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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   FORM 10-KSB

  X    Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
       Act of 1934 for the fiscal year ended  December 31, 2001

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

                         Commission File Number: 0-11453

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

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

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

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

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

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

                                (Title of Class)

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

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

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

              Aggregate Market Value at March 25, 2002: $8,232,968

Indicate the number of shares outstanding of each of the registrant's class of
common stock, as of the latest practicable date.
                                                            Number of Shares
                                                             Outstanding At
          Title of Each Class                                March 25, 2002
          -------------------                               ----------------
       Common Stock, $.10 par value                             2,264,231

                       Documents Incorporated By Reference
Selected  portions of the  Registrant's  definitive  proxy material for the 2001
annual meeting of  shareholders  are  incorporated by reference into Part III of
the Form 10-KSB. In addition, Item14(a) of Prime Medical Services, Inc.'s Annual
Report on Form 10-K for the year ended  December  31,  2001 is  incorporated  by
reference.




<PAGE>




            AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES

                          ANNUAL REPORT ON FORM 10-KSB

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001



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

                                     PART I

ITEM 1.  BUSINESS

GENERAL

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

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

     Financial information about our industry segments is disclosed in Note 14
to our accompanying Consolidated Financial Statements in Appendix A.

OUR FINANCIAL SERVICES

     Through our subsidiaries, APS Financial Corporation, or APS Financial, and
APS Asset  Management,  Inc., or Asset  Management,  we provide  investment  and
investment  advisory  services to institutions  and  individuals  throughout the
United  States.  Our  revenues  from this  segment were 57% and 54% of our total
revenues in 2001 and 2000, respectively.

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

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

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

                                       1
<PAGE>


     Every registered broker/dealer doing business with the public is subject to
stringent  rules with  respect to net capital  requirements  promulgated  by the
Securities and Exchange  Commission,  or SEC. These rules, which are designed to
measure the financial soundness and liquidity of broker dealers, specify minimum
net  capital  requirements.  Since we (as  opposed to APS  Financial)  are not a
registered  broker  dealer,  we are not  subject to these  rules.  However,  APS
Financial  is subject to these rules.  Compliance  with  applicable  net capital
requirements  could  limit  APS  Financial's  operations,  such as  limiting  or
prohibiting  trading  activities that require the use of significant  amounts of
capital.  A significant  operating loss or an  extraordinary  charge against net
capital  could  adversely  affect the ability of APS Financial to expand or even
maintain its present levels of business. At February 28, 2002, APS Financial was
in compliance with all applicable net capital requirements.

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

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

OUR INSURANCE SERVICES

     APS  Insurance  Services,  Inc.,  or Insurance  Services,  is an 80% owned
subsidiary of ours.  Insurance Services,  through its wholly-owned  subsidiaries
APS  Facilities  Management,  Inc.,  or FMI, and American  Physicians  Insurance
Agency,  Inc., or Agency,  provides  management  and agency  services to medical
malpractice insurance companies.  Our revenues from this segment contributed 31%
of our total revenues in both 2001 and 2000.

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


                                       2
<PAGE>

     We organized APIE in 1975, and FMI has been its exclusive manager since its
inception.  The management agreement between FMI and APIE basically provides for
full  management  by FMI of the  affairs of APIE under the  direction  of APIE's
physician board of directors.  Subject to the direction of this board, FMI sells
and issues  policies,  investigates,  settles and defends claims,  and otherwise
manages APIE's  affairs.  In  consideration  for  performing  its services,  FMI
receives a percentage  fee based on APIE's earned  premiums  (before  payment of
reinsurance premiums), as well as a portion of APIE's profits. FMI pays salaries
and  personnel  related  expenses,   rent  and  office  operations  costs,  data
processing costs and many other operating  expenses of APIE. APIE is responsible
for the payment of all claims, claims expenses, peer review expenses, directors'
fees and expenses, legal, actuarial and auditing expenses, its taxes 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 us.

     During 1997, FPIC Insurance Group, Inc., or FPIC, purchased a 20% interest
in  Insurance  Services  from us.  In  conjunction  with that  purchase,  FPIC's
subsidiary,  First Professional Insurance Company, Inc., or First Professionals,
entered into agreements with Agency and APIE granting Agency the exclusive right
to market First Professionals'  policies in Texas. Agency has sales,  marketing,
underwriting and claims handling authority for First  Professionals in Texas and
receives commissions for these services. First Professionals also entered into a
reinsurance agreement with APIE under which APIE reinsures  substantially all of
First Professionals' risk in Texas under medical professional liability policies
issued  or  renewed  by First  Professionals  on  behalf  of Texas  health  care
providers after March 27, 1997.

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

     First Professionals, together with its affiliates, insures over 7,200
physicians nationwide. First Professional is rated A- (Excellent) by AM Best.

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



                                       3
<PAGE>

     The following table presents selected financial and other data for APIE.
The management  agreement with FMI obligates APIE to pay management  fees to FMI
based on APIE's earned  premiums  before  payment of reinsurance  premiums.  The
management  fee  percentage is 13.5% with the provision that any profits of APIE
will be shared  equally with FMI so long as the total  payment  (fees and profit
sharing) does not exceed a cap based on premium  levels.  In 2001,  2000,  1999,
1998,  and 1997,  management  fees  attributable  to profit sharing were $0, $0,
$329,000, $1,750,000, and $1,961,000, respectively. While APIE was profitable in
2001  there  was no  profit  sharing  with FMI due to the  management  agreement
requiring  that  cumulative  prior year losses be applied  against future pretax
income.  Only after prior year losses are  completely  offset can FMI then share
equally the profits at APIE. Consequently, we do not expect to record any profit
sharing in 2002.

<TABLE>
<CAPTION>


                                                                Years Ended December 31,
                                         -------------------------------------------------------------------------
                                         2001            2000             1999            1998            1997
                                         ----            ----             ----            ----            ----
                                                            (In thousands, except for number of insureds)
<S>                                      <C>             <C>              <C>             <C>              <C>
Earned premiums before
 reinsurance premiums                    $35,866         $29,057          $24,529         $22,931          $25,899
Total assets                              64,557          66,348           66,377          75,173           81,594
Total surplus                             11,475          10,014           13,925          13,592           11,854
Management fees (including profit
 sharing) and commissions to FMI
 and Agency  (1)                           5,084           4,002            3,645           4,835            5,854
Number of insureds                         3,101           3,178            2,882           2,743            2,629
----------------

         (1)      Includes commissions of $2,886, $1,898, $1,191, $835, and
                  $1,214 in 2001, 2000, 1999, 1998 and 1997, respectively, from
                  First Professional and other carriers directly related to
                  APIE's controlled business.
</TABLE>

OUR CONSULTING SERVICES

      We provide environmental consulting and engineering services through APS
Consulting, a wholly-owned subsidiary of ours. APS Consulting, which we acquired
through  foreclosure in 1999, is an environmental  consulting/engineering  firm,
comprised of scientists and engineers  specializing in remedial  investigations,
remediation engineering,  air quality, waste water, regulatory compliance, solid
waste engineering, litigation support/expert testimony, environmental resources,
and industrial  hygiene and safety.  Our APS  Consulting  offices are located in
Jackson, Mississippi; Mobile, Alabama; and Houston, Texas.

      Because of the wide range of expertise of our consultants, we serve
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. Our consultants and engineers have expertise in
environmental engineering,  chemical engineering,  hydrogeology,  computer-aided
drafting and design, civil engineering,  geology, biology and micro biology. Our
revenues from our environmental  consulting and engineering services contributed
11% and 13% of our total revenues in 2001 and 2000, respectively.

                                       4
<PAGE>

OUR OTHER INVESTMENTS

     At December 31, 2001, we owned 2,344,000 shares of common stock of Prime
Medical Services, Inc., or Prime Medical,  representing approximately 15% of the
outstanding  shares of Prime Medical common stock.  Three of Prime Medical's six
directors  were members of our four member board of  directors  during 2001.  We
recorded our pro-rata share of Prime  Medical's  results using the equity method
of accounting.  Prime Medical is the largest provider of lithotripsy services in
the United States, currently servicing over 375 hospitals and surgery centers in
34 states.  Lithotripsy  is a  non-invasive  method of  treating  kidney  stones
through the use of shock  waves.  After  December 31,  2001,  we sold  1,570,000
shares of our Prime Medical common stock  bringing our  percentage  ownership to
slightly less than 5%. In addition,  Kenneth S. Shifrin,  the Company's Chairman
and CEO,  stepped down from day-to-day  operations as Executive  Chairman of the
Board for Prime  Medical but will continue to serve as  non-Executive  Chairman.
These two  subsequent  events  reduced  our  influence  over the  operating  and
financing  policies  of Prime  Medical  and,  consequently,  will cause us to no
longer  account for our  investment  in Prime  Medical  using the equity  method
during 2002.

During 1999, Prime Medical 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.  Prime  Medical  now  operates  fourteen  laser  vision  correction
facilities,  which performed  approximately  23,000  procedures  during 2001. In
addition,  Prime  Medical  designs  and  manufactures  trailers  and coaches for
transporting  medical  equipment  and  equipment  for the  media  and  broadcast
industry.  In February 2002, Prime Medical announced its intention to divest its
LASIK  refractive  surgery  operations in order to focus its  resources  towards
greater growth opportunities in its manufacturing and lithotripsy segments.

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

      On January 1, 1998, we invested $2,078,000 in convertible preferred stock
of Uncommon Care, Inc. or Uncommon Care. We have also made available to Uncommon
Care three lines of credit totaling $4,850,000.  The loans are at interest rates
varying  from ten percent to twelve  percent,  payable  quarterly  with  various
maturities  through June 30, 2005, at which time any  outstanding  principal and
any  accrued  but  unpaid  interest  are due  and  payable.  Uncommon  Care is a
developer and operator of dedicated Alzheimer's care facilities. One of Uncommon
Care's  three  directors  is a director  of ours.  For the  period  July 1, 2001
through June 30, 2002, we have agreed to reduce the interest rate charged on our
lines of  credit  to 4% and to allow  Uncommon  Care to make  interest  payments
in-kind in the form of Uncommon  Care common stock.  Our common and  convertible
preferred stock are convertible into  approximately a 38% interest in the common
equity of Uncommon  Care.  We record our  investment in and advances to Uncommon
Care using the equity method of accounting.

                                       5
<PAGE>

In  August  1999 we  merged  Syntera  HealthCare,  Inc.,  a  physician  practice
management  company that we had  founded,  with  FemPartners,  Inc. and received
common stock in  FemPartners.  FemPartners is a privately held single  specialty
physicians  practice management company. As more fully explained in Management's
Discussion and Analysis and Note 21 to the consolidated financial statements,  a
partial sale of this investment in December 2001, at a price significantly below
our carrying value, caused us to review our fair value determination at December
31, 2000 and to restate our 2000 consolidated  financial statements to reflect a
$5.1 million impairment charge.

DISCONTINUED OPERATIONS

In November,  2001, we sold all of our remaining  condominium space, after sales
of surplus office space in 2000, in an office project  located in Austin,  Texas
to our affiliate, Prime Medical. Approximately 50% of this space was leased back
to us and is  utilized  by  our  investment  services,  insurance  services  and
corporate segments' operations.  Gain on the sale amounted to approximately $5.1
million,  of which $1.9  million  was  recognized  in 2001.  Deferred  income of
approximately  $2.4 million was recorded and will be recognized monthly over the
next five years. In addition, 15% of the gain ($0.76 million) related to our 15%
ownership in the purchaser, was deferred as we accounted for Prime Medical using
the equity method of accounting as of and for the year ended  December 31, 2001.
We  subsequently  dissolved APS Realty,  Inc., or APS Realty,  our  wholly-owned
subsidiary  that formerly owned this office space.  Our revenues from APS Realty
(not  including  the  gains  from the  sales  of  office  space  in both  years)
contributed 4% and 5% of our total revenues in 2001 and 2000, respectively.


