<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended................................September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
<TABLE>
<S> <C>
For the transition period from..................... to.........................
</TABLE>
<TABLE>
<S> <C>
Commission file number...................................... 000-23005
</TABLE>
INSPIRE INSURANCE SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 75-2595937
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
</TABLE>
300 BURNETT STREET, FORT WORTH, TX 76102-2799
(Address of principal executive offices)
(Zip Code)
817-348-3900
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of November 4, 1998: 18,434,626.
<PAGE> 2
This Amendment No. 1 to Form 10-Q amends and supplements the quarterly
report on Form 10-Q for the quarterly period ended September 30, 1998, filed
with the Securities and Exchange Commission on November 13, 1998 (the "Form
10-Q") of INSpire Insurance Solutions, Inc. (the "Company"). Capitalized terms
used herein have the meanings ascribed to such terms in the Form 10-Q unless
otherwise defined herein.
The Form 10-Q is hereby amended and supplemented by amending and restating
Part I, Item 1 and Item 2 of the Form 10-Q. The primary changes from the Form
10-Q are (i) the financial statements in Item 1 are being restated to reflect
the restatement of the purchase price allocation relating to the acquisition of
Paragon Interface, Inc. during the three months ended June 30, 1998, and (ii)
Item 2 is amended to reflect this restatement in management's discussion and
analysis.
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INSPIRE INSURANCE SOLUTIONS, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
(unaudited)
(As restated
see Note 5)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................ $ 58,647,587 $28,039,323
Investments.............................................. 15,603,278 --
Accounts receivable, net................................. 13,986,096 10,976,672
Income taxes receivable.................................. 121,076 149,041
Deferred income taxes.................................... 721,997 1,434,000
Prepaid expenses and other current assets................ 7,629,213 4,154,417
------------ -----------
Total current assets.................................. 96,709,247 44,753,453
Accounts receivable, excluding current portion.............. -- 74,258
Property and equipment, net (accumulated depreciation 1998
$13,129,286; 1997 $10,382,308)............................ 9,856,114 6,029,973
Intangibles and other assets................................ 21,566,820 17,039,634
------------ -----------
TOTAL....................................................... $128,132,181 $67,897,318
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable......................................... $ 654,580 $ 834,418
Accrued payroll and compensation......................... 837,774 633,252
Other accrued expenses................................... 2,075,131 1,485,543
Unearned revenue......................................... 2,030,323 5,053,165
Deferred compensation.................................... 2,201,296 2,699,000
Income taxes payable..................................... 2,106,657 3,063,000
Current portion of long-term debt........................ 565,214 609,658
------------ -----------
Total current liabilities............................. 10,470,975 14,378,036
------------ -----------
Deferred compensation....................................... 406,846 1,657,017
Long-term debt.............................................. -- 373,151
Deferred income taxes....................................... 3,087,030 2,723,000
Commitments and contingencies............................... -- --
SHAREHOLDERS' EQUITY:
Preferred stock, $1.00 par value; 1,000,000 shares
authorized, none issued and outstanding................ -- --
Common stock, $.01 par value; 50,000,000 shares
authorized, 18,431,701 shares issued and outstanding in
1998; 15,286,875 shares issued and outstanding in
1997................................................... 184,317 101,913
Additional paid-in capital............................... 105,976,548 48,725,299
Retained earnings (accumulated deficit).................. 8,006,465 (61,098)
------------ -----------
Total shareholders' equity.................................. 114,167,330 48,766,114
------------ -----------
TOTAL....................................................... $128,132,181 $67,897,318
============ ===========
</TABLE>
See accompanying notes to condensed financial statements.
1
<PAGE> 4
INSPIRE INSURANCE SOLUTIONS, INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ------------ -----------
(As restated
See Note 5)
<S> <C> <C> <C> <C>
REVENUES:
Outsourcing services.............................. $13,314,284 $ 8,178,318 $34,846,030 $22,572,215
Software and software services.................... 8,346,946 6,709,500 24,863,884 14,271,379
Other............................................. 422,941 294,133 1,690,662 1,597,572
----------- ----------- ----------- -----------
Total revenues............................. 22,084,171 15,181,951 61,400,576 38,441,166
----------- ----------- ----------- -----------
EXPENSES:
Cost of outsourcing services...................... 5,704,613 5,065,693 17,206,778 15,163,900
Cost of software and software services............ 5,457,918 4,288,087 14,379,706 8,640,574
Cost of other revenues............................ 284,280 341,215 1,150,078 1,037,710
Selling, general and administrative............... 4,043,921 2,180,223 11,094,537 4,177,443
Research and development.......................... 796,921 211,267 1,895,486 890,867
Depreciation and amortization..................... 1,634,938 1,121,376 4,270,524 2,816,792
In-process research and development............... -- -- 500,000 3,000,000
Deferred compensation............................. -- -- -- 3,949,000
Management fees to shareholder.................... -- 45,000 -- 1,245,000
----------- ----------- ----------- -----------
Total expenses............................. 17,922,591 13,252,861 50,497,109 40,921,286
----------- ----------- ----------- -----------
OPERATING INCOME(LOSS).............................. 4,161,580 1,929,090 10,903,467 (2,480,120)
OTHER INCOME (EXPENSE):
Interest income................................... 829,269 186,566 2,127,437 261,103
Interest expense.................................. (8,966) (91,640) (48,750) (303,684)
Other............................................. -- 1,635,959 -- 1,614,588
----------- ----------- ----------- -----------
Total other income (expense)............... 820,303 1,730,885 2,078,687 1,572,007
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAX..................... 4,981,883 3,659,975 12,982,154 (908,113)
INCOME TAX BENEFIT (EXPENSE)........................ (1,743,656) (1,203,496) (4,853,510) 508,159
----------- ----------- ----------- -----------
NET INCOME (LOSS)................................... $ 3,238,227 $ 2,456,479 $ 8,128,644 $ (399,954)
=========== =========== =========== ===========
NET INCOME (LOSS) PER SHARE (BASIC)................. $ .18 $ .20 $ .47 $ (.04)
