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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

For the transition period from _________________ to ________________

Commission File Number: 000-25273

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities 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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES [ ] NO [X]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date:

TABLE OF CONTENTS

The statements contained in this report on Form 10-Q 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. Words such as “expects,” “intends,” variations of these words and similar expressions are intended to identify forward-looking statements. Forward-looking statements include statements regarding, among other things: (i) the Company’s proposed self-tender offer and a possible transaction with a third-party acquiror; (ii) trends affecting the Company’s financial condition or results of operations; (iii) the Company’s operating strategies; (iv) changes in the business and/or financial condition of the Company’s clients; (v) the ability of Bankers Insurance Group, Inc. (“BIG”) and its affiliates to repay outstanding obligations to the Company; (vi) the proposed transaction between BIG and Fidelity National Financial, Inc. (“FNF”); (vii) potential increases in the Company’s costs; (viii) the impact of general economic conditions on the demand for the Company’s services; (ix) the impact of changes in existing service agreements; (x) the outcome of certain litigation involving the Company; (xi) the outcome of certain administrative proceedings involving the Company’s principal customer; (xii) the ability to achieve expected expense reductions as a result of management initiatives; and (xiii) the Company’s liquidity and capital resources. 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 uncertainties regarding economic conditions and the market as those affect both the Company and BIG, other uncertainties regarding BIG (including its subsidiaries), its business and financial condition, uncertainties relating to the proposed self-tender offer, the Company’s discussions with a potential third-party acquiror and the proposed transaction between BIG and FNF, uncertainties relating to litigation pertaining to the proposed self-tender offer, the factors detailed in Part I, Item 2, and Part II, Item 5 of this report and the risk factors set forth under the caption “Item 1. Business — Risk Factors” in the Company’s Annual

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Report on Form 10-K for the year ended December 31, 2001, as filed with the Securities and Exchange Commission on April 1, 2002. 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.

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(Unaudited)

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

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INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

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

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INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

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

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INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

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

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INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS

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 its parent, Bankers Insurance Group, Inc. (“BIG”). Historically, the Company has operated in two principal 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 its wholly-owned subsidiaries, Insurance Management Solutions, Inc. (“IMS”) and Colonial Claims Corporation (“Colonial”), include for IMS: policy and claims administration (policy issuance, billing and collection) and information technology (“IT”) services; and for Colonial: claims adjusting and processing. The Company’s flood zone determination services had been provided by Geotrac of America, Inc. (“Geotrac”), a wholly-owned subsidiary of the Company, until December 28, 2001, when it was sold. With the disposition of Geotrac, which is reported as discontinued operations herein, Colonial became a separate reportable segment for financial statement reporting purposes (see Note 7).

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. During the nine months ended September 30, 2002, the Company experienced a reduction in outsourcing services revenue due primarily to lack of storm related activity which often occurs during the second and third quarters of the year. Through June 30, 2002, the Company experienced reduced personal line premium production by BIG. Consequently, the Company has focused on implementing cost reduction measures and eliminating support or service expenses associated with the provision of services to BIG.

In addition, the Company amended its existing Administration Services Agreement, effective October 1, 2001, with BIG (the “Service Agreement” and, as amended, the “Amended Service Agreement”), such that, as of July 1, 2002, the Company no longer provides policy administration or claims processing services for BIG’s personal (i.e., automobile and homeowners) insurance lines of business or claims processing for BIG’s commercial insurance lines of business. The Company will continue to provide policy administration, claims administration and data processing services in connection with BIG’s flood insurance line of business, with no change in the existing fee structure. In addition, pursuant to the Amended Service Agreement, the Company will continue to provide BIG with IT hosting and support services for a fixed monthly fee. The Company will also continue to provide BIG with various other back-office support services, including cash office processing, records management, policy assembly, and print and mail distribution services, in connection with all of BIG’s personal and commercial insurance lines of business. Also effective July 1, 2002, in connection with the foregoing modifications to the Service Agreement, the Company terminated 98 employees, or approximately 28% of its total workforce. Of these employees, 81 worked in claims processing and 17 worked in policy administration. The Company expects to realize savings of approximately $5.1 million in annual payroll costs and related expenses as a result of this reduction in its workforce. As part of the foregoing transfer of certain policy administration and claims processing to BIG, the Company agreed to pay BIG approximately $301,000 to cover estimated processing costs for claims to be processed. BIG ceased writing new automobile insurance during the third quarter of 2002.

