<PAGE>

                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549
                                _________________

                                    FORM 10-K

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

     For the Fiscal Year Ended December 31, 2001

[_]  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: 0-9628
                                _________________

                        ANCHOR PACIFIC UNDERWRITERS, INC.
               (Exact name of Anchor as specified in its charter)

                Delaware                                        94-1687187
    (State or other jurisdiction of                          (I.R.S. Employer
     incorporation or organization)                         Identification No.)

          610 West Ash Street                                      92101
         San Diego, California                                  (Zip Code)
(Address of principal executive offices)

         Anchor's telephone number, including area code: (619) 557-2777

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

                                      None

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

                          Common stock, $.02 par value
                                __________________

      Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [_]Yes  [X] No

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ((S) 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of the registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [_]

      The aggregate market value of the voting stock held by non-affiliates of
the registrant as of December 31, 2001 was $136,587.

      As of April 30, 2002, the registrant had 4,709,904 shares of common stock
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

                          Exhibit Index is on page 27.

<PAGE>

                        ANCHOR PACIFIC UNDERWRITERS, INC.

                                TABLE OF CONTENTS
<TABLE>
<S>                                                                                                         <C>
PART I ........................................................................................              2

   Item 1.        Business ....................................................................              2
   Item 2.        Properties ..................................................................              9
   Item 3.        Legal Proceedings ...........................................................             10
   Item 4.        Submission of Matters to a Vote of Security Holders .........................             10

PART II .......................................................................................             11

   Item 5.        Market for Anchor's Common Equity and Related Shareholder Matters ...........             11
   Item 6.        Selected Financial Data .....................................................             12
   Item 7.        Management's Discussion And Analysis Of Financial Condition
                  And Results Of Operations ...................................................             12
   Item 8.        Financial Statements and Supplementary Data .................................             21
   Item 9.        Changes in and Disagreements With Accountants on Accounting
                  and Financial Disclosure ...................................................              21

PART III .....................................................................................              23

   Item 10.       Directors and Executive Officers of the Anchor .............................              23
   Item 11.       Executive Compensation .....................................................              24
   Item 12.       Security Ownership of Certain Beneficial Owners and Management .............              25
   Item 13.       Certain Relationships and Related Transactions .............................              26

 PART IV .....................................................................................              27

   Item 14.       Exhibits, Financial Statement Schedules, and Reports on Form 8-K ...........              27
</TABLE>

      SAFE HARBOR STATEMENT UNDER THE SECURITIES LITIGATION REFORM ACT OF 1995

      This Annual Report on Form 10-K contains forward-looking statements within
the meaning of that term under the Private Securities Litigation Reform Act of
1995. Additional written or oral forward-looking statements may be made by
Anchor from time to time, in filings with the Securities and Exchange Commission
or otherwise. Statements contained herein that are not historical facts are
forward-looking statements made pursuant to the safe harbor provisions
referenced above. In addition, when used in this discussion, the words,
"anticipates," "expects," "intends," "plans" and variations thereof and similar
expressions are intended to identify forward-looking statements. Forward-looking
statements are inherently subject to risks and uncertainties, some of which
cannot be predicted or quantified, based on current expectations. Consequently,
future events and actual results could differ materially from those set forth
in, contemplated by, or underlying the forward- looking statements contained in
this Annual Report. Statements in this Annual Report, particularly in the Notes
to Financial Statements and Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations describe certain factors, among
others, that could contribute to or cause such differences. Such forward-looking
statements involve risks and uncertainties, and actual results could differ from
those described herein. While the statements represent management's current
judgment as to the near-term future prospects of its business, such risks and
uncertainties could cause actual results to differ from the above statements.
Factors which could cause actual results to differ include the following: the
Company's failure to renegotiate its defaulted debt obligations and raise new
working capital to satisfy debt and finance ongoing operations and unanticipated
regulatory changes. Other risk factors are detailed in Anchor's filings with the
Securities and Exchange Commission. Anchor assumes no obligation to update
forward-looking statements.

                                        1

<PAGE>

                                     PART I

Item 1.   Business

Overview

      Anchor Pacific Underwriters, Inc. is a holding company with: (a) a
wholly-owned operating subsidiary, Spectrum Managed Care of California, Inc.,
("Spectrum CA") engaged in telephonic medical case management and utilization
review; and (b) other direct and indirect subsidiaries that were engaged in
employee accident and health benefit plan administration prior to January 2002
but are now dormant with no ongoing business activities. Anchor Pacific
Underwriters, Inc. and its subsidiaries shown in the table below are
collectively referred to as "Anchor" and/or the "Company" unless the context
otherwise requires.

ANCHOR PACIFIC UNDERWRITERS, INC.
(a Delaware corporation)
Business: Holding Company

     --  SPECTRUM MANAGED CARE OF CALIFORNIA, INC.
         (a Delaware corporation wholly-owned by Anchor Pacific
         Underwriters, Inc.)
         Business: Telephonic Medical Case Management & Utilization Review

     --  WARD BENEFITS ADMINISTRATORS & INSURANCE SERVICES, INC.
         (a California corporation wholly-owned by Anchor Pacific
         Underwriters, Inc., formerly known as Harden & Company Insurance
         Services, Inc.)
         Business: Formerly Employee Accident & Health Benefit Plan
         Administration
         (Discontinued Operations in January 2002)

     --  HARDEN & COMPANY OF ARIZONA
         (an Arizona corporation wholly-owned by Ward Benefits Administrators
         & Insurance Services, Inc., formerly known as Benefit Resources, Inc.)
         Business: Formerly Employee Accident & Health Benefit Plan
         Administration (Discontinued Operations in September 2001)

      In March 2000, Ward North America Holding, Inc. ("WNAH") purchased
1,853,300 shares of Series A Convertible Preferred Stock of Anchor representing
approximately 79% of the Company's outstanding voting securities on an
as-converted basis. WNAH is a privately held holding company with operating
subsidiaries providing diversified loss claims and managed care services to the
insurance industry with approximately 55 offices in the U.S. and 4 offices in
Canada. WNAH's largest equity holders include its CEO, Jeffrey Ward, Legion
Insurance Company, Benfield Blanch, Inc., and General Electric Capital
Corporation.

      Anchor received cash proceeds of $2,000,000 from the sale of Series A
Convertible Preferred stock to WNAH. In addition, WNAH provided the Company with
$1,000,000 of working capital through a convertible credit facility in
connection with the stock purchase. Approximately $1,800,000 of the Company's
new working capital was immediately applied toward the satisfaction of
delinquent and maturing debt obligations, employee severance payments, and other
expenses.

      The Company's sole business in 2000 was the performance of third-party
employee accident and health benefit plan administration and related services by
two subsidiaries, Ward Benefits Administrators & Insurance Services, Inc.
("WBAIS"), formerly known as Harden & Company Insurance Services, Inc., and
Harden & Company of Arizona ("Harden-AZ"). Commencing in mid-2000, WBAIS and
Harden-AZ operated under the common business name "Ward Benefits Administrators"
(WBAIS and Harden-AZ may collectively be referred to as "WBA" or the "WBA
companies").

                                        2

<PAGE>

      Anchor's plan following WNAH's investment was to reorganize management,
convert WBA's benefits plan administration business onto a modern software
application, standardize operating procedures, and significantly increase
revenues through referrals from WNAH's shareholders and strategic relationships.
Anchor's working capital ultimately proved to be insufficient to complete the
turn-around of WBA's business and the companies continued to incur significant
operating losses throughout 2000 and 2001. The WBA companies attempted to
mitigate their losses by reducing staff and other operating costs. Beginning in
mid-2000, Anchor's Board of Directors (the "Board") directed management to
attempt to raise additional working capital and investigate alternative product
and service lines to diversify the Company's business.

      In January 2001, Anchor diversified its business by purchasing
substantially all of the assets and business of Novaeon, Inc. ("Novaeon") from
Novaeon's Chapter 11 bankruptcy estate. Prior to its bankruptcy, Novaeon
performed utilization review, peer review, pre-certification, medical bill
review and both telephonic and field medical case management services on a
national basis. Legion Insurance Company, a shareholder of WNAH, financed the
transaction by providing Anchor a $2,000,000 loan arranged by WNAH. The acquired
assets and remaining loan proceeds were subsequently transferred to a new Anchor
subsidiary, Spectrum Managed Care of California, Inc. which is presently engaged
in a national telephonic medical case management and utilization review
business.

      The declining revenues of the WBA companies continued to outpace
management's operating cost reductions in 2001. Anchor's inability to raise
working capital and WBA's rapidly deteriorating financial condition and business
prospects caused the WBA companies to commence discussions with potential
acquirers of their businesses in June 2001. Further, significant customer
account losses caused Harden-AZ to close its Scottsdale, Arizona and San
Antonio, Texas offices and discontinue business operations by September 2001.

      By late 2001, dissatisfaction with WBAIS's limited information systems
capabilities and service levels had reached the point that it appeared likely
that most, if not all, of WBAIS's customers would terminate their service
agreements by the end of the first quarter of 2002, if not sooner. Furthermore,
WBAIS's mounting trade debt, continuing operating losses and lack of working
capital made it doubtful WBAIS could remain in business. By December 2001, WBAIS
had exhausted its efforts to sell the company as potential purchasers had
determined they would be unable to convert WBAIS's remaining accounts to a new
software platform in time to preserve its waning customer relationships. In
January 2002, WBAIS entered into an agreement with a subsidiary of Loomis
Management Company, Inc., a major employee health plan insurance broker and
administrator, intended to preserve the value of WBAIS's remaining customer
accounts and mitigate potential damages from the foreseeable imminent cessation
of WBAIS's operations.

      The agreement, effective as of January 1, 2002, provided for WBAIS and its
affiliates to refer benefit plan administration customers to a newly-formed
company, Loomis Benefits West, Inc. ("LBW"). In exchange for the referrals, LBW
agreed to pay WBAIS periodic referral fees based on LBW's gross revenue for a
period of ten (10) years. WBAIS introduced its remaining customers to LBW and
provided assistance in the transition of accounts electing to retain LBW. WBAIS
completed the wind down of its employee benefits plan administration business
and terminated all remaining employees by the end of January 2002.

      In 2002, WBAIS plans to make a general assignment of its assets for the
benefit of creditors to facilitate a workout of its debt under an arrangement
that is similar to bankruptcy liquidation. The assignee under such an assignment
is granted rights under state law similar to those of a federal bankruptcy
trustee, including the right to take possession of a debtor's assets, recover
avoidable transfers of property for the benefit of all creditors, pursue and
compromise claims on behalf of the debtor, and administer the equitable
distribution of the debtor's assets among its creditors.

      Following the wind-down of the WBA companies' employee benefits plan
businesses, Anchor's plan is to dedicate its financial and personnel resources
to growing the managed care business of Spectrum CA.

                                        3

<PAGE>

Background

      Anchor was organized in 1986 as a California general partnership for the
specific purpose of acquiring Harden & Company Insurance Services, Inc., a
third-party employee benefits administrator ("Harden-CA"). Anchor was
reorganized as a private California corporation in March 1987, and
reincorporated in January 1995 as a Delaware corporation in connection with a
merger with System Industries, Inc. As a result of the merger, Anchor became a
public company.

      From 1986 through 1990, Anchor, through Harden-CA, focused primarily on
providing administration services for group insurance benefit plans. In 1990,
Anchor began diversifying its business by providing property, casualty and
workers' compensation insurance products and services, as well as offering
market studies and program analysis for certain non-profit associations who had
endorsed Anchor's products.

      From 1990 through 1996, Anchor expanded its property and casualty business
by acquiring certain assets, including insurance brokerage accounts. In 1994,
Anchor acquired the property and casualty insurance brokerage company, Putnam,
Knudsen & Wieking, Inc. ("PKW") and consolidated all of its property and
casualty insurance brokerage business into PKW. After evaluating trends in the
insurance industry, Anchor's Board of Directors decided to sell its property and
casualty business and to focus on its third-party administration business.
Effective December 31, 1998, Anchor sold substantially all the assets of PKW to
an unrelated third party. In 1999, PKW changed its name to Shelby Insurance
Services, Inc., ("Shelby"). On March 9, 2000, Anchor sold all of Shelby's
capital stock to a former officer and member of the Board of Directors.

      As part of its expansion strategy in 1994, Harden-CA acquired Benefit
Resources, Inc., ("BRI") a third-party employee benefits administration business
located in Scottsdale, Arizona. In 1998, BRI changed its name to Harden &
Company of Arizona. In 1995, Harden-CA acquired certain third-party
administration accounts from Dutcher Insurance Agency, Inc. ("Dutcher"), located
in Stockton, California. In July 1997, Harden-CA took over a third-party
administration business, located in Los Angeles, California, that was previously
serviced by an unrelated third party. As a result of declining revenues of the
Los Angeles business due to carrier rate increases, the Los Angeles office was
closed at the end of February 1999.

      Effective January 1, 1998, Anchor and Harden-CA entered into an agreement
to acquire the assets and third-party administration business of Pacific
Heritage Administrators ("PHA"), a firm based in Portland, Oregon. The PHA
third-party administration business was operated as a division of Harden
following the acquisition. This transaction enabled Harden-CA to expand its
operations in Oregon, Washington, Idaho and Nevada and substantially enhanced
its revenues in 1998.

      In June 1998, Anchor adopted "Harden Group" as the common business name
for the conduct of the third-party administration services of Harden-CA,
Harden-AZ, and PHA. At that time the Harden Group maintained offices in Concord,
California, Fresno, California, Scottsdale, Arizona, and Portland, Oregon,
providing third-party benefits administration services throughout the Western
United States.

      In March 2000, WNAH purchased approximately 79% of the outstanding voting
equity securities of Anchor. WNAH is a holding company with operating
subsidiaries providing diversified claims and managed care services to the
insurance industry in the U.S. and Canada. Shortly following the acquisition,
the use of the Harden Group name was discontinued by Anchor's operating
subsidiaries in favor of "Ward Benefits Administrators."

      On January 12, 2001, Anchor acquired substantially all of the assets and
business of Novaeon, Inc., a national managed care service provider, from
Novaeon's Chapter 11 bankruptcy estate and transferred the assets to a
newly-formed subsidiary, Spectrum CA. Spectrum CA has operated a national
telephonic medical case management and utilization review business since that
time.

      As a result of ongoing operating losses, declining revenues, and
inadequate working capital the WBA Companies discontinued their business
operations in January 2002.

                                        4

<PAGE>

Recent Developments - Purchase of Managed Care Assets and Business

      In order to increase and diversify its revenue base, Anchor entered the
managed care service business in January 2001 by purchasing substantially all of
the assets and business of Novaeon ("Novaeon Assets") from the Novaeon's Chapter
11 bankruptcy estate. Prior to its bankruptcy, Novaeon performed utilization
review, peer review, pre-certification, medical bill review and both telephonic
and field medical case management services on a national basis.

      Anchor's purchase of the Novaeon Assets was consummated under an asset
purchase agreement dated December 28, 2000 (the "Novaeon Asset Purchase
Agreement"), the terms of which were approved by the Bankruptcy Court for the
Eastern District of Pennsylvania (Bankruptcy No. 00-18821 BIF). Pursuant to the
Novaeon Asset Purchase Agreement, Anchor delivered a cash down payment of
$1,500,000 and a contingent promissory note in the principal amount of
$3,500,000 (the "Novaeon Note"). The terms of the Novaeon Note provide for the
principal amount to be reduced on a dollar-for-dollar basis in the event the
business operated by Anchor using the Novaeon Assets realized less than
$10,000,000 in revenue during the calendar year 2001. The minimum principal
amount payable under the terms of the Novaeon Note is $500,000. The Company's
remaining payment obligation under the Novaeon Note has been reduced to the
$500,000 minimum based on Spectrum CA's 2001 revenue of $4,673,678. In May 2002,
the Company obtained an amendment to the repayment terms of the Novaeon Note to
provide for 12 monthly-amortized payments of principal and interest in the
amount of $39,784 beginning on July 1, 2002.

      In order to finance the Novaeon acquisition and provide working capital
for its new managed care service business, Anchor obtained a secured convertible
loan from Legion Insurance Company ("Legion"), a principal shareholder in WNAH,
in the amount of $2,000,000 (the "Legion Loan"). The note evidencing the Legion
Loan ("Legion Note") provided for its automatic redemption in exchange for
Anchor common shares if Anchor completed a common stock offering by June 30,
2001, resulting in gross proceeds of at least $3,000,000. Upon such event, the
Legion Note provided that it could be redeemed in full by the issuance of Anchor
common shares to Legion having a value equal to the Legion Note's outstanding
balance of principal and interest based on the per-share price Anchor received
in the common stock offering. The repayment of the Legion Loan is secured by a
security interest in favor of Legion encumbering all the Novaeon Assets pursuant
to the terms of a Security Agreement between the parties dated January 12, 2001.

      WNAH assisted Anchor to obtain the Legion Loan. As a condition of making
the Legion Loan, WNAH agreed to enter into a Note Purchase Agreement dated
January 12, 2001 (the "Legion Note Purchase Agreement"). The Legion Note
Purchase Agreement granted Legion the option to cause WNAH to purchase the
Legion Note from Legion in the event Anchor failed to either complete an equity
offering resulting in cash proceeds of at least $3,000,000 or repay the Legion
Note by June 30, 2001. The consideration for the purchase of Legion's rights
under the Legion Note was the issuance of WNAH common stock to Legion having an
aggregate value of $2,000,000 (plus the sum of unpaid interest under the Legion
Note) at an agreed value of $4 per share.

      In conjunction with the Legion Note Purchase Agreement, Anchor and WNAH
entered into an assignment and assumption agreement dated January 12, 2001 in
which Anchor agreed that in the event that Legion exercised its option to cause
WNAH to purchase the Legion Note under the Legion Note Purchase Agreement, WNAH,
as the transferee holder of the Legion Note, would have the right to acquire all
of the equity securities of Spectrum CA from Anchor in exchange for the
cancellation and release of all Anchor's repayment obligations under the Legion
Note and the assumption by WNAH of all Anchor's repayment obligations to
Novaeon's bankruptcy estate under the Novaeon Note. Should this occur, the
Company would have no ongoing operations.

      Anchor was unable to complete a $3,000,000 equity offering or repay the
Legion Note by June 30, 2001 as contemplated at the time of the Novaeon
acquisition. The Legion Note was subsequently amended by the parties to extend
the maturity date to December 31, 2001. The Legion Note Purchase Agreement was
also amended by Legion and WNAH to extend its term to coincide with the amended
maturity date under the Legion Note. The term of the amended Legion Note
Purchase Agreement lapsed on December 31, 2001. The Legion Note has not been
repaid by Anchor. Legion was placed into Rehabilitation by court order under
Pennsylvania insurance law on April 1, 2002. As of that date, the Pennsylvania
Insurance Commissioner assumed possession and control of all Legion's assets and

                                        5

<PAGE>

business to protect the interests of Legion's policyholders. Anchor is seeking
to conduct negotiations with the Pennsylvania Insurance Commissioner regarding
an extension of the Legion Note's maturity and the amendment of other terms.
There can be no assurance that amended terms favorable to Anchor will result
from these efforts.

      Anchor consummated the Novaeon Asset purchase on January 12, 2001. The
Company used $1,500,000 of the Legion Loan proceeds for the required down
payment. The balance of the proceeds was later transferred to Spectrum CA to
finance the start up of its operations. Anchor accounted for the Novaeon
acquisition transaction using the purchase method of accounting.

      Immediately following the close of the Novaeon transaction, Anchor
conveyed the purchased Novaeon Assets to its newly formed subsidiary, Spectrum
CA. Thereafter, Spectrum CA hired nearly all of Novaeon's management,
administrative and technical staff associated with Novaeon's telephonic medical
case management and utilization review operations. Novaeon's other managed care
businesses were not continued by Spectrum CA. Spectrum CA currently performs
telephonic medical case management and utilization review services in nine
offices throughout the United States, with its principal service center located
in Exton, Pennsylvania. Spectrum CA enjoys a national client base consisting of
self-insured employers, insurers, and third-party loss claims and benefits plan
administrators.

Recent Developments - Cessation of Employee Benefits Plan Administration
Businesses

      The WBA companies' revenue losses from terminating and non-renewing
accounts accelerated rapidly after 2000 and management was unable to reduce
operating costs sufficiently to mitigate declining revenue. WBA's clients
continued to be generally dissatisfied with the companies' service levels,
limited data reporting capabilities, and inability to provide system features
available from other vendors such as direct internet access to plan and benefits
information for employers, covered employees and medical providers. Efforts by
Anchor's management and Board of Directors to secure additional equity and/or
debt capital were unsuccessful. In June 2001, Anchor's Board of Directors
determined it was doubtful that sufficient working capital could be obtained to
address WBA's rising debt and complete the turn-around of its employee benefits
plan administration business.

      That same month, based on the probability it would not obtain additional
working capital in the foreseeable future, the WBA companies began discussions
with prospective acquirers of their businesses, including Loomis Management
Company, Inc. ("Loomis"). Loomis is a privately-held insurance brokerage and
third-party employee benefits plan administrator headquartered in Wyomissing,
Pennsylvania with offices in Lancaster, Pennsylvania, Annapolis, Maryland and
Fort Lauderdale, Florida. Loomis' diversified insurance brokerage business
involves representation of a wide range of personal and commercial property and
casualty lines as well as employee benefits.

      As the year progressed, WBA's management conducted negotiations with a
number of parties regarding the potential acquisition of WBA's business. Due
diligence reviews of WBA's business operations were performed by Loomis and
others despite the deterioration of the companies' business and prospects. The
parties' due diligence included, among other things, an analysis of the
probability of retaining and renewing WBA's accounts and foreseen timeframes and
costs to convert customer account data and plan designs to different information
systems applications.

      In September 2001, Harden-AZ closed its unprofitable offices in
Scottsdale, Arizona and San Antonio, Texas and discontinued its operations.
WBAIS's benefit plan administration business was consolidated into its Portland,
Oregon and Wheaton, Illinois offices at that time.

      By late 2001, continuing losses and account terminations made it doubtful
that WBAIS could remain in business beyond the first quarter of 2002 without an
infusion of substantial additional working capital. Meanwhile, WBAIS's
customers' dissatisfaction continued to heighten as the company remained unable
to convert to a modern plan administration computer system due to its capital
constraints. By December 2001, management believed that most customer contracts
with renewal dates of January 1, 2002 would likely not renew and that most, if
not all, of its remaining customers would terminate by the first quarter of 2002
unless a new computer system was fully operational prior to that time. Potential
acquirers of WBAIS's business withdrew from negotiations in December after
determining they would be unable to complete required information systems
conversions in time to retain the

                                        6

<PAGE>

company's remaining customer accounts. Anchor advised WBAIS that working capital
sufficient to sustain operations into 2002 would likely not be available. As a
result, management concluded WBAIS would have no choice but to abandon its
service contract obligations and cease operations if an acceptable alternative
was not found.

      In order to avoid the imminent breach of its remaining service agreements
and preserve the value of its business for the benefit of the company, its
creditors, and its parent shareholder, WBAIS entered into an agreement with a
newly-formed Loomis subsidiary, Loomis Benefits West, Inc. dated and effective
January 1, 2002 (the "Commission Arrangement").

      The Commission Arrangement provides for WBAIS and its affiliates to
introduce benefit plan administration customers to LBW for a ten (10) year
period commencing on January 1, 2002. In exchange for the referrals and the
prospect of ongoing referrals, LBW agreed to pay WBAIS: (a) monthly "Base
Revenue Commissions" equal to 4% of LBW's "Base Gross Revenue" during 2002 -
2003 and 6% of LBW's Base Gross Revenue during 2004 - 2011; and (b) quarterly
"Business Development Consideration" in the amount of 10% of LBW's "Gross
Revenue" derived from "Referred Customers" during 2002 - 2011. "Gross Revenue"
under the Commission Arrangement means commissions and administration fees
earned by LBW on a cash basis less brokerage fees and commissions payable to
other brokers, refunds, rebates, credits, etc. "Base Gross Revenue" is defined
as "Gross Revenue" less "Gross Revenue" derived by LBW from "Referred
Customers." "Referred Customers" are defined as LBW customers that were not
previously customers of WBAIS and that become customers of LBW after January 1,
2002 through the direct or indirect referral of WBAIS or one of its affiliates,
including WNAH and its subsidiaries. The Commission Arrangement also requires
WBAIS to indemnify LBW and its affiliates from future claims brought by WBAIS's
creditors and other claimants for claims relating to or arising from obligations
or acts of WBAIS.

