<PAGE>

================================================================================
                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                  FORM 10-K/A

[X]   Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
      Act of 1934 for the fiscal year ended December 31, 1999

[_]   Transition Report Pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934

                       Commission File Number:  0-11453

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

<TABLE>
<S>                                                                      <C>
                          Texas                                                      75-1458323
(State or other jurisdiction of incorporation or organization)           (I.R.S. employer Identification No.)

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

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

<TABLE>
<CAPTION>
                                               Name of each exchange
               Title of each class              on which registered
               -------------------          ---------------------------
<S>                                            <C>
                      None                              None
</TABLE>

          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-K or any amendment to this
Form 10-K. [_]

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 27, 2000: $7,530,176

Indicate the number of shares outstanding of each of the registrant's class of
common stock, as of the latest practicable date.

<TABLE>
<CAPTION>
                                                Number of Shares
                                                 Outstanding At
                 Title of Each Class             March 27, 2000
                 -------------------           ------------------
<S>                                             <C>
             Common Stock, $.10 par value           2,745,233
</TABLE>

                      Documents Incorporated By Reference

Selected portions of the Registrant's definitive proxy material for the 1997
annual meeting of shareholders are incorporated by reference into Part III of
the Form 10-K. In addition, Item14(a) of Prime Medical Services, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1999 is incorporated by
reference.
<PAGE>

1.   The undersigned registrant hereby amends its Annual Report on Form 10-K for
the calendar year ended December 31, 1999 by replacing the original Annual
Report in its entirety with the following:

           AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES

                   AMENDMENT TO ANNUAL REPORT ON FORM 10-K/A

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

                                    PART I

ITEM 1.   BUSINESS

General

     American Physicians Service Group, Inc. (the "Company"), through its
subsidiaries, provides services that include management services to malpractice
insurance companies, and brokerage and investment services to individuals and
institutions. In 1999 the Company entered into the environmental consulting and
engineering services business. The Company also owns space in the office
building, which serves as its headquarters. Through its real estate subsidiary
it leases space that is surplus to its needs.

     The Company was organized in October 1974 under the laws of the State of
Texas. The Company maintains its principal executive office at 1301 Capital of
Texas Highway, Suite C-300, Austin, Texas 78746, and its telephone number is
(512) 328-0888. Unless the context otherwise requires, all references herein to
the "Company" shall mean American Physicians Service Group, Inc. and its
subsidiaries.

     Financial information about the Company's industry segments is disclosed in
Note 14 to the accompanying Consolidated Financial Statements in Appendix A.

Financial Services

     APS Investment Services, Inc. ("Investment Services"), is a wholly-owned
subsidiary of the Company. Through its subsidiaries, APS Financial Corporation
("APS Financial"), and APS Asset Management, Inc. ("Asset Management"),
Investment Services provides investment and investment advisory services to
institutions and individuals throughout the United States. Revenues from this
segment were 58%, 60% and 44% of Company revenues in 1999, 1998 and 1997,
respectively.

     APS Financial, a fully licensed broker/dealer, 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, with a branch office in Houston.

     APS Financial is a member of the National Association of Securities
Dealers, Inc. ("NASD"), the Securities Investor Protection Corporation ("SIPC"),
the Securities Industry Association, and, in addition, is licensed in 45 states.

                                       1
<PAGE>

     Commissions are charged on both exchange and over-the-counter ("OTC")
transactions in accordance with industry practice. When OTC transactions are
executed by APS Financial as a dealer, APS Financial receives, in lieu of
commissions, markups or markdowns.

     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 (the "SEC"). These rules, which are designed
to measure the financial soundness and liquidity of broker dealers, specify
minimum net capital requirements. Since the Company is not itself a registered
broker dealer, it is not subject to these rules. However, APS Financial is
subject to these rules. Compliance with applicable net capital requirements
could limit operations of APS Financial such as trading activities that require
the use of significant amounts of capital and limit its ability to pay
dividends. 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 29, 2000, APS Financial was
in compliance with all net capital requirements.

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

     Asset Management, a Registered Investment Adviser, was formed and
registered with the Securities and Exchange Commission in 1998. Asset Management
was organized 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.

Insurance Services

     APS Insurance Services, Inc., ("Insurance Services"), an 80% owned
subsidiary of the Company through its wholly-owned subsidiaries APS Facilities
Management, Inc. ("FMI") and American Physicians Insurance Agency, Inc.
("Agency"), provides management and agency services to medical malpractice
insurance companies. Revenues from this segment contributed 25%, 34% and 48% of
Company revenues in 1999, 1998 and 1997, respectively. Substantially all of the
revenue was attributable to American Physicians Insurance Exchange ("APIE"), a
reciprocal insurance exchange managed by FMI. A reciprocal insurance exchange is
an organization which sells insurance only to its subscribers, who pay, in
addition to their annual insurance premiums, a contribution to the exchange's
surplus. Such 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 or investment performance, which
might result in a curtailment or cessation of operations by APIE, would also
adversely affect FMI's revenue. To limit possible underwriting losses or adverse
investment performance, 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.

                                       2
<PAGE>

     FMI organized APIE and has been its exclusive manager since its inception
in 1975. 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 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 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 the Company.

     During 1997, FPIC Insurance Group, Inc. ("FPIC"), purchased a 20% interest
in Insurance Services from the Company. In conjunction with that purchase,
FPIC's subsidiary, Florida Physicians Insurance Company, Inc. ("Florida
Physicians"), entered into agreements with Agency and APIE granting Agency the
exclusive right to market Florida Physician's policies in Texas. Agency has
sales, marketing, underwriting and claims handling authority for Florida
Physicians in Texas and receives commissions for such services. Florida
Physicians also entered into a reinsurance agreement with APIE in which APIE
reinsures substantially all of Florida Physicians' risk in Texas under medical
professional liability policies issued or renewed by Florida Physicians on
behalf of Texas health care providers after March 27, 1997. The Company had also
granted FPIC an option, exercisable at any time during 1999, to purchase an
additional 35% interest in Insurance Services from the Company. This option has
expired.

     APIE is authorized to do business in the states of Texas and Arkansas.
Florida Physicians is a stock company licensed in several states. Both companies
specialize in writing medical professional liability insurance for health care
providers. The insurance written in Texas is primarily through purchasing groups
and is not subject to certain rate and policy form regulations issued by the
Texas Department of Insurance. Applicants for insurance coverage are reviewed
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.

     Florida Physicians, together with its affiliates, insures over 6,800
physicians nationwide. Florida Physicians is rated A- (Excellent) by AM Best.

                                       3
<PAGE>

     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 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 the claim is
actually made. APIE and Florida Physicians offer only a "claims made" policy in
Texas and Arkansas, but provide for an extended reporting option upon
termination of coverage. APIE and Florida Physicians reinsure 100% of all Texas
and Arkansas coverage per medical incident between $250,000 and the policy limit
$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 fee
percentage is 13.5% with the provision that any profits of APIE will be shared
equally with FMI so long as the total reimbursement (fees and profit sharing) do
not exceed a cap based on premium levels. In 1999, 1998, 1997, 1996, and 1995,
management fees attributable to profit sharing were $329,000, $1,750,000,
$1,961,000, $1,191,000, and $700,000, respectively. The decrease in 1999 is
primarily due to an overall increase in competition in medical professional
liability insurance in Texas as well as a continued trend of rising claims
against the insureds.

     (In thousands, except for number of insureds)

<TABLE>
<CAPTION>
                                                           Years Ended December 31,
                                                           ------------------------
                                         1999          1998          1997          1996           1995
                                        -------       -------       -------       -------       --------
<S>                                     <C>           <C>           <C>           <C>           <C>
Earned premiums before
 reinsurance premiums                   $24,529       $22,931       $25,899       $28,754       $ 30,857
Total assets                             66,377        75,173        81,594        90,193        101,251
Total surplus                            13,925        13,592        11,854        10,017          9,402
Management fees (including
 profit sharing) and commissions
 to FMI and Agency                        3,645  (2)    4,835  (2)    5,854  (2)  $ 5,281  (2)  $  5,010  (2)
Number of insureds                        2,882         2,743         2,629  (1)    3,019          3,226
</TABLE>
________________

(1)  The decrease was the result of APIE's decision to raise premiums at the
     risk of policy retention on certain unprofitable specialties. Included in
     the totals are physicians for which APIE provides reinsurance through a
     relationship with another malpractice insurance company.

(2)  Includes commissions of $1,191, $835, $1,214, $860, and $676 in 1999, 1998,
     1997, 1996 and 1995, respectively, from Florida Physicians and other
     carriers directly related to APIE's controlled business.

                                       4
<PAGE>

Consulting

     On September 30, 1996, the Company invested $3,300,000 in common stock of
Exsorbet Industries, Inc. ("Exsorbet") (NASDAQ:EXSO) with a put option. Exsorbet
was a diversified environmental and technical services company. On November 26,
1996, the Company exercised its put in exchange for a $3,300,000 note receivable
from Exsorbet. The note was secured by the shares that were subject to the put
option plus all the stock and substantially all of the assets of Eco
Acquisition, Inc. ("Eco-Systems"), a wholly owned subsidiary of Exsorbet.
Subsequently, Exsorbet became known as Consolidated Eco-Systems, Inc. ("Con-
Eco"). Prior to the foreclosure discussed below, this note had been restructured
in November, 1997 and again in March, 1999.

     On June 17, 1998 the Company filed suit against Con-Eco, and its directors
and officers alleging breach of contract, negligent misrepresentation and
conspiracy. In February 1999 the Company settled the litigation related to the
directors and officers of Con-Eco. The Company recovered $950,000 for the full
release of all claims against the directors of Con-Eco. This payment was applied
against the outstanding debt.

     In April, 1999, the Company's wholly owned subsidiary, APS Consulting ("APS
Consulting"), foreclosed on the stock of Eco-Systems. Prior to the foreclosure,
the Company had entered into a settlement agreement with Con-Eco to resolve the
litigation described above. In connection with this agreement, Con-Eco had the
right to purchase back the business of Eco-Systems for a nominal amount if it
complied with the following terms:

(1)  Con-Eco would pay American Physicians $375,000 within 18 months.

(2)  Con-Eco could not declare bankruptcy during the 18 month period.

(3)  Con-Eco would pay to American Physicians' 75% of the proceeds from any
     litigation recovery against an investment banking firm.

(4)  Con-Eco would pay the balance of the restructured $2.5 million note with
     interest on the due date of the note.

     American Physicians' management expected that its ownership of Eco-Systems
stock would be temporary based on management's assessment of Con-Eco's net
worth, cash flow, and prospects for securing additional financing. Management
believed that Con-Eco would meet the revised terms and reacquire the Eco-Systems
stock for a nominal payment. Accordingly, the Company did not initially
consolidate the operations of APS Consulting. In addition, the Company dismissed
its lawsuit against Con-Eco, but retained the right to reinstitute the
litigation at a later date.

     Subsequently, on September 1, 1999, the Company concluded that it was not
probable that Con-Eco would exercise its option to reacquire the stock and began
consolidating APS Consulting. The acquisition was recorded using the purchase
method of accounting. Prior to the foreclosure described above, American
Physicians wrote off to bad debt expense a total of $1,293,000 in 1999 related
to the restructured Con-Eco note bringing the total write off related to this
note since inception to $2,174,000.

                                       5
<PAGE>

     APS Consulting 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 are located in Jackson,
Mississippi; Mobile, Alabama; and Houston, Texas.

     Because of the wide range of expertise of its consultants, APS Consulting
serves 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. Its consultants and engineers have
expertise in environmental engineering, chemical engineering, hydrogeology,
computer-aided drafting and design, civil engineering, geology, biology and
micro biology. Revenues from APS Consulting contributed 4% of Company revenues
in 1999. As revenues and expenses of APS Consulting were not consolidated into
the totals of the Company until September, 1999, this percentage reflects only
four months of revenues from APS Consulting.

Real Estate

     APS Realty, Inc., ("APS Realty"), a wholly-owned subsidiary of the Company,
owns condominium space in an office project located in Austin, Texas. APS Realty
leases approximately 58% of this space to the Company, its subsidiaries and
affiliate. The remainder is leased to unaffiliated parties. Revenues from APS
Realty contributed 4%, 4% and 5% of Company revenues in 1999, 1998 and 1997,
respectively.

Other Investments

     The Company owns 2,344,000 shares of common stock of Prime Medical
Services, Inc. ("Prime Medical"), representing at March 15, 2000 approximately
14% of Prime Medical's outstanding shares of common stock. Two of Prime
Medical's seven directors are members of the Company's four-member board of
directors. In addition, Mr. Hummel, executive vice president and chief operating
officer of Prime Medical, is a member of the Company's Board of Directors. The
Company records its pro-rata share of Prime Medical's results utilizing the
equity method. Prime Medical is the largest provider of lithotripsy services in
the United States, currently servicing over 450 hospitals and surgery centers in
34 states. Lithotripsy is a non-invasive method of treating kidney stones
through the use of shock waves. During 1999, Prime Medical also entered into the
refractive surgery field through two acquisitions. LASIK refractive surgery, one
of the most advanced forms of laser vision correction, is designed to improve
vision and reduce dependence on glasses and contacts by correcting
nearsightedness, farsightedness and astigmatism. The common stock of Prime
Medical is traded on the NASDAQ National Market under the symbol "PMSI". Prime
Medical is a Delaware corporation which is required to file annual, quarterly
and other reports and documents with the Securities and Exchange Commission (the
"SEC"), which reports and documents contain financial and other information
regarding Prime Medical. The summary information regarding Prime Medical
contained herein 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.

                                       6
<PAGE>

     On January 1, 1998 the Company invested $2,078,000 in the Convertible
Preferred Stock of Uncommon Care, Inc. ("Uncommon Care"). The Company has also
made available to Uncommon Care three lines of credit totaling $4,850,000. The
loans are at interest rates varying from ten percent to twelve percent, payable
quarterly until June 30, 2005, at which time the 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. The preferred shares
owned by the Company are convertible into approximately a 34% interest in the
equity of Uncommon Care. Three of Uncommon Care's five directors are officers or
directors of the Company. The Company had recorded its investment at cost.
However, in this amended Annual Report, the Company has restated its
consolidated financial statements to reflect its investment in and advances to
Uncommon Care on the equity method, effective January 1, 1998. See discussion of
restatement in Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations and in Note 19 to the consolidated financial
statements.