Effective August 12, 2002, the Company amended the Amended Service Agreement. Pursuant to this amendment, the Company provides additional IT support services to BIG. In return for providing these services, the Company will receive not less than approximately $876,000 annually in fees from BIG, which is a minimum amount based upon estimated IT usage of the Company’s services. In addition, the Company has agreed to hire eleven persons previously employed by BIG, at an anticipated annualized cost of approximately $764,000.

Subsequent to July 1, 2002, the Company further reduced its staff by an additional 38 employees. These staff reductions were primarily in the areas of policy administration, claims processing and administration, and are expected to save the Company approximately $1.4 million on an annual basis.

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NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements of Insurance Management Solutions Group, Inc. and subsidiaries (the “Company”) have been prepared in accordance with the instructions to Form 10-Q and do not include all of the disclosures required by accounting principles generally accepted in the United States of America. In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments, consisting of normal and recurring adjustments, necessary for a fair presentation of the consolidated financial position, results of operations and cash flows for the periods presented. The accompanying consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2001, as filed with the Securities and Exchange Commission on April 1, 2002. The results of operations for the nine-month period ended September 30, 2002 are not necessarily indicative of the results that should be expected for a full fiscal year.

Discontinued Operations

Geotrac represents discontinued operations and, accordingly, the discontinued segment’s net assets are recorded separately at September 30, 2001. Likewise, the Geotrac results of operations are excluded from continuing operations for all periods presented.

Reclassifications

Exclusive of the separate presentation of continuing and discontinued operations, certain reclassifications have been made to the 2001 financial statements to conform to the 2002 presentation.

New Accounting Policies

Effective as of January 1, 2002, the Company adopted Statements of Financial Accounting Standards (“SFAS”) 142, Goodwill and Intangible Assets, and 144, Accounting for the Impairment or Disposal of Long Lived Assets. In connection with the adoption of SFAS 142, Goodwill and Intangible Assets, the Company retained an independent third-party investment banking firm to conduct an analysis of its goodwill valuation at January 1, 2002. Under SFAS 142, the impact, exclusive of the non-amortization of goodwill, would have been recognized as a January 1, 2002 cumulative effect change in accounting principle. However, the valuation determined that no impairment of the Company’s goodwill existed as of January 1, 2002. As of September 30, 2002, management’s assessment of the Company’s goodwill is that no impairment exists.

Proforma results of operations for the three-month and nine-month periods ended September 30, 2002 for the non-amortization provisions of SFAS 142 in those periods compared to the same periods for 2001 as follows:

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In addition, effective January 1, 2002, the Company adopted SFAS 144, Accounting for the Impairment or Disposal of Long Lived Assets. The adoption of SFAS 144 had no impact on the Company’s results of operations or financial condition for the nine-month period ended September 30, 2002.

Net Income/(Loss) Per Common Share

Net income/(loss) per common share, which represents both basic and diluted earnings per share (“EPS”), is computed by dividing net income/(loss) by the weighted average common shares outstanding. The following table reconciles the numerator and denominator of the basic and dilutive EPS computation:

As of September 30, 2001 and 2002, options to purchase 548,500 and 306,000 shares, respectively, of Common Stock were outstanding but were not included in the computation of diluted earnings per share, as the inclusion of such shares would have an anti-dilutive effect.

NOTE 3. DISCONTINUED OPERATIONS

Effective December 28, 2001 and with shareholder approval, the Company sold Geotrac pursuant to a Stock Purchase Agreement dated September 30, 2001, as amended December 26, 2001, to Geotrac Holdings, Inc.

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(“Holdings”). Holdings is a corporation formed by Geotrac’s President and his spouse. The consideration received by the Company included $19.0 million in cash and 524,198 shares of the Company’s Common Stock (valued at $1,336,705 based on a quoted market price of the Company’s Common Stock of $2.55 per share as of December 27, 2001) beneficially held by Geotrac’s President and his spouse. In addition, the Company entered into a Flood Zone Determination Service Agreement with Geotrac pursuant to which Geotrac will provide the Company with flood zone determination services for up to ten years at pricing management of the Company currently believes is favorable. The Company valued the Flood Zone Determination Service Agreement at approximately $2,189,090, as supported by an independent third-party investment banking firm’s valuation. As a result of this sale, the Company has no restricted net assets that affect retained earnings for the period ended September 30, 2002.

