance
Company.*
10.29 -- Marketing Agreement, dated November 14, 1997, between First
Community Insurance Company and Nobel Insurance Company.*
10.30 -- Flood Insurance Agreement, dated February 11, 1998, between
First Community Insurance Company and Horace Mann Insurance
Company.*
10.31 -- Promissory Note dated April 1, 1998, from Insurance
Management Solutions, Inc. to Bankers Insurance Company in
the principal amount of $2,353,424.42.*
10.32 -- Promissory Note dated April 1, 1998, from Insurance
Management Solutions, Inc. to Southern Rental & Leasing
Corporation in the principal amount of $448,749.95.*
10.33 -- Promissory Note dated May 8, 1998, from Insurance Management
Solutions Group, Inc. to Heritage Hotel Holding Company in
the principal amount of $6,750,000, as amended.*
10.34 -- Note dated December 30, 1994, from Insurance Management
Solutions, Inc. (as successor to Bankers Data Center, Inc.)
to First of America Bank -- Florida F.S.B. in the principal
amount of $200,000.*

29
32

EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------

10.35 -- Loan Agreement dated December 30, 1994, between First of
America Bank -- Florida F.S.B., Geotrac, Inc. (as successor
to National Flood Certification Services, Inc.), Southern
Rental & Leasing Corporation, Insurance Management
Solutions, Inc. (as successor to Bankers Data Center, Inc.)
and Bankers Insurance Group, Inc.*
10.36 -- Security Agreement dated December 30, 1994, by Insurance
Management Solutions, Inc. (as successor to Bankers Data
Center, Inc.) in favor of First of America Bank -- Florida
F.S.B.*
10.37 -- Note dated December 30, 1994, from Geotrac of America, Inc.
(as successor to Geotrac, Inc. and National Flood
Certification Services, Inc.) to First of America
Bank -- Florida F.S.B. in the principal amount of $60,000.*
10.38 -- Security Agreement dated December 30, 1994, by Geotrac of
America, Inc. (as successor to Geotrac, Inc. and National
Flood Certification Services, Inc.) in favor of First of
America Bank -- Florida F.S.B.*
10.39 -- Note dated December 30, 1996, from Geotrac of America, Inc.
(as successor to Bankers Hazard Determination Services,
Inc.) to First of America Bank -- Florida F.S.B. in the
principal amount of $245,000.*
10.40 -- Note dated December 30, 1996, from Insurance Management
Solutions, Inc. (as successor to Insurance Management
Information Services, Inc.) to First of American
Bank -- Florida FSB in the principal amount of $809,000.*
10.41 -- Loan Agreement dated December 30, 1996, between First
America Bank--Florida F.S.B., Geotrac of America, Inc. (as
successor to Bankers Hazard Determination Services, Inc.),
Bankers Insurance Group, Inc., Bankers Risk Management
Services, Inc., Bankers Underwriters, Inc., Insurance
Management Solutions, Inc. (as successor to Insurance
Management Information Services, Inc.), Southern Rental &
Leasing Corporation, Bankers Financial Corporation and
Bankers International Financial Corporation.*
10.42 -- Security Agreement dated December 30, 1996, by Geotrac of
America, Inc. (as successor to Bankers Hazard Determination
Services Inc.), in favor of First of America Bank -- Florida
F.S.B. securing $245,000 loan.*
10.43 -- Security Agreement dated December 30, 1996, by Insurance
Management Solutions, Inc. (as successor to Insurance
Management Information Services, Inc.) in favor of First of
America Bank -- Florida F.S.B. securing $809,000 loan.*
10.44 -- Installment Note dated December 30, 1997, from Geotrac of
America, Inc. (as successor to Bankers Hazard Determination
Services, Inc.) to SouthTrust Bank, N.A. in the principal
amount of $184,000.*
10.45 -- Cross-Collateralization and Cross-Default Agreement dated
December 30, 1997, in favor of SouthTrust Bank, N.A. by
Bankers Financial Corporation, Bankers Insurance Group,
Inc., Insurance Management Solutions, Inc. and Geotrac of
America, Inc. (as successor to Bankers Hazard Determination
Services, Inc.).*
10.46 -- Security Agreement dated December 30, 1997, between Geotrac
of America, Inc. (as successor to Bankers Hazard
Determination Services, Inc.), and SouthTrust Bank, N.A.*
10.47 -- Revolving Line of Credit Note dated December 27, 1993, from
Geotrac of America, Inc. (as successor to Geotrac, Inc. and
National Flood Certification Services, Inc.) to Marine Bank,
in the amount of $600,000.*
10.48 -- Security Agreement dated December 27, 1993, between Geotrac
of America, Inc.(as successor to Geotrac, Inc. and National
Flood Certification Services, Inc.) and Marine Bank.*
10.49 -- Installment Note dated December, 1997, from Insurance
Management Solutions, Inc. to SouthTrust Bank, N.A. in the
principal amount of $2,131,000.*

30
33

EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------

10.50 -- Promissory Note dated December 30, 1997, from Insurance
Management Solutions, Inc. to SouthTrust Bank, N.A. in the
principal amount of $500,000.*
10.51 -- Security Agreement dated December 30, 1997, between
Insurance Management Solutions Group, Inc. and SouthTrust
Bank, N.A.*
10.52 -- Flood Compliance Service Agreement dated November 1, 1996,
between Geotrac of America, Inc. (as successor to Geotrac,
Inc. and SMS Geotrac) and Mortgage Corporation of America.*
10.53 -- Flood Compliance Service Agreement dated March 1, 1997,
between Geotrac of America, Inc. (as successor to Geotrac,
Inc. and SMS Geotrac) and CitFed Mortgage Corporation of
America.*
10.54 -- Flood Compliance Service Agreement dated March 1, 1998,
between Geotrac of America, Inc. (as successor to Geotrac,
Inc. and SMS Geotrac), ABN AMRO North American and certain
of its affiliates.*
10.55 -- Flood Compliance Service Agreement dated April 12, 1997,
between Geotrac of America, Inc. (as successor to Geotrac,
Inc. and SMS Geotrac) and Third Federal Savings.*
10.56 -- Flood Compliance Service Agreement dated April 9, 1997,
between Geotrac of America, Inc. (as successor to Geotrac,
Inc. and SMS Geotrac) and MidAm, Inc.*
10.57 -- Flood Compliance Service Agreement dated December 28, 1995,
between Geotrac of America, Inc. (as successor to Geotrac,
Inc.) and Crestar Bank.*
10.58 -- Flood Compliance Service Agreement dated April 1, 1996,
between Geotrac of America, Inc. (as successor to Geotrac,
Inc. and SMS Geotrac) and ReliaStar Mortgage Corporation.*
10.59 -- Flood Zone Determination Agreement dated March 25, 1993,
between Geotrac of America, Inc. (as successor to Geotrac,
Inc. and National Flood Certification Services, Inc.) and
AIG Consultants, Inc.*
10.60 -- Flood Zone Determination Agreement dated December 28, 1995,
between Geotrac of America, Inc. (as successor to Bankers
Hazard Determination Services, Inc.) and SouthTrust
Corporation, as amended on June 3, 1997.*
10.61 -- Flood Zone Determination Agreement dated July 14, 1994,
between Geotrac of America, Inc. (as successor to Geotrac,
Inc. and National Flood Certification Services, Inc.) and
SunBank, N.A.*
10.62 -- Flood Zone Determination Agreement dated November 8, 1993,
between Geotrac of America, Inc. (as successor to Geotrac,
Inc. and National Flood Certification Services, Inc.) and
Royal Indemnity Company.*
10.63 -- Flood Insurance Agreement, dated February 17, 1995, between
First Community Insurance Company and Armed Forces Insurance
Exchange, as amended.*
10.64 -- Flood Insurance Agreement, dated November 17, 1995, between
First Community Insurance Company and Amica Mutual Insurance
Company, as amended.*
10.65 -- Non-Qualified Stock Option Plan.*
10.66 -- Funding Agreement, dated June 19, 1998, by and between
Bankers Insurance Group, Inc. and Insurance Management
Solutions Group, Inc.*
10.67 -- Assignment of Registered Service Mark ("Floodwriter"), dated
May 7, 1998, from Bankers Insurance Company to Insurance
Management Solutions, Inc.*
10.68 -- Assignment of Registered Service Mark ("Undercurrents"),
dated May 7, 1998, from Bankers Insurance Company to
Insurance Management Solutions, Inc.*
10.69 -- Registration Rights Agreement, dated July 31, 1998, between
Insurance Management Solutions Group, Inc. and Daniel J. and
Sandra White.*

31
34

EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------

10.70 -- Software License Agreement, effective January 1, 1998,
between Insurance Management Solutions, Inc., Bankers
Insurance Group, Inc. and Bankers Insurance Company.*
10.71 -- First Amendment to Loan and Security Agreement, dated July
31, 1998, between Geotrac, Inc. and Huntington National
Bank.*
10.72 -- Continuing Guaranty Unlimited, dated July 29, 1998, by
Insurance Management Solutions Group, Inc. in favor of
Huntington National Bank.*
10.73 -- Subordination Agreement dated July 31, 1998 between Geotrac
of America, Inc., Daniel J. and Sandra White, and Huntington
National Bank.*
10.74 -- Subordination Agreement dated July 31, 1998 between Geotrac
of America, Inc., Insurance Management Solutions Group, Inc.
and Huntington National Bank.*
10.75 -- Tax Indemnity Agreement dated July 31, 1998 between
Insurance Management Solutions Group, Inc., Insurance
Management Solutions, Inc. and Geotrac of America, Inc.,
including Addendum dated July 31, 1998.*
10.76 -- Tax Allocation Agreement dated July 31, 1998 between
Insurance Management Solutions Group, Inc., Insurance
Management Solutions, Inc. and Geotrac of America, Inc.,
including Addendum dated July 31, 1998.*
10.77 -- Employment Agreement dated June 11, 1998 between Jeffrey S.
Bragg and Insurance Management Solutions Group, Inc.*
10.78 -- Employment Agreement dated June 11, 1998 between Kelly K.
King and Insurance Management Solutions Group, Inc.*
10.79 -- Articles of Merger filed with the Florida Department of
State relating to the merger between Bankers Hazard
Determination Services, Inc. and Geotrac, Inc.*
10.80 -- Certificate of Merger filed with the Ohio Department of
State relating to the merger between Bankers Hazard
Determination Services, Inc. and Geotrac, Inc.*
10.81 -- Guaranty of Payment of Debt, dated July 31, 1998, by
Insurance Management Solutions Group, Inc. and Bankers
Insurance Group, Inc. in favor of Daniel J. White and Sandra
White.*
10.82 -- Secrecy and Confidentiality Agreement, dated October 8,
1993, between Geotrac of America, Inc. (formerly Geotrac,
Inc.) and Kirloskar Computer Services, Ltd.*
10.83 -- Service Agreement dated December 1, 1998 between Insurance
Management Solutions, Inc. and Bankers Life Insurance
Company, including Addendum to Service Agreements dated
December 11, 1998 and effective January 1, 1999.*
10.84 -- Stock Purchase Agreement, dated July 31, 1997, between
YoSystems, Inc., Bankers Hazard Determination Services, Inc.
and Daniel J. and Sandra White.*
10.85 -- Employment Agreement, dated September 22, 1998 between
Kathleen M. Batson and Insurance Management Solutions Group,
Inc.*
10.86 -- Term Note dated July 31, 1997, from YoSystems, Inc. and SMS
Geotrac, Inc. to Huntington National Bank in the principal
amount of $8,750,000.*
10.87 -- AYO Claims Agreement between Florida Windstorm Underwriting
Association and Bankers Insurance Group, Inc., dated
February, 1998.*
10.88 -- Assignment of AYO Claims Agreement among Bankers Insurance
Group, Inc., Bankers Insurance Company and Florida Windstorm
Underwriting Association dated December 15, 1998.*
10.89 -- Software Transfer Agreement dated September 1, 1998 by and
among Bankers Insurance Group, Inc., Bankers Insurance
Company, Insurance Management Solutions, Inc., and First
Community Insurance Company.*