COMPETITION

     APS Financial and Asset Management are both engaged in a highly competitive
business.  Their  competitors  include,  with  respect to one or more aspects of
their business,  all of the member  organizations of the New York Stock Exchange
and other registered securities  exchanges,  all members of the NASD, registered
investment  advisors,  members of the various commodity exchanges and commercial
banks and thrift  institutions.  Many of these organizations are national rather
than  regional  firms and have  substantially  greater  personnel  and financial
resources  than us.  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 these
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, but
primarily  Medical  Protective  Insurance  Company,  and Texas Medical Liability
Trust. The competitive scene,  however,  has changed  dramatically over the last
year. As a result of the increasing frequency and severity of claims experience,
a  number  of  larger  competitors  in  this  market  have  announced  they  are
withdrawing or not writing any new business.  When competitive  forces allow for
higher rates or legislative reforms address tort inadequacies,  thereby allowing
for a return of the industry to profitability,  competition will increase.  Both
of APIE's primary  competitors 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.


                                       6
<PAGE>

     The environmental services industry is characterized by intense
competition.  Many  companies of all sizes are engaged in activities  similar to
our  environmental  and  consulting and  engineering  activities and many of our
competitors  have  substantially  greater  assets  and  capital  resources.  Our
environmental  services  operations  are  primarily in the  Southeastern  United
States,  however,  we have projects  throughout  the United  States.  We seek to
distinguish   our   services  by  (i)   providing   timely,   high  quality  and
cost-effective solutions to the various environmental issues facing our clients,
(ii) maintaining  long-term  relationships with our 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 we can compete
successfully  against our competitors,  given the size,  resources and marketing
capabilities of many of our 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.

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

     APS Financial, as a registered broker dealer and NASD member organization,
is required by federal law to belong to the SIPC. When the SIPC fund falls below
a certain  minimum  amount,  members are required to pay annual  assessments  in
varying  amounts not to exceed .5% of their  adjusted  gross revenues to restore
the fund. The last assessment 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.



                                       7
<PAGE>

        Our environmental services are 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.  We believe we are in
compliance in all material respects with all such laws and regulations.

EMPLOYEES

     At March 1, 2002, we employed, on a full time basis, approximately 124
persons,  including  49 by Insurance  Services,  40 by APS  Financial  and Asset
management, 24 by APS Consulting and 11 directly by us. We consider our employee
relations to be good. None of our employees are represented by a labor union and
we have experienced no work stoppages.

ITEM 2.  PROPERTIES

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

     We also lease office space for our financial services subsidiary at 2550
Gray Falls Dr, Suite 350, Houston, Texas.

     We also lease offices for our environmental services subsidiary at: 439
Katherine Drive, Suite 2A, Jackson, Mississippi; 17171 Park Row, Suite 120,
Houston, Texas; and 384 Fairhope Avenue, Suite 7, Fairhope, Alabama.

ITEM 3.  LEGAL PROCEEDINGS

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

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

     The Company's annual meeting was held June 18, 2001. Proxies were solicited
by our management and shareholders voted and approved the following motions:

     ELECTION OF DIRECTORS

               BOARD ELECTION
      Nominee                              For           Against       Abstain
      -------                              ---           -------       -------
      Brad A. Hummel  **                   1,945,278       --          303,595
      Robert L. Myer                       1,945,278       --          303,595
      William A. Searles                   1,945,278       --          303,595
      Kenneth S. Shifrin                   1,945,278       --          303,595
      Marc R. Still                        1,945,278       --          303,595


** Note: Brad Hummel resigned from the board in December, 2001.

                                       8
<PAGE>

     PROPOSAL TO AMEND THE 1995 INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN

     To approve an amendment to the 1995 Plan to increase the aggregate number
     of shares that may be issued thereunder by 200,000, from 1,200,000 to
     1,400,000. The numbers of votes for, against and abstain are as follows:

                  For               1,007,069

                  Against             693,798

                  Abstain               2,525


                                     PART II

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

     The following table represents the high and low prices of our common stock
in the over-the-counter market as reported by the NASD, Automated Quotations
System for years ended December 31, 2001 and 2000. On March 1, 2002, we had
approximately 326 holders of record of our common stock.

                                        2001                        2000
                             ------------------------      ---------------------
                                 High          Low            High         Low
                                 ----         ----            ----        ----
     First Quarter               $3.25        $1.75          $4.06        $2.94
     Second Quarter              $2.94        $1.85          $3.56        $2.25
     Third Quarter               $3.26        $2.11          $4.00        $2.69
     Fourth Quarter              $3.75        $2.08          $3.75        $1.00


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


                                       9
<PAGE>


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

FORWARD-LOOKING STATEMENTS

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

     The forward-looking statements included herein are necessarily based on
various  assumptions  and estimates and are inherently  subject to various risks
and  uncertainties,  including risks and uncertainties  relating to the possible
invalidity of the underlying  assumptions and estimates and possible  changes or
developments  in  social,  economic,   business,  industry,  market,  legal  and
regulatory circumstances and conditions and actions taken or omitted to be taken
by  third  parties,  including  customers,   suppliers,  business  partners  and
competitors and  legislative,  judicial and other  governmental  authorities and
officials.  Assumptions relating to the foregoing involve judgments with respect
to, among other things,  future economic,  competitive and market conditions and
future business  decisions,  all of which are difficult or impossible to predict
accurately  and many of which are beyond our control.  Any of these  assumptions
could  be  inaccurate  and,  therefore,  there  can  be no  assurance  that  the
forward-looking statements included in this report will prove to be accurate.

RESTATEMENT

     The following discussion and analysis is based upon consolidated  financial
statements as of December 31, 2000 and for the year then ended  included in this
Form 10-KSB which have been  restated to reflect  additional  impairment  of our
investment  in  FemPartners,  Inc.  common  stock.  In our  previously  reported
consolidated  financial statements as of December 31, 2000 and for the year then
ended we recorded an impairment charge of approximately $1.6 million relating to
our investment in  FemPartners,  Inc., a privately  held company,  based upon an
internal  valuation.  In December 2001,  following our inability to find a buyer
for this investment and the subsequent sale of approximately 60% of our holdings
in FemPartners  at a de minimus  amount to a former  officer of the Company,  we
engaged a  valuation  consultant  to provide  an  independent  valuation  of our
holdings  in  FemPartners  at December  31,  2000 and 2001.  The results of that
valuation  indicated  that our sale price in  December  2001  approximated  fair
market value and that this fair market value had not changed  substantially from
December 31, 2000. Consequently, the 2000 consolidated financial statements have
been  restated to reflect an  additional  $5.1 million  impairment  loss on this
investment based on the results of this valuation.



                                       10
<PAGE>


See Note 21 to the  consolidated  financial  statements for a summary of changes
made  to  the  2000  consolidated  financial  statements  as  a  result  of  the
restatement.

GENERAL

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

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

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

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


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

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

o        Agency. Agency has the exclusive right to market the policies of First
         Professional, a medical professional liability insurance company that
         is owned by FPIC, which owns the other 20% of Insurance Services, in
         the State of Texas. Agency performs the policy issuance and claims
         handling functions for First Professional in Texas.

     Consulting Services. Through APS Consulting, we provide environmental
consulting and engineering services including services related to remedial
investigations, remediation engineering, air quality, waste water, regulatory
compliance, solid waste engineering, litigation support/expert testimony,
environmental resources, and industrial hygiene and safety.

     In addition, as of December 31, 2001, we had the following significant
investments: (1) we owned 2,344,000 shares of Prime Medical common stock,
representing approximately 15% of its outstanding common stock, 1,570,000 shares
of which we sold after December 31, 2001; and



                                       11
<PAGE>

(2) we invested  approximately $2 million in the convertible  preferred stock of
Uncommon Care and extended lines of credit totaling  approximately  $4.9 million
to Uncommon Care. The net book value of the investment in Uncommon Care was zero
at  December  31,  2001 as  equity  losses  in 1999,  2000 and 2001  offset  our
investment completely.

CRITICAL ACCOUNTING POLICIES

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

     We  believe  the  following  critical  accounting  policies affect our more
significant  judgments and estimates used in the preparation of our consolidated
financial statements. We periodically review the carrying value of our assets to
determine  if events and  circumstances  exist  indicating  that assets might be
impaired. If facts and circumstances support this possibility of impairment, our
management will prepare  undiscounted and discounted cash flow projections which
require  judgments  that are both  subjective  and complex.  Management may also
obtain  independent  valuations.  See  Note  21 to  the  consolidated  financial
statements.

     We maintain allowances for doubtful accounts for estimated losses resulting
from the inability of our customers to make required payments.  If the financial
condition of our customers  were to  deteriorate,  resulting in an impairment of
their ability to make payments, additional allowances may be required.

     We record a valuation allowance to reduce our deferred tax assets to the
amount  that is more likely than not to be  realized.  While we have  considered
future taxable income and ongoing  prudent and feasible tax planning  strategies
in  assessing  the need for the  valuation  allowance,  in the  event we were to
determine that we would be able to realize our deferred tax assets in the future
in excess of its net recorded  amount,  an  adjustment to the deferred tax asset
would increase income in the period the determination was made. Likewise, should
we  determine  that  we  would  not be able  to  realize  all or part of our net
deferred tax asset in the future,  an adjustment to the deferred tax asset would
be charged to income in the period the determination was made.

     We are a defendant in lawsuits that arise out of, and are incidental to,
the conduct of our business.  Our management uses its judgment,  with the aid of
legal counsel, to determine if accruals are necessary as a result of any pending
actions against us.

     It was our judgment that the equity method of accounting for our investment
in Prime  Medical and Uncommon Care was more  appropriate  than the cost method,
believing that we had  significant  influence over the operational and financial
policies of Prime Medical and Uncommon Care. Using the equity method we recorded
our share of Prime Medical's and Uncommon  Care's  earnings or losses.  We would
have  recorded no earnings or losses from Prime  Medical or Uncommon  Care if we
had not utilized the equity  method  unless an other than  temporary  decline in



                                       12
<PAGE>

fair  value  was  recognized.  If  through  choice  or  mandate  we had used the
alternative accounting treatment, results would have been as follows:

                                                            (In thousands)
                                                       Year ended December 31,
                                                        2001             2000
                                                                      (Restated)
                                                        ----             ----

Net loss, as reported                                    $(578)         $(4,774)

Effect of alternative treatment for Prime Medical        1,437           (1,018)

Effect of alternative treatment for Uncommon Care          668            1,326
                                                        ------            -----

Pro Forma net income (loss)                             $1,527          $(4,466)
                                                       ========         ========



RESULTS OF OPERATIONS

2001 COMPARED TO 2000
---------------------

      Our revenues from continuing operations increased 26% in 2001 compared to
2000.  Our net loss  decreased 88% from  $4,774,000 in 2000 to $578,000 in 2001.
Our diluted  loss per share  decreased  from $(1.92) in 2000 to $(0.25) in 2001.
The reasons for these changes are described below.


FINANCIAL SERVICES

         Our financial services revenues increased 31% in 2001 compared to 2000.
The increase  resulted from greater  commissions  earned at APS  Financial.  The
increase in annual  commission  income was  primarily the result of an expanding
institutional  customer base, low broker personnel  turnover,  and a substantial
rally in the bond markets in 2001 compared to the previous year. Looking back to
the year 2000, the significant decline in technology related equity investments,
combined with large interest rate increases by the Federal Reserve resulted in a
substantial   slowdown  of  financial  market  activity.   Conditions   improved
considerably in the U.S. bond markets during 2001 as the Federal Reserve lowered
interest rates to a 40-year low in an effort to stimulate the U.S. economy. With
interest rates falling  substantially,  bond market activity surged as companies
took  advantage  of low rates to issue new  securities  and  customers  replaced
refunded bonds and re-balanced their portfolios. In addition, the equity markets
began to show some  improvement  late in 2001 as investors began to anticipate a
recovery in the U.S.  economy.  Although the tragic events of September 11, 2001
temporarily slowed down financial market activity, trading activity soon resumed
due to rising  consumer  confidence  that was  buoyed by  success  in the war on
terrorism and a steadily improving economy. Going forward, it remains to be seen
what, if any,  long-term  effect the terrorist  attacks,  and  subsequent war on
terrorism will have on future earnings of APS Financial and, accordingly, us.




