================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   FORM 10-KSB
  X        Annual  Report  Pursuant to Section 13 or 15(d) of the  Securities
-----      Exchange Act of 1934 for the fiscal year ended  December 31, 2002
           Transition Report Pursuant to Section 13 or 15(d) of the Securities
-----      Exchange Act of 1934

                         Commission File Number: 0-11453

                     AMERICAN PHYSICIANS SERVICE GROUP, INC.
             (Exact name of registrant as specified in its charter)

                         Texas
(State or other jurisdiction of incorporation or organization)

                       75-1458323
          (I.R.S.  employer Identification No.)

      1301 Capital of Texas Highway, Austin Texas                 78746
       (Address of principal executive offices)                 (Zip Code)

       Registrant's telephone number, including area code: (512) 328-0888
           Securities registered pursuant to Section 12(b) of the Act:

                                                         Name of each exchange
         Title of each class                              on which registered
         -------------------                             ---------------------
                None                                             None

           Securities registered pursuant to Section 12(g) of the Act:
                          Common Stock, $0.10 par value

                                (Title of Class)

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

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

State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of filing.

              Aggregate Market Value at March 24, 2003: $6,768,033

Indicate the number of shares outstanding of each of the registrant's class of
common stock, as of the latest practicable date.
                                                         Number of Shares
                                                           Outstanding At
            Title of Each Class                            March 24, 2003
            -------------------                           ----------------
         Common Stock, $.10 par value                        2,131,043

                       Documents Incorporated By Reference
    Selected portions of the Registrant's definitive proxy material for the
    2003 annual meeting of shareholders are incorporated by reference into
    Part III of the Form 10-KSB.



<PAGE>


            AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES

                          ANNUAL REPORT ON FORM 10-KSB

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002



References in this report to "we", "us", "our", and the "Company" mean American
Physicians Service Group, Inc.

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

GENERAL

     We, through our subsidiaries, provide services that include brokerage and
investment services to individuals and institutions, and management services to
malpractice insurance companies.

     We were organized in October 1974 under the laws of the State of Texas. Our
principal executive office is at 1301 Capital of Texas Highway, Suite C-300,
Austin, Texas 78746, and its telephone number is (512) 328-0888.

     Financial information about our industry segments is disclosed in Note 16
to our accompanying Consolidated Financial Statements in Appendix A.

OUR FINANCIAL SERVICES

     Through our subsidiaries, APS Financial Corporation, or APS Financial, and
APS Asset Management, Inc., or Asset Management, we provide investment and
investment advisory services to institutions and individuals throughout the
United States. Our revenues from this segment were 52% and 57% of our total
revenues in 2002 and 2001, respectively.

     APS Financial is a fully licensed broker/dealer that provides brokerage and
investment services primarily to institutional and high net worth individual
clients. APS Financial also provides portfolio accounting, analysis, and other
services, to insurance companies, banks, and public funds. APS Financial has its
main office in Austin, Texas with a branch offices in Houston, Texas and
Redmond, Washington.

     APS Financial charges commissions on both exchange and over-the-counter, or
OTC, transactions in accordance with industry practice. When APS Financial
executes OTC transactions as a dealer, it receives, in lieu of commissions,
markups or markdowns.

     APS Financial is a member of the National Association of Securities
Dealers, Inc., or NASD, the Securities Investor Protection Corporation, or SIPC,
the Securities Industry Association, and, in addition, is licensed in 44 states
and Washington D.C.

     Every registered broker/dealer doing business with the public is subject to
stringent rules with respect to net capital requirements promulgated by the
Securities and Exchange Commission, or SEC. These rules, which are designed to
measure the financial soundness and liquidity of broker dealers, specify minimum
net capital requirements. Since we (as opposed to APS Financial) are not a

                                       2
<PAGE>

registered broker dealer, we are not subject to these rules. However, APS
Financial is subject to these rules. Compliance with applicable net capital
requirements could limit APS Financial's operations, such as limiting or
prohibiting trading activities that require the use of significant amounts of
capital. A significant operating loss or an extraordinary charge against net
capital could adversely affect the ability of APS Financial to expand or even
maintain its present levels of business. At February 28, 2003, APS Financial was
in compliance with all applicable net capital requirements.

     APS Financial clears its transactions through SWS Securities, Inc., or SWS,
on a fully disclosed basis. SWS also processes orders and floor reports, matches
trades, transmits execution reports to APS Financial and records all data
pertinent to trades. APS Financial pays SWS a fee based on the number and type
of transactions.

     Asset Management, a registered investment adviser under the Investment
Advisers Act of 1940, was formed and registered with the SEC in 1998. We formed
Asset Management to manage fixed income and equity assets for institutional and
individual clients on a fee basis. Asset Management's mission is to provide
clients with investment results within specific client-determined risk
parameters.

OUR INSURANCE SERVICES

     APS  Insurance  Services,  Inc.,  or Insurance  Services,  is an 80% owned
subsidiary of ours. Insurance  Services,  through its wholly-owned  subsidiaries
APS  Facilities  Management,  Inc.,  or FMI, and American  Physicians  Insurance
Agency,  Inc., or Agency, provides  management and agency services to medical
malpractice insurance companies.  Our revenues from this segment contributed 36%
and 32% of our total revenues in 2002 and 2001, respectively.

     Substantially all of our revenue from this segment was attributable to FMI
providing management services to American Physicians Insurance Exchange, or
APIE, a reciprocal insurance exchange. A reciprocal insurance exchange is an
organization that sells insurance only to its subscribers, who pay, in addition
to their annual insurance premiums, a contribution to the exchange's surplus.
These exchanges generally have no paid employees but instead enter into a
contract with an "attorney-in-fact" that provides all management and
administrative services for the exchange. As the attorney-in-fact for APIE, FMI
receives a percentage of the earned premiums of APIE, as well as a portion of
APIE's profits. The amount of these premiums can be adversely affected by
competition. Substantial underwriting losses, which might result in a
curtailment or cessation of operations by APIE, would also adversely affect
FMI's revenue and, accordingly, our revenue. To limit possible underwriting
losses, APIE currently reinsures its risk in excess of $250,000 per medical
incident. APIE offers medical professional liability insurance for physicians in
Texas and Arkansas. FMI's assets are not subject to any insurance claims by
policyholders of APIE.

    APIE was organized in 1975, and FMI has been its exclusive manager since its
inception. The management agreement between FMI and APIE basically provides for
full management by FMI of the affairs of APIE under the direction of APIE's
physician board of directors. Subject to the direction of this board, FMI sells
and issues policies, investigates, settles and defends claims, and otherwise
manages APIE's affairs. In consideration for performing its services, FMI
receives a percentage fee based on APIE's earned premiums (before payment of
reinsurance premiums), as well as a portion of APIE's profits. FMI pays salaries
and personnel related expenses, rent and office operations costs, data
processing costs and many other operating expenses of APIE. APIE is responsible
for the payment of all claims, claims expenses, peer review expenses, directors'
fees and expenses, legal, actuarial and auditing expenses, its taxes, outside
agent commissions and certain other specific expenses. Under the management
agreement, FMI's authority to act as manager of APIE is automatically renewed
each year unless a majority of the subscribers to APIE elect to terminate the
management agreement by reason of an adjudication that FMI has been grossly

                                       3
<PAGE>

negligent, has acted in bad faith or with fraudulent intent or has committed
willful misfeasance in its management activities. Termination of FMI's
management agreement with APIE would have a material adverse effect on us.

     During 1997, FPIC Insurance Group, Inc., or FPIC, purchased a 20% interest
in Insurance Services from us. In conjunction with that purchase, FPIC's
subsidiary, First Professional Insurance Company, Inc., or First Professional,
entered into marketing and reinsurance agreements with Agency and APIE for
business conducted in Texas. Agency has sales, marketing, underwriting and
claims handling authority for First Professional in Texas and receives
commissions for these services. First Professional also entered into a
reinsurance agreement with APIE under which APIE reinsures substantially all of
First Professional's risk in Texas under medical professional liability policies
issued or renewed by First Professional on behalf of Texas health care providers
after March 27, 1997. However, in September 2002, FPIC filed a withdrawal plan
with the Texas Department of Insurance. As a result, no new policies will be
underwritten by FPIC and no existing policies will be renewed beginning January
1, 2003. We anticipate that substantially all of this business will be written
directly through APIE and that there will be no material adverse impact on the
operations of APIE and consequently, on insurance services.

     APIE is authorized to do business in the states of Texas and Arkansas.
First Professional is licensed in several states. Both companies specialize in
writing medical professional liability insurance for health care providers. They
write insurance in Texas primarily through purchasing groups and are not subject
to certain rate and policy form regulations issued by the Texas Department of
Insurance. They review applicants for insurance coverage based on the nature of
their practices, prior claims records and other underwriting criteria. APIE is
one of the largest medical professional liability insurance companies in the
State of Texas. APIE is the only professional liability insurance company based
in Texas that is wholly-owned by its subscriber physicians.

     Generally, medical professional liability insurance is offered on either a
"claims made" basis or an "occurrence" basis. "Claims made" policies insure
physicians only against claims that occur and that are reported during the
period covered by the policy. "Occurrence" policies insure physicians against
claims based on occurrences during the policy period regardless of when they are
reported. APIE and First Professional offer only a "claims made" policy in Texas
and Arkansas, but provide for an extended reporting option upon termination.
APIE and FPIC reinsure 100% of all Texas and Arkansas coverage per medical
incident between $250,000 and $1,000,000, primarily through certain domestic and
international insurance companies.

     The following table presents selected financial and other data for APIE.
The management agreement with FMI obligates APIE to pay management fees to FMI
based on APIE's earned premiums before payment of reinsurance premiums. The
management fee percentage is 13.5% with the provision that any profits of APIE
will be shared equally with FMI so long as the total payment (fees and profit
sharing) does not exceed a cap based on premium levels. In 2002, 2001, 2000,
1999, and 1998, management fees attributable to profit sharing were $0, $0, $0,
$329,000, and $1,750,000, respectively. While APIE was profitable in 2002 there
was no profit sharing with FMI due to the management agreement requiring that
cumulative prior year losses be applied against future pretax income. Only after
prior year losses are completely offset can FMI then share equally the profits
at APIE.

                                       4
<PAGE>

<TABLE>
<CAPTION>


                                                                                         Years Ended December 31,
                                                    2002           2001             2000            1999             1998
                                                    ----           ----             ----            ----             ----
                                                            (Unaudited, In thousands, except for number of insureds)
<S>                                                  <C>           <C>               <C>            <C>              <C>
Earned premiums before                               $46,078
 reinsurance premiums                                              $35,866           $29,057        $24,529          $22,931
Total assets                                          80,721        64,557            66,348         66,377           75,173
Total surplus                                         12,985        11,475            10,014         13,925           13,592
Management fees (including profit sharing) and
 commissions to FMI and Agency  (1)                    6,221         5,084             4,002          3,645            4,835
Number of insureds                                     3,181         3,101             3,178          2,882            2,743

</TABLE>

          (1)     Includes commissions of $3,103, $2,886, $1,898, $1,191, and
                  $835 in 2002, 2001, 2000, 1999 and 1998, respectively, from
                  First Professional and other carriers directly related to
                  APIE's controlled business.

CONSULTING SERVICES

      Effective November 1, 2002, we completed the sale of APS Consulting to its
management as it was determined that APS Consulting does not fit into our
long-term business plan. See Note 14 in the accompanying consolidated financial
statements for details of this transaction. Before the sale, we provided
environmental consulting and engineering services through APS Consulting, a then
wholly-owned subsidiary of ours. APS Consulting, formally Eco-Systems Inc.,
which we acquired through foreclosure in 1999, is an environmental
consulting/engineering firm, comprised of scientists and engineers specializing
in remedial investigations, remediation engineering, air quality, waste water,
regulatory compliance, solid waste engineering, litigation support/expert
testimony, environmental resources, and industrial hygiene and safety. APS
Consulting offices were located in Jackson, Mississippi; Mobile, Alabama; and
Houston, Texas.

      Because of the wide range of expertise of the APS Consulting consultants,
we served clients in a broad base of industries, including: petrochemicals;
agricultural chemicals; oil exploration, refining and marketing; gas pipelines;
pulp and paper/forest products; manufacturing; waste disposal and management;
state and local government; and law firms. The APS Consulting consultants and
engineers had expertise in environmental engineering, chemical engineering,
hydrogeology, computer-aided drafting and design, civil engineering, geology,
biology and micro biology. Our revenues from the environmental consulting and
engineering services contributed 12% and 11% of our total revenues in 2002 and
2001, respectively.

OUR OTHER INVESTMENTS

     At December 31, 2002, we owned less than 5% of the common stock of Prime
Medical Services, Inc., or Prime Medical, having reduced our ownership from 15%
with the sale of 1,591,000 shares during 2002. Prior to that sale we recorded
our pro-rata share of Prime Medical's earnings using the equity method of
accounting. As a result of our reduced ownership, we now account for our
investment as an available-for-sale equity security, with changes in market
value reflected in shareholders' equity as "accumulated other comprehensive
income." Prime Medical is the largest provider of lithotripsy services in the
United States, currently servicing over 375 hospitals and surgery centers in 34
states. Lithotripsy is a non-invasive method of treating kidney stones through
the use of shock waves. Prime is also an international supplier of specialty
vehicles for the transport of high technology medical and
broadcast/communications equipment. As of December 31, 2002 our investments in
Prime Medical Securities in common stock and fixed income securities with an
aggregate fair market value of $7,835,000.



                                        5
<PAGE>

     The common stock of Prime Medical is quoted on the NASDAQ National Market
under the symbol "PMSI". Prime Medical is a Delaware corporation and is required
to file annual, quarterly and other reports and documents with the SEC. The
summary information in the accompanying consolidated financial statements
regarding Prime Medical is qualified in its entirety by reference to such
reports and documents. Such reports and documents may be examined and copies may
be obtained from the SEC.

         On January 1, 1998, we invested $2,078,000 in convertible preferred
stock of Uncommon Care, Inc. or Uncommon Care. We have also made available to
Uncommon Care three lines of credit totaling $4,850,000. At December 31, 2002, a
total of $4,605,000 was outstanding under these lines. The loans are at
interest rates varying from ten percent to twelve percent, payable quarterly
with various maturities through June 30, 2005, at which time any outstanding
principal and any accrued but unpaid interest are due and payable. Uncommon Care
is a developer and operator of dedicated Alzheimer's care facilities. Two of
Uncommon Care's four directors are directors or officers of ours. For the period
July 1, 2001 through June 30, 2002, we reduced the interest rate charged on our
lines of credit to 4% and allowed Uncommon Care to make interest payments
in-kind (PIK) in the form of Uncommon Care common stock. We discontinued the PIK
agreement after June 30, 2002 and Uncommon Care has been in default on its
payments since. Our options for collecting this debt are restricted by the terms
of a subordination agreement that we entered into with Uncommon Care's senior
lender.

      On a fully converted basis, our common and convertible preferred stock
represent approximately a 42% interest in the common equity of Uncommon Care. We
record our investment in and advances to Uncommon Care using the equity method
of accounting. At December 31, 2002 and 2001, the carrying value of this
investment and advances under the lines of credit were reduced to zero.

DISCONTINUED OPERATIONS


In November 2001, we sold all of our condominium space in an office project
located in Austin, Texas to Prime Medical. Approximately 50% of this space was
leased back to us and is utilized by our financial services, insurance services
and corporate segments' operations. Gain on the sale amounted to approximately
$5.1 million, of which approximately $1.9 million was recognized in 2001. Due to
our continuing involvement in the property, we deferred recognizing
approximately $2.4 million of the gain which is being recognized in income
monthly through November 2006. In addition, 15% of the gain ($0.76 million)
related to our 15% ownership in the purchaser, was deferred as we accounted for
Prime Medical using the equity method of accounting as of and for the year ended
December 31, 2001. During 2002, in connection with our reduced investment in
Prime Medical, we recognized a proportionate percentage of the deferred gain, or
about $516,000. In 2001, subsequent to the sale of the condominium space, we
dissolved APS Realty, Inc., or APS Realty, our wholly-owned subsidiary that
formerly owned this office space. Our revenues from APS Realty (not including
the gains from the sales of office space in both years) contributed 4% of our
total revenues in 2001. (See Note 13 to our consolidated financial statements in
Appendix A.)


COMPETITION

     APS Financial and Asset Management are both engaged in a highly competitive
business. Their competitors include, with respect to one or more aspects of
their business, all of the member organizations of the New York Stock Exchange
and other registered securities exchanges, all members of the NASD, registered
investment advisors, members of the various commodity exchanges and commercial
banks and thrift institutions. Many of these organizations are national rather
than regional firms and have substantially greater personnel and financial
resources than us. In many instances APS Financial is competing directly with
these organizations. In addition, there is competition for investment funds from
the real estate, insurance, banking and thrift industries.

     APIE competes with numerous commercial insurance companies, and

                                       6
<PAGE>

increasingly, the Texas Medical Liability Insurance Underwriting Association
(JUA), which is the State sponsored insurer of last resort. As a result of
increasing claim frequency and severity, a number of larger competitors have
withdrawn business or are not writing any new business in the state of Texas.
Premium rates have increased substantially over the last year and this has led
doctor groups to seek tort reform at both the state and federal level. Should
tort reform succeed in the near future, the industry may become more stable and
we could face increasing competition. Currently, APIE faces competition from its
primary competitors, Medical Protective Insurance Company and Texas Medical
Liability Trust. APIE's primary competitors have a greater capacity than APIE.
The primary competitive factor in selling insurance is a combination of price,
terms of policies offered, claims service and other services, and claims
settlement philosophy.

REGULATION

     APS Financial and Asset Management are subject to extensive regulation
under both federal and state laws. The SEC is the federal agency charged with
administration of the federal securities and investment advisor laws. Much of
the regulation of broker dealers, however, has been delegated to self-regulatory
organizations, principally the NASD and the national securities exchanges. These
self-regulatory organizations adopt rules (subject to approval by the SEC) which
govern the industry and conduct periodic examinations of member broker/dealers.
APS Financial is also subject to regulation by state and District of Columbia
securities commissions.

     The regulations to which APS Financial is subject cover all aspects of the
securities business, including sales methods, trade practices among broker
dealers, uses and safekeeping of customers' funds and securities, capital
structure of securities firms, record keeping and the conduct of directors,
officers and employees. Additional legislation, changes in rules promulgated by
the SEC and by self regulatory organizations, or changes in the interpretation
or enforcement of existing laws and rules, may directly affect the method of
operation and profitability of APS Financial and, accordingly, us. The SEC, self
regulatory organizations and state securities commissions may conduct
administrative proceedings which can result in censure, fine, suspension or
expulsion of APS Financial, its officers or employees. The principal purpose of
regulation and discipline of broker/dealers is the protection of customers and
the securities markets, rather than protection of creditors and shareholders of
broker/dealers.