      WBAIS customers representing monthly service revenue of approximately
$150,000 engaged LBW as their employee benefits administrator beginning in
January 2002. A number of WBAIS accounts with January 1, 2002 renewal dates
failed to renew their contracts with LBW and have retained other service
providers. There can be no assurance regarding the duration of the customer
relationships LBW will maintain with its initial customers or others or the sums
WBAIS will ultimately receive from LBW under the Commission Arrangement.

      In addition to entering into the Commission Arrangement, WBAIS sold a
portion of its furniture located in its Portland, Oregon office to LBW. LBW also
reimbursed WBAIS for certain employee compensation and benefit expenses paid by
WBAIS in December 2001 and January 2002.

Liquidity and Working Capital Constraints

      Anchor and its subsidiaries do not have sufficient funds to meet their
delinquent and maturing debt obligations and maintain ongoing operations. The
Company will require funds in excess of those presently available to satisfy its
projected working capital and debt service needs in the normal course of
business over the next twelve months. The Company's outside auditors accordingly
noted in their report on the Company's December 31, 2001 and 2000 financial
statements that this fact, among others, raises substantial doubt about the
Company's ability to continue as a going concern.

      Anchor is the borrower under a secured term loan extended by Comerica
Bank, its commercial bank (the "Secured Bank Loan" and the "Bank" respectively).
The outstanding principal balance of principal of the Secured Bank Loan as of
December 31, 2001 was $502,486. The balance was subsequently reduced to $377,986
at March 31, 2002 through additional principal payments required by the Bank
under that certain Forbearance Agreement and Amendment to Promissory Note and
Conditional Consent to Subsidiary Transactions dated January 2, 2002 between the
parties (the "Forbearance Agreement"). The Forbearance Agreement amended the
repayment terms of the Secured Bank Loan making it payable in monthly amortized
installments of principal in the amount of $20,000, plus interest, with a
balloon payment of $257,986 due on October 5, 2002. The Forbearance Agreement
also evidenced the Bank's forbearance of Anchor's financial covenant defaults
under the Secured Bank Loan until January 31, 2002 and the Bank's consent to the
cessation and wind down of WBAIS's business. As a condition of its forbearance,
the Bank sought and obtained the execution and delivery of an Unconditional
Guaranty of the Secured Bank Loan by WNAH, Anchor's majority shareholder. The
repayment of the Secured Bank Loan is further secured by a blanket

                                        7

<PAGE>

security interest in favor of the Bank encumbering the assets of Anchor and its
subsidiaries.

      The Company has, to date, been able to make timely payments under the
Secured Bank Loan as amended by the Forbearance Agreement, but remains in
default of the financial covenants. The Forbearance Agreement expired as of
January 31, 2002 and has not been extended by an agreement of the parties. As a
condition of its forbearance, the Bank sought and obtained the execution and
delivery of an Unconditional Guaranty of the Secured Bank Loan by WNAH, Anchor's
majority shareholder. The Company seeks the Bank's continued forbearance of its
financial covenant defaults until the Secured Bank Loan's maturity date, October
5, 2002. Unless the Forbearance Agreement is extended, it is possible, if not
likely, that the Bank will pursue its remedies as a secured creditor under the
Secured Bank Loan in the near future. Further, it is doubtful the Company will
be able to meet its ongoing Secured Bank Loan payment obligations without
additional debt or equity financing due to it's other mounting delinquent and
maturing debts described below.

      As of December 31, 2001, Anchor had defaulted in the repayment of $310,000
of its Series B and Series D Debentures due to unaffiliated third parties and
$500,000, plus accrued interest of $101,667 under its Series E Debenture debt
held by WNAH. All the Company's outstanding Debenture debt is subordinate to the
Secured Bank Loan. While Anchor has continued to make quarterly interest
payments to its Series B and D Debenture holders, no agreements to extend the
repayment terms of the Debentures are currently in place. No interest has been
paid to WNAH under its Series E Debentures. The entire outstanding balance under
all the Company's Debenture debt remains immediately due and payable.

      WNAH has foregone collection of sums due under the $1,000,000 convertible
credit facility committed at the time of its purchase of Anchor preferred stock
(the "Convertible Loan"). At December 31, 2001, the outstanding principal
balance due to WNAH under the Convertible Loan was $999,000, plus accrued and
unpaid interest of $155,475.

      Since September 2000, WNA has provided administrative and overhead support
services to Anchor and its subsidiaries under an inter-company resource sharing
arrangement. WNA's overhead support includes the services of its senior
executive personnel as well as the performance of human resources, accounting,
insurance, legal, facilities management, information technology, and
administrative functions and the use of WNA's nationwide data network, hardware
and software infrastructure, web-site hosting capabilities and other
communications resources. Anchor and its subsidiaries initially agreed to pay
the sum of $12,500 per month for WNA's overhead support services. In January
2001, the monthly support fee was increased to 8% of monthly net revenue of
WBAIS and Harden-AZ and 10% of monthly net revenue of Spectrum CA to more
closely reflect the fair market value of the services and the amount of the
expense savings realized by Anchor and its subsidiaries under the arrangement.
WNA and other WNAH subsidiaries, Ward North America of Texas, Inc. ("WTX") and
Spectrum Managed Care, Inc. ("SMC"), has also made various demand loans to
Anchor and its subsidiaries in the form of cash advances or payments made on
their behalf subject to reimbursement. As of December 31, 2001, the aggregate
demand loan balance due to WNA, WTX and SMC was $768,890 and the balance of
unpaid overhead support charges was $457,533.

      While management believes Spectrum CA's available cash will be sufficient
to maintain its normal ongoing operations assuming no downturn in its business,
neither Anchor nor Spectrum CA had sufficient resources to satisfy the $500,000
balloon payment due to the Novaeon, Inc. Chapter 11 bankruptcy estate on April
30, 2002. In May 2002, Management obtained an amendment of the repayment terms
of the Novaeon Note to provide for monthly-amortized payments over a period of
12 months beginning on July 1, 2002. The Company paid $97,926 in principal and
accrued interest payments in May 2002, the remaining principal and accrued
interest of $457,353 plus 8% interest is due in 12 monthly payments of $39,784
until June 1, 2003.

      Anchor financed the Novaeon Asset acquisition and the start-up of Spectrum
CA with a $2,000,000 secured convertible loan from Legion. The Legion Note was
due in full on June 30, 2001. The maturity date was subsequently extended by
agreement of the parties to December 31, 2001; however, Anchor has failed to
make such payment. The Legion Loan is secured by a security interest in favor of
Legion encumbering all the Novaeon Assets, including substantially all the
assets and business of Spectrum CA, pursuant to the terms of a Security
Agreement between the parties dated January 12, 2001. Legion was placed into
Rehabilitation by court order under

                                        8

<PAGE>

Pennsylvania insurance law on April 1, 2002. As of that date, the Pennsylvania
Insurance Commissioner assumed possession and control of all Legion's assets and
business to protect the interests of Legion's policyholders. Anchor is seeking
to conduct negotiations with the Pennsylvania Insurance Commissioner regarding
an extension of the Legion Note's maturity and the amendment of other terms.
There can be no assurance that amended terms favorable to Anchor will result
from these efforts.

Employees

      As of April 30, 2002, Anchor's sole operating subsidiary, Spectrum CA,
employed approximately 48 full-time employees. Anchor has no employees, as the
officers conducting its activities are employed by one or more of its
affiliates, primarily WNA. None of Spectrum CA's employees are presently
represented by a union or covered by a collective bargaining agreement and
management believes its employee relations are good.

Regulation

      Spectrum CA's managed care operations depend on the continued validity and
good standing under the licenses and approvals pursuant to which it currently
operates. Licensing laws and regulations vary from jurisdiction to jurisdiction.
In all jurisdictions, the applicable licensing laws and regulations are subject
to amendment or interpretation by regulatory authorities. Such authorities
generally are vested with broad discretion as to the granting, renewing and
revoking of licenses and approvals.

      Other factors, such as uncertainty about the potential effect of health
care reform proposals, could also affect Spectrum CA's business. While Spectrum
CA does not expect sudden comprehensive changes in health care regulations, it
cannot predict the effect that any future health care reform legislation will
have on Spectrum CA's business condition or operations. Spectrum CA is unaware
of any current regulatory proposals that could have any material effect on its
liquidity, capital resources, or operations.

Reports to Stockholders

      Anchor will send its shareholders an Annual Report for the 2001 fiscal
year on Form 10-K that will include audited financial statements in conjunction
with a proxy at least 20 days prior to the next Stockholders Meeting to be held
in 2002. The Company is currently delinquent in filing its Form 8-K relating to
its acquisition of the assets and business of Novaeon, Inc. Provided sufficient
additional working capital is raised, the Company will seek to cure its Form 8-K
delinquency by filing required audited financial statements for the operation of
the Novaeon Assets by Novaeon, Inc., prior to their acquisition by Anchor. There
can be no assurance that such additional working capital will be available to
the Company in the near future, or at any time.

      The public may read and copy any materials filed with the SEC at the SEC's
Public Reference Room at 450 Fifth Street, N.W., Washington D.C. 20549. The
public may also obtain information regarding the operation of this Public
Reference Room by contacting the SEC by telephone at 1-800-SEC-0330.
Additionally, the SEC maintains an Internet site that contains reports, proxy
and information statements, and other information regarding issuers that file
electronically with the SEC at http://www.sec.gov.

Item 2.   Properties

      Anchor and its subsidiaries occupy portions of WNAH's executive offices in
San Diego, California pursuant to an overhead support and resource sharing
agreement with WNA. Spectrum CA leases approximately 3,084 square feet of office
space in Livonia, Michigan and 8,251 square feet of office space in Exton,
Pennsylvania. In addition, Spectrum CA occupies portions of SMC's offices in San
Antonio, Texas for which Spectrum CA pays its proportionate share of the
occupancy costs. Dedicated Spectrum CA case management and utilization review
units occupy space within five offices located in Illinois, Florida,
Pennsylvania, California and Texas of its largest customer for which it pays a
monthly all-inclusive fee covering rent, overhead and support services.
Harden-AZ remains obligated for approximately 6,992 rentable square feet of
office space in Scottsdale, Arizona. WBAIS remains subject to a lease for
approximately 17,987 rentable square feet of office space in Portland, Oregon.

                                        9

<PAGE>

Item 3.   Legal Proceedings

Anchor

      On May 15, 2002 Anchor and its majority shareholder, WNAH, settled
litigation pending before the Superior Court of Contra Costa, California, Case
Number COO-03258, with two of Anchor's former executive officers and its former
auditing firm. The litigation arose from various actions and events occurring in
1999 and 2000. Certain bifurcated claims against Anchor ordered to arbitration
by the court had previously resulted in a September 2001 arbitration award in
favor of its former Chief Executive Officer in the approximate amount of
$304,000. Under the terms of a global settlement, Anchor and WNAH jointly agreed
to pay Anchor's former Chief Executive Officer the sum of $365,000 with $240,000
of such amount being provided by their employee practices liability insurer.
Anchor had originally recorded legal costs of $384,000 for the anticipated
settlement of this case. As a result of the final settlement of approximately
$101,000 plus legal costs, Anchor reduced the accrual to $150,000 and recognized
a $234,000 expense credit in 2001. All causes of action against all corporate
and individual defendants and cross-defendants were dismissed with prejudice
under the settlement with no admission of fault or liability by any party.

      Management is not aware of any other litigation to which Anchor is
currently a party or to which any property of Anchor is subject, which might
materially adversely affect the financial condition or results of operations of
Anchor.

The WBA Companies

      Harden-AZ and WBAIS are defendants in a number of lawsuits seeking damages
for alleged professional negligence or breach of contract in the performance of
their employee benefit plan administration services. These matters are of a
nature and type that typically arise from time to time in the normal course of
business, and, except for claims that are strictly contractual in nature, are
covered under professional liability policies effective during the years in
which the alleged acts or omissions occurred.

      WBAIS is a defendant in an administrative proceeding before the Oregon
Bureau of Labor and Industries filed on March 1, 2001. The claimant in the
matter was an employee of WBAIS who was involuntarily terminated in October 2000
for excessive absenteeism. The claimant alleges the termination was in violation
of the federal Family Medical Leave Act, the Oregon Family Medical Leave Act,
and the Americans with Disabilities Act. The claim is covered under Anchor's
blanket employee practices liability insurance policy and its potential
liability for defense and indemnity costs is limited to the policy's per claim
deductible of $50,000.

      Although the pending professional negligence and employee liability claims
against the WBA companies are, for the most part, covered by insurance, such
insurance protection could be terminated if required deductible contributions
and payments are not made.

      Litigation has been commenced by the landlord of WBAIS's  Portland, Oregon
office and by the landlord of Harden-AZ's Scottsdale, Arizona office premises to
recover damages for the breach of their respective leases. The WBA companies
also foresee that additional litigation may be initiated in the future by other
unsecured trade creditors or claimants due to the companies' significant debt
balances and continuing errors and omissions tail exposure.

Spectrum CA

      Management is not aware of any legal proceedings against Spectrum CA or
involving any claim against property of Spectrum CA, which might materially
adversely affect its financial condition or results of operations.

Item 4.   Submission of Matters to a Vote of Security Holders

None.

                                       10

<PAGE>

                                     PART II

Item 5. Market for Anchor's Common Stock and Related Shareholder Matters

      As of December 31, 2001, Anchor's common stock and securities convertible
to Anchor common stock consisted of: (i) outstanding warrants to purchase
1,356,340 shares of Anchor common stock at exercise prices ranging between $0.50
to $1.75 per share; (ii) outstanding options to purchase 504,300 shares of
Anchor common stock at exercise prices ranging between $0.16 to $1.65 per share;
(iii) outstanding Series B, D and E debentures with an aggregate outstanding
balance of $810,000 convertible into 1,620,000 shares of Anchor common stock;
(iv) a convertible credit facility with an outstanding balance of $999,000
convertible into 2,217,782 shares of Anchor common stock; and (v) 1,853,300
issued and outstanding shares of Series A Convertible Preferred stock
convertible into 18,533,000 shares of Anchor common stock. As of December 31,
2001, there were 4,709,910 outstanding shares of Anchor common stock held by 596
shareholders of record.

      The following table sets forth historical trade information for Anchor
common stock through the quarter ended March 31, 2002.

<TABLE>
<CAPTION>
                                                             Quarterly             Quarterly           Quarterly
        Common Stock Quarterly Trade History                  Volume               High/Ask             Low/Bid
        -------------------------------------                 ------               --------             -------
<S>   <C> <C>                                                <C>                     <C>                  <C>
March 31, 2000 .........................................     182,300                 0.88                 0.38
June 30, 2000 ..........................................      30,900                 0.69                 0.16
September 30, 2000 .....................................           0                 0.16                 0.16
December 31, 2000 ......................................     377,200                 0.50                 0.09
March 31, 2001 .........................................     143,300                 0.52                 0.20
June 30, 2001 ..........................................      27,700                 0.33                 0.15
September 30, 2001 .....................................       6,500                 0.04                 0.02
December 31, 2001 ......................................      67,300                 0.26                 0.02
March 31, 2002 .........................................       5,000                 0.03                 0.02
</TABLE>

      Anchor's registered shares of common stock are publicly traded
over-the-counter securities (Symbol: APUX.PK) quoted by market makers in the
Pink Sheets. The limited and somewhat sporadic quotations should not of itself
be deemed to constitute an "established public trading market." At such time
that it meets certain minimum market capitalization requirements, Anchor intends
to seek to list its shares on The NASDAQ Small-Cap Market; however, there can be
no assurance as to when or whether such shares will be so listed.

      Holders of Anchor common stock are entitled to such dividends as may be
declared from time to time by the Board of Directors out of legally available
funds. Anchor has not paid any cash or stock dividends to date. Anchor does not
expect to pay dividends in the foreseeable future.

      On March 9, 2000, WNAH acquired a controlling interest in Anchor through
the purchase of 1,853,300 Series A Convertible Preferred shares ("Series A
Preferred"). The Series A Preferred shares are senior to the Company's common
stock and vote as if converted to common shares at the ratio of ten common
shares for each share of Series A Preferred. The sale of unregistered Series A
Preferred shares to WNAH was reported on Anchor's quarterly report for the
period ended March 31, 2000 on Form 10-Q, filed on May 15, 2000.

                                       11

<PAGE>

Item 6.   Selected Financial Data

      The following table sets forth certain historical information for Anchor
which is based on continued operations, and should be read in conjunction with
Anchor's audited financial statements that are included in this report. The
employee benefits plan administration operations conducted by Anchor's
subsidiaries were discontinued at the end of 2001 and, accordingly, are not
included in the presentation of income statement items (Revenues, Loss from
continuing operations, Loss Per common share from continuing operations) for all
years. The selected consolidated financial data for each of the five years in
the period ended December 31, 2001 have been derived from audited consolidated
financial statements of Anchor.

<TABLE>
<CAPTION>
                                                                   Anchor Pacific Underwriters, Inc.
                                                                        Selected Financial Data
                                                                        -----------------------

                                                  2001           2000           1999           1998           1997
                                                  ----           ----           ----           ----           ----
<S>                                           <C>            <C>            <C>            <C>            <C>
Revenues .................................... $ 4,673,678    $         -    $         -    $         -    $         -
Loss from continuing operations ............. $  (132,765)   $  (266,285)   $  (192,349)   $  (231,827)   $  (236,458)
Loss per common share from
   continuing operations .................... $     (0.03)   $     (0.06)   $     (0.04)   $     (0.05)   $     (0.05)
Weighted-average shares outstanding .........   4,709,910      4,710,029      4,710,056      4,710,057      4,612,153
Cash flow from operations (deficit) /(1)/ ... $   753,758    $(1,758,176)   $(1,354,862)   $    83,960    $  (406,752)
Total assets/(1)/ ........................... $ 2,060,002    $   995,788    $ 1,833,212    $ 4,137,552    $ 4,394,251
Working capital (deficit)/(1)/ .............. $(6,904,312)   $(4,405,947)   $(2,250,548)   $  (214,362)   $ 1,241,188
Total long-term liabilities/(1)/ ............ $         -    $   232,453    $ 1,747,612    $ 1,311,568    $ 1,785,309
Stockholders' equity (deficit) /(1)/ ........ $(6,182,060)   $(4,140,327)   $(2,779,059)   $  (301,088)   $   457,242
</TABLE>

___________
/(1)/  Includes discontinued operations.

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

General

      Anchor's financial condition continued to deteriorate during 2001 and it
reported a deficiency in assets of $6,182,060 and negative working capital of
$6,904,312 as of December 31, 2001. Ongoing operating losses and inadequate
working capital led to the wind down and closure of the WBA companies' benefits
plan administration business operations by January 2002. The financial
statements of the Company have been presented to classify the operations of the
WBA companies as discontinued operations. Without the business of the WBA
companies, Anchor did not have continuing operations in 2000 and 1999.

     The Company's plan in 2002 and beyond is to devote all available resources
to grow Spectrum CA's managed care business internally and, provided the Company
is successful in raising additional working capital, through acquisitions. There
can be no assurance, however, that additional working capital will become
available to the Company in 2002, or ever.

      Spectrum CA's principal business activity is managing the medical and
disability care received by injured employees receiving workers' compensation
benefits and employee and dependent participants in group accident and health
benefits plans. These services are performed by licensed registered nurses or
certified rehabilitation vocational counselors employed by Spectrum CA as case
managers. Spectrum CA's client base consists of employers and employer groups
that self-insure their workers' compensation risks, workers compensation
insurers including Legion, and national and regional third-party workers
compensation claims administrators, including WNA.

      Spectrum CA currently performs telephonic case management and utilization
review services at nine locations

                                       12

<PAGE>

throughout the United States, with its principal facility located in Exton,
Pennsylvania. Spectrum CA shares office space with WNA at three of the
locations. Dedicated Spectrum CA case management and utilization review units
occupy space within five offices of its largest third-party claims
administration client.

      Anchor and Spectrum CA, presently lack sufficient working capital to meet
their respective delinquent and maturing debt obligations. The Company's outside
auditors accordingly have noted that this fact, among others, raises substantial
doubt about the Company's ability to continue as a going concern.

      Negotiations involving Comerica Bank, Legion, and the Pennsylvania
Insurance Commissioner as Rehabilitator of Legion, among others, are ongoing
regarding a number of matters critical to the continued financial viability of
Spectrum CA and Anchor. These matters include: (a) Comerica Bank's extension of
the Forbearance Agreement relating to Anchor's covenant defaults under the
Secured Bank Loan beyond January 31, 2002 and the extension of the Loan's
maturity date beyond October 5, 2002; and (b) the extension of the Legion Loan's
maturity date beyond December 31, 2001. Recently, Comerica Bank sought and
obtained WNAH's guarantee of Anchor's obligations under the Secured Bank Loan.
Despite the guarantee provided by WNAH, there can be no assurance that Comerica
Bank will extend the term of the Forbearance Agreement beyond January 31, 2002
or agree to amend the Secured Bank Loan's maturity date as sought by Anchor. In
the event these debt agreements are not successfully re-negotiated, Anchor's
assets, including its ownership interest in Spectrum CA, and Spectrum CA's
ownership of its assets and business, would likely be subject to the Bank's
foreclosure rights under the Secured Bank Loan and Legion's foreclosure remedies
as a secured creditor under the Legion Loan. Should any of the above or other
possible contingencies occur, Anchor and Spectrum CA could be deprived of
substantially all of their assets and businesses.

      The Company is considering a number of refinancing alternatives to address
its debt and enable Anchor to remain in business and grow Spectrum CA's managed
care business. Critical components of any resulting plan will likely require the
restructuring of debt and the conversion of all, or significant portions, of
debt held by affiliated and unaffiliated creditors to Anchor or Spectrum CA
equity securities. Management anticipates any such plan will also require Anchor
and/or Spectrum CA to raise substantial additional working capital. In the event
Anchor is unable to raise additional working capital and successfully
restructure its debt obligations, the Company's assets and the assets of its
subsidiaries will remain subject to possible foreclosure by one or more secured
creditors. If such were to occur, the Company and its subsidiaries could be
forced to discontinue all operations and/or seek bankruptcy protection. There
can be no assurance that Anchor and Spectrum CA will be able to accomplish these
objectives and remain in business.

Results of Continuing Operations-Years Ended December 31, 2001, 2000 and 1999

       Results of continuing operations consist of the operations of Spectrum CA
and the general and administrative costs and interest expense of Anchor.
Spectrum CA was formed out of the acquisition of the assets of the bankruptcy
estate of Novaeon, Inc. in January 2001. Novaeon, Inc. experienced a substantial
change in business in 2000 as result of its bankruptcy; therefore, there are no
comparable operating results from 2000 and 1999 that would provide relevant
comparison to Spectrum CA's operating results in 2001. Except as may be
otherwise noted, the differences between 2001 results and prior years are, in
all instances attributable to the cessation of the employee benefits
administration businesses of the WBA companies at the end of 2001 and the
commencement of the managed care service business of Spectrum CA, in January
2001.

       Revenues

        Total Revenues. Total revenues from continuing operations for the year
ended December 31, 2001 were $4,673,678. The revenues were primarily generated
from telephonic case management and utilization services. During 2001, Spectrum
lost approximately 5 customer accounts representing 40% of the business obtained
in the Novaeon Asset acquisition. For the year ended December 31, 2001, two
customers represented 69%, or $3,227,623, of Spectrum CA's revenue in 2001. One
of those customers was from the Novaeon business and one was a new customer that
Spectrum CA gained as a result of its affiliation with WNAH.