Discontinued Operations

     In the fourth quarter of 1997, the Company formed APS Practice Management,
Inc., later renamed Syntera HealthCare Corporation ("Syntera") with an initial
ownership of 85%. Syntera specialized in the management of OB/GYN and related
medical practices. In a typical transaction, Syntera acquired the non-medical
assets of a physician's practice and signed a long-term management contract with
the physician to provide the majority of the non-medical requirements of the
practice, such as non-professional personnel, office space, billing and
collection, and other day-to-day non-medical operating functions. In turn,
Syntera was paid a variable management fee that rewarded the efficient operation
and the expansion of the practice. On August 31, 1999 Syntera was acquired by
another unaffiliated practice management company, FemPartners, Inc.,
("FemPartners") resulting in the Company owning approximately 8% of the total
equity of FemPartners, Inc. The Company had accounted for its ownership in
Syntera on the equity basis. However, in this amended Annual Report, the Company
has restated its financial statements to reflect its investment in Syntera on a
consolidated basis effective with the Company's investment in the fourth quarter
of 1997. The Company disposed of Syntera in August 1999. The results of
operations of Syntera have been reflected in the accompanying consolidated
financial statements as discontinued operations. The merger of Syntera and
FemPartners was treated as a non-monetary exchange. See discussion of
restatement in Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations and in Note 19 to the consolidated financial
statements.

     The Company, through its wholly owned subsidiary, APS Systems, Inc. ("APS
Systems"), had previously developed software and marketed it to medical clinics
and medical schools. This business segment became unprofitable in 1996. A joint
venture with a software developer was formed in 1996 with a plan to develop new
products, but was discontinued in 1997 when it was determined that the high cost
of developing competitive products precluded an adequate return on investment.
Subsequently, the Company ceased marketing the software and reduced the scope of
APS Systems' operations to a level adequate to service existing clients through
the terms of their contracts. The results of operations of APS Systems have been
reflected in the accompanying financial statements as discontinued operations.

                                       7
<PAGE>

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
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 the Company's. Discount brokerage firms oriented to the retail
market, including firms affiliated with commercial banks and thrift
institutions, are devoting substantial funds to advertising and direct
solicitation of customers in order to increase their share of commissions and
other securities related income. In many instances APS Financial is competing
directly with such organizations. In addition, there is competition for
investment funds from the real estate, insurance, banking and thrift industries.

     APIE competes with numerous insurance companies in Texas and Arkansas,
primarily Medical Protective Insurance Company, St. Paul Fire and Marine
Insurance Company, State Volunteer Mutual Company, Frontier Insurance Group,
Texas Medical Liability Trust, Medical Interinsurance Exchange Group of New
Jersey and PHICO Insurance. Many of these firms have substantially greater
resources than APIE. The primary competitive factor in selling insurance is a
combination of price, terms of the policies offered, claims service and other
services, and claims settlement philosophy.

     APS Consulting operates in the environmental services industry that is
characterized by intense competition. Many companies of all sizes are engaged in
activities similar to those of the APS Consulting and many of APS Consulting's
competitors have substantially greater assets and capital resources. APS
Consulting operates primarily in the Southeastern United States, however, the
Company has projects throughout the United States. APS Consulting seeks to
distinguish its services by (i) providing timely, high quality and cost-
effective solutions to the various environmental issues facing its clients, (ii)
maintaining long-term relationships with its clients, and (iii) utilizing
technology to provide state of the art services in accordance with applicable
regulatory standards. There can be no assurance, however, that APS Consulting
can compete successfully against its competitors, given the size, resources and
marketing capabilities of many of its competitors.

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.

                                       8
<PAGE>

     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. 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 last assessment of APS Financial by the SIPC was in 1995 and
amounted to approximately $7,300. 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.

     APS Consulting is subject to extensive laws and regulations promulgated by
the Federal, state and local governments and regulatory authorities dealing with
the discharge of materials into the environment or otherwise relating to the
protection of the environment. The Company believes it is in compliance in all
material respects with all such laws and regulations.

Employees

     March 1, 2000, the Company employed, on a full time basis, approximately
128 persons, including 48 by Insurance Services, 50 by APS Investment Services,
18 by APS Consulting and 12 directly by the Company. The Company considers its
employee relations to be good. None of the Company's employees is represented by
a labor union and the Company has experienced no work stoppages.

                                       9
<PAGE>

ITEM 2.   PROPERTIES

     APS Realty owns approximately 53,000 square feet of condominium space in an
office project in Austin, Texas. The Company, its subsidiaries and affiliate
occupy approximately 31,000 square feet of this space as their principal
executive offices, and APS Realty leases the remainder to third parties. The
area available for lease to third parties is 100% occupied as of March 15, 2000.

     APS Investment Services also leases office space at 2550 Gray Falls Dr,
Suite 350, Houston, Texas.

     APS Consulting leases offices at: 439 Katherine Drive, Suite 2A, Jackson,
Mississippi; 17171 Park Row, Suite 120, Houston, Texas; 384 Fairhope Avenue,
Suite 7, Fairhope, Alabama.

ITEM 3.   LEGAL PROCEEDINGS

     The Company is 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 material adverse effect
on the financial condition of the Company.

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

     The Company's annual meeting was held June 8, 1999. The agenda items were
the election of directors and approval of an amendment to the stock option plan.
Voting results follow:

               BOARD ELECTION

<TABLE>
<CAPTION>
          Nominee                   For         Against      Abstain
          -------                   ---         -------      -------
          <S>                     <C>           <C>          <C>
          Brad A. Hummel          2,755,051       35,491        --
          Robert L. Myer          2,755,051       35,491        --
          William A. Searles      2,755,051       35,491        --
          Kenneth S. Shifrin      2,755,051       35,491        --
</TABLE>

                                       10
<PAGE>

                                    PART II

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

     The following table represents the high and low prices of the Company's
common stock in the over-the-counter market as reported by the National
Association of Securities Dealers, Inc., Automated Quotations System for years
ended December 31, 1999 and 1998. On March 1, 2000, the Company had
approximately 422 holders of record of its common stock.

<TABLE>
<CAPTION>
                                     1999                    1998
                             ---------------------   ---------------------
                               High        Low          High        Low
                               ----        ---          ----        ---
          <S>                <C>         <C>           <C>         <C>
          First Quarter       $5 1/8     $1 7/8        $7 5/8     $6 7/8

          Second Quarter      $3 7/8     $2 1/4        $7 1/2     $6 5/8

          Third Quarter       $5 1/16    $3 7/32       $7 1/4     $4 7/8

          Fourth Quarter      $7         $3 1/2        $5 1/2     $3 1/4
</TABLE>

     The Company has not declared any cash dividends on its common stock during
the last two years and has no present intention of paying any cash dividends in
the foreseeable future. It is the present policy of the Board of Directors to
retain all earnings to provide funds for the growth of the Company. The
declaration and payment of dividends in the future will be determined by the
Board of Directors based upon the Company's earnings, financial condition,
capital requirements and such other factors as the Board of Directors may deem
relevant.

                                       11
<PAGE>

ITEM 6.   SELECTED FINANCIAL DATA

     (In thousands, except per share data)

<TABLE>
<CAPTION>
                                   SELECTED FINANCIAL DATA
                                                            1999         1998         1997       1996      1995
                                                         ----------   ----------   ----------   -------   -------
                                                         (Restated)  (Restated)  (Restated)
<S>                                                      <C>          <C>          <C>          <C>       <C>
Selected income statement data:

 Revenues                                                  $18,751      $16,403      $13,065    $10,437   $16,124

 Earnings (loss) from continuing operations before
  income taxes and minority interests                         (235)       1,764        6,330      3,006     3,007

 Earnings (loss) from continuing operations                   (113)       1,015        3,814      1,948     2,061

 Net earnings (loss)                                           (55)         979        2,538      1,924     2,024

Per share amounts:

 Basic: Earnings (loss) from continuing operations         $  (.04)     $   .24      $   .93    $   .48   $   .59

     Net earnings (loss)                                      (.02)         .23          .62        .48       .58

 Diluted: Earnings (loss) from continuing operations          (.04)         .20          .90        .46       .54

     Net earnings (loss)                                      (.02)         .19          .60        .46       .53

 Diluted weighted average shares outstanding                 3,168        4,692        4,241      4,219     3,798

 Selected balance sheet data:

   Total assets                                            $29,835      $35,496      $32,652    $24,468   $23,740

   Long-term obligations                                     3,298           --           --         --       574

   Total liabilities                                        10,875        8,773        7,998      4,086     6,146

   Minority interests                                           48        2,687        1,550         --        --

   Total equity                                             18,912       24,036       23,104     20,382    17,594

   Book value per share                                       7.09         5.78         5.55       5.03      4.80
</TABLE>

                                       12
<PAGE>

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

Forward-Looking Statements

     The statements contained in this Report on Form 10-K that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including statements regarding the Company's expectations, hopes,
intentions or strategies regarding the future. Readers should not place undue
reliance on forward-looking statements. All forward-looking statements included
in this document are based on information available to the Company on the date
hereof, and the Company assumes no obligation to update any such forward-looking
statements. It is important to note that the Company's actual results could
differ materially from those in such forward-looking statements. In addition to
any risks and uncertainties specifically identified in the text surrounding such
forward-looking statements, the reader should consult the Company's reports on
Forms 10-Q and other filings under the Securities Act of 1933 and the Securities
Exchange Act of 1934, for factors that could cause 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
competitors and legislative, judicial and other governmental authorities and
officials. Assumptions relating to the foregoing involve judgements 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 the control of the Company. Any such
assumptions could be inaccurate and, therefore, there can be no assurance that
the forward-looking statements included in this Report on Form 10-K will prove
to be accurate.

Restatement

     The following discussion and analysis is based upon consolidated financial
statements which have been restated to reflect changes in accounting for Syntera
and Uncommon Care. In the previously reported consolidated financial statements,
the Company had accounted for its ownership of Syntera on the equity method
because of management's belief that majority control of Syntera was temporary
based on management's initial business plan. This plan anticipated that the
Company's ownership would decrease to a minority position as physician practices
were acquired over a relatively short period of time. Syntera was not able to
acquire the number of practices originally anticipated, accordingly Syntera has
been consolidated in these restated consolidated financial statements. The
results of operations of Syntera are reflected as loss from discontinued
operations as Syntera was acquired by an unrelated company effective August 31,
1999.

     In addition, in the previously reported consolidated financial statements,
the Company had accounted for its ownership of Uncommon Care on the cost basis.
The restated consolidated financial statements account for the investment in
Uncommon Care on the equity method. The

                                       13
<PAGE>

change from the cost to the equity method is based on management's ability to
exert significant influence over the operations of Uncommon Care.

     See Note 19 to the consolidated financial statements for a summary of
changes made to the 1999 and 1998 consolidated financial statements as a result
of the restatement.

Results of Operations

1999 Compared to 1998
---------------------

     Revenues from continuing operations increased 14% in 1999 compared to 1998.
Net earnings decreased 106% and diluted earnings per share decreased 110%. The
reasons for these changes are described below.

Financial Services

     Financial services revenues increased 9% in 1999 compared to 1998. The
increase resulted from greater commissions earned at APS Financial, the
broker/dealer division of Investment Services, resulting from greater volatility
in world bond markets which caused clients to realign portfolios. This activity
created more transactions and thus more commissions. Also contributing to the
increase was a greater emphasis on internally generated market research and
continued success at recruiting experienced, proven producers. Internal market
research contributes to higher commissions by providing additional investment
ideas to be marketed by the brokers to a greater number of customers. Finally,
inventory losses, which lower revenues, were greater in 1998 than in 1999.
Inventory losses were $329,000 in 1998 as compared to inventory gains of $8,000
in 1999.

     Financial services expenses increased 8% in 1999 compared to 1998. The
large increase in transaction activity at APS Financial was primarily
responsible for a 2% increase in sales commission expense, a 9% increase in
support personnel costs, a 5% increase in transaction charges and a 16% increase
in financial information services. Greater profits in 1999 also increased
expenses under the incentive compensation plan by 56% over 1998. Personnel costs
also increased in 1999 primarily as a result of incurring a full year of
personnel costs at APS Asset Management, the portfolio management division of
Investment Services. Only six months of personnel costs were incurred in 1998,
as the subsidiary was formed in June, 1998.

     Results in this segment can vary from year to year. The broker/dealer,
primarily a provider of fixed income securities, is subject to general market
conditions as well as interest rates and is in an industry characterized by
competition for top producing brokers. In an effort to add to the segment's
overall profitability, and to add stability from year to year, the Company
entered the asset management business in 1998. As a registered investment
advisor, Asset Management, seeks to manage the portfolios of institutions and
high net worth individuals. Asset Management is in a competitive business and
was not profitable in 1999, incurring a loss of $169,000. The Company cannot
predict when or if it will achieve profitability.

                                       14
<PAGE>

Insurance Services

     Insurance Services' revenues decreased 17% in 1999 compared to 1998. The
primary reason for the decrease in 1999 was due to lower profit sharing. The
insurance management fee contract between Insurance Services and APIE contains a
provision to share in the profits of APIE. Due to an overall increase in
competition in medical professional liability insurance in Texas as well as a
continued trend of rising claims against the insureds, profits, and
consequently, profit sharing, were lower in 1999.

     Insurance Services' expenses increased 10% in 1999 compared to 1998. The
increase was primarily due to commission rates paid to sales agents which were
20% to 25% higher in 1999. In addition, business received through agents
increased 18% in 1999 compared to 1998. Lastly, personnel costs increased 7% in
1999, primarily due to normal annual merit raises.

     Due to the profit sharing provision in Insurance Services most significant
contract, results can vary from year to year. In the last five years under the
contract, profit sharing has ranged from 7% to 31% of the segment's revenues.

Consulting

     The Company began consolidating the earnings of APS Consulting in
September, 1999. No comparison to prior year, therefore, is possible. Revenues
of Eco-Systems (now APS Consulting) decreased 28% in 1999 compared to 1998 due
primarily to the loss of a major client resulting from the uncertainty that
arose with the breakup of Con-Eco.

     Expenses at Consulting decreased 4% in 1999 primarily as a result of fewer
personnel. The uncertainty that arose with the breakup of Con-Eco caused some
personnel to seek other employment opportunities.

Real Estate

     Revenue decreased less than 1% compared to 1998. The decrease reflects a
higher vacancy rate, partially offset by higher lease rates.

     The 4% increase in real estate expenses resulted from a 4% increase in
property taxes due to higher real estate taxable values and a 177% ($7,000)
increase in fees paid for building maintenance.

Investment and Other

     The substantial rise in investment and other income was primarily due to
gains from the exchanges of Prime Medical common stock for the Company's common
stock. As part of a buy-back strategy, the Company exchanged 720,700 shares of
Prime Medical common stock for 1,441,400 shares of the Company's common stock
held by two mutual fund companies. The Company's common stock was then retired
and gains on the Prime Medical stock totaling $1,635,000 were recorded. The gain
was based on the difference between the Company's carrying value of the Prime
stock and the market value of Company stock on the date of the transactions.
Based on an independent evaluation, the market value of Company stock was
discounted 6%, due to the large size of the transaction.