     APS Financial, as a registered broker dealer and NASD member organization,
is required by federal law to belong to the SIPC. When the SIPC fund falls below
a certain minimum amount, members are required to pay annual assessments in
varying amounts not to exceed .5% of their adjusted gross revenues to restore
the fund. The SIPC fund provides protection for customer accounts up to $500,000
per customer, with a limitation of $100,000 on claims for cash balances.

     FMI has received certificates of authority from the Texas and Arkansas
insurance departments, licensing it on behalf of the subscribers of APIE. APIE,
as an insurance company, is subject to regulation by the insurance departments
of the States of Texas and Arkansas. These regulations strictly limit all
financial dealings of a reciprocal insurance exchange with its officers,
directors, affiliates and subsidiaries, including FMI. Premium rates,
advertising, solicitation of insurance, types of insurance issued and general
corporate activity are also subject to regulation by various state agencies.

EMPLOYEES

     At March 1, 2003, we employed, on a full time basis, approximately 107
persons, including 53 by Insurance Services, 44 by APS Financial and Asset
management, and 10 directly by us. We consider our employee relations to be
good. None of our employees are represented by a labor union and we have
experienced no work stoppages.

                                       7
<PAGE>

ITEM 2.  DESCRIPTION OF PROPERTY

     We lease approximately 23,000 square feet of condominium space from Prime
Medical in an office project at 1301 Capital of Texas Hwy., Suite C-300, Austin,
Texas as our principal executive offices.

     We also lease office space for our financial services subsidiary at 2550
Gray Falls Dr, Suite 350, Houston, Texas, and 7981 168th Ave, N.E. Suite 108,
Redmond, Washington.

     We also lease office space for our insurance services subsidiary at 5401
North Central Expressway, Suite 316, LB #B4, Dallas, Texas.

ITEM 3.  LEGAL PROCEEDINGS

     We are involved in various claims and legal actions that have arisen in the
ordinary course of our business. We believe that any liabilities arising from
these actions will not have a material adverse effect on our financial condition
or results of operations.

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

None.

                                     PART II

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

     The following table represents the high and low prices of our common stock
in the over-the-counter market as reported by the NASD, Automated Quotations
System for years ended December 31, 2002 and 2001. On March 1, 2003, we had
approximately 316 holders of record of our common stock.

                             2002                             2001
                     -------------------------         ------------------------
                         High         Low                   High        Low
                        -----        -----                 -----       -----
First Quarter           $4.90        $2.64                 $3.25       $1.75
Second Quarter          $4.67        $3.49                 $2.94       $1.85
Third Quarter           $4.90        $3.58                 $3.26       $2.11
Fourth Quarter          $4.57        $3.51                 $3.75       $2.08


                                       8
<PAGE>

     We have not declared any cash dividends on our common stock during the last
two years and have no present intention of paying any cash dividends in the
foreseeable future. Our policy is to retain all earnings to provide funds for
growth. Whether we decide to declare and pay dividends in the future will be
based upon our earnings, financial condition, capital requirements and such
other factors as we may deem relevant.

     The following table represents securities authorized for issuance under
equity compensation plans, as described in Note 12 to the consolidated financial
statements at December 31, 2002.

<TABLE>
<CAPTION>


----------------------------------------------------------------------------------------------------------------------------
                                           Equity Compensation Plan Information
----------------------------------------------------------------------------------------------------------------------------
----------------------------- ---------------------------- ---------------------------- ------------------------------------
       Plan Category          Number of securities to be    Weighted-average exercise     Number of securities remaining,
                                issued upon exercise of       price of outstanding         available for future issuance
                                 outstanding options,         options, warrants and       under equity compensation plans
                                 warrants and rights.                rights.            (excluding securities reflected in
                                                                                                    column (a)
----------------------------- ---------------------------- ---------------------------- ------------------------------------
----------------------------- ---------------------------- ---------------------------- ------------------------------------
                                          (a)                         (b)                               (c)
----------------------------- ---------------------------- ---------------------------- ------------------------------------
----------------------------- ---------------------------- ---------------------------- ------------------------------------
<S>                                     <C>                           <C>                             <C>
Equity   compensation  plans
approved by security holders
                                        939,000                       $3.51                           648,000
----------------------------- ---------------------------- ---------------------------- ------------------------------------
----------------------------- ---------------------------- ---------------------------- ------------------------------------
Equity   compensation  plans
not   approved  by  security
holders                                  none                         none                             none
----------------------------- ---------------------------- ---------------------------- ------------------------------------
----------------------------- ---------------------------- ---------------------------- ------------------------------------
Total                                   939,000                       $3.51                           648,000
----------------------------- ---------------------------- ---------------------------- ------------------------------------
</TABLE>


ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

FORWARD-LOOKING STATEMENTS

     Our statements contained in this report that are not purely historical are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including
statements regarding our expectations, hopes, intentions or strategies regarding
the future. You should not place undue reliance on forward-looking statements.
All forward-looking statements included in this report are based on information
available to us on the date hereof, and we assume no obligation to update any
such forward-looking statements. It is important to note that our actual results
could differ materially from those in the forward-looking statements. In
addition to any risks and uncertainties specifically identified in the text
surrounding the forward-looking statements, you should consult our reports on
Forms 10-QSB and our other filings under the Securities Act of 1933 and the
Securities Exchange Act of 1934, for factors that could cause our actual results
to differ materially from those presented.

     The forward-looking statements included herein are necessarily based on
various assumptions and estimates and are inherently subject to various risks
and uncertainties, including risks and uncertainties relating to the possible
invalidity of the underlying assumptions and estimates and possible changes or
developments in social, economic, business, industry, market, legal and
regulatory circumstances and conditions and actions taken or omitted to be taken
by third parties, including customers, suppliers, business partners and


                                       9
<PAGE>

competitors and legislative, judicial and other governmental authorities and
officials. Assumptions relating to the foregoing involve judgments with respect
to, among other things, future economic, competitive and market conditions and
future business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond our control. Any of these assumptions
could be inaccurate and, therefore, there can be no assurance that the
forward-looking statements included in this report will prove to be accurate.


GENERAL

     We provide (1) financial services, including brokerage and investment
services to individuals and institutions, (2) insurance services, including
management services to malpractice insurance companies, and (3) provided
environmental consulting and engineering services through October 31, 2002.

     FINANCIAL SERVICES. We provide investment and investment advisory services
to institutions and individuals throughout the United States through the
following subsidiaries:

o        APS Financial. APS Financial is a fully licensed broker/dealer that
         provides brokerage and investment services primarily to institutional
         and high net worth individual clients. APS Financial also provides
         portfolio accounting, analysis, and other services to insurance
         companies, banks and public funds.

o        Asset Management. Asset Management manages fixed income and equity
         assets for institutional and individual clients on a fee basis.

     INSURANCE SERVICES. Through Insurance Services, of which we own 80%, we
provide management and agency services to medical malpractice insurance
companies through the following subsidiaries:

o        FMI. FMI provides management and administrative services to APIE, a
         regional insurance exchange that sells medical professional liability
         insurance only to its physician subscribers, who pay annual insurance
         premiums and surplus contributions to APIE. APIE is governed by a
         physician board of directors. Pursuant to a management agreement and
         the direction of this board, FMI manages and operates APIE, including
         performing policy issuance, claims investigation and settlement, and
         all other management and operational functions. As a management fee,
         FMI receives a percentage of APIE's earned premiums and a portion of
         APIE's profit, subject to a cap based on premium levels. FMI's assets
         are not subject to APIE policyholder claims.

o        Agency. Agency has the exclusive right to market the policies of First
         Professional in Texas. First Professional is a medical professional
         liability insurance company that is owned by FPIC, which owns the other
         20% of Insurance Services. In September 2002, FPIC filed a withdrawal
         plan with the Texas Department of Insurance. As a result, no new
         policies will be underwritten by FPIC and no existing policies will be
         renewed beginning January 1, 2003. Agency performed the policy issuance
         and claims handling functions for First Professional in Texas.

     CONSULTING SERVICES. Effective November 1, 2002, we completed the sale of
APS Consulting to its management. APS Consulting had been acquired in a
foreclosure proceeding related to loans we had made in 1996 and does not fit
into our long-term business plan. Prior to the sale, we provided environmental
consulting and engineering services including services related to remedial
investigations, remediation engineering, air quality, waste water, regulatory
compliance, solid waste engineering, litigation support/expert testimony,
environmental resources, and industrial hygiene and safety through APS
Consulting. (See Note 14 to the consolidated financial statements for
description of accounting treatment for this transaction.)

                                       10
<PAGE>

     In addition, as of December 31, 2002, we have the following significant
investments: (1) we own approximately 753,000 shares of Prime Medical common
stock, representing slightly less than 5% of its outstanding common stock, and
(2) we invested approximately $2 million in the convertible preferred stock of
Uncommon Care and extended lines of credit totaling approximately $4.9 million
to Uncommon Care. The net book value of the investment in Uncommon Care was zero
at December 31, 2002 as equity losses in 2000, 2001 and 2002 completely offset
our investment and advances under the lines of credit.

CRITICAL ACCOUNTING POLICIES

     The preparation of our consolidated financial statements requires us to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses. On an on-going basis, we evaluate our
estimates, including those related to, impairment of assets; bad debts; income
taxes; and contingencies and litigation. We base our estimates on historical
experience and on various other assumptions that we believe to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.

     We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements. We periodically review the carrying value of our assets to
determine if events and circumstances exist indicating that assets might be
impaired. If facts and circumstances support this possibility of impairment, our
management will prepare undiscounted and discounted cash flow projections which
require judgments that are both subjective and complex. Management may also
obtain independent valuations.

Our financial services revenues are composed primarily of commissions on
securities trades and asset management fees. Revenues related to securities
transactions are recognized on a trade date basis. Asset management fees are
recognized as a percentage of assets under management during the period based
upon the terms of agreements with the applicable customers.

Our insurance services revenues are primarily related to management fees based
on the earned premiums of the managed company and include a profit sharing
component related to the managed company's annual earnings. Management fees are
recorded, based upon the terms of the management agreement, in the period the
related premiums are earned by the managed company. The managed company
recognizes premiums as earned ratably over the terms of the related policy. The
profit sharing component is recognized when it is reasonably certain the managed
company will have an annual profit, and, typically, has been recognized during
the fourth quarter.

     When necessary, we record an allowance for doubtful accounts based on
specifically identified amounts that we believe to be uncollectible. If our
actual collections experience changes, revisions to our allowance may be
required. We have a limited number of customers with individually large amounts
due at any given balance sheet date. Any unanticipated change in one of those
customer's credit could have a material affect on our results of operations in
the period in which such changes or events occur. After all attempts to collect
a receivable have failed, the receivable is written off against the
allowance.When necessary, we record a valuation allowance to reduce our deferred
tax assets to the amount that is more likely than not to be realized. While we
have considered future taxable income and ongoing prudent and feasible tax
planning strategies in assessing the need for the valuation allowance, in the
event we were to determine that we would be able to realize our deferred tax
assets in the future in excess of its net recorded amount, an adjustment to the
deferred tax asset would increase income in the period the determination was
made. Likewise, should we determine that we would not be able to realize all or
part of our net deferred tax asset in the future, an adjustment to the deferred


                                       11
<PAGE>

tax asset would be charged to income in the period the determination was made.

During 2001, it was our judgment  that the equity  method of accounting  for our
investment in Prime Medical and Uncommon Care was more appropriate than the cost
method, on the basis that even though we held less than a 20% equity interest in
Prime Medical,  we had significant  influence over the operational and financial
policies of Prime Medical and Uncommon Care. Using the equity method we recorded
our  share of Prime  Medical's  and  Uncommon  Care's  earnings  or  losses.  As
described  earlier in the "Our other  investments"  section of this Form 10-KSB,
during  the first  quarter of 2002 our sales of shares of Prime  Medical  common
stock reduced our  ownership to less than 5% of their total shares  outstanding.
Consequently,  we stopped  accounting  for our investment in Prime Medical using
the  equity  method  and  changed to the cost  method.  Unrealized  gains/losses
related to our  investment  in Prime  Medical  are  recorded  in equity as other
comprehensive income, net of taxes.


In November 2002, we sold our consulting division, APS Consulting, to its
management for a de minimus amount of cash and a $250,000 seven year term note.
Additionally, we retained a security interest in the assets of the division,
agreed to provide continuing financial support to the division under a $450,000
line of credit and continue to perform, for a fee, certain administrative
services for the division. We determined that, under the terms of the
transaction, we were dependent upon the future successful operation of the
division to collect the term note receivable accepted as consideration for the
sale. We further determined that we had a risk of loss in the division's assets
in which we retained a security interest and, through our administrative
services arrangement, maintained continuing involvement with the division.


We have accounted for the division as variable interest entity under the
guidance of FIN 46 "Consolidation of Variable Interest Entities." Consistent
with the guidance under FIN 46, we have not recognized the divestiture of APS
Consulting and continue to consolidate the division as an entity in which we
have a variable interest that will absorb the majority of the entity's operating
losses if they occur.


Accordingly, the assets and liabilities are included in our consolidated balance
sheet as of December 31, 2002. The balance sheet below summarizes the assets and
liabilities of APS Consulting that are included in our consolidated balance
sheet at December 31, 2002:


                                                               2002
                                                             --------
         Assets
         Cash                                                $347,000
         Accounts Receivable, net                             409,000
         Prepaid Expenses                                      22,000
                                                              -------
             Total Current Assets                             778,000
         Property and Equipment                                45,000
                                                              -------
             Total Assets                                    $823,000
                                                             ========

                                       12
<PAGE>

         Liabilities
         Accounts Payable                                    $445,000
         Accrued Expenses                                      74,000
                                                             ---------
             Total Current Liabilites                         519,000
         Notes Payable                                        248,000
         Deferred Income                                       74,000
                                                             ---------
             Total Liabilites                                $841,000
                                                             =========
         Total Liabilities in excess of Assets              $  18,000
                                                             =========



The  revenues and  expenses of APS  Consulting  from January 1, 2002 through the
date of sale, November 1, 2002, have been included in our consolidated financial
statements  for the year ended  December 31, 2002.  In addition,  we continue to
recognize APS  Consulting's  revenues and expenses  subsequent to the sale.  If,
subsequent to the sale, APS Consulting  reports operating losses, we record such
losses in our statement of operations.  If APS Consulting  reports net earnings,
we reduce our  interest in such  earnings  to zero by  increasing  the  minority
interest  presented in our statement of operations.  The statement of operations
below  summarizes  the  results  of APS  Consulting  that  are  included  in our
consolidated statement of operations for the year ended December 31, 2002:


                                   Pre-              Post-
                                Transaction       Transaction         Total
                                -----------       -----------       ---------

   Consulting Revenue            $2,790,000         $506,000       $3,296.000
   Consulting Expenses            2,403,000          506,000        2,909,000
                                  ---------          -------        ---------
   Operating Income                 387,000               --          387,000
                                  =========          =======        =========



Had we recognized the transaction as a divestiture, these assets and liabilities
would not be included in our consolidated  balance sheet as of December 31, 2002
and  administrative  fees  received  would  have been  recognized  currently  in
earnings.  The gain associated with the transaction would not have been material
to our  consolidated  statement of  operations  for the year ended  December 31,
2002.



RESULTS OF OPERATIONS

2002 Compared to 2001

      Our revenues increased 15% in 2002 compared to 2001. Our net earnings
increased $3,989,000 in 2002 to a total of $3,411,000 compared to a net loss of
$(578,000) in 2001. Our diluted earnings per share increased to $1.45 in 2002
from a net loss of $(0.25) per share in 2001. The reasons for these changes are
described below.

FINANCIAL SERVICES

      Our financial services revenues increased 4% in 2002 compared to 2001. The
increase resulted from greater commissions earned at APS Financial, the
broker/dealer division of our financial services segment. The increase in annual
commission income was primarily the result of an expanding institutional


                                       13
<PAGE>

customer base, a doubling of the number of employed fixed income research
analysts and a healthier bond market. Generally, the bond market, from which APS
Financial derives 95% of its revenue, gained strength during the latter half of
2002, offering positive returns to our customers versus those obtained in
equities. In 2002 interest rates remained near historic lows. Lower interest
rates resulted in higher bond prices, which created opportunities for gains and
increases in trading volume. Just as the latter part of 2001 was negatively
affected by the events of September 11, the bond market in 2002 was not without
some significant obstacles to growth. Corporate accounting scandals and the
related large stock market losses that threatened consumer confidence and
spending earlier in the year appear to have subsided. However, market concerns
over the strength of a US economy as well as uncertainty caused by potential
military conflicts remained impediments to market recovery. With persistent
uncertainty as to how these events would transpire, many investors have held
back on long term commitments in the financial markets, preferring to stay short
and liquid. Going forward, it remains to be seen what effect these events will
have on the future earnings of APS Financial and, accordingly, us.

      Our financial services expenses increased 3% in 2002 compared to 2001. The
increase in transaction activity at APS Financial was responsible for a 7%
increase in sales commission expense, an 8% increase in information support
services and a 3% increase in transactions fees charged by our outside clearing
firm. Lastly, internally allocated expenses for computer and information
technology support was up 20% during 2002. Partially offsetting these increases
was a 17% decrease in legal fees resulting from fewer investment banking and
other acquisition activities in 2002 than in 2001. Also, rent expense decreased
48% percent in 2002 compared to 2001 as a result of the amortization of deferred
gains from our sale leaseback transaction being treated as a reduction to rent
expense.

INSURANCE SERVICES

      Our insurance services revenues increased 30% in 2002 compared to 2001.
The increase was due to a 28% increase in total premium earned by the insurance
company that we manage, APIE. This increase in total written premium was the
result of several contributing factors: premium rate increases that averaged
approximately 35% in 2002; a 57% increase in new business written; a 3% increase
in total doctors insured; and a 15% increase in the rate of renewal of existing
insureds. We attribute the higher retention rate of business in 2002 to the exit
of some of our major competitors from the Texas market during the latter half of
2001.

      Our insurance services expenses increased 19% in 2002 compared to 2001.
The increase was primarily due to a 27% increase in commissions paid to sales
agents resulting from the above-mentioned increase in commission revenues
earned. In addition, personnel costs increased 15% in 2002 primarily due to a
53% increase in management incentive costs resulting from increased before-tax
profits of 53%. Lastly, advertising was 89% higher in 2002 resulting in part
from re-branding efforts as a result of FPIC withdrawing from the Texas market.
Partially offsetting this increase was an 85% decrease in rent expense in 2002
compared to 2001 as a result of the amortization of deferred gains from our sale
leaseback transaction being treated as a reduction to rent expense.