                                       13
<PAGE>

      Our financial services expenses increased 26% in 2001 compared to 2000.
The increase in transaction activity at APS Financial was primarily  responsible
for a 27%  increase  in sales  commission  expense,  a 7%  increase  in  support
personnel costs and, as a result of higher profits, a 129% increase in incentive
compensation.  In addition,  legal fees  increased 101% in 2001 compared to 2000
primarily  as a result of  certain  investment  banking  opportunities.  Lastly,
internally  allocated  expenses for computer and information  technology support
was up 71% during 2001.

INSURANCE SERVICES

         Our insurance services revenues increased 28% in 2001 compared to
2000.  The increase in the current  year was due  primarily to a 27% increase in
total premium  written by APIE  resulting from premium rate increases and better
than  expected  retention.  Although new  business  written was down 52% and the
number of doctors insured was down 2%, renewal  business written was up 52%. The
high  retention  rate of business  was  assisted  by the  decision of some major
competitors to leave the Texas market during the latter half of 2001.

      Our insurance services expenses increased 14% in 2001 compared to 2000.
The increase was  primarily due to a 21% increase in  commissions  paid to sales
agents  resulting  from the  above-mentioned  increase  in  commission  revenues
earned.  In addition,  our personnel costs increased 8% in 2001 primarily due to
merit raises as well as our creation of two new managerial positions.  Also, our
advertising  costs increased 28% in 2001 due in part to an increase in print ads
published in professional trade magazines.  Partially offsetting these increases
was a 16% decrease in our  depreciation  expense.  Depreciation is down due to a
greater  amount of our assets  becoming fully  depreciated  during the year than
were purchased.

CONSULTING

      Our consulting revenues increased 10% in 2001 compared to 2000 primarily
due to a 13%  increase  in total  billable  hours as well as a one-time  project
involving wetlands mitigation construction.

     Our consulting expenses increased 27% in 2001 compared to 2000. The primary
reason for this increase is a non-recurring  charge in the amount of $391,000 to
impair goodwill. An analysis of the expected future cash flows of our consulting
segment asset group resulted in an impairment  charge to write off the remaining
unamortized  goodwill  associated  with  the  consulting  segment  asset  group.
Conditions  that led to the  impairment  include  the  inability  of us to reach
personnel  growth  projections,  uncertainty in retaining a major client and the
economic  downturn in the industry  segment  during the fourth  quarter of 2001.
Adding to the  increase in expenses was an increase in legal fees of 74% in 2001
compared to 2000 due to fees associated with a lawsuit brought against  American
Physicians  that was lost in the fourth  quarter of 2001.  Also,  other expenses
increased 75% in 2001 compared to 2000 and represents primarily a portion of the
judgment from the above-mentioned lawsuit that was allocated to APS Consulting.

GENERAL AND ADMINISTRATIVE EXPENSES

      Our corporate level general and administrative expenses increased 15% in
2001 compared to 2000.  The increase was  primarily  due to the corporate  level
portion of the  $520,000  legal  settlement  mentioned  above in the  Consulting
section.


                                       14
<PAGE>

INVESTMENTS AND INTEREST

      Our investment  and  interest  expense  decreased 89% in 2001 compared to
2000. Our investment expenses decreased 94% in 2001 due to an impairment loss of
$6.7 million in the fourth quarter of 2000 on our investment in FemPartners.  An
impairment  loss on this  investment was recognized  following an analysis by an
independent valuation  consultant.  Our interest expense increased 12% over 2000
as a result of an increase in our notes  payable.  In 2001,  we drew  additional
amounts  from our line of credit  with  Bank of  America  primarily  to fund our
investment  in and advances to Uncommon  Care and to pay  contractual  and legal
obligations. These draws resulted in an average balance of $6,006,000 during the
year 2001  compared to an average  balance of  $4,320,000  during the year 2000.
Partially offsetting this increase in average balance outstanding was an average
interest rate paid during 2001 of 6.89% compared to 8.98% in 2000.

AFFILIATES

         We have  two affiliates, Prime Medical  and  Uncommon  Care,  which  we
accounted  for  using  the  equity  method.  Equity  earnings  in Prime  Medical
decreased  $3.7 million in 2001 compared to 2000 as a result of a fourth quarter
non-recurring  charge at Prime Medical of $24.0  million,  net of tax, in mostly
non-cash  expenses,  which included the impairment of goodwill  associated  with
acquisitions Prime Medical made in its refractive  segment.  In addition,  Prime
recognized  impairment  of  certain  lithotripsy  receivables  and  assets,  and
provided  for  severance of certain  contractual  obligations  to  officers.  We
recorded our equity method percentage of these Prime Medical charges,  which was
approximately 15.0% as of December 31, 2001. Beginning in January, 2002, we will
no longer  account for our  investment  in Prime Medical using the equity method
because:  (1) in December 2001, Prime Medical's CEO, Brad Hummel,  resigned from
our board of directors;  (2) in January 2002, Kenneth S. Shifrin,  the Company's
Chairman and CEO, stepped down from day-to-day  operations as Executive Chairman
of the  Board of Prime  Medical,  but will  continue  to serve as  non-executive
Chairman;  and (3) from January to March 2002, we sold 1,570,000 shares of Prime
Medical reducing our ownership percentage to slightly less than 5%.

      We record our investment in Uncommon Care using the equity method. We
recorded losses on this investment in 2001 of  approximately  $1,012,000  versus
approximately  $2,009,000  in 2000.  Our  2001  loss was  limited  to our  total
investment  in and  advances  to  Uncommon  Care.  When  we  reduced  our  total
investment to zero, as required  under the equity  method,  we ceased  recording
monthly  equity  losses.  Had we continued to record  losses on our  investment,
total  equity  losses in  Uncommon  Care in 2001 would  have been  approximately
$1,400,000.

DISCONTINUED OPERATIONS

     In November, 2001 we sold Prime Medical all of the remaining 46,000 square
feet of condominium space we owned in an office project located in Austin, Texas
for approximately $6 million.  We then entered into a five year lease with Prime
Medical,  for the  approximately  23,000 square feet we occupy.  The lease is at
prevailing market rates for  like-properties in the Austin area. We subsequently
dissolved APS Realty, a wholly-owned  subsidiary that formerly owned this office
space and leased  space to us, our  subsidiaries,  affiliates  and  unaffiliated
parties.  Our gain on the sale was  approximately  $5.1  million,  of which $1.9
million  was   recognized  in  2001.




                                       15
<PAGE>

We also recorded  deferred  income of  approximately  $2.4 million which will be
recognized monthly over the next five years. In addition, 15% of the gain ($0.76
million)  related to our 15%  ownership  in the  purchaser,  was  deferred as we
accounted  for Prime Medical using the equity method of accounting as of and for
the year ended  December 31, 2001. In 2000, we sold 8,000 square feet of surplus
office space resulting in gains of about $771,000.  As a result,  our net income
from  discontinued  operations before tax increased 101% to $2.1 million in 2001
compared to $1.1 million in 2000.


LIQUIDITY AND CAPITAL RESOURCES

WORKING CAPITAL

     Our net working capital was  $3,406,000 and $465,000  at  December 31, 2001
and 2000, respectively. The increase in the current year is due primarily to our
receiving $5.9 million in cash proceeds from the sale of our  condominium  space
in Austin,  Texas.  The cash  received  was reduced by our net  payments of $3.6
million to pay down our line of credit with Bank of  America.  In  addition,  we
paid  approximately $1.6 million in 2001 in contractual  obligations  related to
share exchange  agreements with the former  shareholders  of a previously  owned
physician practice subsidiary. Historically, we have maintained a strong working
capital position and, as a result,  we have been able to satisfy our operational
and capital expenditure  requirements with cash generated from our operating and
investing activities. These same sources of funds have also allowed us to pursue
investment and expansion opportunities consistent with our growth plans. In 2000
and 2001, we  supplemented  these  traditional  sources of funds with short-term
bank  borrowings.  Although it is uncertain  if our  operating  activities  will
provide positive cash flow in 2002, we believe that the cash sale after December
31, 2001 of 1,570,000 shares of Prime Medical will enable us to meet our working
capital requirements for the foreseeable future.

LINE OF CREDIT

     We  had a three  year $7,500,000  revolving credit  agreement with  Bank of
America. Funds advanced under the agreement bear interest at the prime rate less
1/4 %, such interest to be payable quarterly.  We pledge shares of Prime Medical
to the bank as funds are advanced under the line.  Amounts  totaling  $2,275,000
and $0 were borrowed under this line of credit as of December 31, 2001 and March
15, 2002,  respectively.  Due to losses from writedowns of our  investments,  as
well as significant  goodwill impairment by Prime Medical,  our total equity was
below the amount needed to comply with our bank  covenants at December 31, 2001.
As a result,  we repaid all  advances on our line of credit and  terminated  the
line  of  credit.  Consequently,  we did not  seek a  covenant  waiver.  We also
satisfied  all  remaining  contractual  obligations  under the merger  agreement
between our former physician practice  management company and FemPartners,  Inc.
With no debt, major obligations  satisfied, a forecast of positive cash flow and
sufficient  cash on hand,  we believe  that we can meet  foreseeable  cash needs
without additional liquidity from a line of credit.



                                       16
<PAGE>

CAPITAL EXPENDITURES

     Our capital expenditures for equipment were $192,000 and $125,000 in 2001
and 2000,  respectively.  Our  capital  expenditures  were higher in 2001 due to
purchases  necessary to upgrade our network server hardware and software as well
as to upgrade our accounting software. We expect capital expenditures in 2002 to
be slightly less than those of 2001.

COMMITMENTS

     We have committed cash outflow related to debt, operating lease
arrangements with a term exceeding one year and other contractual obligations at
December 31, 2001 as follows (in thousands):
<TABLE>
<CAPTION>

                                                                  Payment Due

Contractual Cash Obligation           2002             2003       2004          2005         2006             Total
-----------------------------------------------------------------------------------------------------------------------

<S>                                  <C>         <C>                  <C>        <C>          <C>         <C>
Bank line of credit                  $ --        $2,275 (1)           $ --       $ --         $ --        $2,275

Operating leases                      736           740                670        613          460         3,219

Other contractual obligations         510 (1)        --                 --         --           --           510
                                      ---------------------------------------------------------------------------------

                                     $1,246      $3,015               $670       $613         $460        $6,004

     (1) These two obligations were paid in full in 2002.
</TABLE>


In addition, we have commitments which could utilize cash resources as follows:

Commitment                                  2002         2003-2006        Total
--------------------------------------------------------------------------------

Line of credit extended to affiliate        $390          $ --             $390

Guarantees                                    35            --               35
                                           -------------------------------------

                                            $425           $--             $425

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

INFLATION

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



                                       17
<PAGE>

ADOPTION OF ACCOUNTING PRONOUNCEMENTS AND PRONOUNCEMENTS NOT YET ADOPTED

     The Financial Accounting Standards Board, or FASB, has issued Statement of
Financial  Accounting  Standards No. 133, Accounting for Derivative  Instruments
and Hedging  Activities.  We implemented  this Statement in 2001. This statement
addresses  the  accounting  for  derivative   instruments,   including   certain
instruments  embedded  in  other  contracts,  and for  hedging  activities.  Our
adoption  of the  statement  on January  1, 2001 had no impact on our  financial
position or results of operations. We did not have any derivative instruments as
of December 31, 2001 and 2000.

     In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 141, Business Combinations,  and Statement of Financial Accounting Standards
No. 142,  Goodwill and Other Intangible  Assets.  Statement 141 requires that we
use the purchase  method of accounting for all business  combinations  initiated
after  June  30,  2001 as  well as all  purchase  method  business  combinations
completed  after June 30,  2001.  Statement  141 also  specifies  criteria  that
intangible  assets acquired in a purchase method business  combination must meet
to be recognized and reported  apart from goodwill.  Statement 142 requires that
goodwill  and  intangible  assets  with  indefinite  useful  lives no  longer be
amortized,  but instead be tested for impairment at least annually in accordance
with  the  provisions  of  Statement  142.  Statement  142  also  requires  that
intangible  assets with definite useful lives be amortized over their respective
estimated  useful lives to their  estimated  residual  values,  and reviewed for
impairment. We adopted the provisions of Statement 141 in 2001 and Statement 142
is required to be adopted  effective  January 1, 2002. Our adoption of Statement
141 did not have any  impact on our  consolidated  financial  statements.  As of
December 31, 2001, we had no goodwill or other intangible assets.