                                       15
<PAGE>

General and Administrative Expenses

     General and administrative expenses increased 87% over 1998. The increases
resulted primarily from recognizing $1,293,000 of bad debt expense related to
the write-off of the Con-Eco note receivable and from expenses totaling $386,000
related to the merger of Syntera with FemPartners. Partially offsetting these
expense increases was lower legal fees in 1999. Legal fees in 1998 totaling
$81,000 related to the Uncommon Care preferred stock investment.

Interest

     Interest expense increased 330% over 1998 as a result of an increase in
notes payable. Draws taken from the Company's line of credit with Bank of
America to fund the Company's investments in Syntera and Uncommon Care resulted
in an ending balance of $3,275,000 at December 31, 1999 compared to zero at
December 31, 1998.

Affiliates

     The Company has two affiliates accounted for on the equity basis. Prime
Medical's operating income increased in 1999 but the Company recognized a
smaller percentage (18% in 1998 vs. 14% in 1999) as a result of its exchange of
Prime Medical shares to acquire shares of the Company's common stock. Even with
this drop in ownership percentage, equity earnings from Prime Medical increased
23% in 1999. The Company, through its status as Prime Medical's largest
shareholder and through its representation on Prime Medical's board, continues
to have significant influence at Prime Medical and accounts for its investment
using the equity method.

     The Company also reflects its investment in Uncommon Care on the equity
method. Losses on this investment recorded by the Company in 1999 totaled
approximately $1,914,000 versus approximately $860,000 in 1998. Such losses were
expected during Uncommon Care's growth stage. The cost of developing new
facilities and the time to bring them to full occupancy will continue to result
in losses until the established operating base is large and profitable enough to
cover the expenses of new development or until there is a slowdown in
development of new facilities. The increased losses in 1999 were attributable to
the ramp up of construction at Uncommon Care during 1999.

1998 Compared to 1997
---------------------

     Revenues from continuing operations increased 26% in 1998 compared to 1997.
Net earnings decreased 61% and diluted earnings per share decreased 68%. The
reasons for these changes are described below.

                                       16
<PAGE>

Investment Services

     Investment Services' revenues increased 73% in 1998 compared to 1997. The
increase resulted from volatility in world bond markets which caused clients to
realign portfolios. This activity created more transactions and thus more
commissions. Also contributing to the increase was the full development of a
second office, which opened in 1997. Revenues at this office in 1998 increased
approximately 90% over 1997.

     Investment Services' expenses increased 71% from 1997. 94% of the increase
was at APS Financial and was transaction related. The large increase in revenues
resulted in a 92% increase in sales commission expense in 1998, a 44% increase
in support personnel expense, a 37% increase in transaction charges and an 18%
increase in financial information services expense. Greater profits in 1998
resulted in management incentive compensation increasing from $19,000 in 1997 to
$351,000 in 1998. The remainder of the increase in expenses was the result of
starting Asset Management in 1998. Payroll expenses were $82,000 in 1998
compared to zero in 1997. Partially offsetting these expenses was a 72% decrease
in legal fees, the result of fewer suits brought to arbitration.

Insurance Services

     Insurance Services' revenues decreased 10% in 1998 compared to 1997. The
loss of one significant client by APIE caused most of the variance. The client
purchased extended reporting period or "tail" coverage, which increased premiums
in 1997. 1998 revenues were lower by both the standard premium and the extra
tail premiums lost in 1997. The Company's premium-based management fee was also
proportionately lower. The remainder of the decrease was related to profit
sharing. The insurance management fee contract contains a provision to share in
the profits of the managed insurance exchange. Due to the loss of the client
mentioned above and an overall increase in competition in medical professional
liability insurance in Texas, profits, and consequently, profit sharing, were
lower in 1998.

     Insurance Services' expenses increased 8% in 1998 compared to 1997. The
increase was primarily due to a 60% increase in commission expense and was due
to greater utilization of commissioned outside sales agents, compared to
salaried internal personnel in prior years. Partially offsetting this increase
was a 21% decrease in salary expense in 1998, primarily due to a 32% decline in
management incentive payments.

     Due to the profit sharing provision in this segment's major contract,
results can vary from year to year. In the last five years under the contract,
profit sharing has ranged from 12% to 31% of the segment's revenues.

Real Estate

     Revenue increased 1% compared to 1997. The increase reflects higher lease
rates, partially offset by a higher vacancy rate.

     The 5% increase in real estate expenses resulted from a 28% increase in
property taxes due to higher real estate taxable values.

                                       17
<PAGE>

Investment and Other

     The decline in investment and other income was primarily due to lower
interest income as a result of available cash being invested in Uncommon Care
rather than in investments with a current cash return.

General and Administrative Expenses

     General and administrative expenses increased 37% over 1997. The increases
resulted primarily from recognizing $392,000 of bad debt expense related to the
impairment of Con-Eco note receivable. Partially offsetting this increase was a
$44,000 severance payment in 1997 that did not recur as well as a 15% decrease
in management incentive expenses.

     Interest expense increased from $21,000 in 1997 to $59,000 in 1998. The
increase reflects funds borrowed under the line of credit to fund the Company's
investments Syntera and Uncommon Care.

Affiliates

     The Company had two affiliates accounted for on the equity basis, Prime
Medical and Uncommon Care. Prime Medical's operating income increased in 1998
but net earnings were reduced by non-recurring financing and development costs.
This resulted in a 23% decrease in equity earnings compared to 1997. Uncommon
Care, which was started in 1998, is in the development phase and reported a loss
in 1998 of approximately $860,000.

     Prime had issued additional shares in 1996 reducing the Company's ownership
from 21% to 16%. In 1998 Prime established a stock repurchase plan and reduced
its shares outstanding, increasing the Company's ownership percentage to
approximately 18%.

Liquidity and Capital Resources

     Net working capital was $1,036,000 and $3,538,000 at December 31, 1999 and
1998, respectively. The decrease in the current year is due primarily to the
sale of Syntera for shares of FemPartners in which assets classified as current
in 1998, primarily patient receivables ($2,095,000), were replaced with the
investment in FemPartners and classified as long-term assets. Historically, the
Company has maintained a strong working capital position and, using that base,
has been able to satisfy its operational and capital expenditure requirements
with cash generated from its operating and investing activities. These same
sources of funds have also allowed the Company to pursue investment and
expansion opportunities consistent with its growth plans. In 1999, the Company
supplemented these traditional sources of funds with short-term bank borrowings.
Although it is uncertain that operating activities will provide positive cash
flow in the year 2000, the Company has sufficient borrowing capacity as well as
ample liquidity in its holdings of Prime Medical shares to meet its working
capital requirements for the foreseeable future.

                                       18
<PAGE>

     In 1998, the Company entered into a three year $10,000,000 revolving credit
agreement with NationsBank of Texas, N.A. (subsequently acquired by Bank of
America, N.A.). Funds advanced under the agreement bear interest at the prime
rate less 1/4%, such interest to be payable quarterly. The Company will pledge
shares of Prime Medical to the bank as funds are advanced under the line. In May
1999, as a result of the exchange of Prime Medical shares for common stock of
the Company, the revolving credit agreement was amended to lower the total funds
available to the Company from $10,000,000 to $7,500,000. Funds totaling
$3,275,000 and $2,625,000 had been advanced as of December 31, 1999 and March
15, 2000, respectively.

     Capital expenditures for equipment were $413,000, $206,000, and $312,000,
in 1999, 1998, and 1997, respectively. Capital expenditures were higher in 1999
due to purchases necessary to reach compliance with Year 2000 computer issues as
well as to higher expenditures for improved office space and leasing fees. The
Company expects capital expenditures in 2000 to be significantly less than 1999.

     The Company's ability to make scheduled payments of principal of, or to pay
the interest on, or to refinance, its indebtedness, or to fund planned capital
expenditures will depend on its future performance, which, to a certain extent,
is subject to general economic, financial, competitive, legislative, regulatory
and other factors that are beyond its control. Based upon the current level of
operations and anticipated revenue growth, management believes that cash flow
from operations and available cash, together with available borrowings under its
bank line of credit, will be adequate to meet the Company's future liquidity
needs for at least the next several years. However, there can be no assurance
that the Company's business will generate sufficient cash flow from operations,
that anticipated revenue growth and operating improvements will be realized or
that future borrowings will be available under the line of credit in an amount
sufficient to enable the Company to service its indebtedness or to fund its
other liquidity needs.

Inflation

     The operations of the Company are not significantly affected by inflation
having no manufacturing operations, the Company is not required to make large
investments in fixed assets. However, the rate of inflation will affect certain
of the Company's expenses, such as employee compensation and benefits.

New Accounting Pronouncements

     In April 1998, the AICPA issued Statement of Position (SOP) 98-5, Reporting
on the Costs of Start-Up Activities, which is effective for financial statements
for fiscal years beginning after December 15, 1998. The SOP requires costs of
start-up activities and organization costs to be expensed as incurred. No start-
up costs were incurred by the Company or its affiliate during 1999. The Company
does not have any significant capitalized start-up costs that would be required
to be expensed in 2000.

                                       19
<PAGE>

ITEM 7 (a)  Quantitative and Qualitative Disclosures about Market Risk

     The Company has some exposure to cash flow and fair value risk from changes
in interest rates, which may affect its financial position, results of operation
and cash flows. The Company does not use financial instruments for speculative
purposes, but does maintain a trading account inventory to facilitate the
business of its broker/dealer subsidiary. At the end of 1999 the inventory
balance was $348,000. Historically, the Company has turned this inventory
rapidly and has neither significant realized gains nor losses.

     The Company has notes receivable, in the form of lines of credit to related
companies, which are at fixed rates ranging from 8% to 12%. Their fair value
will increase and decrease inversely with interest rates.

     The Company has debt totaling $3,310,000, most of which was drawn on a
$7,500,000 revolving line of credit with a floating interest rate. For each $1
million that the Company should borrow in 2000, a 1% increase in interest rate
would result in a $10,000 annual increase in interest expense.

ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

     Financial information and schedules relating to Prime Medical Services,
Inc. are contained in Item 14(a) of the Annual Report on Form 10-K for the year
ended December 31, 1999 of Prime Medical Services, Inc., which Item 14(a) is
incorporated herein by reference.

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

     None.

                                       20
<PAGE>

                                   PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information required by this item is contained in the definitive proxy
material of the Company to be filed in connection with its 2000 annual meeting
of shareholders, except for the information regarding executive officers of the
Company, which is presented below. The information required by this item
contained in such definitive proxy material is incorporated herein by reference.

     As of March 15, 2000, the executive officers of the Company are as follows:

<TABLE>
<CAPTION>
Name                              Age                    Position
----                              ---                    --------
<S>                               <C>     <C>
Kenneth S. Shifrin                50      Chairman of the Board, President and
                                           Chief Executive Officer

Duane K. Boyd, Jr.                55      Senior Vice President - Insurance

William H. Hayes                  52      Senior Vice President - Finance and
                                           Secretary

George S. Conwill                 43      Vice President - Investment Services

Thomas R. Solimine                41      Controller
</TABLE>

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

     Mr. Shifrin has been Chairman of the Board since March 1990. He has been
President and Chief Executive Officer since March 1989 and was President and
Chief Operating Officer from June 1987 to February 1989. He has been a Director
of the Company since February 1987. From February 1985 until June 1987, Mr.
Shifrin served as Senior Vice President - Finance and Treasurer. He has been
Chairman of the Board of Prime Medical since October 1989. Mr. Shifrin has been
a member of the Board of Directors of Uncommon Care since January 1998. Mr.
Shifrin became a member of the Board of Directors of EarthSports.com in January,
2000 and is a member of the World Presidents Organization.

     Mr. Boyd has been Senior Vice President - Insurance since July 1991 and has
also been President and Chief Operating Officer of FMI since July 1991. Mr. Boyd
has been a Director of Uncommon Care since January 1998 and a Director of Grand
Adventures Tour and Travel Publishing Corp. since July 1998. Mr. Boyd is a
Certified Public Accountant and was with KPMG, LLP from 1974 until June 1991. He
was a partner specializing in the insurance industry prior to joining the
Company.

                                       21
<PAGE>

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

     Mr. Conwill has been Vice President - Investment Services since June 1998.
He has served as Chief Operating Officer of APS Financial since May 1995, and as
President and Chief Operating Officer since March 1998. In May 1998 he assumed
responsibility as President of APS Investment Services.

     Mr. Solimine has been 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 Manager of Accounting for the Company.

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

ITEM 11.  EXECUTIVE COMPENSATION

     The information required by this item is contained in the definitive proxy
statement of the Company to be filed in connection with its 2000 annual meeting
of shareholders, which information is incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this item is contained in the definitive proxy
statement of the Company to be filed in connection with its 2000 annual meeting
of shareholders, which information is incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this item is contained in the definitive proxy
statement of the Company to be filed in connection with its 2000 annual meeting
of shareholders, which information is incorporated herein by reference.

                                       22
<PAGE>

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

     (a)  1.   Financial Statements

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

          2.   Financial Statement Schedules

          All schedules are omitted because they are not applicable or not
          required or because the required information is not material or is
          presented in the Consolidated Financial Statements and related notes.

(a)            Reports on Form 8-K

(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, 1999, 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)

                                       23

<PAGE>

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

             *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)

                                       24

<PAGE>

             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)

             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)

                                       25

<PAGE>

             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)

             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)

                                       26

<PAGE>

             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.

                                       27
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                       28
<PAGE>

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

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

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

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

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

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

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

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

              21.1   List of subsidiaries of the Company.

              23.1   Independent Auditors Consent of KPMG, LLP.

     (*)    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.

                                       29
<PAGE>

     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.

(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 Current Report on Form 8-K of the Company dated
     September 22, 1999 and incorporated by reference herein.

(11) Filed herewith.