32
35

EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------

10.90 -- Promissory Note, dated January 7, 1999, of Insurance
Management Solutions Group, Inc. in favor of J. Douglas
Branham and Felicia A. Rivas.*
10.91 -- Registration Rights Agreement dated January, 1999, between
Insurance Management Solutions Group, Inc. and J. Douglas
Branham and Felicia A. Rivas.*
10.92 -- Stock Purchase Agreement dated December 10, 1998 between
Colonial Catastrophe Claims Corporation, J. Douglas Branham,
Felicia A. Rivas, and Insurance Management Solutions Group,
Inc., including Addenda thereto.*
10.93 -- Loan Agreement dated December 16, 1998 between Bankers
Insurance Group, Inc. and Western International Insurance
Company.*
10.94 -- Promissory Note of Bankers Insurance Group, Inc. in favor of
Western International Insurance Company.*
10.95 -- Agreement for Satisfaction of Debt and Capitalization of
Subsidiary dated December 16, 1998 between Venture Capital
Corporation and Western International Insurance Company.*
10.96 -- Plan of Merger dated January 7, 1999 and effective January
15, 1999 between IMS Colonial, Inc. and Colonial Catastrophe
Claims Corporation.*
10.97 -- Flood Insurance Services Agreement, dated January 14, 1999,
by and between Insurance Management Solutions Group, Inc.
and Farmers Services Corporation.*
10.98 -- Funding Agreement, dated February 16, 1999, by and between
Bankers Insurance Group, Inc., Bankers Insurance Company,
Venture Capital Corporation and Western International
Insurance Company.**
10.99 -- Flood Insurance Services Agreement, dated October 23, 1998,
by and between Insurance Management Solutions, Inc. and
Middlesex Mutual Assurance Company.**
10.100 -- Flood Insurance Services Agreement, effective January 13,
1999, by and between Insurance Management Solutions, Inc.
and Island Insurance Companies, Ltd.**
10.101 -- Lease Agreement, dated February 1, 1999, by and between
Colonial Real Estate of Dunedin, Inc. and Colonial Claims
Corporation.**
10.102 -- Second Addendum to service Agreements, effective as of April
1, 1999, by and between Insurance Management Solutions, Inc.
and each of Bankers Insurance Company, First Community
Insurance Company and Bankers Security Insurance Company.***
10.103 -- Technical Support Services Agreement, dated April 1, 1999,
by and between Insurance Management Solutions, Inc. and
Bankers Insurance Group, Inc. and its subsidiaries.***
10.104 -- Loan Agreement, dated June 11, 1999, by and between
Insurance Management Solutions Group, Inc. (including its
Subsidiaries) and NationsBank, N.A.***
10.105 -- Security Agreement, dated June 11, 1999, by and between
Insurance Management Solutions Group, Inc. (including its
Subsidiaries) and NationsBank, N.A.***
10.106 -- Promissory Note of Insurance Management Solutions Group,
Inc. (including its Subsidiaries), dated June 11, 1999, in
favor of NationsBank, N.A.***
10.107 -- Lease Agreement, dated September 27, 1999, by and between
Koger Equity, Inc. and Insurance Management Solutions Group,
Inc.
10.108 -- Lease Agreement, dated December 5, 1998, by and between
Bronken-Meyers, LLC and Insurance Management Solutions
Group, Inc.

33
36

EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------

21.1 -- List of subsidiaries of Insurance Management Solutions
Group, Inc.*
24.1 -- Power of Attorney relating to subsequent amendments
(included on signature page hereto).
27.1 -- Financial Data Schedule (filed for SEC purposes only).

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

* Previously filed as part of the Company's Form S-1 Registration Statement
(Reg. No. 333-57747) originally filed on June 28, 1998, as amended, and
incorporated by reference herein.

** Previously filed as part of the Company's Annual Report on Form 10-K for the
year ended December 31, 1998, and incorporated by reference herein.

*** Previously filed as part of the Company's Form 10-Q for the quarter ended
June 30, 1999, and incorporated by reference herein.

Exhibits 10.1, 10.2, 10.3, 10.22, 10.65, 10.77, 10.78 and 10.85 represent
management contracts and compensatory plans.

(b) Reports on Form 8-K.

No reports on Form 8-K were filed by the registrant during the fourth
quarter of the year covered by this report.

34
37

INDEX TO FINANCIAL STATEMENTS

PAGE
----

INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. CONSOLIDATED
FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants........ 36
Consolidated Balance Sheets as of December 31, 1998 and 37
1999...................................................
Consolidated Statements of Income for the years ended 38
December 31, 1997, 1998 and 1999.......................
Consolidated Statement of Shareholders' Equity for the 39
years ended December 31, 1997, 1998 and 1999...........
Consolidated Statements of Cash Flows for the years ended 40
December 31, 1997, 1998 and 1999.......................
Notes to Consolidated Financial Statements................ 41

35
38

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors of
Insurance Management Solutions Group, Inc.

We have audited the accompanying consolidated balance sheets of Insurance
Management Solutions Group, Inc. and subsidiaries as of December 31, 1998 and
1999, and the related consolidated statements of income, shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Insurance Management Solutions Group, Inc. and subsidiaries as of December 31,
1998 and 1999, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with generally accepted accounting principles in the United States.

GRANT THORNTON LLP

Tampa, Florida
February 16, 2000 (except for note 11, paragraphs 5 and 6
to which the date is March 23, 2000)

36
39

INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31,
-------------------------
1998 1999
----------- -----------

ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 1,868,867 $ 4,702,861
Accounts receivable, net.................................. 3,549,044 3,621,714
Due from affiliates....................................... 570,139 2,920,543
Note and interest receivable -- affiliate................. 5,271,406 --
Income taxes recoverable.................................. 1,148,902 --
Prepaid expenses and other assets......................... 859,684 1,572,976
----------- -----------
Total current assets.............................. 13,268,042 12,818,094
PROPERTY AND EQUIPMENT, net................................. 8,507,897 7,225,494
OTHER ASSETS
Goodwill, net............................................. 14,515,785 16,257,663
Customer contracts, net................................... 1,316,667 1,116,667
Deferred tax assets....................................... 967,191 1,063,366
Other..................................................... 1,326,273 1,009,623
----------- -----------
Total assets...................................... $39,901,855 $39,490,907
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt......................... $ 3,026,944 $ 481,637
Current portion of notes and interest
payable -- affiliates.................................. 9,180,743 --
Accounts payable, trade................................... 831,674 990,495
Due to affiliates......................................... 1,748,509 12,833
Employee related accrued expenses......................... 1,804,677 2,294,858
Other accrued expenses.................................... 755,436 1,293,060
Income taxes payable...................................... -- 413,241
Deferred revenue.......................................... 214,891 214,891
----------- -----------
Total current liabilities......................... 17,562,874 5,701,015
LONG-TERM DEBT, less current portion........................ 7,470,539 219,857
NOTES PAYABLE -- AFFILIATES, less current portion........... 5,527,677 --
DEFERRED REVENUE............................................ 651,602 684,915
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred Stock, $.01 par value; 20,000,000 shares
authorized, no shares issued and outstanding........... -- --
Common Stock, $.01 par value; 100,000,000 shares
authorized, 10,524,198 and 12,678,743 shares issued and
outstanding at December 31, 1998 and 1999,
respectively........................................... 105,242 126,787
Additional paid-in capital................................ 5,830,930 26,810,282
Retained earnings......................................... 2,752,991 5,948,051
----------- -----------
Total shareholders' equity........................ 8,689,163 32,885,120
----------- -----------
Total liabilities and shareholders' equity........ $39,901,855 $39,490,907
=========== ===========

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

37
40

INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
----------- ----------- -----------

REVENUES
Outsourcing services -- affiliated.................... $29,114,601 $36,068,944 $41,465,498
Outsourcing services.................................. 599,443 1,989,306 10,702,732
Flood zone determination services..................... 7,763,576 24,454,558 18,540,543
Flood zone determination services -- affiliated....... 1,028,359 1,279,689 620,320
----------- ----------- -----------
Total revenues................................ 38,505,979 63,792,497 71,329,093
----------- ----------- -----------
EXPENSES
Cost of outsourcing services.......................... 21,988,824 26,874,609 37,427,886
Cost of flood zone determination services............. 4,763,723 11,131,254 8,102,234
Selling, general and administrative................... 3,026,388 8,381,290 11,856,833
Management services from Parent....................... 2,343,866 3,259,712 2,255,810
Deferred compensation (non-recurring item)............ -- 728,069 --
Depreciation and amortization......................... 683,672 4,311,011 5,498,007
----------- ----------- -----------
Total expenses................................ 32,806,473 54,685,945 65,140,770
----------- ----------- -----------
OPERATING INCOME........................................ 5,699,506 9,106,552 6,188,323
----------- ----------- -----------
EQUITY IN EARNINGS OF GEOTRAC, INC...................... 201,009 -- --
----------- ----------- -----------
MINORITY INTEREST....................................... -- (472,803) --
OTHER INCOME (EXPENSE):
Interest income....................................... -- 455,995 349,680
Interest expense...................................... (378,660) (2,194,353) (809,383)
----------- ----------- -----------
Total other income (expense).................. (378,660) (1,738,358) (459,703)
INCOME BEFORE PROVISION FOR INCOME TAXES................ 5,521,855 6,895,391 5,728,620
PROVISION FOR INCOME TAXES.............................. 2,112,200 3,042,400 2,533,560
----------- ----------- -----------
NET INCOME.............................................. $ 3,409,655 $ 3,852,991 $ 3,195,060
=========== =========== ===========
NET INCOME PER COMMON SHARE............................. $ .34 $ .38 $ .26
=========== =========== ===========
Weighted average common shares outstanding.............. 10,000,000 10,264,253 12,448,183
=========== =========== ===========