=========== =========== =========== ===========
NET INCOME (LOSS) PER SHARE (DILUTED)............... $ .16 $ .18 $ .42 $ (.04)
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
2
<PAGE> 5
INSPIRE INSURANCE SOLUTIONS, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended
September 30,
---------------------------
1998 1997
------------ ------------
(As restated
See Note 5)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)......................................... $ 8,128,644 $ (399,954)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization........................... 4,270,524 2,816,792
Deferred income taxes................................... -- (2,785,000)
In-process research and development..................... 500,000 3,000,000
Gain on sale of subsidiary.............................. -- (1,634,291)
Change in operating assets and liabilities:
Accounts receivable................................... (2,710,796) (3,885,723)
Prepaid expenses and other current assets............. (3,407,666) (1,039,637)
Other assets.......................................... (139,317) 438,165
Accounts payable...................................... (192,365) (1,580,809)
Accrued payroll and compensation...................... 223,541 (494,383)
Other accrued expenses................................ 381,848 980,289
Unearned revenue...................................... (3,119,717) 270,546
Income taxes payable.................................. 2,040,313 1,819,135
Deferred compensation................................. (216,891) 4,004,567
------------ ------------
Net cash provided by operating activities................... 5,758,118 1,509,697
------------ ------------
INVESTING ACTIVITIES:
Purchase of investments................................... (15,603,278) (13,198,953)
Proceeds from sale of subsidiary, net of cash
relinquished............................................ -- 2,499,262
Purchases of property and equipment....................... (6,117,361) (1,275,273)
Capitalized research and development costs................ (1,510,926) (326,546)
Acquisition of subsidiary, net of cash acquired........... (4,237,161) (17,118,849)
------------ ------------
Net cash used in investing activities....................... (27,468,726) (29,420,359)
------------ ------------
FINANCING ACTIVITIES:
Proceeds from borrowings.................................. -- 8,677,503
Repayment of borrowings................................... (946,622) (10,646,191)
Repayment of borrowings from shareholder.................. -- (995,706)
Contribution from shareholder............................. -- 10,500,000
Issuance of common stock, net of issuance costs paid...... 52,877,321 34,244,192
Proceeds from exercises under stock plans, net............ 388,173 --
Bank overdrafts........................................... -- 265,407
------------ ------------
Net cash provided by financing activities................... 52,318,872 42,045,205
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 30,608,264 14,134,543
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 28,039,323 363,398
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 58,647,587 $ 14,497,941
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid............................................. $ 48,750 $ 349,368
============ ============
Income taxes paid......................................... $ 2,642,173 $ --
============ ============
Noncash investing activities - contribution of fixed
assets from shareholder................................. $ -- $ 1,308,191
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE> 6
INSPIRE INSURANCE SOLUTIONS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General -- INSpire Insurance Solutions, Inc. ("INSpire" or the
"Company") is a provider of policy and claims administration and information
technology outsourcing services to the property and casualty ("P&C") insurance
industry. The Company also develops, markets, licenses and supports computer
software and related services to the P&C insurance industry. The Company sells
its products directly to the customer. The majority of sales are in North
America. Prior to the initial public offering of common stock on August 22,
1997, the Company was a wholly-owned subsidiary of The Millers Mutual Fire
Insurance Company ("Millers Mutual").
Unaudited Interim Condensed Financial Statements -- The accompanying
unaudited condensed financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion
of management, all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of the financial position, results of
operations and cash flows for the periods presented herein have been included.
Results of operations for the periods presented herein are not necessarily
indicative of results of operations for any subsequent quarter or the year
ending December 31, 1998. The independent accountants' review report of Deloitte
& Touche LLP is included in Part I, Item 1 of this report.
The information included in this Form 10-Q should be read in
conjunction with the financial statements and notes thereto for the year ended
December 31, 1997 included in the Company's Form 10-K (File No. 000-23005).
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the Securities and
Exchange Commission's rules and regulations.
In October 1997, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
No. 97-2, Software Revenue Recognition ("SOP 97-2"). SOP 97-2 is effective for
transactions entered into in fiscal years beginning after December 15, 1997. The
adoption of SOP 97-2 did not have a material effect on the Company's financial
position or results of operations.
In February 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use ("SOP 98-1"). SOP 98-1 is effective for transactions entered
into in fiscal years beginning after December 31, 1998. The Company believes the
adoption of SOP 98-1 will not have a material effect on the Company's financial
position or results of operations.
Reclassifications -- Certain prior year amounts have been reclassified
to conform to current year presentation.
Investments -- Investments consist of debt securities classified as
assets held for sale. At September 30, 1998 the cost of the assets approximates
fair market value.
Net Income (Loss) Per Share -- Net income (loss) per share (basic) of
the Company is computed by dividing net income or loss by the weighted average
number of shares outstanding. The weighted average number of shares (basic) was
18,358,416 and 12,533,744 for the three months ended September 30, 1998 and
1997, respectively, and 17,370,488 and 11,185,364 for the nine months ended
September 30, 1998 and 1997, respectively. The weighted average number of shares
(diluted) was 20,353,515 and 13,793,312 for the three months ended September 30,
1998 and 1997, respectively, and 19,372,827 and 11,185,364 for the nine months
ended September 30, 1998 and 1997, respectively. The weighted average number of
shares amounts have been adjusted to reflect all stock splits and stock
dividends, including the three-for-two stock split that was made in the form of
a stock dividend and was effective on August 17, 1998.