                                       30
<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 23, 2001

     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 23, 2001

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

    W. H. Hayes
    Senior Vice President - Finance, Secretary
    and Chief Financial Officer
    (Principal Financial Officer)
Date:  March 23, 2001

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

    Thomas R. Solimine
    Controller
    (Principal Accounting Officer)
Date:  March 23, 2001

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

    Robert L. Myer, Director
Date:  March 23, 2001

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

    William A. Searles, Director
Date:  March 23, 2001

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

    Brad A. Hummel, Director
Date:  March 23, 2001

                                       31
<PAGE>

                                  APPENDIX A





                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                  ------------------------------------------

<TABLE>
<CAPTION>
                                                             Page
<S>                                                          <C>

Independent Auditors' Report                                  A-2

Financial Statements

     Consolidated Statements of Operations for the years
     ended December 31, 1999, 1998, and 1997                  A-3

     Consolidated Balance Sheets at December 31, 1999
     and December 31, 1998                                    A-5

     Consolidated Statements of Cash Flows for the years
     ended December 31, 1999, 1998 and 1997                   A-7

     Consolidated Statements of Shareholders' Equity
     for the years ended December 31, 1999, 1998 and 1997     A-9

     Notes to Consolidated Financial Statements              A-10
</TABLE>

                                      A-1
<PAGE>

                         Independent Auditors' Report
                         ----------------------------

The Board of Directors and Shareholders

American Physicians Service Group, Inc.:



         We have audited the accompanying consolidated financial statements of
         American Physicians Service Group, Inc. and subsidiaries ("Company") as
         listed in the accompanying index. These consolidated financial
         statements are the responsibility of the Company's management. Our
         responsibility is to express an opinion on these consolidated financial
         statements based on our audits.

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

         In our opinion, the consolidated financial statements referred to above
         present fairly, in all material respects, the financial position of
         American Physicians Service Group, Inc. and subsidiaries at December
         31, 1999 and 1998, and the results of their operations and their cash
         flows for each of the years in the three-year period ended December 31,
         1999 in conformity with generally accepted accounting principles.

         As discussed in note 19 to the consolidated financial statements, the
         accompanying consolidated financial statements as of December 31, 1999
         and 1998 and for the years then ended, have been restated to reflect
         the Company's change in accounting for two investments. The Company
         changed its method of accounting for one investment from the equity
         method to the consolidated method of accounting. In addition, the
         Company changed its method of accounting for one investment from the
         cost method to the equity method of accounting.

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

         Austin, Texas

         March 28, 2000

                                      A-2
<PAGE>

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

<TABLE>
<CAPTION>                                                                           Year Ended December 31,
                                                                         1999              1998               1997
                                                                      (Restated)        (Restated)         (Restated)
                                                                      ----------        ----------         ----------
<S>                                                                   <C>               <C>                <C>
Revenues:
  Financial services                                                      $10,835           $ 9,914            $ 5,726
  Insurance services (Note 2)                                               4,683             5,655              6,287
  Consulting                                                                  768                --                 --
  Real estate (Note 5)                                                        710               713                704
  Investments and other                                                     1,755               121                348
                                                                       ----------        ----------         ----------
    Total revenues                                                         18,751            16,403             13,065
Expenses:
  Financial services                                                        9,764             9,039              5,299
  Insurance services                                                        4,558             4,129              3,819
  Consulting                                                                  712                --                 --
  Real estate                                                                 548               527                503
  General and administrative (Note 18)                                      3,470             1,851              1,352
  Interest                                                                    254                59                 21
                                                                       ----------        ----------         ----------
    Total expenses                                                         19,306            15,605             10,994
                                                                       ----------        ----------         ----------
Operating income (loss)                                                      (555)              798              2,071
Equity in earnings of unconsolidated
  affiliates (Note 13)                                                       320                966              2,360
Gain on sale of portion of subsidiary                                         --                 --              1,899
                                                                       ----------        ----------         ----------
   Earnings (loss) from continuing operations
     before income taxes and minority interest                              (235)             1,764              6,330

Income tax expense (benefit) (Note 9)                                       (117)               571              2,341
Minority interest                                                              5               (178)              (175)
                                                                       ----------        ----------         ----------
Earnings (loss) from continuing operations                                  (113)             1,015              3,814
Discontinued operations: (Note 12)
  Profit/(loss) from discontinued operations net
    of income tax expense/(benefit) of $30,
    ($19) and ($27) in 1999, 1998 and 1997,
    respectively                                                               58               (36)              (440)
                                                                       ----------        ----------         ----------
Loss on disposal of computer software segment,
   net of income tax benefit of $431 in 1997                                   --                --               (836)
Net gain / (loss) from discontinued operations                                 58               (36)            (1,276)
                                                                       ----------        ----------         ----------
    Net earnings (loss)                                                   $   (55)          $   979            $ 2,538
                                                                       ==========        ==========         ==========
</TABLE>

See accompanying notes to consolidated financial statements

                                      A-3
<PAGE>

                    AMERICAN PHYSICIANS SERVICE GROUP, INC.

               CONSOLIDATED STATEMENTS OF OPERATIONS, continued

(In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                  Year Ended December 31,
                                                                         1999              1998              1997
                                                                      (Restated)        (Restated)        (Restated)
                                                                      ----------        ----------        ----------
<S>                                                                   <C>               <C>               <C>
Earnings per common share: (Note 15)
Basic:
   Earnings (loss) from continuing operations                             $(0.04)           $ 0.24            $ 0.93
   Discontinued operations                                                  0.02             (0.01)            (0.31)
                                                                      ----------        ----------        ----------
      Net earnings (loss)                                                 $(0.02)           $ 0.23            $ 0.62
                                                                      ==========        ==========        ==========
Diluted:
   Earnings (loss) from continuing operations                             $(0.04)           $ 0.20            $ 0.90
   Discontinued operations                                                  0.02             (0.01)            (0.30)
                                                                      ----------        ----------        ----------
      Net earnings (loss)                                                 $(0.02)           $ 0.19            $ 0.60
                                                                      ==========        ==========        ==========
Basic weighted average shares outstanding                                  3,142             4,163             4,106
                                                                      ==========        ==========        ==========
Diluted weighted average shares outstanding                                3,168             4,692             4,241
                                                                      ==========        ==========        ==========
</TABLE>

See accompanying notes to consolidated financial statements

                                      A-4
<PAGE>

           AMERICAN PHYSICIANS SERVICE GROUP, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

(In thousands except share data)

<TABLE>
<CAPTION>
                                                                                  December 31,
                                                                    ----------------------------------------
                                                                       1999                          1998
                                                                    (Restated)                    (Restated)
                                                                    ----------                    ----------
<S>                                                                 <C>                           <C>
ASSETS
Current Assets:

  Cash and cash investments                                            $ 2,275                       $ 3,214
  Cash - restricted (Note 16)                                              376                            --
  Trading account securities                                               348                           641
  Patient receivables                                                       --                         2,095
  Management fees and other receivables (Note 2)                         1,344                         1,126
  Notes receivable, net - current (Note 3)                                 270                           196
  Deposit with clearing broker                                           1,042                         1,036
  Receivable from clearing broker                                          147                           106
  Prepaid expenses and other                                               279                           436
  Income taxes receivable                                                  200                            --
  Deferred income tax asset (Note 9)                                       633                         1,279
                                                                    ----------                    ----------
Total current assets                                                     6,914                        10,129

Notes receivable, net - less current
   portion (Note 3)                                                      2,066                         2,962
Property and equipment (Note 5)                                          1,820                         2,267
Investment in and advances to affiliates (Note 13)                      14,274                        15,054
Other investments (Note 17)                                              3,969                            --
Management service contracts                                                --                         4,557
Goodwill (Note 18)                                                         573                            --
Other assets                                                               219                           527
                                                                    ----------                    ----------
Total Assets                                                           $29,835                       $35,496
                                                                    ==========                    ==========
</TABLE>

See accompanying notes to consolidated financial statements

                                      A-5
<PAGE>

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

(In thousands, except share data)

<TABLE>
<CAPTION>
                                                                                                December 31,
                                                                                       1999                      1998
                                                                                    (Restated)                (Restated)
                                                                                    ----------                ----------
<S>                                                                                 <C>                       <C>
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
   Accounts payable - trade                                                              $ 1,242                  $ 1,333
   Payable to clearing broker                                                                624                      593
   Notes payable - short term (Note 7)                                                        12                       --
   Payable under loan participation agreements (Note 13)                                     259                      259
   Income taxes payable                                                                       --                      292
   Accrued incentive compensation                                                            818                      823
   Accrued expenses and other liabilities (Note 6)                                         2,923                    3,291
                                                                                      ----------               ----------
       Total current liabilities                                                           5,878                    6,591

   Net deferred income tax liability (Note 9)                                              1,699                    2,182
   Notes payable - long term (Note 7)                                                      3,298                       --
                                                                                      ----------               ----------

       Total liabilities                                                                  10,875                    8,773

Minority interest                                                                             48                    2,687

Shareholders' Equity:
   Preferred stock, $1.00 par value, 1,000,000 shares authorized                              --                       --
   Common stock, $0.10 par value, 20,000,000; issued 2,667,233
     at 12/31/99 and 4,160,083 at 12/31/98                                                   278                      416
   Additional paid-in capital                                                              5,549                    5,481
   Retained earnings                                                                      13,644                   18,139
   Less:  Common stock of parent company held by subsidiary                                 (559)                      --
                                                                                      ----------               ----------

       Total shareholders' equity                                                         18,912                   24,036
                                                                                      ----------               ----------
Commitments and contingencies (Notes 5, 7, 8, 10, 11, 12, 16)

       Total Liabilities and Shareholders' Equity                                        $29,835                  $35,496
                                                                                      ==========               ==========
</TABLE>

See accompanying notes to consolidated financial statements

                                      A-6
<PAGE>

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

      (In thousands)

<TABLE>
<CAPTION>
                                                                                    Year Ended December 31,
                                                                           1999              1998               1997
                                                                        (Restated)        (Restated)         (Restated)
                                                                        ----------        ----------         ----------
<S>                                                                     <C>               <C>                <C>
Cash flows from operating activities:

  Cash received from customers                                            $ 17,205           $ 16,017            $13,080
  Cash paid to suppliers and employees                                     (16,770)           (14,390)            (9,247)
  Change in trading account securities                                           6                (86)               250
  Change in receivable from clearing broker                                     16               (447)              (177)
  Interest paid                                                               (254)               (59)               (21)
  Income taxes paid                                                           (385)              (439)              (772)
  Interest and other investment proceeds                                       484                234                219
                                                                        ----------         ----------         ----------
      Net cash provided by operating activities                                302                830              3,332
Cash flows from investing activities:
  Proceeds from the sale of property and equipment                              --                 13                 55
  Payments for purchase of property and equipment                             (413)              (206)              (312)
  Net decrease in marketable securities                                       (100)                --                  5
  Proceeds from equity owners investment                                        --                259                 --
  Investment in and advances to affiliates                                  (4,467)            (3,408)              (605)
  Proceeds from sale of insurance exchange                                      --                 --              1,000
  Proceeds from sale of 20% of Insurance Services                               --                 --              2,000
  Proceeds received in acquisition                                              75                 --                 --
  Proceeds from prior year disposition                                          40                 --                 --
  Funds loaned to others                                                        --                 --               (834)
  Collection of notes receivable                                               963                400                109
  Discontinued Operations                                                     (578)            (3,699)              (486)
  Other                                                                        (59)                --                (82)
                                                                        ----------         ----------         ----------
    Net cash used in investing activities                                   (4,539)            (6,641)               850

Cash flows from financing activities:
  Repayment of long term obligations                                            --                 --               (542)
  Proceeds from long-term obligations                                        3,825                  8                 --
  Payment of long-term debt                                                   (577)                --                 --
  Purchase/retire treasury stock                                               (25)              (147)              (337)
  Exercise of stock options                                                     75                 75                316
  Distribution to minority interest                                             --               (300)                --
    Net cash (used in)/provided by financing activities                      3,298               (364)              (563)

Net change in cash and cash equivalents                                      ($939)           ($6,175)           $ 3,619

                                                                        ----------         ----------         ----------
Cash and cash equivalents at beginning of period                             3,214              9,389              5,770
                                                                        ----------         ----------         ----------
Cash and cash equivalents at end of period                                $  2,275             $3,214            $ 9,389
                                                                        ==========         ==========         ==========
</TABLE>

See accompanying notes to consolidated financial statements

                                      A-7
<PAGE>

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

     (In thousands)

<TABLE>
<CAPTION>
                                                                                     Year Ended December 31,
                                                                           1999               1998               1997
                                                                        (Restated)         (Restated)         (Restated)
                                                                        ----------         ----------         ----------
<S>                                                                     <C>                <C>                <C>
Reconciliation of net earnings to net cash from operating activities:

Net earnings                                                               $   (55)             $ 979           $ 2,538

Adjustments to reconcile net earnings to net cash from
   operating activities:

Depreciation and amortization                                                  733                618               436
(Earnings)/loss from discontinued operations                                  (211)              (135)              546
Loss on disposal of discontinued operations                                     --                 --             1,209
Minority interest in consolidated earnings/(loss)                               (5)               178               175
Undistributed earnings of affiliate                                           (149)              (966)           (2,360)
Provision for bad debts                                                      2,023                361                --
Gain on exchange of stock                                                   (1,635)                --                --
Stock warrants received                                                        (45)                --                --
Gain on sale of fixed assets                                                    --                 (1)               --
Gain on sale or disposition of assets                                           --                 --            (2,032)
Loss on sale of securities                                                      --                 --                41
Change in federal income tax payable                                          (492)                66               876
Provision for deferred taxes                                                    88                 81                56
Change in trading securities                                                     6                (86)              250
Change in receivable from clearing broker                                       16               (447)              177
Change in management fees & other receivables                                  209               (153)              (26)
Change in prepaids & other current assets                                       96                169              (191)
Change in long term assets                                                      --                 52                --
Change in trade payables                                                        91                  9                90
Change in loan participations                                                   --                259                --
Change in accrued expenses & other liabilities                                (368)              (154)            1,547
                                                                        ----------         ----------        ----------
   Net cash from operating activities                                      $   302              $ 830           $ 3,332
                                                                        ==========         ==========        ==========
</TABLE>

         Summary of non-cash transactions:

During 1999, the Company acquired 100% of the outstanding stock of Eco-Systems,
Inc. in a non-cash foreclosure transaction. The acquired assets and liabilities
were as follows:

                    Current assets increased by             $ 588,000
                    Non-current assets increased by           149,000
                    Goodwill increased by                     573,000
                    Current liabilities increased by          239,000
                    Non-current liabilities increased by      120,000

During 1999, the Company exchanged 721,000 shares of the Prime Medical stock,
which it owned, for 1,441,000 shares of its own stock. The Company recognized a
gain of $1,635,000 based on the difference between its carrying value of the
Prime shares and the market value of its own shares on the exchange dates. Based
on an independent evaluation, the Company shares were discounted by 6% due to
the size of the transaction. The Company subsequently retired its own shares
received in the exchange.

During 1999, non-qualified employee stock options were exercised which resulted
in a reduction of income tax payable and a corresponding addition to paid-in-
capital of $20.

During 1998, non-qualified employee stock options were exercised which resulted
in a reduction of income tax payable and a corresponding addition to paid-in-
capital of $25.

During 1997, non-qualified employee stock options were exercised which resulted
in a reduction of income tax payable and a corresponding addition to paid-in-
capital of $194.

See accompanying notes to consolidated financial statements.