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

38
41

INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
-------- ----------- ----------- -----------

Balance at December 31, 1996.................. $100,000 $ 160,336 $ -- $ 260,336
Cash dividends to Parent.................... -- (90,345) (3,409,655) (3,500,000)
Net income.................................. -- -- 3,409,655 3,409,655
-------- ----------- ----------- -----------
Balance at December 31, 1997.................. 100,000 69,991 -- 169,991
Cash dividends to Parent.................... -- -- (1,100,000) (1,100,000)
Issuance of Common Stock as partial
consideration for the acquisition of
Geotrac, Inc. (Note 3)................... 5,242 5,760,939 -- 5,766,181
Net income.................................. -- -- 3,852,991 3,852,991
-------- ----------- ----------- -----------
Balance at December 31, 1998.................. 105,242 5,830,930 2,752,991 8,689,163
Issuance of Common Stock as partial
consideration for the acquisition of
Colonial Claims.......................... 1,545 1,698,455 -- 1,700,000
Initial public offering of Common Stock, net
of offering costs........................ 20,000 19,143,897 -- 19,163,897
Issuance of stock options to
non-employees............................ -- 137,000 -- 137,000
Net income.................................. -- -- 3,195,060 3,195,060
-------- ----------- ----------- -----------
Balance at December 31, 1999.................. $126,787 $26,810,282 $ 5,948,051 $32,885,120
======== =========== =========== ===========

The accompanying notes are an integral part of this consolidated statement.

39
42

INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1998 1999
---------- ---------- ------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $3,409,655 $3,852,991 $ 3,195,060
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 683,672 4,311,011 5,498,007
Depreciation and amortization of Geotrac prior to July
1998 acquisition...................................... -- (712,990) --
Loss on disposal of property and equipment.............. 2,329 37,914 350,785
Equity in earnings of Geotrac, Inc...................... (201,009) (485,034) --
Write-off of deferred financing costs................... -- -- 244,752
Non-employee stock options.............................. -- -- 137,000
Deferred income taxes, net.............................. 131,000 (382,191) (202,564)
Changes in assets and liabilities:
Accounts receivable................................... (324,418) (238,449) 928,223
Income taxes recoverable.............................. -- (1,148,902) 1,148,902
Prepaid expenses and other current assets............. (45,031) (574,122) (388,639)
Other assets.......................................... (40,394) (257,648) (199,673)
Accounts payable, trade............................... 217,646 252,012 140,996
Employee related accrued expenses..................... 1,280,241 (695,910) 490,181
Other accrued expenses................................ 352,867 566,625 (446,468)
Income taxes payable.................................. 1,766,329 (2,443,058) 413,241
Deferred revenue...................................... 449,016 333,313 33,313
---------- ---------- ------------
Net cash provided by operating activities.......... 7,681,903 2,415,562 11,343,116
---------- ---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Geotrac, net of cash acquired.............. -- 2,797,008 --
Cash investment in Geotrac, Inc........................... (6,750,000) -- --
Purchases of property and equipment....................... (1,498,298) (1,613,518) (3,185,028)
Payment of acquisition debt............................... -- (1,420,530) (500,000)
Acquisition of Colonial Claims, net of cash acquired...... -- -- 1,092
Payment of dividend to prior Colonial Claims
shareholders............................................ -- -- (670,000)
---------- ---------- ------------
Net cash used in investing activities.............. (8,248,298) (237,040) (4,353,936)
---------- ---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds received from initial public offering........ -- -- 19,163,897
Proceeds from issuance of Preferred Stock of Subsidiary... 6,750,000 -- --
Proceeds from the issuance of debt........................ 2,815,000 -- --
Repayment of debt......................................... (315,500) (5,251,662) (9,795,989)
Cash dividends paid to Parent............................. (3,500,000) (1,100,000) --
Repayment of affiliated notes and accrued interest........ -- -- (14,708,420)
Collection of affiliated note and interest receivable..... -- -- 5,271,406
Net advances to (from) affiliates......................... (5,068,035) 6,680,187 (4,086,080)
Deferred offering costs................................... -- (753,250) --
---------- ---------- ------------
Net cash provided by (used in) financing
activities....................................... 681,465 (424,725) (4,155,186)
---------- ---------- ------------
INCREASE IN CASH AND CASH EQUIVALENTS....................... 115,070 1,753,797 2,833,994
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. -- 115,070 1,868,867
---------- ---------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 115,070 $1,868,867 $ 4,702,861
========== ========== ============

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

40
43

INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS

Insurance Management Solutions Group, Inc. ("IMSG") is a holding company
that was incorporated in the State of Florida in December 1996 by its Parent,
Bankers Insurance Group ("BIG" or the "Parent"), which contributed to IMSG two
of its wholly-owned operating subsidiaries, Insurance Management Solutions, Inc.
("IMS") and Bankers Hazard Determination Services, Inc. ("BHDS"), which were
previously formed in August 1991 and June 1988, respectively. In July 1997, the
Company acquired a 49% interest in Geotrac, Inc. and, in July 1998 acquired the
remaining 51% interest. Geotrac was subsequently merged into BHDS with the
surviving company being known as Geotrac of America, Inc. ("Geotrac of
America"). In September 1998, IMS Direct, Inc. was formed as a wholly owned
subsidiary of IMSG and in January, 1999, the Company acquired Colonial Claims
Catastrophe Corporation ("Colonial"). IMSG, IMS, IMS Direct, Geotrac of America
and Colonial are hereinafter collectively known as the "Company".

The Company operates in two major business segments: providing outsourcing
services to the property and casualty insurance industry with an emphasis on
flood insurance; and providing flood zone determinations primarily to insurance
companies and financial institutions. The Company's outsourcing services, which
are provided by IMS and Colonial, include policy and claims administration
(policy issuance, billing and collection functions, claims adjusting and
processing) and information technology services. The Company's flood zone
determination services are provided by Geotrac of America.

The Company is substantially dependent on the business of its affiliated
insurance companies under the common control of BIG as the Company derives a
substantial portion of its revenue from outsourcing services provided to these
affiliated companies and BIG.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Insurance
Management Solutions Group, Inc. and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation. In 1997, the Company's investment in Geotrac, Inc. was accounted
for using the equity method since the Company owned less than 50% and had a
significant but not controlling influence. In 1998, the operations of Geotrac
for the year ended December 31, 1998 are consolidated in the Company's statement
of income. The minority interest deduction in the statement of income represents
the net income of Geotrac allocable to the 51% interests held by the other
stockholders during the six months ended June 30, 1998, prior to the Company
acquiring the remaining 51% interest in Geotrac.

USE OF ESTIMATES

The preparation of the financial statements conforms with accounting
principles generally accepted in the United States and require management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates and assumptions.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. At December 31, 1998
and 1999, cash equivalents consisted of U.S. Treasury bills, certificates of
deposit and overnight repurchase agreements.

41
44
INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ACCOUNTS RECEIVABLE TRADE AND CONCENTRATION OF CREDIT RISK

Accounts receivable, trade represents amounts due from insurance companies
and financial institutions related to flood zone determinations and claims
adjusting services performed. Credit is granted to customers based on
management's assessment of their credit worthiness. Customer deposits are
required in certain instances. The allowance for doubtful accounts totaled
approximately $250,000 as of December 31, 1998 and 1999. Net bad debt expense
totaled $134,733 and $301,813 during the years ended December 31, 1998 and 1999,
respectively.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are provided for using the
straight-line method over the assets' estimated service lives. Accelerated
methods are used for tax purposes.

DEFERRED OFFERING COSTS

The Company incurred accounting, legal, printing and other expenses in
connection with its initial public offering of its Common Stock. These offering
costs, which totaled $791,336 at December 31, 1998 and are included in other
assets in the accompanying consolidated balance sheet, were subsequently charged
to additional paid-in capital against the proceeds from the initial public
offering.

GOODWILL

Goodwill is being amortized using the straight-line method over twenty
years. The amortization period was determined based on various factors including
the nature of the product or service provided, the Company's strong market
position and historical and projected operating results. Accumulated
amortization at December 31, 1998 and 1999 was $544,424 and $1,434,296,
respectively.

CUSTOMER CONTRACTS

Customer contracts are being amortized using the straight-line method over
seven years. The amortization period, which does not materially differ from the
underlying contract lives, was determined based on historical and expected
contract duration periods as well as the nature of the products and services
provided. Accumulated amortization at December 31, 1998 and 1999 was $100,000
and $300,000, respectively.

CAPITALIZED SOFTWARE COSTS

The Company capitalizes certain qualifying software development costs
incurred during the application development stage, as defined. During the fourth
quarter of 1998 and during fiscal 1999, the Company capitalized $263,462 and
$976,225, respectively, of such costs, which are included in "Other assets" in
the accompanying consolidated balance sheets as of December 31, 1998 and 1999,
respectively. Prior to September 1998, qualifying capitalizable costs incurred
by the Company were not material. Amortization is recorded using the
straight-line method over the service life of the software or the term of the
customer contract to which the software relates, which ranges from one to five
years. Accumulated amortization at December 31, 1999 was $247,497. No
amortization was recorded during 1998.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company evaluates the recoverability of its long-lived assets
(including goodwill) in accordance with Statement of Financial Accounting
Standards No. 121, ("SFAS No. 12l"), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of". SFAS No. 121
requires long-lived assets to be reviewed for impairment whenever circumstances
indicate that the carrying amount of an asset may not

42
45
INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

be recoverable. An impairment is recognized to the extent the sum of
undiscounted estimated future cash flows expected to result from the use of the
asset is less than the carrying value. No impairment exists for all periods
presented.