CONSULTING

      Our consulting revenues increased 25% in 2002 compared to 2001 and our
consulting expenses decreased 5% in 2002 compared to 2001. Billable hours
increased during 2002 resulting from an increased workload performed for our
largest client and new business involving wetlands mitigation construction and
remedial investigation projects. As described in Note 14 to our consolidated
financial statements, we completed the sale of APS Consulting to its management
effective November 1, 2002.


                                       14
<PAGE>

GENERAL AND ADMINISTRATIVE EXPENSES

      Our corporate level general and administrative expenses increased 12% in
2002 compared to 2001. The increase was primarily due to a $531,000 (590%)
increase in management incentive compensation. This formula driven expense was
up this year as a result of the increase in consolidated earnings brought about
in large part by the profits on the sales of Prime Medical common stock
described below in the "Gain on Sale of Investments" section. Partially
offsetting these increases was a 74% decrease in legal fees attributable to
decreased material litigation expenses in 2002 in comparison to 2001. In
addition, we recognized zero lawsuit settlement charges in 2002, compared to
$343,000 in lawsuit settlement charges that we expensed in 2001. Lastly, rent
expense decreased 87% in 2002 compared to 2001 as a result of the amortization
of deferred gains from our sale leaseback transaction being treated as a
reduction to rent expense.

GAIN ON SALE OF ASSETS

     Our gain on the sale of assets represents the recognition of deferred gains
attributable to the November 2001 sale of real estate. Since the sale of the
real estate was to Prime Medical, our then 15% owned affiliate, we had deferred
$760,000 of the $5,100,000 gain. During 2002 we reduced our investment in Prime
Medical and subsequently recognized a proportionate percentage of this deferred
gain, or about $515,000.

GAIN ON SALE OF INVESTMENTS

      Our gain on sale of investments of $2,855,000 represents gains from the
sale of 1,591,000 shares of Prime Medical common stock. As of December, 31, 2002
we continue to own approximately 753,000 shares of Prime Medical amounting to an
ownership percentage of less than 5%.

AFFILIATES EARNINGS (LOSS)

      Our equity in the earnings of Prime Medical increased $2,365,000 to
$186,000 in 2002 compared to 2001. In 2001 we recorded our then 15% equity
ownership of a $24.0 million, net of tax, non-recurring charge at Prime Medical.
Equity earnings in Prime Medical during 2002 totaled $186,000 before changing
our method of accounting for Prime Medical from the equity method to the cost
method As of March 19, 2002, we ceased accounting for our investment in Prime
Medical using the equity method of accounting because (1) on January 1, 2002,
Kenneth S. Shifrin, the Company's Chairman and CEO, stepped down from day-to-day
operations as Executive Chairman of the Board of Prime Medical, but continued to
serve as non-executive Chairman; and (2) from January to March 19, 2002, we sold
1,570,000 shares of Prime Medical reducing our ownership percentage to slightly
less than 5%.

      In 2001, as a result of our 15% equity ownership and other facts that
evidenced our significant influence over Prime, we recorded our percentage share
of Prime's loss under the equity method of accounting. In 2001, Prime reported a
net loss of $14.5 million, including a $24.0 million, net of tax, non-recurring
charge related to a significant goodwill impairment resulting in our recognizing
$2.2 million as our percentage of Prime's net loss.

         Our equity in losses of Uncommon Care decreased $782,000 (77%) from
$1,012,000 to $230,000, in 2002 compared to 2001 primarily as a result of our
limiting our losses in Uncommon Care to our total investment and advances to
Uncommon Care. Our investment in and advances to Uncommon Care were reduced to
zero during 2001. Once we reduced our total investment to zero, as required
under the equity method, we ceased recording equity losses. Until such time as


                                       15
<PAGE>

Uncommon Care becomes profitable and future equity in these profits fully
offsets our prior period cumulative equity losses, future advances to Uncommon
Care that exceed amounts repaid will result in a loss when advanced. Advances to
Uncommon Care totaling $230,000 in February 2002 account for the loss recorded
during the first quarter 2002. Repayments by Uncommon Care totaling $85,000 were
received in the third quarter of 2002 and were recorded as deferred income.
Future advances will not affect net income until such time as they exceed the
amount repaid.

         At December 31, 2002, Uncommon Care was not in compliance with its loan
covenants. Uncommon Care's lender has several options ranging from renegotiating
new loan terms to seizing its collateral, thus forcing Uncommon Care in
bankruptcy. It is unknown as of the date of this report what action the lender
may take.

INTEREST INCOME

     Our interest income increased 61% in 2002 compared to 2001 primarily as a
result of interest earned on a much higher balance of short and long term
securities. Cash, cash equivalents, trading account securities and fixed income
securities totaled approximately $11,112,000 in 2002 compared to a total of
$4,000,000 in 2001.

DISCONTINUED OPERATIONS

      In November, 2001, we sold all of our condominium space in an office
project located in Austin, Texas to Prime Medical. Approximately 50% of this
space was leased back to us and is utilized by our financial services, insurance
services and corporate segments' operations. Gain on the sale amounted to
approximately $5.1 million, of which approximately $1.9 million was recognized
in 2001. Due to our continuing involvement in the property, we deferred
recognizing approximately $2.4 million of the gain which is being recognized in
earnings, as a reduction of rent, monthly through November 2006. In addition,
15% of the gain ($0.76 million) related to our 15% ownership in the purchaser,
was deferred as we accounted for Prime Medical using the equity method of
accounting as of and for the year ended December 31, 2001. During 2002, in
connection with our reduced investment in Prime Medical, we recognized a
proportionate percentage of the deferred gain, or about $515,000. In 2001,
subsequent to the sale of the condominium space, we dissolved APS Realty, Inc.,
or APS Realty, our wholly-owned subsidiary that formerly owned this office
space. Our revenues from APS Realty (not including the gains from the sales of
office space in both years) contributed 4% of our total revenues in 2001.
(See Note 13 to our consolidated financial statements in Appendix A.)


LIQUIDITY AND CAPITAL RESOURCES

WORKING CAPITAL

     Our net working capital was $6,067,000 and $3,444,000 at December 31, 2002
and 2001, respectively. The increase in the current year is due primarily to the
sale of 1,591,000 shares of Prime Medical common stock which added approximately
$10,719,000 in cash. Partially offsetting this increase to working capital was
$2,275,000 used to pay off a note payable, payments totaling $3,298,000 in
estimated 2002 federal income taxes, and the purchase of $3,273,000 in
non-current available for sale securities. Historically, we have maintained a
strong working capital position and, as a result, we have been able to satisfy
our operational and capital expenditure requirements with cash generated from
our operating and investing activities. These same sources of funds have also
allowed us to pursue investment and expansion opportunities consistent with our
growth plans. In 2001 we supplemented these traditional sources of funds with


                                       16
<PAGE>

short-term bank borrowings. Although there can be no assurance our operating
activities will provide positive cash flow in 2003, we believe that our current
cash position along with our investments in available for sale equity and fixed
income securities will enable us to meet our working capital requirements for
the foreseeable future.

LINE OF CREDIT

     We had a three year $7,500,000 revolving credit agreement with Bank of
America. Funds advanced under the agreement bore interest at the prime rate less
25 basis points payable quarterly. We pledged shares of Prime Medical to the
bank as funds were advanced under the line. Amounts totaling $2,275,000 and zero
were borrowed under this line of credit as of December 31, 2001 and December 31,
2002, respectively. Due to losses from write downs of our investments, as well
as our proportionate loss in a significant goodwill impairment by Prime Medical,
our total equity was below the amount needed to comply with our bank covenants
at December 31, 2001. In February 2002, we repaid all advances on our line of
credit and terminated the line of credit. We also satisfied all remaining
contractual obligations under the merger agreement between our former physician
practice management company and FemPartners, Inc. With no debt, major
obligations satisfied, a forecast of positive cash flow and sufficient cash on
hand, we believe that we can meet foreseeable cash needs without additional
liquidity from a line of credit.

CAPITAL EXPENDITURES

     Our capital expenditures for equipment were $154,000 and $192,000 in 2002
and 2001, respectively. Our capital expenditures were higher in 2001 due to
purchases necessary to upgrade our network server hardware and software as well
as to upgrade our accounting software. We expect capital expenditures in 2003 to
approximate those in 2002.

COMMITMENTS

     We have committed cash outflow related to operating lease arrangements with
a term exceeding one year and other contractual obligations at December 31, 2002
as follows (in thousands):
<TABLE>
<CAPTION>

                                                                  Payment Due

Contractual Cash Obligation           2003             2004          2005        2006          2007         Total
--------------------------------------------------------------------------------------------------------------------

<S>                                   <C>              <C>           <C>         <C>            <C>          <C>
Operating leases                      $950             $825          $687        $487           $8           $2,957
                                      ====             ====          ====        ====           ==           ======

</TABLE>

     As part of the sales agreement with the management of APS Consulting, we
have agreed to make loans of up to $700,000 to APS Consulting. These loans are
collateralized by the trade accounts receivables of APS Consulting which are
less than 90 days old. Further, after May 31, 2003, APS Consulting may borrow a
more limited amount equal to a maximum of 85% of their less than 90 days old
trade receivables plus half of their cash on-hand. Interest charged is at the
rate of prime plus 3% and the term of this agreement is seven years, expiring
November 22, 2009, unless otherwise agreed through early termination or the
termination to the management services agreement between us and APS Consulting.
As this line of credit agreement is fully collateralized by the cash and trade
receivables of APS Consulting, we believe our exposure to any future bad debt
losses is minimal and further believe that any cash loaned will not have a
material impact upon our working capital. A total of $248,000 had been advanced
under this loan agreement as of December 31, 2002.


                                       17
<PAGE>

     Our ability to make scheduled payments or to fund planned capital
expenditures will depend on our future performance, which, to a certain extent,
is subject to general economic, financial, competitive, legislative, regulatory
and other factors that are beyond our control. There can be no assurance that
our business will generate cash flow from operations or that we will realize
anticipated revenue growth and operating improvements sufficient to make
scheduled payments and fund planned future capital expenditures.

INFLATION
     Our operations are not significantly affected by inflation because, having
no manufacturing operations, we are not required to make large investments in
fixed assets. However, the rate of inflation will affect certain of our
expenses, such as employee compensation and benefits.

IMPACT OF NEW ACCOUNTING STANDARDS

    As more fully described in Note 1 of Notes to Consolidated Financial
Statements, on January 1, 2003, the Corporation is required to adopt several new
accounting standards. For a discussion of the impact of those new accounting
standards upon the Corporation, see Note 1 (m).



ITEM 7.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The information required by this item is contained in Appendix A attached
hereto.

ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

      On July 8, 2002, we dismissed KPMG LLP as our independent public
accountants and engaged BDO Seidman, LLP as our new independent public
accountants. Our board of directors approved the decision to change accountants.

     During 2000 and 2001 and through the subsequent interim period ended July
8, 2002, we had no disagreements with KPMG LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of KPMG LLP,
would have caused it to make reference to the subject matter of the disagreement
in connection with its reports.


     The audit report of KPMG LLP on our consolidated financial statements as of
and for the years ended December 31, 2000 and 2001 did not contain any adverse
opinion or disclaimer of opinion, nor was it qualified or modified as to
uncertainty, audit scope, or accounting principles.

                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT

     The information required by this item is contained in our definitive proxy
statement to be filed in connection with our 2003 annual meeting of
shareholders, except for the information regarding our executive officers, which
is presented below. The information required by this item contained in our
definitive proxy statement is incorporated herein by reference.


                                       18
<PAGE>


As of March 15, 2003, our executive officers were as follows:

Name                       Age                        Position

Kenneth S. Shifrin         53             Chairman of the Board, President and
                                            Chief Executive Officer

William H. Hayes           55             Senior Vice President -Finance,
                                            Secretary, Chief Financial Officer

Maury L. Magids            38             Senior Vice President - Insurance

Thomas R. Solimine         44             Controller

     Our officers serve until the next annual meeting of our directors and until
their successors are elected and qualified.

     Mr. Shifrin has been our Chairman of the Board since March 1990. He has
been our President and Chief Executive Officer since March 1989 and he was
President and Chief Operating Officer from June 1987 to February 1989. He has
been a director of ours since February 1987. From February 1985 until June 1987,
Mr. Shifrin served as our Senior Vice President - Finance and Treasurer. He was
Chairman of the Board of Prime Medical from October 1989 until his resignation
on January 1, 2002. Mr. Shifrin is a member of the World Presidents
Organization.

     Mr. Hayes has been our Senior Vice President - Finance since June 1995. Mr.
Hayes was our Vice President from June 1988 to June 1995 and was our Controller
from June 1985 to June 1987. He has been our Secretary since February 1987 and
our Chief Financial Officer since June 1987. Mr. Hayes is a Certified Public
Accountant.

     Mr. Magids has been our Senior Vice President - Insurance Services since
June 2001 and has been President and Chief Operating Officer of FMI since
November 1998. Mr. Magids joined us in October 1996. Mr. Magids is a Certified
Public Accountant and was with Arthur Andersen LLP from August 1986 until
September 1996, most recently as Director of Business Development.

     Mr. Solimine has been our Controller since June 1994. He has served as
Secretary for APS Financial since February 1995. From July 1989 to June 1994,
Mr. Solimine served as our Manager of Accounting.

     There are no family relationships, as defined, between any of our executive
officers, and there is no arrangement or understanding between any of our
executive officers and any other person pursuant to which he or she was selected
as an officer. Each of our executive officers was elected by our board of
directors to hold office until the next annual election of officers and until
his or her successor is elected and qualified or until his or her earlier
resignation or removal. Our board of directors elects our officers in
conjunction with each annual meeting of our shareholders.

ITEM 10. EXECUTIVE COMPENSATION

       The information required by this item is contained in our definitive
proxy statement to be filed in connection with our 2003 annual meeting of
shareholders, which information is incorporated herein by reference.


                                       19
<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
         RELATED STOCKHOLDER MATTERS

     The information required by this item is contained in our definitive proxy
statement to be filed in connection with our 2003 annual meeting of
shareholders, which information is incorporated herein by reference.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this item is contained in our definitive proxy
statement to be filed in connection with our 2003 annual meeting of
shareholders, which information is incorporated herein by reference.

ITEM 13. EXHIBITS, LISTS, AND REPORTS ON FORM 8-K

         (a)      1.       Financial Statements

                  The information required by this item is contained in Appendix
A attached hereto.

(b) Reports on Form 8-K for the quarter ended December 31, 2002

                     (none)


(c)   Exhibits (1)

3.1  Restated Articles of Incorporation of the Company, as amended. (5)

3.2  Amended and Restated Bylaws of the Company.(5)

4.1  Specimen of Common Stock Certificate. (2)

4.2  Rights Agreement,  dated as of August 15, 2000, between American Physicians
     Service  Group,  Inc. and American  Stock  Transfer & Trust  Company  which
     includes the form of Statement of  Resolutions  setting  forth the terms of
     the  Junior  Participating  Preferred  Stock,  Series A, the form of Rights
     Certificate  as Exhibit B and the Summary of Rights to  Purchase  Preferred
     Shares as Exhibit C. (10)

*10.1  American Physicians Service Group, Inc. Employees Stock Option Plan. (2)

*10.2  Form of Employees Incentive Stock Option Agreement. (2)

*10.3  Form of Employees Non-Qualified Stock Option Agreement. (2)

*10.4  American Physicians Service Group, Inc. Directors Stock Option Plan. (2)

*10.5  Form of Directors Stock Option Agreement. (2)

*10.6  1995  Non-Employee Directors  Stock  Option Plan of  American  Physicians
       Service Group, Inc. (6)

*10.7  Form of Non-Employee Directors Stock Option Agreement. (6)

*10.8  1995 Incentive and Non-Qualified Stock Option Plan of American Physicians
       Service Group, Inc. (6)

                                       20
<PAGE>

*10.9  Form of Stock Option Agreement (ISO). (6)

*10.10 Form of Stock Option Agreement (Non-Qualified). (6)

 10.11 Management Agreement of  Attorney-in-Fact,  dated August 13, 1975,
       between FMI and American Physicians Insurance Exchange. (2)

*10.14  Profit  Sharing  Plan and Trust,  effective  December  1,  1984,  of the
        Company. (3)

10.17  Stock Purchase Agreement dated September 30, 1996 between the Company and
       Exsorbet Industries, Inc. (7)

10.18  Stock Put Agreement  dated  September  30,  1996  between the Company and
       Exsorbet Industries, Inc. (7)

10.19  Shareholder Rights Agreement dated September 30, 1996 between the Company
       and Exsorbet Industries, Inc. (7)

10.20  Warrant dated September 30, 1996 for shares of common stock issued to the
       Company by Exsorbet Industries, Inc. (7)

10.21 Contingent Warrant Agreement dated September 30, 1996 for shares of common
       stock issued to the Company by Exsorbet Industries, Inc. (7)

10.22  Option Agreements  dated September 30, 1996 for shares of Exsorbet common
       stock issued to the Company by officers and  directors of Exsorbet
       Industries, Inc. (7)

10.23  Agreement dated September 30, 1996 with Exsorbet Industries, Inc. related
       to options issued by officers and directors of Exsorbet Industries. (7)

10.24  Guaranty  Agreements  dated  September  30, 1996  between the Company and
       subsidiaries of Exsorbet Industries, Inc. (7)

10.25  Promissory Note dated November 26, 1996 executed by Exsorbet  Industries,
       Inc. and payable to the Company in the amount of $3,300,000. (7)

10.26  Stock Purchase  Agreement dated October 1, 1997 between the Company,  APS
       Practice Management, Inc., Michael Beck, John Hedrick, and et al. (8)

10.27  Bylaws of APS Practice Management, Inc., (8)

10.28  Amended and Restated Articles of Incorporation  APS Practice  Management,
       Inc., (8)


                                       21
<PAGE>

10.29  APS Practice Management,  Inc.,  Certificate of Designation of Rights and
       Preferences Series A Serial Founder's Common Stock dated September 30,
       1997. (8)

10.30  Resolutions to  organizational  matters  concerning  Syntera,  Inc. dated
       October 1, 1997. (8)

10.31  Master  Refinancing  Agreement dated November 6, 1997 between the Company
       and Consolidated Eco-Systems, Inc. (8)

10.32  Promissory   Note  dated  November  6,  1997  executed  by  Consolidated
       Eco-Systems, Inc. and payable to the Company in the amount of $3,788,580.
       (8)

10.33  Assignment  and  Security  Agreement  dated  November 6, 1997 between the
       Company and Consolidated Eco-Systems, Inc. (8)

10.34  Security  Agreement  dated  November  6, 1997  between  the  Company  and
       Consolidated Eco-Systems, Inc. (8)