                                       13

<PAGE>

       Expenses

      Total Operating expenses. Total operating expenses were $4,385,610 for the
year ended December 31, 2001. Operating expenses consisted mainly of employee
compensation and benefits and general and administrative costs.

      Employee compensation and benefits. Total employee compensation and
benefits for the year ended December 31, 2001 were $2,738,022. Spectrum CA had
on average 56 employees during the 2001 year and 47 employees at December 31,
2001. Salaries were $2,343,000 and benefits were $395,000, approximately 17% of
salaries. Benefits consisted of health and life insurance, payroll taxes and
401k contributions.

      Selling, general and administrative expenses. Selling, general and
administrative expenses for the year ended December 31, 2001 were $1,496,679.
These expenses consist mainly of rent expense of $472,415, corporate overhead
charge from WNAH of $464,973 and telecommunication costs of $179,534. Spectrum
CA has approximately 9 locations in the United States. Spectrum CA is charged
approximately 10% of its revenue by WNAH for corporate services such as
accounting, legal, human resources and IT provided by WNAH. Anchor and Spectrum
CA incurred $237,333 in professional fees for accounting and legal services, but
these expenses were offset by a $234,000 expense credit for the release of a
legal accrual from 2000 for litigation with two of Anchor's former executive
officers (Item 3. Legal Proceedings).

      Depreciation and amortization. Depreciation and amortization was $96,161
for the year ended December 31, 2001. The expense relates directly to the
$320,000 of equipment acquired in the Novaeon Asset purchase that is used by
Spectrum CA.

      Amortization of goodwill. Total amortization of goodwill was $54,748 for
the year ended December 31, 2001. At December 31, 2001, goodwill is comprised
solely of the goodwill recorded as a result of the Novaeon Asset purchase, and
is being amortized over 10 years. Goodwill represents the excess of the cost of
the acquisition over the fair value of net assets acquired.

      Interest expense. Total interest expense increased $159,342 or 61%, to
$420,036 for the year ended December 31, 2001 from $260,694 for the year ended
December 31, 2000. This increase was due to borrowings under the Novaeon Note
and the Legion Loan in 2001, in addition to interest on the Convertible Loan and
other debentures. Total interest expense increased $74,253 or 40%, to $260,694
for the year ended December 31, 2000 from $186,441 for the year ended December
31, 1999. This increase is attributable to accrued interest under the Series E
Debentures and the Convertible Loan.

Results of Discontinued Operations--Years Ended December 31, 2001, 2000 and 1999

         The discontinued operations of WBA primarily consisted of third-party
health benefits administration activities. The WBA companies engaged in
designing, implementing and administering health benefit plans for small to
medium sized employer groups. Administration services provided by WBA include
receiving and managing employer plan contributions and/or premium payments,
monitoring employee and dependent eligibility, preparing required government and
tax reports, handling day-to-day administration, reviewing and analyzing claims
data for coverage, and managing the claims settlement process. Due to continuing
revenue losses from terminating and non-renewing accounts, management determined
the WBA companies could not remain in business and service its customers beyond
the first quarter of 2002 and discontinued the business in January 2002.

       Revenues

         Total Revenues. Total revenues from discontinued operations decreased
$3,955,971 or 44%, to $5,043,166 for the year ended December 31, 2001 from
$8,999,137 for the year ended December 31, 2000. The decrease was due to the
continuous loss of customers during 2001. Significant customer accounts of
Harden - AZ and WBAIS terminated in the second quarter of 2001. WBA's

                                       14

<PAGE>

customers were dissatisfied with WBA's limited information systems capabilities
and service levels had reached the point that it appeared likely that most, if
not all, of WBA's customers would terminate their service agreements by the end
of the first quarter of 2002. Total revenues decreased $1,055,459 or 10%, to
$8,999,137 for the year ended December 31, 2000 from $10,054,596 for the year
ended December 31, 1999. The revenue consisted exclusively of fee, commission
and miscellaneous revenue of the WBA companies. The decrease in revenue was
primarily due to the non-renewal and cancellation of customer accounts in
WBAIS's Concord, California office and Harden-AZ's Arizona office.

      Loss from discontinued operations

      Loss from discontinued operations decreased $1,149,603 or 38%, to
$1,908,968 for the year ended December 31, 2001 from $3,058,571 for the year
ended December 31, 2000. The decrease in the loss from discontinued operations
in 2001 consisted of a $3,955,971 decrease in revenue netted with a $5,728,390
decrease in operating expenses and $459,887 loss on disposal of WBA. Total
operating expenses related to the discontinued operations were $6,468,748, a
decrease of $5,728,390, or 47%, as compared to $12,197,138 for the year ended
December 31, 2000. In September 2001, Harden-AZ closed its Scottsdale, Arizona
and San Antonio, Texas offices. WBAIS's accident and health plan administration
business was consolidated into its Portland, Oregon and Wheaton, Illinois
offices, which were closed in January 2002. Employee related costs decreased
$3,083,016 to $2,912,220 in 2001. The WBA Companies had 98 employees at December
31, 2000 and 17 at December 31, 2001. WBA wrote down $399,948 of internal use
software and other equipment that was abandoned during 2001. General and
administrative costs decreased $1,535,109, or 33%, to $3,156,580 from $4,691,689
for the year ended December 31, 2000 as a direct result of the wind down of the
business.

      Loss from discontinued operations increased $772,949 or 34%, to $3,058,571
for the year ended December 31, 2000 from $2,285,622 for the year ended December
31, 1999. The increase in the loss is the result of a decrease in revenue of
$1,055,459 combined with a decrease in expenses of $137,058. Total operating
expenses related to discontinued operations for 2000 were $12,197,138, a
decrease of $137,058, or 1%, as compared to 1999 operating expenses of
$12,334,196. The change in operating expenses is the net of a $1,926,000
decrease in employee related costs, a $982,000 increase in costs related to the
write down of internal use software and other assets, an impairment loss on
intangible assets of $462,000 and a $155,000 increase in legal costs. The
decrease in employee compensation and benefits related to reduction in staff in
all locations due to cost control measures, and a decrease in employee severance
costs.

      Liquidity and Capital Resources

      Anchor has a significant negative net worth and negative working capital,
and is in default of the terms of substantially all of its debt. The Company
will require funds in excess of those presently available to satisfy its
projected working capital and debt service needs in the normal course of
business over the next twelve months. The Company is seeking to restructure the
terms of its secured and unsecured debt but there can be no assurance that such
debt will be restructured to provide acceptable terms. In the event Anchor is
unable to raise additional working capital and successfully restructure its debt
obligations, the Company's assets and the assets of its subsidiaries will remain
subject to possible foreclosure by one or more secured creditors. If such were
to occur, the Company and its subsidiaries could be forced to discontinue all
operations and/or seek bankruptcy protection.

      Anchor reported net cash flows provided by operations of $753,758 for the
twelve months ended December 31, 2001, compared to net cash flows used in
operations of $1,758,176 for the twelve months ended December 31, 2000 and net
cash flows used in operations of $1,354,862 for the twelve months ended December
31, 1999. During 2001, Anchor repaid $198,000 on its Secured Bank Loan and met
its operating and capital needs from several sources, including, among others,
the use of proceeds of the Novaeon Note, the Convertible Loan, the Legion Loan,
and cash advances from WNA all as described below.

      The Company's reported net cash from operating activities for the twelve
months ended December 31, 2001 consists of a net loss from operations of
$2,041,733 reduced by non-cash items including: (i) depreciation and
amortization of $305,392; (ii) amortization of goodwill of $54,748; (iii) a
write down of internal use software and other equipment of $399,948; (iv) a net
increase in accounts payable and accrued expenses of $1,026,469; and (v) and a
net decrease in accounts receivables and other assets of $966,319. The increase
in accounts payable and accrued liabilities is the result of the lack of working
capital and the accrual of disposal costs related to the

                                       15

<PAGE>

divestiture of WBA.

      The primary uses of net cash from investing activities for the twelve
months ended December 31, 2001 were $1,524,469 for the purchase of the Novaeon
Assets and purchases of new systems and computer equipment of $525,796.

      Net cash provided by financing activities for the twelve months ended
December 31, 2001 was $1,886,033 consisting of: proceeds from the $2,000,000
Legion Loan, operating charges and advances from the subsidiaries of WNAH of
$502,316, $90,000 from the Convertible Loan, and $130,653 from increases in
other debt; reduced by repayments of: $198,000 on the Secured Bank Loan,
$409,000 on short-term advances from WNAH, $91,000 on the Convertible Loan,
$67,331 on other debt and $71,605 on capital lease obligations.

      Capital and certain acquisition related expenditures were $2,050,265,
$821,628 and $323,607 for the twelve months ended December 2001, 2000 and 1999
respectively. The 2001 expenditures primarily related to the purchase of the
Novaeon Assets, and software development, implementation and hardware costs
incurred by the WBA companies in their attempt to convert to a modern benefits
plan administration computer system.

      Short-term borrowings, the current portion of long-term debt and the
current portion of capital lease obligations in the aggregate totaled $5,817,503
at December 31, 2001 (as compared to $3,505,572 at December 31, 2000). As of
December 31, 2001, short-term borrowings, the current portion of long-term debt
and the current portion of capital lease obligations consisted of: (a) $502,486
due under the Secured Bank Loan (described below); (b) other debt of $157,598;
(c) aggregate current Series B, D and E Debenture debt in the amount of $810,000
(described below); (d) $2,000,000 due under the Legion Loan (described below);
(e) $500,000 due under the Novaeon Note (described below); (f) $79,529 in
current capital lease obligations; and (g) $999,000 due to WNA under the
Convertible Loan (described below).

      At December 31, 2001, Anchor had no long-term debt as all indebtedness was
due within twelve months as compared to long-term capital lease obligations of
$232,453 at December 31, 2000.

      Anchor has not paid cash dividends in the past and does not expect to pay
cash dividends in the foreseeable future.

      Description of Delinquent Debt Obligations: The following is an overview
of the major delinquent debt obligations of Anchor and its remaining operating
subsidiary, Spectrum CA.

      Series B Debentures: At December 31, 2001 the outstanding principal
immediately due and payable to the holders of Anchor's 10% Convertible
Subordinated Debentures, Series B ("Series B Debentures") was $75,000. The
holders of the Series B Debentures are unaffiliated third parties. The basic
terms of the Series B Debentures are: (a) 10% interest, payable semi-annually in
arrears; (b) two year maturity; (c) conversion price of $0.50 per share; (d)
"Piggyback" registration rights for three years; (e) for each $5,000 of Series B
Debentures acquired, an investor received a five year warrant to acquire 2,000
shares of Anchor common stock at an exercise price of $0.50 per share; and (f)
subordination provisions that subordinate the Series B Debentures to Anchor's
"Senior Debt" (as defined in the Series B Debentures to include the Secured Bank
Loan described herein).

      Series D Debentures: At December 31, 2001, $235,000 of Anchor's 10%
Convertible Subordinated Debentures, Series D (the "Series D Debentures")
remained outstanding and immediately due and payable. The holders of the Series
D Debentures are unaffiliated third parties. The basic terms of the Series D
Debentures are: (a) 10% interest, payable semi-annually in arrears; (b) two year
maturity; (c) conversion price of $0.50 per share; (d) "Piggyback" registration
rights for three years; (e) for each $5,000 of Series D Debentures acquired, an
investor received a five year warrant to acquire 3,000 shares of Anchor common
stock at an exercise price of $0.50 per share; and (f) subordination provisions
that subordinated the Series D Debentures to Anchor's "Senior Debt" (as defined
in the Series D Debentures to include the Secured Bank Loan described herein).

      Series E Debentures: At December 31, 2001, the principal sum of $500,000
plus unpaid interest of $101,667 was immediately due and payable to WNAH under
the Company's 10% Convertible Subordinated Debentures,

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<PAGE>

Series E (the "Series E Debentures"). The basic terms of the Series E Debentures
are: (a) two year maturity subject to acceleration to July 1, 2000, if requested
by WNAH; (b) conversion price of $0.50 per share; (c) "Piggyback" registration
rights for three years; (d) for each $5,000 of Series E Debentures acquired,
WNAH received a five year warrant to acquire 3,000 shares of Anchor common stock
at an exercise price of $0.50 per share; and (e) subordination provisions that
subordinates the Series E Debentures to Anchor's "Senior Debt" (as defined in
the Series E Debentures). The Series E Debentures are superior in repayment
priority to the Series B and D Debentures but are subordinate to "Senior Debt,"
including the Secured Bank Loan.

      At December 31, 2001 the aggregate principal immediately due and payable
under the Company's Series B, D, and E Debentures was $810,000.

      Secured Bank Loan: On September 30, 1999, Anchor entered into a term loan
of $931,485 with is commercial bank, Imperial Bank, now Comerica Bank following
a 2001 merger, (the "Bank") combining the balances owing under an existing term
loan with an additional loan amount of $250,000 (the "Secured Bank Loan"). The
basic terms of the loan were: (a) monthly interest payments equal to bank's
prime rate, plus 2.5%; (b) a maturity date of October 7, 2002; and (c) monthly
principal payments of $16,500 beginning on November 7, 1999. The Secured Bank
Loan is secured by a blanket security interest encumbering receivables, property
and equipment, and other assets of Anchor and its subsidiaries. The loan
agreement contains certain restrictive covenants that, among other things,
require Anchor to maintain certain levels of net worth and cash flow (as
defined), and prohibits the payment of dividends. Anchor was not in compliance
with these covenants as of December 31, 2001. The unpaid principal balance under
the Secured Bank Loan at December 31, 2001 of $502,486 has been reclassified as
a current liability.

      The unpaid balance of the Secured Bank Loan was subsequently reduced to
$377,986 at March 31, 2002 through additional principal payments required by
Comerica Bank under a Forbearance Agreement and Amendment to Promissory Note and
Conditional Consent to Subsidiary Transactions between the parties dated January
2, 2002 (the "Forbearance Agreement"). The Forbearance Agreement amended the
repayment terms of the Secured Bank Loan making it payable in monthly principal
installments of $20,000, plus accrued interest, with a balloon payment of
$257,986 due on October 5, 2002. The Forbearance Agreement also evidenced the
Bank's forbearance of Anchor's Secured Bank Loan covenant defaults until January
31, 2002 and its consent to the cessation of WBAIS's business. As a condition of
its forbearance, the Bank sought and obtained the execution and delivery of an
Unconditional Guaranty of the Secured Bank Loan by WNAH, Anchor's majority
shareholder. Anchor remains in default under the Secured Bank Loan covenants
and, following the expiration of the Forbearance Agreement on January 31, 2002,
the Bank is no longer restricted from seeking the immediate repayment of the
Secured Bank Loan or pursuing other remedies arising from the default. The
Company is engaged in ongoing negotiations with the Bank concerning further
extension of the Forbearance Agreement. There can be no assurance, however, that
the Bank will agree to such an extension or that an extension on terms
acceptable to the Company will be negotiated.

      Convertible Loan: In conjunction with its purchase of the Series A
Preferred shares in March 2000, WNAH also agreed to provide Anchor with a
$1,000,000 Convertible Loan. The Convertible Loan was made available immediately
following the closing of the Series A Preferred stock purchase transaction.
Principal advances under the Convertible Loan bear interest at the rate of ten
percent (10%) per annum and interest is payable quarterly. The outstanding
balance of principal and interest under the Convertible Loan was due and payable
on March 10, 2002. The Convertible Loan is convertible, at WNAH's option, into
shares of Series A Preferred stock which are further convertible into a number
of shares of common stock at a rate of 10 to 1, which, when added to the shares
of common stock issued or issuable pursuant to the Series E Debentures (not
including the warrants accompanying the Series E Debentures) and other shares of
Series A Preferred issued to WNAH, would constitute 82.2% of Anchor's common
stock on a fully-diluted basis following such conversion. At December 31, 2001
the outstanding balance of principal and interest due under the Convertible Loan
was $1,154,475. Anchor failed to make quarterly interest payments in 2000 and
2001 and, as a result of the default, the outstanding balances due at December
31, 2000 and 2001 have been classified as current.

      The Convertible Loan remains in default. Anchor is engaged in ongoing
negotiations with WNAH concerning an extension of the maturity date and further
forbearance of its interest payment defaults. There can be no assurance that the
terms of the Convertible Loan will be amended in a manner acceptable to the
Company or that the Company will be able to comply with any such amended terms.

                                       17

<PAGE>

      Affiliate Demand Loans and Overhead Support Charges: Since September 2000,
WNA has provided administrative and overhead support services to Anchor and its
subsidiaries under an inter-company resource sharing arrangement. WNA's overhead
support includes the services of its senior executive personnel as well as the
performance of human resources, accounting, insurance, legal, facilities
management, information technology, and administrative functions and the use of
WNA's nationwide data network, hardware and software infrastructure, web-site
hosting capabilities and other communications resources. Anchor and its
subsidiaries initially agreed to pay the sum of $12,500 per month for WNA's
overhead support services. The monthly support fee was increased to 8% of
monthly net revenue of WBA and 10% of monthly net revenue of Spectrum CA in
January 2001 to more closely reflect the fair market value of the services and
the amount of the expense savings realized by Anchor and its subsidiaries under
the arrangement. WNA and other WNAH subsidiaries, WTX and SMC, has also made
various demand loans to Anchor and its subsidiaries in the form of cash advances
or payments made on their behalf subject to a reimbursement obligation. As of
December 31, 2001, the aggregate demand loan balance due to WNA, WTX and SMC was
$768,890 and the balance of unpaid overhead support charges was $457,533.

      Novaeon Note: The consideration for the Novaeon Assets under the Asset
Purchase Agreement was a cash payment of $1,500,000 and delivery of Anchor's
contingent promissory note for $3,500,000. The principal amount of the Novaeon
Note has been retroactively reduced to $500,000 as of January 12, 2001 under the
Note's contingent adjustment provision based on revenues received in 2001 from
the operation of the purchased assets. All principal and accrued interest under
the Novaeon Note was due and payable on April 30, 2002. In May 2002, the Company
obtained an amendment of the repayment terms of the Novaeon Note to provide for
monthly-amortized payments over a period of 12 months beginning on July 1, 2002.
The Company paid $97,926 in principal and interest payments in May 2002, the
remaining principal and interest of $457,353 plus 8% interest will be paid in 12
monthly installments of $39,784 until June 1, 2003.

      Legion Note: Anchor financed the purchase of the Novaeon Assets with a
$2,000,000 loan provided by Legion evidenced by a promissory note in favor of
Legion. The Legion Note was automatically convertible into Anchor securities in
the event Anchor completed an equity offering resulting in gross proceeds of at
least $3,000,000 by June 30, 2001. In conjunction with the making of the Legion
Loan, WNAH and Legion executed a Note Purchase Agreement dated January 12, 2001
granting Legion the right to cause WNAH to purchase the Legion Note in exchange
for the issuance of WNAH common stock to Legion in the event Anchor failed to
repay the Note or complete a minimum $3,000,000 equity offering by June 30,
2001. Anchor and WNAH also entered into that certain Assignment and Assumption
Agreement for Novaeon Transaction dated January 12, 2001 providing that if WNAH
purchased the Legion Note under the Note Purchase Agreement, WNAH would cancel
Anchor's obligations under the Legion Note and assume its obligations under the
Novaeon Note in exchange for 100% of Spectrum CA's capital stock owned by
Anchor.

      Anchor failed to complete a $3,000,000 equity offering or satisfy the
Legion Loan by June 30, 2001. On November 21, 2001, Legion and Anchor executed a
First Amendment to Promissory Note extending the due date of the Legion Loan and
Legion's right to cause Anchor to purchase the Legion Note under the Note
Purchase Agreement to December 31, 2001. Anchor was engaged in discussions with
Legion regarding the further extension of the Legion Note's maturity when a
Pennsylvania court appointed the Pennsylvania Insurance Commissioner as Legion's
Rehabilitator. The court ordered the Commissioner to assume possession and
control of all Legion's assets and business for the protection of policyholders
as of that date. All further negotiations concerning the

      Legion Note will be conducted with the Pennsylvania Insurance
Commissioner. There can be no assurance that an amendment of the Legion Note's
repayment terms acceptable to the Company will be obtained or that the
Rehabilitator will not commence legal action to collect the debt.

Financing Activities

      Since mid-2000, Anchor has unsuccessfully attempted to raise additional
equity and/or debt capital. One financing alternative under consideration by
Anchor contemplates funds to be provided by WNAH. WNAH, however, is currently
prohibited under its Securities Purchase Agreement with Anchor from acquiring
additional Anchor equity unless it first makes a tender offer to buy all of the
shares of Anchor's common stock not then owned by WNAH, or its affiliates, at a
purchase price equal to the greater of: (i) $0.80 per share (as adjusted for
stock

                                       18

<PAGE>

splits, combinations or dividends with respect to such shares) or (ii) the
price per share determined by assuming the value of Anchor to the be equal to
Anchor's earnings before income taxes ("EBIT") for the 12 full calendar months
preceding the month in which the offer is made, multiplied by six (6) and
divided by the number of shares outstanding of the Company on a fully diluted
basis. This contractual restriction expires in March 2003. Any equity
refinancing proposal involving funds to be provided by WNAH would likely be
contingent upon WNAH successfully completing its own private equity offering
which commenced in April 2002 and the approval of Anchor's disinterested common
shareholders. There can be no assurance that a commitment from WNAH to provide
additional funds to Anchor will be obtained or, if such an agreement is reached,
that WNAH will be successful in its own efforts to raise additional working
capital or that such a plan would be acceptable to Anchor's common shareholders.

      Anchor's Board of Directors is also assessing a variety of other
re-financing alternatives involving, among other things, the conversion of debt
held by affiliated (including WNAH and Legion) and unaffiliated creditors to
Anchor stock. The Company also intends to seek an extension of the maturity of
the Secured Bank Loan beyond October 2002. While the Board will continue to
pursue re-financing alternatives, there can be no assurance that the Company
will be successful, as any plan will necessarily involve multiple parties and
contingencies.

Recently Issued Accounting Statements

      In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other
Intangible Assets." These Statements change the accounting for business
combinations and goodwill. SFAS No. 141 requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001.
SFAS No. 141 did not have a material impact on the Company's consolidated
results of operations, financial position, or cash flows. The amortization of
goodwill, including goodwill recorded in past business combinations, will cease
when the Company adopts SFAS No. 142 on January 1, 2002. The Company estimates
the impact on the consolidated statement of operations for the year ended
December 31, 2002 for the elimination of goodwill amortization will be a
reduction in operating expenses of approximately $55,000. The Company has not
performed a valuation analysis under SFAS No. 142 on the goodwill from the
Spectrum CA acquisition and has not determined the impact of any impairment
adjustment on its consolidated results of operations, financial position or cash
flows.

      In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the
accounting and reporting provisions of APB Opinion No. 30, "Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual, and Infrequently Occurring Events and
Transactions," for the disposal of a segment of a business (as previously
defined in that opinion). SFAS No. 144 will be adopted by the Company as of
January 1, 2002. The Company has not yet determined the impact of its adoption
on its consolidated results of operations, financial position or cash flows.

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk

      The Company does not maintain any long-term investments, nor does the
Company foresee being in the position of acquiring any long-term investments
within the next year. Due to only having short-term investments with maturities
of 90 days or less, Anchor is not subject to the risk involved with market
interest rates changes.

      Anchor does not engage in trading market risk sensitive instruments and
does not purchase as investments, hedges, or for purposes other than trading,
financial instruments that are likely to expose the Company to market risk,
whether it be from interest rate, foreign currency exchange, commodity price, or
equity price risk. The Company has not entered into forward or futures contract
or swaps, nor has it purchases options.

                                       19

<PAGE>

Risk Factors That May Affect Future Results

      Anchor's business, financial condition, cash flows, and results of
operations may be impacted by a number of factors, including, but not limited
to, the following, any of which could cause actual results to vary materially
from current and historical results or Anchor's anticipated future results.