GEOTRAC’S CONDENSED STATEMENT OF INCOME

SUPPLEMENTAL DISCLOSURE OF GEOTRAC’S CASH FLOW INFORMATION
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001

NOTE 4. COMMITMENTS AND CONTINGENCIES

Since the announcement in August 2002 of the Company’s intention to commence a cash tender offer for all presently outstanding publicly-held shares of its Common Stock, $.01 par value (“Common Stock”), at a price of $3.08 per share, net to the Seller in cash (the “Offer”), three alleged shareholders of the Company, each on behalf of a putative class consisting of the Company’s current public shareholders, have filed lawsuits against, among others, the Company and the Company’s current directors challenging the proposed Offer. Although the Company believes these lawsuits are without merit and intends to vigorously defend them, no assurances can be given with respect to the outcomes thereof. Moreover, such litigation could have a material adverse effect on the Company’s business, financial condition and results of operation and could adversely affect the Company’s ability to consummate the Offer or any other transaction. See “Part II  —  Item 1. Legal Proceedings.”

On September 28, 2000, October 25, 2000 and October 30, 2000, three alleged shareholders of the Company filed three nearly identical lawsuits in the United States District Court for the Middle District of Florida, each on behalf of a putative class of all persons who purchased shares of the Company’s Common Stock pursuant and/or traceable to the registration statement for the Company’s February

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1999 initial public offering (the “IPO”). The lawsuits were consolidated on December 1, 2000, and the consolidated action is proceeding under Case No. 8:00-CV-2013-T-26MAP. The plaintiff’s Consolidated Amended Class Action Complaint, filed February 7, 2001, names as defendants the following parties: the Company; BIG, Venture Capital Corporation, a selling shareholder in the IPO; the five inside directors of the Company at the time of the IPO; and Raymond James & Associates, Inc. and Keefe, Bruyette & Woods, Inc., the underwriters for the IPO. The complaint alleges, among other things, that the defendants violated Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, as amended, by making certain false and misleading statements in the roadshow presentations, registration statement and prospectus relating to the IPO. More specifically, the complaint alleges that, in connection with the IPO, the defendants made various material misrepresentations and/or omissions relating to: (i) the Company’s ability to integrate Geotrac’s flood zone determination business with the Company’s own flood zone determination business and with its insurance outsourcing services business; (ii) actual and anticipated synergies between the Company’s flood zone determination and outsourcing services business lines; and (iii) the Company’s use of the IPO proceeds. The complaint seeks unspecified damages, including interest, and equitable relief, including a rescission remedy. On March 26, 2001, the Company, BIG and the five inside director defendants filed a motion to dismiss the plaintiffs’ complaint for, among other things, failure to allege material misstatements and/or omissions in the roadshow presentations, registration statement and/or prospectus relating to the IPO. On July 11, 2001, U.S. District Judge Richard A. Lazzara denied all of the defendants’ motions to dismiss the complaint.

The case had been set for trial during the trial term commencing May 5, 2003. On August 6, 2002, the plaintiff offered to accept, in full settlement of the litigation as to all defendants, payment of $2.1 million to the putative plaintiff class. On August 14, 2002, the Company’s Board of Directors voted to accept this offer, and the issuer of the Company’s applicable Directors and Officers and Company Reimbursement insurance policy has agreed to pay this amount to the plaintiff class. The settlement was also approved by BIG and by the other defendants represented by the Company’s law firm. The parties to the litigation have negotiated and signed a Memorandum of Understanding (“MOU”) of the principal material settlement terms. The Company’s insurer will pay $2.1 million to the plaintiff class in full settlement of the litigation. In addition, the settlement is contingent upon approval by Judge Lazzara, following notice to the members of the plaintiff class of, and a hearing on, the proposed settlement terms. The Company believes that the material allegations of the complaint are without merit, but has elected to settle the litigation to avoid the time, expense and risks associated with continuing the litigation. No assurances can be given, if the settlement is not consummated, with respect to the outcome of the litigation, and an adverse result could have a material adverse effect on the Company’s business, financial condition and results of operations.

The Company has been informed by the underwriters for the IPO that the underwriters will be seeking indemnification from the Company, BIG and/or Venture Capital Corporation for the underwriters’ legal fees and expenses incurred in the litigation, pursuant to the Underwriting Agreement between the Company, BIG, Venture Capital Corporation and the underwriters. The Company’s insurer has taken the position that it is not responsible for the payment of such monies. On August 6, 2002, the underwriters informed the Company that their legal fees and expenses in the litigation to date were approximately $110,000.