4
<PAGE> 7
2. RELATED PARTY TRANSACTIONS
The Company provides outsourcing services and software and software
services to Millers Mutual, a shareholder of the Company, and The Millers
Casualty Insurance Company ("Millers Casualty"), an indirect 99.4% subsidiary of
Millers Mutual, under the terms of various agreements. For the nine months ended
September 30, 1998 and 1997, under such agreements, the Company earned total
fees of approximately $18,370,000 and $12,696,562, respectively.
Prior to January 1, 1998, pursuant to various agreements, Millers
Mutual provided management and administration services to the Company. For the
nine months ended September 30, 1997, total fees paid by the Company to Millers
Mutual were approximately $1,245,000. Effective January 1, 1998, the Company and
Millers Mutual entered into a new agreement whereby the Company provides
benefits administration services to Millers Mutual and Millers Casualty for a
monthly fee of $15,000. As of September 1998, total fees earned under this
agreement were $135,000.
During each of the nine month periods ended September 30, 1998 and
1997, the Company incurred rental expense of approximately $236,600, under a
month-to-month lease agreement with Millers Mutual.
There was a net receivable due from Millers Mutual of approximately
$3,360,000 as of September 30, 1998 and $1,301,000 as of December 31, 1997.
3. STOCK SPLIT
On July 21, 1998, the Board of Directors approved a three-for-two stock
split, to be effected in the form of a stock dividend, payable on August 17,
1998 to shareholders of record as of the close of business on July 31, 1998. Due
to this stock dividend, a transfer of approximately $61,000 from retained
earnings to common stock is reflected in the September 30, 1998 balance sheet.
Share amounts reflected on the Condensed Balance Sheets, weighted average common
shares outstanding and per share amounts for all periods presented have been
restated to reflect the stock split.
4. COMMITMENTS AND CONTINGENCIES
In February 1997, the Philadelphia Contributionship for the Insurance
of Houses from Loss by Fire ("PCIHLF") filed a lawsuit (Civil Action No.
97-CV-1262) against Strategic Data Systems, Inc. ("SDS"), which was acquired by
the Company in March 1997 and merged into the Company in July 1997, in the
United States District Court for the Eastern District of Pennsylvania. This suit
alleged that certain systems that SDS sold to PCIHLF in 1995 did not meet
PCIHLF's specifications. PCIHLF claimed damages in excess of $1,300,000. During
the nine months ended September 30, 1998, the Company and PCIHLF settled this
suit under terms having no material adverse effect on the Company.
The Company is not a party to any other legal proceedings that the
Company believes could have a material adverse effect on the Company's business,
financial condition or operating results.
5. RESTATEMENT
Subsequent to the issuance of INSpire's Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 1998, the Company's management
revised the amount of the purchase price which was allocated to in-process
research and development in accounting for the acquisition of Paragon Interface,
Inc. ("Paragon") in April 1998. The revised allocation is based upon methods
prescribed in a letter from the Securities and Exchange Commission ("SEC") sent
to the American Institute of Certified Public Accountants in September 1998. The
letter sets forth the SEC's views regarding the valuation methodology to be used
in allocating a portion of the purchase price to acquired in-process research
and development at the date of acquisition.
5
<PAGE> 8
The revised valuation is based on management's estimates of the net
cash flows associated with expected operations of Paragon and gives explicit
consideration to the SEC's views on acquired in-process research and development
as set forth in its September 1998 letter to the American Institute of Certified
Public Accountants.
As a result of the revised allocation, the Company's condensed
financial statements as of and for the nine months ended September 30, 1998,
have been restated from amounts previously reported to reduce the amounts of the
acquired in-process research and development expensed by $1.5 million and to
increase intangible assets by $1.5 million. The change had no impact on the net
cash flows provided by operations.
A summary of the significant effects of the restatement is as follows:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
---------------------------
AS PREVIOUSLY
REPORTED AS RESTATED
------------- -----------
<S> <C> <C>
Balance Sheet Data:
Intangibles and other assets................................ $20,066,820 $21,566,820
Retained earnings........................................... $ 6,506,465 $ 8,006,465
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1998
---------------------------
AS PREVIOUSLY
REPORTED AS RESTATED
------------- -----------
<S> <C> <C>
Statements of Operations Data:
In-process research and development......................... $ 2,000,000 $ 500,000
----------- -----------
Total Expenses.............................................. $51,997,109 $50,497,109
----------- -----------
Net income.................................................. $ 6,628,644 $ 8,128,644
=========== ===========
Net income per common share -- Basic........................ $ 0.38 $ 0.47
=========== ===========
Net income per common share -- Diluted...................... $ 0.34 $ 0.42
=========== ===========
</TABLE>
6. SUBSEQUENT EVENTS
Acquisition of the Capital Stock of Arrow Claims Management, Inc. and
Certain Assets of Arrowhead General Insurance Agency, Inc. -- The Company
entered into a stock purchase agreement (the "Stock Purchase Agreement"), dated
as of October 29, 1998, with Arrow Claims Management, Inc. ("Arrow") and all of
Arrow's shareholders, pursuant to which the Company agreed to acquire from such
shareholders all of the outstanding capital stock of Arrow for $13.5 million in
cash (subject to adjustment). The Company also entered into an asset purchase
agreement (the "Asset Purchase Agreement"), dated as of October 29, 1998, with
Arrowhead General Insurance Agency, Inc. ("Arrowhead Agency"), pursuant to which
the Company agreed to acquire substantially all of those assets of Arrowhead
Agency related to its policy administration business for $6.5 million in cash
(subject to adjustment) and an option to purchase up to 299,466 shares of common
stock, par value $.01 per share, of the Company subject to achieving certain
performance objectives.