10.35  Share Exchange Agreements  dated October 31, 1997 between the Company and
       Devin Garza, M.D., Robert Casanova, M.D. and Shelley Nielsen, M.D. (8)

*10.36 First Amendment to 1995 Incentive and Non- Qualified Stock Option Plan of
       American Physicians Service Group, Inc. Dated December 10, 1997. (8)

*10.37  First  Amendment  to 1995  Non-Employee  Director  Stock  Option Plan of
        American Physicians Service Group, Inc. Dated December 10, 1997. (8)

10.38   Share Exchange Agreement dated February 16, 1998 between the Company
        and Michael T. Breen, M.D. (9)

10.39   Share Exchange Agreement dated April 1, 1998 between the Company and
        Antonio Cavazos, Jr., M.D. (9)

10.40   Share Exchange Agreement dated April 1, 1998 between the Company and
        Antonio Cavazos, III, M.D. (9)

10.41    Share Exchange Agreement dated May 18, 1998 between the Company and
         Jonathan B. Buten, M.D. (9)

10.42    Share Exchange Agreement dated June 30, 1998 between the Company and
         Gary R. Jones, M.D. (9)

10.43    Share Exchange Agreement dated July 31, 1998 between the Company and
         Joe R. Childress, M.D. (9)

10.44    Share Exchange Agreement dated August 1, 1998 between the Company and
         M. Reza Jafarnia, M.D. (9)

10.45    Share Exchange Agreement dated September 15, 1998 between the Company
         and Donald Columbus, M.D. (9)

10.46    Share Exchange Agreement dated December 31, 1998 between the Company
         and David L. Berry, M.D. (9)

10.47    Contribution and Stock Purchase Agreement dated January 1, 1998 between
         the Company, Additional Purchasers, Barton Acquisition, Inc., Barton
         House, Ltd., Barton House at Oakwell Farms, Ltd., Uncommon Care, Inc.,
         George R. Bouchard, John Trevey, and Uncommon Partners,  Ltd. (9)


                                       22
<PAGE>

10.48    Stock Transfer Restriction and Shareholders Agreement dated January 1,
         1998 between the Company, Additional Purchasers, Barton Acquisition,
         Inc., Barton House, Ltd., Barton House at Oakwell Farms, Ltd.,Uncommon
         Care, Inc., George R. Bouchard, John Trevey, and Uncommon Partners,
         Ltd. (9)

10.49    Loan Agreement dated January 1, 1998 between the Company and Barton
         Acquisition, Inc. (9)

10.50    Promissory Note (Line of Credit) dated January 1, 1998 between the
         Company and Barton Acquisition, Inc. in the amount of $2,400,000. (9)

10.51    Security Agreement dated January 1, 1998 between the Company and Barton
         Acquisition, Inc. (9)

10.52    Participation Agreement dated March 16, 1998 between the Company and
         Additional Purchasers referred to as Participants. (9)

10.53    Revolving Credit Loan Agreement dated February 10, 1998 between the
         Company and NationsBank of Texas, N.A. in an amount not to exceed
         $10,000,000. (9)

10.54    Revolving Credit Note dated February 10, 1998 between the Company and
         NationsBank of Texas, N.A. in the amount of $10,000,000. (9)

10.55    Pledge Agreement dated February 10, 1998 between the Company and
         NationsBank of Texas, N.A. (9)

10.56    Continuing and Unconditional Guaranty dated February 10, 1998 between
         the Company and NationsBank of Texas, N.A. (9)

10.57    Restructuring Agreement dated March 25, 1999 between the Company and
         Consolidated Eco-Systems, Inc., and all of the wholly or partially
         owned subsidiaries of Consolidated Eco-Systems, Inc. (except for 7-7,
         Inc.). (9)

10.58    Assignment and Security Agreement dated March 25, 1999 between the
         Company and Consolidated Eco-Systems, Inc. (9)

10.59    Security Agreement dated March 25, 1999 between the Company and
         Consolidated Eco-Systems, Inc. (9)

10.60    Security Agreement dated March 25, 1999 between the Company and
         Eco-Acquisition,  Inc. (9)

10.61    Security Agreement dated March 25, 1999 between the Company and
         Exsorbet Technical Services,  Inc. (9)

10.62    Security Agreement dated March 25, 1999 between the Company and KR
         Industrial Service of Alabama,  Inc. (9)

10.63    Agreement of Plan of Merger dated August 31, 1999 between FemPartners,
         Inc. and Syntera HealthCare Corporation. (10)

10.64    Share Exchange Agreement dated August 31, 1999 between the Company and
         David L. Berry, M.D. (10)

10.65    Share Exchange Agreement dated August 31, 1999 between the Company and
         Michael T. Breen, M.D. (10)

10.66    Share Exchange Agreement dated August 31, 1999 between the Company and
         Jonathan B. Buten, M.D. (10)

                                       23
<PAGE>

10.67    Share Exchange Agreement dated August 31, 1999 between the Company and
         Robert Casanova, M.D. (10)

10.68    Share Exchange Agreement dated August 31, 1999 between the Company and
         Antonio Cavazos, III, M.D. (10)

10.69    Share Exchange Agreement dated August 31, 1999 between the Company and
         Joe R. Childress, M.D. (10)

10.70    Share Exchange Agreement dated August 31, 1999 between the Company and
         Donald Columbus, M.D. (10)

10.71    Share Exchange Agreement dated August 31, 1999 between the Company and
         Devin Garza, M.D. (10)

10.72    Share Exchange Agreement dated August 31, 1999 between the Company and
         M. Reza Jafarnia, M.D. (10)

10.73    Share Exchange Agreement dated August 31, 1999 between the Company and
         Gary L. Jones, M.D. (10)

10.74    Share Exchange Agreement dated August 31, 1999 between the Company and
         Shelley Nielson, M.D. (10)

10.75    Share Exchange Agreement dated August 31, 1999 between the Company and
         Lawrence M. Slocki, M.D. (10)

10.76    Loan Agreement dated June 16, 1999 between APS Consulting, Inc. and
         APSC, Inc. (10)

10.77    Promissory Note dated June 16, 1999 between APS Consulting, Inc. and
         APSC, Inc. (10)

10.78    Security Agreement dated June 16, 1999 between APS Consulting, Inc. and
         APSC, Inc. (10)

10.79    Subordination Agreement dated June 16, 1999 between the Company and
         APSC, Inc. (10)

10.80    Convertible Promissory Note dated April 27, 1999 between the Company
         and Uncommon Care, Inc. (10)

10.81    Replacement Convertible Promissory Note dated September 30, 1999
         between the Company and Uncommon Care, Inc. (10)

10.82    Liquidity Promissory Note dated September 30, 1999 between the Company
         and Uncommon Care, Inc. (10)

10.83    Replacement Liquidity Note dated October 15, 1999 between the Company
         and Uncommon Care, Inc. (10)

10.84    Co-Sale Rights Agreement dated August 31, 1999 between the Company and
         FemPartners, Inc. (10)

10.85    Replacement Promissory Note dated August 31, 1999 between the Company
         and FemPartners, Inc. (10)

10.86    Guaranty Agreement dated August 31, 1999 between the Company and
         FemPartners, Inc.  (10)

                                       24
<PAGE>


10.87    Amendment to Certificate of Incorporation dated August 29, 2000 of
         APSC, Inc. (11)

10.88    Amended Loan Agreement dated June 28, 2000 between APS Consulting and
         APSC, Inc. (11)

10.89    Amended Promissory Note dated June 28, 2000 between APS Consulting and
         APSC, Inc. (11)

10.90    Amended Promissory Note dated June 28, 2000 between APS Consulting and
         APSC, Inc. (11)

10.91    APSC, Inc. Stock Plan. (11)

10.92    APS Asset Management Debt to equity Conversion Agreement dated June 30,
         2000. (11)

10.93    Amendment to Revolving Credit Loan Agreement with Bank of America dated
         April 26, 2000. (11)

10.94    2nd Amendment to Revolving Credit Loan Agreement with Bank of America
         dated February 9, 2001. (11)

10.95    Management Services Agreement dated January 1, 2000 between the Company
         and APS Consulting. (11)

10.96    Tax Sharing Agreement dated January 1, 2000 between the Company and APS
         Consulting. (11)

10.97    Settlement Agreement and Release dated January 5, 2000 between APS
         Consulting and M. J. Blankenship Woodcock. (11)

10.98    Professional Services Contract dated April 10, 2000 between APIA and
         White Lion Internet Agency. (11)

10.99    $1.25 million 364-Day Revolving Promissory Note dated February 9, 2001
         between the Company and Bank of America. (11)

10.100   $1.25 million Promissory Note dated June 1, 2000 between the Company
         and Uncommon Care, Inc. (11)

10.101   $1.20 million Promissory Note dated June 1, 2000 between the Company
         and Uncommon Care, Inc. (11)

10.102   Agreement dated November 22, 2002 transferring and assigning all
         capital stock of Eco-Systems from the Company to the purchaser. (13)

*10.103  Amended 1995 Incentive and Non-Qualified Stock Option Plan (13)

*10.104  Executive Employment Agreement between the Company and Kenneth S.
         Shifrin. (13)

*10.105  Consulting Agreement between the Company and William A. Searles (13)

*10.106  Executive Employment Agreement between the Company and William H.
         Hayes. (13)

21.1     List of subsidiaries of the Company. (13)

                                       25
<PAGE>

23.1     Independent Auditors Consent of KPMG LLP. (13)

23.2     Independent Auditors Consent of BDO Seidman, LLP. (13)

99.1     Certification of Chief Executive Officer. (13)

99.2     Certification of Chief Financial Officer. (13)



     (*) Executive Compensation plans and arrangements.
-----------------

(1) The Company is subject to the  informational  requirements of the Securities
Exchange Act of 1934, as amended, and, in accordance  therewith,  files reports,
proxy  statements and other  information  with the  Commission.  Reports,  proxy
statements  and other  information  filed by the  Company can be  inspected  and
copied at the public  reference  facilities  maintained by the Commission at 450
Fifth Street,  N.W.,  Washington,  D.C. 20549, and at the Commission's  Regional
Offices at Seven World Trade Center,  13th Floor,  New York,  New York 10048 and
CitiCorp  Center,  500  West  Madison  Street,  Suite  1400,  Chicago,  Illinois
60661-2511.  Copies of such  material  can be  obtained  by mail from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington,  D.C.
20549, at prescribed rates. Such reports, proxy statements and other information
concerning  the Company are also  available for inspection at the offices of The
NASDAQ National Market, Reports Section, 1735 K Street, N.W.,  Washington,  D.C.
20006.  The  Commission  maintains a Web site that contains  reports,  proxy and
information  statements and other  information  regarding  registrants that file
electronically with the Commission at http://www.sec.gov and makes available the
same documents through Disclosure, Inc. at 800-638-8241.

(2)      Filed as an Exhibit to the  Registration  Statement on Form S-1,
         Registration No. 2-85321,  of the Company,  and incorporated herein by
         reference.

(3)      Filed as an Exhibit to the Annual  Report on Form 10-K of the Company
         for the year ended  December  31, 1984 and  incorporated  herein by
         reference.

(4)      Filed as an Exhibit to the Current  Report on Form 8-K of the  Company
         dated  September  5, 1989 and  incorporated  herein by reference.

(5)      Filed as an Exhibit to the Annual  Report on Form 10-K of the Company
         for the year ended  December  31, 1990 and  incorporated  herein by
         reference.

(6)      Filed as an Exhibit to the Annual Report on Form 10-KSB of the Company
         for the year ended  December 31, 1995 and  incorporated  herein by
         reference.

(7)      Filed as an Exhibit to the Annual Report on Form 10-KSB of the Company
         for the year ended  December 31, 1996 and  incorporated herein by
         reference.

(8)      Filed as an Exhibit to the Annual  Report on Form 10-K of the Company
         for the year ended  December  31, 1997 and  incorporated  herein by
         reference.

                                       26
<PAGE>

(9)      Filed as an Exhibit to the Annual  Report on Form 10-K of the Company
         for the year ended  December  31, 1998 and  incorporated herein by
         reference.

(10)     Filed as an Exhibit to the Annual  Report on Form 10-K of the Company
         for the year ended  December  31, 1999 and  incorporated herein by
         reference.

(11)     Filed as an Exhibit to the Annual  Report on Form 10-K of the Company
         for the year ended  December  31, 2000 and  incorporated  herein by
         reference.

(12)     Filed as an Exhibit to the Annual Report on Form 10-KSB of the Company
         for the year ended  December 31, 2001 and  incorporated herein by
         reference.

(13)     Filed herewith.



ITEM 14. CONTROLS AND PROCEDURES

Within 90 days before the filing date of this report on Form 10-KSB, under the
supervision and with the participation of our management, including our Chief
Executive Officer (our principal executive officer) and our Chief Financial
Officer (our principal financial officer), we evaluated the effectiveness of our
disclosure controls and procedures (as defined under Rule 13a-14(c) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")). Based on this
evaluation, our Chief Executive Officer and our Chief Financial Officer
concluded that our disclosure controls and procedures are effective to ensure
that information we are required to disclose in the reports that we file or
submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SEC's rules and forms.

There were no significant changes in our internal controls or in other factors
that could significantly affect these controls subsequent to the date of such
evaluation.



                                       27

<PAGE>




      SIGNATURES

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

                            AMERICAN PHYSICIANS SERVICE GROUP, INC.


                            By: /s/ Kenneth S. Shifrin
                            ------------------------------------
                            Kenneth S. Shifrin, Chairman of the Board and Chief
                              Executive Officer

                            Date:  March 31, 2003

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.



By: /s/ Kenneth S. Shifrin
   ----------------------------------

     Kenneth S. Shifrin
     Chairman of the Board and
     Chief Executive Officer
     (Principal Executive Officer)

Date:    March 31, 2003



By: /s/ W. H. Hayes
   -----------------------------------

     W. H. Hayes
     Senior Vice President - Finance, Secretary
     and Chief Financial Officer
     (Principal Financial Officer)

Date:    March 31, 2003



By: /s/ Thomas R. Solimine
   -----------------------------------

     Thomas R. Solimine
     Controller
     (Principal Accounting Officer)


                                       28
<PAGE>

Date:    March 31, 2003



By: /s/ Robert L. Myer
   ------------------------------------

     Robert L. Myer, Director

Date:    March 31, 2003



By: /s/ William A. Searles
   ------------------------------------

     William A. Searles, Director

Date:    March 31, 2003



By: /s/ Brad A. Hummel
   ------------------------------------

     Brad A. Hummel, Director

Date:    March 31, 2003



By: /s/ Jackie Majors
   -----------------------------------
      Jackie Majors, Director

Date:    March 31, 2003


                                       29
<PAGE>


                                  CERTIFICATION

      I, Kenneth S. Shifrin,  Chairman of the Board and Chief Executive Officer
      of American  Physicians  Service Group,  Inc.,  certify that:

     1.       I have reviewed this annual report on Form 10-KSB of American
              Physicians  Service Group, Inc.;

     2.       Based on my knowledge, this annual report does not contain any
              untrue statement of a material fact or omit to state a material
              fact necessary to make the statements made, in light of the
              circumstances under which such statements were made, not
              misleading with respect to the period covered by this annual
              report;

     3.       Based on my knowledge, the financial statements, and other
              financial information included in this annual report, fairly
              present in all material respects the financial condition, results
              of operations and cash flows of the registrant as of, and for, the
              periods presented in this annual report;

     4.       The registrant's other certifying officers and I are responsible
              for establishing and maintaining disclosure controls and
              procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
              for the registrant and I have:

              (a) designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this annual report is being prepared;

              (b) evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

              (c) presented in this annual report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

      5.      The registrant's other certifying officers and I have disclosed,
              based on our most recent valuation, to the registrant's auditors
              and the audit committee of registrant's board of directors (or
              persons performing the equivalent function):

              (a) all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and

              (b)  any fraud, whether or not material, that involves management
                   or other employees who have a significant role in the
                   registrant's internal controls; and

      6. The registrant's other certifying officers and I have indicated in this
      annual report whether there were significant changes in internal controls
      or in other factors that could significantly affect internal controls
      subsequent to the date of our most recent evaluation, including any
      corrective actions with regard to significant deficiencies and material
      weaknesses.

      Date:  March 31, 2003               By:   /s/ Kenneth S. Shifrin
                                                ----------------------

                                                 Kenneth S. Shifrin
                                                 Chairman of the Board and Chief
                                                 Executive Officer


                                       30
<PAGE>


                                  CERTIFICATION

      I, W.H. Hayes, Senior Vice President- Finance,  Secretary and Chief
        Financial Officer of American Physicians Service Group, Inc., certify
        that:

      1.      I have reviewed this annual report on Form 10-KSB of American
              Physicians Service Group, Inc.;

      2.      Based on my knowledge, this annual report does not contain any
              untrue statement of a material fact or omit to state a material
              fact necessary to make the statements made, in light of the
              circumstances under which such statements were made, not
              misleading with respect to the period covered by this annual
              report;

      3.      Based on my knowledge, the financial statements, and other
              financial information included in this annual report, fairly
              present in all material respects the financial condition, results
              of operations and cash flows of the registrant as of, and for, the
              periods presented in this annual report;

      4.      The registrant's other certifying officers and I are responsible
              for establishing and maintaining disclosure controls and
              procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
              for the registrant and I have:

              (a) designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this annual report is being prepared;

              (b) evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

              (c) presented in this annual report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

     5.       The registrant's other certifying officers and I have disclosed,
              based on our most recent evaluation, to the registrant's auditors
              and the audit committee of registrant's board of directors (or
              persons performing the equivalent function):

              (a) all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and

              (b) any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and

      6. The registrant's other certifying officers and I have indicated in this
         annual report whether there were significant changes in internal
         controls or in other factors that could significantly affect internal
         controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.

           Date:  March 31, 2003          By:  /s/ W. H. Hayes
                                               --------------------

                                          W. H. Hayes
                                          Senior Vice President-Finance,
                                          Secretary and Chief Financial Officer


                                       31
<PAGE>


                                   APPENDIX A



                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS




                                                                         Page

Independent Auditors' Reports                                             A-2

Consolidated Financial Statements

  Consolidated Statements of Operations for the years
  ended December 31, 2002 and 2001                                        A-4

  Consolidated Balance Sheets as of December 31, 2002
  and December 31, 2001                                                   A-6

  Consolidated Statements of Cash Flows for the years
  ended December 31, 2002 and 2001                                        A-8

  Consolidated Statements of Shareholders' Equity and Comprehensive
  Income (Loss) for the years ended December 31, 2002 and 2001            A-10

  Notes to Consolidated Financial Statements                              A-11





<PAGE>


INDEPENDENT AUDITORS' REPORT



The Board of Directors and Shareholders

American Physicians Service Group, Inc.