On November 19, 1999, the United States, on behalf of the Federal Emergency Management Agency (“FEMA”), filed a civil action against Bankers Insurance Company, a subsidiary of BIG (“BIC”), in the United States 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. The complaint further alleges 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. The suit is currently stayed pending arbitration following a decision by the United States Court of Appeals for the Fourth Circuit in favor of BIC on its motion to stay the litigation pending arbitration. The government has not appealed the Fourth Circuit Court of Appeal ruling requiring arbitration and the case is stayed pending arbitration. By letter dated January 30, 2002, FEMA notified BIC that it intends to move forward with arbitration and set forth proposed procedures. BIC has further 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 has advised the Company that an adverse judgment in this action should 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 either unable to reach agreement in these matters or resolve their disagreement in arbitration, 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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The Company is involved in various other legal proceedings arising in the ordinary course of business. Management believes that the ultimate resolution of these other proceedings will not have a material adverse effect on the Company’s financial position, results of operations or liquidity, although no assurances can be given in this regard.

The Company continues to review the adequacy of a reserve it established prior to January 1, 2002 for a settlement accrual of $800,000 relating to an unaffiliated third-party customer contract with a former customer that was terminated in 2000 and for which no settlement has yet been reached with this former customer. No discussions between the Company and this customer have taken place since October 2000. On November 6, the Company received a letter from the Deputy Insurance Commissioner of the Commonwealth of Pennsylvania, on behalf of the former customer. This letter notified the Company that the liquidator for this former customer disavows and terminates the Insurance Administration Services Agreement between Insurance Management Solutions, Inc. and this former customer. The Company is currently evaluating the impact of this correspondence, although no assurances can be given as to its ultimate resolution or the terms thereof.

Except for the liability established for severance payments to a former officer of the Company, which was recorded as of September 30, 2002, the Company has no other liabilities or reserves required to be recorded resulting from the Company’s cost reduction efforts.

NOTE 5. SUBSEQUENT EVENTS

On October 15, 2002, BIG and Fidelity National Financial, Inc. (“FNF”) announced that they have entered into a definitive agreement pursuant to which FNF is to acquire First Community Insurance Company, a subsidiary of BIG and a fifty-state licensed insurance carrier (“FCIC”), and certain assets of BIG, including the rights to issue new and renewal flood insurance policies underwritten by BIG and its subsidiaries, BIC, Bankers Security Insurance Company (“BSIC”) and FCIC. The transaction involves more than 360,000 flood insurance policies originated through a nationwide network of 10,000 independent agents in conjunction with the National Flood Insurance Program (“NFIP”). The closing of such transaction is subject to certain regulatory approvals and other conditions, including certain revisions to the existing Insurance Administration Services Agreement between the Company and BIG, BIC, BSIC and FCIC. The Company will continue to provide flood policy administration and claim services to FNF upon the closing of such transaction.

In late October 2002, the Company was contacted by a third party potentially interested in acquiring the Company or its business. Thereafter, the Special Committee of the Company’s Board of Directors determined that it is appropriate to further investigate this possibility prior to proceeding with the Company’s previously announced intent to commence the Offer. (The Offer would be conditioned upon at least a majority of the shares of Common Stock not held by two subsidiaries of BIG, BIC and BSIC (collectively with BIG, the “BIG Group”), being tendered and other closing conditions typical for this type of transaction.) Discussions between the Company and this third party are ongoing. No assurances can be given, however, as to whether the discussions with this third party will result in an acceptable offer for the Company or its business.

As part of its evaluation of the potential third-party transaction, the Company also intends to further consider the implications of the aforementioned announced agreement between FNF and BIG. The closing of such transaction is subject to certain regulatory approvals and other conditions, including certain revisions to the existing Insurance Administration Services Agreement between the Company and BIG (including certain of its subsidiaries). As mentioned above, the Company will continue to provide flood policy administration and claim services to FNF upon the closing of such transaction.

On October 30, 2002, the Company entered into a Settlement Agreement and Release with a former shareholder who exercised dissenter’s rights under applicable Florida law in connection with the sale of Geotrac in December 2001. Pursuant to this agreement, the Company paid the dissenting shareholder $97,500, or $3.25 per share, for the 30,000 shares of Common Stock formerly owned thereby.