6
<PAGE> 9
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Shareholders
INSpire Insurance Solutions, Inc.
Fort Worth, Texas
We have reviewed the accompanying condensed balance sheet of INSpire
Insurance Solutions, Inc. (the "Company") as of September 30, 1998, and the
related condensed statements of operations for the three months and nine months
ended September 30, 1998 and 1997. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to such condensed financial statements for them to be in
conformity with generally accepted accounting principles.
As discussed in Note 5, the accompanying condensed financial statements
as of September 30, 1998 and for the nine months then ended have been restated.
We have previously audited, in accordance with generally accepted
auditing standards, the balance sheet of INSpire Insurance Solutions, Inc. as of
December 31, 1997, and the related statements of operations, shareholders'
equity and cash flows for the year then ended (not presented herein); and in our
report dated January 19, 1998, we expressed an unqualified opinion on those
financial statements. In our opinion, the information set forth in the
accompanying condensed balance sheet as of December 31, 1997 is fairly stated,
in all material respects, in relation to the financial statements from which
they have been derived.
DELOITTE & TOUCHE LLP
Fort Worth, Texas
November 2, 1998
(February 25, 1999 as to Note 5)
7
<PAGE> 10
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RECENT DEVELOPMENTS
Acquisition of the Capital Stock of Arrow Claims Management, Inc. and
Certain Assets of Arrowhead General Insurance Agency, Inc. The Company entered
into a stock purchase agreement (the "Stock Purchase Agreement"), dated as of
October 29, 1998, with Arrow Claims Management, Inc. ("Arrow") and all of
Arrow's shareholders, pursuant to which the Company agreed to acquire from such
shareholders all of the outstanding capital stock of Arrow for $13.5 million in
cash (subject to adjustment). The Company also entered into an asset purchase
agreement (the "Asset Purchase Agreement"), dated as of October 29, 1998, with
Arrowhead General Insurance Agency, Inc. ("Arrowhead Agency"), pursuant to which
the Company agreed to acquire substantially all of those assets of Arrowhead
Agency related to its policy administration business for $6.5 million in cash
(subject to adjustment) and an option to purchase up to 299,466 shares of common
stock, par value $.01 per share (the "Common Stock"), of the Company subject to
achieving certain performance objectives. Upon the consummation of the
transaction contemplated by the Stock Purchase Agreement and the Asset Purchase
Agreement, the Company will enter into (i) a registration rights agreement with
Arrowhead Agency pursuant to which Arrowhead Agency may demand that the Company
register, at the Company's expense, the shares of Common Stock underlying such
option under the Securities Act of 1933, as amended, (ii) ten year outsourcing
agreements to provide policy and claims administration services to Arrowhead
Agency, and (iii) a guaranty under which Arrowhead Agency will guarantee the
obligations of Arrow and its shareholders under the Stock Purchase Agreement.
Restatement of In-Process Research and Development. Subsequent to the
issuance of INSpire's Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1998, the Company's management revised the amount of the
purchase price which was allocated to in-process research and development in
accounting for the acquisition of Paragon Interface, Inc. ("Paragon") in April
1998. The revised allocation is based upon methods prescribed in a letter from
the Securities and Exchange Commission ("SEC") sent to the American Institute of
Certified Public Accountants in September 1998. The letter sets forth the SEC's
views regarding the valuation methodology to be used in allocating a portion of
the purchase price to acquired in-process research and development at the date
of acquisitions. The significant effects of the restatement have been reflected
herein.
8
<PAGE> 11
RESULTS OF OPERATIONS
The following table sets forth, with respect to the Company and for the
periods indicated, the percentage of total revenues represented by certain
revenue, expense and income items:
<TABLE>
<CAPTION>
Three months Nine months
ended ended
September 30, September 30,
-------------- --------------
1998 1997 1998 1997
----- ----- ----- -----
(unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Outsourcing services..................................... 60.3% 53.9% 56.8% 58.7%
Software and software services........................... 37.8 44.2 40.5 37.1
Other.................................................... 1.9 1.9 2.7 4.2
----- ----- ----- -----
Total revenues...................................... 100.0 100.0 100.0 100.0
----- ----- ----- -----
EXPENSES:
Cost of outsourcing services............................. 25.8 33.4 28.0 39.4
Cost of software and software services................... 24.7 28.2 23.4 22.5
Cost of other revenues................................... 1.3 2.2 1.9 2.7
Selling, general and administrative...................... 18.3 14.4 18.1 10.9
Research and development................................. 3.6 1.4 3.0 2.3
Depreciation and amortization............................ 7.4 7.4 7.0 7.3
In-process research and development...................... -- -- .8 7.8
Deferred compensation.................................... -- -- -- 10.3
Management fees to shareholder........................... -- 0.3 -- 3.3
----- ----- ----- -----
Total expenses...................................... 81.1 87.3 82.2 106.5
----- ----- ----- -----
OPERATING INCOME (LOSS).................................... 18.9 12.7 17.8 (6.5)
OTHER INCOME............................................... 3.7 11.4 3.4 4.1
----- ----- ----- -----
INCOME (LOSS) BEFORE INCOME TAX............................ 22.6 24.1 21.1 (2.4)
INCOME TAX BENEFIT (EXPENSE)............................... (7.9) (7.9) (7.9) 1.3
----- ----- ----- -----
NET INCOME (LOSS).......................................... 14.7% 16.2% 13.2% (1.1)%
===== ===== ===== =====
</TABLE>
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Revenues. Total revenues were $22.1 million for the three months ended
September 30, 1998 compared to $15.2 million for the three months ended
September 30, 1997, an increase of $6.9 million or 45%. Outsourcing services
revenues were $13.3 million for the three months ended September 30, 1998
compared to $8.2 million for the three months ended September 30, 1997, an
increase of $5.1 million or 62%. The growth in outsourcing services revenues is
due primarily to: (i) the Company performing outsourcing services under eight
significant outsourcing contracts that it entered into after September 30, 1997
and (ii) an increase in outsourcing services after September 30, 1997 provided
under a significant claims administration agreement. Software and software
services revenues were $8.3 million for the three months ended September 30,
1998 compared to $6.7 million for the three months ended September 30, 1997, an
increase of $1.6 million or 24%. The growth in software and software services
revenues is primarily attributable to increased license fees and consulting
services revenues resulting from an increase of in-process installations of the
Windows into Property and Casualty System ("WPC") and increases in license fees
and consulting rates. This growth was slightly offset due to the sale of a
subsidiary on September 15, 1997, which had software and software services
revenues of approximately $1.1 million during the three months ended September
30, 1997.