Austin, Texas

We have audited the accompanying consolidated balance sheet of American
Physicians Service Group, Inc. (the Company) as of December 31, 2002 and the
related consolidated statements of operations, shareholders' equity and
comprehensive income (loss), and cash flows for the year then ended. 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 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 financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of American Physicians
Service Group, Inc. at December 31, 2002, and the results of its operations and
its cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States of America.



Houston, Texas

March 21, 2003



                                              /s/ BDO Seidman, LLP
                                              ---------------------


                                       A-2

<PAGE>




INDEPENDENT AUDITORS' REPORT



The Board Directors and Stockholders

American Physicians Service Group, Inc.

Austin, Texas

We have audited the consolidated balance sheet of American Physicians Service
Group, Inc. (the "Company") and subsidiaries as of December 31, 2001 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the year ended December 31, 2001. 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 audit.

We conducted our audit 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 financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial condition of American Physicians
Service Group, Inc. and subsidiaries at December 31, 2001 and the results of
their operations and cash flows for the year ended December 31, 2001, in
conformity with accounting principles generally accepted in the United States of
America.




Austin, Texas

April 15, 2002


                                                /s/ KPMG LLP
                                               --------------------


                                      A-3
<PAGE>




                     AMERICAN PHYSICIANS SERVICE GROUP, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                                 Year Ended December 31,
                                                                                                 2002                 2001
                                                                                                 ----                 ----
Revenues:
<S>                                                                                             <C>                 <C>
  Financial services                                                                            $13,625             $13,094
  Insurance services                                                                              9,455               7,263
  Consulting (Note 14)                                                                            3,296               2,642
  Other                                                                                              16                  --
                                                                                               --------            --------
    Total revenues                                                                               26,392              22,999
                                                                                                 -------            -------
Expenses:
  Financial services                                                                             11,876              11,518
  Insurance services                                                                              7,066               5,918
  Consulting                                                                                      2,909               3,062
  General and administrative                                                                      1,951               1,749
  Gain on sale of assets (Note 13)                                                                 (515)                 --
                                                                                                --------           --------
    Total expenses                                                                               23,287              22,247
                                                                                                 -------           --------

  Operating income                                                                                3,105                 752

  Gain on sale of investments                                                                     2,855                 --
                                                                                                  -----           --------
  Earning (loss) from continuing operations before interest, income
    taxes, minority interests and equity in loss of unconsolidated
    ffiliates                                                                                     5,960                 752
  Interest income                                                                                   195                 121
  Interest expense                                                                                   24                 465
  Income tax expense (benefit) (Note 10)                                                          2,415                (952)
  Minority interests                                                                                261                 157
  Equity in loss of unconsolidated  affiliates (Note 15)                                            (44)             (3,191)
                                                                                                ---------            -------
  Earnings (loss) from continuing operations                                                      3,411              (1,988)

Discontinued operations:  (Note 13)
  Earnings from discontinued operations, net of income tax expense of
    $72 in2001                                                                                      --                  138

  Gain on disposal of discontinued segment, net of income tax expense
    of $655 in 2001                                                                                 --                 1,272
                                                                                               --------            ---------
    Net earnings (loss)                                                                         $ 3,411             $  (578)
                                                                                               =========           =========
See accompanying notes to consolidated financial statements.

</TABLE>

                                      A-4
<PAGE>



                     AMERICAN PHYSICIANS SERVICE GROUP, INC.

                CONSOLIDATED STATEMENTS OF OPERATIONS, continued

    (In thousands, except per share data)





    (In thousands, except per share data)
                                                         Year Ended December 31,
                                                           2002            2001
                                                           ----            ----
    Earnings (loss) per common share:  (Note 17)
    Basic:
       Earnings (loss) from continuing operations         $1.53          $(0.85)
       Discontinued operations                               --            0.60
                                                          -----          ------
         Net earnings (loss)                              $1.53          $(0.25)
                                                          =====          ======

    Diluted:
       Earnings (loss) from continuing operations         $1.45          $(0.85)
       Discontinued operations                               --            0.60
                                                          -----           -----
         Net earnings (loss)                              $1.45          $(0.25)
                                                          ======         ======

    Basic weighted average shares outstanding             2,227           2,343
                                                          ======         ======

    Diluted weighted average shares outstanding           2,345           2,343
                                                          ======         ======


See accompanying notes to consolidated financial statements.


                                      A-5
<PAGE>



                     AMERICAN PHYSICIANS SERVICE GROUP, INC.

                           CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
                                                                                                          December 31,
                                                                                                 --------------------------------
                                                                                                      2002                 2001
                                                                                                      ----                 ----
ASSETS
Current assets:
<S>                                                                                                 <C>                  <C>
  Cash and cash equivalents                                                                         $6,691               $3,851
  Trading account securities                                                                           133                  149
  Accounts receivable, net                                                                             460                  603
  Notes receivable, current portion (Note 3)                                                           571                  573
  Management fees and other receivables (Note 2)                                                       763                  484
  Deposit with clearing organization                                                                   500                  499
  Receivable from clearing organization                                                                 70                   69
  Investment in available-for-sale fixed income
   securities - current (Note 5)                                                                     1,015                   --
  Net deferred income tax asset (Note10)                                                                --                  282
  Income tax receivable                                                                                491                  167
  Prepaid expenses and other                                                                           673                1,147
                                                                                                    ------                -----
     Total current assets                                                                           11,367                7,824

Notes receivable, less current  portion  (Note 3)                                                      374                  999
Property and equipment (Note 6)                                                                        374                  415
Investment in available-for-sale equity securities (Note 5)                                          6,996                   --
Investment in available-for-sale fixed income securities -
   non-current (Note 5)                                                                              3,273                   --
Investment in affiliates (Note 15)                                                                      --               10,700
Other investments (Note 18)                                                                             --                   68
Net deferred income taxes (Note 10)                                                                  2,399                1,453
Other assets                                                                                           198                  201
                                                                                                    ------               ------

Total Assets                                                                                       $24,981              $21,660
                                                                                                   =======              =======
</TABLE>

See accompanying notes to consolidated financial statements.


                                      A-6
<PAGE>

                     AMERICAN PHYSICIANS SERVICE GROUP, INC.
                     CONSOLIDATED BALANCE SHEETS, continued

(In thousands, except share data)
<TABLE>
<CAPTION>
                                                                                                       December 31,
                                                                                                  2002              2001
                                                                                              --------------    --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
<S>                                                                                                  <C>              <C>
   Accounts payable - trade                                                                            $738             $511
   Payable to clearing organization                                                                      70              254
   Accrued incentive compensation                                                                     1,804            1,246
   Accrued expenses and other liabilities (Note 7)                                                    1,227            1,870
   Deferred gain - current portion                                                                      487              499
   Deferred tax liability (Note10)                                                                      974               --
                                                                                                    -------           ------
       Total current liabilities                                                                      5,300            4,380

   Payable under loan participation agreements                                                          259              259
   Deferred gain - non-current portion                                                                1,887            1,955
   Notes payable - long term (Note 8)                                                                    --            2,275
                                                                                                     ------           ------

       Total liabilities                                                                              7,446            8,869

Minority interest                                                                                       393              124
                                                                                                    -------           ------

Shareholders' Equity:
   Preferred stock, $1.00 par value, 1,000,000 shares authorized                                        --                --

   Common stock, $0.10 par value, shares authorized 20,000,000; 2,133,843 issued
     at 12/31/02 and 2,745,231 issued at 12/31/01 and
     2,133,843 outstanding at 12/31/02 and 2,359,231 at 12/31/01                                        213              275
   Additional paid-in capital                                                                         5,584            5,539
   Retained earnings                                                                                  9,515            8,310
   Accumulated other comprehensive income (loss), net of taxes                                        1,830              (39)
   Treasury stock, at cost, zero shares at 12/31/02 and 386,000 shares at 12/31/01                       --           (1,418)
                                                                                                    -------           ------
       Total shareholders' equity                                                                    17,142           12,667
                                                                                                    -------           ------

Total Liabilities and Shareholders' Equity                                                          $24,981          $21,660
                                                                                                    =======        =========
</TABLE>


See accompanying notes to consolidated financial statements.


                                      A-7

<PAGE>


                     AMERICAN PHYSICIANS SERVICE GROUP, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                Increase (Decrease) in Cash and Cash Equivalents

(In thousands)
<TABLE>
<CAPTION>
                                                                                           Year Ended December 31,

                                                                                      2002                      2001
                                                                                     -----                     -----
Cash flows from operating activities:
<S>                                                                                  <C>                       <C>
  Cash received from customers                                                       $26,233                   $22,792
  Cash paid to suppliers and employees                                               (23,238)                  (23,165)
  Change in trading account securities                                                    16                        83
  Change in balance with clearing organization                                          (186)                     (104)
  Interest paid                                                                          (24)                     (456)
  Income taxes paid                                                                   (3,298)                      (45)
  Interest, dividends and other investment income                                        195                        54
                                                                                      ------                    ------
      Net cash used in operating activities                                             (302)                     (841)

Cash flows from investing activities:
  Capital expenditures                                                                  (154)                     (192)
  Proceeds from the sale of property and equipment                                        --                     6,075
  Proceeds from the sale of an investment                                             10,719                        --
  Purchase of available-for-sale securities                                           (4,683)                       --
  Investment in and advances to affiliates                                              (230)                     (485)
  Other investments                                                                       --                        38
  Funds loaned to others                                                               (155)                      (318)
  Collection of notes receivable                                                         725                       282
  Other                                                                                   --                        57
                                                                                     --------                   -------
    Net cash provided by investing activities                                          6,222                     5,457

Cash flows from financing activities:
  Proceeds from borrowings                                                                --                     1,715
  Payment of long term debt                                                           (2,275)                   (5,328)
  Purchase of treasury stock                                                            (850)                       --
  Exercise of stock options                                                               45                        --
  Distribution to minority interest                                                       --                      (140)
                                                                                     --------                   -------
    Net cash used in financing activities                                             (3,080)                   (3,753)

Net change in cash and cash investments                                               $2,840                      $863

Cash and cash investments at beginning of period                                       3,851                     2,988
                                                                                     --------                   -------
Cash and cash investments at end of period                                            $6,691                    $3,851
                                                                                     ========                   =======

See accompanying notes to consolidated financial statements.
</TABLE>


                                      A-8
<PAGE>



                     AMERICAN PHYSICIANS SERVICE GROUP, INC.
                CONSOLIDATED STATEMENTS OF CASH FLOWS, continued

                                      (in thousands, except summary information)
<TABLE>
<CAPTION>

                                                                                                  Year Ended December 31,
                                                                                                2002                  2001
                                                                                                ----                  ----
Reconciliation of net earnings (loss) to net cash used in operating activities:

<S>                                                                                            <C>                   <C>
Net earnings (loss)                                                                            $3,411                $(578)
Adjustments to reconcile net earnings to net cash used in
 operating activities:
Depreciation and amortization                                                                     188                  312
Forgiveness of debt and other                                                                     164                  213
Minority interest in consolidated earnings                                                        261                  157
Impairment of goodwill                                                                             --                  391
Undistributed loss of affiliates                                                                   44                3,399
Gain on sale of assets                                                                         (1,003)              (1,932)
Gain on sale of investment                                                                     (2,855)                 (30)
Change in income tax receivable                                                                  (324)                 335
Provision for deferred taxes                                                                     (486)                (756)
Provision for bad debt                                                                            200                   --
Change in trading account securities                                                               16                   83
Change in balance with clearing organization                                                     (186)                (104)
Change in management fees & other receivables                                                    (279)                (458)
Change in trade receivables                                                                        16                   --
Change in prepaid expenses & other assets                                                         474                 (816)
Change in trade  accounts payable                                                                 227                    4
Change in deferred income                                                                         (85)                (447)
Change in accrued expenses & other liabilities                                                    (85)                (614)
                                                                                               -------              -------

   Net cash used in operating activities                                                        $(302)               $(841)
                                                                                               =======              =======

</TABLE>

Summary of non-cash transactions:

During 2001, we sold all of the remaining  45,000 square feet of  condominium
space we owned in an office  project  located in  Austin, Texas. In connection
with the sale, we deferred $3.2 million of the gain recorded on the sale.
(Note 13)

During 2002 we agreed to modify the terms of the foregoing notes. For the period
 July 1, 2001 through June 30, 2002 the interest rate was changed to 4% and
 payments were paid in-kind (PIK) in the form of Uncommon Care common stock at
 $0.57 per share. Additionally, the PIK stock may be repurchased by Uncommon
 Care through June 30, 2004 at a price of $.64 per share. We agreed to these
 modified terms to improve Uncommon Care's liquidity and to assist it in
 complying with the terms of its bank covenants. PIK payments during 2002 and
 2001 increased our ownership in Uncommon Care from 34% to 42% on a fully
 converted basis.

See accompanying notes to consolidated financial statements.


                                      A-9
<PAGE>


                     AMERICAN PHYSICIANS SERVICE GROUP, INC.

 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)

                 For the years ended December 31, 2002 and 2001


(In thousands)
<TABLE>
<CAPTION>


                                                                                               Accumulated
                                              Common     Additional                               Other                   Total
                                              Stock       Paid-In   Retained  Comprehensive   Comprehensive  Treasury  Shareholders'
                                             (Note 19)    Capital   Earnings   Income (Loss)     Income        Stock     Equity
                                             ---------- ---------- ---------- --------------- ------------ ----------- -------------
                                             ---------- ---------- ---------- --------------- ------------ ----------- -------------
<S>                                            <C>        <C>        <C>            <C>           <C>       <C>           <C>
Balance December 31, 2000:                     $275       $5,539     $8,888          --           $(32)     $(1,418)      $13,252

Comprehensive income:
    Net loss                                     --         --         (578)        $(578)          --           --          (578)
    Other comprehensive loss
      Unrealized loss on  securities,
        net of tax of $2                         --         --           --            (7)          (7)          --            (7)

 Comprehensive loss                              --         --           --         $(585)          --           --            --
                                                                                    ------

                                             ---------- ---------- ---------- --------------- ------------ ----------- -------------
                                             ---------- ---------- ---------- --------------- ------------ ----------- -------------
Balance December 31, 2001                      $275      $5,539      $8,310                       $(39)     $(1,418)      $12,667
                                             ---------- ---------- ---------- --------------- ------------ ----------- -------------
                                             ---------- ---------- ---------- --------------- ------------ ----------- -------------

Comprehensive income:
    Net income                                 $ --       $ --       $3,411        $3,411         $ --         $ --        $3,411
    Other comprehensive income:
        Unrealized gain on  securities,          --         --          --          1,869        1,869           --         1,869
        net of tax of $963                                                          ------

Comprehensive income                             --         --          --         $5,280           --           --            --
                                                                                    ------
Stock Options Exercised                            1         45         --                          --           --            45
Treasury stock purchases                          --         --         --                          --         (850)         (850)
Retired Treasury Stock                           (62)        --      (2,206)                        --        2,268            --
                                             ---------- ---------- ---------- --------------- ------------ ----------- ------------
                                             ---------- ---------- ---------- --------------- ------------ ----------- ------------
Balance December 31, 2002                      $ 213     $ 5,584    $ 9,515                     $ 1,830          --      $ 17,142
                                             ========== ========== ========== =============== ============ =========== ============


</TABLE>


See accompanying notes to consolidated financial statements.


                                      A-10
<PAGE>


                     AMERICAN PHYSICIANS SERVICE GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001

(1)      Summary of Significant Accounting Policies

         (a)     General

         We, through our subsidiaries, provide financial services that include
         brokerage and asset management services to individuals and
         institutions, insurance services that consist of management services
         for a malpractice insurance company, and until November 1, 2002,
         provided environmental consulting services that included air, water and
         solid waste engineering, litigation support and regulatory compliance.
         The financial services business has clients nationally. Insurance
         management is a service provided primarily in Texas, but is available
         to clients nationally. During the two years presented in the financial
         statements, financial services generated 52% and 57% of total revenues
         and insurance services generated 36% and 32% in 2002 and 2001,
         respectively.

         We have an affiliate, Uncommon Care, Inc. ("Uncommon Care") of which we
         own common stock and convertible preferred stock equivalent to a 42%
         ownership on a fully converted basis. Uncommon care is a developer and
         operator of Alzheimers care centers.

         (b)    Management's Estimates and Assumptions

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

         (c)    Principles of Consolidation

         The consolidated financial statements include our accounts and the
         accounts of our subsidiary companies more than 50% owned. Investments
         in affiliated companies and other entities, in which our investment is
         less than 50% of the common shares outstanding and where we exert
         significant influence over operating and financial policies, are
         accounted for using the equity method. Investments in other entities in
         which our investment is less than 20%, and in which we do not have the
         ability to exercise significant influence over operating and financial
         policies, are accounted for using the cost method.

         We also consolidate our interest in APS Consulting ("APS Consulting")
         as it is accounted for as a variable interest entity in which we are
         the primary beneficiary. (See Note 13).

         We own 80% of our insurance services segment. We record minority
         interest to reflect the 20% of it's net income or loss attributable to
         the minority shareholder.

         All significant inter-company transactions and balances have been
         eliminated from the accompanying consolidated financial statements.

         (d)    Revenue Recognition

         Our investment services revenues related to securities transactions are
         recognized on a trade date basis. Asset management revenues are
         recognized monthly based on the amount of funds under management.

                                      A-11
<PAGE>


         Our insurance services revenues related to management fees are
         recognized monthly as a percentage of the earned insurance premiums of
         the managed company. The profit sharing component of the management
         services agreement is recognized when it is reasonably certain that the
         managed company will have an annual profit, generally in the fourth
         quarter of each year.

         Our consulting revenues resulted from the work of scientists and
         engineers in the areas of remedial investigations, remediation
         engineering, air and water quality analysis, regulatory compliance,
         solid waste engineering, litigation support/expert testimony and
         industrial hygiene and safety. Substantially all of the projects in
         these areas are undertaken on a time and expenses basis. Our clients
         were billed, and revenue was recognized, monthly based on hours worked
         and expenses incurred toward completing the assignments. Effective
         November 1, 2002, we completed the sale of our consulting segment to
         its management as it was determined that it did not fit in our
         long-term business plan (see Note 14 for description of the accounting
         treatment of this transaction.)

         (e)    Marketable Securities

         Our investments in debt and equity securities are classified in three
         categories and accounted for as follows:

           Classification                 Accounting
           ---------------               --------------
           Held-to-maturity              Amortized cost

           Trading securities            Fair value, unrealized gains and losses
                                           included in earnings

           Available-for-sale            Fair value, unrealized gains and losses
                                            excluded from earnings and reported
                                            as a separate component of
                                            stockholders' equity, net of
                                            applicable income taxes


         We have included our marketable securities, held as inventory at our
         broker/dealer, in the trading securities category. We have included
         investments in marketable securities not held as inventory at our
         broker/dealer in the available-for-sale securities category.