      Anchor working capital deficiencies. The Company is insolvent and lacks
sufficient working capital to meet its known debt obligations and other
potential contingent liabilities. Management intends to seek to induce various
creditors to forbear their debt and exchange all or a substantial portion of it
for Anchor equity securities. In addition, the Company will seek to amend the
repayment terms and further default forbearances under other secured and
unsecured debt. If Anchor is unable to raise substantial additional working
capital and restructure its debt obligations, the Company's assets, and the
assets of its subsidiaries, will remain subject to possible foreclosure by one
or more secured creditors and attachment by creditors that are able to obtain
judgments against the Company. If such contingencies were to occur, the Company
and its subsidiaries could be forced to discontinue all operations and/or seek
bankruptcy protection.

      Encumbrance of Spectrum CA's assets and business. Spectrum CA remains the
Company's sole operating subsidiary following the cessation of business by the
WBA companies. Management's plan is to focus on the growth of Spectrum CA's
managed care business. As previously described, the Company's commercial bank,
Comerica Bank, and Legion both assert security interests encumbering Spectrum
CA's assets and business. Unless Anchor is able to renegotiate the terms of the
Secured Bank Loan and the Legion Loan or raise sufficient funds to satisfy them,
the assets and business of Spectrum CA could be subject to foreclosure by
Comerica Bank or the current holder of the Legion Loan, the Pennsylvania
Insurance Commissioner. There can be no assurance given that Anchor will be
successful renegotiating these loans, any of which, could result in the loss of
Spectrum CA's business operation and assets to a third party.

      Customer concentration. Spectrum CA derives approximately 69% of its
revenue from two customers. One of these customers, Legion, was placed into
voluntary rehabilitation by the Commonwealth Court of Pennsylvania an April 1,
2002. Beginning on April 1, 2002, Legion will operate in run-off under the
control of the Insurance Commissioner of the Commonwealth of Pennsylvania as
Rehabilitator. Legion will not write any new insurance policies. Management is
uncertain as to the effect of Legion's voluntary rehabilitation on the Company.
Should Spectrum CA's business with these customers terminate, it will need to
significantly reduce operating expenses to meet its liquidity requirements. If
Spectrum CA cannot meet its liquidity requirements, its operations and financial
condition will be materially and adversely affected.

      Limited operating history and net losses. The Company's ongoing managed
care business was purchased in January 2001. Prior to purchase, the predecessor
operator of the business, Novaeon, Inc., sustained significant losses and
negative cash flows. The Company cannot assure that it will be successful in
implementing its long-term growth strategy or that it will not sustain operating
losses in the future.

      Pending and future legal proceedings. The Company's subsidiaries are, from
time to time, the subject of claims for professional negligence or breach of
contract under customer service agreements, and other general claims that may
arise in the normal course of business. An adverse determination against Anchor
or Spectrum CA in any pending or future legal proceedings would have a material
adverse effect on the Company's business, financial condition, cash flows and
results of operations.

      Fluctuations in quarterly operating results. Anchor has experienced in the
past, and will continue to experience in the future, quarterly variations in net
revenues and net income. Thus, operating results for any particular quarter are
not necessarily indicative of results for any future period. Factors that have
affected quarterly operating results include: (i) the timing of new customer
contracts or termination of existing contracts; (ii) competitive conditions in
its industry; (iii) acquisitions; (iv) general economic conditions; and (v) the
level of operating expenses incurred by its Anchor and its subsidiaries. Many of
these factors are beyond Anchor's control.

      Volatility of trading price. The trading price of Anchor's common stock
has fluctuated widely in response to variations in Anchor's quarterly operating
results, changes in the Company's business, and changes in general market

                                       20

<PAGE>

and economic conditions. The shares of the Company's stock are thinly traded,
resulting in wide price fluctuation. There can be no assurance that this
volatility will decrease, or that liquidity of the Company's shares will
improve.

      Compliance with Securities Act reporting requirements. The Company has
failed to satisfy its reporting requirements under the Securities Exchange Act
of 1934 during the preceding twelve months. Management plans to file the
required attachments to its delinquent Form 8-K filing in connection with
Anchor's purchase of the Novaeon Assets upon receipt of audited financial
statements for the Novaeon Assets. The Company does not have sufficient cash
resources at this time, however, to pay the estimated professional fees for the
required audit services. As a result, there can be no assurance the Company will
complete the above actions in the near term, if ever. The Company is late filing
the quarterly report on Form 10-Q for the quarter ended March 31, 2002. The
Company plans to file the Form 10-Q for the quarter ended March 31, 2002 in the
near future.

      Competition. The market for managed care services is highly competitive.
Many of Spectrum CA's competitors have significantly greater personnel and
financial resources and serve a much greater share of the available market. In
addition, new and greater competition may emerge from unknown sources at any
time. The Company cannot assure that it will be able to compete successfully
against current and future competitors.

      Dependence on key personnel. Anchor's future success will depend largely
on the efforts and abilities of its executive officers and certain key
managerial, technical and sales employees. The Company does not maintain life
insurance policies on its key personnel. Furthermore, the executives performing
critical functions as officers of Anchor and Spectrum CA are employed by WNA.
The employment of substantially all of those employees is terminable at will by
the employer or the employee. The loss of any of the services of these
executives to Anchor or its subsidiaries could have a material adverse effect on
the Company's business, financial condition, cash flow and results of
operations. Anchor cannot assure that it will be successful in retaining the
services of such key personnel.

      Inflation & technology. The health insurance industry, and particularly
the managed care sector, continuously seek broader services and greater savings
from service providers. Market demand for computer systems that improve
productivity, accommodate electronic data interchange, and provide internet
client and provider interfaces requires managed care service providers to
maintain significant investments in information technology equipment, systems
and infrastructure. Managed care service providers that are unable to maintain
such investments in state-of-the-art systems will find it increasingly difficult
to satisfy customer service requirements and remain cost-competitive. There can
be no assurance, given Spectrum CA's current working capital constraints, that
it will be able to maintain a competitive position in the market.

Item 8.   Financial Statements and Supplementary Data

      Our consolidated financial statements and footnotes and the reports of
independent auditors thereon are included in this report on pages F-2 through
F-25.

Item 9.   Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure

      As described more fully in a Current Report filed with the SEC on February
12, 2001 Anchor orally dismissed Odenberg, Ullakko, Muranishi & Co. ("OUM")
effective January 17, 2001 and, effective as of such date, engaged Deloitte &
Touche LLP ("D&T") as its independent accountants. The change in independent
accountants was approved by Anchor's Board of Directors. The primary reason for
the change at that time was that Anchor had recently moved its principal
executive offices from Concord, California to San Diego, California. OUM's sole
offices are located in San Francisco, California, and Anchor's Board of
Directors believe that it would be in Anchor's best interests to have
independent accountants located nearer to its offices in San Diego. Subsequent
events and the further discovery of facts relating to OUM's actions in 1999 and
2000 led to the Company's reclassification of certain transactions and the
initiation of legal proceedings against OUM as described below.

      The reports of OUM on Anchor's financial statements as of and for the
years ended December 31, 1998 and 1999 did not contain any adverse opinion or
disclaimer of opinion, nor were they qualified or modified as to

                                       21

<PAGE>

uncertainty, audit scope, or accounting principles. Except for the
reclassification of certain 1999 transactions described below, during the period
from January 1, 1998 to the present, there were no disagreements with OUM on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedures which, if not resolved to the satisfaction of OUM,
would have caused OUM to make reference to the subject matter of such
disagreements in connection with its Report, and OUM did not advise Anchor as to
any matters that would be required to be disclosed pursuant to paragraph
(a)(1)(iv) or (a)(1)(v) of Item 304 of Regulation S-K.

      The Company has reclassified certain fiscal year 1999 withdrawals of funds
held in client fiduciary accounts of its discontinued WBA business and owed to
such fiduciary accounts at December 31, 1999. The general circumstances of the
reclassification are disclosed in Note 2 to the Consolidated Financial
Statements of the Annual Report for the year ended December 31, 2000 filed on
the Form 10-K on February 8, 2002 but are more fully described below.

      At December 31, 1999, the Company, under former management, had, without
authorization, withdrawn $160,000 of client fiduciary funds and used them to
satisfy certain obligations in its business. Such amounts were improperly
classified as deferred revenue in the Company's financial books and records at
December 31, 1999 and have since been reclassified as amounts due to fiduciary
funds for the fiscal year ending December 31, 1999 to conform to fiscal year
2000 financial statement presentation. Such reclassification had no effect on
1999 net income as previously reported. During the first three months of 2000,
the Company, under former management, made additional unauthorized withdrawals
from fiduciary funds in the amount of $114,000 for use in its operations. All
outstanding sums due to fiduciary funds were repaid by the Company in March
2000. In February 2002, Anchor filed a lawsuit against OUM seeking damages for
professional negligence in connection with the performance of its services in
1999 and 2000 relating to these matters. OUM filed a cross-complaint against the
Company in response. The respective claims of Anchor and OUM were settled on May
15, 2002 with each party agreeing to release the other and bear its own legal
fees and litigation expenses.

      At no time during the fiscal years ended December 31, 1998, 1999 and 2000,
or during the subsequent interim periods preceding D&T's engagement as Anchor's
independent public accountants, did Anchor consult with D&T regarding the
application of accounting principles to any transaction, the type of audit
opinion that might be rendered on the financial statements of Anchor or any
matter that was either the subject of a disagreement (as defined in Item
304(a)(1)(iv) of Regulation S-K and the related instructions to such Item) or a
reportable event (as described in Item 304(a)(1)(v) of Regulation S-K.)

                                       22

<PAGE>

                                    PART III

Item 10. Directors and Executive Officers of Anchor

      The following information is provided regarding the executive officers and
directors of Anchor as of December 31, 2001.

                     Name             Age                 Position
                     ----             ---                 --------

Jeffrey S. Ward ....................   41     Chief Executive Officer, Chairman
                                              and Director
Gerard A.C. Bakker .................   56     President and Director
Kevin P. Jasper ....................   49     Executive Vice President,
                                              Secretary, and Director
Thomas O. Hedford ..................   60     Senior Vice President
Russell A. Whitmarsh ...............   41     Director

     Jeffrey S. Ward Mr. Ward has served as a Director, Chairman, and Chief
Executive Officer of Anchor since March 2000. He is employed as Chairman and
Chief Executive Officer of WNA and also serves as Chairman and CEO of WNAH and
CEO of its other subsidiaries, Spectrum Managed Care, Inc., and Ward-Interspect,
Ltd. These firms specialize in providing a diverse array of claims management
solutions to the Insurance and Alternative Risk markets through over 70 offices
in the United States and Canada. Mr. Ward began his career in 1980 as a
multi-line adjuster for a regional adjusting firm in Southern California, A.L.
Wisdom & Associates ("Wisdom"). From 1985 to 1988, Mr. Ward served as Vice
President of Operations for Wisdom. In 1988, he formed J.S. Ward & Co., which
operated as a third-party administrator for self-insured's and simultaneously
led a management buyout of Wisdom. In 1991, both J.S. Ward & Co. and Wisdom were
acquired by Swiss-Re owned Thomas Howell Group; an international loss adjusting
firm based in London, and merged together to form Ward-THG. Mr. Ward served as
CEO of Ward-THG, Inc. from 1991 to 1995. In 1995, Mr. Ward was appointed
President of the General Claims Services operation of Atlanta-based Thomas
Howell Group (Americas), Inc., which included Gay & Taylor, Inc. one of the
largest adjusting companies in the United States, founded in 1928. Later that
year he formed Ward North America Holding, Inc. and led the management buy-out
of Ward-THG and Atlanta based Gay & Taylor from Swiss-Re. Mr. Ward holds a
Bachelor's degree in Business Administration from the University of San Diego.
He is also a member of the San Diego Chapter of the Young Presidents
Organization.

      Gerard A.C. Bakker. Mr. Bakker became a Director of Anchor in March 2000
and joined WNA and WNAH as Senior Vice President in February 2000. He was
appointed President of Anchor in March 2001. Mr. Bakker began his career 30
years ago in Switzerland in a troubleshooting and consulting capacity for a
multinational industrial company. Subsequently he worked as Vice President for
Walter E. Heller and Company, a U.S. financial corporation in Europe from
1978-1982. From 1982-1989, he served as a partner in one of the oldest European
loss adjusting firms, A. Kiewit working out of Antwerp, Belgium. After the
acquisition of A. Kiewit and Thomas Howell Group ("THG") in 1991 by Swiss Re he
became responsible for all adjusting operations in Europe and subsequently
became COO in 1994 of THG (Americas) in which capacity he assisted Ward-THG with
the buy-out in 1995 of Ward-THG and Gay & Taylor from Swiss Re. Mr. Bakker holds
a Bachelor's degree in Business Administration from the University of Public and
Business Administration in St. Gall, Switzerland and a MBA from Northwestern's
School of Management.

     Kevin P. Jasper. Mr. Jasper has held the positions of Director, Executive
Vice President and Assistant Secretary of Anchor since March 2000. He was
appointed Secretary in December 2000. Mr. Jasper is employed by WNA and has
served as Executive Vice President of WNA and WNAH since January 2000. Mr.
Jasper joined WNA and WNAH as Vice President - Strategic Planning and since that
time has served as Senior Vice President and Chief Administrative Officer until
assuming his current positions. From 1993 to 1997, Mr. Jasper was self-employed
and developed and operated multi-family real estate projects in California for
his own account. Prior to 1993, Mr. Jasper was involved as a principal in 3
start-up business enterprises. From 1989 through 1992 he co-founded and held
executive management positions, including President - Manufacturing, in Gigatek
Memory Systems, Inc., a manufacturer of computer memory storage products. In
1991, Mr. Jasper co-founded and served as a director of Sassaby, Inc. a
manufacturer of cosmetic accessories and developer of a branded cosmetics line,
JANE. That same year he also co-founded and served as a director of the
predecessor entity to Trega Biosciences, Inc. (Nasdaq

                                       23

<PAGE>

National Market - "TRGA"). Mr. Jasper holds a B.S. in Accounting from San Diego
State University and is a Magna Cum Laude graduate of California Western School
of Law. He was admitted to the California Bar in 1979.

     Thomas O. Hedford. Mr. Hedford served as Executive Vice President of Anchor
from 1998 until May 2000 and Senior Vice President from May 2000 until his
resignation effective December 31, 2001. He was made President - Sales and
Marketing of WBAIS and shared an "Office of the President" role with the
company's former Chief Operating Officer beginning in March 2000. He was later
promoted to President of WABIS in April 2001 and served in that capacity until
December 31, 2001. Mr. Hedford joined Harden & Company Insurance Services, Inc.,
as Executive Vice President when it acquired PHA's employee benefits
administration division in 1998. He served in that capacity until March 2000
when Ward North America Holding, Inc., purchased a majority interest in Harden &
Company's parent, Anchor Pacific Underwriters, Inc. At that time, Mr. Hedford
became Senior Vice President of Anchor and President - Sales and Marketing of
Harden & Company (now known as Ward Benefits Administrators & Insurance
Services, Inc.). Mr. Hedford received a B.A. degree in Mathematics from the
University of Washington in 1963. He has been a Member of the Academy of
Actuaries since 1971 and was admitted as a Fellow of Actuaries in 1976. Mr.
Hedford is a past Chairman of Oregon's Pool for Uninsurable Individuals and
former Treasurer of the Oregon Life & Heath Guaranty Association.

     Russell A. Whitmarsh. Mr. Whitmarsh is employed by WNA and holds the office
of Senior Vice President for both WNA and WNAH. He began serving Anchor as a
Director in March 2000 until his resignation effective May 3, 2002. Mr.
Whitmarsh began his career in 1983 as a multi-line field claims adjuster for
A.L. Wisdom & Associates. In 1988 he became a partner with Jeffrey S. Ward in
A.L. Wisdom & Associates and J.S. Ward & Co. He currently directs the field
claims services division of WNA. Mr. Whitmarsh also manages WNA's Western United
States District and supports the Chief Executive Officer with a variety of
corporate administration functions.

     None of the directors of Anchor hold directorships in any company (other
than Anchor) with a class of securities registered pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended. No director or executive officer of
Anchor has a family relationship with another director or executive officer of
Anchor.

Item 11. Executive Compensation

     Directors of Anchor do not receive any fees for their service as Board or
Committee members. Anchor reimburses reasonable out-of-pocket expenses incurred
by Directors performing services for Anchor.

     Pursuant to a non-discretionary formula set forth in the Company's Stock
Option Plan, non-employee Directors receive stock options covering 15,000 shares
upon their initial election to the Board (the "Initial Grant"), and
automatically receive supplemental options covering 1,000 shares on each
subsequent re-election (the "Annual Grant"). The Initial Grant and Annual Grant
are cumulatively exercisable to the extent of 25% of the shares subject to the
option on the first, second, third and fourth anniversaries of the date of
grant, becoming 100% exercisable on the fourth anniversary of the date of grant.
Each such option is granted with an exercise price at fair market value on the
date of grant (or 110% of fair market value in the case of an optionee who owns
stock representing more than 10% of the total combined voting power of all
classes of the stock of Anchor). These options expire on the earlier of ten
years from the grant date or thirty months following termination of the
Director's tenure on the Board.

     The following table shows for the fiscal years ended December 31, 2001,
2000 and 1999, the compensation paid to the executive officers of Anchor and its
subsidiaries whose aggregate salaries and bonuses exceeded $100,000.

                        Summary Annual Compensation Table

<TABLE>
<CAPTION>
                                                                                          All Other
Name and Principal Position                   Year      Salary ($)     Bonus ($)      Compensation ($)
---------------------------                   ----      ----------     ---------      ----------------
<S>                                           <C>         <C>           <C>            <C>
Thomas O. Hedford                             2001        114,359          --             29,176/(3)/
  (Senior Vice President of Anchor and        2000        116,064          --              8,400/(2)/
President of WBAIS)                           1999        125,000       2,500/(1)/         8,400/(2)/
</TABLE>

                                       24

<PAGE>

/(1)/ Represents incentive compensation paid to Mr. Hedford based on WBAIS's
      financial performance. The bonus for 1999 is equal to 50% of 3% of WBAIS's
      operating results ("EBITDA," earnings before income taxes, depreciation
      and amortization).

/(2)/ Represents car allowance.

/(3)/ Represents car allowance of $8,400 and accrued vacation paid at employment
      termination of $20,776.

      All other officers of Anchor and its subsidiaries are employed by and
compensated directly by WNA for their services. WNA charges Anchor and its
subsidiaries a monthly fee pursuant to a resource sharing agreement that
indirectly reimburses it for a portion of the compensation costs of such
officers.

             Aggregated Option/SAR Exercises in the Last Fiscal Year
                  And Fiscal Year-End Option/SAR/Warrant Values

                               Number of Securities       Value of Exercisable
                              Underlying Exercisable          In-the-Money
      Name                   Options/SARs/Warrants at   Options/SARs/Warrants at
                                     12/31/01                   12/31/01
      Thomas O. Hedford               40,375                       $0

Item 12. Security Ownership of Certain Beneficial Owners and Management

Security Ownership of Certain Beneficial Owners

         The table below identifies the beneficial owners of more than five
percent (5%) of Anchor's voting securities as of December 31, 2001:

<TABLE>
<CAPTION>
Class of Security         Name & Address of Beneficial Owner    Amount & Nature of Beneficial             Percent of
                                                                Ownership as of December 31, 2001           Class
<S>                       <C>                                   <C>                                         <C>
Preferred Stock           Ward North America Holding, Inc.      1,853,300 shares of Series A                100%
                          610 W. Ash Street, Suite 1500         Convertible Preferred Stock with
                          San Diego, CA 92101                   voting rights equal to 18,533,000
                                                                shares of Common Stock
</TABLE>

Security Ownership of Management

      The table below summarizes the number of shares of Anchor's common stock
beneficially owned as of December 31, 2001, by (a) incumbent directors who are
also named executive officers; (b) named executive officers who are not
directors; and (c) by all directors and executive officers as a group. Except as
otherwise indicated, each person has sole investment and voting powers with
respect to the shares shown as beneficially owned. Ownership information is
based upon information furnished by the respective individuals.

<TABLE>
<CAPTION>
      Name                                                       Common Stock Beneficially             Percent
                                                               Owned as of December 31, 2001           of Class
<S>                                                             <C>                                   <C>
      (a)   Directors and Executive Officers:
      Russ A. Whitmarsh                                                   4,000/(1)/                   0.08%
      Gerard A.C. Bakker                                                  4,000/(1)/                   0.08%
      Jeffrey S. Ward                                                     4,000/(1)/                   0.08%
      Kevin P. Jasper                                                     4,000/(1)/                   0.08%
      (b)   Executive Officers:
      Thomas O. Hedford                                                  40,375/(2)/                   1.10%
      (c)   All Directors and Executive Officers as a group              56,375                        1.18%
</TABLE>

/(1)/ Includes 4,000 shares of common stock issuable upon the exercise of stock
      options
/(2)/ Includes 34,475 shares of common stock issuable upon the exercise of stock
      options and 6,000 shares of common stock issuable upon the exercise of
      warrants at a purchase price of $0.50 per share.

                                       25

<PAGE>

Item 13. Certain Relationships and Related Transactions

      At December 31, 2001 and 2000, Anchor owed WNAH $1,499,000 and $1,909,000,
respectively under outstanding 10% Series E convertible debentures and the
Convertible Loan. Total interest incurred on Anchor's combined debt to WNAH and
WNA was approximately $155,983 and $101,158 for the years ended December 31,
2001 and 2000, respectively. WNAH has foregone collection of sums due under its
Series E debentures and the Convertible Loan.

      WNA provided certain overhead support to Anchor and its subsidiaries in
2001 pursuant to that certain Overhead Support & Resource Sharing Agreement.
Under the terms of the agreement, WNA was to receive a monthly fee of 8% of the
net revenue of the WBA companies and 10% of Spectrum CA's revenue in 2001. The
overhead support services provided by WNA under the agreement included the
services of its legal, accounting, human resources, marketing and information
technology departments and the use of its telephone and data communications
infrastructure. The outstanding balance of WNA's cash advances to and on behalf
of the Company, unpaid overhead support charges due to WNA and other operating
activity from WTX and SMC as of December 31, 2001 and 2000 was $768,890 and
$384,394, respectively.

      The WBA companies purchased $279,758 and $41,254 in 2001 and 2000,
respectively, in certain operational services performed by G.E. Capital
International Services (GECIS). GECIS is an affiliate of General Electric
Capital Corporation, a shareholder of WNAH.

      Spectrum CA derived approximately 21% of its 2001 revenues from Legion.
Legion is a shareholder of WNAH and the holder of a $5 million promissory note
due from WNAH. Legion is also the maker of a $2 million loan to Anchor.

                                       26

<PAGE>

                                     PART IV

Item 14.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(1)   Financial Statements.

      Reports of Independent Auditors

      Consolidated Balance Sheets as of December 31, 2001 and 2000

      Consolidated Statements of Operations for the years ended December 31,
      2001, 2000 and 1999

      Consolidated Statements of Stockholders' Equity for the years ended
      December 31, 2001, 2000 and 1999

      Consolidated Statements of Cash Flows for the years ended December 31,
      2001, 2000 and 1999

      Notes to Consolidated Financial Statements

(2)   Exhibit Index.

2.1    Amended and Restated Agreement and Plan of Merger dated as of October 24,
       1994, by and between System Industries, Inc. and Old Anchor, as amended
       by that certain Amendment to the Amended and Restated Agreement and Plan
       of Merger dated as of December 29, 1994, and Agreement of Merger attached
       as an exhibit to the Reorganization Agreement and certified by the
       Delaware Secretary of State on January 6, 1995. Incorporated by reference
       to Exhibit 2.1 of Anchor's Annual Report on Form 10-K for the year ended
       December 31, 1994.

2.2    Asset Purchase Agreement dated effective as of December 28, 2000, by and
       between Anchor and Novaeon. Incorporated by reference to Exhibit 2.1 of
       Anchor's Current Report on Form 8-K for the period ended January 12,
       2001.

3.1    Restated Certificate of Incorporation. Incorporated by reference to
       Exhibit 3.1 of Anchor's Annual Report on Form 10-K for the year ended
       December 31, 1994.