Cost of Revenues. Cost of revenues, which is comprised mainly of
personnel costs, was $11.4 million for the three months ended September 30, 1998
compared to $9.7 million for the three months ended September 30, 1997, an
increase of $1.7 million or 18%. Cost of outsourcing services was $5.7 million
for the three months ended September 30, 1998 compared to $5.1 million for the
three months ended September 30, 1997, an increase of $600,000 or 12%. This
increase is primarily attributable to costs associated with the
9
<PAGE> 12
performance of the nine significant outsourcing contracts described above. Cost
of outsourcing services as a percentage of outsourcing services revenues
decreased to 43% for the three months ended September 30, 1998 from 62% for the
three months ended September 30, 1997. This decrease is a result of economies of
scale associated with spreading certain fixed costs over a larger revenue base
and lower personnel costs as a percentage of revenues. Cost of software and
software services was $5.5 million for the three months ended September 30, 1998
compared to $4.3 million for the three months ended September 30, 1997, an
increase of $1.2 million or 28%. This increase is primarily attributable to the
costs associated with the increased consulting services related to the WPC
installations described above. Cost of software and software services as a
percentage of software and software services revenues remained fairly constant,
increasing to 65% for the three months ended September 30, 1998 from 64% for the
three months ended September 30, 1997.
Selling, General and Administrative. Selling, general and
administrative expenses were $4.0 million for the three months ended September
30, 1998 compared to $2.2 million for the three months ended September 30, 1997,
an increase of $1.8 million or 82%. Selling, general and administrative expenses
as a percentage of total revenues increased to 18% for the three months ended
September 30, 1998 from 14% for the three months ended September 30, 1997. This
increase is primarily due to additional executive management, staffing, office
space and computer equipment and software required to expand the infrastructure
to support the Company's growth.
Research and Development. Research and development expense was $797,000
for the three months ended September 30, 1998 compared to $211,000 for the three
months ended September 30, 1997, an increase of $586,000 or 278%. This increase
is due to the Company's increased focus on the development of new software
products and the expansion of the functionality of current software products.
This expense is comprised primarily of personnel, equipment and occupancy costs
related to software development. Research and development expense for the three
months ended September 30, 1998 and 1997 is net of capitalized software
development costs of $536,000 and $327,000, respectively.
Depreciation and Amortization. Depreciation and amortization expense
was $1.6 million for the three months ended September 30, 1998 compared to $1.1
million for the three months ended September 30, 1997, an increase of
approximately $500,000 or 45%. This increase is primarily attributable to: (i)
amortization of goodwill and capitalized software recorded in connection with
the acquisition of the outstanding capital stock of Paragon on April 20, 1998
(the "Paragon Acquisition") and (ii) acquisitions of property and equipment of
$6.9 million in the aggregate since September 30, 1997 as a result of the
expansion in infrastructure to support the Company's growth.
Other Income. Other income (expense) decreased to $820,000 for the
three months ended September 30, 1998 from $1.7 million for the three months
ended September 30, 1997. The decrease of $880,000 or 52% is primarily
attributable to the Company recognizing a gain on the sale of a subsidiary of
$1.6 million during the three months ended September 30, 1997 and not
recognizing a similar gain during the three months ended September 30, 1998,
which was offset by an increase in cash equivalents and investments purchased
with net proceeds from the Company's initial public offering in August 1997, and
follow-up public offering in March 1998. During the three months ended September
30, 1997, the Company did not have significant investments that earned interest
income throughout the entire period.