         (f)      Property and Equipment

         Property and equipment is stated at cost. Property and equipment is
         depreciated using the straight-line method over the estimated useful
         lives of the respective assets (3 to 5 years). Leasehold improvements
         are depreciated using the straight-line method over the life of the
         lease.

         (g)      Long-Lived Assets

         Long-lived assets, principally property and equipment, are reviewed for
         impairment whenever events or changes in circumstances indicate that
         the carrying amount may not be recoverable. If the sum of the expected
         future undiscounted cash flows is less than the carrying amount of the
         asset, a loss is recognized if there is a difference between the fair
         value and carrying value of the asset.


                                      A-12
<PAGE>

         Investments are evaluated for impairment in the event of a material
         change in the underlying business. Such evaluation takes into
         consideration our intent and time frame to hold or to dispose of the
         investment and takes into consideration available information,
         including recent transactions in the stock, expected changes in the
         operations or cash flows of the investee, or a combination of these and
         other factors.

         (h)     Allowance for Doubtful Accounts

         We recorded an allowance for doubtful accounts based on specifically
         identified amounts that we believe to be uncollectible. If our actual
         collections experience changes, revisions to our allowance may be
         required. We have a limited number of customers with individually large
         amounts due at any given balance sheet date. Any unanticipated change
         in one of those customer's credit could have a material affect on our
         results of operations in the period in which such changes or events
         occur. After all attempts to collect a receivable have failed, the
         receivable is written off against the allowance.

         (i)      Income Taxes

         Income taxes are accounted for under the asset and liability method.
         Deferred tax assets and liabilities are recognized for the future tax
         consequences attributable to differences between the financial
         statement carrying amounts of existing assets and liabilities and their
         respective tax bases and operating loss and tax credit carryforwards.
         Deferred tax assets and liabilities are measured using enacted tax
         rates expected to apply to taxable income in the years in which those
         temporary differences are expected to be recovered or settled. The
         effect on deferred tax assets and liabilities of a change in tax rates
         is recognized in income in the period that includes the enactment date.
         A valuation allowance is provided for deferred tax assets to the extent
         realization is not judged to be more likely than not.

         (j)      Cash and Cash Equivalents

         Cash and cash equivalents include cash and highly liquid investments
         with a maturity date at purchase of 90 days or less. We deposit our
         cash and cash equivalents with high credit quality institutions.
         Periodically such balances may exceed applicable FDIC insurance limits.
         Management has assessed the financial condition of these institutions
         and believes the possibility of credit loss is minimal.

         (k)      Notes Receivable

         Notes receivable are recorded at cost, less allowances for doubtful
         accounts when deemed necessary. Management, considering current
         information and events regarding the borrowers ability to repay their
         obligations, considers a note to be impaired when it is probable that
         we will be unable to collect all amounts due according to the
         contractual terms of the note agreement. When a loan is considered to
         be impaired, the amount of the impairment is measured based on the
         present value of expected future cash flows discounted at the note's
         effective interest rate. Impairment losses are included in the
         allowance for doubtful accounts through a charge to bad debt expense.
         The present value of the impaired loan will change with the passage of
         time and may change because of revised estimates of cash flows or
         timing of cash flows. Such value changes shall be reported as bad debt
         expense in the same manner in which impairment initially was recognized
         or as a reduction in the amount of bad debt expense that would be


                                      A-13
<PAGE>

         reported. No interest income is accrued on impaired loans. Cash
         receipts on impaired loans are recorded as reductions of the principal
         amount.

         (l)      Stock-Based Compensation

         As described in Note 11, we have elected to follow the accounting
         provisions of Accounting Principles Board Opinion (APBO) No. 25,
         Accounting for Stock Issued to Employees, for stock-based compensation
         and to furnish the pro forma disclosures required under SFAS No. 148,
         Accounting for Stock-Based Compensation - Transition and Disclosure.

         (m)      Recently Issued Accounting Pronouncements

         Recently Issued Accounting Pronouncements

         In June 2001, FASB issued SFAS No. 143, Accounting for Asset Retirement
         Obligations. SFAS No. 143 requires the Company to record the fair value
         of an asset retirement obligation as a liability in the period in which
         it incurs a legal obligation associated with the retirement of tangible
         long-lived assets that result from the acquisition, construction,
         development, and/or normal use of the assets. The Company also records
         a corresponding asset that is depreciated over the life of the asset.
         Subsequent to the initial measurement of the asset retirement
         obligation, the obligation will be adjusted at the end of each period
         to reflect the passage of time and changes in the estimated future cash
         flows underlying the obligation. The Company is required to adopt SFAS
         No. 143 on January 1, 2003. The adoption of SFAS No. 143 is not
         expected to have a material effect on our consolidated financial
         statements.

         In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
         Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
         Technical Corrections. SFAS No. 145 amends existing guidance on
         reporting gains and losses on the extinguishment of debt to prohibit
         the classification of the gain or loss as extraordinary, as the use of
         such extinguishments have become part of the risk management strategy
         of many companies. SFAS No. 145 also amends SFAS No. 13 to require
         sale-leaseback accounting for certain lease modifications that have
         economic effects similar to sale-leaseback transactions. The provisions
         of the Statement related to the rescission of Statement No. 4 is
         applied in fiscal years beginning after May 15, 2002. Earlier
         application of these provisions is encouraged. The provisions of the
         Statement related to Statement No. 13 were effective for transactions
         occurring after May 15, 2002, with early application encouraged. The
         adoption of SFAS No. 145 is not expected to have a material effect on
         our consolidated financial statements.

         In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
         Associated with Exit or Disposal Activities. SFAS No. 146 addresses
         financial accounting and reporting for costs associated with exit or
         disposal activities and nullifies Emerging Issues Task Force
         (EITF)Issue 94-3, Liability Recognition for Certain Employee
         Termination Benefits and Other Costs to Exit an Activity. The
         provisions of this Statement are effective for exit or disposal
         activities that are initiated after December 31, 2002, with early
         application encouraged. The adoption of SFAS No. 146 is not expected to
         have a material effect on our consolidated financial statements.

         In November 2002, the FASB issued Interpretation No. 45, Guarantor's
         Accounting and Disclosure Requirements for Guarantees, Including
         Indirect Guarantees of Indebtedness to Others, an interpretation of
         FASB Statements No. 5, 57 and 107 and a rescission of FASB
         Interpretation No. 34. This Interpretation elaborates on the
         disclosures to be made by a guarantor in its interim and annual


                                      A-14
<PAGE>

         financial statements about its obligations under guarantees issued. The
         Interpretation also clarifies that a guarantor is required to
         recognize, at inception of a guarantee, a liability for the fair value
         of the obligation undertaken. The initial recognition and measurement
         provisions of the Interpretation are applicable to guarantees issued or
         modified after December 31, 2002 and are not expected to have a
         material effect on our consolidated financial statements. The
         disclosure requirements are effective for financial statements of
         interim and annual periods ending after December 15, 2002.

         In December 2002, the FASB issued SFAS No. 148, Accounting for
         Stock-Based Compensation - Transition and Disclosure, an amendment of
         FASB Statement No. 123. This Statement amends FASB Statement No. 123,
         Accounting for Stock-Based Compensation, to provide alternative methods
         of transition for a voluntary change to the fair value method of
         accounting for stock-based employee compensation. In addition, this
         Statement amends the disclosure requirements of Statement No. 123 to
         require prominent disclosures in both annual and interim financial
         statements. Certain of the disclosure modifications are required for
         fiscal years ending after December 15, 2002 and are included in the
         notes to these consolidated financial statements.

         In January 2003, the FASB issued Interpretation No. 46, Consolidation
         of Variable Interest Entities, an interpretation of ARB No. 51. This
         Interpretation addresses the consolidation by business enterprises of
         variable interest entities as defined in the Interpretation. The
         Interpretation applies immediately to a variable interests in variable
         interest entities created after January 31, 2003, and to variable
         interests in variable interest entities obtained after January 31,
         2003. We have voluntarily elected early adoption of Interpretation No.
         46. The effect of the application of this Interpretation is described
         in Note 14 to these consolidated financial statements.

         (n)      Reclassification

         Certain reclassifications have been made to amounts presented in 2001
         to be consistent with the 2002 presentation.

 (2)     Management Fees and Other Receivables

         Management fees and other receivables consist of the following:



                                                         December 31,
                                                 2002                   2001
                                                 ----                   ----
           Management fees receivable          $382,000                $30,000
           Accrued interest receivable           91,000                  4,000
           Other receivables                    290,000                450,000
                                                -------                -------
                                               $763,000               $484,000
                                               ========               ========


         We earn management fees by providing management services to American
         Physicians Insurance Exchange ("APIE") under the direction of APIE's
         Board of Directors. Subject to the direction of this Board, and subject
         to a management services agreement , FMI sells and issues policies,
         investigates,


                                      A-15

<PAGE>


         settles and defends claims, and otherwise manages APIE's affairs. We
         earned management fees and other related income of $9,455,000 and
         $7,263,000, including expense reimbursements, principally for our
         independent agents' commissions, of $3,368,000 and $2,570,000 for the
         years ended December 31, 2002 and 2001, respectively, related to these
         agreements.

         The summarized financial information for APIE as of and for the year
         ended December 31, 2002 and 2001 is as follows:



                                                   2002                2001
                                                (unaudited)
                                                -----------         -----------
         Current assets                         $67,129,000         $56,020,000
         Long-term assets                        13,592,000           8,537,000
                                                 ----------          ----------
            Total assets                         80,721,000          64,557,000
                                                 ==========          ==========

         Current liabilites                      67,736,000          53,082,000
         Surplus                                 12,985,000          11,475,000
                                                 ----------          ----------
             Total liabilities and surplus       80,721,000          64,557,000
                                                 ==========          ==========
         Total revenue                           29,556,000          35,892,000
         Income from continuing operations        1,031,000           1,283,000
         Net income                               1,503,000           1,385,000





         Trade accounts receivable are recorded at APS Consulting for services
         performed which are billed on a monthly basis.

         Other receivables in 2001 are primarily comprised of a non-interest
         bearing advance to APIE which was subsequently collected in March 2002.


                                      A-16

<PAGE>



(3)      Notes Receivable

Notes receivable consist of the following:

<TABLE>
<CAPTION>
                                                                                                             December 31,
                                                                                                       2002              2001
                                                                                                       ----              ----
<S>                                                                                                  <C>              <C>
     FemPartners, Inc. (Formerly due from Syntera HealthCare Corporation)
Promissory note, bears interest at 8%. Payments were interest only, paid
quarterly through November 30, 2001. Quarterly combined principal and interest
payments began December 1, 2001 and continue through September 1, 2004, at which
time the total outstanding balance is due. The maturity date of this note can be
accelerated if FemPartners conducts an initial public offering or other public
sale of its common stock. If such occurs, the note shall mature and become due
and payable on the 5th business day after the date of such initial public
offering or other public sale.                                                                       $902,000         $1,304,000

Unsecured term note, principal and interest, at 8%, payable monthly until
maturity on March 31, 2004.                                                                            63,000            115,000

     Employees
Loans are periodically made to employees, primarily as employment retention
inducements. Employee notes receivable at December 31, 2002 consisted of a note
totaling $4,000 which will be amortized through 2004, provided the employee
remains with us and two loans totaling $40,000 to a key employee for advanced
education fees. The latter two notes are forgivable in the amount of
approximately $13,000 on each January 1st that the employee is employed by the
Company beginning in 2001 and continuing through 2005. They are due within 90
days should the employee terminate employment.

Employee notes receivable at December 31, 2001 consisted of three notes totaling
$100,000 which were repaid in full in February 2002 and two loans totaling
$53,000 to a key employee for advanced education fees. The same terms apply as
described above.                                                                                       44,000            153,000
                                                                                                       ------           --------
                                                                                                    1,009,000          1,572,000
Less current portion and allowance for doubtful accounts of $64,000 in 2002                          (635,000)          (573,000)
                                                                                                     --------           --------
Long term portion                                                                                    $374,000           $999,000
                                                                                                     ========           ========

</TABLE>

(4)      Fair Value of Financial Instruments

         For financial instruments the estimated fair value equals the carrying
         value as presented in the consolidated balance sheets. Fair value
         estimates, methods, and assumptions are set forth below for our
         financial instruments.

                                      A-17
<PAGE>


         CASH AND CASH EQUIVALENTS

         The carrying amounts for cash and cash equivalents approximate fair
         value because they mature in less than 90 days and do not present
         unanticipated credit concerns.

         TRADING ACCOUNT SECURITIES

         The trading account securities owned are reported at fair value. In the
         absence of any available market quotation, securities held by us are
         valued at estimated fair value as determined by management.

         In addition to receiving commission revenue for acting as the placement
         agent for private offerings, APS Financial received over the past three
         years warrants to purchase a total of 652,351 shares of restricted
         common capital stock of four companies. The warrants expire in 2004
         through 2007 and had no value at December 31, 2002. None of the
         warrants have been exercised as of December 31, 2002.

         AVAILABLE-FOR-SALE SECURITIES

         Available-for-sale securities owned are reported at fair value.

         ACCOUNTS RECEIVABLE

         The fair value of these receivables approximates the carrying value due
         to their short-term nature and historical collectibility

         MANAGEMENT FEES AND OTHER RECEIVABLEs

         The fair value of these receivables approximates the carrying value due
         to their short-term nature and historical collectibility.

         NOTES RECEIVABLE

         The fair value of notes has been determined using discounted cash flows
         based on our management's estimate of current interest rates for notes
         of similar credit quality.

         DEPOSIT WITH CLEARING ORGANIZATION

         The carrying amounts approximate fair value because the funds can be
         withdrawn on demand and there is no unanticipated credit concern.

         OTHER INVESTMENTS

         The fair value has been determined using a third party valuation.

         ACCOUNTS PAYABLE

         The fair value of the payable approximates carrying value due to the
         short-term nature of the obligation.


                                      A-18
<PAGE>

         LIMITATIONS

         Fair value estimates are made at a specific point in time, based on
         relevant market information and information about the financial
         instrument. Fair value estimates are based on existing financial
         instruments without attempting to estimate the value of anticipated
         future business and the value of assets and liabilities that are not
         considered financial instruments. In addition, the tax ramifications
         related to the realization of the unrealized gains and losses can have
         a significant effect on fair value estimates and have not been
         considered in the aforementioned estimates.


(5)      Marketable Securities

         At December 31, 2002, we have classified certain investments as
         available-for-sale. The cost, gross unrealized gains and losses, and
         fair value of these securities by major security type at December 31,
         2002 was as follows:

<TABLE>
<CAPTION>

                                                                        Gross             Gross
                                                                      Unrealized       Unrealized           Fair
                                                     Cost               Gains            Losses            Value
                                             --------------------- ----------------- ---------------- -----------------
                                             --------------------- ----------------- ---------------- -----------------
<S>                                               <C>                 <C>                <C>                <C>
         U.S. government agencies                 $ 2,846,000         $    60,000        $       --         $2,906,000
         Corporate obligations                      1,379,000              19,000           (16,000)         1,382,000
         Equity securities                          4,287,000           2,762,000           (53,000)         6,996,000
                                                    ---------           ---------           --------         ---------
         Total                                     $8,512,000          $2,841,000          $(69,000)       $11,284,000
                                                   ==========          ==========          =========       ===========
</TABLE>

        Maturities of fixed income securities were as follows at December 31,
        2002:
<TABLE>
<CAPTION>

                                                                                  Fair
                                                     Cost                         Value
                                             ---------------------     -----------------------
<S>                                                <C>                             <C>
         Due within one year                       $1,009,000                      $1,015,000
         Due after one year                         3,216,000                       3,273,000
                                                    ---------                       ---------
         Total                                     $4,225,000                      $4,288,000
                                                   ==========                      ==========
</TABLE>

         Amounts reflected in the tables above include equity securities of
         Prime Medical with a fair value of $6,525,000 and corporate
         obligations of Prime Medical with a fair value of $860,000.

(6)      Property and Equipment

         Property and equipment consists of the following:

                                                           December 31,
                                                  ------------------------------
                                                        2002             2001
                                                        ----             ----
         Equipment                                   $1,150,000      $1,076,000
         Furniture                                      642,000         630,000
         Software                                       319,000         281,000
         Leasehold improvements                         240,000         234,000
                                                     -----------     -----------
                                                     $2,351,000      $2,221,000

         Accumulated depreciation and amortization   (1,977,000)     (1,806,000)
                                                     -----------     -----------
                                                       $374,000       $ 415,000
                                                     ===========     ===========


                                  A-19
<PAGE>

(7)      Accrued Expenses and Other Liabilities

         Accrued expenses and other liabilities consists of the following as of
         December 31,:

                                             2002                    2001
                                             ----                    ----

          Commissions payable             $ 798,000              $ 533,000
          Taxes payable                      93,000                 61,000
          Contractual/legal claims               --              1,031,000
          Vacation payable                  154,000                140,000
          Other                             182,000                105,000
                                           --------               --------
                                         $1,227,000             $1,870,000
                                         ==========             ==========

         Contractual/legal claims as of December 31, 2001 includes an accrual of
         $520,000 related to the settlement of a legal judgment against us that
         was paid in January 2002. Prior to the negotiated settlement of the
         judgment, we were required to put up a cash bond in the amount of the
         original judgment in the amount of $762,000. As of December 31, 2001,
         this amount was reflected in the line item "Prepaid expenses and other"
         in the accompanying consolidated balance sheet. The difference between
         the cash bond and the settlement amount was reimbursed to us in
         February 2002. Also in 2001, we recorded a liability of $511,000 for
         agreements with former doctor shareholders of Syntera, a practice
         management company we owned that was merged with FemPartners. Under the
         agreement, we agreed to exchange their shares in Syntera for the common
         stock of American Physicians, or cash, if the Syntera shares did not
         become publicly traded. In 2002 we paid cash to settle this liability,
         thus satisfying all obligations.

(8)       Notes Payable

         We had a $7,500,000 line of credit with Bank of America, N. A. We had
         pledged substantially all of the assets of our subsidiaries as well as
         shares of Prime Medical to the bank as funds were advanced under the
         line. Funds advanced under the agreement were $2,275,000 at December
         31, 2001. Funds advanced under the agreement bore interest at the prime
         rate less 25 basis points. Interest expense incurred during the years
         ended December 31, 2002 and 2001 related to the line of credit was
         approximately $8,000 and $388,000 respectively. All amounts payable
         under the line of credit were due February 2003 but were repaid in
         February 2002. We terminated the line of credit during 2002.