3.2    Bylaws. Incorporated by reference to Exhibit 3.2 of Anchor's Annual
       Report on Form 10-K for the year ended December 31, 1994.

3.3    Certificate of Amendment to Certificate of Incorporation dated March 10,
       2000.

3.4    Certificate Of Designations Of Series A Convertible Preferred Stock Of
       Anchor Pacific Underwriters, Inc., A Delaware Corporation, filed March 9,
       2000. Incorporated by Reference to Exhibit 10.40B of Anchor's Annual
       Report on Form 10-K for the year ended December 31, 1999.

4.1    Specimen Common Stock Certificate. Incorporated by reference to Exhibit
       4.1 of Anchor's Annual Report on Form 10-K for the year ended December
       31, 1994.

4.2    Specimen Warrant Certificate. Incorporated by reference to Exhibit 4.2 of
       Anchor's Annual Report on Form 10-K for the year ended December 31, 1994.

4.3    Warrant Agreement dated as of January 7, 1995, between Anchor and U.S.
       Stock Transfer Corporation. Incorporated by reference to Exhibit 4.3 of
       Anchor's Annual Report on Form 10-K for the year ended December 31, 1994.

4.3a   Letter dated December 29, 1995, to all stockholders from James R.
       Dunathan extending warrants expiration date to January 6, 1997.
       Incorporated by reference to Exhibit 4.3a of Anchor's Annual Report on
       Form 10-K for the year ended December 31, 1995.

4.4    Form of 10% Convertible Subordinated Debenture. Incorporated by reference
       to Exhibit 4.1 of Anchor's Form 10-Q for the quarter ending March 31,
       1995.

                                       27

<PAGE>

4.5    Form of 10% Convertible Subordinated Debenture, Series A. Incorporated by
       reference to Exhibit 4.5 of Anchor's Annual Report on Form 10-K for the
       year ended December 31, 1995.

4.6    Form of 10% Subordinated Bridge Note. Incorporated by reference to
       Exhibit 4.6 of Anchor's Form 10-Q for the quarter ending September 30,
       1996.

4.6a   Form of Warrant to Purchase Shares of Common Stock of Anchor Pacific
       Underwriters, Inc. Incorporated by reference to Exhibit 4.6a of Anchor's
       Form 10-Q for the quarter ending September 30, 1996.

4.6b   Form of Offering to change the terms of the Form of Warrant to Purchase
       Shares of Common Stock of Anchor Pacific Underwriters, Inc., which is
       incorporated by reference to Exhibit 4.6a, above. Incorporated by
       reference to Exhibit 4.6b of Anchor's Annual Report on Form 10-K for the
       year ended December 31, 1996.

4.7    Form of Subscription Agreement for the Offer and Sale of Shares of Common
       Stock of Anchor Pacific Underwriters, Inc. Incorporated by reference to
       Exhibit 4.7 of Anchor's Annual Report on Form 10-K for the year ended
       December 31, 1996.

4.7a   Form of Warrant to Purchase Shares of Common Stock of Anchor Pacific
       Underwriters, Inc. Incorporated by reference to Exhibit 4.7a of Anchor's
       Annual Report on Form 10-K for the year ended December 31, 1996.

4.8    Form of 10% Convertible Subordinated Debenture, Series B. Incorporated by
       reference to Exhibit 4.8 of Anchor's Quarterly Report on Form 10-Q for
       the quarter ended September 30, 1998.

4.8a   Form of Warrant to Purchase Shares of Common Stock of Anchor Pacific
       Underwriters, Inc. Incorporated by reference to Exhibit 4.8a of Anchor's
       Quarterly Report on Form 10-Q for the quarter ended September 30, 1998.

4.9    Form of 10% Convertible Subordinated Debenture, Series C. Incorporated by
       reference to Exhibit 4.9 of Anchor's Quarterly Report on Form 10-Q for
       the quarter ended March 31, 1999.

4.9a   Form of Warrant to Purchase Shares of Common Stock of Anchor Pacific
       Underwriters, Inc. Incorporated by reference to Exhibit 4.9a of Anchor's
       Quarterly Report on Form 10-Q for the quarter ended March 31, 1999.

4.10   Form of 10% Convertible Subordinated Debenture, Series D. Incorporated by
       reference to Exhibit 4.10 of Anchor's Quarterly Report on Form 10-Q for
       the quarter ended September 30, 1999.

4.10a  Form of Warrant to Purchase Shares of Common Stock of Anchor Pacific
       Underwriters, Inc. Incorporated by reference to Exhibit 4.10a of Anchor's
       Quarterly Report on Form 10-Q for the quarter ended September 30, 1999.

10.1   1994 Stock Option Plan. Incorporated by reference to Exhibit 10.1 of
       Anchor's Annual Report on Form 10-K for the year ended December 31, 1994.
       *

10.2   Lease dated October 29, 1990, as amended on June 10, 1991, April 16, 1994
       and September 9, 1994, between Anchor and Societe Generale (regarding
       1800 Sutter Street, Concord, California). Incorporated by reference to
       Exhibit 10.2 of Anchor's Annual Report on Form 10-K for the year ended
       December 31, 1994.

10.2a  Sublease dated as of January 1, 1999, between Anchor and Talbot Agency of
       California, Inc. (regarding 1800 Sutter Street, Suite 500, Concord,
       California). Incorporated by reference to Exhibit 10.2a of Anchor's
       Quarterly Report on Form 10-Q for the quarter ended March 31, 1999.

10.5   Employment Agreement dated August 16, 1994, between Anchor and James R.
       Dunathan. Incorporated by reference to Exhibit 10.5 of Anchor's Annual
       Report on Form 10-K for the year ended December 31, 1994.*

10.6   Amendment No. 1 to Employment Agreement dated December 19, 1994, between
       Anchor and James R. Dunathan. Incorporated by reference to Exhibit 10.6
       of Anchor's Annual Report on Form 10-K for the year ended December 31,
       1994.*

10.6a  Employment Agreement dated August 16, 1997, between Anchor and James R.
       Dunathan. Incorporated by reference to Exhibit 10.6a of Anchor's
       Quarterly Report on Form 10Q for the quarter ended September 30, 1997.*

                                       28

<PAGE>

10.6b  Amendment No. 1 to Employment Agreement dated May 1, 1999, between Anchor
       and James R. Dunathan. Incorporated by reference to Exhibit 10.6b of
       Anchor's Annual Report on Form 10-K for the year ended December 31, 1999.

10.10  Lease of Personal Property dated April 6, 1994, between BRI and Winthrop
       Financial Group, Inc. (regarding computer equipment). Incorporated by
       reference to Exhibit 10.10 of Anchor's Annual Report on Form 10-K for the
       year ended December 31, 1994.

10.13  Consulting Agreement dated as of August 1, 1994, between BRI and
       Hightrust, Ltd. Incorporated by reference to Exhibit 10.13 of Anchor's
       Annual Report on Form 10-K for the year ended December 31, 1994.

10.14  Agreement for Purchase and Sale of Assets dated as of January 18, 1995,
       between Harden and Dutcher. Incorporated by reference to Exhibit 10.14 of
       Anchor's Annual Report on Form 10-K for the year ended December 31, 1994.

10.15  Amendment to Agreement for Purchase and Sale of Assets dated February 1,
       1995, between Harden and Dutcher. Incorporated by reference to Exhibit
       10.15 of Anchor's Annual Report on Form 10-K for the year ended December
       31, 1994.

10.15a Amendment to Agreement for Purchase and Sale of Assets dated June 10,
       1996, between Harden and Dutcher, which is incorporated by reference to
       Exhibit 10.15, above. Incorporated by reference to Exhibit 10.15a of
       Anchor's Form 10-Q for the quarter ending June 30, 1996.

10.22  Industrial Real Estate Lease (Multi-Tenant Facility) dated September 12,
       1996 between Palo Cristi Airport II, L.L.C., and BRI (regarding 15721
       North Greenway Hayden Loop, Suite 205, Scottsdale, Arizona). Incorporated
       by reference to Exhibit 10.22 of Anchor's Form 10-Q for the quarter
       ending September 30, 1996.

10.24  Business Loan Agreement dated as of July 3, 1997, between Anchor and
       Imperial Bank, and related documents. Incorporated by reference to
       Exhibit 10.24 of Anchor's Quarterly Report on Form 10-Q for the quarter
       ended June 30, 1997.

10.27  Business Loan Agreement dated of September 30, 1997, between Anchor and
       Imperial Bank, and related documents. Incorporated by reference to
       Exhibit 10.27 of Anchor's Quarterly Report on Form 10-Q for the quarter
       ended September 30, 1997.

10.28  Business Loan Agreement dated December 22, 1997, between Anchor and
       Imperial Bank, and related documents. Incorporated by reference to
       Exhibit 10.28 of Anchor's Annual Report on Form 10-K for the year ended
       December 31, 1998.

10.30  Business Loan Agreement dated March 9, 1998, between Anchor and Imperial
       Bank, and related documents. Incorporated by reference to Exhibit 10.30
       of Anchor's Annual Report on Form 10-K for the year ended December 31,
       1998.

10.31  Stock Purchase Agreement effective March 20, 1998, between Anchor and
       Harden and Pacific Assurance Company (regarding Pacific Heritage
       Administrators of Nevada, Inc.). Incorporated by reference to Exhibit
       10.31 of Anchor's Quarterly Report on Form 10-Q for the quarter ended
       March 31, 1998.

10.33  Business Loan Agreement dated June 1, 1998, between Anchor and Imperial
       Bank, and related documents. Incorporated by reference to Exhibit 10.33
       of Anchor's Quarterly Report on Form 10-Q for the quarter ended June 30,
       1998.

10.34  Purchase Agreement dated January 15, 1999, between Talbot Agency of
       California, Inc., PKW and Anchor. Incorporated by reference to Exhibit
       10.34 of Anchor's Annual Report on Form 10-K for the year ended December
       31, 1999.

10.35  Office Lease dated January 29, 1999 between Harden and Columbia Square,
       L.L.C. (regarding 111 SW Columbia, Suite 600, Portland, Oregon).
       Incorporated by reference to Exhibit 10.34 of Anchor's Quarterly Report
       on Form 10-Q for the quarter ended March 31, 1999.

10.36  Business Loan Agreement dated April 29, 1999, between Anchor and Imperial
       Bank, and related documents. Incorporated by reference to 10.35 of
       Anchor's Quarterly Report on Form 10-Q for the quarter ended June 30,
       1999.

                                       29

<PAGE>

10.37    Business Loan Agreement dated September 30, 1999, between Anchor and
         Imperial Bank, and related documents. Incorporated by reference to
         10.36 of Anchor's Quarterly Report on Form 10-Q for the quarter ended
         September 30, 1999.

10.38    Letter Agreement dated February 18, 2000, between Anchor and WNAH.
         Incorporated by reference to Exhibit 10.38 of Anchor's Annual Report on
         Form 10-K for the year ended December 31, 1999.

10.39    Stock Purchase Agreement dated March 9, 2000 between Anchor and James
         R. Dunathan for the purchase of all the outstanding stock of Shelby
         Insurance Services, Inc. formerly known as Putnam, Knudsen & Wieking,
         Inc. Incorporated by reference to Exhibit 10.39 of Anchor's Annual
         Report on Form 10-K for the year ended December 31, 1999.

10.40    Securities Purchase Agreement dated March 9, 2000 between Anchor and
         WNAH. Incorporated by reference to Exhibit 10.40 of Anchor's Annual
         Report on Form 10-K for the year ended December 31, 1999.

10.40a   Exhibit A, Form of Debenture to the Securities Purchase Agreement dated
         March 9, 2000 between Anchor and WNAH. Incorporated by reference to
         Exhibit 10.40a of Anchor's Annual Report on Form 10-K for the year
         ended December 31, 1999.

10.40b   Exhibit B, Certificate of Designations to the Securities Purchase
         Agreement dated March 9, 2000 between Anchor and WNAH. Incorporated by
         reference to Exhibit 10.40b of Anchor's Annual Report on Form 10-K for
         the year ended December 31, 1999.

10.40c   Exhibit C, Form of Loan Facility to the Securities Purchase Agreement
         dated March 9, 2000 between Anchor and WNAH. Incorporated by reference
         to Exhibit 10.40c of Anchor's Annual Report on Form 10-K for the year
         ended December 31, 1999.

10.40d   Exhibit D, Schedule of Exceptions to the Securities Purchase Agreement
         dated March 9, 2000 between Anchor and WNAH. Incorporated by reference
         to Exhibit 10.40d of Anchor's Annual Report on Form 10-K for the year
         ended December 31, 1999.

10.40e   Exhibit E, Form of Legal Opinion of Company Counsel to the Securities
         Purchase Agreement dated March 9, 2000 between Anchor and WNAH.
         Incorporated by reference to Exhibit 10.40e of Anchor's Annual Report
         on Form 10-K for the year ended December 31, 1999.

10.40f   Exhibit F, Form of Investor Rights Agreement to the Securities Purchase
         Agreement dated March 9, 2000, between Anchor and WNAH. Incorporated by
         reference to Exhibit 10.40f of Anchor's Annual Report on Form 10-K for
         the year ended December 31, 1999.

10.41    Employment Agreement dated September 1, 1998, between Harden and Thomas
         O. Hedford. Incorporated by reference to Exhibit 10.41 of Anchor's
         Annual Report on Form 10-K for the year ended December 31, 1999.*

10.41a   Amendment No. 1 to Employment Agreement dated May 1, 1999, between
         Harden and Thomas O. Hedford. Incorporated by reference to Exhibit
         10.41a of Anchor's Annual Report on Form 10-K for the year ended
         December 31, 1999.*

10.42    Employment Agreement dated May 1, 1999, between Harden and Earl
         Wiklund. Incorporated by reference to Exhibit 10.42 of Anchor's Annual
         Report on Form 10-K for the year ended December 31, 1999.*

10.43    Employment Agreement dated April 1, 2000 between Harden and Thomas O.
         Hedford. * Incorporated by reference to Exhibit 10.43 of Anchor's
         Annual Report on Form 10-K for the year ended December 31, 2000.

10.44    Overhead Support & Resource Sharing Agreement by and between Ward North
         America, Inc. and Anchor Pacific Underwriters, Inc. Ward Benefits
         Administrators & Insurance Services, Inc., formerly known as Harden &
         Company Insurance Services, Inc., and Harden & Company of Arizona,
         Inc., and made effective as of September 1, 2000. Incorporated by
         reference to Exhibit 10.44 of Anchor's Annual Report on Form 10-K for
         the year ended December 31, 2000.

10.45    Stock Subscription Agreement dated effective January 12, 2001 by and
         between Anchor, as the purchaser, and Spectrum Managed Care of
         California, Inc., as the issuer. Incorporated by reference to Exhibit
         10.45 of Anchor's

                                       30

<PAGE>

         Annual Report on Form 10-K for the year ended December 31, 2000.

10.46    Stipulation entered into on February 28, 2001 between Anchor and Sutter
         Square Associates, LLC, concerning Anchor's surrender of possession of
         the office premises at 1800 Sutter Street, Concord, California under
         that certain office lease dated October 29, 1990, as amended on June
         10, 1991, April 16, 1994 and September 9, 1994 between the parties
         incorporated by reference to Exhibit 10.2 of Anchor's Annual Report on
         Form 10-K for the year ended December 31, 1994. Incorporated by
         reference to Exhibit 10.46 of Anchor's Annual Report on Form 10-K for
         the year ended December 31, 2000.

10.47    Lease dated March 15, 2001 between Royal Management Company and
         Spectrum CA for the office premises located at 37650 Professional
         Center Drive, Livonia, PA. Incorporated by reference to Exhibit 10.47
         of Anchor's Annual Report on Form 10-K for the year ended December 31,
         2000.

10.48    Sublease dated May 3, 2001 between Sirius Computer Solutions, Inc., and
         Spectrum CA for the office premises located at Whiteland Office Plaza,
         Whiteland Business Park, 740 Springdale Road, Exton Pennsylvania 19341.
         Incorporated by reference to Exhibit 10.48 of Anchor's Annual Report on
         Form 10-K for the year ended December 31, 2000.

10.49    Commission Arrangement by and between Ward Benefits Administrators &
         Insurance Services, Inc. and Loomis Benefits West, Inc. dated January
         1, 2002. Incorporated by reference to Exhibit 10.49 of Anchor's Annual
         Report on Form 10-K for the year ended December 31, 2000.

10.50    Forbearance Agreement and Amendment to Promissory Note by and between
         Anchor Pacific Underwriters, Inc, and Comerica Bank dated January 2,
         2002 Incorporated by reference to Exhibit 10.50 of Anchor's Quarterly
         Report on Form 10-Q for the quarter ended March 31, 2001.

10.51    Guaranty - Ward North America Holding, Inc. Incorporated by reference
         to Exhibit 10.51 of Anchor's Quarterly Report on Form 10-Q for the
         quarter ended March 31, 2001.

10.52    Overhead Support and Resource Sharing Agreement by and between Ward
         North America, Inc., and Spectrum Managed Care of California, Inc.,
         dated January 13, 2001.

16.1     Letter dated March 7, 2001 from Odenberg Ullakko Muranishi & Co.
         regarding the change in independent public accountants. Incorporated by
         reference to Exhibit 16.1 of Anchor's Amended Current Report on Form
         8-KA for the period ended January 17, 2001.

99.1     Contingent Promissory Note made by Anchor in favor of Novaeon, Inc.,
         dated January 12, 2001. Incorporated by reference to Exhibit 99.1 of
         Anchor's Current Report on Form 8-K for the period ended January 12,
         2001.

99.2     Press Release dated January 16, 2001. Incorporated by reference to
         Exhibit 99.2 of Anchor's Current Report on Form 8-K for the period
         ended January 12, 2001.

99.3     Convertible Promissory Note made by Anchor in favor of Legion dated
         January 12, 2001. Incorporated by reference to Exhibit 99.3 of Anchor's
         Current Report on Form 8-K for the period ended January 12, 2001.

99.3a    First Amendment to Promissory Note entered into on November 21, 2001 by
         and between Anchor and Legion Insurance Company amending that certain
         Promissory Note dated January 12, 2001 in the principal amount of two
         million dollars ($2,000,000) executed by Anchor in favor of Legion
         Insurance Company. Incorporated by reference to Exhibit 99.3a of
         Anchor's Annual Report on Form 10-K for the year ended December 31,
         2000.

99.4     Security Agreement in favor of Legion dated January 12, 2001, securing
         the assets acquired by Anchor pursuant to the Asset Purchase Agreement
         Incorporated by reference to Exhibit 99.4 of Anchor's Current Report on
         Form 8-K for the period ended January 12, 2001.

99.5     Assignment and Assumption Agreement by and between Anchor and WNAH
         dated January 12, 2001. Incorporated by reference to Exhibit 99.5 of
         Anchor's Current Report on Form 8-K for the period ended January 12,
         2001.

--------------------------------------------------------------------------------
All other exhibits are omitted because they are inapplicable.

                                       31

<PAGE>

*Denotes management contract or compensatory plan or arrangement.

(3)   Reports on Form 8-K and Form 8-KA.

Current Report dated January 12, 2001 reporting acquisition of Novaeon, Inc. by
Anchor.

Amended Current Report dated January 17, 2001 reporting change in Anchor's
auditors.

Current Report dated February 12, 2001 reporting change in Anchor's auditor.

                                       32

<PAGE>

                                   SIGNATURES

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

                                            Anchor Pacific Underwriters, Inc.
                                                       (Anchor)

Date: June 18, 2002                     By:     /s/ Jeffrey S. Ward
                                            ----------------------------------
                                                    Jeffrey S. Ward
                                                 Chief Executive Officer
                                              (Principal Executive Officer)

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed by the following persons on
behalf of the Anchor and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
                 Signature                                      Title                                 Date
                 ---------                                      -----                                 ----

<S>                                            <C>                                               <C>
            /s/ Jeffrey S. Ward                Chairman, Chief Executive Officer and             June 18, 2002
--------------------------------------------
              Jeffrey S. Ward                  Director
       (Principal Executive Officer)

          /s/ Gerard A.C. Bakker               President and Director                            June 18, 2002
--------------------------------------------
            Gerard A.C. Bakker

            /s/ Kevin P. Jasper                Executive Vice President, Secretary and           June 18, 2002
--------------------------------------------
              Kevin P. Jasper                  Director
</TABLE>

                                       33

<PAGE>

               ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
        (a majority owned subsidiary of Ward North America Holding, Inc.)
                        CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2001, 2000 and 1999

<TABLE>
<S>                                                                         <C>
Reports of Independent Auditors ........................................  F-2-3

Audited Consolidated Financial Statements

Consolidated Balance Sheets ............................................  F-4

Consolidated Statements of Operations ..................................  F-5

Consolidated Statements of Deficiency in Assets ........................  F-6

Consolidated Statements of Cash Flows ..................................  F-7

Notes to Consolidated Financial Statements .............................  F-8-25
</TABLE>

                                       F-1

<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

To the Board of Directors
and Shareholders of
Anchor Pacific Underwriters, Inc.
San Diego, California

      We have audited the accompanying consolidated balance sheets of Anchor
Pacific Underwriters, Inc. and subsidiaries (the "Company," a majority owned
subsidiary of Ward North America Holding, Inc.) as of December 31, 2001 and 2000
and the related consolidated statements of operations, deficiency in assets, and
cash flows for the years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

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

      In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Anchor Pacific Underwriters,
Inc. and subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.

      The accompanying consolidated financial statements for the years ended
December 31, 2001 and 2000 have been prepared assuming that the Company will
continue as a going concern. As discussed in Note 1 to the consolidated
financial statements, the Company's recurring losses from operations, negative
working capital and deficiency in assets raise substantial doubt about its
ability to continue as a going concern. Management's plans concerning these
matters are also described in Note 1. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.

      On April 1, 2002, one of the Company's major customers and an investor,
Legion Insurance Company ("Legion"), went into voluntary rehabilitation with the
Commonwealth of Pennsylvania. As described in Note 16, management is uncertain
as to the effect of Legion's voluntary rehabilitation on the Company.

/s/ Deloitte & Touche LLP

San Diego, California
May 29, 2002

                                       F-2

<PAGE>

To the Board of Directors
and Shareholders of
Anchor Pacific Underwriters, Inc.

                         REPORT OF INDEPENDENT AUDITORS

      In our opinion, the accompanying consolidated statements of operations,
deficiency in assets and cash flows present fairly, in all material respects,
the financial position of Anchor Pacific Underwriters, Inc. and its subsidiaries
at December 31, 1999, and the results of their operations and their cash flows
for the year ended December 31, 1999, in conformity with generally accepted
accounting principles. 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 audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.