REVENUE RECOGNITION AND DEFERRED REVENUE

Outsourcing Services Revenue

Revenue generated from outsourcing services is recognized as earned when
services are provided.

In 1997, the Company's affiliated service arrangements, as they pertain to
policy administration, resulted in deferred revenue being recorded as the
related fees are billed and payable based on a percentage of the customers'
premiums written which is in advance of a portion of the administrative services
being performed by the Company. In 1998, the service arrangements were changed
so that fees related to policy administration services are billed based on a
percentage of written premiums, which generally eliminates the need for any
deferral. The transition from the 1997 service arrangements to the 1998 service
agreements resulted in the Company reclassifying on January 1, 1998 deferred
revenue of $443,704 recorded at December 31, 1997 to "due to affiliates".

In 1998, the affiliated service agreements as they pertain to claims
administration, resulted in deferred revenue totaling $214,891 being recorded as
the related fees are billed and payable based on a percentage of the customers'
earned premiums, which is in advance of a portion of the total claims expense
that were expected to be incurred by the Company. In 1997, deferred revenue
related to claims administration was not recorded, as the Company was paid,
either on a fee or cost reimbursement basis, as the claims and related expenses
were incurred. During 1999, the Company determined that the majority of claims
being settled on behalf of its affiliated customers were actually settled within
or shortly after the expiration of the policy term for which the Company was
receiving a service fee based upon the underlying earned premium. As such,
during 1999, the Company discontinued its practice of deferring claims revenue
and will amortize the remaining deferred revenue balance, which totaled $214,891
as of December 31, 1999, ratably over the 2000 calendar year.

Under the affiliated claims service agreements, the payment of claim costs
associated with the litigation of the claims remains the customers'
responsibility. In addition, the agreements contain a catastrophe provision
under which the Company would be reimbursed for costs associated with
independent adjusters and appraisers when indemnity losses from a single event
exceed $2,000,000, subject to a cap of 5% of direct incurred losses from that
storm.

Flood Zone Determination Revenues

The Company's flood zone revenues are principally derived from flood zone
determination services and life-of-loan monitoring services. Flood zone
determinations involve the Company ascertaining and certifying to a property's
flood zone classification. Revenues for these services are recognized upon
completion of each flood zone determination as each determination is completed
within a short period of time.

The Company receives an up-front, non-refundable fee to provide life of
loan monitoring of flood zone determinations whereby the Company notifies its
customers of changes in previously issued flood zone determinations. The Company
defers a portion of the fee associated with this future obligation and amortizes
these amounts using the straight-line method over the average life of the
underlying loan, approximately 7 years.

43
46
INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

INCOME TAXES

The Company accounts for income taxes on the liability method, as provided
by SFAS No. 109, "Accounting for Income Taxes." Deferred tax assets and
liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities as measured by the enacted tax
rates which will be in effect when these differences reverse. Deferred tax
expense is the result of changes in deferred tax assets and liabilities. Prior
to July 31, 1998, the Company's results of operations were included in the
consolidated federal and state income tax returns of its Parent. As provided by
SFAS No. 109 and in accordance with the intercompany tax sharing/allocation
agreement with its Parent and affiliates, income taxes were determined by the
amount that would have been due and payable had the Company filed a separate
income tax return.

As of July 31, 1998, BIG had sold a sufficient number of shares in the
Company such that the Company no longer files its tax return with Bankers
International Financial Corporation ("BIFC") on a consolidated basis. Effective
as of July 31, 1998, the Company and BIFC entered into a Tax Indemnity Agreement
pursuant to which (i) BIFC agrees to indemnify the Company in the event the
Company incurs a tax liability as a result of taxable income of BIFC or one of
its subsidiaries, and (ii) the Company agrees to indemnify BIFC in the event
BIFC incurs a tax liability as a result of taxable income of the Company or one
of its subsidiaries. Each party also agrees to reimburse the other for certain
tax credits arising on or before July 31, 1998. Under the Tax Indemnity
Agreement, the parties terminated a previous tax allocation agreement which had
been in effect since October 1, 1993.

NET INCOME PER COMMON SHARE

Net income per common share, which represents both basic and diluted
earnings per share ("EPS") since no dilutive securities were outstanding for all
periods presented, is computed by dividing net income by the weighted average
common shares outstanding. The following table reconciles the numerator and
denominator of the basic and dilutive EPS computation:

YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
----------- ----------- -----------

Numerator:
Net income.................................... $ 3,409,655 $ 3,852,991 $ 3,195,060
=========== =========== ===========
Denominator:
Weighted average number of Common Shares used
in basic EPS............................... 10,000,000 10,264,253 12,448,183
Diluted stock options......................... -- -- --
----------- ----------- -----------
Weighted average number of Common Shares and
diluted potential Common Stock used in
diluted EPS................................ 10,000,000 10,264,253 12,448,183
=========== =========== ===========

For the year ended December 31, 1999, options to purchase 453,500 shares of
Common Stock were outstanding during the period but were not included in the
computation of diluted earnings per share because the options' exercise prices
were greater than the average market price of the Common Stock, and therefore,
the effect would be antidilutive.

44
47
INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

STOCK BASED COMPENSATION

The Company accounts for stock based compensation awards to its employees
pursuant to Accounting Principles Board Opinion No. 25, "Accounting For Stock
Issued to Employees", and its related interpretations which prescribe the use of
the intrinsic value based method. However, the Company has adopted the
disclosure requirements of SFAS No. 123, "Accounting for Stock Based
Compensation."

For awards for other than employees, the Company accounts for stock based
compensation awards pursuant to the fair value based method of SFAS No. 123.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of the Company's financial instruments, which include
cash and cash equivalents, accounts receivable, due from affiliates, accounts
payable, due to affiliates and debt, approximate fair value due to the short
maturity of those instruments. The Company considers the fixed and variable rate
debt instruments to be representative of current market interest rates and,
accordingly, the recorded amounts approximate their present fair market value.

NOTE 3. ACQUISITIONS

GEOTRAC, INC.

Acquisition of 49% Interest

On July 31, 1997, the Company, through its subsidiary, BHDS, invested cash
in the amount of $6,750,000 in YoSystems in exchange for 490 shares of common
stock issued by YoSystems, representing a 49% equity interest. At the time of
the Company's investment, YoSystems' President and his wife owned 510 shares of
YoSystems' common stock, representing a 100% equity interest. In addition, at
the time of the Company's contribution, YoSystems had nominal net assets. As a
result of the Company's capital infusion, the net assets of YoSystems increased
to approximately $6,750,000. The Company's equity share of these net assets
equated to 49% of $6,750,000, or $3,307,500, with the remainder of the Company's
investment, which totaled $3,442,500, representing goodwill.

On July 31, 1997, YoSystems concurrently acquired all of the issued and
outstanding shares of capital stock of SMS Geotrac, Inc. SMS Geotrac, Inc.
merged into YoSystems, with YoSystems becoming the surviving entity, which then
changed its name to Geotrac, Inc. YoSystems entered into a term note for
$8,750,000 to provide additional funds required to fund the total purchase price
of $15,000,000.

Acquisition of Remaining 51% Interest

In July 1998, the Company acquired the remaining 51% of the outstanding
shares of Geotrac, Inc.'s common stock for a total consideration of $7,994,250
consisting of:

524,198 shares of the Company's Common Stock valued at
$11.00 per share, the initial public offering price....... $5,766,181
Promissory note............................................. 1,500,000
Cash paid in December 1998.................................. 728,069
----------
$7,994,250
==========

45
48
INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The recording of the Company's additional 51% interest in Geotrac and the
elimination of the investment in Geotrac account through the consolidation
process at July 1, 1998 resulted in the recognition of consolidated goodwill of
$14,933,247 and net assets of $339,265 recorded at estimated fair values under
the purchase method of accounting as follows:

JULY 1, 1998
------------

Current assets.............................................. $ 5,968,680
Property and equipment...................................... 3,305,740
Customer contracts.......................................... 1,416,667
Other assets................................................ 299,065
Current liabilities......................................... (3,453,093)
Long-term obligations....................................... (7,197,794)
-----------
Net assets acquired......................................... 339,265
Goodwill.................................................... 14,933,247
-----------
$15,272,512
===========

The following unaudited pro forma consolidated results of operations for
the year ended December 31, 1998 is presented as if the acquisition of Geotrac,
Inc. had been made on January 1, 1998. The unaudited pro forma information
reflects the additional goodwill amortization and interest expense that would
have been incurred if the Company had purchased Geotrac, Inc. on January 1,
1998. These pro forma results are not necessarily indicative of the results of
operations that would have occurred had the purchase been made at January 1,
1998 or the future results of the consolidated operations (in thousands, except
per share data):

Revenue..................................................... $63,792
Operating income............................................ 9,758
Net income.................................................. 4,610
Net income per common share................................. $ .44

In addition, the Company entered into a Corporate Governance Agreement with
Geotrac and its president and former majority shareholder (the "former majority
shareholder") setting forth certain terms and conditions upon which Geotrac will
operate following the merger. The Corporate Governance Agreement provides, in
part, that, for so long as the former majority shareholder owns stock in the
Company or Geotrac, or has an option to purchase stock in Geotrac, (i) the
Company will vote all of its shares in Geotrac to fix and maintain the number of
directors on the Geotrac Board of Directors at five, (ii) the Company will vote
its shares in Geotrac to elect as directors of Geotrac two persons designated by
the former majority shareholder, (iii) the termination of the former majority
shareholder as an employee of Geotrac will require the vote of four out of five
members of the Board of Directors, and (iv) certain actions by Geotrac will
require the unanimous approval of the Geotrac Board of Directors, including any
merger or consolidation, the payment of management or similar fees to the
Company or its subsidiaries and affiliates, the sale or issuance of Geotrac
stock, and the sale of Geotrac assets outside the ordinary course of business to
anyone other than an affiliate of Geotrac. The former majority shareholder also
has a right of first refusal to purchase the assets of Geotrac in the event such
assets are to be sold.