     In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.
Statement 144 addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. Statement 144 requires that one accounting model
be used for long-lived assets to be disposed of by sale and broadens
presentation of discontinued operations to include more disposals. We are
required to adopt Statement 144 effective January 1, 2002. As of the date of
adoption, we do not expect Statement 144 to have a material adverse effect on
our financial position or results of operations.



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 are contained
in Item 14(a) of the Annual Report on Form 10-K for the year ended December 31,
2001 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.



                                       18

<PAGE>


                                    PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT

     The information required by this item is contained in our definitive proxy
statement  to  be  filed  in  connection   with  our  2002  annual   meeting  of
shareholders, except for the information regarding our executive officers, which
is  presented  below.  The  information  required by this item  contained in our
definitive proxy statement is incorporated herein by reference.

As of March 15, 2002, our executive officers were as follows:

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

Kenneth S. Shifrin              52             Chairman of the Board, President
                                                and Chief Executive Officer

William H. Hayes                54             Senior Vice President - Finance
                                                and Secretary

Maury L. Magids                 37             Senior Vice President - Insurance

Thomas R. Solimine              43             Controller

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

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

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

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

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


                                       19
<PAGE>

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

ITEM 11. EXECUTIVE COMPENSATION

   The information required by this item is contained in our definitive proxy
statement to be filed in connection with our 2002 annual meeting of
shareholders, which information is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
         RELATED STOCKHOLDER MATTERS

     The information required by this item is contained in our definitive proxy
statement to be filed in connection with our 2002 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 our definitive proxy
statement to be filed in connection with our 2002 annual meeting of
shareholders, which information is incorporated herein by reference.


                                     PART IV

ITEM 14. EXHIBITS, LISTS, AND REPORTS ON FORM 8-K

         (a)      1.       Financial Statements

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

                  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.

         (b)      Reports on Form 8-K for the quarter ended December 31, 2001

                           A Current Report on Form 8-K, filed December 13,
                           2001, reporting under Item 2 concerning the sale of
                           the building to Prime Medical and the sale of
                           FemPartners common stock to a former officer of the
                           Company. Also reporting under Item 5 concerning a
                           judgment awarded against us.


                                       20
<PAGE>

         (c)   Exhibits (1)

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

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

4.1  Specimen of Common Stock Certificate. (2)

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

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

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

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

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

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

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

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

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

*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)


                                       21
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


                                       22
<PAGE>

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)

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)


                                       23
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


                                       24
<PAGE>


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

10.91    APSC, Inc. Stock Plan. (11)

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

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

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

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


                                       25
<PAGE>


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

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

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

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

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

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

  21.1   List of subsidiaries of the Company. (12)

  23.1   Independent Auditors Consent of KPMG LLP. (12)

  99.1   The  financial statements of Prime Medical Services, Inc. included in
         item 8 on the Annual Report on Form 10-K of Prime Medical Services,
         Inc. for the year ended December 31, 2001. (12)



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

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

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


                                       26
<PAGE>

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

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

(12)     Filed herewith.



                                       27
<PAGE>


                                   SIGNATURES

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

                                   AMERICAN PHYSICIANS SERVICE GROUP, INC.



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

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

                                    Date:  April 15, 2002

         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:    April 15, 2002



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

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

Date:    April 15, 2002



                                       28
<PAGE>


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

     Thomas R. Solimine
     Controller
     (Principal Accounting Officer)

Date:    April 15, 2002



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

     Robert L. Myer, Director

Date:    April 15, 2002



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

     William A. Searles, Director

Date:    April 15, 2002



By: /s/ Marc R Still
   ---------------------------------------------

     Marc R. Still, Director

Date:    April 15, 2002






                                       29
<PAGE>




                                   APPENDIX A






                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS





                                                                          Page



Independent Auditors' Report                                                A-2

Financial Statements

         Consolidated Statements of Operations for the years
         ended December 31, 2001 and 2000                                   A-3

         Consolidated Balance Sheets as of December 31, 2001
         and December 31, 2000                                              A-5

         Consolidated Statements of Cash Flows for the years
         ended December 31, 2001 and 2000                                   A-7

         Consolidated Statements of Shareholders' Equity
         for the years ended December 31, 2001 and 2000                     A-9

         Notes to Consolidated Financial Statements                         A-10




                                       30
<PAGE>


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





The Board of Directors and Shareholders

American Physicians Service Group, Inc.:



         We have audited the 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 auditing standards generally
         accepted in the United States of America. Those standards require that
         we plan and perform the audit to obtain reasonable assurance about
         whether the financial statements are free of material misstatement. An
         audit includes examining, on a test basis, evidence supporting the
         amounts and disclosures in the financial statements. An audit also
         includes assessing the accounting principles used and significant
         estimates made by management, as well as evaluating the overall
         financial statement presentation. We believe that our 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 as of December
         31, 2001 and 2000, and the results of their operations and their cash
         flows for each of the years in the two-year period ended December 31,
         2001 in conformity with accounting principles generally accepted in the
         United States of America.


         As discussed in Note 21 to the consolidated financial statements, the
         accompanying financial statments as of December 31, 2000 and for the
         year then ended have been restated.

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

         Austin, Texas

         April 15, 2002


                                      A-2
<PAGE>




                              AMERICAN PHYSICIANS SERVICE GROUP, INC.
                               CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
                                                   Year Ended December 31,
                                              ----------------------------------
                                                   2001               2000
                                                                   (Restated)
                                              ---------------    ---------------
Revenues:
  Financial services                               $13,094             $9,962
  Insurance services                                 7,289              5,692
  Consulting                                         2,642              2,395
  Investments and other                                 95                298
                                              ---------------    ---------------
    Total revenues                                  23,120             18,347
Expenses:
  Financial services                                11,518              9,147
  Insurance services                                 5,918              5,197
  Consulting                                         3,062              2,404
  General and administrative                         1,749              1,524
  Investments and interest (Notes 16 and 21)           465              7,718
                                              ---------------    ---------------
    Total expenses                                  22,712             25,990
                                              ---------------    ---------------

Operating profit (loss) (Note 21)                      408             (7,643)
Equity in loss of unconsolidated
  affiliates (Note 13)                              (3,191)              (467)
                                              ---------------    ---------------

   Loss from continuing operations
     before income taxes and minority
     interests                                      (2,783)            (8,110)

Income tax benefit (Note 9)                           (952)            (2,692)
Minority interests                                     157                 42
                                              ---------------    ---------------
Loss from continuing operations (Note 21)           (1,988)            (5,460)

Discontinued operations: (Note 12)
 Profit from discontinued operations net of
  income tax expense of $72 and $354
  in 2001 and 2000, respectively                       138                686


Gain on disposal of discontinued segment,
 net of income tax expense of $655 in 2001           1,272                 --

                                              ---------------    ---------------
    Net loss (Note 21)                             $  (578)           $(4,774)
                                              ===============    ===============

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)

                                                     Year Ended December 31,
                                                 -------------------------------
                                                     2001               2000
                                                                     (Restated)
                                                 -------------      ------------
Loss per common share: (Note 15 and 21)
Basic:
   Loss from continuing operations                 $ (0.85)            $ (2.19)
   Discontinued operations                            0.60                0.28
                                                 -------------      ------------
      Net loss                                     $ (0.25)            $ (1.92)
                                                 =============      ============
Diluted:
   Loss from continuing operations                 $ (0.85)            $ (2.19)
   Discontinued operations                            0.60                0.28
                                                 -------------      ------------
      Net loss                                     $ (0.25)            $ (1.92)
                                                 =============      ============
Basic weighted average shares outstanding            2,343               2,490
                                                 =============      ============
Diluted weighted average shares outstanding          2,343               2,490
                                                 =============      ============




                                      A-4

<PAGE>



            AMERICAN PHYSICIANS SERVICE GROUP, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                       (In thousands, except share data)


                                                          December 31,
                                               ---------------------------------
                                                  2001                  2000
                                                                     (Restated)
                                                --------             ----------
ASSETS
Current assets:
  Cash and cash investments                       $3,851                $2,988
  Trading account securities                         149                   241
  Notes receivable - current (Note 3)                573                   282
  Management fees and other
    receivables (Note 2)                           1,087                   682
  Deposit with clearing organization                 499                   495
  Receivable from clearing organization               69                   185
  Net deferred income tax asset (Note 9)             282                    --
  Income tax receivable                              167                   502
  Prepaid expenses and other (Note 6)              1,147                   331
                                                 --------             ---------
         Total current assets (Note 21)            7,824                 5,706

Notes receivable, net - less current
   portion (Note 3)                                  999                 1,363
Property and equipment  (Note 5)                     415                 1,422
Investment in affiliate  (Note 13)                11,459                14,374
Other investments  (Notes 16 and 21)                  68                   182
Net deferred income tax asset -
  non-current                                      1,453                 1,101
Goodwill (Note 18)                                    --                   443
Other assets                                         201                   205
                                                  -------             ---------

Total Assets (Note 21)                           $22,419               $24,796
                                                  =======             =========

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)

                                                           December 31,
                                                 -------------------------------
                                                      2001               2000
                                                                      (Restated)
                                                     -------           --------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable - trade                           $1,044            $1,033
   Payable to clearing organization                      254               470
   Net deferred income tax liability
    (Note 9)                                              --               122
   Deferred income - current (Note 12)                   537               414
   Accrued compensation                                1,246               719
   Accrued expenses and other
     liabilities (Note 6)                              1,337             2,483
                                                      -------           -------
       Total current liabilities                       4,418             5,241

   Payable under loan participation
    agreements (Note 13)                                 259               259
   Deferred income - non-current  (Note 12)            2,676                45
   Notes payable - long term  (Note 7)                 2,275             5,888
                                                      -------           -------
       Total liabilities (Note 21)                     9,628            11,433

Minority interest                                        124               111
Shareholders' Equity:
  Preferred stock, $1.00 par value, 1,000,000
   shares authorized                                      --                --
  Common stock, $0.10 par value, shares authorized
   20,000,000; 2,745,231 issued in 2001 and
   2,745,233 issued in 2000 and 2,359,231
   outstanding in 2001 and 2,359,233 outstanding
   in 2000                                               275               275
Additional paid-in capital                             5,539             5,539
Retained earnings (Note 21)                            8,310             8,888
Accumulated other comprehensive loss                     (39)              (32)
 Treasury stock, at cost, 386,000 shares in
  2001 00                                             (1,418)           (1,418)
                                                     --------          --------
   Total shareholders' equity (Note 21)               12,667            13,252

Total Liabilities and Shareholders' Equity           $22,419           $24,796
                                                     ========          ========


See accompanying notes to consolidated financial statements






                                      A-6
<PAGE>


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

                                                         (In thousands)
                                                     Year Ended December 31,

                                                        2001             2000
                                                                      (Restated)
                                                       -------         --------
Cash flows from operating activities:
  Cash received from customers                         $22,792          $19,482
  Cash paid to suppliers and employees                 (23,165)         (20,225)
  Change in trading account securities                      83              203
  Change in deposit with and receivable from
   clearing organization                                  (104)             355
  Interest paid                                           (456)            (408)
  Income taxes (paid) refunded                             (45)             122
  Interest and other investment proceeds                    54              409
                                                        -------          -------
     Net cash  used in operating activities              (841)              (62)

Cash flows from investing activities:
  Proceeds from the sale of property and
   equipment                                             6,075              953
  Payments for purchase of property and equipment         (192)            (125)
  Investment in and advances to affiliates, net           (485)            (845)
  Other investments                                         38             (856)
  Funds loaned to others                                  (318)            (259)
  Collection of notes receivable                           282               73
  Other                                                     57              115
                                                        -------          -------
    Net cash provided by (used in) investing
      activities                                         5,457             (944)