Net Income. Net income was $3.2 million, or $.16 per diluted share
($.18 per basic share), for the three months ended September 30, 1998 compared
to net income of $2.5 million, or $.18 per diluted share ($.20 per basic share),
for the three months ended September 30, 1997. Excluding the gain on sale of
subsidiary of $1.6 million ($1.0 million, net of tax), net income would have
been $1.4 million, or $.10 per diluted share ($.11 per basic share) for the
three months ended September 30, 1997.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Revenues. Total revenues were $61.4 million for the nine months ended
September 30, 1998 compared to $38.4 million for the nine months ended September
30, 1997, an increase of $23.0 million or 60%. Outsourcing services revenues
were $34.8 million for the nine months ended September 30, 1998 compared to
10
<PAGE> 13
$22.6 million for the nine months ended September 30, 1997, an increase of $12.2
million or 54%. The growth in outsourcing services revenues is due primarily to:
(i) the Company performing outsourcing services under eight significant
outsourcing contracts entered into after September 30, 1997 and (ii) an increase
in outsourcing services during 1998 provided under two other significant claims
administration agreements. Software and software services revenues were $24.9
million for the nine months ended September 30, 1998 compared to $14.3 million
for the nine months ended September 30, 1997, an increase of $10.6 million or
74%. The growth in software and software services revenues during the nine
months ended September 30, 1998 is primarily attributable to: (i) the
acquisition of Strategic Data Systems, Inc. ("SDS") on March 12, 1997 by the
Company (the "SDS Acquisition") and (ii) increased license fees and consulting
services revenues resulting from an increase of in-process installations of WPC
and increases in license fees and consulting rates. This growth was slightly
offset due to the sale of a subsidiary on September 15, 1997, which had software
and software services revenues of approximately $2.5 million during the nine
months ended September 30, 1997.
Cost of Revenues. Cost of revenues, which is comprised mainly of
personnel costs, was $32.7 million for the nine months ended September 30, 1998
compared to $24.8 million for the nine months ended September 30, 1997, an
increase of $7.9 million or 32%. Cost of outsourcing services was $17.2 million
for the nine months ended September 30, 1998 compared to $15.2 million for the
nine months ended September 30, 1997, an increase of $2.0 million or 13%. This
increase is primarily attributable to the increased costs associated with the
performance of the ten significant outsourcing contracts described above. Cost
of outsourcing services as a percentage of outsourcing services revenues
decreased to 49% for the nine months ended September 30, 1998 from 67% for the
nine months ended September 30, 1997. This decrease is a result of economies of
scale associated with spreading certain fixed costs over a larger revenue base
and lower personnel costs as a percentage of revenues. Cost of software and
software services was $14.4 million for the nine months ended September 30, 1998
compared to $8.6 million for the nine months ended September 30, 1997, an
increase of $5.8 million or 67%. This increase is primarily attributable to the
additional cost of revenues associated with the SDS Acquisition and the costs
associated with the increased consulting services related to the WPC
installations described above. Cost of software and software services as a
percentage of software and software services revenues decreased to 58% for the
nine months ended September 30, 1998 from 61% for the nine months ended
September 30, 1997. This decrease is a result of economies of scale associated
with spreading certain fixed costs over a larger revenue base.
Selling, General and Administrative. Selling, general and
administrative expenses, including management fees paid to shareholder, were
$11.1 million for the nine months ended September 30, 1998 compared to $5.4
million for the nine months ended September 30, 1997, an increase of $5.7
million or 106%. Selling, general and administrative expenses as a percentage of
total revenues increased to 18% for the nine months ended September 30, 1998
from 14% for the nine months ended September 30, 1997. This increase is
primarily due to additional executive management, staffing, office space and
computer equipment and software required to expand the infrastructure to support
the Company's growth.
Research and Development. Research and development expense was $1.9
million for the nine months ended September 30, 1998 compared to $891,000 for
the nine months ended September 30, 1997, an increase of $1.0 million or 113%.
This increase is due to the Company not incurring any significant research and
development expenses prior to the SDS Acquisition and the Company's increased
focus on the development of new software products and the expansion of the
functionality of current software products. This expense is comprised primarily
of personnel, equipment and occupancy costs related to software development.
Research and development expense for the nine months ended September 30, 1998
and 1997 is net of capitalized software development costs of $1.5 million and
$327,000, respectively.
Depreciation and Amortization. Depreciation and amortization expense
was $4.3 million for the nine months ended September 30, 1998 compared to $2.8
million for the nine months ended September 30, 1997, an increase of
approximately $1.5 million or 54%. This increase is primarily attributable to:
(i) amortization of goodwill and capitalized software recorded in connection
with the SDS Acquisition and the Paragon Acquisition and (ii) acquisitions of
property and equipment of $4.3 million in the aggregate since September 30, 1997
as a result of the expansion of infrastructure to support the Company's growth.
11
<PAGE> 14
Nonrecurring Operating Expenses. In the purchase price allocation of
the SDS Acquisition, $3.0 million was assigned to in-process research and
development. This amount, which is not deductible for tax purposes, was charged
to operations in March 1997. In addition, $3.9 million was charged to operations
as deferred compensation associated with stock options granted to executive
officers during the nine months ended September 30, 1997. In the purchase price
allocation of the Paragon Acquisition, $500,000 was assigned to in-process
research and development. This amount was charged to operations in April 1998.
Other Income. Other income (expense) increased to $2.1 million for the
nine months ended September 30, 1998 from $1.6 million for the nine months ended
September 30, 1997. Other income for the nine months ended September 30, 1998 is
primarily attributable to interest income from cash equivalents and investments.
Other income for the nine months ended September 30, 1997 is primarily
attributable to a gain on sale of subsidiary.