COLONIAL CATASTROPHE

Effective January 7, 1999, the Company, through a wholly-owned subsidiary,
acquired all of the issued and outstanding capital stock of Colonial Catastrophe
Claims Corporation, a Florida corporation ("Colonial Catastrophe"), in exchange
for (i) 154,545 shares of Common Stock, (ii) cash in the amount of $500,000,
(iii) a promissory note in the principal amount of $500,000, and (iv) an
earn-out payment of $300,000, which was paid during February, 2000 in 121,518
shares of Common Stock, based upon achieving a target income

46
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INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

before taxes of Colonial Claims for the year ended December 31, 1999. On January
15, 1999, Colonial Catastrophe was merged into the acquiring subsidiary and the
name of the acquiring subsidiary was changed to "Colonial Claims Corporation"
(hereinafter "Colonial Claims"). The acquisition was accounted for as a purchase
in accordance with Accounting Principles Board Opinion No. 16 "Business
Combinations". The results of operations of Colonial Claims is included in the
accompanying financial statements since the date of acquisition. The total cost
of the acquisition, including the $300,000 earn-out payment made in February,
2000, was $3.0 million which exceeded the fair value of the net assets by $2.6
million. Such excess is being amortized on a straight-line basis over twenty
years.

In addition, Colonial Claims entered into a separate employment agreement
with each of the previous shareholders pursuant to which they will serve as
employees of Colonial Claims. Each of the employment agreements is for a period
of five years and provides for an initial annual base salary of $102,000
(subject to a 5% increase), plus additional compensation based on annual
revenues of the Colonial Claims business.

The following unaudited pro forma consolidated results of operations for
the year ended December 31, 1998 is presented as if the acquisition of Colonial
Catastrophe had been made on January 1, 1998. The unaudited pro forma
information reflects the additional goodwill amortization that would have been
incurred if the Company had purchased Colonial Catastrophe on January 1, 1998.
These pro forma results are not necessarily indicative of the results of
operations that would have occurred had the purchase been made at January 1,
1998 or the future results of the consolidated operations (in thousands, except
per share data):

1998
-------

Revenue..................................................... $70,010
Operating income............................................ 10,110
Net income.................................................. 4,421
Net income per common share................................. $ .42

NOTE 4. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

DECEMBER 31,
LIFE -------------------------
(YEARS) 1998 1999
------- ----------- -----------

Computer equipment and software..................... 3-5 $ 8,472,112 $ 9,707,957
Office furniture and equipment...................... 5 2,060,498 2,719,441
Leasehold improvements.............................. 5 148,471 181,045
Maps and map database............................... 5 2,029,221 2,087,570
Automobiles......................................... 5 23,608 23,608
----------- -----------
12,733,910 14,719,621
Less -- accumulated depreciation and amortization... (4,226,013) (7,494,127)
----------- -----------
$ 8,507,897 $ 7,225,494
=========== ===========

Maps and map database, which are used as a basis for making flood zone
determinations, include the capitalized costs of purchasing maps as well as the
direct labor cost of converting the maps to digitized computer files.

Depreciation and amortization expense was $611,954, $2,941,602 and
$4,132,898 in 1997, 1998 and 1999, respectively.

47
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INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 5. OTHER ACCRUED EXPENSES

Other accrued expenses consisted of the following as of December 31, 1998
and 1999:

1998 1999
-------- ----------

Adjuster expenses payable................................... $ -- $ 539,062
Accrued earn-out payable.................................... -- 300,000
Accrued professional fees................................... 205,000 80,000
Taxes payable other than income............................. 112,759 237,440
Commissions payable......................................... 95,018 61,557
Other accrued expenses...................................... 342,659 75,001
-------- ----------
$755,436 $1,293,060
======== ==========

NOTE 6. NOTES RECEIVABLE AND PAYABLE -- AFFILIATES

On March 31, 1998, the Company entered into a $4,950,000 promissory note
with an affiliate that had previously advanced funds to the Company. The note,
which is included in "Current portion of notes and interest payable-affiliates"
in the accompanying December 31, 1998 consolidated balance sheet, bears interest
at 8.5% per annum and is payable in full together with accrued interest in April
1999. During 1999, the note was repaid from proceeds received from the initial
public offering.

On April 1, 1998, the Company entered into a $4,950,000 promissory note
with an affiliate to which the Company had previously advanced funds. The note,
which is reflected as "Note and interest receivable -- affiliate" in the
accompanying December 31, 1998 consolidated balance sheet, bears interest at
8.5% per annum and is payable in full together with accrued interest in April
1999. During 1999, the note was repaid by BIG from funds made available to BIG
by a loan from a subsidiary of the selling shareholder in the initial public
offering.

In May 1998, the Company entered into a sales and assignment agreement with
certain affiliated companies whereby certain assets were transferred and
assigned to the Company, effective April 1998, for use in its business. The
assets, consisting of telephone equipment and computer hardware and software,
were transferred at their net book value as of the date of transfer in exchange
for consideration consisting of $325,075 in cash and two promissory notes
totaling $2,802,175 ($2,663,424 at December 31, 1998). The notes, which are
included in notes payable -- affiliates in the accompanying December 31, 1998
consolidated balance sheet, were repaid during 1999 from proceeds received from
the initial public offering.

In July 1998, in connection with the Geotrac acquisition, the Company
issued a note payable to Geotrac's previous majority shareholder in the amount
of $1,500,000. The note requires quarterly interest payments at a fixed interest
rate of 8.5%. The note, which is included in "Notes payable -- affiliates, less
current portion" in the accompanying consolidated balance sheet at December 31,
1998, was repaid during 1999 from proceeds received from the initial public
offering.

48
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INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 7. LONG-TERM DEBT

Long-term debt consists of the following:

DECEMBER 31,
----------------------
1998 1999
----------- --------

Note payable to bank, interest at Company's option of: 1)
the current prime rate; 2) a seven year fixed rate; 3) a
certain percentage over the LIBOR rate based upon a
formula; or 4) a combination of the above rates, due in
quarterly installments of $312,500, plus accrued interest
thereon, plus annual prepayments in an amount equal to
fifty percent of excess cash flow, as defined, with the
final payment due June 2004, collateralized by certain
fixed assets of the Company............................... $ 6,875,000 $ --
Note payable to bank, interest at a fixed rate of 8.19%, due
in monthly principal and interest installments of $66,965,
with the final payment due December 2000, collateralized
by certain fixed assets of the Company.................... 1,479,541 --
Note payable to bank, interest at the lender's base lending
rate, due in monthly principal installments of $16,854,
plus accrued interest thereon, with the final payment due
December 2000, collateralized by certain fixed assets of
the Company and guaranteed by the Company's Parent........ 404,500 --
Notes payable to banks, interest at both fixed (8.19%) and
at the lender's base lending rate due in monthly principal
installments ranging from $1,000 to $5,104, with the final
payments due from December 1999 to 2000, collateralized by
certain fixed assets of the Company, with certain notes
guaranteed by the Company's Parent........................ 302,119 --
Capitalized equipment lease obligations (net of interest of
approximately $91,000 and $40,000 at December 31, 1998 and
1999, respectively) due in monthly principal and interest
payments of approximately $52,000 through 2001............ 1,436,323 701,494
----------- --------
10,497,483 701,494
Less current maturities..................................... 3,026,944 481,637
----------- --------
$ 7,470,539 $219,857
=========== ========

In June, 1999, the Company entered into a revolving line of credit
agreement ("LOC") with a financial institution that provides for borrowings of
up to two times the rolling four quarter earnings before interest, taxes,
depreciation and amortization ("EBITDA"), but in no event more than $12,000,000.
The LOC bears interest at a specified percentage over LIBOR (8.23% at December
31, 1999) based on the ratio of funded debt (as defined) to EBITDA. Interest
payments are payable monthly and the remaining unpaid principal balance is due
in full in July, 2001. The LOC is collateralized by substantially all of the
Company's assets and is subject to certain quarterly financial covenants
requiring the Company to maintain the following minimum ratios: (i) interest
bearing debt to EBITDA of not more than 2.0 to 1.0; (ii) total liabilities to
tangible net worth of not more than 1.0 to 1.0; and (iii) fixed charge coverage
(as defined) of not less than 2.5 to 1.0. Additionally, the Company is
restricted from making any distributions or dividends payable in cash or capital
stock of the Company on any shares of any class of its capital stock or applying
any of its property or assets to the purchase, redemption or other retirement of
any shares of any class of capital stock or any partnership interest when the
ratio of interest earning debt to earnings before interest, taxes, depreciation,
and amortization exceeds 1.0 either before or as a result of the distribution.
As of December 31, 1999, there was no

49
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INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

restriction on the amount of retained earnings available for dividend
distribution. Additionally, as of December 31, 1999, there was no outstanding
balance under the LOC.

At December 31, 1998 and 1999, property and equipment includes $1,713,595
and $1,603,784 of assets, respectively, and $348,857 and $966,074 of accumulated
amortization, respectively, recorded under capital leases.

NOTE 8. PREFERRED STOCK OF SUBSIDIARY

In connection with the Company's purchase of a 49% interest in Geotrac,
Inc., BHDS issued 675,000 shares of non-cumulative, 8% Preferred Stock to a
corporation owned by the half-brother of a director of the Company. The related
party funded the Preferred Stock purchase by entering into a note agreement with
a bank. The Preferred Stock served as collateral on the bank note and the
Company acts as a guarantor. In May 1998, IMSG repurchased the outstanding
Preferred Stock of BHDS in exchange for a note in the same amount. During
December 1998, the note, which was payable in its entirety on December 31, 1998,
was refinanced with the same lender into an installment note requiring monthly
payments of principal and accrued interest of $138,701 (interest rate of 8.566%)
commencing in January 1999 until its maturity in August 2002. At December 31,
1998, $1,225,557 is included in "Current portion of notes and interest
payable--affiliates" and $3,902,677 is included in "Notes payable--affiliates,
less current portion," in the accompanying consolidated balance sheet, which
reflects the modification of the terms of the loan. Subsequent to May 1998, the
Preferred Stock of BHDS, currently held by IMSG, was exchanged for 675,000
shares of 8 1/2% cumulative Preferred Stock of BHDS. The non-cumulative 8%
Preferred Stock was then retired. The new Preferred Stock serves as collateral
on the bank note held by the related party. Dividends declared on the Preferred
Stock during 1997 and 1998 were $229,315 and $189,370, respectively, and are
included in "Interest expense" in the accompanying consolidated statements of
income as the amounts are insignificant and the preferred stock has certain
characteristics similar to debt. The installment note was subsequently repaid
from proceeds received from the initial public offering.