                                      A-8
<PAGE>

                    AMERICAN PHYSICIANS SERVICE GROUP, INC.
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

             For the years ended December 31, 1999, 1998, and 1997


(In thousands, except share data)

<TABLE>
<CAPTION>
                                                                                           Common Stock
                                                                    Additional  Unrealized   of Parent                     Total
                                                 Common Stock         Paid-In    Holding    Company Held     Retained  Shareholders
                                               Shares    Amount       Capital     Gains    By Subsidiary     Earnings     Equity
                                             --------------------------------------------------------------------------------------
<S>                                          <C>         <C>        <C>         <C>        <C>               <C>       <C>
Balance January 1, 1997                      4,049,195    $405         5,366       (11)              --        14,622        20,382
Net earnings                                        --      --            --        --               --         2,538         2,538
Unrealized loss on securities
   available for sale, net of tax                   --      --            --        11               --            --            11
Shares issued (Note 11)                        164,666      16           300        --               --            --           316
Shares repurchased & cancelled                 (53,000)     (5)         (332)       --               --            --          (337)
Income tax benefit of non-qualified
   option exercises                                 --      --           194        --               --            --           194
                                             --------------------------------------------------------------------------------------
Balance December 31, 1997                    4,160,861     416         5,528        --               --        17,160        23,104

Net earnings (restated)                             --      --            --        --               --           979           979
Shares issued (Note 11)                         25,833       3            72        --               --            --            75
Shares repurchased & cancelled                 (26,611)     (3)         (144)       --               --            --          (147)
Income tax benefit of non-qualified
   option exercises                                 --      --            25        --               --            --            25
                                             --------------------------------------------------------------------------------------
Balance December 31, 1998 (restated)         4,160,083     416         5,481        --               --        18,139        24,036

Net earnings (restated)                             --      --            --        --               --           (55)          (55)
Shares issued (Note 11)                         32,950       3            72        --               --            --            75
Shares repurchased & cancelled              (1,447,800)   (141)          (24)       --               --        (4,716)       (4,881)
Reclassification to common stock of
   parent company held by
   subsidiary (restated)                       (78,000)     --            --        --             (559)          276          (283)
Income tax benefit of non-qualified
   option exercises                                 --      --            20        --               --            --            20
                                             --------------------------------------------------------------------------------------
Balance December 31,1999 (restated)          2,667,233    $278         5,549        --             (559)       13,644        18,912
                                             ======================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.

                                      A-9
<PAGE>

           AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 1999, 1998 and 1997

(1)  Summary of Significant Accounting Policies

     (a)  General

     These consolidated financial statements have been restated. See footnote 19
     for additional information. American Physicians Service Group, Inc. through
     its subsidiaries, provides financial services that include brokerage and
     asset management services to individuals and institutions, and insurance
     services that consist of management services for malpractice insurance
     companies. The financial services business has clients nationally.
     Insurance management is a service provided primarily in Texas, but is
     available to clients nationally. Through a subsidiary, Syntera HealthCare
     Corporation ("Syntera"), the Company also provided medical practice
     management services to various OB/GYN practices in Texas. Syntera was sold
     on August 31, 1999. American Physicians Service Group, Inc. also owns space
     in the office building which serves as its headquarters. Through its real
     estate subsidiary it leases space that is surplus to its needs. During the
     three years presented in the financial statements, financial services
     generated 55% of total revenues and insurance services generated 34%.

     American Physicians Services Group, Inc. has two affiliates; Prime Medical
     Services, Inc., of which it owns approximately 14%, and Uncommon Care, Inc.
     ("Uncommon Care") of which it owns convertible preferred stock equivalent
     to a 34% ownership on a fully converted basis. Prime Medical is the
     country's largest provider of lithotripsy (non-invasive kidney stone
     fracturing) services. Uncommon Care develops and operates Alzheimers' care
     facilities.

     (b)  Estimates

     The preparation of financial statements in conformity with generally
     accepted accounting principles 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
     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 the accounts of American
     Physicians Service Group, Inc. and of subsidiary companies more than 50%
     owned ("Company"). Investments in affiliated companies and other entities
     in which the Company's investment is less than 50% of the common shares
     outstanding and where the Company exerts significant influence are
     accounted for by the equity method. Investments in other entities in which
     the Company's investment is less than 20%, and in which it does not have
     the ability to exercise significant influence over operating and financial
     policies, are accounted for by the cost method.

     All significant intercompany transactions and balances have been eliminated
     from the accompanying consolidated financial statements.

                                      A-10
<PAGE>

           AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 1999, 1998 and 1997


(1)  Summary of Significant Accounting Policies, continued

     (d)  Revenue Recognition

     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.

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

     Consulting revenues result 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. Clients are billed, and revenue is recognized, monthly
     based on hours worked and expenses incurred toward completing the
     assignments.

     Real estate rental income is recognized monthly over the term of the lease.
     Costs of leasehold improvements are capitalized and amortized monthly over
     the term of the lease.

     Physician practice management revenue consists of management fees which are
     contractually agreed upon and are paid monthly.

     Investment revenues are recognized as accrued on highly rated investments
     and as received on lesser grades.

     (e)  Marketable Securities

     The Company's 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

                                      A-11
<PAGE>

           AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 1999, 1998 and 1997


(1)  Summary of Significant Accounting Policies, continued

     The Company has included its marketable securities, held as inventory at
     its broker/dealer, in the trading securities category.

     (f)  Property and Equipment

     Property and equipment are stated at cost. Property and equipment and
     rental property are depreciated using the straight-line method over the
     estimated useful lives of the respective assets (3 to 40 years).

     (g)  Long-Lived Assets

     Long-lived assets 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.

     Investments in the common stock of companies not accounted for using the
     equity method and for which there is no readily determinable fair value
     will be evaluated for impairment in the event of a material change in the
     underlying business. Such evaluation takes into consideration the Company's
     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)  Goodwill

     Goodwill represents the excess of consideration paid over the net assets
     acquired in purchase business combinations. It is amortized using the
     straight-line method over a period of ten years.

     (i)  Income Taxes

     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.

     (j)  Earnings Per Share

     Basic earnings per share is based on the weighted average shares
     outstanding without any diluted effects considered. Diluted earnings per
     share reflect dilution from all contingently issuable shares, including
     options.

                                      A-12
<PAGE>

           AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 1999, 1998 and 1997


(1)  Summary of Significant Accounting Policies, continued

     (k)  Cash and Cash Equivalents

     Cash and cash equivalents include cash and highly liquid investments with
     an original maturity of 90 days or less.

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

     (m)  Stock-Based Compensation

     The Company has adopted the disclosure-only provisions of Statement of
     Financial Accounting Standards No. 123, Accounting for Stock-Based
     Compensation ("Statement 123"), but applies Accounting Principles Board
     Opinion No. 25, Accounting for Stock Issued to Employees, in accounting for
     its stock option plans.

     (n)  Reclassification

     Certain reclassifications have been made to amounts presented in previous
     years to be consistent with the 1999 presentation.

     (o)  Other Comprehensive Income

     For the three years ended December 31, 1999, the Company did not have any
     significant other comprehensive income.

                                      A-13
<PAGE>

           AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 1999, 1998 and 1997


(2)  Management Fees and Other Receivables

     Management fees and other receivables consist of the following:

<TABLE>
<CAPTION>
                                                                              December 31,
                                                                       1999                   1998
                                                                       ----                   ----
         <S>                                                         <C>                    <C>
         Management fees receivable                                  $304,000               $501,000
         Trade accounts receivable                                    778,000                173,000
         Less: allowance for doubtful accounts
                                                                      (20,000)                (8,000)
         Accrued interest receivable                                  162,000                 21,000
         Other receivables, physician practice
              management                                                   --                158,000
         Other receivables                                            120,000                281,000
                                                                   ----------             ----------
                                                                   $1,344,000             $1,126,000
                                                                   ==========             ==========
</TABLE>

     The Company earns 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, FMI
     sells and issues policies, investigates, settles and defends claims, and
     otherwise manages APIE's affairs. The Company has previously managed other
     insurance companies.

     The Company earned management fees and other related income of $4,683,000,
     $5,655,000 and $6,287,000 and received expense reimbursements of
     $1,454,000, $1,420,000 and $664,000 for the years ended December 31, 1999,
     1998 and 1997, respectively, related to these agreements.

                                      A-14
<PAGE>

           AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 1999, 1998 and 1997

     (3)  Notes Receivable

     Notes receivable consist of the following:

<TABLE>
<CAPTION>
                                                                                                             December 31,
                                                                                                             ------------
                                                                                                       1999              1998
                                                                                                       ----              ----
<S>                                                                                                 <C>              <C>
     Reagan Publishing Company

This unsecured note had an original rate of 7% and a maturity of December 31,
1997. The borrower defaulted in 1998 and the Company litigated. The Company
collected $41,000 as payment in full during 1999.                                                        --        $   156,000

     Consolidated Eco-Systems, Inc.
This note  originated on November 26, 1996 in the amount of $3,300,000.
The Company  declared the note in default in 1998 and negotiated multiple
restructuring  agreements  thereafter.  In 1999, the Company foreclosed
100% of the assets of Eco-Systems (See note 18).                                                         --          3,709,000

     FemPartners, Inc. (Formerly Syntera HealthCare Corporation)

Upon the merger of Syntera HealthCare Corporation with FemPartners, APS
restructured the line of credit, which now bears interest at 8%. Payments are
interest only, paid quarterly through November 30, 2001. Quarterly combined
principal and interest payments begin 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 the latter of September 1, 2002
or the 5th business day after the date of such initial public offering or other
public sale.                                                                                      2,193,000                 --

     Employees

Three employees have loans from the Company as employment inducements, totaling
$200,000. The notes are non-interest bearing and are being forgiven and
amortized monthly over three to four year periods. The notes are due and payable
should the employees terminate employment. A fourth employee note in the amount
of $50,000 was issued in December 1999 and paid in full on March 2, 2000. In
addition, loans totaling $86,000 were granted to a key employee for advanced
education fees. $20,000 is due June 30, 2000 while an additional $32,850 payment
is due at June 30, 2003 and 2004, respectively. The latter two notes are
forgivable in the amount of approximately $14,000 on each December 31st that the
employee is employed by the Company beginning in 2000 and continuing through 2004.                  336,000            437,000
                                                                                                 ----------        -----------
                                                                                                  2,529,000          4,302,000
Less allowance for doubtful accounts                                                               (193,000)        (1,144,000)
                                                                                                 ----------        -----------
                                                                                                  2,336,000          3,158,000
Less current portion                                                                                270,000            196,000
                                                                                                 ----------        -----------
Long term portion                                                                                $2,066,000        $ 2,962,000
                                                                                                 ==========        ===========
</TABLE>

                                      A-15
<PAGE>

           AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 1999, 1998 and 1997

(3)  Notes Receivable, continued

     On September 30, 1996, the Company invested $3,300,000 in common stock of
     Exsorbet Industries, Inc. ("Exsorbet") (NASDAQ:EXSO) with a put option.
     Exsorbet was a diversified environmental and technical services company. On
     November 26, 1996, the Company exercised its put in exchange for a
     $3,300,000 note receivable from Exsorbet. The note was secured by the
     shares that were subject to the put option plus all the stock and
     substantially all of the assets of Eco Acquisition, Inc. ("Eco-Systems"), a
     wholly owned subsidiary of Exsorbet. Subsequently, Exsorbet became known as
     Consolidated Eco-Systems, Inc. ("Con-Eco"). Prior to the foreclosure
     discussed below, this note had been restructured in November, 1997 and
     again in March, 1999.

     On June 17, 1998 the Company filed suit against Con-Eco, and its directors
     and officers alleging breach of contract, negligent misrepresentation and
     conspiracy. In February 1999 the Company settled the litigation related to
     the directors and officers of Con-Eco. The Company recovered $950,000 for
     the full release of all claims against the directors of Con-Eco. This
     payment was applied against the outstanding debt.

     In April, 1999, the Company's wholly owned subsidiary, APS Consulting ("APS
     Consulting"), foreclosed on the stock of Eco-Systems. Prior to the
     foreclosure, the Company had entered into a settlement agreement with Con-
     Eco to resolve the litigation described above. In connection with this
     agreement, Con-Eco had the right to purchase back the business of Eco-
     Systems for a nominal amount if it complied with the following terms:

     (1)  Con-Eco would pay American Physicians $375,000 within 18 months.

     (2)  Con-Eco could not declare bankruptcy during the 18 month period.

     (3)  Con-Eco would pay to American Physicians' 75% of the proceeds from any
     litigation recovery against an investment banking firm.

     (4)  Con-Eco would pay the balance of the restructured $2.5 million note
     with interest on the due date of the note.

     American Physicians' management expected that its ownership of Eco-Systems
     stock would be temporary based on management's assessment of Con-Eco's net
     worth, cash flow, and prospects for securing additional financing.
     Management believed that Con-Eco would meet the revised terms and reacquire
     the Eco-Systems stock for a nominal payment. Accordingly, the Company did
     not initially consolidate the operations of APS Consulting. In addition,
     the Company dismissed its lawsuit against Con-Eco, but retained the right
     to reinstitute the litigation at a later date.

     Subsequently, on September 1, 1999, the Company concluded that it was not
     probable that Con-Eco would exercise its option to reacquire the stock and
     began consolidating APS Consulting (see Note 18). The acquisition was
     recorded using the purchase method of accounting. Prior to the foreclosure
     described above, American Physicians wrote off to bad debt expense a total
     of $1,293,000 in 1999 related to the restructured Con-Eco note bringing the
     total write off related to this note since inception to $2,174,000.

                                      A-16
<PAGE>

           AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 1999, 1998 and 1997

(3)  Notes Receivable, continued

     At December 31, 1998, the Company's note receivable from Consolidated Eco-
     Systems, Inc. was in excess of 10% of stockholder's equity and represented
     a concentration of credit risk. No interest income had been recognized by
     the Company as of December 31, 1998.

     Following a renegotiation of the debt in November 1997, Con-Eco defaulted
     on the note and the Company took a $488,000 charge to earnings. Con-Eco's
     stock was delisted during 1998 and the Company considered the loan to be
     impaired. At December 31, 1998 this note totaled $3,709,000 with a
     valuation allowance allocated to this note of $880,000 and at December 31,
     1997 it totaled $3,788,000 with a valuation allowance of $488,000.