Net Income. Net income was $8.1 million, or $.42 per diluted share
($.47 per basic share), for the nine months ended September 30, 1998 compared to
a net loss of $400,000, or $.04 per diluted share ($.04 per basic share), for
the nine months ended September 30, 1997. Excluding the impact on net income
resulting from the $500,000 write-off of in-process research and development
associated with the Paragon Acquisition, net income would have been $8.6
million, or $.45 per diluted share ($.50 per basic share), for the nine months
ended September 30, 1998. Excluding the impact on the net loss resulting from
the charge to operations of $3.9 million of deferred compensation associated
with stock options granted to executive officers, the write-off of in-process
research and development of $3.0 million recorded in connection with the SDS
acquisition, and the gain on sale of subsidiary of $1.6 million, net income
would have been $3.0 million, or $.24 per diluted share ($.27 per basic share),
for the nine months ended September 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $58.6 million as of September 30, 1998
compared to $28.0 million as of December 31, 1997, an increase of $30.6 million.
Net cash provided by operating activities was $5.8 million for the nine months
ended September 30, 1998 compared to net cash provided by operating activities
of $1.5 million for the nine months ended September 30, 1997. Net cash used in
investing activities was $27.5 million for the nine months ended September 30,
1998, which is primarily attributable to: (i) the purchase of $15.6 million in
investments, (ii) the purchase of $6.1 million in property and equipment and
(iii) the Paragon Acquisition. Net cash used in investing activities was $29.4
million for the nine months ended September 30, 1997, which is primarily
attributable to (i) the SDS Acquisition, and (ii) the purchase of $13.2 million
in investments. Net cash provided by financing activities was $52.3 million for
the nine months ended September 30, 1998, which is primarily attributable to the
follow-on public offering on March 27, 1998, compared to net cash provided by
financing activities of $42.0 million for the nine months ended September 30,
1997, which is primarily due to the Company's initial public offering on August
22, 1997 and capital contributions from a shareholder.
The Company believes that cash generated from operations and its net
proceeds from the initial public offering and follow-on public offering will
satisfy the Company's anticipated working capital requirements for at least one
year. The Company, however, may require substantial additional funds for
potential acquisitions and expansion. In the normal course of business, the
Company evaluates acquisitions of businesses, products and technologies that
complement the Company's business.
YEAR 2000 ISSUES
The Company is continuing its assessment of Year 2000 issues and taking
steps to prevent these issues from adversely affecting its future operating
results. This readiness process includes, but is not limited to, preparing an
inventory of potential Year 2000 issues, determining functions affected,
performing remediation as necessary, developing testing and recording results.
In its assessment of Year 2000 issues, the Company is specifically
focusing on its software applications and associated software products,
hardware, facilities, communications equipment and security systems. During
12
<PAGE> 15
1997 and 1998, the Company implemented financial and human resources systems
that are designed to be Year 2000 compliant.
In addition to evaluating its own systems for Year 2000 compliance, the
Company is also communicating with its significant suppliers and customers to
determine the extent to which interfaces with such entities are vulnerable to
Year 2000 issues and the extent to which any products purchased by or from, or
internal systems of, such entities are vulnerable to Year 2000 issues.
Total costs associated with the Company's Year 2000 readiness process,
consisting of both internal and external resources, are expected to range
between $2.0 and $2.5 million. The Company anticipates financing these costs
with cash generated from operations. The Company has not yet fully completed it
Year 2000 assessment and remediation efforts. The estimated time to complete
assessment, testing and full compliance is June 30, 1999. Based on its
experience to date, the Company presently believes that the Year 2000 issues
will not pose significant operational problems for the Company directly or as a
result of any Year 2000 issues of suppliers or customers.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In October 1997, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
No. 97-2, Software Revenue Recognition ("SOP 97-2"). SOP 97-2 is effective for
transactions entered into in fiscal years beginning after December 15, 1997. The
adoption of SOP 97-2 did not have a material effect on the Company's financial
position or results of operations.
In February 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use ("SOP 98-1"). SOP 98-1 is effective for transactions entered
into in fiscal years beginning after December 31, 1998. The Company believes the
adoption of SOP 98-1 will not have a material effect on the Company's financial
position or results of operations.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Report on Form 10-Q contains or may contain "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All
statements made in this report, other than statements of historical fact,
including but not limited to statements made under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" that relate to future
results and operations of the Company, and which may be indicated by words such
as "anticipate," "believe," "estimate," "expect," "intend" and similar
expressions, are "forward-looking statements." Actual results could differ
materially from those contemplated by the forward-looking statements as a result
of certain factors, including but not limited to difficulties associated with
growth, the Company's dependence on major customers and limited operating
history, technological change, competitive factors and pricing pressures,
product development risks, changes in legal and regulatory requirements, and
general economic conditions. Such statements reflect the current views of the
Company with respect to future events and are subject to these and other risks,
uncertainties and assumptions relating to the operations, results of operations,
growth strategy and liquidity of the Company. All subsequent written and oral
forward-looking statements attributable to the Company or person acting on its
behalf are expressly qualified in their entirety by this paragraph.
13
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Date: March 24, 1999 INSpire Insurance Solutions, Inc.
/s/ F. GEORGE DUNHAM, III
-------------------------------------
F. George Dunham, III
Chief Executive Officer, Chairman and
Director
/s/ KENNETH J. MEISTER
-------------------------------------
Kenneth J. Meister
Executive Vice President and Chief
Financial Officer
14
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
---------- -----------
<S> <C> <C>
2.1 Form of Stock Purchase Agreement, dated as of October 29,
1998, by and among the Company, Arrow Claims Management, Inc.
and the shareholders of Arrow Claims Management, Inc.
(Incorporated by reference to Exhibit 2.1 of the Company's
Form 10-Q for the three months ended September 30, 1998 filed
with the SEC on November 13, 1998).