NOTE 9. SHAREHOLDERS' EQUITY

COMMON STOCK

In January 1998, the Board of Directors increased the amount of the
Company's authorized shares of Common Stock from 1,000,000 to 100,000,000 shares
and changed the Common Stock's par value from $1.00 to $.01 per share. Effective
May 8, 1998, the Company declared a stock dividend of 40,000 (pre-split) shares
of Common Stock for each share of Common Stock then outstanding, resulting in an
increase in the number of outstanding shares of Common Stock from 500
(pre-split) to 20,000,000 (pre-split) shares. On December 17, 1998 the Company
effected a one-for-two reverse split of its Common Stock. The May and December
1998 recapitalizations have been retroactively reflected in the accompanying
consolidated financial statements.

INITIAL PUBLIC OFFERING

In February 1999, the Company completed an initial public offering ("IPO")
of 3,350,000 shares of Common Stock at a price of $11 per share. Of the
3,350,000 shares sold in the IPO, 1,350,000 were sold by the Selling Shareholder
and the remaining 2,000,000 shares were sold by the Company. The offering
generated net proceeds to the Company of $19,164,000, after deducting offering
expenses of approximately $1,296,000 paid by the Company. Such offering expenses
were charged to additional paid-in capital against proceeds from the IPO.

50
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INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

PREFERRED STOCK

The Company is authorized to issue 20,000,000 shares of Preferred Stock,
$.0l par value per share. The Board of Directors has the authority, without any
further vote or action by the Company's shareholders, to issue Preferred Stock
in one or more series and to fix the number of shares, designations, relative
rights (including voting rights), preferences, and limitations of those series
to the full extent now or hereafter permitted by Florida law. The Company has no
present intention to issue shares of Preferred Stock, although it may determine
to do so in the future.

LONG TERM INCENTIVE PLAN

The Long-Term Incentive Plan (the "Incentive Plan"), approved by the
Company's Board of Directors and shareholders, provides for the grant of
incentive or nonqualified stock options to purchase up to 875,000 shares of
Common Stock. All such options are granted at fair market value or above and
expire on the tenth anniversary from the date of grant. Options shall become
exercisable 60% after three years, 20% after four years and 20% after five
years. As of December 31, 1999, options to purchase 429,500 shares are
outstanding under the Incentive Plan.

NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN

The Non-Employee Directors' Stock Option Plan (the "Non-Employee Director
Plan"), approved by the Company's Board of Directors and shareholders, provides
for the grant of nonqualified stock options to purchase up to 7,200 shares of
Common Stock in any three-year period to members of the Board of Directors who
are not employees of the Company. A total of 200,000 shares may be issued
pursuant to this plan. Non-employee directors receiving such options will become
vested in options for the purchase of 800 shares of Common Stock after the
adjournment of each annual meeting of shareholders of the Company, to the extent
he or she has been granted options that have not yet vested, and provided that
he or she is then a non-employee director of the Company. In addition, each
non-employee director shall become vested in options for the purchase of 400
shares of Common Stock upon the adjournment of each regularly scheduled
quarterly meeting of the Board of Directors (other than following the annual
meeting of shareholders), to the extent he or she has been granted options that
have not yet vested, and provided that he or she is then a non-employee director
of the Company. All options granted will have an exercise price equal to the
fair market value of the Common Stock as of the date of grant, will become
exercisable upon vesting, and will expire on the sixth anniversary of the date
of grant. As of December 31, 1999, options to purchase 24,000 shares are
outstanding under the Non-Employee Directors' Plan.

NON-QUALIFIED STOCK OPTION PLAN

The Non-Qualified Stock Option Plan (the "Non-Qualified Plan"), approved by
the Company's Board of Directors and shareholders, provides for the grant of
non-qualified stock options to purchase up to 125,000 shares of Common Stock.
Immediately following completion of the initial public offering, options to
purchase 125,000 shares of Common Stock at the initial public offering price
($11.00) were granted to certain executive officers of BIG. All of such options
expire on the tenth anniversary from the date of grant. Options shall become
exercisable 60% after three years, 20% after four years and 20% after five
years. As of December 31, 1999, options to purchase 100,000 shares were
outstanding under the Non-Qualified Plan.

Under this plan, the Company will recognize aggregate compensation expense
of approximately $600,000 of which $137,000 was recognized during the year ended
December 31, 1999 and is included in selling, general and administrative
expenses in the accompanying consolidated statement of income. The balance will
be recognized ratably over the remainder of the vesting period.

51
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INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes option activity from December 31, 1998
through December 31, 1999:

OPTIONS NUMBER OF WEIGHTED
AVAILABLE OPTIONS AVERAGE
FOR GRANT OUTSTANDING EXERCISE PRICE
--------- ----------- --------------

Balance at December 31, 1998........................ -- -- $ --
Options authorized................................ 1,200,000 -- --
Options granted................................... (794,500) 794,500 10.76
Options cancelled................................. 241,000 (241,000) 11.00
Options exercised................................. -- -- --
--------- -------- ------
Balance at December 31, 1999........................ 646,500 553,500 $10.64
========= ======== ======

The range of exercise prices, shares, weighted average contractual life and
exercise price for the options outstanding as of December 31, 1999 are presented
below:

RANGE OF NUMBER OF WEIGHTED-AVERAGE WEIGHTED-AVERAGE
EXERCISE PRICES SHARES CONTRACTUAL LIFE EXERCISE PRICE
- --------------- --------- ---------------- ----------------

$7.69 -- 11.00 553,500 6.20 years $10.64

As of December 31, 1999, there were 18,000 options that were exercisable at
a weighted average exercise price of $11.00.

The per-share weighted-average fair value of stock options granted during
1999 was $6.37 using the Black-Scholes option-pricing model with the following
weighted-average assumptions: Expected dividend yield of 0%, risk-free interest
rate of 5.75%, expected volatility of 65% and an expected life of 5 years.

PRO FORMA RESULTS

The Company applies APB Opinion No. 25 in accounting for its Incentive Plan
and Non-Employee Director Plan and, accordingly, no compensation cost has been
recognized for its stock options in the consolidated financial statements. Had
the company determined compensation cost based on SFAS No. 123, the Company's
net income would have been as follows:

1999
---------------------
NET DILUTED
INCOME EPS
---------- -------

As reported................................................. $3,195,060 $ .26
Statement 123 compensation (net of tax)..................... (617,500) (.05)
Pro forma disclosure........................................ $2,577,560 $ .21

The disclosure presented above represents only the estimated fair value of
stock options granted in 1999 and is not necessarily indicative of the fair
value of stock options that could be granted by the Company in future fiscal
years or of all options currently outstanding.

52
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INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 10. INCOME TAXES

The provision for income taxes is summarized as follows:

YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1998 1999
---------- ---------- ----------

Current:
Federal...................................... $1,686,500 $2,090,400 $1,955,660
State........................................ 294,700 450,000 481,900
---------- ---------- ----------
1,981,200 2,540,400 2,437,560
---------- ---------- ----------
Deferred:
Federal...................................... 112,400 435,400 77,000
State........................................ 18,600 66,600 19,000
---------- ---------- ----------
131,000 502,000 96,000
---------- ---------- ----------
$2,112,200 $3,042,400 $2,533,560
========== ========== ==========

Reconciliation of the federal statutory income tax rate of 34% to the
effective income tax rate is as follows:

YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1998 1999
---------- ---------- ----------

Federal income taxes, at statutory rates....... $1,877,400 $2,344,400 $1,947,700
State taxes, net of federal benefit............ 200,400 323,500 292,200
Equity in earnings of Geotrac, Inc............. (68,300) -- --
Minority interest.............................. -- 160,800 --
Dividends declared on Preferred Stock of
Subsidiary................................... 78,000 64,400 --
Non-deductible goodwill........................ 24,400 85,500 175,000
Non-deductible meals and entertainment......... -- 12,700 58,900
Other, net..................................... 300 51,100 59,760
---------- ---------- ----------
$2,112,200 $3,042,400 $2,533,560
========== ========== ==========

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the corresponding amounts used for income tax reporting purposes.
Significant components of the Company's deferred tax assets and liabilities are
as follows:

DECEMBER 31,
---------------------
1998 1999
-------- ----------

Deferred tax assets:
Vacation pay.............................................. $207,700 $ 279,800
Deferred recognition of life-of-loan premium.............. 735,200 628,100
Deferred revenue.......................................... 65,000 --
Depreciation and fixed asset bases differences............ -- 181,100
Other..................................................... 1,100 26,300
Deferred tax liability:
Goodwill and customer list bases differences.............. (30,600) (52,300)
Depreciation and fixed asset bases differences............ (11,400) --
-------- ----------
Net deferred tax asset............................ $967,000 $1,063,000
======== ==========

53
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INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 11. COMMITMENTS AND CONTINGENCIES

RISKS AND UNCERTAINTIES

The Company derives a substantial portion of its revenues from outsourcing
services provided to its principal shareholder, BIG. The Company has entered
into contracts with BIG pursuant to which it will continue to provide
administrative services to BIG (See Note 12). The Company's future financial
condition and results of operations will depend to a significant extent upon the
commercial success of BIG and its continued willingness to utilize the Company's
services. Any significant downturn in the business of BIG or its commitment to
utilize the Company's services could have a material adverse effect on the
Company's business, financial condition and results of operations.

The Company's business is dependent upon various factors, such as general
economic conditions and weather patterns, which are beyond its control. For
example, the demand for flood zone determinations by lenders and their customers
is directly related to the affordability of mortgage financing and refinancing.
An increase in interest rates could have a negative impact on mortgage lending
and consequently also on the level of flood zone determinations requested.
Fluctuations in interest rates will likely produce fluctuations in the Company's
quarterly earnings and operating results. Likewise, natural disasters such as
hurricanes, tornadoes and floods, all of which are unpredictable, directly
impact the demand for both the Company's outsourcing and flood zone
determination services.

OPERATING LEASES

The Company leases property and equipment under operating leases expiring
in various years through 2005. Future minimum rental payments under
non-cancelable operating leases, exclusive of related party leases discussed in
Note 12, having initial or remaining terms in excess of one year as of December
31, 1999 are as follows:

YEAR ENDED DECEMBER 31, AMOUNT
- ----------------------- ----------

2000........................................................ $1,889,000
2001........................................................ 1,462,000
2002........................................................ 1,075,000
2003........................................................ 840,000
2004........................................................ 672,000
Thereafter.................................................. 44,000
----------
Total future minimum rental payments.............. $5,982,000
==========

Total rental expense, excluding amounts paid to BIG under the affiliated
lease agreements, totaled $109,000, $470,000 and $1,025,000 for the years ended
1997, 1998 and 1999, respectively.