A reconciliation of the allowance for impairment of all notes receivable
follows:

<TABLE>
<CAPTION>
                                                             Year Ended December 31,

                                                     1999               1998           1997
<S>                                              <C>                 <C>             C>
Balance at the beginning of the period           $ 1,144,000         $  653,000      $     --
Amounts charged off                               (2,437,000)          (100,000)      (76,000)
Additional provision                               1,486,000            591,000       729,000
                                                 -----------         ----------      --------
Balance at the end of period                     $   193,000         $1,144,000      $653,000
                                                 ===========         ==========      ========
</TABLE>

                                      A-17
<PAGE>

           AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 1999, 1998 and 1997


(4)  Fair Value of Financial Instruments

     Statements of Financial Accounting Standards No. 107, "Disclosures About
     Fair Value of Financial Instruments" (Statement 107), requires that the
     Company disclose estimated fair values for its financial instruments as of
     December 31, 1999 and 1998.

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

     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 fair value of securities owned is estimated based on bid prices
     published in financial newspapers or bid quotations received from
     securities dealers. Trading account securities are carried at market value.

     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 management's estimate of current interest rates for notes of
     similar credit quality. On notes determined to be impaired, the notes have
     been discounted based on the original interest rate of the note.

     Receivable from Clearing Broker
     -------------------------------

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

                                      A-18
<PAGE>

           AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 1999, 1998 and 1997


(4)  Fair Value of Financial Instruments, continued

     Other Investments

     The fair value has been determined using discounted cash flows based on
     estimates of future earnings.

     Accounts Payable
     ----------------

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

     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 on-and-off balance sheet
     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. Other significant assets and
     liabilities that are not considered financial assets or liabilities include
     the deferred tax assets, property and equipment, investment in affiliates,
     other assets, accrued expenses and income tax payable. 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)  Property and Equipment

     Property and equipment consists of the following:

<TABLE>
<CAPTION>
                                                                       December 31,
                                                          -------------------------------------
                                                             1999                       1998
                                                          ----------                 ----------
     <S>                                                  <C>                        <C>
     Office condominium                                   $1,574,000                 $1,796,000
     Furniture and equipment                               2,582,000                  3,801,000
                                                          ----------                 ----------
                                                           4,156,000                  5,597,000
     Accumulated depreciation and
          amortization                                     2,336,000                  3,330,000
                                                          ----------                 ----------
                                                          $1,820,000                 $2,267,000
                                                          ==========                 ==========
</TABLE>

                                      A-19
<PAGE>

           AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 1999, 1998 and 1997


(5)  Property and Equipment, continued

     The Company owns approximately 53,000 square feet in the condominium
     building in which its principal offices are located. The Company, its
     subsidiaries and affiliate occupy approximately 31,000 square feet and the
     remainder is leased to third parties. Rental income received from third
     parties during the years ended December 31, 1999, 1998 and 1997 totaled
     approximately $255,000, $355,000 and $385,000 respectively. Future minimum
     lease payments to be received under the terms of the office condominium
     leases are as follows: 2000 - $369,000; 2001 -$327,000; 2002 - $238,000;
     2003 - $153,000; and 2004 - $78,000.

(6)  Accrued Expenses and Other Liabilities

     Accrued expenses and other liabilities consists of the following:

<TABLE>
<CAPTION>
                                                                  1999                       1998
                                                             -----------                  -----------
     <S>                                                     <C>                          <C>
     APS Systems disposition costs
     (discontinued operations)                               $    10,000                  $ 1,026,000
     Taxes payable - other                                       160,000                      115,000
     Deferred income                                             528,000                      740,000
     Contractual/legal claims                                  1,409,000                    1,085,000
     Vacation payable                                            116,000                      134,000
     Funds held for others                                       402,000                       20,000
     Physician practice management                                    --                      171,000
     Other                                                       298,000                           --
                                                             -----------                  -----------
                                                             $ 2,923,000                  $ 3,291,000
                                                             ===========                  ===========
</TABLE>

(7)  Notes Payable

     The Company has a $7,500,000 line of credit with Bank of America, N. A. The
     Company has pledged shares of Prime Medical to the bank as funds are
     advanced under the line. Funds advanced under the agreement were $3,275,000
     at December 31, 1999. Funds advanced under the agreement will bear interest
     at the prime rate less 1/4%. The unused portion of the line carries a 1/4%
     commitment fee. All interest is to be paid quarterly. Any outstanding
     principal is to be paid at maturity in February 2001.

     In order to receive advances under the line, the Company must maintain
     certain levels of liquidity and net worth. In addition, the market value of
     the collateral must exceed a certain multiple of the funds advanced under
     the line and there must be no occurrence which would have a material
     adverse effect on the Company's ability to meet its obligations to the
     bank. As of December 31, 1999, the Company is in compliance with all
     covenants of its loan agreements.

                                      A-20
<PAGE>

     AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 1999, 1998 and 1997

(8)      Commitments and Contingencies

         In connection with the development of Syntera HealthCare Corporation,
         the Company entered into Share Exchange Agreements ("Agreements") with
         the physician shareholders of Syntera. The Agreements provide that the
         Syntera shareholders may, at their option, exchange their shares for a
         fixed dollar amount of the Company's common stock in the event that the
         Syntera shares are not publicly traded by certain dates. The Company
         has the option of purchasing any or all of the shares at the weighted
         average dollar amount of $5.26 per share rather than exchanging for its
         common stock. As a result of Syntera's merger with FemPartners, Inc. in
         1999, the Syntera shares were converted to FemPartners shares, with
         such shares retaining all of the conversion features. These shares
         begin to become eligible to exchange in the first quarter of 2000 and
         continue to become eligible into the first quarter of 2002. Most of the
         agreements were modified at the time of merger to also allow cash or
         the Company's shares of Prime to be used in the exchange, at the
         Company's option. The Company does not presently intend to exchange any
         shares of Prime Medical. The exchanges, whether for cash, or the shares
         of American Physicians will increase the Company's investment in
         FemPartners by the amount of the cash or the fair value of the stock
         consideration, as indicated by NASDAQ Stock Market prices on the
         exchange dates. Exchanges for the common stock of American Physicians
         will be accounted for as a re-issuance of treasury stock. Should all
         eligible FemPartners shares (248,000) be presented for exchange and the
         Company elected to purchase the shares for cash, the amount would be
         approximately $3,900,000. If the Company elected to issue its common
         shares, the quantity would be determined by the market price of its
         shares at the time of the exchange. For example, at the closing price
         at December 31, 1999 ($3.688) approximately 1,100,000 shares would be
         issued in the exchange. Since it is unknown how many, if any, of the
         shares will be presented for exchange or what the value of
         privately-held FemPartners shares will be in the future, the Company
         has made no provision related to potential exchanges in its financial
         statements. The Company will record the effect, if any, of share
         exchanges in the quarter in which it is notified by FemPartners
         shareholders of their intent to exchange.

         The Company has extended three lines of credit to Uncommon Care, Inc.
         The first is to a maximum amount of $2,400,000. The note is interest
         only at 10%, payable quarterly. The note matures June 30, 2005, at
         which time all principal and accrued but unpaid interest are due. The
         second is to a maximum of $1,250,000 with interest at 12%, payable
         semi-annually. The note matures April 30, 2000, but may be extended
         until November 30, 2001. The maturity may be accelerated by Uncommon
         Care securing certain equity capital. The third is to a maximum of
         $1,200,000 with interest at 10%, payable semi-annually. The note
         matures the earlier of September 30, 2001, or upon Uncommon Care
         securing certain equity capital. Advances under the lines are subject
         to Uncommon Care meeting certain qualifications at the date of each
         advance request.

                                      A-21
<PAGE>

           AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 1999, 1998 and 1997


(8)      Commitments and Contingencies, continued

         The Company has guaranteed the future yield of a customer's investment
         portfolio beginning in January 1995 for up to a five and one-half year
         period. In 1995, the Company established a liability and charged to
         expense $1,200,000 for potential losses resulting from this guarantee.
         This allowance was adjusted to $1,040,000 in 1996, $1,084,000 in 1998,
         and $1,000,000 in 1999 as the expected value of the portfolio changed.
         The initial expense and subsequent adjustments were estimated at each
         reporting period by comparing the current market value of the
         portfolio, the expected yield over the remaining time, and the known
         required value at the settlement date.

         Management believes that the Company's financial statements adequately
         provide for any loss that might occur under this agreement; however, as
         defined in AICPA Statement of Position 94-6, it is reasonably possible
         that the Company's estimate of loss could change over the remaining
         term of the agreement. Management is unable to determine the range of
         potential adjustment since it is based on securities markets, which are
         beyond its ability to control.

         The Company had guaranteed a loan in the amount of $85,000 for one of
         its directors at December 31, 1999. The guarantee was collateralized by
         securities the Company believed sufficient to cover its potential
         liability. The loan was paid in full and the Company was released from
         its guarantee on March 5, 2000.

         Rent expense under all operating leases for the years ended December
         31, 1999, 1998 and 1997 was $84,000, $44,000 and $89,000 respectively.
         Future minimum payments for leases which extend for more than one year
         were $334,000 at December 31, 1999.

         The Company is 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 the financial condition of the Company.

(9)      Income Taxes

         Income tax expense (benefit) consists of the following:

<TABLE>
<CAPTION>
                                                                           Year Ended December 31,
                                                             ------------------------------------------------------
                                                               1999                   1998                  1997
                                                               ----                   ----                  ----
              <S>                                             <C>                    <C>                 <C>
              Continuing Operations
              Federal
                Current                                        $(245,000)             $332,000           $1,394,000
                Deferred                                          88,000               107,000              777,000
              State                                               40,000               132,000              170,000
              Discontinued Operations                            153,000               171,000             (479,000)
                                                               ---------              --------           ----------
                                                               $  36,000              $742,000           $1,862,000
                                                               =========              ========           ==========
</TABLE>

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

                                      A-22
<PAGE>

           AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 1999, 1998 and 1997


(9)      Income Taxes, continued

<TABLE>
<CAPTION>
                                                                         Year Ended December 31,
                                                              --------------------------------------------------
                                                                 1999                 1998                1997
                                                                 ----                 ----                ----
         <S>                                                  <C>                  <C>               <C>
         Expected   federal   income  tax  expense
          (benefit)                                           $  (6,000)            $585,000          $1,556,000
         State taxes                                             40,000              132,000             170,000
         Other, net                                               2,000               25,000             136,000
                                                              ---------             --------          ----------
                                                              $  36,000             $742,000          $1,862,000
                                                              =========             ========          ==========
</TABLE>
         The tax effect of temporary differences that gives rise to significant
         portions of deferred tax assets and deferred tax liabilities at
         December 31, 1999 and 1998 are presented below:


<TABLE>
<CAPTION>
                                                                                   Year Ended December 31,
                                                                               ----------------------------
                                                                                 1999               1998
                                                                                 ----               ----
        <S>                                                                <C>                <C>
        Deferred tax assets:
        Net operating loss carryforwards                                   $    172,000        $    186,000
        Accrued expenses                                                        537,000             774,000
        Accounts  receivable,  principally  due to allowance  for
         doubtful accounts                                                       96,000              94,000
        Deferred income                                                         (26,000)           378,000
        Market value allowance                                                    2,000              17,000
        Investment  in Uncommon  Care due to use of equity method
         for financial reporting                                              1,031,000             292,000

        Other                                                                    56,000              48,000
                                                                           ------------        ------------
        Total gross deferred tax assets                                       1,868,000           1,789,000

             Less valuation allowance                                          (172,000)           (186,000)
                                                                           ------------        ------------
             Net deferred tax assets                                          1,696,000           1,603,000
                                                                           ------------        ------------
        Deferred tax liabilities:
        Investment in Prime Medical Services,  Inc. due to use of
         equity method for financial reporting                               (2,730,000)         (2,474,000)

        Capitalized expenses, principally due to deductibility
         for tax purposes                                                       (32,000)            (32,000)
                                                                           ------------        ------------
             Total gross deferred tax liabilities                            (2,762,000)         (2,506,000)
                                                                           ------------        ------------
             Net deferred tax liability                                    $ (1,066,000)       $   (903,000)
                                                                           ============        ============
</TABLE>

                                      A-23
<PAGE>

           AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 1999, 1998 and 1997

(9)      Income Taxes, continued

         The net change in the total valuation allowance for the years ended
         December 31, 1999 and 1998 was a decrease of $14,000 and $2,000,
         respectively. The management believes that the valuation allowance at
         December 31, 1999 is necessary due to uncertainties regarding the use
         of the net operating loss carryforwards from separate return years of a
         subsidiary acquired in 1997.

         At December 31, 1999, net operating loss carryforwards available to
         reduce future taxable income amounted to approximately $505,000 and
         expire in 2011 and 2012.

         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 asses 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 the Company will
         realize the benefits of these deductible differences net of existing
         valuation allowances at December 31, 1999 and 1998.

(10)     Employee Benefit Plans

         The Company has 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. Employees may defer up to 15% (not to exceed $10,000 in
         1999) of their annual compensation under the plan. The Company, at its
         discretion, may contribute up to 200% of the employees' deferred
         amount. For the years ended December 31, 1999, 1998 and 1997,
         contributions by the Company aggregated, $121,000, $126,000 and
         $92,000, respectively.

(11)     Stock Options

         The Company has 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 50,000 shares will not be granted. The Incentive
         Plan, as amended with shareholder approval in 1998, provides for the
         issuance of up to 1,200,000 share of common stock to directors and key
         employees.

                                     A-24
<PAGE>

           AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 1999, 1998 and 1997


(11)     Stock Options, continued

         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 all outstanding options vest in three
         approximately equal annual installments beginning one year from the
         date of grant.

         The Company has adopted the disclosure-only provisions of Statement of
         Financial Accounting Standards No. 123, Accounting for Stock-Based
         Compensation ("Statement 123"), but applies Accounting Principles Board
         Opinion No. 25, Accounting for Stock Issued to Employees, in accounting
         for its stock option plans. No cost from stock-based compensation
         awards was recognized in 1999, 1998 or 1997. If the Company had elected
         to recognize compensation cost of 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,
                                                ------------------------------------------------------
                                                       1999                1998              1997
                                                ----------------     ------------         ------------
         <S>                                    <C>                  <C>                  <C>
         Pro forma net earnings (loss)                 $(609,000)        $244,000           $1,989,000
         Pro forma earnings (loss) per share

                                       - basic             (0.19)            0.06                 0.48
                                       - diluted           (0.19)            0.04                 0.46
</TABLE>

         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:

<TABLE>
<CAPTION>
                                                           1999              1998             1997
                                                          ------            ------           -----
                        <S>                               <C>               <C>              <C>
                        Risk-free interest rate             5.60%           5.21%             6.16%
                        Expected holding period             3.90 years      3.90 years        3.90 years
                        Expected volatility                 .689            .401              .480
                        Expected dividend yield              -0-             -0-               -0-
</TABLE>

         Presented below is a summary of the stock options held by the Company's
         employees and directors and the related transactions for the years
         ended December 31, 1999, 1998 and 1997. Remaining options outstanding
         from the Company's previous 1983 plans are included.