Concord, California
March 17, 2000

                                       F-3

<PAGE>

ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
        (a majority owned subsidiary of Ward North America Holding, Inc.)
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                                     December 31
                                                                                                     -----------
                                                                                                 2001            2000
                                                                                             ------------    ------------
                                            ASSETS
<S>                                                                                          <C>             <C>
Current assets:
     Cash and cash equivalents ...........................................................   $    589,526    $         --
     Accounts receivable (less allowance for doubtful accounts of
        $196,763 and $7,500 in 2001 and 2000, respectively) ..............................        732,285         407,616
     Prepaid expenses and other current assets ...........................................         15,939          90,099
                                                                                             ------------    ------------
     Total current assets ................................................................      1,337,750         497,715
Property and equipment, net ..............................................................        212,821         421,535
Intangible assets, net ...................................................................        492,721              --
Other long-term assets ...................................................................         16,710          76,538
                                                                                             ------------    ------------
Total assets .............................................................................   $  2,060,002    $    995,788
                                                                                             ============    ============

                             LIABILITIES AND DEFICIENCY IN ASSETS

Current liabilities:
     Cash overdraft ......................................................................   $         --    $    138,695
     Accounts payable ....................................................................        987,779         432,752
     Accrued expenses ....................................................................      1,230,458         391,643
     Accrued legal expenses ..............................................................        206,322         435,000
     Short-term borrowings from related parties ..........................................        768,890         793,394
     Debt, including $3,499,000 and $1,500,000 in 2001 and 2000,
        owed to related parties ..........................................................      4,969,084       2,604,761
     Current portion of capital lease obligations ........................................         79,529         107,417
                                                                                             ------------    ------------
Total current liabilities ................................................................      8,242,062       4,903,662
Capital lease obligations, net of current portion ........................................             --         232,453
                                                                                             ------------    ------------
Total liabilities ........................................................................      8,242,062       5,136,115
                                                                                             ------------    ------------

Commitments and contingencies (Notes 1, 8 and 9) .........................................             --              --

Deficiency in assets:
Preferred stock--$.02 par value; 2,500,000 shares authorized; 1,853,300 shares issued
   and outstanding at December 31, 2001 and 2000 .........................................         37,066          37,066
Common stock--$.02 par value; 16,000,000 shares authorized; 4,709,910 and
   4,709,931 shares issued and outstanding at December 31, 2001 and 2000, respectively ...         94,201          94,201
Additional paid-in capital ...............................................................      6,158,787       6,158,787
Accumulated deficit ......................................................................    (12,472,114)    (10,430,381)
                                                                                             ------------    ------------
Total deficiency in assets ...............................................................     (6,182,060)     (4,140,327)
                                                                                             ------------    ------------
Total liabilities and deficiency in assets ...............................................   $  2,060,002    $    995,788
                                                                                             ============    ============
</TABLE>

       See accompanying notes to consolidated financial statements and the
                        reports of independent auditors.

                                       F-4

<PAGE>

               ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
        (a majority owned subsidiary of Ward North America Holding, Inc.)
                      CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                                                           Year Ended December 31
                                                                                           ----------------------
                                                                                    2001           2000           1999
                                                                                -----------    -----------    -----------
<S>                                                                             <C>            <C>            <C>
Revenues:
     Service fees ........................................................      $ 4,673,678    $        --    $        --
                                                                                -----------    -----------    -----------
Operating expenses:
     Salaries, commissions and employee benefits .........................        2,738,022             --             --
     Selling, general and administrative expenses (including $464,973 of
         allocations from an affiliate) ..................................        1,496,679             --             --
     Amortization of intangible assets ...................................           54,748             --             --
     Depreciation and amortization .......................................           96,161             --             --
                                                                                -----------    -----------    -----------
         Total operating expenses ........................................        4,385,610             --             --
                                                                                -----------    -----------    -----------
Income from continuing operations before other income (expense)
   and income taxes ......................................................          288,068             --             --
                                                                                -----------    -----------    -----------
Other income (expense):
     Interest expense ....................................................         (420,036)      (260,694)      (186,441)
     Other ...............................................................            3,263          2,119             --
                                                                                -----------    -----------    -----------
         Total other expense .............................................         (416,773)      (258,575)      (186,441)
                                                                                -----------    -----------    -----------
Loss from continuing operations before income taxes ......................         (128,705)      (258,575)      (186,441)
Provision for income taxes ...............................................            4,060          7,710          5,908
                                                                                -----------    -----------    -----------
Loss from continuing operations ..........................................         (132,765)      (266,285)      (192,349)
                                                                                -----------    -----------    -----------
Discontinued operations:
     Loss from operations ................................................       (1,449,081)    (3,058,571)    (2,285,622)
     Loss on disposal ....................................................         (459,887)            --             --
                                                                                -----------    -----------    -----------
Loss from discontinued operations ........................................       (1,908,968)    (3,058,571)    (2,285,622)
                                                                                -----------    -----------    -----------
Net loss .................................................................      $(2,041,733)   $(3,324,856)   $(2,477,971)
                                                                                ===========    ===========    ===========

Net loss per share:
     Loss from continuing operations .....................................      $     (0.03)   $     (0.06)   $     (0.04)
     Loss from discontinued operations ...................................            (0.40)         (0.65)         (0.49)
                                                                                -----------    -----------    -----------
Basic and diluted net loss per common share ..............................      $     (0.43)   $     (0.71)   $     (0.53)
                                                                                ===========    ===========    ===========
Weighted-average number of common shares outstanding .....................        4,709,910      4,710,029      4,710,056
                                                                                ===========    ===========    ===========
</TABLE>




       See accompanying notes to consolidated financial statements and the
                        reports of independent auditors.

                                      F-5

<PAGE>

               ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
        (a majority owned subsidiary of Ward North America Holding, Inc.)
                 CONSOLIDATED STATEMENTS OF DEFICIENCY IN ASSETS

<TABLE>
<CAPTION>
                                             Preferred Stock         Common Stock       Additional     Accumulated
                                             ---------------         ------------
                                           Shares       Amount     Shares     Amount     Paid-In          Deficit          Total
                                           ------       ------     ------     ------     --------         -------          -----
                                                                                         Capital
                                                                                         -------
<S>                                    <C>          <C>         <C>           <C>        <C>           <C>            <C>
Balance at January 1, 1999 .........          --    $     --    4,710,057     $ 94,201   $ 4,232,265   $ (4,627,554)  $   (301,088)

Canceled stock-Fractional shares ...          --          --           (2)          --            --             --             --
Net loss ...........................          --          --           --           --            --     (2,477,971)    (2,477,971)
                                       ---------    --------    ---------     --------   -----------   ------------   ------------

Balance at December 31, 1999 .......          --          --    4,710,055       94,201     4,232,265     (7,105,525)    (2,779,059)
Canceled stock-Fractional shares ...          --          --         (124)          --            --             --             --
Preferred stock issued, net of
$36,412 of issuance costs ..........   1,853,300      37,066           --           --     1,926,522             --      1,963,588
Net loss ...........................          --          --           --           --            --     (3,324,856)    (3,324,856)
                                       ---------    --------    ---------     --------   -----------   ------------   ------------

Balance at December 31, 2000 .......   1,853,300      37,066    4,709,931       94,201     6,158,787    (10,430,381)    (4,140,327)
Canceled stock-Fractional shares              --          --          (21)          --            --             --             --
Net loss ...........................          --          --           --           --            --     (2,041,733)    (2,041,733)
                                       ---------    --------    ---------     --------   -----------   ------------   ------------

Balance at December 31, 2001 .......   1,853,300    $ 37,066    4,709,910     $ 94,201   $ 6,158,787   $(12,472,114)  $ (6,182,060)
                                       =========    ========    =========     ========   ===========   ============   ============
</TABLE>




      See accompanying notes to consolidated financial statements and the
                        reports of independent auditors.

                                      F-6

<PAGE>

               ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
        (a majority owned subsidiary of Ward North America Holding, Inc.)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                  Year Ended December 31
                                                                                                  ----------------------
                                                                                            2001           2000           1999
                                                                                            ----           ----           ----
<S>                                                                                    <C>             <C>            <C>
Cash flows from operations:
   Net loss from operations.......................................................     $  (2,041,733)  $ (3,324,856)  $ (2,477,971)
   Adjustments to reconcile net loss to net cash provided by (used in) operating
   activities:
   Depreciation and amortization..................................................           305,392        440,112        276,667
   Amortization of intangible assets..............................................            54,748         66,062         66,120
   Impairment of intangible assets................................................                --        461,751             --
   Write down of internal use software and other equipment from discontinued
   operations.....................................................................           399,948        982,400             --
   Loss on disposal of fixed assets ..............................................            42,615             --             --
   Changes in assets and liabilities, net of effects of acquisition in 2001:
      Accounts receivable.........................................................           625,331         57,721         62,490
      Prepaid expenses and other current assets...................................           281,160         58,675         42,975
      Other assets................................................................            59,828        (16,061)        19,954
      Cash overdraft..............................................................          (138,695)        82,769         55,926
      Accounts payable and accrued expenses.......................................         1,165,164       (566,749)       598,977
                                                                                       --------------  -------------  -------------
      Cash flows provided by (used in) operating activities.......................           753,758     (1,758,176)    (1,354,862)
                                                                                       --------------  -------------  -------------

Cash flows from investing activities:
   Net proceeds from sale of PKW..................................................                --             --      2,054,995
   Cash paid for acquisitions.....................................................        (1,524,469)            --             --
   Purchases of property and equipment, net of capital leases.....................          (525,796)      (821,628)      (323,607)
                                                                                       --------------  -------------  -------------
      Cash flows (used in) provided by investing activities.......................        (2,050,265)      (821,628)     1,731,388
                                                                                       --------------  -------------  -------------

Cash flows from financing activities:
   Short-term borrowings (related party activity: $502,316, $793,394 and $0 in
       2001, 2000 and 1999, respectively).........................................           502,316        793,394        200,000
   Repayments on short-term borrowings (related party activity: $409,000, $0 and            (409,000)      (200,000)      (200,000)
       $0 in 2001, 2000 and 1999, respectively)...................................
   Borrowings on long-term debt (related party activity:  $2,090,000, $1,100,000,
       and $473,000, in 2001, 2000 and 1999, respectively)........................         2,220,653      1,100,000      1,199,000
   Repayment of long-term debt (related party activity: $91,000, $240,000, and
       $104,000, in 2001, 2000 and 1999, respectively)............................          (356,331)      (563,059)    (1,317,746)
   Repayments of long-term liabilities and capital lease obligations..............           (71,605)      (514,119)      (395,919)
   Preferred stock issuance costs.................................................                --        (36,412)            --
   Issuance of preferred stock (related party activity:  $0, $2,000,000 and $0 in
       2001, 2000 and 1999, respectively).........................................                --      2,000,000             --
                                                                                       --------------  -------------  -------------
       Cash flows provided by (used in) financing activities....................           1,886,033      2,579,804       (514,665)
                                                                                       --------------  -------------  -------------

Increase (decrease) in cash and cash equivalents..................................           589,526             --       (138,139)
   Cash and cash equivalents, beginning of year...................................                --             --        138,139
                                                                                       --------------  -------------  -------------
   Cash and cash equivalents, end of year.........................................     $     589,526   $         --   $         --
                                                                                       ==============  =============  =============

Supplemental Cash Flow Information
   Cash paid for interest.........................................................     $     158,807   $     89,620   $    169,375
                                                                                       ==============  =============  =============
   Cash paid for taxes............................................................     $       4,060   $      7,839   $      5,908
                                                                                       ==============  =============  =============
Non-cash investing and financing activities:
Equipment acquired under capital lease............................................     $          --   $    391,608   $     33,393
                                                                                       ==============  =============  =============

Supplemental disclosure of non-cash investing activities related to acquisition:
Fair value of assets acquired                                                          $   1,477,000
Fair value of liabilities assumed                                                                 --
Note payable                                                                                (500,000)
Purchase price in excess of assets acquired                                                  523,000
Fees - transaction                                                                            24,469
                                                                                       -------------
Cash paid for acquisition                                                              $   1,524,469
                                                                                       =============
</TABLE>

See accompanying notes to consolidated financial statements and the reports of
independent auditors.

                                       F-7

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - Nature of Business

Organization

      Anchor Pacific Underwriters, Inc. ("Anchor" or the "Company") is a holding
company with one wholly-owned operating subsidiary engaged in the managed care
service business and two other direct and indirect subsidiaries that were
engaged in the employee health benefit plan administration business in 2001. The
latter are now dormant with no ongoing business activities. Prior to January
1999, Anchor also owned a subsidiary engaged in the property and casualty
insurance brokerage business. The assets of that business were sold on December
31, 1998 and the subsidiary corporation itself was divested in 2000.

      Anchor's managed care subsidiary, Spectrum Managed Care of California,
Inc. ("Spectrum CA"), manages the medical and disability care received by
injured employees receiving workers' compensation benefits and employee and
dependent participants in group accident and health benefits plans. Spectrum
CA's services are performed by licensed registered nurses or certified
rehabilitation vocational counselors employed as case managers. Spectrum CA's
client base consists of employers and employer groups that self-insure their
workers' compensation risks, workers compensation insurers, including Legion
Insurance Company ("Legion"), a lender to Anchor and a shareholder of Ward North
America Holding, Inc. ("WNAH", majority shareholder of Anchor), and national and
regional third-party workers compensation claims administrators, including Ward
North America, Inc., ("WNA") a subsidiary of WNAH.

      Anchor's health benefit plan administration subsidiaries, Ward Benefits
Administrators & Insurance Services, Inc. ("WBAIS") and Harden & Company of
Arizona ("Harden-AZ") (collectively referred to as "WBA" or the "WBA companies")
had discontinued their respective operations and terminated all remaining
employees as of January 2002. The Company's consolidated financial statements
have been reclassified to reflect the discontinuation of WBA's operations.
Accordingly, the revenues and operating and other expenses of the WBA companies
have been reported as "Discontinued Operations" in all periods presented.

Going Concern Considerations and Management Plans

      In 2001, 2000 and 1999, the Company incurred net losses of $2,041,733,
$3,324,856 and $2,477,971, respectively, and has used $2,359,280 of cash in its
operations over the last three years. At December 31, 2001, the Company reported
negative working capital of $6,904,312 and a deficiency in assets of $6,182,060.
In addition, the Company is in default under the terms of substantially all of
its debt and does not have sufficient cash resources to cure its defaults.

      Management is attempting to develop a plan to restructure Anchor's debt,
raise additional working capital, and continue to operate Spectrum CA, the
Company's managed care subsidiary. The assets and business of Anchor and
Spectrum CA are encumbered by collateral security interests granted for loans
made by Anchor's commercial bank and Legion, both of which are in default.
Neither Anchor nor Spectrum CA have capital resources sufficient to cure the
loan defaults and, as a result, their assets could be subjected to foreclosure
by either secured lender. Anchor and Spectrum CA also owe significant sums to
other unsecured creditors and lenders, including the Novaeon, Inc. bankruptcy
estate, WNA, and WNAH. In the event a secured creditor of Anchor or Spectrum CA
commences legal action to collect its debt or enforce its security, it is
foreseeable that Anchor and/or Spectrum CA would file for Chapter 11 bankruptcy
protection to preserve their assets and ongoing operations.

      One financing alternative under consideration by Anchor contemplates funds
to be provided by WNAH. WNAH, however, is currently prohibited under its
Securities Purchase Agreement with Anchor from acquiring additional Anchor
equity unless it first makes a tender offer to buy all of the shares of Anchor's
common stock not then owned by WNAH, or its affiliates, at a purchase price
equal to the greater of: (i) $0.80 per share (as adjusted for stock splits,
combinations or dividends with respect to such shares) or (ii) the price per
share determined by

                                      F-8

<PAGE>

assuming the value of Anchor to the be equal to Anchor's earnings before income
taxes ("EBIT") for the 12 full calendar months preceding the month in which the
offer is made, multiplied by six (6) and divided by the number of shares
outstanding of the Company on a fully diluted basis. This contractual
restriction expires in March 2003. Any equity refinancing proposal involving
funds to be provided by WNAH would likely be contingent upon WNAH successfully
completing its own private equity offering which commenced in April 2002 and the
approval of Anchor's disinterested common shareholders. There can be no
assurance that a commitment from WNAH to provide additional funds to Anchor will
be obtained or, if such an agreement is reached, that WNAH will be successful in
its own efforts to raise additional working capital or that such a plan would be
acceptable to Anchor's common shareholders.

      The continuation of the Company as a going concern is dependent on the
successful implementation of a refinancing plan and the retention of Spectrum
CA's managed care operations. Any such refinancing plan will likely require
Anchor's debt to be restructured, or all or portions of it converted to Anchor
equity securities. Any such plan will also likely require the Company to raise
substantial additional working capital. There can be no assurance that such a
plan will be developed and successfully implemented.

      On April 1, 2002, Legion was placed into voluntary rehabilitation by the
Commonwealth Court of Pennsylvania (Note 16). The Company is still performing
and being compensated for managed care services for Legion. Legion will write no
further insurance policies. The Insurance Commissioner of the Commonwealth of
Pennsylvania, as rehabilitator, will control Legion's operations.

Basis of Presentation

      WNAH acquired a controlling interest in Anchor on March 9, 2000 by
purchasing 1,853,300 shares of Series A Convertible Preferred Stock ("Series A
Preferred") for $2,000,000. The Series A Preferred shares are convertible to the
Company's common stock and vote on an as-converted basis at the ratio of ten
common shares for each share of Series A Preferred. As of December 31, 2001,
WNAH's Series A Preferred shares represent 79.7% of Anchor's outstanding voting
securities. The consolidated financial statements do not reflect any purchase
accounting adjustments related to the change of control of Anchor.

      Effective January 1, 2002, the Company discontinued the WBA companies'
plan administration business (Note 15). The Company's consolidated statements of
operations have been reclassified to reflect the discontinuation of WBA
companies operations. Accordingly, the revenues and operating and other expenses
of the WBA companies have been reported as "Discontinued Operations" for each of
the three years ended December 31, 2001, 2000 and 1999.

      The consolidated financial statements include the accounts of Anchor and
its directly and indirectly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.

NOTE 2 - Summary of Significant Accounting Policies

Use of Estimates

      The preparation of financial statements in accordance with accounting
standards generally accepted in the United States of America requires management
to make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates.

Revenue Recognition

      Continuing operations

      Revenue from continuing operations consists of service fees for managed
care services performed by Spectrum CA including telephonic medical case
management, field medical case management and utilization review. Such services
are performed under various fee arrangements, including flat fees for specified
procedures and on an hourly

                                      F-9

<PAGE>

fee basis. Fee income is recognized when services are rendered.

      Discontinued operations

      The revenue of the WBA companies consisted primarily of fees charged for
the administration of fully insured and self-insured health plans.
Administration fee income was recognized when services were rendered. A portion
of the WBA companies' revenue in 2001 and prior years was derived from accident
and health stop-loss and excess insurance commissions (net of split or shared
commissions), fees in lieu of commissions for insurance placement services and
interest income on fiduciary and corporate funds. Insurance commissions and fees
in lieu of commissions for insurance placement services were recognized when
coverage became effective, the premium due under the policy became known or
could be reasonably estimated, and substantially all required services related
to placing the insurance had been performed. Broker commission adjustments and
commissions on premiums billed directly by underwriters were recognized
principally when such amounts could be reasonably estimated.

Cash and Cash Equivalents

      Anchor considers all highly liquid investments with an original maturity
of three months or less at the date of purchase to be cash equivalents. At
December 31, 2000, the Company had a cash overdraft that has been classified as
a liability.

Fiduciary Funds and Liabilities

      Funds held by the WBA companies for self-funded employers and fully
insured programs were held in a fiduciary capacity and, accordingly, are not
reflected in the Company's consolidated balance sheets because they were not
available to fund the Company's operations. The Company had check signing
authority related to these accounts for the settlement of claims. The total bank
balances of funds held in fiduciary accounts at December 31, 2001 and 2000 were
$2,638,571 and $5,100,095, respectively. In 2002, all fiduciary accounts will be
closed after all outstanding checks have cleared. The final bank balances will
be refunded to the respective clients.

Concentration of Credit Risk

      Financial assets that potentially subject the Company to significant
concentrations of credit risk consist principally of accounts receivable. Anchor
provides for future estimated credit losses based on an evaluation of a current
aging of the accounts, current economic conditions and other factors necessary
to provide for losses that can be reasonably anticipated. Spectrum CA had two
customers that accounted for approximately 69% of service fees during the year
ended December 31, 2001. Legion accounted for 21% of the service fees for the
year ended December 31, 2001 and 21% of accounts receivable at December 31,
2001. An unaffiliated customer accounted for 48% of the service fees for the
year ended December 31, 2001 and 26% of accounts receivable at December 31,
2001. No single customer accounted for more than 10% of the Company's revenue
and accounts receivable for the years ended December 31, 2000 and 1999.

Fair Value of Financial Instruments

      The carrying values of financial instruments such as cash and cash
equivalents, accounts receivable and accounts payable approximate their fair
values. Due to the financial condition of the Company, management believes that
the fair value of its short-term borrowings and long-term borrowing is minimal.

Property and Equipment

      Property and equipment are stated at cost. Depreciation and amortization
are computed using the straight-line method over the estimated useful lives of
the assets, which range from three to ten years. Internal-use software is
capitalized and is amortized over a three-year period. The Company's impairment
policy on internal use software and other assets is to evaluate on a quarterly
basis the recoverability of the net book value of these assets, and record an
impairment loss if the asset is not recoverable.

                                      F-10

<PAGE>

Intangible Assets

      Intangible assets consist of goodwill associated with the acquisition of
the Novaeon Assets (Note 3) amortized over 10 years.

      The amount of impairment, if any, is measured in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
The Company periodically evaluates the carrying value of long-lived assets for
impairment, when events and circumstances indicate that the book value of an
asset may not be recoverable. Recoverability of assets is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the asset exceeds its fair value.

Legal Reserves

      The Company's policy is to provide for legal reserves equal to anticipated
legal fees and settlement costs net of the estimated insurance recoveries

Income Taxes

      The Company accounts for income taxes in accordance with the provisions of
SFAS No. 109, "Accounting for Income Taxes." This statement requires the Company
to recognize a current tax asset or liability for current taxes payable or
refundable and to record a deferred tax asset or liability for the estimated
future tax effects of temporary differences and carryforwards to the extent that
they are realizable. A deferred tax provision or benefit results from the net
change in deferred tax assets and liabilities during the year. A deferred tax
valuation allowance is required if it is more likely than not that all or a
portion of the recorded deferred tax assets will not be realized (Note 11).

Segment Reporting

      SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", establishes standards for determining operating segments and
disclosure requirements for those segments, products, geographic areas, and
major customers. The Company has determined that it operates under one operating
segment.

Stock-Based Compensation

      As permitted under SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company accounts for costs of stock based compensation in
accordance with the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and accordingly discloses the pro
forma effect on net loss and related loss per share amounts using the fair-value
method defined in SFAS No. 123.

Loss Per Share

      Basic net loss per common share is presented in conformity with SFAS No.
128, "Earnings per Share," for all periods presented. Basic net loss per share
is computed using the weighted-average number of outstanding shares of common
stock.

      Diluted net loss per share is computed using the weighted-average number
of shares of common stock outstanding and, when dilutive, rights to purchase
common stock under outstanding options, warrants, and conversion rights,
potential common shares from options and warrants to purchase common stock using
the treasury method and from convertible debt and equity securities using the
as-if converted basis. All common shares issuable under outstanding options,
warrants and conversion rights have been excluded from the computation of
diluted net loss per share for 2001, 2000 and 1999 because the effect would have
been anti-dilutive.

      The following table provides a reconciliation of the numerators and
denominators used in calculating basic and diluted loss per share:

                                      F-11

<PAGE>

<TABLE>
<CAPTION>
                                                                                   Years Ended December 31,
                                                                                   -----------------------
                                                                           2001            2000             1999
                                                                       -----------      -----------     -----------
<S>                                                                    <C>              <C>             <C>
Loss from continuing operations                                        $  (132,765)     $  (266,285)    $  (192,349)
Loss from discontinued operations                                       (1,908,968       (3,058,571)     (2,285,622)
                                                                       -----------      -----------     -----------
Net loss                                                               $(2,041,733)     $(3,324,856)    $(2,477,971)
                                                                       ===========      ===========     ===========

Basic and diluted loss from continuing operations, per share           $     (0.03)     $     (0.06)    $     (0.04)
Basic and diluted loss from discontinuing operations, per share              (0.40)           (0.65)          (0.49)
                                                                       -----------      -----------     -----------
Basic and diluted net loss per share                                   $     (0.43)     $     (0.71)    $     (0.53)
                                                                       ===========      ===========     ===========
Weighted-average number of common shares outstanding                     4,709,910        4,710,029       4,710,056
                                                                       ===========      ===========     ===========
</TABLE>

Recent Accounting Pronouncements

      In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other
Intangible Assets." These Statements change the accounting for business
combinations and goodwill. SFAS No. 141 requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001.
SFAS No. 141 did not have a material impact on the Company's consolidated
results of operations, financial position, or cash flows. The amortization of
goodwill, including goodwill recorded in past business combinations, will cease
when the Company adopts SFAS No. 142 on January 1, 2002. The Company estimates
the impact on the consolidated statement of operations for the year ended
December 31, 2002 for the elimination of goodwill amortization will be a
reduction in operating expenses of approximately $55,000. The Company has not
performed a valuation analysis under SFAS No. 142 on the goodwill from the
Spectrum CA acquisition and has not determined the impact of any impairment
adjustment on its consolidated results of operations, financial position or cash
flows.