NOTE 6. LIQUIDITY AND CAPITAL RESOURCES

The Company’s principal sources of liquidity consist of cash on-hand, cash flows from operations, and cash proceeds from the sale of the Company’s Geotrac subsidiary in late December 2001. The Company received net cash proceeds of approximately $18.2 million as a result of the sale of its Geotrac subsidiary in late December 2001.

On April 13, 2001, the Company entered into a Commitment Letter with BIG pursuant to which BIG has agreed to advance to the Company, beginning June 1, 2001, up to $1.5 million per month as a prepayment of service fees due by BIG and its affiliates under their service agreements with the Company. Such advances are available to the Company beginning June 1, 2001 continuing through December 1, 2002 and shall be payable upon demand by the Company. Any funds advanced by BIG to the Company under the Commitment Letter shall constitute a prepayment of, and shall be credited toward, the service fees charged to BIG by the Company during the month following such advance. The Company has not drawn upon this advance in 2002, and this has not been, nor does the Company expect this to be, a viable source of funds.

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During the nine-month period ended September 30, 2002, the Company experienced an after-tax loss of $2.5 million. Consequently, it has not had a positive cash flow from operations during such period. The Company is substantially dependent on the business of 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 of BIG. During the nine months ended September 30, 2002, the Company experienced a reduction in outsourcing services revenue due primarily to continued reduced premium production by BIG and its affiliated insurance companies, coupled with a lack of storm-related activity which often occurs during the second and third quarters of each year. The Company anticipates that the downward trend will continue for the remainder of 2002. As a result, based upon currently forecasted results of operations, the Company does not expect positive cash flows from operations for the remainder of 2002.

In August 2002 the Company announced an intention to commence the Offer at a price of $3.08 per share, net to the seller in cash. The Offer will be conditioned upon at least a majority of the shares of Common Stock not held by the BIG Group being tendered and other closing conditions typical for this type of transaction. The Offer is to be made pursuant to an Agreement and Plan of Merger, dated August 15, 2002 (the “BIG Agreement”), by and among the Company, BIG, BIC, BSIC and Bankers Management Corporation (“Acquisition Corp.”). BIC is a wholly-owned subsidiary of BIG and BSIC is a jointly-owned subsidiary of BIG and BIC. BIG, BIC and BSIC constitute the “BIG Group.” Acquisition Corp. is a Florida corporation wholly-owned by BIC and BSIC and formed solely for purposes of consummating the Merger (as hereinafter defined). As of the date hereof, the members of the BIG Group collectively own approximately 68.0% of the outstanding shares of Common Stock. Pursuant to the BIG Agreement, the members of the BIG Group have agreed not to tender the shares of Common Stock owned thereby pursuant to the Offer. Pursuant to the BIG Agreement, the Company is obligated to loan BIG and/or Bankers Underwriters, Inc., a wholly-owned subsidiary of BIG (“BUI”), up to $7.0 million under a revolving line of credit (the “Line of Credit”), secured by the insurance flood book of BUI. At September 30, 2002 the amount drawn on this Line of Credit was $6.6 million. All amounts due under the Line of Credit will be due July 31, 2003; monthly interest-only payments will be due prior to maturity.

In late October 2002, the Company was contacted by a third party potentially interested in acquiring the Company or its business. Thereafter, the Special Committee of the Company’s Board of Directors determined that it is appropriate to further investigate this possibility. (The Offer would be conditioned upon at least a majority of the shares of Common Stock not held by two subsidiaries of BIG, BIC and BSIC (collectively with BIG, the “BIG Group”), being tendered and other closing conditions typical for this type of transaction.) Discussions between the Company and this third party are ongoing. No assurances can be given, however, as to whether the discussions with this third party will result in an acceptable offer for the Company or its business.

Based on the foregoing, as well as the actions of the Special Committee of the Board of Directors of the Company as described in “Part II — Item 5. Other Information,” the Company expects cash on hand and cash from operations to be adequate to support its operating cash needs for the foreseeable future, although no assurances can be given in this regard. The foregoing assumes BIG and its affiliates will make timely payment of amounts due the Company under the terms of the Amended Service Agreement. As of the date of this report, BIG owes the Company a past due total of $2.4 million under the Amended Service Agreement. If such payments are not brought current and BIG does not thereafter continue to pay amounts due under the Amended Service Agreement on a timely basis, it could have a material adverse effect on the Company’s business, financial condition, and results of operations, and could adversely impact the Company’s ability to commence the Offer.

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NOTE 7. SEGMENT INFORMATION