                                     A-25
<PAGE>

           AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 1999, 1998 and 1997



(11)     Stock Options, continued

<TABLE>
<CAPTION>
                                                                     Year Ended December 31,
                              ------------------------------------------------------------------------------------------
                                            1999                                1998                     1997
                              ------------------------------         -----------------------     -----------------------
                                                 Weighted                         Weighted                    Weighted
                                                  Average                          Average                     Average
                                                 Exercise                         Exercise                    Exercise
                                    Shares         Price             Shares         Price         Shares        Price
                                    ------         -----             ------         -----         ------        -----
<S>                                 <C>          <C>                 <C>          <C>             <C>         <C>
Balance at January 1                1,345,000           6.36          774,000          $6.60       651,000         $5.64
Options granted                       215,000           4.01          597,000           5.92       293,000          9.32
Options exercised                      33,000           2.28           26,000           2.90       165,000          1.92
Options forfeited/expired             245,000           6.30               --             --         5,000          7.13
Balance at December 31              1,282,000           6.09        1,345,000           6.36       774,000          6.60
                                    =========           ====        =========          =====       =======         =====
Options exercisable                   668,000           6.72          460,000          $6.44       244,000         $5.84
                                    =========           ====        =========          =====       =======         =====
</TABLE>

         The weighted average fair value of Company stock options, calculated
         using the Black Scholes option pricing model, granted during the years
         ended December 31, 1999, 1998 and 1997 is $2.23, $2.33 and $2.68 per
         option, respectively.

         The following table summarizes the Company's options outstanding and
         exercisable options at December 31, 1999:

<TABLE>
<CAPTION>
                                               Stock Options                          Stock Options Exercisable
                                                Outstanding
                         --------------------------------------------------------------------------------------
                                                 Average        Weighted                             Weighted
                                                Remaining       Average                              Average
          Range of                             Contractual      Exercise                             Exercise
       Exercise Prices          Shares            Life           Price             Shares             Price
       ---------------          ----------     ------------      --------          -----------       --------
       <S>                      <C>            <C>              <C>                <C>               <C>
        $3.25 to $5.00             487,000        3.7 years        $ 3.93              170,000          $ 3.76
        $5.01 to $7.75             617,000        2.8 years        $ 6.71              322,000          $ 6.57
        $7.76 to $10.50            178,000        1.5 years        $ 9.85              176,000          $ 9.87
                                 ---------                                             -------

        Total                    1,282,000                                             668,000
                                 =========                                             =======
</TABLE>

(12)     Discontinued Operations

         The Company, through its majority owned subsidiary, Syntera, had
         previously managed medical practices. The Company initially invested in
         Syntera in late 1997. Syntera was acquired by FemPartners in August
         1999 and the results of operations have been restated to reflect the
         operations of Syntera as discontinued operations in the accompanying
         consolidated financial statements.

                                     A-26
<PAGE>

           AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 1999, 1998 and 1997

(12)     Discontinued Operations, continued

         Assets and liabilities of the discontinued medical practice management
         segment as of December 31, 1998 are reflected on a consolidated basis
         in the accompanying consolidated balance sheet and are summarized as
         follows (in thousands):

                           Patient receivables                        $   2,095
                           Other receivables                                158
                           Prepaid and other current assets                  97
                           Fixed assets, net of depreciation                614
                           Management service contracts                   4,557
                           Other assets                                     261
                           Trade accounts payable                          (423)
                           Accrued expenses                                (171)
                           Minority interest                             (2,634)
                                                                      ---------
                           Net assets                                 $   4,554
                                                                      =========

         Summary operating data for Syntera is as follows:

<TABLE>
<CAPTION>
                                                        Year Ended December 31,
                                              ------------------------------------------------------
                                                   1999                  1998               1997
                                              ------------            --------            ----------
         <S>                                  <C>                     <C>                 <C>
         Medical Practice Management
         Revenues                                   $3,481              $2,962                 $189
         Medical Practice Management
         Expenses                                   (3,824)             (3,581)                (697)
         Other Income                                   14                  82                   48
         Minority Interest                              92                 170                  114
              Net Loss                                (237)               (367)                (346)
</TABLE>

         The Company, through its wholly owned subsidiary, APS Systems, Inc.
         ("APS Systems"), had previously developed software and marketed it to
         medical clinics and medical schools. This business segment became
         unprofitable in 1996. A joint venture with a software developer was
         formed in 1996 with a plan to develop new products, but was
         discontinued in 1997 when it was determined that the high cost of
         developing competitive products precluded an adequate return on
         investment. Subsequently, the Company ceased marketing the software and
         reduced the scope of APS Systems' operations to a level adequate to
         service existing clients through the terms of their contracts.

                                     A-27
<PAGE>

           AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 1999, 1998 and 1997


(12)     Discontinued Operations, continued

         The Company originally assumed that all clients would have migrated to
         other software products by the end of 1999 and reflected the expected
         financial impact of discontinuing this segment on that date in the 1997
         financial statements. The measurement date for determining expected
         losses from the disposal was May 15, 1997. Support for all clients was
         terminated as of December 31, 1999 including two clients whose original
         support contracts extended beyond 1999. These clients have successfully
         migrated to other software platforms and have signed documents
         releasing the Company of any support obligations beyond December 31,
         1999.

         Net assets/(liabilities) of the discontinued computer systems and
         software segment as of December 31, 1999 consisted of the following:

                      Cash and cash investments            $ 31,000
                      Trade accounts receivable               9,000
                      Intercompany receivables                1,000
                      Accrued expenses                      (16,000)
                                                          ---------
                      Net assets                           $ 25,000
                                                          =========

         Summary operating data for the year ended December 31, 1999 is as
         follows (in thousands):

                      Total revenue                        $    266
                      Cost of sales                             (12)
                      Other operating expenses                 (296)
                      (Allowance) reversal of allowance
                           for future client support            492
                      Income taxes                             (153)
                                                           --------
                      Net income                           $    297
                                                           ========



(13)     Investment in Affiliates

         On October 12, 1989, the Company purchased 3,540,000 shares (42%) of
         the common stock of Prime Medical Services, Inc. ("Prime Medical").
         Members of the Company's Board currently serve as two of the seven
         directors of Prime Medical, and Mr. Hummel, executive vice president
         and chief operating officer of Prime Medical, is a member of the
         Company's Board of Directors. Prime Medical provides non-medical
         management services to lithotripsy centers. In conjunction with the
         acquisition of additional lithotripsy operations in June 1992, October
         1993, and May 1996, the outstanding shares of Prime Medical increased.
         These increases, the sale of Prime Medical shares owned by the Company
         under an option agreement, the repurchase by Prime Medical of its own
         shares, and the exchange of Prime Medical shares for common stock of
         the Company, in the aggregate, have reduced the Company's ownership to
         14% of the outstanding common stock of Prime Medical.


                                     A-28
<PAGE>

           AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 1999, 1998 and 1997

(13)      Investment in Affiliates, continued

          The Company's investment in Prime Medical is accounted for using the
          equity method, as the Company continues to exercise significant
          influence over operating and financial policies, primarily through the
          Board of Directors and senior officers. Two of Prime Medical's seven
          member board are also members of American Physicians' board. Mr.
          Shifrin is CEO of American Physicians and chairman of the board of
          both companies. Mr. Hummel is a director of American Physicians and is
          CEO and President of Prime Medical. Mr. Searles is a director of both
          companies. American Physicians continues to be Prime's largest
          shareholder. According to information in Prime's most recent Proxy
          statement, American Physicians and its two directors who are also
          Prime directors have 18.5% beneficial ownership in Prime. The
          2,344,000 shares of Prime Medical common stock held by the Company had
          an approximate market value of $21,387,000 (carrying amount of
          $12,096,000) at December 31, 1999 based on the market closing price of
          $9.125 per share.

          At December 31, 1999 and 1998, the Company's retained earnings
          included undistributed earnings, net of deferred tax, of Prime Medical
          totaling $7,058,000 and $5,583,000, respectively.

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

           Condensed balance sheet at December 31, 1999 and 1998:
           ------------------------------------------------------

<TABLE>
<CAPTION>
                                                         1999           1998
                                                         ----           ----
<S>                                                    <C>            <C>
               Current assets                          $ 58,012       $ 70,006
               Long-term assets                         188,815        171,320
                                                       --------       --------
               Total assets                             246,827        241,326
                                                       ========       ========
               Current liabilities                      $20,493        $28,465
               Long-term liabilities                    129,651        123,111
               Shareholders' equity                      96,683         89,750
                                                       --------       --------
               Total liabilities and equity            $246,827       $241,326
                                                       ========       ========
</TABLE>

           Condensed statement of operations for the years ended December 31,
           ------------------------------------------------------------------
           1999 and 1998
           -------------

<TABLE>
<CAPTION>
                                                         1999           1998
                                                         ----           ----
<S>                                                    <C>            <C>
              Total revenue                            $112,174       $104,636
                                                       ========       ========
              Net income                               $ 15,039       $ 10,794
                                                       ========       ========
</TABLE>

                                      A-29
<PAGE>

           AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 1999, 1998 and 1997

(13)      Investment in Affiliates, continued

          On January 1, 1998 the Company invested approximately $2,078,000 in
          the Convertible Preferred Stock of Uncommon Care. Uncommon Care is a
          developer and operator of dedicated Alzheimer's care facilities. The
          preferred shares owned by the Company are convertible into
          approximately a 34% common stock interest in the equity of Uncommon
          Care on a fully converted basis. The Company's investment entitles it
          to vote in certain instances and to elect two of the five 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. As a result, APSG accounts
          for this investment on the equity method. See discussion of
          restatement in Note 19.

          The Company has applied the guidance of EITF 99-10, specifically the
          percentage of ownership method, in applying the equity method to its
          investment in Uncommon Care. Uncommon Care's common stock equity had
          been reduced to zero prior to the Company's investment and,
          accordingly, the Company has recognized 100% of the losses of Uncommon
          Care based on its ownership of 100% of Uncommon Care's preferred stock
          equity. At December 31, 1999 and 1998, the Company's consolidated
          retained earnings included losses of Uncommon Care totaling $1,742,000
          and $566,000 respectively.

          The condensed balance sheets and statements of operations for Uncommon
          Care follows (in thousands):

                    Condensed balance sheets at December 31, 1999 and 1998:
                    -------------------------------------------------------
<TABLE>
<CAPTION>
                                                           1999        1998
                                                           ----        ----
<S>                                                      <C>          <C>
               Current assets                            $   142      $  103
               Long-term assets                           13,859       7,831
                                                         -------      ------
                    Total assets                         $14,001      $7,934
                                                         =======      ======
               Current liabilities                         1,130         789
               Long-term liabilities                      13,189       6,026
               Shareholders' equity (deficit)               (318)      1,119
                                                         -------      ------
                    Total liabilities and equity         $14,001      $7,934
                                                         =======      ======
</TABLE>

                                      A-30
<PAGE>

           AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 1999, 1998 and 1997

(13)      Investment in Affiliates, continued

          Condensed statements of operations for the years ended December 31,
          1999 and 1998 follow (in thousands):

<TABLE>
<CAPTION>
                                            1999                  1998
                                            ----                  ----
               <S>                        <C>                    <C>
               Total revenue              $ 2,743                $1,478
                                          =======                ======
               Net loss                   $(2,173)               $ (858)
                                          =======                ======
</TABLE>

          The Company has extended three lines of credit to Uncommon Care, Inc.
          The first is to a maximum amount of $2,400,000. The note is interest
          only at 10%, payable quarterly. The note matures June 30, 2005, at
          which time all principal and accrued but unpaid interest are due. The
          second is to a maximum of $1,250,000 with interest at 12%, payable
          semi-annually. The note matures April 30, 2000, but may be extended
          until November 30, 2001. The maturity may be accelerated by Uncommon
          Care securing certain equity capital. The third is to a maximum of
          $1,200,000 with interest at 10%, payable semi-annually. The note
          matures the earlier of September 30, 2001, or upon Uncommon Care
          securing certain equity capital. Advances under the lines are subject
          to Uncommon Care meeting certain qualifications at the date of each
          advance request. Amounts outstanding under these lines of credit and
          December 31, 1999 and 1998 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                    1999   1998
                                                                    ----   ----
<S>                                                                 <C>    <C>
          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 matures April 30,
          2000, but may be extended until November 30, 2001.
          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.           730     --

          Revolving Line of Credit: This note is secured by
          substantially all of the assets of Uncommon Care 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.                                                    2,141    745
</TABLE>

          Various officers and directors of the Company 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 participated in
          the loan under the same terms as the Company.

(14)      Segment Information

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

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

                                      A-31
<PAGE>

           AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 1999, 1998 and 1997

(14)      Segment Information, continued

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

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

          Real Estate income is derived from the leasing of office space.

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

          Discontinued operations include medical software sales and medical
          practice management.