Cash flows from financing activities:
  Proceeds from notes payable                            1,715            3,560
  Payment of notes payable                              (5,328)            (982)
  Purchase/retire treasury stock                            --             (914)
  Sale of treasury stock                                    --               55
  Distribution to minority interest                       (140)              --
                                                        -------         -------
    Net cash provided by (used in) financing
      activities                                        (3,753)           1,719

Net change in cash and cash investments                   $863             $713
                                                        -------         -------
Cash and cash investments at beginning of year           2,988            2,275
                                                        -------         -------
Cash and cash investments at end of year                $3,851           $2,988
                                                        =======         =======

See accompanying notes to consolidated financial statements




                                      A-7
<PAGE>



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

                                      (In thousands, except summary information)
                                                         Year Ended December 31,

                                                          2001           2000
                                                                      (Restated)
                                                        -------        --------
Reconciliation of net loss to net cash used
  in operating activities:

Net loss                                                 $(578)         $(4,774)

Adjustments to reconcile net loss to net
  cash used in operating activities:

Depreciation and amortization                              312              373
Forgiveness of debt                                        213              201
Impairment of goodwill                                     391               --
Minority interest in consolidated earnings                 157               42
Undistributed loss of affiliates                         3,399              467
Gain on sale of property                                (1,932)            (758)
Realized (gain) loss on other investments                  (30)           6,750
Provision for deferred taxes                              (756)          (2,045)
Change in trading account securities                        83              203
Change in management fees & other receivables             (458)             722
Change in deposit with and receivable/payable
 from/to clearing organization                            (104)             355
Change in federal income tax receivable                    335             (285)
Change in prepaid expenses & other current assets         (816)             (52)
Change in other non-current assets                          --               14
Change in trade payables                                     4             (209)
Change in deferred income                                 (447)             (70)
Change in accrued expenses & other liabilities            (614)            (996)
                                                         -------         -------
   Net cash used in operating activities                 $(841)            $(62)
                                                         =======         =======


Summary of non-cash transactions:

     During 2001, we sold all of the remaining 45,000 square feet of condominium
     space we owned in an office project located in Austin, Texas. In connection
     with the sale,  we deferred  $3.2 million of the gain recorded on the sale.
     (Note 12)

     During  2000,  we recorded a  liability  of $2.25  million to complete  the
     remaining  expected  exchanges of FemPartners shares subsequent to December
     31, 2000. In addition, we recorded an impairment charge of $6.7 million to
     our investment in FemPartners during 2000. The  investment  in  FemPartners
     is accounted for in "Other Investments" in  the  accompanying  consolidated
     balance sheets. (Notes 8,16 and 21)

     In association with the working capital  agreement  established  between us
     and FemPartners as part of the merger of Syntera with  FemPartners in 1999,
     it was agreed that  Syntera  would have  working  capital of an agreed upon
     amount measured at December 31, 2000. The working capital we recorded as of
     December  31, 2000 was  $623,000.  We and  FemPartners  agreed to the final
     amount of and settled the working capital  liability in 2001 which resulted
     in a non-cash  adjustment to increase the note receivable from  FemPartners
     by the amount of $46,000. 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, 2001 and 2000


(In thousands)
<TABLE>
<CAPTION>


                                                                                              Accumulated
                                             Common    Additional  Retained                      Other                    Total
                                              Stock     Paid-In    Earnings  Comprehensive   Comprehensive  Treasury   Shareholders'
                                            (Note 17)    Capital   (Note 21)  Income (Loss)       Loss       Stock        Equity
                                             --------- ---------- --------- ---------------  ------------  ----------  -------------
<S>                                            <C>       <C>        <C>          <C>              <C>         <C>        <C>
Balance December 31, 1999                      278       5,549      13,644                         --         (559)      18,912
Comprehensive income:
    Net loss (Restated)(Note 21)                --          --      (4,774)      (4,774)           --           --       (4,774)
    Other comprehensive loss
     Unrealized loss on  securities net         --          --          --          (32)          (32)          --          (32)
      of tax of  $17                                                             -------
                                                --          --                  $(4,806)           --           --           --
                                                                                 --------
Comprehensive loss (Restated)

Treasury stock purchases                        --          --          --                         --         (914)       (914)
Treasury stock sales                            --          --          --                         --           55          55
Dissolution of  Subsidiary                      (3)        (10)         17                         --           --           4
                                             --------- ---------- ---------   ------------- ------------ ----------   -----------
                                             --------- ---------- ---------   ------------- ------------ ----------   -----------
Balance December 31, 2000 (Restated)         $ 275     $ 5,539     $ 8,888                      $ (32)    $ (1,418)   $ 13,252
                                             --------- ---------- ---------   ------------- ------------ ----------   -----------

Comprehensive income:
    Net loss                                    --          --        (578)        (578)                                  (578)
    Other comprehensive loss

      Unrealized loss on  securities net        --          --          --           (7)           (7)          --          (7)
        of tax of  $2                                                            -------

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

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


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


                                      A-9
<PAGE>


            AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2001 and 2000

(1)      Summary of Significant Accounting Policies

(a)           General

         The consolidated financial statements for 2000 have been restated. See
         Note 21 for additional information. We, through our subsidiaries,
         provide financial services that include brokerage and asset management
         services to individuals and institutions, insurance services that
         consist of management services for malpractice insurance companies, and
         environmental consulting services that include air, water and solid
         waste engineering, litigation support and regulatory compliance. The
         financial services business has clients nationally. Insurance
         management is a service provided primarily in Texas, but is available
         to clients nationally. Consulting is a service provided primarily in
         the Southeastern United States, but is available to clients nationally.
         During the two years presented in the financial statements, financial
         services generated 56% of total revenues and insurance services
         generated 31%.

         We have two affiliates; Prime Medical Services, Inc., ("Prime Medical")
         of which we own approximately 15% at December 31, 2001, and Uncommon
         Care, Inc. ("Uncommon Care") of which we own common stock and
         convertible preferred stock equivalent to a 38% ownership on a fully
         converted basis. Prime Medical is the country's largest provider of
         lithotripsy (non-invasive kidney stone fracturing) services. In
         addition, Prime Medical operates 14 refractive surgery centers
         performing 23,000 LASIK procedures on an annualized basis, and is also
         involved in the manufacturing of mobile medical and specialty equipment
         units. Uncommon Care develops and operates Alzheimer's care facilities.

(b)           Estimates

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

(c)           Principles of Consolidation

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



                                      A-10
<PAGE>

(1)      Summary of Significant Accounting Policies, continued

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

         (d)     Revenue Recognition

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

         Our 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.
         Our expense reimbursements are recorded as a reduction in expenses.

         Our 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. Our clients
         are billed, and revenue is recognized, monthly based on hours worked
         and expenses incurred toward completing the assignments.

         (e)    Marketable Securities

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

            Classification            Accounting
            --------------            ----------
            Held to maturity          Amortized cost
            Trading securities        Fair value, unrealized gains and losses
                                        included in earnings
            Available for sale        Fair value, unrealized gains and losses
                                        excluded from earnings and reported as a
                                        separate  component of stockholders'
                                        equity, net of applicable income taxes


         We have included our marketable securities, held as inventory at our
         broker/dealer, in the trading securities category.


         (1)      Summary of Significant Accounting Policies, continued

         (f)      Property and Equipment


                                      A-11
<PAGE>

         Property and equipment are stated at cost. Property and equipment are
         depreciated using the straight-line method over the estimated useful
         lives of the respective assets (3 to 5 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 our intent and time frame to hold or to dispose of the
         investment and takes into consideration available information,
         including recent transactions in the stock, expected changes in the
         operations or cash flows of the investee, or a combination of these and
         other factors.

         (h)      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. Goodwill is
         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 based on the difference
         between the fair value and carrying value.

         (i)      Income Taxes

         Income taxes are accounted for under the asset and liability method.
         Deferred tax assets and liabilities are recognized for the future tax
         consequences attributable to differences between the financial
         statement carrying amounts of existing assets and liabilities and their
         respective tax bases and operating loss and tax credit carryforwards.
         Deferred tax assets and liabilities are measured using enacted tax
         rates expected to apply to taxable income in the years in which those
         temporary differences are expected to be recovered or settled. The
         effect on deferred tax assets and liabilities of a change in tax rates
         is recognized in income in the period that includes the enactment date.

         (j)      Cash and Cash Investments

         Cash and cash investments include cash and highly liquid investments
         with a maturity date at purchase of 90 days or less.

         (1)      Summary of Significant Accounting Policies, continued

         (k)      Notes Receivable


                                      A-12
<PAGE>
         Notes receivable are recorded at cost, less allowances for doubtful
         accounts when deemed necessary. Management, considering current
         information and events regarding the borrowers ability to repay their
         obligations, considers a note to be impaired when it is probable that
         we will be unable to collect all amounts due according to the
         contractual terms of the note agreement. When a loan is considered to
         be impaired, the amount of the impairment is measured based on the
         present value of expected future cash flows discounted at the note's
         effective interest rate. Impairment losses are included in the
         allowance for doubtful accounts through a charge to bad debt expense.
         The present value of the impaired loan will change with the passage of
         time and may change because of revised estimates of cash flows or
         timing of cash flows. Such value changes shall be reported as bad debt
         expense in the same manner in which impairment initially was recognized
         or as a reduction in the amount of bad debt expense that would be
         reported. No interest income is accrued on impaired loans. Cash
         receipts on impaired loans are recorded as reductions of the principal
         amount.

         (l)      Stock-Based Compensation

         We have adopted the disclosure-only provisions of Statement of
         Financial Accounting Standards No. 123, Accounting for Stock-Based
         Compensation ("Statement 123"), but apply Accounting Principles Board
         Opinion No. 25, Accounting for Stock Issued to Employees, in accounting
         for our stock option plans.

         (m)      Reclassification

         Certain reclassifications have been made to amounts presented in 2000
         to be consistent with the 2001 presentation.



(2)      Management Fees and Other Receivables

         Management fees and other receivables consist of the following:

                                                            December 31,
                                                      2001               2000
                                                      ----               ----
           Management fees receivable                $30,000             $3,000
           Trade accounts receivable                 725,000            637,000
           Less: allowance for doubtful accounts     (40,000)           (56,000)
           Accrued interest receivable                 4,000             57,000
           Other receivables                         368,000             41,000
                                                     -------             ------
                                                  $1,087,000           $682,000
                                                   =========           ========


         We earn management fees by providing management services to American
         Physicians Insurance Exchange ("APIE") under the direction of APIE's
         Board of Directors. Subject to the direction of this Board, FMI sells
         and issues policies, investigates, settles and defends claims, and
         otherwise manages APIE's affairs. We earned management fees and other
         related income of $7,289,000 and $5,692,000 and received expense
         reimbursements of $2,570,000 and $1,997,000 for the years ended
         December 31, 2001 and 2000, respectively, related to these agreements.