LEGAL PROCEEDINGS

54
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INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

insurance companies to have management, officers or directors that are, among
other things, trustworthy. The complaint further notifies BIC, BLIC and BSIC
that the Insurance Commissioner intends to impose such penalties or take such
other administrative actions as may be proper or appropriate under applicable
law, including possibly entering an order suspending or revoking the
certificates of authority of BIC, BLIC and BSIC to conduct business as insurance
companies in the State of Florida.

On November 19, 1999, the United States, on behalf of FEMA, filed a civil
action against BIC in the U.S. District Court for the District of Maryland
stemming from FEMA's investigation of certain cash management and claims
processing practices of BIC in connection with its participation in the National
Flood Insurance Program ("NFIP"). The complaint alleges, among other things,
that BIC knowingly failed to report and pay interest income it had earned on
NFIP funds to the United States in violation of the False Claims Act as well as
various common law theories, including fraud, breach of contract, unjust
enrichment and negligent misrepresentation. The complaint seeks civil penalties
of $1.08 million and actual damages of approximately $1.1 million, as well as
treble, punitive and consequential damages, costs and interest. BIC has informed
the Company that it intends to vigorously defend against the action, but no
assurances can be given as to the outcome thereof. However, BIG and its legal
counsel have advised the Company that an adverse judgment in this action would
not have a material adverse affect on the business and/or operations of BIC,
although no assurances can be given in this regard.

During 1999, BIG, together with certain of its affiliates, including the
Company, was subject to a wage and hour audit conducted by the Department of
Labor ("DOL"). The Company has responded to the DOL's inquiries relating to the
classification of its employees for the purpose of determining overtime
compensation. The Company and BIG are in the process of jointly negotiating with
representatives of the DOL in an effort to fairly determine the proper
classification of certain employees and the amount of the past wages owed.
Although management cannot currently determine the amount of past wages to be
assessed to the Company, they do not believe it will have a material adverse
effect on business, financial condition and results of operations of the
Company, although no assurances can be given in this regard.

The Company is involved in various legal actions arising in the ordinary
course of business. Management cannot predict the outcome of these matters. It
is management's belief, after discussion with legal counsel, that the ultimate
resolution of these actions will not have a material adverse effect on the
Company's financial position, results of operations, or liquidity.

55
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INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

COMMON STOCK AWARDS

Prior to the Company's acquisition of Geotrac, Inc., Geotrac's president
had a non-binding commitment to grant to certain former and current employees
options to purchase shares of Geotrac, Inc. common stock held by the president
and his wife, for prior employee services rendered. During May 1998, the
president and his wife contributed 46.45 shares of their Common Stock to these
individuals which is recorded as deferred compensation (non-recurring item)
totaling $728,069 in the accompanying December 31, 1998 consolidated statement
of income. The valuation of the Common Stock used to compute the deferred
compensation expense was determined by dividing the purchase price of $7,994,250
for the 51% interest in Geotrac by 510 shares, the remaining shares purchased.

EMPLOYMENT AGREEMENTS

The Company entered into employment agreements with certain members of its
executive management team. The agreements provide for employment terms of three
years and shall continue indefinitely until terminated by either party pursuant
to the terms of the agreements. In the event an employment agreement is
terminated by the Company without cause, the employee shall be entitled to
earned, but unpaid benefits as well as a "Severance Payment" equal to the
employee's then current annual base salary, subject to adjustment as defined.
The agreements contain non-compete provisions, which prevent a terminated
employee from soliciting customers, prospective customers or employees of the
Company.

In connection with the acquisition of Geotrac, Inc., the Company entered
into an employment agreement with the president and chief executive officer of
Geotrac, Inc. ("Geotrac's President"). This agreement provides for an initial
term of four years and shall continue in effect thereafter until terminated by
either party upon 90 days prior written notice. The agreement provides for an
initial annual base salary of $150,000 subject to annual review by Geotrac,
Inc.'s Board of Directors. In the event of Geotrac's President's death or
disability, Geotrac, Inc.'s obligations under the agreement will automatically
terminate, except that Geotrac's President shall be entitled to severance equal
to his then current annual base salary. The agreement further provides that, in
the event of termination by Geotrac, Inc. without cause (as defined therein) or
by Geotrac's President for good reason (as defined therein), or in the event the
agreement is not renewed for any reason other than death, disability or for
cause, then Geotrac, Inc. shall pay Geotrac's President at the rate of his
annual base salary then in effect for the longer of (i) the remainder of the
term of the agreement and (ii) one year after such termination date, subject to
a credit of up to 75% of the base salary paid to Geotrac's President by his new
employer, if any. The agreement contains certain non-compete provisions which
prevent Geotrac's President from engaging in the flood zone compliance business
within a specified area and soliciting or employing any Geotrac, Inc. employees.

NOTE 12. RELATED PARTY TRANSACTIONS

SERVICE AND ADMINISTRATIVE AGREEMENTS

During 1997, the Company provided information technology services to
affiliated entities based generally on actual cost incurred (including selling,
general and administrative expenses), which amounted to $3,236,255 of the
outsourcing revenues for 1997. For the years ending December 31, 1998 and 1999,
these charges are included in the fee structure related to the affiliated
service agreement discussed below.

In 1997, the Company charged a monthly fee for its policy and claims
administration services based on certain factors under the terms of the 1997
service agreements with BIG and other affiliated companies. For policy and
claims administration, the Company charged a fee based on a percentage of direct
written premiums and a percentage of direct paid losses for certain lines of
business, as defined, respectively. The fee ranged from 8.5% to 9% for services
rendered in connection with policy administration and .5% to 15% for claims
administration related to these policies. Also, in 1997 the Company processed
claims for BIG and its

56
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INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

other affiliates related to those lines of business not covered under the
servicing agreement and provided other miscellaneous services on a cost
reimbursement basis. Amounts charged related to this claims processing and other
miscellaneous services amounted to $9,518,525 for 1997.

Effective January 1, 1998, the Company and BIG, along with its affiliates,
entered into a service agreement which replaced the previous arrangement. For
policy administration, the Company charges a fee, ranging from 8% to 10% of
direct written premiums for certain lines of business, as defined. In 1998, in
addition to policy processing services previously provided under the 1997
service agreements, the Company also provides policy processing related to its
affiliated companies' automobile lines of business. In addition, claims services
that were previously provided on a cost reimbursement basis are included in its
1998 affiliated servicing agreements. For claims administration, the Company
charges fees ranging from 7% to 12.50% of direct earned premiums, except for
flood related programs which are based on 1% of earned premiums and 1.5% of
incurred losses. Also, a service fee of 2% of direct earned premiums is charged
related to information technology services.

Under these service agreements, the Parent company accounted for
$16,359,821 and $36,068,944 of total outsourcing revenue in 1997 and 1998,
respectively.

Effective December 1, 1998, the Company entered into a Service Agreement
with Bankers Life Insurance Company ("BLIC"), an indirect subsidiary of BIG,
pursuant to which the Company provides certain administrative services and
allows BLIC to make use of certain of the Company's property, equipment and
facilities in connection with BLIC's day-to-day operations. Under the Service
Agreement, as amended, BLIC agrees to pay the Company predetermined fees on a
quarterly basis. The term of the Service Agreement with BLIC ends on June 1,
2001, but may be terminated at any time by BLIC upon 90 days prior written
notice.

Effective January 1, 1999, these fee arrangements were modified to provide
for tiered pricing based on the volume of business processed. These
modifications resulted in a reduction in the base fees charged for certain lines
of business and increases in base fees charged for other lines of business to
better reflect the services provided and competitive market rates for such
services. The term of each Service Agreement shall expire in June 2001, provided
that it shall thereafter be automatically extended until terminated upon 90 days
prior notice by either party.

Effective April 1, 1999, the Company further amended its existing service
agreements with affiliated insurers to provide for minimum aggregate quarterly
service fee payments through December 31, 1999 with respect to certain lines of
business, provided that certain key tasks are performed timely. If such minimum
service fee requirements with respect to said lines of business under the
agreements had not been implemented as of April 1, 1999, aggregate affiliated
outsourcing services revenues, which totaled $41.5 million for the year ended
December 31, 1999 would have been $39.7 million in accordance with the terms of
the affiliated service agreements as in effect prior to April 1, 1999.
Additionally, for the year ended December 31, 1999, the Company did not
recognize approximately $500,000 of additional affiliated service fees under the
minimum service fee agreement as the Company did not meet certain specified
milestones on a timely basis. Such minimums were established to compensate the
Company for maintaining an infrastructure to process certain lines of business
of affiliated insurers that have not grown as rapidly as originally forecasted.

In April, 1999, the Company also entered into a Technical Support Services
Agreement with BIG pursuant to which the Company provides BIG with certain
technical support services, computer programming and systems analysis services.
Under this agreement, such services are charged to BIG on a time and materials
basis. Revenue provided under this agreement totaled approximately $1.3 million
during the year ended December 31, 1999, which is included in affiliated
outsourcing services revenue in the accompanying consolidated statements of
operations.

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INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company has historically been charged a monthly management fee under an
administrative services agreement with BIG for common costs that are incurred by
its Parent and allocated to its affiliated companies. These common costs include
human resources, legal, corporate planning and communications, cash management,
certain executive management and rent. The basis of allocation for the
management services is employee head counts and estimates of time incurred,
which management believes to be a reasonable basis of allocation. Total
management fees in 1997 were $2,343,866. During 1998, the Company was charged
for these services, exclusive of rent, generally based on agreed-upon amounts
(quarterly fee of $396,250 and an annual fee of $120,000 for routine legal
services) totaling $2,250,490. During 1999, the administration services
agreement was amended to eliminate certain accounting and internal audit service
functions (which functions are currently performed by the Company directly) and
to reduce the quarterly fee payable by the Company to BIG to $258,750, subject
to renegotiation by either party. The agreement, which expired on December 31,
1999, is in the process of being renegotiated under similar terms and
conditions.

Prior to December 31, 1997, the Company was also charged for rental
expenses through the management services allocated from its Parent as discussed
above. Subsequent to this time, the Company entered into specific lease
agreements for its office space. The lease agreements, which expired on December
31, 1999, are in the process of being renegotiated. Rent expense of $961,569,
$1,009,222 and $1,009,222 for the years ended December 31, 1997, 1998 and 1999,
respectively, is included in "Management services from Parent" in the
accompanying consolidated statements of income.