(9)       Commitments and Contingencies

         Expenses under all operating leases for the years ended December 31,
         2002 and 2001 were $1,077,000 and $534,000, respectively. Future
         minimum payments for leases that extend for more than one year through
         2007 were $950,000; $825,000; $687,000; $487,000 and $8,000 for 2003,
         2004, 2005, 2006 and 2007, respectively.

         We have extended various lines of credit to Uncommon Care. See Note 15
         to these consolidated financial statements.

         We have extended a line of credit to APS Consulting. See Note 14 to
         these consolidated financial statements.


                                  A-20

<PAGE>

         We are involved in various claims and legal actions that have arisen in
         the ordinary course of business. Management believes that any
         liabilities arising from these actions will not have a significant
         adverse effect on our consolidated financial condition or results of
         operations.

         We guaranteed a loan in the maximum amount of $70,000 for a director,
         William Searles. The guarantee was collateralized by Mr. Searles'
         options to purchase American Physicians and Prime Medical shares as
         well as Mr. Searles' common stock interest in Uncommon Care. At
         December 31, 2001 the loan was in the amount of $35,000. The loan was
         paid in full subsequent to year end. Following the passage of the
         Sarbanes/Oxley Act in July, 2002, all officers and directors were
         informed that loans, advances or guarantees would no longer be
         permitted.

(10)     Income Taxes

         Income tax expense (benefit) consists of the following:

                                                       Year Ended December 31,
                                                    ---------------------------
                                                       2002               2001
                                                       ----               ----
         Continuing Operations
           Federal

             Current                                $2,471,000        $(694,000)
             Deferred                                 (151,000)        (330,000)
           State-Current                                95,000           72,000
                                                    -----------       ----------
           Total from Continuing Operations          2,415,000         (952,000)
           Discontinued Operations                          --          727,000
                                                    -----------       ----------
                                                    $2,415,000        $(225,000)
                                                    ===========       ==========


         A reconciliation of expected income tax expense (benefit) computed by
         applying the United States federal statutory income tax rate of 34% to
         earnings (loss) from continuing operations before income taxes to tax
         expense (benefit) from continuing operations in the accompanying
         consolidated statements of operations follows:



                                                       Year Ended December 31,
                                                     ---------------------------
                                                     2002                 2001
                                                     ----                 ----

         Expected federal income tax expense
         (benefit) from continuing operations     $1,981,000        $(1,001,000)
           State taxes                                63,000             48,000
           Goodwill adjustment                       214,000                 --
           Minority interest                          89,000                 --
           Other, net                                 68,000              1,000
                                                   ---------         -----------
                                                  $2,415,000         $ (952,000)
                                                  ==========         ===========


                                      A-21
<PAGE>

         The tax effect of temporary differences that gives rise to significant
         portions of deferred tax assets and deferred tax liabilities at
         December 31, 2002 and 2001 are presented below:
<TABLE>
<CAPTION>

                                                                                                   Year Ended December 31,
                                                                                     -----------------------------------------------

                                                                                               2002                      2001
                                                                                               ----                      ----
        <S>                                                                                 <C>                       <C>
        Deferred tax assets:
        Net operating loss carryforwards                                                    $      --                 $ 110,000
        Accrued expenses                                                                      101,000                   227,000
        Allowance for doubtful accounts                                                        68,000                    16,000
        Investment in available-for-sale securities and equity
          investees                                                                         1,444,000                        --
        Other investments                                                                      51,000                   919,000
        Sales/Leaseback deferred income                                                       732,000                 1,073,000
        Other                                                                                   3,000                    84,000
                                                                                           ----------                ----------
        Total gross deferred tax assets                                                     2,399,000                 2,429,000
        Less valuation allowance                                                                   --                  (110,000)
                                                                                           ----------                ----------
        Deferred tax assets-net of valuation allowance                                      2,399,000                 2,319,000
                                                                                            ---------                ----------
        Deferred tax liabilities:
        Investment in equity investments due to use of equity method
          for financialreporting                                                                   --                  (528,000)
        Market value allowance on investments                                                (943,000)                       --
        Deferred income for tax purposes                                                           --                   (26,000)
        Capitalized expenses, principally due to deductibility for tax
           purposes                                                                           (31,000)                  (32,000)
                                                                                              --------                ---------
        Total gross deferred tax liabilities                                                 (974,000)                 (586,000)
                                                                                             ---------                ---------
        Net deferred tax asset                                                             $1,425,000                $1,733,000
                                                                                           ==========                ==========
</TABLE>

         The net change in the total valuation allowance for the year ended
         December 31, 2002 was a decrease of $110,000. In assessing the
         realizability of deferred tax assets, management considers whether it
         is more likely than not that some portion or all of the deferred tax
         assets will not be realized. The ultimate realization of deferred tax
         assets is dependent upon the generation of future taxable income during
         the periods in which those temporary differences become deductible.
         Management considers the scheduled reversal of deferred tax
         liabilities, projected future taxable income, and tax planning
         strategies in making this assessment. Based upon the level of
         historical taxable income and projections for future taxable income
         over the periods which the deferred tax assets are deductible,
         management believes it is more likely than not that we will realize the
         benefits of these deductible differences at December 31, 2002.

(11)     Employee Benefit Plans

         We have an employee benefit plan qualifying under Section 401(k) of the
         Internal Revenue Code for all eligible employees. Employees become
         eligible upon meeting certain service and age requirements. Employee
         deferrals may not exceed $11,000 in 2002 unless participant is over age
         50, in which case the maximum deferral is $12,000. We may, at our
         discretion, contribute up to 200% of the employees' deferred amount.


                                      A-22
<PAGE>

         For the years ended December 31, 2002 and 2001, our contributions
         aggregated $135,000 and $88,000, respectively.

(12)     Stock Options

         We have adopted, with shareholder approval, the "1995 Non-Employee
         Directors Stock Option Plan" ("Directors Plan") and the "1995 Incentive
         and Non-Qualified Stock Option Plan" ("Incentive Plan"). The Directors
         Plan provides for the issuance of up to 200,000 shares of common stock
         to non-employee directors who serve on the Compensation Committee. The
         Directors Plan is inactive and it is assumed the remaining 170,000
         shares will not be granted. The Incentive Plan, as amended with
         shareholder approval in 1998, 2001, and 2002 provides for the issuance
         of up to 1,600,000 shares of common stock to our directors and key
         employees. A total of 952,000 of these options have been granted as of
         December 31, 2002.

         The exercise price for each non-qualified option share is determined by
         the Compensation Committee of the Board of Directors ("the Committee").
         The exercise price of a qualified incentive stock option has to be at
         least 100% of the fair market value of such shares on the date of grant
         of the option. Under the Plans, option grants are limited to a maximum
         of ten-year terms; however, the Committee has issued all currently
         outstanding grants with five-year terms. The Committee also determines
         vesting for each option grant and substantially all outstanding options
         vest in two or three approximately equal annual installments beginning
         one year from the date of grant.

         We have adopted the disclosure-only provisions of Statement of
         Financial Accounting Standards No. 123, Accounting for Stock-Based
         Compensation ("Statement 123"), but apply Accounting Principles Board
         Opinion No. 25, Accounting for Stock Issued to Employees, in accounting
         for our stock option plans. In 2002 we purchased 89,000 unexpired
         options from four grantees. These purchases modified the terms of the
         options and we recognized $156,000 of compensation expense, as a
         result. Except as previously noted, no compensation expense from
         stock-based compensation awards was recognized in 2002 or 2001. If we
         had elected to recognize compensation expense for options granted based
         on the fair value at the grant dates, consistent with Statement 123,
         net income and earnings per share would have changed to the pro forma
         amounts indicated below:
<TABLE>
<CAPTION>

                                                                                           Year Ended December 31,
                                                                               ------------------------------------------------
                                                                                        2002                        2001

         <S>                                                                        <C>                         <C>
         Net income (loss) as reported                                              $3,411,000                  $ (578,000)

         Deduct: Total stock-based  employee  compensation expense determined
         under fair value  based  method for all  awards,  net of related tax
         effects                                                                      (222,000)                   (226,000)
                                                                                    ----------                    ---------
         Pro forma net income (loss)                                                $3,189,000                   $(804,000)
                                                                                    ==========                    =========
         Income (loss) per share
                       Basic - as reported                                              $1.53                       $(0.25)
                                                                                        =====                       =======
                       Basic - pro forma                                                $1.43                       $(0.34)
                                                                                        =====                       =======
                       Diluted - as reported                                            $1.45                       $(0.25)
                                                                                        =====                       =======
                       Diluted - pro forma                                              $1.36                       $(0.34)
                                                                                        =====                       =======
</TABLE>

                                      A-23
<PAGE>

         The fair value of the options used to compute the pro forma amounts is
         estimated using the Black Scholes option-pricing model with the
         following assumptions:

                                                        2002         2001
                                                       -----        -----
               Risk-free interest rate                  3.4%          4.45%
               Expected holding period                  3.7 years     3.90 years
               Expected volatility                     .477           .798
               Expected dividend yield                   -0-            -0-


        Presented below is a summary of the stock options held by our employees
        and our directors and the related transactions for the years ended
        December 31, 2002 and 2001.


<TABLE>
<CAPTION>

                                                                   Year Ended December 31,
                                    ------------------------------------------------------------------
                                                     2002                                2001
                                            ----------------------          --------------------------
                                                          Weighted                         Weighted
                                                          Average                           Average
                                                          Exercise                         Exercise
                                            Shares         Price              Shares         Price
                                           -------       ---------          ----------    ----------
        <S>                                <C>             <C>              <C>                <C>
        Balance at January 1               788,000         $3.45            1,151,000          $5.04
        Options granted                    305,000          3.72              134,000           2.25
        Options exercised                  (13,000)         1.69                   --            --
        Options repurchased                (89,000)         2.38                   --            --

        Options forfeited/expired          (52,000)         6.26             (497,000)          6.70
                                           --------                          ---------
        Balance at December 31             939,000          3.51              788,000           3.45
                                           =======          ----              =======           ====
        Options exercisable                500,000          3.78              455,000           4.19
                                           =======          ====              =======           ====
</TABLE>


         The weighted average fair value (the theoretical option value
         calculated using the Black Scholes option pricing model) of Company
         stock options granted during the years ended December 31, 2002 and 2001
         is $1.46 and $1.36 per option, respectively. In this case, as of
         December 31, 2002, weighted average price per share of Company stock
         options ($5.18) less the weighted average exercise price of options
         granted ($3.72) equals the weighted average fair value of options
         granted ($1.46).

         The following table summarizes the Company's options outstanding and
exercisable options at December 31, 2002:
<TABLE>
<CAPTION>

                                              Stock Options                                 Stock Options
                                                Outstanding                                  Exercisable
                           ------------------------------------------------    ------------------------------------
                                                Average          Weighted                              Weighted
                                               Remaining          Average                               Average
          Range of                            Contractual        Exercise                              Exercise
      Exercise Prices               Shares       Life              Price                Shares           Price
      ---------------               ------       ----              -----                ------           -----
        <S>                        <C>           <C>               <C>                 <C>               <C>
        $1.50 to $3.50             237,000       3.1 years         $1.94               101,000           $1.80
        $3.51 to $5.50             675,000       2.5 years         $3.91               372,000           $4.08
        $5.51 to $7.25              27,000       0.3 years         $7.18                27,000           $7.18
                                   -------                                             -------
        Total                      939,000                                             500,000
                                   =======                                             =======
</TABLE>

                                      A-24
<PAGE>

(13)     Discontinued Operations

         Summary operating data for APS Realty is as follows:

                                               Year Ended December 31,
                                               2002               2001
                                               -----               ----
         Rent revenues                           --               $ 677
         Expenses                                --                 467
         Gain on building sale                   --               1,927
                                               -----             -------
              Income before taxes                --              $2,137
              Income tax expense                                    727
                                               -----             -------
                 Net Income                      --              $1,410
                                               =====             =======


         In November, 2001 we sold all of the remaining 46,000 square feet of
         condominium space we owned in an office project located in Austin,
         Texas to our former affiliate, Prime Medical. In conjunction with the
         sale we leased back approximately 23,000 square feet that housed our
         operations prior to the sale. Our wholly-owned subsidiary, APS Realty,
         which formerly owned this office space and leased space to us, our
         subsidiaries, affiliates and unaffiliated parties, was subsequently
         dissolved. As a result there are no corresponding assets or liabilities
         related to discontinued operations as of December 31, 2001. Gain on the
         sale amounted to approximately $5.1 million, of which $1.9 million was
         recognized in 2001 and the balance of the gain was deferred. Deferred
         income of approximately $2.4 million related to our continuing
         involvement in 50% of the usable space was recorded and is being
         recognized monthly over the five year lease term through November 2006.
         Income recognition related to this deferral was $488,000 in 2002 and
         $41,000 in 2001. In addition, 15% of the gain ($0.76 million) related
         to our 15% ownership in the purchaser, was deferred as we accounted for
         Prime Medical using the equity method of accounting through the year
         ended December 31, 2001. During 2002 we reduced our investment in Prime
         Medical and subsequently recognized a proportionate percentage of the
         deferred gain, or about $515,000. Recognition of the deferred gain is
         recorded as a reduction of rent expense in operating expenses in the
         accompanying financial statements.



(14)     Sale of APS Consulting

         Effective November 1, 2002, we completed the sale of APS Consulting to
         its management. We sold all of our APS Consulting shares for a de
         minimus amount of cash plus a $250,000 seven year term note at the
         prime rate plus 3%. The note is secured by the assets of APS
         Consulting. Our existing contract to provide administrative support
         services to APS Consulting for a period of approximately seven years
         remains in effect. Fees under this contract are dependent on APS
         Consulting's pre-tax earnings but may not be less than $200,000 or more
         than $518,000 over its remaining term.

         In addition, we extended a line of credit to APS Consulting of up to
         $450,000. This line is at the prime rate plus 3% and is collateralized
         by the accounts receivable and cash of APS Consulting. Advances under
         the line are dependent upon meeting borrowing base requirements.

         Under the terms of the sale agreement, we are dependent upon the future
         successful operation of the division to collect our proceeds from the
         disposal. Additionally, as we have a security interest in the assets of
         the division, we have retained a risk of loss on the division's assets
         and, under the terms of our notes with the division, we have the
         ability to veto certain transactions, including significant asset
         disposals.


                                      A-25
<PAGE>

         Consistent with the guidance under FIN 46, we have not recognized the
         divestiture of APS Consulting and continue to consolidate the division
         as an entity in which we have a variable interest that will absorb the
         majority of the entity's operating losses if they occur.

         Accordingly, the assets and liabilities are included in our
         consolidated balance sheet as of December 31, 2002. The balance sheet
         below summarizes the assets and liabilities of APS Consulting that are
         included in our consolidated balance sheet at December 31, 2002:


                                                            2002
                                                          -------
         Assets
         Cash                                             $347,000
         Accounts Receivable, net                          409,000
         Prepaid Expenses                                   22,000
                                                            ------
             Total Current Assets                          778,000
         Property and Equipment                             45,000
                                                            ------
             Total Assets                                 $823,000
                                                          ========
         Liabilities
         Accounts Payable                                 $445,000
         Accrued Expenses                                   74,000
                                                          --------
             Total Current Liabilites                      519,000
         Notes Payable                                     248,000
         Deferred Income                                    74,000
                                                          --------
             Total Liabilites                             $841,000
                                                          ========
         Total Liabilities in excess of Assets           $ 18,000
                                                         =========



         The revenues and expenses of APS Consulting from January 1, 2002
         through the date of sale, November 1, 2002, have been included in our
         consolidated financial statements for the year ended December 31, 2002.
         In addition, we continue to recognize APS Consulting's revenues and
         expenses subsequent to the sale. If, subsequent to the sale, APS
         Consulting reports operating losses, we record such losses
         in our statement of operations. If APS Consulting reports net earnings,
         we reduce our interest in such earnings to zero by increasing the
         minority interest presented in our statement of operations. The
         statement of operations below summarizes the results of APS Consulting
         that are included in our consolidated statement of operations for the
         year ended December 31, 2002:



                                      A-26

<PAGE>


                                   Pre-              Post-
                                Transaction       Transaction          Total
                                -----------       -----------       -----------
         Consulting Revenue      $2,790,000         $506,000         $3,296.000
         Consulting Expenses      2,403,000          506,000          2,909,000
                                  ---------          -------          ---------
         Operating Income         $ 387,000        $      --          $ 387,000
                                  =========        =========          =========



         Creditors of APS Consulting have no recourse to the general credit of
the Company or its other consolidated subsidiaries.



(15)     Investment in Unconsolidated Affiliates


         As of December 31, 2002 and 2001, respectively, our investment in
unconsolidated affiliates consisted of the following:

                                                          December 31,
                                                   2002                  2001
                                                 ------               --------
              Prime Medical Services, Inc.       $   --           $ 10,700,000
              Uncommon Care                      $   --           $         --
                                                 ------            -----------
                                                 $   --           $ 10,700,000




         For the year ended December 31, 2002 and 2001, respectively, our equity
         in the loss of unconsolidated affiliates consisted of the following:




                                                          December 31,
                                                  2002                 2001
                                                -------              --------
              Prime Medical Services, Inc.    $ 186,000            $(2,179,000)
              Uncommon Care                   $(230,000)           $(1,012,000)
                                              ----------           -----------
                                              $ (44,000)           $(3,191,000)


                                      A-27

<PAGE>


         On October 12, 1989, we purchased 3,540,000 shares (42%) of the common
         stock of Prime Medical. Prime Medical is the largest provider of
         lithotripsy (a non-invasive method of treating kidney stones) services
         in the United States and is an international supplier of specialty
         vehicles for the transport of high technology medical and
         broadcast/communications equipment. In the ensuing years, the sale of
         stock, stock exchanges and stock issuances reduced our ownership and at
         December 31, 2001 our holdings stood at 2,344,000 shares or
         approximately 15% of the common stock.


         During this period we accounted for our investment using the equity
         method, as we exercised significant influence over operating and
         financial policies. In the first quarter of 2002, with the sale of
         Prime Medical shares reducing our ownership to less than 5%, and our
         chairman and CEO reducing his responsibilities on Prime's Board, we
         began to account for our Prime Medical investment as an
         available-for-sale equity security. In connection with the sales of
         primes shares during the year, we recognized a gain of $2,855,000. The
         gain is classified as "Gain on Sale of Investments" in the accompanying
         consolidated financial statements. Changes in market value of our Prime
         Medical shares are included in shareholders equity as "accumulated
         other comprehensive income".


         Prime is an SEC registrant and additional information on the company
         can be found on the SEC's web site at www.sec.gov.