2.2 Form of Asset Purchase Agreement, dated as of October 29,
1998, by and among the Company and Arrowhead General Insurance
Agency, Inc. (Incorporated by reference to Exhibit 2.2 of the
Company's Form 10-Q for the three months ended September 30,
1998 filed with the SEC on November 13, 1998).
3.1 Restated Articles of Incorporation of the Company and Articles
of Amendment No. 1 thereto (Incorporated by reference to
Exhibit 3.1 of the Company's Registration Statement on Form
S-1, Registration No. 333-31173).
3.2 Amended and Restated Bylaws of the Company (Incorporated by
reference to Exhibit 3.2 of the Company's Registration
Statement on Form S-1, Registration No. 333-31173).
3.3 Form of First Amendment to the Bylaws of the Company
(Incorporated by reference to Exhibit 3.3 of the Company's
Form 10-Q for the three months ended March 31, 1998 filed on
May 14, 1998).
4.1 Specimen Certificate for shares of Common Stock of the Company
(Incorporated by reference to Exhibit 4.1 of the Company's
Registration Statement on Form S-1, Registration No.
333-31173).
4.2 Form of Rights Agreement, by and between the Company and U.S.
Trust Company of Texas, N.A. dated as of July 30, 1997
(Incorporated by reference to Exhibit 4.2 of the Company's
Registration Statement on Form S-1, Registration No.
333-31173).
4.3 Form of First Amendment to Rights Agreement (Incorporated by
reference to Exhibit 4.3 of the Company's Form 10-Q for the
three months ended March 31, 1998 filed on May 14, 1998).
10.1 Form of Employment Agreement, dated and effective as of
September 3, 1998, by and between the Company and John C.
Aldredge. (Incorporated by reference to Exhibit 10.1 of the
Company's Form 10-Q for the three months ended September 30,
1998 filed with the SEC on November 13, 1998).
11.1 Statement regarding Computation of Per Share Earnings.
15.1 Letter Re: Unaudited Interim Financial Information.
27.1 Financial Data Schedule (EDGAR version only).
</TABLE>
<PAGE> 1
EXHIBIT 11.1
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------ -----------------
1998 1997 1998(1) 1997
------ ------ ------- ------
<S> <C> <C> <C> <C>
Basic
Average shares outstanding....................... 18,358 12,534 17,370 11,186
======== ======== ======== ========
Net income (loss)................................ $ 3,238 $ 2,456 $ 8,128 $ (400)
======== ======== ======== ========
Per share amount................................. $ .18 $ .20 $ .47 $ (.04)
======== ======== ======== ========
Diluted
Average shares outstanding....................... 18,358 12,534 17,370 11,186
Net effect of dilutive stock options based on
the treasury stock method using the average
market price................................... 1,996 1,259 2,003 1,146
-------- -------- -------- --------
Total............................................ 20,354 13,793 19,373 12,332
======== ======== ======== ========
Net income (loss)................................ $ 3,238 $ 2,456 $ 8,128 $ (400)
======== ======== ======== ========
Per share amount................................. $ .16 $ .18 $ .42 $ (.04)
======== ======== ======== ========
</TABLE>
(1) As restated: See Note 5 in the Notes to Condensed Financial Statements
14
<PAGE> 1
EXHIBIT 15.1
AWARENESS LETTER OF INDEPENDENT ACCOUNTANTS
March 26, 1999
INSpire Insurance Solutions, Inc.
300 Burnett Street
Fort Worth, Texas
We have made a review, in accordance with standards established by the
American Institute of Certified Public Accountants, of the unaudited interim
financial information of INSpire Insurance Solutions, Inc. for the periods ended
September 30, 1997 and 1998, as indicated in our report dated November 2, 1998
(February 25, 1999 as to Note 5); because we did not perform an audit, we
expressed no opinion on that information.
We are aware that our report referred to above, which is included in
this Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, is
incorporated by reference in Registration Statement No. 333-36271 on Form S-8.
We also are aware that the aforementioned report, pursuant to Rule
436(c) under the Securities Act of 1933, as amended, is not considered a part of
the Registration Statement prepared or certified by an accountant or a report
prepared or certified by an accountant within the meaning of Sections 7 and 11
of that Act.
DELOITTE & TOUCHE LLP
Fort Worth, Texas
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENTS OF OPERATIONS AND BALANCE SHEET OF INSPIRE INSURANCE SOLUTIONS, INC.
AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 58,648
<SECURITIES> 15,603
<RECEIVABLES> 14,392
<ALLOWANCES> 285
<INVENTORY> 0
<CURRENT-ASSETS> 96,709
<PP&E> 22,985
<DEPRECIATION> 13,129
<TOTAL-ASSETS> 128,132
<CURRENT-LIABILITIES> 10,471
<BONDS> 0
0
0
<COMMON> 184
<OTHER-SE> 114,167
<TOTAL-LIABILITY-AND-EQUITY> 128,132
<SALES> 0
<TOTAL-REVENUES> 61,401
<CGS> 0
<TOTAL-COSTS> 50,497
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 49
<INCOME-PRETAX> 12,982
<INCOME-TAX> 4,854
<INCOME-CONTINUING> 8,129
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,129
<EPS-PRIMARY> 0.47<F1>
<EPS-DILUTED> 0.42<F1>
<FN>
<F1>ON AUGUST 17, 1998, INSPIRE INSURANCE SOLUTIONS, INC. EFFECTED A THREE-FOR-TWO
STOCK SPLIT. PRIOR FINANCIAL DATA SCHEDULES HAVE NOT BEEN RESTATED FOR THE
STOCK SPLIT.
</FN>
</TABLE>