      In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the
accounting and reporting provisions of APB Opinion No. 30, "Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual, and Infrequently Occurring Events and
Transactions," for the disposal of a segment of a business (as previously
defined in that opinion). SFAS No. 144 will be adopted by the Company as of
January 1, 2002. The Company has not yet determined the impact of its adoption
on its consolidated results of operations, financial position or cash flows.

Reclassifications

      Certain reclassifications have been made to the prior years financial
statements to conform to the current year financial statement presentation.

NOTE 3 - Acquisitions

      In January 2001, Anchor entered the managed care service business by
purchasing substantially all of the assets and business of Novaeon, Inc.
("Novaeon" and the "Novaeon Assets") from Novaeon's Chapter 11 bankruptcy
estate. Prior to its bankruptcy, Novaeon performed utilization review, peer
review, pre-certification, medical bill review and both telephonic and field
medical case management services on a national basis.

      The purchase of the Novaeon Assets was consummated pursuant to an asset
purchase agreement between the parties dated December 28, 2000 (the "Novaeon
Asset Purchase Agreement"), the terms of which were approved by the Bankruptcy
Court for the Eastern District of Pennsylvania (Bankruptcy No. 00-18821 BIF).
The purchase price under the Novaeon Asset Purchase Agreement was payable at the
closing by a cash down payment of $1,500,000 and delivery of Anchor's contingent
promissory note in the principal amount of $3,500,000 (the "Novaeon Note")

                                      F-12

<PAGE>

due on April 30, 2002. Anchor transferred the Novaeon assets to a newly created
subsidiary, Spectrum CA. The terms of the Novaeon Note provides for the
principal amount to be reduced in the event the business operated by Anchor
using the Novaeon Assets realized less than $10,000,000 in revenue during the
calendar year 2001. For the year ended December 31, 2001, Spectrum CA reported
revenues of $4,673,678, resulting in reduction of the principal amount of the
Novaeon Note to $500,000. In May 2002, the Company obtained an amendment to the
repayment terms of the Novaeon Note to provide for 12 monthly-amortized payments
of principal and interest in the amount of $39,784 beginning on July 1, 2002.
Anchor accounted for the Novaeon acquisition using the purchase method of
accounting. The tangible assets and goodwill recorded at acquisition were
$1,477,000 and $547,000, respectively, taking into consideration the reduction
in purchase price described above. The assets acquired included $320,000 of
fixed assets, $950,000 of accounts receivable and $207,000 of unbilled services,
work-in-process. The fixed assets acquired are being depreciated over their
remaining useful life over three to ten years in accordance with the Company's
depreciation policy. Goodwill is being amortized over 10 years.

        In order to finance the Novaeon acquisition and provide working capital
for its new managed care service business, Anchor obtained a secured convertible
loan from Legion in the amount of $2,000,000 (the "Legion Loan") due on June 30,
2001. Anchor used $1,500,000 of the Legion Loan proceeds for the required down
payment. The balance of the proceeds was later transferred to Anchor to pay back
part of the line of credit outstanding with WNAH. The note evidencing the Legion
Loan (the "Legion Note") provided for its automatic redemption in exchange for
the issuance of Anchor equity securities upon the completion by the Company of
an equity offering by June 30, 2001 resulting in gross proceeds of at least
$3,000,000. The repayment of the Legion Loan is secured by a security interest
in favor of Legion encumbering all the Novaeon Assets pursuant to the terms of a
Security Agreement between the parties dated January 12, 2001.

        The Legion Loan was obtained through the cooperation and assistance of
WNAH. As a condition of making the Legion Loan, Legion required WNAH to enter
into a Note Purchase Agreement dated January 12, 2001 (the "Legion Note Purchase
Agreement"). The Legion Note Purchase Agreement granted Legion the option to
cause WNAH to purchase the Legion Note from Legion in the event Anchor failed to
complete an equity offering by June 30, 2001. The consideration for the purchase
of the Legion Note under the Legion Note Purchase Agreement is the issuance of
WNAH common stock having an aggregate value of $2,000,000 (plus the sum of
unpaid interest under the Legion Note) at an agreed value of $4 per share.

        In conjunction with the Legion Note Purchase Agreement, Anchor and WNAH
entered into an assignment and assumption agreement dated January 12, 2001 in
which Anchor agreed that in the event that (i) Anchor failed to complete a
$3,000,000 equity offering by June 30, 2001 and (ii) Legion exercised its option
to cause WNAH to purchase the Legion Note under the Legion Note Purchase
Agreement, WNAH, as the transferee holder of the Legion Note, would have the
right to acquire all of the equity securities of Spectrum CA from Anchor in
exchange for the cancellation and release of all Anchor's repayment obligations
under the Legion Note and the assumption by WNAH of all Anchor's repayment
obligations to Novaeon's bankruptcy estate under the Novaeon Note.

        Anchor was unable to complete a $3,000,000 equity offering or repay the
Legion Note by June 30, 2001 as contemplated at the time of the Novaeon
acquisition. The Legion Note was subsequently amended by the parties to extend
the maturity date to December 31, 2001. The Legion Note Purchase Agreement was
also amended by Legion and WNAH to extend its term to coincide with the amended
maturity date under the Legion Note. The term of the amended Legion Note
Purchase Agreement lapsed on December 31, 2001. The Legion Note has not been
repaid by Anchor. Anchor has had discussions with Legion regarding the extension
or amendment of the Legion Note. There can be no assurance that amended terms
favorable to Anchor will result from these efforts. If Legion exercises its
option to cause WNAH to purchase the Legion Note and WNAH exercises its rights
to acquire all of the equity securities of Spectrum CA, the Company will have no
ongoing operations.

        Legion was placed into Rehabilitation by court order under Pennsylvania
insurance law on April 1, 2002. As of that date, the Pennsylvania Insurance
Commissioner assumed possession and control of all Legion's assets and business
to protect the interests of Legion's policyholders. Anchor is seeking to conduct
negotiations with the Pennsylvania Insurance Commissioner regarding an extension
of the Legion Note's maturity and the amendment of other terms.

                                      F-13

<PAGE>

        The following table presents the Company's consolidated unaudited pro
forma results from continuing operations assuming Anchor had acquired Novaeon at
the beginning of fiscal 2001. Novaeon experienced a substantial change in
business in 2000 as result of its bankruptcy; therefore, the revenue and
operating results from 2000 and 1999 are not comparable to Spectrum CA's
operating results in 2001. The pro forma results from continuing operations are
not necessarily indicative of the results of operations which actually would
have resulted had the purchase been in effect at the beginning of the year or of
future results.

<TABLE>
<CAPTION>
                                                                      Pro forma results for
                                                                          the year ended
                                                                        December 31, 2001
                                                                           (unaudited)
                                                                     ----------------------
   <S>                                                               <C>
   Revenue from continuing operations                                    $  4,881,641
                                                                         ============
   Loss from continuing operations                                       $   (212,673)
                                                                         ============
   Basic and diluted loss per share from continuing operations           $      (0.05)
                                                                         ============
</TABLE>


NOTE 4 - Property and Equipment

      Property and equipment consist of the following:

<TABLE>
<CAPTION>

                                                                                          December 31
                                                                                          -----------
                                                                                      2001            2000
                                                                                      ----            ----
<S>                                                                                <C>             <C>
Computer hardware and software .............................................       $151,979        $379,307
Office furniture and equipment .............................................        147,853         192,251
Leasehold improvements .....................................................          9,102              --
                                                                                   --------        --------
                                                                                    308,934         571,558
      Less--accumulated depreciation and amortization ......................         96,113         150,023
                                                                                   --------        --------
                                                                                   $212,821        $421,535
                                                                                   ========        ========
</TABLE>

      The foregoing assets are pledged as security for certain indebtedness (See
Note 7).

      Computer equipment under capital leases included in property and equipment
as of December 31, 2001 and 2000 was $0 and $249,590, respectively. The Company
performed a cash flow analysis of its business and determined that certain
software and associated hardware at WBAIS was impaired. During 2001 and 2000,
the Company recorded an impairment charge related to these assets in accordance
with SFAS No. 121. The charge totaled $399,948 and $982,400 in 2001 and 2000,
respectively, and is included in results of discontinued operations.

NOTE 5 - Intangible Assets

      Intangible assets at December 31, 2001 consisted of goodwill related to
the Novaeon Asset acquisition of $547,469 less accumulated amortization of
$54,748. The goodwill is being amortized over 10 years.

      The Company recorded an impairment of goodwill of the WBA companies during
2000 of $461,751 that is included in results of discontinued operations. The
goodwill was determined to be impaired following the Company's analysis of
anticipated future negative operating cash flows from the WBA companies.

NOTE 6 - Short-Term Borrowings from Related Parties

      In 2000, Anchor obtained short-term cash advances from WNA and affiliates
totaling $409,000. Anchor repaid these sums in full during 2001. WNA provided
certain overhead support to Anchor and its subsidiaries in 2001 pursuant to that
certain Overhead Support & Resource Sharing Agreement (Note 14). The outstanding
balance of

                                      F-14

<PAGE>

WNA's cash advances to and on behalf of the Company, unpaid overhead
support charges due to WNA and other operating activity from Ward North America
of Texas, Inc. ("WTX") and Spectrum Managed Care, Inc. ("SMC") as of December
31, 2001 and 2000 was $768,890 and $793,394, respectively. No interest has been
charged on these amounts.


NOTE 7 - Debt and Capital Lease Obligations

      Anchor's debt and capital lease obligations consist of the following:


<TABLE>
<CAPTION>
                                                                                                As of December 31,
                                                                                                -----------------
                                   Description                                                2001            2000
                                                                                              ----            ----
<S>                                                                                       <C>            <C>
Secured Bank Term Loan payable to Comerica Bank (formerly Imperial Bank),
interest at prime rate plus 2.50% (7.25% and 12.00% at December 31, 2001 and
2000) and matures October 5, 2002 (the "Secured Bank Loan"), guaranteed by
WNAH, in default                                                                          $   502,486    $   700,486

Secured Convertible Promissory Note payable to Legion Insurance Company,
interest at 5%, accruing monthly, principal and interest due December 31, 2001
(the "Legion Loan"), in default                                                             2,000,000              0

10% Convertible Promissory Note and Loan Agreement payable to WNAH maturing
March 10, 2002 ("the Convertible Loan"), in default                                           999,000      1,000,000

Contingent Promissory Note payable to the Novaeon, Inc., Chapter 11 bankruptcy
estate, interest at 8%, accruing monthly, $97,926 payable in May 2002, remaining
principal and interest payable in 12 installments of $39,784 beginning July 1,
2002 through June 1, 2003 (the "Novaeon Note")                                                500,000              0

10% Convertible Subordinated Debentures, Series E, due to WNAH matured in 2001,
in default                                                                                    500,000        500,000

10% Convertible Subordinated Debentures, Series B, matured in 2001 and 2000, in
default                                                                                        75,000         75,000

10% Convertible Subordinated Debentures, Series D, matured in 2001, in default                235,000        244,000

Other debt, in default                                                                        157,598         85,275
                                                                                          -----------    -----------
Total debt                                                                                  4,969,084      2,604,761

Capital lease obligations, in default                                                          79,529        339,870
                                                                                          -----------    -----------

Total  debt and capital lease obligations                                                 $ 5,048,613    $ 2,944,631
                                                                                          ===========    ===========
</TABLE>


      At December 31, 2001 and subsequent to year-end, Anchor was either in
default in the repayment of the principal and interest due or in violation of
the financial covenants associated with substantially all of its outstanding
debt obligations. As a result, all amounts have been classified as current
liabilities.

      Secured Bank Loan: On September 30, 1999, Anchor entered into a term loan
("Secured Bank Loan") of $931,485 with a commercial bank, Imperial Bank, now
Comerica Bank following a 2001 merger, (the "Bank") combining the balances owing
under an existing term loan with an additional loan amount of $250,000. The
basic terms of the loan were: (a) monthly interest payments equal to bank's
prime rate, plus 2.5%; (b) a maturity date of October 7, 2002; and (c) monthly
principal payments of $16,500 beginning on November 7, 1999. The Secured Bank
Loan is secured by a blanket security interest encumbering receivables, property
and equipment, and other

                                      F-15

<PAGE>

assets of Anchor and its subsidiaries. The loan agreement contains certain
restrictive covenants that, among other things, require Anchor to maintain
certain levels of net worth and cash flow (as defined), and prohibits the
payment of dividends. Anchor was not in compliance with these covenants at as of
December 31, 2001.

      The principal balance of the Secured Bank Loan was subsequently reduced to
$377,986 at March 31, 2002 through additional principal payments required by
Comerica Bank under a Forbearance Agreement and Amendment to Promissory Note and
Conditional Consent to Subsidiary Transactions between the parties dated January
2, 2002 (the "Forbearance Agreement"). The Forbearance Agreement amended the
repayment terms of the Secured Bank Loan making it payable in monthly principal
installments of $20,000, plus accrued interest, with a balloon payment of
$257,986 due on October 5, 2002. The Forbearance Agreement also evidenced the
Bank's forbearance of Anchor's Secured Bank Loan covenant defaults until January
31, 2002 and its consent to the cessation of WBAIS's business. As a condition of
its forbearance, the Bank sought and obtained the execution and delivery of an
Unconditional Guaranty of the Secured Bank Loan by WNAH, Anchor's majority
shareholder. Anchor remains in default under the Secured Bank Loan covenants
and, following the expiration of the Forbearance Agreement on January 31, 2002,
the Bank is no longer restricted from seeking the immediate repayment of the
Secured Bank Loan or pursuing other remedies arising from the default.

      Legion Note: Anchor financed the purchase of the Novaeon Assets with a
$2,000,000 loan provided by Legion evidenced by a promissory note in favor of
Legion. The Legion Note matured on June 30, 2001 and was automatically
convertible into Anchor securities in the event Anchor completed an equity
offering resulting in gross proceeds of at least $3,000,000 by its maturity
date. Anchor failed to complete a $3,000,000 equity offering or satisfy the
Legion Loan by June 30, 2001. On November 21, 2001, Legion and Anchor executed a
First Amendment to Promissory Note extending the due date of the Legion Loan to
December 31, 2001. A late fee of 10% is due on all amounts not paid by the
extended repayment date. Anchor was engaged in discussions with Legion regarding
the further extension of the Legion Note's maturity when a Pennsylvania court
appointed the Pennsylvania Insurance Commissioner as Legion's Rehabilitator. The
court ordered the Commissioner to assume possession and control of all Legion's
assets and business for the protection of policy holders as of that date. All
further negotiations concerning the Legion Note will be conducted with the
Pennsylvania Insurance Commissioner.

      Convertible Loan: In conjunction with its purchase of the Series A
Preferred shares in March 2000, WNAH also agreed to provide Anchor with a
$1,000,000 convertible loan facility under that certain Convertible Promissory
Note and Loan Agreement dated March 10, 2000. The Convertible Loan was made
available immediately following the closing of the Series A Preferred stock
purchase transaction. Principal advances under the Convertible Loan bear
interest at the rate of ten percent (10%) per annum and interest is payable
quarterly. The outstanding balance of principal and interest under the
Convertible Loan was due and payable on March 10, 2002. The Convertible Loan is
convertible, at WNAH's option, into shares of Series A Preferred stock at a
value of $4.5045 per share which are further convertible into shares of common
stock at a share conversion rate of 10 to 1 shares, which, when added to the
shares of common stock issued or issuable pursuant to the Series E Debentures
(not including the warrants accompanying the Series E Debentures) and other
shares of Series A Preferred issued to WNAH, would constitute 82.2% of Anchor's
common stock on a fully-diluted basis following such conversion At December 31,
2001, the outstanding balance of principal and interest due under the
Convertible Loan was $1,154,475. Anchor failed to make quarterly interest
payments in 2000 and 2001 and, as a result of the default, the outstanding
balances due at December 31, 2000 and 2001 have been classified as current in
the accompanying balance sheets.

      Novaeon Note: On January 12, 2001, Anchor purchased substantially all the
assets and business of the telephonic case management and medical bill review
units of Novaeon pursuant to an Asset Purchase Agreement, dated effective as of
December 28, 2000 by and between Anchor and Novaeon. The consideration for the
Novaeon Assets under the Asset Purchase Agreement was a cash payment of
$1,500,000 and delivery of Anchor's contingent promissory note for $3,500,000.
The principal amount of the Novaeon Note has been retroactively reduced to
$500,000 as of January 12, 2001 under the Note's contingent adjustment provision
based on revenues received in 2001 from the operation of the purchased assets.
All principal and accrued interest under the Novaeon Note was due and payable on
April 30, 2002. Anchor failed to make the payment on April 30, 2002 and has
negotiated amended payment terms with the Novaeon bankruptcy estate. In May
2002, the Company paid $97,926 in principal and interest and reached an
agreement with the bankruptcy estate such that the remaining principal and
interest of $457,353, plus 8% interest, will be paid in 12 monthly installments
of $39,784 until June 1, 2003.

                                      F-16

<PAGE>

      Series E Debentures: At December 31, 2001, the principal sum of $500,000
and accrued interest of $101,667 was immediately due and payable to WNAH under
the Company's 10% Convertible Subordinated Debentures, Series E (the "Series E
Debentures"). The basic terms of the Series E Debentures are: (a) two year
maturity subject to acceleration to July 1, 2000, if requested by WNAH; (b)
conversion price of $0.50 per share; (c) "Piggyback" registration rights for
three years; (d) for each $5,000 of Series E Debentures acquired, WNAH received
a five year warrant to acquire 3,000 shares of Anchor common stock at an
exercise price of $0.50 per share; and (e) subordination provisions that
subordinates the Series E Debentures to Anchor's "Senior Debt" (as defined in
the Series E Debentures). The Series E Debentures are superior in repayment
priority to the Series B and D Debentures but are subordinate to "Senior Debt",
including the Secured Bank Loan.

      Series B Debentures: At December 31, 2001, the outstanding principal
immediately due and payable to the holders of Anchor's 10% Convertible
Subordinated Debentures, Series B ("Series B Debentures") was $75,000. The
holders of the Series B Debentures are unaffiliated parties. The basic terms of
the Series B Debentures are (a) 10% interest, payable semi-annually in arrears
(b) two year maturity (c) conversion price of $0.50 per share (d) "Piggyback"
registration rights for three years (e) for each $5,000 of Series B Debentures
acquired, an investor received a five year warrant to acquire 2,000 shares of
Anchor common stock at an exercise price of $0.50 per share and (f)
subordination provisions that subordinate the Series B Debentures to Anchor's
"Senior Debt" (as defined in the Series B Debentures to include the Secured Bank
Loan).

      Series D Debentures: At December 31, 2001, $235,000 of Anchor's 10%
Convertible Subordinated Debentures, Series D (the "Series D Debentures")
remained outstanding and immediately due and payable. The holders of the Series
D Debentures are unaffiliated parties. The basic terms of the Series D
Debentures are (a) 10% interest, payable semi-annually in arrears (b) two year
maturity (c) conversion price of $0.50 per share (d) "Piggyback" registration
rights for three years (e) for each $5,000 of Series D Debentures acquired, an
investor received a five year warrant to acquire 3,000 shares of Anchor common
stock at an exercise price of $0.50 per share and (f) subordination provisions
that subordinated the Series D Debentures to Anchor's "Senior Debt" (as defined
in the Series D Debentures to include the Secured Bank Loan).


NOTE 8 - Leases

      Anchor closed its Concord, California office in November 2000, and
surrendered possession of the premises in February 2001 in settlement of a
wrongful detainer action brought by the landlord. Anchor's existing deferred
rent liability of $280,000 relating to the Concord lease was eliminated as of
December 31, 2000. No further liability under the lease is expected as a portion
the premises was subsequently leased by the landlord at rates and terms
management believes will fully mitigate the damages resulting from Anchor's
breach.

      In January 2002, WBAIS abandoned office premises in Portland, Oregon
occupied under a lease that expires in December 2002. The estimated liability
related to this lease has been recorded as part of the loss on disposal of WBA
and included in accrued expenses in the accompanying balance sheet.

      Harden-AZ is a party to a lease for office premises in Scottsdale, Arizona
that expires in May 2002. The company abandoned the office in 2001 and the
landlord filed a lawsuit seeking damages under the lease in April 2002. The
estimated liability related to this lease has been recorded as part of the loss
on disposal and included in accrued expenses in the accompanying balance sheet.

      Spectrum CA maintains its principal office in a 8,251 square foot leased
premises located in Exton, Pennsylvania. The lease term expires on June 30,
2003. Spectrum CA shares office space with WNAH affiliates in San Diego,
California, Livonia, Michigan, and San Antonio, Texas and pays its proportionate
share of the occupancy costs at those premises, approximately $40,000 in 2001.
Dedicated Spectrum CA case management and utilization review units occupy space
within five offices of its largest customer for which it pays a monthly
all-inclusive fee covering rent, overhead and support services.

      Total rent expense was $943,102, $989,548, and $1,373,830 for the years
ended December 31, 2001, 2000,

                                      F-17

<PAGE>

and 1999, respectively.

      Future minimum annual lease payments under office and equipment operating
leases as of December 31, 2001 are as follows:

<TABLE>
<CAPTION>
                                                    Total      Spectrum CA        WBA
                                                    Lease         Lease          Lease
                    Year                          Payments      Payments       Payments
                    ----                          --------      --------       --------
                    <S>                           <C>          <C>            <C>
                    2002 ....................     $ 635,913     $ 181,027     $ 454,886
                    2003 ....................       187,407       122,959        64,448
                    2004 ....................        57,630        16,324        41,306
                    2005 ....................         2,900             -         2,900
                                                  ---------     ---------     ---------
                                                  $ 883,850     $ 320,310     $ 563,540
                                                  =========     =========     =========
</TABLE>


NOTE 9 - Commitments and Contingencies

Anchor

      On May 15, 2002 Anchor and its majority shareholder, WNAH, settled
litigation pending before the Superior Court of Contra Costa, California, Case
Number COO-03258, with two of Anchor's former executive officers and its former
auditing firm. The litigation arose from various actions and events occurring in
1999 and 2000. Certain bifurcated claims against Anchor ordered to arbitration
by the court had previously resulted in a September 2001 arbitration award in
favor of its former Chief Executive Officer in the approximate amount of
$304,000. Under the terms of a global settlement, Anchor and WNAH jointly agreed
to pay Anchor's former Chief Executive Officer the sum of $365,000 with $240,000
of such amount being provided by their employee practices liability insurer.
Anchor had originally recorded legal costs of $384,000 for the anticipated
settlement of this case. As a result of the final settlement of approximately
$101,000 plus legal costs, Anchor reduced the accrual to $150,000 and recognized
a $234,000 expense credit in 2001. All causes of action against all corporate
and individual defendants and cross-defendants were dismissed with prejudice
under the settlement with no admission of fault or liability by any party.

      Management is not aware of any other litigation to which Anchor is
currently a party or to which any property of Anchor is subject, which might
materially adversely affect the financial condition or results of operations of
Anchor.

The WBA Companies

      Harden-AZ and WBAIS are defendants in a number of lawsuits seeking damages
for alleged professional negligence or breach of contract in the performance of
their employee benefit plan administration services. These matters are of a
nature and type that typically arise from time to time in the normal course of
business, and, except for claims that are strictly contractual in nature, are
covered under professional liability policies effective during the years in
which the alleged acts or omissions occurred.

      WBAIS is a defendant in an administrative proceeding before the Oregon
Bureau of Labor and Industries filed on March 1, 2001. The claimant in the
matter was an employee of WBAIS who was involuntarily terminated in October 2000
for excessive absenteeism. The claimant alleges the termination was in violation
of the federal Family Medical Leave Act, the Oregon Family Medical Leave Act,
and the Americans with Disabilities Act. The claim is covered under Anchor's
blanket employee practices liability insurance policy and its potential
liability for defense and indemnity costs is limited to the policy's per claim
deductible of $50,000.