         The condensed balance sheet and statement of operations for Prime
         Medical follows (unaudited, in thousands):



         Condensed balance sheet at December 31, 2001:
                                                                2001
                                                             ------------
              Current assets                                  $  59,213
              Long-term assets                                  192,828
                                                              ---------
              Total assets                                     $252,041
                                                              =========
              Current liabilities                             $  28,350
              Long-term liabilities                             138,215
              Shareholders' equity                               85,476
                                                              ---------
              Total liabilities and equity                    $ 252,041
                                                              ==========

        Condensed statement of operations for the years ended December 31, 2001:
                                                                2001
                                                             ----------
              Total revenue                                  $ 154,868
                                                             ==========
              Net income (loss)                              $ (14,465)
                                                             ==========


                                      A-28
<PAGE>


         On January 1, 1998 we invested approximately $2,078,000 in the
         convertible preferred stock of Uncommon Care and have extended three
         lines of credit totaling $4,850,000. At December 31, 2002, a total of
         $4,605,000 was drawn upon these lines. Uncommon Care is a developer and
         operator of dedicated Alzheimer's care facilities. The preferred shares
         we own are convertible into approximately a 29% common stock interest
         in the equity of Uncommon Care on a fully converted basis. In 2002 and
         2001 we received common shares amounting to an additional 13% common
         stock interest as payment in kind for interest on our lines of credit.
         Our investment entitles us to vote in certain instances and to elect
         one of the four members of the board of directors of Uncommon Care. In
         addition, pursuant to a shareholders agreement between Uncommon Care
         and its shareholders, one of the directors elected by the holders of
         the preferred stock must consent to Uncommon Care's taking certain
         important corporate actions specified in the shareholders agreement.
         The lines of credit extended to Uncommon Care was their sole source of
         liquidity during 2002. We believe our 42% ownership creates significant
         influence over Uncommon Care and accordingly we apply the equity method
         in accounting.

         Amounts outstanding under lines of credit extended to Uncommon Care at
         December 31, 2002 and 2001 are as follows (in thousands):

<TABLE>
<CAPTION>


                                                                                                         2002      2001
                                                                                                        -----     -----
        <S>                                                                                              <C>       <C>
        Revolving Line of Credit:  This note is unsecured  with a maximum of $1,200,000.  The note
        is interest only at 10%, payable  semi-annually.  The note matured September 30, 2001, but
        was extended until April 30, 2003.  Maturity may be  accelerated  if the borrower  obtains
        specific  levels of equity  financing.  The  borrower may at that time pay off the loan in
        full or  convert  it into  non-voting  preferred  stock of the  borrower.  In the event of
        non-payment  at  maturity,  the lender may elect to convert the  outstanding  balance into
        capital stock of the borrower.                                                                    $955      $810

        Revolving Line of Credit:  This note is unsecured  with a maximum of $1,250,000.  The note
        is interest only at 12%, payable  semi-annually.  The note matured April 30, 2000, but was
        extended  until April 30,  2003.  Maturity  may be  accelerated  if the  borrower  obtains
        specific  levels of equity  financing.  The  borrower may at that time pay off the loan in
        full or  convert  it into  non-voting  preferred  stock of the  borrower.  In the event of
        non-payment  at  maturity,  the lender may elect to convert the  outstanding  balance into      $1,250    $1,250
        capital stock of the borrower.

        Revolving  Line of  Credit:  This note is secured  by  substantially  all of the assets of
        borrower and is subordinated to bank loans for various real estate purchases.  The maximum
        allowed  on  this  note  is $2,400,000.  This  note  is  interest  only  at  10%,  payable
        quarterly.  Any outstanding principal is due June 30, 2005.                                     $2,400    $2,400

</TABLE>

         During 2002 we agreed to modify the terms of the foregoing notes. For
         the period July 1, 2001 through June 30, 2002 the interest rate was
         changed to 4% and payments were paid in-kind (PIK) in the form of
         Uncommon Care common stock at $0.57 per share. Additionally, the PIK
         stock may be repurchased by Uncommon Care through June 30, 2004 at a
         price of $.64 per share. We agreed to these modified terms to improve
         Uncommon Care's liquidity and to assist it in complying with the terms
         of its bank covenants. PIK payments during 2002 and 2001 increased our
         ownership in Uncommon Care from 34% to 42% on a fully converted basis.


                                      A-29
<PAGE>

         Following the expiration of the PIK agreement Uncommon Care did not
         resume paying interest to us and is in default on the three notes. Our
         options for collecting this debt are restricted by the terms of a
         subordination agreement entered into with Uncommon Care's senior
         leader.

         Some of our officers and directors participated in the $2,400,000 line
         of credit to Uncommon Care. For financial purposes this participation
         has been treated as a secured borrowing. In the aggregate, these
         officers and directors contributed approximately $259,000 to fund a
         10.8% interest in the loan. They participate in the loan under the same
         terms as the Company.

         We have applied the guidance of EITF 99-10, specifically the
         percentage of ownership method, in applying the quity method to our
         investment in Uncommon Care. Uncommon Care's common stock equity had
         been eliminated by losses prior to our investment and, accordingly, we
         have recognized 100% of the losses of Uncommon Care, to the extent of
         our investment, based on our ownership of 100% of Uncommon Care's
         preferred stock equity and subordinated debt with Uncommon Care. During
         2001 our total bases in investment and advances to Uncommon Care was
         reduced to zero.

         During 2002 we expensed the $230,000 which we advanced under the lines
         of credit. As this advance represented a funding of Uncommon Care's
         prior losses, the amount was expensed when advanced and is included in
         the equity in loss related to this affiliate. Repayments on the line of
         credit during 2002 were $85,000 and were recorded as deferred income.

         At December 31, 2002, Uncommon Care was not in compliance with its
         senior loan covenants. Uncommon Care's senior lender has several
         options ranging from renegotiating new loan terms to seizing its
         collateral, thus forcing Uncommon Care in bankruptcy. It is unknown as
         of the date of this report what action the lender may take.

         The condensed balance sheet and statement of operations for Uncommon
         Care follows (unaudited, in thousands):

            Condensed balance sheet at December 31, 2001:
                                                               2001
                                                            ----------
               Current assets
                                                                 $148
               Long-term assets                                14,544
                                                               ------
                    Total assets                              $14,692
                                                              =======
               Current liabilities                           $  1,051
               Long-term liabilities                           18,502
               Shareholders' deficit                           (4,861)
                                                             --------
                    Total liabilities and equity              $14,692
                                                             ========



        Condensed statement of operations for the years ended December 31, 2001:

                                                              2001
                                                           ----------
               Total revenue                                $ 6,550
                                                            =======
               Net loss                                     $(1,440)
                                                           =========

                                      A-30
<PAGE>


 (16)    Segment Information

         Our segments are distinct by type of service provided. Each segment has
         its own management team and separate financial reporting. Our Chief
         Executive Officer allocates resources and provides overall management
         based on the segments' financial results.

         Our financial services segment includes brokerage and asset management
         services to individuals and institutions.

         Our insurance services segment includes financial management for an
         insurance company that provides professional liability insurance to
         doctors.

         Our consulting segment includes environmental consulting and
         engineering services to private and public institutions.

         Corporate is the parent company and derives its income from interest
         and investments.

         Income from the discontinued real estate segment was derived from the
         leasing of and sale of office space.

<TABLE>
<CAPTION>

                                                                                                  2002                  2001
                                                                                                  ----                  ----
 Operating Revenues:
 <S>                                                                                           <C>                 <C>
        Financial services                                                                     $13,625,000         $13,094,000
        Insurance services                                                                       9,455,000           7,263,000
        Consulting                                                                               3,296,000           2,642,000
        Other                                                                                    1,081,000           3,992,000
                                                                                                 ---------           ---------
                                                                                               $27,457,000         $26,991,000

 Reconciliation to Consolidated Statements of Operations:
        Total segment revenues                                                                 $27,457,000         $26,991,000
                 Less: intercompany dividends                                                   (1,024,000)         (3,951,000)
                          intercompany interest                                                    (41,000)            (41,000)
                                                                                                ----------          ----------
                   Total Revenues                                                              $26,392,000         $22,999,000
                                                                                               ===========         ===========
 Operating Income (Loss):
        Financial services                                                                      $1,749,000          $1,576,000
        Insurance services                                                                       2,389,000           1,345,000
        Consulting                                                                                 387,000            (379,000)
        Corporate                                                                                                    2,202,000
                                                                                                 ---------          ----------
                                                                                                  (355,000)
                                                                                                $4,170,000          $4,744,000
 Reconciliation to Consolidated Statements of Operations:
        Total segment operating profit                                                          $4,170,000          $4,744,000
        Intercompany interest                                                                      (41,000)            (41,000)
        Less: intercompany dividends                                                            (1,024,000)         (3,951,000)
                                                                                                ----------          -----------
               Operating income                                                                 $3,105,000            $752,000
 Gain on sale of investments                                                                     2,855,000                  --
                                                                                                 ---------          -----------
 Profit (loss)from continuing operations before interest, income taxes,
      minority interests and equity in loss of unconsolidated affiliates                         5,960,000             752,000
 Interest Income                                                                                   195,000             121,000
 Interest expense                                                                                   24,000             465,000
 Income tax expense (benefit)                                                                    2,415,000            (952,000)
 Minority interests                                                                                261,000             157,000
 Equity in loss of affiliates                                                                      (44,000)         (3,191,000)
                                                                                                 ---------           ---------

 Profit(loss) from continuing operations                                                         3,411,000          (1,988,000)
 Net profit from discontinued operations, net of income tax                                             --            1,410,000
                                                                                                ----------          -----------
 Net earnings (loss)                                                                            $3,411,000          $ (578,000)
                                                                                                ==========         ============

</TABLE>
                                      A-31
<PAGE>

<TABLE>
<CAPTION>

                                                                                                    2002                2001
                                                                                                    ----                ----
 Identifiable assets:
<S>                                                                                             <C>                 <C>
    Financial Services                                                                          $3,727,000          $3,540,000
    Insurance Services                                                                           2,882,000           1,620,000
    Consulting                                                                                     823,000             738,000
    Corporate:
    Investment in and advances to equity method investees                                               --          10,700,000
    Investment in available for sale securities                                                 11,284,000                  --
    Other                                                                                        6,265,000           5,062,000
                                                                                                 ---------           ---------
                                                                                               $24,981,000         $21,660,000
                                                                                                ==========          ==========
Capital expenditures:
    Financial Services                                                                             $24,000             $43,000
    Insurance Services                                                                              78,000              48,000
    Consulting                                                                                      15,000              20,000
    Corporate                                                                                       37,000              81,000
                                                                                                    ------              ------
                                                                                                  $154,000            $192,000
                                                                                                  ========            ========

 Depreciation/amortization expenses:
   Financial Services                                                                              $42,000             $45,000
   Insurance Services                                                                               55,000              57,000
   Consulting                                                                                       18,000              75,000
   Corporate                                                                                        73,000              68,000
   Discontinued Operations                                                                              --              67,000
                                                                                                 ---------            --------
                                                                                                  $188,000            $312,000
                                                                                                 =========            ========
 Revenues attributable to customers generating greater than 10% of the
consolidated revenues of the Company:

      Insurance services
          Company A                                                                            $3,320,000        Less than 10%

</TABLE>

         At December 31, 2002 we had long-term contracts with company A and were
         therefore not vulnerable to the risk of a near-term severe impact from
         a reasonably possible loss of the revenue. However, should Company A
         default or be unable to satisfy its contractual obligations, there
         would be a material adverse effect on our financial condition and
         results of operations.

         Operating profit (loss) is operating revenues less related expenses and
         is all derived from domestic operations. Identifiable assets are those
         assets that are used in the operations of each business segment (after
         elimination of investments in other segments). Corporate assets consist
         primarily of cash and cash equivalents, notes receivable, investments
         in available-for-sale securities and investments in affiliates.


                                      A-32
<PAGE>


(17)     Earnings Per Share

         Basic earnings per share are based on the weighted average shares
         outstanding without any dilutive effects considered. Diluted earnings
         per share reflects dilution from all contingently issuable shares,
         including options. A reconciliation of income and average shares
         outstanding used in the calculation of basic and diluted earnings per
         share from continuing and discontinued operations follows:

<TABLE>
<CAPTION>

                                                                  For the Year Ended December 31, 2002
                                                                  -----------------------------------
                                                             Income              Shares          Per-Share
                                                           (Numerator)       (Denominator)         Amount
                                                           ----------        ------------       -----------
         <S>                                               <C>                <C>                  <C>
         Earnings from continuing operations               $3,411,000
         Discontinued operations, net of tax                      --
         Basic EPS:
         Earnings available to common stockholders          3,411,000         2,227,000            $1.53
                                                                                                   =====
         Effect of dilutive securities                                          118,000
                                                            ---------         ---------
         Diluted EPS:
         Earnings available to common stockholders          3,411,000         2,345,000            $1.45
                                                            =========         =========            =====
</TABLE>


<TABLE>
<CAPTION>


                                                                 For the Year Ended December 31, 2001
                                                                 ------------------------------------
                                                              Income             Shares          Per-Share
                                                            (Numerator)      (Denominator)        Amount
                                                            ----------        ------------       ----------
         <S>                                               <C>                 <C>                 <C>
         Loss from continuing operations                   $(1,988,000)
         Discontinued operations, net of tax                 1,410,000
         Basic EPS:
         Loss available to common stockholders                (578,000)        2,343,000           $(0.25)
                                                                                                   =======
         Effect of dilutive securities                              --                --
                                                             ---------        -----------
         Diluted EPS:
         Loss available to common stockholders             $  (578,000)         2,343,000          $(0.25)
                                                             =========         ==========          =======

</TABLE>

         Unexercised employee stock options to purchase 432,000 and 788,000
         shares of our common stock for the years ended December 31, 2002 and
         2001, respectively, were not included in the computations of diluted
         EPS because their effect would be antidilutive.



                                      A-33
<PAGE>


(18)     Other Investments

         Other investments consisted of an investment in FemPartners, Inc.
         totaling $68,000 at December 31, 2001. This investment was marketed
         extensively in 2002 and was sold for the best offer, $8,000, to a
         former officer.

(19)     Shareholders' Equity

         The following table presents changes in shares outstanding for the
         period from December 31, 2000 to December 31, 2002:

                                                     Common
                                                     Shares           Treasury
                                                   Outstanding         Stock
                                                   ------------     ------------
         Balance December 31, 2000                  2,745,231          386,000
         Treasury stock purchases and
            retirement                                     --               --
                                                    -----------      -----------
         Balance December 31, 2001                  2,745,231          386,000
         Options Exercised                             13,000               --
         Treasury stock purchases                          --          238,388
         Treasury stock retirements                  (624,388)        (624,388)
                                                    -----------      -----------
         Balance December 31, 2002                  2,133,843               --
                                                    ===========      ===========


(20)       Goodwill

          We recorded goodwill in connection with our acquisition of
          Eco-Systems, in 1999. During 2001, we recognized $51,000 in
          amortization expense related to the goodwill. In accordance with FASB
          Statement No. 121, Accounting for the Impairment of Long-Lived Assets
          and for Long-Lived Assets to be Disposed Of, we assessed the goodwill
          for impairment in 2001. As of December 31, 2001, the review indicated
          that the goodwill was impaired and an impairment charge of $391,000
          was recorded to write off the remaining unamortized amount. No
          goodwill was recorded as of December 31, 2001 and 2002.

(21) Quarterly Results (Unaudited)

          Quarter to quarter comparisons of results of operations have been and
          may be materially impacted by bond market conditions and whether or
          not there are profits at the medical malpractice insurance company
          which we manage and whose profits we share. We believe that the
          historical pattern of quarterly sales and income as a percentage of
          the annual total may not be indicative of the pattern in future years.
          The following tables set forth selected quarterly consolidated
          statements of operations information for the years ended December 31,
          2002 and 2001:

                                      A-34
<PAGE>

<TABLE>
<CAPTION>

                                                                 (In  thousands,  except  per  share data)

                                                                 First        Second         Third          Fourth
                                                                Quarter      Quarter        Quarter         Quarter
          2002                                                  -------      -------        -------         -------

          <S>                                                    <C>          <C>            <C>            <C>
          Revenues                                               $5,939       $6,353         $7,241         $ 6,859
          Net earnings                                            2,602          449            296              64
          Basic earnings per share:

            Net earnings                                          $1.12        $0.20          $0.13          $ 0.03
          Diluted earnings per share:

                   Net earnings                                   $1.07        $0.19          $0.13          $ 0.03
          2001

          Revenues                                               $5,588       $5,995         $6,268         $ 5,148
          Earnings (loss) from continuing operations                 84          251             82          (2,405)
          Discontinued operations, net of taxes                      41           34             35           1,300
          Net earnings (loss)                                      $125         $285           $117         $(1,105)
          Basic earnings (loss) per share:

            From continuing operations                            $0.04        $0.11          $0.03          $(1.03)

            Discontinued operations, net of taxes                  0.02         0.01           0.01            0.55

             Net earnings (loss)                                  $0.05        $0.12          $0.05          $(0.47)
          Diluted earnings (loss) per share:

             From continuing operations                           $0.03        $0.09          $0.03          $(1.03)

             Discontinued operations, net of taxes                 0.01         0.01           0.01            0.55

             Net earnings (loss)                                  $0.05        $0.10          $0.04          $(0.47)
</TABLE>


         Results for the first quarter of 2002 include gains on the sale of
         1,570,000 shares of Prime Medical common stock totaling $2,802,000
         pre-tax. In connection with these sales, we also recognized a portion
         of the $760,000 gain on sale of real estate related to our 15% interest
         in Prime. Such gains recognized in the first quarter were approximately
         $500,000. Results for the fourth quarter of 2002 include an adjustment


                                      A-35
<PAGE>

         increasing federal income tax expense by $214,000. This adjustment
         represents a one-time  tax adjustment relating to APS Consulting.

(22) Concentration of credit risk

         Marketable securities

         As of December 31, 2002 we owned marketable securities of Prime Medical
         with a fair market value of $7,385,000, or approximately 30% of our
         total assets. An event having a material adverse effect on Prime
         Medical and resulting in a devaluation of their securities would also
         have a material adverse effect on our financial condition and results
         of operations.

         Geographic concentration of insurance services

         Most of the managed insurance company's business is concentrated in
         Texas. Regulatory or judicial actions in that state that affected
         rates, competition, or tort law could have a significant impact on the
         insurance company's business. Consequently, our insurance management
         business, which is based on the premiums and profitability of the
         managed company, could be adversely affected.

         Financial  market concentration of investment services

         Investment Services derives most of its revenue through commissions
         earned on the trading of fixed-income securities. Should conditions
         reduce the market's demand for fixed-income products, and should
         Investment Services be unable to shift it emphasis to other financial
         products, it could have a material adverse impact on our financial
         condition and results of operations.