<TABLE>
<CAPTION>
                                                                     1999                  1998                  1997
                                                                     ----                  ----                  ----
<S>                                                           <C>                   <C>                   <C>
    Operating Revenues:
           Financial services                                 $10,835,000           $ 9,914,000           $ 5,726,000
           Insurance services                                   4,683,000             5,655,000             6,287,000
           Consulting                                             768,000                    --                    --
           Real estate                                            853,000               865,000               867,000
           Corporate                                            4,475,000             1,721,000               982,000
                                                              -----------           -----------           -----------
                                                              $21,614,000           $18,155,000           $13,862,000
                                                              ===========           ===========           ===========
    Reconciliation to Consolidated Statement of
     Earnings:

           Total segment revenues                             $21,614,000           $18,155,000           $13,862,000
           Less:   intercompany profits                          (143,000)             (152,000)             (163,000)
                   intercompany dividends                      (2,720,000)           (1,600,000)             (634,000)
                                                              -----------           -----------           -----------
                  Total Revenues                              $18,751,000           $16,403,000           $13,065,000
                                                              ===========           ===========           ===========
    Operating Profit (Loss):
           Financial services                                 $   998,000           $   810,000           $   372,000
           Insurance services                                      40,000             1,437,000             2,385,000
           Consulting                                              58,000                    --                    --
           Real estate                                            305,000               338,000               362,000
           Corporate                                              764,000              (187,000)             (389,000)
                                                              -----------           -----------           -----------
                                                              $ 2,165,000           $ 2,398,000           $ 2,730,000
                                                              ===========           ===========           ===========
    Reconciliation to Consolidated Statement of
     Earnings:

           Total segment operating profits                      2,165,000             2,398,000             2,730,000
           Less:   intercompany dividends                      (2,720,000)           (1,600,000)             (634,000)
                   other                                               --                    --               (25,000)
                                                              -----------           -----------           -----------
                  Operating Income (loss)                     $  (555,000)          $   798,000           $ 2,071,000
</TABLE>

                                      A-32
<PAGE>

           AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 1999, 1998 and 1997

(14)      Segment Information, continued

<TABLE>
<CAPTION>
                                                               1999                  1998                  1997
                                                               ----                  ----                  ----
<S>                                                            <C>                   <C>                   <C>
    Equity in earnings of affiliates                              320,000               966,000             2,360,000
    Gain on sale of interest in subsidiary                             --                    --             1,899,000
                                                              -----------           -----------           -----------
    Earnings (loss) from continuing operations
         before income taxes and minority interests
                                                                 (235,000)            1,764,000             6,330,000
    Income tax expense                                           (117,000)              571,000             2,341,000
    Minority interests                                              5,000              (178,000)             (175,000)
                                                              -----------           -----------           -----------
    Earnings (loss) from continuing operations                   (113,000)            1,015,000             3,814,000
                                                              -----------           -----------           -----------
    Net profit (loss) from discontinued
         operations, net of income tax                             58,000               (36,000)           (1,276,000)
                                                              -----------           -----------           -----------
    Net earnings (loss)                                       $   (55,000)          $   979,000           $ 2,538,000
                                                              ===========           ===========           ===========
    Identifiable assets:
    Financial Services                                        $ 4,424,000           $ 3,964,000           $ 2,346,000
    Insurance Services                                          1,281,000             1,640,000             2,585,000
    Consulting                                                  1,155,000                    --                    --
    Real Estate                                                 1,286,000             1,324,000             1,283,000
    Corporate:
    Investment in and advances to equity method
         investees                                             14,015,000            15,054,000            11,265,000
    Other                                                       7,602,000             5,526,000             8,556,000
    Discontinued Operations                                        72,000             7,988,000             6,617,000
                                                              -----------           -----------           -----------
                                                              $29,835,000           $35,496,000           $32,652,000
                                                              ===========           ===========           ===========
    Capital expenditures:
    Financial Services                                        $    47,000           $    55,000           $   154,000
    Insurance Services                                             44,000                44,000                33,000
    Consulting                                                         --                    --                    --
    Real Estate                                                   129,000                58,000                    --
    Corporate                                                     193,000                49,000                26,000
    Discontinued Operations                                            --                    --                99,000
                                                              -----------           -----------           -----------
                                                              $   413,000           $   206,000           $   312,000
                                                              ===========           ===========           ===========
</TABLE>

                                      A-33
<PAGE>

           AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 1999, 1998 and 1997


(14) Segment Information, continued

<TABLE>
<CAPTION>
                                                              1999                  1998                  1997
                                                              ----                  ----                  ----
     <S>                                                    <C>                   <C>                   <C>
     Depreciation/amortization expenses:
     Financial Services                                     $413,000              $279,000              $118,000

     Insurance Services                                       94,000                90,000                90,000
     Consulting                                               31,000                    --                    --
     Real Estate                                             103,000               107,000               110,000
     Corporate                                                74,000                78,000                62,000
     Discontinued Operations                                  18,000                64,000                56,000
                                                            --------              --------              --------
                                                            $733,000              $618,000              $436,000
                                                            ========              ========              ========
</TABLE>

     Revenues attributable to customers generating greater than 10% of the
consolidated revenues of the Company:

<TABLE>
             <S>                                          <C>                   <C>                   <C>
             Insurance services
                 Company A                                $2,454,000            $3,970,000            $4,659,000
</TABLE>

     At December 31, 1999 the Company had long-term contracts with company A and
     was therefore not vulnerable to the risk of a near-term severe impact from
     a reasonably possible loss of the revenue. Operating profit 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 investments, notes
     receivable and investments in affiliates and preferred stock.

(15) 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 and convertible debt. A reconciliation of income and average shares
     outstanding used in the calculation of basic and diluted earnings per share
     from continuing operations follows:

                                      A-34
<PAGE>

           AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 1999, 1998 and 1997


(15) Earnings Per Share, continued

<TABLE>
<CAPTION>
                                                                     For the Year Ended December 31, 1999
                                                                     ------------------------------------
                                                                Income                Shares           Per-Share
                                                              (Numerator)          (Denominator)         Amount
                                                              -----------          -------------         ------
         <S>                                                  <C>                  <C>                 <C>
         Earnings (loss) from continuing operations           $ (113,000)

         Basic EPS
         Earnings (loss) available to common
             stockholders                                       (113,000)            3,142,000          $(.04)
                                                                                                        =====
         Effect of Dilutive Securities
         Options                                                      --                26,000
                                                              ----------             ---------
         Diluted EPS
         Earnings (loss) available to common
             stockholders and assumed conversions
                                                              $ (113,000)            3,168,000          $(.04)
                                                              ==========             =========          =====

<CAPTION>
                                                                  For the Year Ended December 31, 1998
                                                                  ------------------------------------
                                                                Income                   Shares        Per-Share
                                                              (Numerator)          (Denominator)         Amount
                                                              -----------          -------------         ------
         <S>                                                  <C>                  <C>                 <C>
         Earnings from continuing operations                  $ 1,015,000

         Basic EPS
         Earnings available to common stockholders              1,015,000            4,163,000          $ .24
                                                                                                        =====
         Effect of Dilutive Securities
         Options                                                       --               74,000
         Contingently issuable shares                             (76,000)             455,000
                                                              -----------            ---------
         Diluted EPS
         Earnings available to common stockholders
             and assumed conversions
                                                              $   939,000            4,692,000          $ .20
                                                              ===========            =========          =====
</TABLE>

                                      A-35
<PAGE>

           AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 1999, 1998 and 1997


(15) Earning Per Share, continued

<TABLE>
<CAPTION>

                                                                      For the Year Ended December 31, 1997
                                                                      ------------------------------------
                                                                 Income               Shares           Per-Share
                                                               (Numerator)         (Denominator)         Amount
                                                               -----------         -------------         ------
         <S>                                                   <C>                 <C>                 <C>
         Earnings from continuing operations                   $3,814,000

         Basic EPS
         Earnings available to common stockholders              3,814,000            4,106,000            $.93
                                                                                                          ====
         Effect of Dilutive Securities
         Options                                                       --              114,000
         Contingently issuable shares                             (18,000)              21,000
                                                               ----------            ---------
         Diluted EPS
         Earnings available to common stockholders
             and assumed conversions
                                                               $3,796,000            4,241,000            $.90
                                                               ==========            =========            ====
</TABLE>

     Unexercised employee stock options to purchase 815,000, 295,000 and 295,000
     shares of the Company's common stock as of December 31, 1999, 1998 and
     1997, respectively, were not included in the computations of diluted EPS
     because the options' exercise prices were greater than the average market
     price of the Company's common stock during the respective periods.

(16) Cash - Restricted

     APS Financial acted as the placement agent for a private offering of
     500,000 shares of preferred stock for one of its customers during 1999. The
     customer acted as its own underwriter and APS Financial placed the
     securities on a best effort basis. The private offering closed December 15,
     1999. In association with this transaction, APS Financial acted in a
     trustee capacity and established an escrow fund that was used to account
     for funds received from participating investors. These funds were
     subsequently disbursed to the customer based on the satisfaction of certain
     criteria. As of December 31, 1999, there was $3,494 maintained in the
     escrow fund related to interest earnings on escrow fund balances that are
     payable to the customer. In addition to establishing the escrow fund, the
     customer was required to deposit a specified amount with APS Financial as
     part of the private offering agreement. As of December 31, 1999, APS
     Financial was holding $372,922 as a deposit for the customer.

                                      A-36
<PAGE>

           AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 1999, 1998 and 1997


(17) Other Investments

     Other investments consists of the following investments:

                                                              1999
                                                           ----------
     Investment in FemPartners, Inc.                        3,824,000
     Investment in Probex                                     100,000
     Stock warrants in Probex                                  45,000
                                                           ----------
     Total                                                 $3,969,000
                                                           ==========

     Under the merger agreement with FemPartners, the Company may receive
     additional FemPartners shares if certain earnings targets are met and if
     there are no undisclosed liabilities. The Company does not believe that it
     will receive the shares related to the earnings targets. In the event that
     any contingent shares are received in the future, the Company does not plan
     to increase its carrying basis of the FemPartners stock due to the lack of
     reliable market information on this non-traded private stock.

     In addition to acting as the placing agent for the private offering as
     described in Note 16, APS Financial purchased 10,000 shares which has been
     recorded as a preferred stock investment with a cost basis of $100,000 at
     December 31, 1999.

     In addition to receiving commission revenue for acting as the placement
     agent for the private offering, APS Financial received warrants to purchase
     251,325 shares of restricted common capital stock exercisable at a price of
     $1.875 per share of common stock. The warrants expire on December 15, 2004
     and have been recorded at a fair value of $45,000 at December 31, 1999.
     None of the warrants have been exercised as of December 31, 1999.

(18) Acquisition Through Foreclosure

     Effective September 1, 1999 the Company began consolidating Eco-Systems as
     a wholly-owned subsidiary. The Company's basis in its investment,
     represents the remainder of the note due from Eco-Systems, which had been
     adjusted to its net present value of approximately $630,000 as of April,
     1999. As discussed in note 3, Eco-Systems was acquired through foreclosure
     in April, 1999, however, the Company did not consolidate Eco-Systems for
     the period April through August, 1999 because it believed that control
     would be temporary. The Company has accounted for the transaction using the
     purchase method of accounting. Goodwill is amortized using the straight
     line method of amortization over a period of ten years. At December 31,
     1999, the Company has amortized a total of $20,000.

                                      A-37
<PAGE>

           AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
                  NOTEES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 1999, 1998 and 1997


         Unaudited proforma combined income data for the years ended December
         31, 1999 and 1998 of the Company, assuming the purchase was effective
         January 1, 1998 is as follows ($ in thousands, except per share data):

                                                        1999         1998
                                                        ----         ----

                   Total revenues                     $ 20,434     $ 19,819

                   Total expenses                       19,426       17,895
                                                      --------     --------

                   Net income                         $   (289)    $  1,358
                                                      ========     ========

                   Diluted earnings per share         $   (.09)    $    .29
                                                      ========     ========

(19)     Restatement

         The accompanying consolidated financial statements have been restated
         to reflect changes in accounting for Syntera and Uncommon Care.

         In the previously reported consolidated financial statements as of
         December 31, 1999 and 1998 and for the periods then ended, the Company
         had accounted for its ownership of Syntera on the equity method because
         of management's belief that majority control of Syntera was temporary
         based on management's initial business plan. This plan anticipated that
         the Company's ownership would decrease to a minority position as
         physician practices were acquired over a relatively short period of
         time. Syntera was not able to acquire the number of practices
         originally anticipated, accordingly Syntera has been consolidated in
         these restated consolidated financial statements. Syntera's business
         was distinct from other services offered by the Company and it had
         separate management that reported directly to the Company's CEO;
         accordingly, the results of operations of Syntera are reflected as loss
         from discontinued operations as Syntera was acquired by an unrelated
         company effective August 31, 1999. The Company's previously filed
         consolidated financial statements should have reflected Syntera as a
         discontinued operation beginning in late 1998 when management decided
         to dispose of the segment.

         In addition, in the previously reported consolidated financial
         statements as of December 31, 1999 and 1998 and for the periods then
         ended, the Company had accounted for its ownership of Uncommon Care on
         the cost basis. The restated consolidated financial statements account
         for the investment in Uncommon Care on the equity method. The change
         from the cost to the equity method is based on management's ability to
         exert significant influence over the operations of Uncommon Care.

                                     A-38
<PAGE>

           AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 1999, 1998 and 1997

A summary of the effects of these restatements on the accompanying consolidated
financial statements is as follows (in thousands):

<TABLE>
<CAPTION>
                                                  December 31, 1999                   December 31, 1998
                                                  -----------------                   -----------------

                                          As Previously                        As Previously
                                          -------------                        -------------
                                             Reported        As Restated         Reported         As Restated
                                             --------        -----------         --------         -----------
        <S>                               <C>                <C>               <C>                <C>
        Assets                               $32,924           $29,835            $33,126           $35,496
        Liabilities                           11,647            10,875              8,471             8,773
        Minority interest                         48                48                 53             2,687
        Shareholders' equity                  21,229            18,912             24,602            24,036

<CAPTION>
                                                     Year Ended                          Year Ended
                                                     ----------                          ----------
                                                  December 31, 1999                   December 31, 1998
                                                  -----------------                   -----------------

                                          As Previously                        As Previously
                                          -------------                        -------------
                                             Reported        As Restated         Reported         As Restated
                                             --------        -----------         --------         -----------
        <S>                               <C>                <C>               <C>                <C>
        Revenue                              $19,115           $18,751            $16,403           $16,403
        Operating income (loss)                 (384)             (555)               798               798
        Equity in earnings of
        unconsolidated affiliates              2,116               320              1,457               966
        Earnings (loss) from continuing
        operations                             1,116              (113)             1,214             1,015
        Net gain (loss) from
        discontinued operations                  297                58                331               (36)
        Net earnings (loss)                    1,413               (55)             1,545               979
        Earnings (loss) per
        common share:
           Basic:
             Continuing Operations           $  0.36           $ (0.04)           $  0.29           $  0.24
             Discontinued Operations         $  0.09           $  0.02            $  0.08           $ (0.01)
             Net Earnings                    $  0.45           $ (0.02)           $  0.37           $  0.23

           Diluted:
             Continuing Operations
             Discontinued Operations         $  0.35           $ (0.04)           $  0.24           $  0.20
             Net Earnings                    $  0.09           $  0.02            $  0.07           $ (0.01)
                                             $  0.45           $ (0.02)           $  0.31           $  0.19
</TABLE>

                                     A-39
<PAGE>

           AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
                  NOTEES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 1999, 1998 and 1997

(19)     Restatement (continued)


                                                 Year Ended December 31, 1997
                                                 ----------------------------
                                                 As Previously
                                                 -------------
                                                    Reported   As Restated
                                                    --------   -----------
          Revenue                                    $13,065     $13,065
          Operating income                             2,071       2,071
          Equity in earnings of unconsolidated         2,014       2,360
               affiliates

          Earnings from continuing operations          3,468       3,814
          Net loss from discontinued operations         (930)     (1,276)
          Net earnings                                 2,538       2,538

           Earnings (loss) per common share:

             Basic:
                Continuing Operations                $  0.84     $  0.93
                Discontinued Operations              $ (0.22)    $ (0.31)
                Net Earnings                         $  0.62     $  0.62

              Diluted:
                Continuing Operations                $  0.81     $  0.90
                Discontinued Operations              $ (0.22)    $ (0.30)
                Net Earnings                         $  0.59     $  0.60

                                     A-40