      Although the pending professional negligence and employee liability claims
against the WBA companies are, for the most part, covered by insurance, such
insurance protection could be terminated if required deductible contributions
and payments are not made.

      Litigation has been commenced by the landlord of WBAIS's Portland, Oregon
office and by the landlord of Harden-AZ's Scottsdale, Arizona office premises to
recover damages for the breach of their respective leases. The

                                      F-18

<PAGE>

WBA companies also foresee that additional litigation may be initiated in the
future by other unsecured trade creditors or claimants due to the companies'
significant debt balances and continuing errors and omissions tail exposure.

Spectrum CA

      Management is not aware of any legal proceedings against Spectrum CA or
involving any claim against property of Spectrum CA, which might materially
adversely affect its financial condition or results of operations.

NOTE 10 - Preferred Stock and Warrants

      On March 9, 2000, WNAH purchased from Anchor 1,853,300 shares of $0.02 par
value Series A Convertible Preferred stock ("Series A Preferred") at a purchase
price of $2,000,000. The various rights and preferences of the Series A
Preferred are set forth in that certain Certificate of Designations of Series
Convertible Preferred Stock dated March 9, 2000 (the "Certificate of
Designations"). The Series A Preferred shares accrue a cumulative dividend in
the amount of eight percent (8%) of liquidation value, as may be adjusted for
stock splits, combinations or stock dividends. The Series A Preferred
liquidation value is the original purchase price ($1.079 per share) increased by
the amount of accrued and unpaid cumulative dividends. Cumulative dividends
accrue whether or not declared and are payable only from legally available
assets. Cumulative dividends as of December 31, 2001 were $5,634. In the event
of liquidation or dissolution, the holders are entitled to be paid out of
available assets, prior and in preference to any distribution to the holders of
common stock or any other junior stock, an amount equal to the greater of the
Series A Preferred liquidation value or the amount the shareholders would have
received if they had converted their shares to common stock immediately prior to
the liquidation or dissolution.

      Each share of Series A Preferred is convertible to a number of shares of
common stock determined by dividing the stated value by the then applicable
conversion price as set forth in the Certificate of Designations of Series
Convertible Preferred Stock dated March 9, 2000. The Series A Preferred shares
have current voting rights as if converted to common shares. As of December 31,
2001, the Series A Preferred shares held by WNAH were convertible into
18,533,000 shares of common stock representing 79.7% of Anchor's outstanding
voting equity securities. The Series A Preferred shares are convertible to
common stock: (i) at any time at the option of the shareholder; or (ii)
automatically, immediately preceding the closing of a qualified public offering
of common stock, into common stock initially at a price per share of common
stock not less than $5.00 per share of common stock into which the Series A
Preferred would then convert, and which results in gross proceeds to Anchor of
at least $10 million; or (iii) as a class at the election of the holders of a
majority of the Series A Preferred.

      At December 31, 2001, Anchor had outstanding Warrants for the purchase of
1,356,340 shares of common stock with exercise prices ranging between $0.50 and
$1.75 per share and expiring at various dates through 2005.

NOTE 11 - Income Taxes

      The provision for income taxes is as follows:

<TABLE>
<CAPTION>
                                    Year Ended December 31,
                                    -----------------------
                                     2001     2000    1999
                                     ----     ----    ----
      <S>                           <C>      <C>     <C>
      Current tax expense           $4,060   $7,710  $5,908
                                    ======   ======  ======
</TABLE>


      Deferred income taxes are provided for the temporary differences between
the financial reporting and tax bases of Anchor's assets and liabilities. A
deferred tax valuation allowance is established if it is more likely than not
that all or a portion of the recorded deferred tax assets will not be realized.

                                      F-19

<PAGE>

      Deferred tax assets are comprised of the following:

<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                                          -----------
                                                                                   2001                2000
                                                                                   ----                ----
     <S>                                                                         <C>                <C>
     Deferred tax assets:
     Depreciation and amortization ........................................      $   698,000        $   489,000
     Vacation accrual .....................................................           20,000             58,000
     Bad debt and legal reserves ..........................................          162,000            134,000
     Other accruals .......................................................          353,000            165,000
     Net operating loss carryforward ......................................        2,863,000          2,496,000
                                                                                   ---------         ----------
                                                                                   4,096,000          3,342,000
     Valuation allowance for deferred tax assets ..........................       (4,096,000)        (3,342,000)
                                                                                 -----------        -----------
                                                                                 $        --        $        --
                                                                                 ===========        ===========
</TABLE>

      At December 31, 2001 and 2000, current deferred tax assets are $534,000
and $355,000, respectively, and noncurrent deferred tax assets are $3,562,000
and $2,987,000, respectively. The Company has established a full valuation
allowance against its deferred tax assets due to the uncertainty surrounding the
realization of such assets.

      The change in the valuation allowance is comprised of the following items:

<TABLE>
<CAPTION>
                                                                                              Year Ended December 31,
                                                                                              ----------------------
                                                                                                2001          2000
                                                                                                ----          ----
<S>                                                                                           <C>           <C>
    Increase due to net operating losses ................................................     $367,000      $459,000
    Change in estimate of temporary differences for fixed and intangible assets,
        deferred rent, vacation accrual and other accruals ..............................      387,000       441,000
                                                                                              --------      --------
    Net increase ........................................................................     $754,000      $900,000
                                                                                              ========      ========
</TABLE>

      A reconciliation of income tax computed at the federal statutory corporate
tax rate to the provision for income taxes follows:

<TABLE>
<CAPTION>
                                                                                   Year ended December 31,
                                                                                   -----------------------
                                                                   2001                     2000                     1999
                                                                   ----                     ----                     ----
                                                            Amount      Percent      Amount       Percent      Amount      Percent
                                                            ------      -------      ------       -------      ------      -------
<S>                                                         <C>         <C>          <C>          <C>          <C>         <C>
Income tax benefit at federal
  statutory rate ...................................      $(45,139)    (34.0)%   $(1,130,451)    (34.0)%    $ (835,710)    (34.0)%
Increase (decrease) in income taxes resulting
from:
  State and local income taxes, net of federal
       tax benefit .................................         2,680       0.1           5,089       0.1        (143,165)     (5.8)
  Permanent differences ............................         1,524       1.2         201,873       6.1          23,045       0.9
  Other ............................................        (4,005)     (3.0)         31,199       0.9          73,638       3.3
  Change in valuation allowance ....................        49,000      36.9         900,000      27.1         888,100      35.9
                                                          --------     -----     -----------     -----      ----------     -----
                                                          $  4,060       3.1%    $     7,710       0.2%     $    5,908       0.3%
                                                          ========     =====     ===========     =====      ==========     =====
</TABLE>

      At December 31, 2001, Anchor had estimated federal and state net operating
loss carryforwards of approximately $7,748,000 and $3,839,000, respectively. The
federal and state net operating losses will begin to expire in 2003 and 2001,
respectively. All net operating losses will expire in 2021.

      Federal and state tax laws impose limitations on the use of the net
operating losses and tax credits following certain changes in ownership. Because
such an ownership change has occurred, the limitation reduces the amount of the
benefit of the net operating losses and general business credits that is
available to offset future taxable income starting in the year of the ownership
change. If debt holders convert their debt, this could further restrict the use
of net operating losses and tax credits.

                                      F-20

<PAGE>

NOTE 12 - Retirement and Employee Benefit Plans

      Anchor maintains a 401(k) profit sharing plan to which eligible employees
of the WBA Companies may elect to contribute up to 15% of their salaries as
deferred compensation, up to an annual maximum of $10,500. The plan also
provides for voluntary employer contributions whereby Anchor's subsidiaries may
elect to match 50% of the employee contribution up to a maximum of 3% of the
employee's gross salary. No employer contributions were made to the plan for the
plan years ended December 31, 2001, 2000 and 1999.

      Eligible employees of Spectrum CA may elect to participate in the 401(k)
profit sharing plan sponsored by WNAH. Spectrum CA employees are eligible to
participate in the plan after completing 90 days of service and may contribute
an amount from 1% to 20% of eligible earnings. The IRS limits the total amount
of pre-tax contributions each year. The plan also provides for employer matching
contributions in an amount equal to 25% of an employee's contributions up to a
maximum of the first 6% of the employee's contribution. Spectrum CA made
contributions to the profit sharing plan during 2001 of $6,555.

      In addition, Anchor and its subsidiaries offer active eligible employees
certain life, health, vision and dental benefits. Such benefits are not extended
to retirees.

NOTE 13 - Stock Option Plan

      The Company has a stock option plan (the "Plan") which provides for the
issuance of options to purchase up to 1,000,000 shares of common stock. Options
granted in 2001 vest over a five-year period, with 20% vesting each year.
Options granted in 2000 and 1999 generally vest over a four-year period, with
25% vesting each year. The options are priced at fair market value of the stock
at the date of grant, except for stockholders of more than 10% of Anchor, in
which case the options are priced at 110% of the market price at the date of
grant. Options generally have a ten-year life. As of December 31, 2001, there
were 504,300 outstanding options to purchase common shares under the Plan.

      The Company has adopted SFAS No. 123, "Accounting for Stock-Based
Compensation" and, pursuant to its provisions, elected to continue using the
intrinsic-value method of accounting for stock-based awards granted to employees
in accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees". Accordingly, the Company has not recognized
compensation expense for its stock-based awards to employees for the years ended
December 31, 2001, 2000 and 1999. The following table reflects pro forma net
loss and loss per share had the Company elected to adopt the fair value approach
of SFAS No. 123:

                                                  Years Ended December 31,
                                                  ------------------------
                                               2001        2000         1999
                                               ----        ----         ----
      Net loss:
         As reported ...................  ($2,041,733) ($3,324,856) ($2,477,971)
         Pro forma .....................  ($2,089,001) ($3,370,106) ($2,490,881)
      Basic and diluted loss per share:
         As reported ...................       ($0.43)      ($0.71)      ($0.53)
         Pro forma .....................       ($0.44)      ($0.72)      ($0.53)

      These pro forma amounts may not be representative of future disclosures
since the estimated fair value of stock options is amortized to expense over the
vesting period, and additional options may be granted in future years.


                                      F-21

<PAGE>

      The estimated fair value of each option granted is calculated using the
Black-Scholes option-pricing model. The weighted average assumptions used in the
model were as follows:

                                                   Years Ended December 31,
                                                   ------------------------
                                                    2001     2000    1999
                                                    ----     ----    ----
Risk-free interest rate .........................    4.9%     6.5%    5.0%
Expected years until exercise ...................    5.0      4.5     5.0
Expected stock volatility .......................  145.0%   117.3%   56.0%
Dividend ........................................     --       --      --

      A summary of the status of Anchor's stock option plan as of December 31,
2001, 2000, and 1999 and changes during the years then ended is presented below:

<TABLE>
<CAPTION>
                                                           2001               2000               1999
                                                           ----               ----               ----
                                                              Weighted            Weighted           Weighted
                                                     Number   Average    Number    Average  Number    Average
                                                       of     Exercise     of     Exercise    of     Exercise
                                                     Shares    Price     Shares     Price   Shares     Price
                                                     ------    -----     ------     -----   ------     -----
<S>                                                 <C>       <C>       <C>       <C>       <C>      <C>
Outstanding at beginning of year ..................  585,250   $0.72     549,400    $1.34   620,975    $1.36
Granted ...........................................  405,000   $0.25     470,200    $0.39    20,450    $1.00
Canceled or expired ............................... (485,950)  $0.95    (434,350)   $1.14   (92,025)   $1.40
                                                    --------   -----   ---------    -----  --------    -----
Outstanding at end of year ........................  504,300   $0.60     585,250    $0.72   549,400    $1.34
                                                     =======   =====   =========    =====  ========    =====
Options exercisable at year end ...................  211,850             183,325            466,750

Weighted average grant-date fair value of
   options granted during the year whose exercise
   price equaled market price on date of grant .... $   0.47           $    0.33           $   0.53
Weighted average grant-date fair value of
   options granted during the year whose exercise
   price exceeded market price on date of grant ... $   0.10           $    0.11                 --
</TABLE>

      The following table summarizes information about stock options outstanding
at December 31, 2001:

<TABLE>
<CAPTION>
                            Options Outstanding                   Options Exercisable
                            -------------------                   -------------------
                                   Weighted
                                   Average
                                  Remaining        Weighted                   Weighted
   Range of        Number        Contractual        Average      Number        Average
Exercise Prices Outstanding          Life       Exercise Price Exercisable Exercise Price
--------------- -----------          ----       -------------- ----------- --------------
<S>             <C>              <C>            <C>            <C>         <C>
$0.16            230,000          9.4 years          $0.16              -        $ -
$0.37            113,425          6.0 years          $0.37         51,850       $0.37
$0.81 - $1.00     26,125          1.1 years          $0.92         25,250       $0.92
$1.45 - $1.65    134,750          0.7 years          $1.50        134,750       $1.50
--------------   -------          ---------          -----        -------       -----
$0.16 - $1.65    504,300          5.9 years          $0.60        211,850       $1.15
=============    =======          =========          =====        =======       =====
</TABLE>

NOTE 14 - Other Related Party Transactions

      At December 31, 2001 and 2000, Anchor owed WNAH $1,499,000 and $1,909,000,
respectively under outstanding 10% Series E convertible debentures and the
Convertible Loan. Total interest incurred on Anchor's combined debt to WNAH and
WNA was $155,983 and $101,158 for the years ended December 31, 2001 and 2000,
respectively. WNAH has foregone collection of sums due under its Series E
debentures and the Convertible Loan.

      WNA provided certain overhead support to Anchor and its subsidiaries in
2001 pursuant to that certain Overhead Support & Resource Sharing Agreement.
Under the terms of the agreement, WNA is to receive a monthly fee of 8% of the
net revenue of the WBA companies, totaling $394,197, and 10% of Spectrum CA's
revenue in 2001, totaling $464,973. The overhead support services provided by
WNA under the agreement included the services of its legal, accounting, human
resources, marketing and information technology departments and the use of

                                      F-22

<PAGE>

its telephone and data communications infrastructure. The outstanding balance of
WNA's cash advances to and on behalf of the Company, unpaid overhead support
charges due to WNA and other operating activity from WTX and SMC as of December
31, 2001 and 2000 was $768,890 and $384,394, respectively. WNA has foregone
repayment of its short-term advances.

      The WBA companies purchased $279,758 and $41,254 in 2001 and 2000,
respectively, in certain operational services performed by G.E. Capital
International Services (GECIS). GECIS is an affiliate of General Electric
Capital Corporation, a shareholder of WNAH.

      Spectrum CA derived approximately $988,980 or 21% of its 2001 revenues
from Legion and had an accounts receivable balance due from Legion of
approximately $157,000 at December 31, 2001. Legion is a shareholder of WNAH and
the holder of a $5 million promissory note from WNAH. Legion is also the maker
of a $2 million loan to Anchor.

NOTE 15 - Discontinued Operations

      During 2000 and 2001, the WBA companies experienced declining revenues and
were unable to reduce operating costs sufficiently to mitigate declining
revenue. Anchor's management was unsuccessful in securing additional equity
and/or debt capital for the WBA companies in 2001. Harden-AZ discontinued
operations in September 2001 following the loss of most of its customer
accounts. Anchor and WBAIS's management elected to discontinue WBAIS's
operations in late 2001 after negotiations with a number of qualified purchasers
failed to result in a sale of the company.

      In order to avoid the imminent breach of its remaining service agreements
and preserve the value of its business, WBAIS entered into an agreement with
Loomis Benefits West, Inc., ("LBW") dated January 1, 2002 (the "Commission
Arrangement"). The Commission Arrangement provides for WBAIS and its affiliates
to introduce benefit plan administration customers to LBW for a ten (10) year
period commencing on January 1, 2002. In exchange for the referrals and the
prospect of ongoing referrals, LBW agreed to pay WBA: (a) monthly "Base Revenue
Commissions" equal to 4% of LBW's "Base Gross Revenue" during 2002 - 2003 and 6%
of LBW's Base Gross Revenue during 2004 - 2011; and (b) quarterly "Business
Development Consideration" in the amount of 10% of LBW's "Gross Revenue" derived
from "Referred Customers" during 2002 - 2011. "Gross Revenue" under the
Commission Arrangement means commissions and administration fees earned by LBW
on a cash basis less brokerage fees and commissions payable to other brokers,
refunds, rebates, credits, etc. "Base Gross Revenue" is defined as "Gross
Revenue" less "Gross Revenue" derived by LBW from "Referred Customers."
"Referred Customers" are defined as LBW customers that were not previously
customers of WBAIS and that become customers of LBW after January 1, 2002
through the direct or indirect referral of WBAIS or an affiliate. The Commission
Arrangement also requires WBAIS to indemnify LBW and its affiliates from future
claims brought by its creditors and other claimants for claims relating to or
arising from obligations or acts of WBAIS.

      In addition to the Commission Arrangement, WBAIS agreed to sell LBW a
portion of its furniture located in its Portland, Oregon office and LBW agreed
to reimburse WBAIS for certain employee compensation and benefits expenses paid
by WBAIS in December 2001 and January 2002. As of January 31, 2002, WBAIS had
terminated all its employees and discontinued all business operations.

      In 2002, Anchor initiated the liquidation of its WBA business. Anchor's
plan of liquidation is a non-bankruptcy workout, to be managed by a third party.
WBA will make an assignment of all of its assets, including the payments to be
received under the Commission Arrangement, for the benefit of the creditors. At
the end of 2001, the remaining assets of WBA included accounts receivable of
approximately $183,000 and other current assets of $56,000. At the end of 2001,
the remaining liabilities of WBA included $1,767,000 in accounts payable and
accrued liabilities and $1,195,000 of short-term debt and liabilities. While the
assignment does not stay litigation against WBA, as bankruptcy would, the
assignment should prove more favorable to the creditors because of the deep
discount that typically occurs on the sale of assets through bankruptcy


                                      F-23

<PAGE>

      A summary of financial information related to discontinued operations is
as follows:

<TABLE>
<CAPTION>
                                                 2001              2000              1999
                                                 ----              ----              ----
<S>                                         <C>               <C>               <C>
     Total revenues ...................     $  5,043,166      $  8,999,137      $ 10,054,596
                                            =============     =============     =============
     Loss from operations before income
         tax provision ................     $ (1,449,081)     $ (3,058,571)     $ (2,285,622)
     Income tax provision .............               --                --                --
                                            -------------     -------------     -------------
     Loss from operations .............     $ (1,449,081)     $ (3,058,571)     $ (2,285,622)
     Loss on disposal .................         (459,887)               --                --
     Income tax benefit on disposal ...               --                --                --
                                            -------------     -------------     -------------
     Loss from discontinued operations      $ (1,908,968)     $ (3,058,571)     $ (2,285,622)
                                            =============     =============     =============
</TABLE>

         Loss on disposal of discontinued business during phase-out period
includes estimated costs associated with the wind-down of WBAIS and estimated
referral fees from LBW. The costs include future office lease and operating
lease obligations of approximately $428,000, fixed asset write-downs of $42,000
and other operating costs of approximately $40,000. The referral fees included
in the loss are estimated at $50,000 for 2002.

         The following is summarized assets and liabilities of WBA, excluding
intercompany balances with Anchor and Spectrum CA.

<TABLE>
<CAPTION>
                                                           December 31
                                                       2001             2000
<S>                                                   <C>              <C>
Assets
Accounts receivable                                 $  183,000       $  408,000
Other current assets                                    56,000           90,000
                                                 --------------   --------------
Total current assets                                   239,000          498,000
Property and equipment                                       0          422,000
Other long term assets                                       0           76,000
                                                 --------------   --------------
Total assets of discontinued operations             $  239,000       $  996,000
                                                 ==============   ==============

Liabilities
Accounts payable and accrued liabilities            $1,767,000       $1,073,000
Short-term borrowings from related parties             958,000          384,000
Current portion of debt                                237,000          192,000
                                                 --------------   --------------
Total current liabilities                            2,962,000        1,649,000
Long-term portion of debt                                    0          232,000
                                                 --------------   --------------
Total liabilities of discontinued operations        $2,962,000       $1,881,000
                                                 ==============   ==============
</TABLE>

NOTE 16 - Subsequent Events

Legion Insurance Company

         On April 1, 2002, Legion Insurance Company was placed into voluntary
rehabilitation by the Commonwealth Court of Pennsylvania. Beginning on April 1,
2002, Legion will operate in run-off under the control of the Insurance
Commissioner of the Commonwealth of Pennsylvania as Rehabilitator. Legion will
not write any new insurance policies.

         Legion is the holder of the Company's $2 million secured convertible
loan. Legion also owns 3.7 million shares of WNAH's Series C convertible
preferred stock and is the holder of WNAH's $5 million subordinated unsecured
contingent promissory note.

         Spectrum CA performs case management services for Legion. Spectrum CA
derived approximately $988,980, or 21%, of its 2001 revenues from Legion and had
an accounts receivable balance due from Legion of

                                      F-24

<PAGE>

approximately $157,000 and $247,456 at December 31, 2001 and April 30, 2002,
respectively. Management is uncertain as to the effect of Legion's voluntary
rehabilitation on the Company.

NOTE 17 - Quarterly Results of Operations (Unaudited)

      The following table presents a condensed summary of quarterly results of
operations for the years ended December 31, 2001 and 2000. The WBA companies
discontinued their respective operations and terminated all employees as of
January 2002. The Company's condensed summary of quarterly results of operations
has been reclassified to reflect the discontinuation of WBA's operations.
Accordingly, the revenues and operating and other expenses of the WBA companies
have been reported as "Loss from discontinued operations" in all periods
presented. The loss from discontinued operations in the first quarter of 2001
includes an additional $459,887 of expenses for estimated costs associated with
the wind-down of WBAIS and estimated referral fees from LBW during the phase-out
period.

<TABLE>
<CAPTION>
                                                                    Year Ended December 31, 2001
                                                                    ----------------------------
                                                 First Quarter     Second Quarter    Third Quarter    Fourth Quarter
                                                 -------------     --------------    -------------    --------------

<S>                                              <C>               <C>              <C>                <C>
Total revenues                                   $ 1,099,120       $ 1,256,461      $ 1,048,482        $ 1,269,615
Income (loss) from continuing operations
    before other expense and income taxes            (67,970)          (75,777)          10,555            421,260
Income (loss) from continuing operations            (151,093)         (207,523)         (94,079)           319,930
Loss from discontinued operations                   (733,922)         (323,395)        (460,533)          (391,118)
Net loss                                         $  (885,015)      $  (530,918)     $  (554,612)       $   (71,188)
Basic and diluted income (loss) from
    continuing operations, per share             $     (0.03)      $     (0.04)     $     (0.02)       $      0.06
Basic and diluted loss from discontinued
    operations, per share                              (0.16)            (0.07)           (0.10)             (0.07)
Basic and diluted net loss per share             $     (0.19)      $     (0.11)     $     (0.12)       $     (0.01)

<CAPTION>
                                                                    Year Ended December 31, 2000
                                                                    ----------------------------
                                                 First Quarter     Second Quarter    Third Quarter    Fourth Quarter
                                                 -------------     --------------    -------------    --------------

<S>                                              <C>               <C>              <C>                <C>
Total revenues                                   $        --       $        --      $        --        $        --
Income (loss) from continuing operations
    before other expense and income taxes                 --                --               --                 --
Loss from continuing operations                      (67,189)          (47,740)         (69,560)           (81,796)
Loss from discontinued operations                   (399,759)         (505,307)        (333,814)        (1,819,691)
Net loss                                         $  (466,948)      $  (553,047)     $  (403,374)       $(1,901,487)
Basic and diluted loss from continuing
    operations, per share                        $     (0.01)      $     (0.01)     $     (0.02)       $     (0.02)
Basic and diluted loss from discontinued
    operations, per share                              (0.09)            (0.11)           (0.07)             (0.38)
Basic and diluted net loss per share             $     (0.10)      $     (0.12)     $     (0.09)       $     (0.40)
</TABLE>

                                      F-25