The Company leases certain employees, from time to time, that have been
trained in customer service and other areas of property and casualty insurance,
from its affiliated companies. The Company has agreed to pay all direct and
indirect expenses in connection with these employees. These charges are included
in cost of outsourcing services and selling, general and administrative expenses
and amounted to $6,635,249, $6,124,060, and $7,538,871 for years ended December
31, 1997, 1998 and 1999, respectively.

Effective January 1, 1998, the Company entered into a perpetual license
agreement with BIG and BIC pursuant to which the Company licensed its primary
operating systems from BIG and BIC in exchange for a nominal fee. The license
agreement provides that the Company shall be solely responsible for maintaining
and upgrading the systems and shall have the authority to license such systems
to third parties.

Flood zone determination services performed for affiliated companies
amounted to $1,028,359, $1,279,689 and $620,320 for 1997, 1998 and 1999,
respectively.

OTHER RELATED PARTY TRANSACTIONS

On July 31, 1998, the Parent sold 2,050,000 shares of the issued and
outstanding Common Stock it held in the Company to Venture Capital Corporation
("VCC"), a Cayman Islands corporation. VCC acquired its interest in the Company
directly from the Company's Parent. VCC is wholly-owned by a discretionary
charitable trust. The sole trustee of this trust is a Cayman Islands bank
unaffiliated with BIG, the Company or their respective officers or directors.
BIG is indirectly owned by a separate Cayman Islands corporation which is owned
by a separate discretionary charitable trust. The sole trustee of this trust is
a Cayman Islands corporation unaffiliated with BIG, the Company or their
respective officers or directors. The declaration of each trust provides that
the same not-for-profit Cayman Islands corporation possesses the discretionary
power to (i) direct the trustee to appoint the trust fund to another trust for
the benefit of one or more of the beneficiaries of the trust and (ii) remove the
trustee and appoint one or more new trustees outside the Cayman Islands. The
Board of Directors of this entity includes certain executive officers of BIG and
the Company. VCC sold a portion of its interest in the Company in the initial
public offering, and a subsidiary of VCC lent approximately $12.0 million to BIG
in exchange for a subordinated note. A portion of the funds received by BIG were
used to satisfy the "Due from affiliates" and the "Note receivable -- affiliate"
recorded by the Company. Additionally, the Company used a portion of the
offering proceeds to repay the "Due to affiliates", income taxes payable to
Parent and "Note payable -- affiliate" balances.

58
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INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company's Chairman of the Board also serves as Vice Chairman of the
Board of Directors of BIG, and two other directors of the Company serve as
executive officers and/or directors of BIG. As the interests of the Company and
BIG may differ, these individuals may face certain conflicts of interests.

This note should also be read in conjunction with the other notes to the
financial statements for additional related party transactions.

NOTE 13. EMPLOYEE BENEFIT PLANS

The Company's employees participate in its Parent company's 401(k) plan
which covers substantially all employees. To participate in the plan, employees
must be at least 18 years old and have completed 90 days of service. The Company
makes matching contributions of up to 5% of each participant's deferral. The
Company's expense related to this plan was approximately $466,096, $647,072, and
$821,217 in 1997, 1998 and 1999, respectively.

In addition, the Company's employees participate in self-insured medical
and dental plans provided by the Parent. The medical program provides for
specific excess loss reinsurance for individual claims greater than $60,000 for
any one claimant and aggregate claims greater than $1,000,000. The Company
accrues the estimated liabilities for the ultimate costs of both reported claims
and incurred but not reported claims.

NOTE 14. SEGMENT INFORMATION

The Company primarily operates in two business segments within the United
States; providing policy and claims administration services and flood zone
determinations. No unaffiliated customer accounted for more than 10% of the
Company's total revenues for the periods presented. The following table provides
information about these reportable segments as required by SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information":

INTERCOMPANY
OUTSOURCING FLOOD ZONE ELIMINATIONS CONSOLIDATED
SERVICES DETERMINATIONS AND OTHER TOTALS
----------- -------------- ------------ ------------

1997
Operating
revenues -- affiliated.......... $30,374,066 $ 1,028,359 $ (1,259,465) $30,142,960
Operating
revenues -- unaffiliated........ 599,443 7,763,576 -- 8,363,019
Operating income.................. 3,290,830 2,408,676 -- 5,699,506
Interest expense.................. 69,781 308,879 -- 378,660
Depreciation and amortization..... 404,830 278,842 -- 683,672
Identifiable assets............... 8,178,483 11,353,222 -- 19,531,705
Equity in earnings of Geotrac,
Inc............................. -- 201,009 -- 201,009
1998
Operating
revenues -- affiliated.......... $37,596,598 $ 1,279,689 $ (1,527,654) $37,348,633
Operating
revenues -- unaffiliated........ 1,989,306 24,454,558 -- 26,443,864
Operating income.................. 1,867,742 7,238,810 -- 9,106,552
Interest expense.................. 1,078,759 1,115,594 -- 2,194,353
Depreciation and amortization..... 2,236,940 2,074,071 -- 4,311,011
Identifiable assets............... 18,664,056 28,443,025 (7,205,226) 39,901,855
Minority interest................. -- (472,803) -- (472,803)
1999
Operating
revenues -- affiliated.......... $42,142,568 $ 620,320 $ (677,070) $42,085,818
Operating
revenues -- unaffiliated........ 10,702,732 18,540,543 -- 29,243,275
Operating income.................. 1,870,427 4,317,896 -- 6,188,323
Interest expense.................. 255,393 669,530 (115,540) 809,383
Depreciation and amortization..... 3,229,839 2,268,168 -- 5,498,007
Identifiable assets............... 28,723,070 26,089,991 (15,322,154) 39,490,907

59
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INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 15. STATEMENTS OF CASH FLOWS

YEAR ENDED DECEMBER 31,
----------------------------------
1997 1998 1999
-------- ---------- ----------

Cash paid for:
Interest.......................................... $149,345 $1,614,807 $1,141,161
Income taxes...................................... 214,743 7,381,907 1,470,000

During 1998, the Company acquired fixed assets by issuing various debt
obligations (including capital leases) totaling $4,265,639.

During 1998, the Company repurchased the Preferred Stock of a subsidiary by
issuing a note in the amount of $6,750,000.

During 1998, the Company acquired the remaining 51% interest in Geotrac,
Inc. and in 1999, acquired Colonial Catastrophe. In conjunction with these
acquisitions, assets acquired and liabilities assumed were as follows:

YEAR ENDED DECEMBER 31,
------------------------
1998 1999
----------- ----------

Common Stock................................................ $ 5,766,181 $1,700,000
Common Stock payable........................................ -- 300,000
Promissory note............................................. 1,500,000 500,000
Short-term obligation....................................... 728,069 500,000
----------- ----------
$ 7,994,250 $3,000,000
=========== ==========
Fair value of assets acquired............................... $10,990,152 $1,846,555
Liabilities assumed......................................... 10,650,887 1,478,306
----------- ----------
Net assets.................................................. 339,265 368,249
Goodwill.................................................... 14,933,247 2,631,751
----------- ----------
$15,272,512 $3,000,000
=========== ==========

NOTE 16. SUPPLEMENTAL SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Following is a summary of the quarterly results of operations for the
quarterly periods in 1997, 1998 and 1999:

QUARTER ENDED
------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------- ----------- ------------ -----------

1997
Total revenues...................... $ 8,803,550 $ 9,813,294 $10,142,111 $ 9,747,024
Operating income.................... 1,381,397 1,416,770 1,629,721 1,271,618
Net income.......................... 833,031 852,687 841,836 882,101
Net income per common share......... 0.08 0.09 0.08 0.09
1998
Total revenues...................... $15,518,805 $15,725,571 $16,128,175 $16,419,946
Operating income.................... 3,028,012 1,938,285 2,147,585 1,992,670
Net income.......................... 1,108,368 848,288 950,763 945,572
Net income per common share......... 0.11 0.08 0.09 0.09
1999
Total revenues...................... $18,105,319 $18,478,008 $15,646,548 $19,099,218
Operating income.................... 2,471,611 3,134,248 (20,116) 602,580
Net income.......................... 1,318,543 1,848,448 (228,071) 256,140
Net income per common share......... 0.11 0.15 (0.02) 0.02

60
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INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The consecutive growth in total revenues during 1998 and 1999 is primarily
due to the acquisitions of Geotrac during 1998 and Colonial Catastrophe during
1999 and the corresponding incremental revenues, operating income and net income
contributed by those acquisitions.

61
64

SIGNATURES

Pursuant to the requirements of Section13 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.

INSURANCE MANAGEMENT SOLUTIONS GROUP,
INC.

By: /s/ DAVID K. MEEHAN
------------------------------------
David K. Meehan
Chairman of the Board
March 30, 2000
POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints David K. Meehan, David M. Howard and Christopher
P. Breakiron, and each of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
to this report, and to file the same, with all exhibits thereto, and any other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to perform each and every act and thing requisite and necessary to
be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their substitutes, may lawfully
do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 30, 2000.

SIGNATURE TITLE
--------- -----

/s/ DAVID K. MEEHAN Chairman of the Board and Director
- -----------------------------------------------------
David K. Meehan

/s/ DAVID M. HOWARD President, Chief Executive Officer and
- ----------------------------------------------------- Director (Principal Executive Officer)
David M. Howard

/s/ ROBERT G. MENKE Director
- -----------------------------------------------------
Robert G. Menke

/s/ WILLIAM D. HUSSEY Director
- -----------------------------------------------------
William D. Hussey

/s/ DANIEL J. WHITE Director
- -----------------------------------------------------
Daniel J. White

/s/ CHRISTOPHER P. BREAKIRON Vice President, Chief Financial Officer,
- ----------------------------------------------------- Treasurer and Secretary (Principal Financial
Christopher P. Breakiron and Accounting Officer)

/s/ ROBERT M. MENKE Director
- -----------------------------------------------------
Robert M. Menke

/s/ JOHN A. GRANT, JR. Director
- -----------------------------------------------------
John A. Grant, Jr.

/s/ E. RAY SOLOMON Director
- -----------------------------------------------------
E. Ray Solomon

/s/ ALEJANDRO M. SANCHEZ Director
- -----------------------------------------------------
Alejandro M. Sanchez