                                      A-13
<PAGE>

(2)  Management Fees and Other Receivables, continued

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

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

(3)  Notes Receivable

     Notes receivable consist of the following:
<TABLE>
<CAPTION>

                                                                                                    December 31,
                                                                                               2001              2000
                                                                                               ----              ----
        FEMPARTNERS, INC. (FORMERLY DUE FROM SYNTERA HEALTHCARE CORPORATION)
<S>                                                                                          <C>                <C>
Promissory  note,  bears  interest at 8%.  Payments  were  interest  only,  paid
quarterly through November 30, 2001.  Quarterly  combined principal and interest
payments began December 1, 2001 and continue through September 1, 2004, at which
time the total outstanding balance is due. The maturity date of this note can be
accelerated if FemPartners  conducts an initial public  offering or other public
sale of its common stock.  If such occurs,  the note shall mature and become due
and payable the latter of  September  1, 2002 or the 5th  business day after the
date of such initial public offering or other public sale.                                   $1,304,000        $1,377,000

Unsecured term note, principal and interest, at 8%, payable monthly until
maturity on March 31, 2004.                                                                     115,000           182,000

       EMPLOYEES
Loans are periodically made to employees, primarily as employment inducements.
Employee notes receivable at December 31, 2001 consisted of three notes totaling
$100,000 which were repaid in full in February 2002 and two loans totaling
$53,000 to a key employee for advanced education fees. The latter two notes are
forgivable in the amount of approximately $13,000 on each January 1st that the
employee is employed by the Company beginning in 2001 and continuing through
2005. They are due within 90 days should the employee terminate employment.                     153,000           119,000
                                                                                                -------           -------

                                                                                              1,572,000         1,678,000
Less allowance for doubtful accounts                                                                 --           (33,000)
                                                                                               --------         ---------

                                                                                              1,572,000         1,645,000
Less current portion                                                                            573,000           282,000
                                                                                                -------       -----------
Long term portion                                                                              $999,000        $1,363,000
                                                                                               ========       ===========


</TABLE>


                                      A-14

<PAGE>


(3)      Notes Receivable, continued

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

                                                 Year Ended December 31,

                                                  2001                 2000
                                                  ----                 ----

Balance at the beginning of the period          $ 33,000           $  311,000

Amounts charged off                              (33,000)            (285,000)

Additional provision                                  --                7,000
                                                 --------            ----------

Balance at the end of period                    $     --           $   33,000
                                                =========            ==========



(4)      Fair Value of Financial Instruments

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

         CASH AND CASH INVESTMENTS

         The carrying amounts for cash and cash investments 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 are reported at fair value. In the
         absence of any available market quotation, securities held by us are
         valued at estimated fair value as determined by management.

         In addition to receiving commission revenue for acting as the placement
         agent for private offerings, APS Financial received over the past three
         years warrants to purchase a total of 600,373 shares of restricted
         common capital stock of four companies. The warrants expire in 2004
         through 2006 and have no value at December 31, 2001. None of the
         warrants have been exercised as of December 31, 2001.

         MANAGEMENT FEES AND OTHER RECEIVABLES

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




                                      A-15
<PAGE>


(4)      Fair Value of Financial Instruments, continued

         Notes Receivable

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

         RECEIVABLE FROM CLEARING ORGANIZATION

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

         OTHER INVESTMENTS

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

         ACCOUNTS PAYABLE

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

         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. 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:

                                                         December 31,
                                              ---------------------------------
                                                 2001                   2000
                                              ---------                -------
         Office condominium                   $      --              $1,340,000
         Furniture and equipment              2,221,000               2,041,000
                                              ---------               ---------
                                              2,221,000               3,381,000
         Accumulated depreciation and
              amortization                    1,806,000               1,959,000
                                              ---------               ---------
                                              $ 415,000              $1,422,000
                                              =========               =========



         During 2001, we sold all of our approximately 46,000 square feet in the
         condominium building in which our principal offices are located to our
         affiliate, Prime Medical. The Company, our subsidiaries and affiliates
         occupied approximately 36,720 square feet and the remainder was leased
         to third parties. Rental income received from third parties



                                      A-16
<PAGE>

(5)        Property and Equipment, continued

         during the years ended December 31, 2001 and 2000 totaled approximately
         $179,000 and $273,000, respectively. Gain on the sale amounted to
         approximately $5.1 million, of which $1.9 million was recognized in
         2001. Deferred income of approximately $2.4 million was recorded and
         will be recognized monthly over the next five years. In addition, 15%
         of the gain ($0.76 million) related to our 15% ownership in the
         purchaser, was deferred as we accounted for Prime Medical using the
         equity method of accounting as of and for the year ended December 31,
         2001. Approximately 50% of the space sold was leased back to us and is
         utilized by our investment services, insurance services and general and
         administrative segments' operations.


(6)      Accrued Expenses and Other Liabilities

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

                                                 2001                   2000
                                                -------                -------

          Taxes payable                        $ 61,000               $ 71,000
          Contractual/legal claims            1,031,000              2,264,000
          Vacation payable                      140,000                133,000
          Funds held for others                      --                 15,000
          Other                                 105,000                     --
                                              ---------              ----------
                                             $1,337,000             $2,483,000
                                             ==========              ==========

         Contractual/legal claims as of December 31, 2001 includes an accrual of
         $520,000 related to the settlement of a legal judgment against us that
         was paid in January 2002. Prior to the negotiated settlement of the
         judgment, we were required to put up a cash bond in the amount of the
         original judgment in the amount of $762,000. This amount is reflected
         in the line item "Prepaid expenses and other" in the accompanying
         consolidated balance sheets. The difference between the cash bond and
         the settlement amount was reimbursed to us in February 2002.

(7)      Notes Payable

         We had a $7,500,000 line of credit with Bank of America, N. A. We had
         pledged shares of Prime Medical to the bank as funds are advanced under
         the line. Funds advanced under the agreement were $2,275,000 at
         December 31, 2001. Funds advanced under the agreement bore interest at
         the prime rate less 1/4 %. The average interest rate on amounts
         outstanding under this agreement for the year ended December 31, 2001
         was 6.89%. Interest expense incurred during the years ended December
         31, 2001 and 2000 related to the line of credit was approximately
         $388,000 and $401,000, respectively. The unused portion of the line
         carries a 1/4 % commitment fee. All interest is to be paid quarterly.
         Prior to maturity in February 2001, this note was extended to February
         2003. Any outstanding principal is to be paid at maturity in February
         2003.

         In order to receive advances under the $7,500,000 line of credit, we
         must maintain certain levels of liquidity and net worth. In addition,
         the market value of the collateral


                                      A-17
<PAGE>

(7)      Notes Payable, continued

         must exceed a certain multiple of the funds advanced under the line of
         credit and there must be no occurrence which would have a material
         adverse effect on our ability to meet its obligations to the bank. As
         of December 31, 2001, we were out of compliance with the minimum
         shareholders' equity requirements and do not have a waiver. All amounts
         payable under the line of credit were repaid in February 2002. We
         terminated the line of credit during 2002.

         We entered into a $1,250,000 364-Day Revolving Promissory Note
         agreement with Bank of America, N.A. on February 9, 2001. We placed as
         collateral real estate owned by APS Realty, Inc. There are no funds
         advanced under this agreement at December 31, 2001. Funds advanced
         under this agreement bore interest at the prime rate plus 1/4%.
         Interest expense incurred during the year ended December 31, 2001
         related to the Promissory Note was approximately $48,000. All interest
         was paid quarterly. The initial maturity date was February 8, 2002.
         However, upon the sale of real estate owned by APS Realty, Inc. the
         balance of the note plus interest became due. Therefore, this Revolving
         Note terminated and was paid in full on November 26, 2001.

(8)      Commitments and Contingencies

         Under agreements with former doctor shareholders of Syntera, our
         practice management company that was merged with FemPartners, we agreed
         to exchange their shares in Syntera for the common stock of American
         Physicians, or cash, if the Syntera shares did not become publicly
         traded. Through December 31, 2001 we paid approximately $2,488,000 in
         cash related to these agreements and have recorded a liability of
         $510,000 as of December 31, 2001 to complete the remaining exchanges.
         We satisfied this final liability under the agreements using cash in
         March 2002.

         Rent expense under all operating leases for the years ended December
         31, 2001 and 2000 was $246,000 and $160,000, respectively. Future
         minimum payments for leases that extend for more than one year were
         $736,000; $740,000; $670,000; $613,000 and $460,000 for 2002, 2003,
         2004, 2005 and 2006, respectively.

         We have extended various lines of credit to Uncommon Care. See Note 13
         to these consolidated financial statements.

         We have guaranteed a loan in the maximum amount of $70,000 for a
         director, William Searles. The guarantee is collateralized by Mr.
         Searles' options to purchase American Physicians and Prime Medical
         shares as well as Mr. Searles' common stock interest in Uncommon Care.
         At December 31, 2001 the loan was in the amount of $35,000. The loan
         was paid in full subsequent to year end.

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



                                      A-18
<PAGE>

(9)      Income Taxes

         We file a consolidated tax return. Income tax expense (benefit)
         consists of the following:

                                                    Year Ended December 31,
                                              ---------------------------------
                                                  2001                 2000
                                                  ----                 ----
                                                                    (Restated)
              Continuing Operations
              Federal
                Current                        $(694,000)          $(680,000)
                Deferred                        (330,000)         (2,064,000)
              State                               72,000              52,000
              Discontinued Operations            727,000             354,000
                                               ---------             -------
                                               $(225,000)        $(2,338,000)
                                               ==========         ===========


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

                                                     Year Ended December 31,
                                             -----------------------------------
                                                 2001                 2000
                                                 ----                 ----
                                                                   (Restated)
         Expected  federal income tax
          benefit fromoperations            $(1,001,000)          $(2,771,000)
              State taxes                        48,000                34,000
              Other, net                          1,000                45,000
                                             ----------            -----------
                                            $  (952,000)          $(2,692,000)


         The tax effect of temporary differences that gives rise to significant
         portions of deferred tax assets and deferred tax liabilities at
         December 31, 2001 and 2000 are presented below:

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

                                                      2001                2000
                                                      ----                ----
                                                                      (Restated)
        Deferred tax assets:
        Net operating loss carryforwards            $110,000           $110,000
        Accrued expenses                             227,000             50,000
        Accounts receivable, principally due
         to allowance for doubtful accounts           16,000             28,000
        Market value allowance                            --             17,000
        Other investments                            919,000          2,801,000
        Difference in basis of investment
          in subsidiary                               51,000                 --
        Sales/Leaseback deferred income            1,073,000                 --
        Other                                         33,000                 --
                                                   ---------          ---------


                                      A-19
<PAGE>


        Total gross deferred tax assets             2,429,000         3,006,000
        Less valuation allowance                     (110,000)         (110,000)
                                                    ---------         ---------
        Deferred tax assets-net of valuation
          allowance                                 2,319,000         2,896,000
                                                    ---------         ---------
        Deferred tax liabilities:
        Investment in equity investments due
         to use of equitymethod for financial
         reporting                                   (528,000)       (1,684,000)

        Deferred income for tax purposes              (26,000)          (26,000)
        Difference in basis of investment in
         subsidiary                                        --          (163,000)
        Capitalized expenses, principally due to
         deductibility for tax purposes               (32,000)          (44,000)
                                                      --------        ----------
        Total gross deferred tax liabilities         (586,000)       (1,917,000)
                                                      --------        ----------
        Net deferred tax asset                    $ 1,733,000         $ 979,000
                                                    ==========        ==========


         The net change in the total valuation allowance for the year ended
         December 31, 2000 was a decrease of $62,000. In assessing the
         realizability of deferred tax assets, management considers whether it
         is more likely than not that some portion or all of the deferred tax
         assets will not be realized. The ultimate realization of deferred tax
         assets is dependent upon the generation of future taxable income during
         the periods in which those temporary differences become deductible.
         Management considers the scheduled reversal of deferred tax
         liabilities, projected future taxable income, and tax planning
         strategies in making this assessment. Based upon the level of
         historical taxable income and projections for future taxable income
         over the periods which the deferred tax assets are deductible,
         management believes it is more likely than not that we will realize the
         benefits of these deductible differences net of the existing valuation
         allowance at December 31, 2001.

(10)         Employee Benefit Plans

         We have an employee benefit plan qualifying under Section 401(k) of the
         Internal Revenue Code for all eligible employees. Employees become
         eligible upon meeting certain service and age requirements. Employees
         may defer up to 15% (not to exceed $10,500 in 2001) of their annual
         compensation under the plan. We may, at our discretion, contribute up
         to 200% of the employees' deferred amount. For the years ended December
         31, 2001 and 2000, our contributions aggregated $88,000 and $122,000,
         respectively.

(11)          Stock Options

         We have adopted, with shareholder approval, the "1995 Non-Employee
         Directors Stock Option Plan" ("Directors Plan") and the "1995 Incentive
         and Non-Qualified Stock Option Plan" ("Incentive Plan"). The Directors
         Plan provides for the issuance of up to 200,000 shares of common stock
         to non-employee directors who serve on the Compensation Committee.



                                      A-20
<PAGE>

(11)      Stock Options, continued

         The Directors Plan is inactive and it is assumed the remaining 170,000
         shares will not be granted. The Incentive Plan, as amended with
         shareholder approval in 1998 and 2001, provides for the issuance of up
         to 1,400,000 shares of common stock to our directors and our key
         employees.

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

         We have adopted the disclosure-only provisions of Statement of
         Financial Accounting Standards No. 123, Accounting for Stock-Based
         Compensation ("Statement 123"), but apply Accounting Principles Board
         Opinion No. 25, Accounting for Stock Issued to Employees, in accounting
         for our stock option plans. No compensation expense from stock-based
         compensation awards was recognized in 2001 or 2000. If we had elected
         to recognize compensation expense for options granted based on the fair
         value at the grant dates, consistent with Statement 123, net income and
         earnings per share would have changed to the pro forma amounts
         indicated below:

                                                  Year Ended December 31,
                                               --------------------------------
                                                   2001                2000
                                                   -----               -----
                                                                     (Restated)

         Net loss as reported                   $ (578,000)       $ (4,774,000)

         Pro forma net loss                       (804,000)         (5,192,000)

         Pro forma loss per share
                 - basic                             (0.34)              (2.09)
                 - diluted                           (0.34)              (2.09)

         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:

                                                    2001              2000
                                                    ----              ----
                   Risk-free interest rate          4.45%            6.00%
                   Expected holding period          3.90 years       3.90 years
                   Expected volatility              .798             .653
                   Expected dividend yield           -0-              -0-






                                      A-21
<PAGE>


(11)           Stock Options, continued

Presented below is a summary of the stock options held by our employees and our
directors and the related transactions for the years ended December 31, 2001 and
2000.



                                           Year Ended December 31,
                             ---------------------------------------------------
                                    2001                           2000
                             ---------------------         ---------------------
                                           Weighted                   Weighted
                                           Average                     Average
                                           Exercise                    Exercise
                              Shares        Price          Shares       Price
                              --------    ----------     ----------   ----------
Balance at January 1          1,151,000     $5.04         1,282,000      $6.09
Options granted                 134,000      2.25           240,000       2.14
Options forfeited/expired       497,000      6.70           371,000       6.78
Balance at December 31          788,000      3.45         1,151,000       5.04
                                =======      ====         =========       ====
Options exercisable             455,000      4.19           719,000      $5.77
                                =======      ====         =========       =====


         The weighted average fair value of Company stock options, calculated
         using the Black Scholes option pricing model, granted during the years
         ended December 31, 2001 and 2000 is $1.36 and $1.15 per option,
         respectively.

         The following table summarizes the Company's options outstanding and
         exercisable options at December 31, 2001:
<TABLE>
<CAPTION>

                                              Stock Options                                 Stock Options
                                                Outstanding                                  Exercisable
                           ------------------------------------------------    ------------------------------------
                                                Average          Weighted                              Weighted
                                               Remaining          Average                               Average
      <S>                          <C>           <C>               <C>                 <C>              <C>
          Range of                            Contractual        Exercise                              Exercise
      Exercise Prices               Shares       Life              Price                Shares           Price
      ---------------               ------       ----              -----                ------           -----
        $1.50 to $3.50             339,000       4.1 years         $ 2.05               73,000          $ 2.07
        $3.51 to $5.50             380,000       2.3 years         $ 4.07              313,000          $ 4.08
        $5.51 to $7.88              69,000       0.9 years         $ 6.93               69,000          $ 6.93
                                   -------                                             -------
        Total                      788,000                                             455,000
                                   =======                                             =======

</TABLE>

(12)     Discontinued Operations

         Summary operating data for APS Realty is as follows:

                                         Year Ended December 31,
                                         -----------------------
                                         2001               2000
                                         ----               ----

         Rent Revenues                   $677               $784
         Expenses                        (467)              (515)
         Gain on building sale          1,927                771
                                        -----               -----
              Net Income              $ 2,137             $ 1,040
                                        =====               =====


                                      A-22
<PAGE>

(12)     Discontinued Operations, continued

         In November, 2001 we sold all of the remaining 45,000 square feet of
         condominium space we owned in an office project located in Austin,
         Texas to our affiliate, Prime Medical. In conjunction with the sale we
         leased back approximately 23,000 square feet that housed our operations
         prior to the sale. Our wholly-owned subsidiary, APS Realty, which
         formerly owned this office space and leased space to us, our
         subsidiaries, affiliates and unaffiliated parties, was subsequently
         dissolved. As a result there are no corresponding assets or liabilities
         related to discontinued operations as of December 31, 2001. Gain on the
         sale amounted to approximately $5.1 million, of which $1.9 million was
         recognized in 2001. Deferred income of approximately $2.4 million was
         recorded and will be recognized monthly over the next five years. In
         addition, 15% of the gain ($0.76 million) related to our 15% ownership
         in the purchaser, was deferred as we accounted for Prime Medical using
         the equity method of accounting as of and for the year ended December
         31, 2001. A gain on sale to an unrelated party was also recognized in
         2000 in the amount of $771,000.

(13)     Investment in Affiliates

         On October 12, 1989, we purchased 3,540,000 shares (42%) of the common
         stock of Prime Medical. Prime Medical provides non-medical management
         services to lithotripsy centers, operates refractive surgery centers
         and manufactures mobile medical specialty units. 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
         us under an option agreement, the repurchase by Prime Medical of its
         own shares, and the exchange of Prime Medical shares for our common
         stock, in the aggregate, have reduced our ownership to approximately
         15% of the outstanding common stock of Prime Medical at December 31,
         2001.

         During 2001 and 2000, our investment in Prime Medical was accounted for
         using the equity method as we continued to exercise significant
         influence over operating and financial policies, primarily through the
         board of directors and senior officers. Three of Prime Medical's six
         member board were also members of our board during 2001. Mr. Kenneth S.
         Shifrin is CEO of the Company and chairman of the board of both
         companies as of and for the year ended December 31, 2001. Mr. Searles
         is a director of both companies. We continued to be Prime Medical's
         largest shareholder in 2001. The 2,343,803 shares of Prime Medical
         common stock held by us had an approximate market value of $11,349,000
         (carrying amount of approximately $11,459,000) at December 31, 2001
         based on the market closing price of $4.84 per share. As mentioned
         previously in this report, we will no longer account for our investment
         in Prime Medical using the equity method because: (1) in December 2001,
         Prime Medical's CEO, Brad Hummel, resigned from our board of directors;
         (2)in January 2002, Kenneth S. Shifrin, the Company's Chairman and CEO,
         stepped down from day-to-day operations as Executive Chairman of the
         Board of Prime Medical, but will continue to serve as non-executive
         Chairman; and (3) from January to March 2002, we sold 1,570,000 shares
         of Prime Medical reducing our ownership percentage to slightly less
         than 5%.




                                      A-23
<PAGE>

(13)     Investment in Affiliates, continued


         The condensed balance sheets and statements of operations for Prime
         Medical follows (in thousands):

         Condensed balance sheets at December 31, 2001 and 2000:
         ------------------------------------------------------
                                                    2001                  2000
                                                    ----                  ----
              Current assets                      $58,955               $61,271
              Long-term assets                    192,828               214,947
                                                  -------               -------
              Total assets                      $ 251,783             $ 276,218
                                                 =========             =========

              Current liabilities                 $28,350               $23,154
              Long-term liabilities               137,957               153,273
              Shareholders' equity                 85,476                99,791
                                                  -------                ------
              Total liabilities and equity      $ 251,783             $ 276,218
                                                 ========              ========


         Condensed statements of operations for the years ended
                     December 31, 2001 and 2000
         -------------------------------------------------------

                                                  2001                2000
                                                  ----                ----
              Total revenue                    $ 154,868           $ 130,695
                                                =========           ========
              Net income (loss)                $ (14,465)           $ 10,657
                                                =========           ========


         On January 1, 1998 we invested approximately $2,078,000 in the
         convertible preferred stock of Uncommon Care and have extended three
         lines of credit totaling $4,850,000. Uncommon Care is a  developer and
         operator of dedicated Alzheimer's care facilities. The preferred shares
         we own are convertible into approximately a 34% common  stock interest
         in the equity of Uncommon Care on a fully converted  basis. In 2001 we
         received common shares amounting to an additional 4%  common stock
         interest as payment in kind for interest on our lines of credit. Our
         investment entitles us to vote in certain instances and to
         elect one of the three members of the board of directors of Uncommon
         Care. In addition, pursuant to a shareholders agreement between
         Uncommon Care and its shareholders, one of the directors elected by the
         holders of the preferred stock must consent to Uncommon Care's taking
         certain important corporate actions specified in the shareholders
         agreement. The lines of credit extended to Uncommon Care was their sole
         source of liquidity during 2001. The combination of board
         representation, percentage ownership and financial backing gives us
         significant influence over the operating and financing policies of
         Uncommon Care. As a result, we account for this investment on the
         equity method.

         We have extended three lines of credit to Uncommon Care. Amounts
         outstanding under these lines of credit at December 31, 2001 and 2000
         are as follows (in thousands):





                                      A-24

<PAGE>


(13)     Investment in Affiliates, continued
<TABLE>
<CAPTION>

                                                                                                          2001              2000
                                                                                                          ----              ----
        <S>                                                                                                <C>             <C>
        Revolving Line of Credit:  This note is unsecured  with a maximum of $1,200,000.  The note
        is interest only at 10%, payable  semi-annually.  The note matured September 30, 2001, but
        was extended until April 30, 2003.  Maturity may be  accelerated  if the borrower  obtains
        specific  levels of equity  financing.  The  borrower may at that time pay off the loan in
        full or  convert  it into  non-voting  preferred  stock of the  borrower.  In the event of
        non-payment  at  maturity,  the lender may elect to convert the  outstanding  balance into
        capital stock of the borrower.                                                                     $810             $325

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

        Revolving  Line of  Credit:  This note is secured  by  substantially  all of the assets of
        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.                                      $2,400           $2,400

</TABLE>

         During 2001 we agreed to modify the terms of the foregoing notes. For
         the period July 1, 2001 through June 30, 2002 the interest rate is to
         be 4% and payments are to be paid in-kind (PIK) in the form of Uncommon
         Care common stock at $0.57 per share. Additionally, the PIK stock may
         be repurchased by Uncommon Care through June 30, 2004 at a price of
         $.64 per share. We agreed to these modified terms to improve Uncommon
         Care's liquidity and to assist it in complying with the terms of its
         bank covenants. PIK payments during 2001 increased our ownership in
         Uncommon Care from 34% to 38% on a fully converted basis.

         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 participate in the
         loan under the same terms as the Company.

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





                                      A-25
<PAGE>

(13)      Investment in Affiliates, continued

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

            Condensed balance sheets at December 31, 2001 and 2000:
            ------------------------------------------------------
                                                        2001            2000
                                                        ----            ----
               Current assets                         $  148          $  174
               Long-term assets                       14,544          15,336
                                                      ------          ------
                 Total assets                       $ 14,692        $ 15,510
                                                    ========        ========

               Current liabilities                   $ 1,051          $  922
               Long-term liabilities                  18,502          18,114
               Shareholders' deficit                  (4,861)         (3,526)
                                                    ---------        -------

                 Total liabilities and equity        $14,692         $15,510
                                                     =======         =======



         Condensed statements of operations for the years ended
                       December 31, 2001 and 2000
         ------------------------------------------------------
                                                       2001              2000
                                                       ----              ----
               Total revenue                         $ 6,550          $ 4,222
                                                      =======          =======
               Net loss                              $(1,440)         $(2,286)
                                                      =======          =======

 (14)    Segment Information

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

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

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

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

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

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

                                                      2001              2000
                                                                     (Restated)
                                                      ----            --------
Operating Revenues:
  Financial services                                $13,094,000     $9,962,000
  Insurance services                                  7,289,000      5,692,000
  Consulting                                          2,642,000      2,395,000
  Corporate                                           4,046,000      2,813,000
                                                     ----------      ---------
                                                    $27,071,000    $20,862,000
                                                    ===========    ===========


                                      A-26
<PAGE>

(14)  Segment Information, continued

                                                       2001             2000
                                                                     (Restated)
                                                      -----           --------
Reconciliation to Consolidated Statements
  of Operations:
    Total segment revenues                        $27,071,000       $20,862,000
       Less: intercompany dividends                (3,951,000)       (2,515,000)
                                                   -----------       -----------
                   Total Revenues                 $23,120,000       $18,347,000
                                                   ===========       ===========
    Operating Profit (Loss):
           Financial services                      $1,571,000          $812,000
           Insurance services                       1,371,000           495,000
           Consulting                                (462,000)          (13,000)
           Corporate                                1,879,000        (6,422,000)
                                                   -----------       -----------
                                                   $4,359,000       $(5,128,000)
                                                   ===========       ===========
Reconciliation to Consolidated Statements
 of Operations:
    Total segment operating loss                    4,359,000        (5,128,000)
      Less: intercompany dividends                 (3,951,000)       (2,515,000)
                                                   -----------       -----------
         Operating loss                              $408,000       $(7,643,000)
Equity in loss of affiliates                       (3,191,000)         (467,000)
Loss from continuing operations before
   income taxes and minority interests             (2,783,000)       (8,110,000)
Income tax benefit                                   (952,000)       (2,692,000)
Minority interests                                    157,000            42,000
                                                    ---------        -----------
Loss from continuing operations                    (1,988,000)       (5,460,000)
Net profit from discontinued operations,
  net of income tax                                 1,410,000           686,000
                                                    ---------         ----------
    Net loss                                       $ (578,000)     $ (4,774,000)

Identifiable assets:
Financial Services                                 $3,540,000        $2,859,000
Insurance Services                                  1,620,000         1,428,000
Consulting                                            738,000         1,039,000
Corporate:
Investment in and advances to equity
  method investees                                 11,459,000        14,374,000
Other                                               5,062,000         3,351,000
Discontinued Operations                                    --         1,745,000
                                                   ----------        -----------
                                                  $22,419,000       $24,796,000
Capital expenditures:
Financial Services                                    $43,000           $23,000
Insurance Services                                     48,000            57,000
Consulting                                             20,000             3,000
Corporate                                              81,000            30,000
Discontinued Operations                                    --            12,000
                                                    ---------        -----------
                                                     $192,000          $125,000


                                      A-27

<PAGE>




(14)      Segment Information, continued

                                                        2001             2000
                                                                      (Restated)
                                                        ----           --------
Depreciation/amortization expenses:
Financial Services                                    $ 45,000         $ 66,000
Insurance Services                                      57,000           70,000
Consulting                                              75,000           79,000
Corporate                                               68,000           74,000
Discontinued Operations                                 67,000           84,000
                                                        ------           ------
                                                      $312,000         $373,000

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

             Insurance services
                 Company A                          $2,198,000       $2,103,000


         At December 31, 2001 we had long-term contracts with company A and were
         therefore not vulnerable to the risk of a near-term severe impact from
         a reasonably possible loss of the revenue.

         Operating profit (loss) is operating revenues less related expenses and
         is all derived from domestic operations. Identifiable assets are those
         assets that are used in the operations of each business segment (after
         elimination of investments in other segments). Corporate assets consist
         primarily of cash and cash 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 and discontinued operations follows:


                                      A-28
<PAGE>


                                            For the Year Ended December 31, 2001
                                           -------------------------------------
                                           Income          Shares      Per-Share
                                        (Numerator)     (Denominator)    Amount
                                        ----------      ------------   ---------

 Loss from continuing operations        $(1,988,000)
 Discontinued operations, net
   of tax                                 1,410,000
 Basic EPS
 Loss available to common
   stockholders                            (578,000)     2,343,000       $(0.25)
                                                                         ======
 Effect of Dilutive Securities                   --            --
                                         ----------      ---------
 Diluted EPS
 Loss available to common stockholders
   and assumed conversions                $(578,000)     2,343,000       $(0.25)
                                          =========      =========       ======






                                 For the Year Ended December 31, 2000 (Restated)
                                           Income         Shares       Per-Share
                                         (Numerator)   (Denominator)    Amount
                                         ----------     ------------   ---------

 Loss from continuing operations        $(5,460,000)
 Discontinued operations, net
   of tax                                   686,000
 Basic EPS
 Loss available to common
   stockholders                          (4,774,000)      2,490,000      $(1.92)
                                                                         =======
 Effect of Dilutive Securities                   --              --
                                          ----------      ---------


 Diluted EPS
 Loss available to common stockholders
   and assumed conversions              $ (4,774,000)      2,490,000     $(1.92)
                                         ============      =========     =======




                                      A-29
<PAGE>

(15)     Earnings Per Share, continued

         Unexercised employee stock options to purchase 788,000 and 1,147,000
         shares of our common stock as of December 31, 2001 and 2000,
         respectively, and treasury shares of 386,000 as of December 31, 2001
         and 2000, which were designated for possible use in the Share Exchange
         Agreements described in Note 8, were not included in the computations
         of diluted EPS. These were not included because the options' exercise
         prices were greater than the average market price of our common stock
         during the respective periods or because the effect of including the
         contingently issuable options would decrease the loss per share for the
         respective periods.

(16)     Other Investments

         Other investments consists of an investment in FemPartners, Inc.
         totaling $68,000 and $182,000 at December 31, 2001 and 2000,
         respectively. The investment in FemPartners as of December 31, 2000
         reflects the effect of the restatement discussed in Note 21.
         In December 2001 we sold approximately 60% of our investment in
         FemPartners to a former officer for $37,500.

         Under agreements with former doctor shareholders of Syntera, our
         practice management company that was merged with FemPartners, we agreed
         to exchange their shares in Syntera for the common stock of American
         Physicians, or cash, if the Syntera shares did not become publicly
         traded. Through December 31, 2001 we paid approximately $2,488,000 in
         cash related to these agreements and recorded a liability of $510,000
         to complete the remaining exchanges. We satisfied this final liability
         under the agreements for cash in March 2002.


(17)     Shareholders' Equity

         The following table presents changes in shares outstanding for the
period from December 31, 1999 to December 31, 2001:

                                                           Shares
                                                         Outstanding
                                                        ----------------
        Balance December 31, 1999                          2,667,233
        Treasury stock purchases                            (327,000)
        Treasury stock sales                                  19,000
                                                        ----------------
        Balance December 31, 2000                          2,359,233
        Treasury stock purchases and retirement                   (2)
                                                        ----------------
        Balance December 31, 2001                          2,359,231
                                                        ================


                                      A-30
<PAGE>

(18)     Goodwill

In connection with our acquisition of Eco-Systems, a wholly owned subsidiary, in
1999,  we  recorded  goodwill  with an  unamortized  balance of  $443,000  as of
December 31, 2000.  During 2001, we recognized  $51,000 in amortization  expense
related to the goodwill.  In accordance with FASB Statement No. 121,  Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of, we assessed the goodwill for  impairment  in 2001.  As of December 31, 2001,
the review indicated that the goodwill was impaired and an impairment  charge of
$391,000 was recorded to write off the remaining unamortized amount.

(19)     Quarterly Results (Unaudited)

Quarter to quarter  comparisons  of results of  operations  have been and may be
materially impacted by bond market conditions, whether  or not there are profits
at the medical  malpractice  insurance company which we manage and whose profits
we share, and by demand for environmental  consulting services.  We believe that
the  historical  pattern of quarterly  sales and income as a  percentage  of the
annual total may not be indicative of the pattern in future years. The following
tables  set forth  selected  quarterly  consolidated  statements  of  operations
information for the years ended December 31, 2001 and 2000:

 (In thousands, except per share data)
<TABLE>
<CAPTION>

                                                               First       Second        Third        Fourth
                                                              Quarter      Quarter      Quarter       Quarter
                                                              -------      -------      -------       --------
2001
<S>                                                            <C>          <C>          <C>          <C>
Revenues                                                       $5,588       $5,995       $6,268       $5,269
Earnings (loss) from continuing operations                         84          251           82       (2,405)
Discontinued operations, net of taxes                              41           34           35        1,300
Net earnings (loss)                                               125          285          117       (1,105)
Basic earnings (loss) per share:

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

  Discontinued operations, net of taxes                          0.02         0.01         0.01         0.55

   Net earnings (loss)                                          $0.05        $0.12        $0.05       $(0.47)

Diluted earnings (loss) per share:

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

   Discontinued operations, net of taxes                         0.01         0.01         0.01         0.55

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


                                      A-31
<PAGE>

<TABLE>
<CAPTION>

                                                               First       Second        Third         Fourth
                                                              Quarter      Quarter      Quarter       Quarter
                                                                                                     (Restated)
                                                                                                      (Note 21)
                                                              -------      -------      -------       --------
2000
<S>                                                            <C>          <C>          <C>          <C>
Revenues                                                       $6,289       $3,168       $4,630       $4,260
Earnings (loss) from continuing operations                        129         (264)        (124)      (5,201)
Discontinued operations, net of taxes                              49          563           39           35
Net earnings (loss)                                               178          299          (85)      (5,166)
Basic earnings (loss) per share:

  From continuing operations                                    $0.05       $(0.10)      $(0.05)      $(2.09)

  Discontinued operations, net of taxes                          0.02         0.22         0.01         0.01

  Net earnings (loss)                                           $0.07        $0.11       $(0.03)      $(2.07)

Diluted earnings (loss) per share:

   From continuing operations                                   $0.05       $(0.10)      $(0.05)      $(2.09)

   Discontinued operations, net of taxes                         0.02         0.21         0.01         0.01

   Net earnings (loss)                                          $0.07        $0.11       $(0.03)      $(2.07)


</TABLE>


Results for the fourth quarter of 2001 include our equity percentage of the non-
recurring  charges  at  Prime  Medical  totaling  $3.6  million  and a  goodwill
impairment  at  our  environmental   consulting  subsidiary  totaling  $392,000.
Partially offsetting these charges was a $1.9 million gain on the sale of rental
property.  Results  for the  fourth  quarter  of 2000 (as  restated)  include an
impairment charge of $6.7 million to our investment in FemPartners.  See Note 21
for additional information. Also $560,000 was charged to operations from certain
working capital reserve  requirements in our merger agreement with  FemPartners.
Note:  All the items  mentioned in this  paragraph are stated on a pre-tax basis
whereas the table shows results net of tax.



                                     A-32
<PAGE>
(20) Subsequent Events (Unaudited)

In February, 2002, we purchased all of the 111,000 shares of American Physicians
Service Group (AMPH) common stock held by our affiliate, Prime Medical. Of this,
16,000 shares were contributed to our 401(k) plan as a matching contribution.
The remaining 95,000 shares were recorded as Treasury Stock with the effect of
reducing the total number of shares outstanding from 2,359,231 at December 31,
2001 to 2,264,231 at February 28, 2002.

In February and March, 2002 we sold a total of 1,570,000 shares of Prime Medical
common stock which resulted in lowering our percentage ownership of Prime
Medical from approximately 15% to slightly less than 5%.


(21) Restatement

      The accompanying consolidated financial statements as of December 31, 2000
and for the year then  ended,  have  been  restated  to  reflect  an  additional
impairment of our investment in FemPartners, Inc. common stock.

In our previously reported consolidated  financial statements as of December 31,
2000  and  for  the  year  then  ended  we  recorded  an  impairment  charge  of
approximately  $1.6 million  relating to our investment in FemPartners,  Inc., a
privately  held company,  based upon an internal  valuation.  In December  2001,
following our inability to find a buyer for this  investment  and the subsequent
sale of approximately  60% of our holdings in FemPartners at a de minimus amount
to a former officer of the Company, we engaged a valuation consultant to provide
an independent valuation of our holdings in FemPartners at December 31, 2000 and
2001.  The results of that  valuation  indicated that our sale price in December
2001  approximated  fair market  value and that this fair  market  value had not
changed   substantially   from  December  31,  2000.   Consequently,   the  2000
consolidated  financial  statements  have been restated to reflect an additional
$5.1 million  impairment  loss on this  investment  based on the results of this
valuation.

A summary of the effects of these restatements on the accompanying consolidated
financial statements and unaudited financial information for the fourth quarter
of 2000 is as follows:


                                           (In thousands)
                                          December 31, 2000
                                         -------------------
                                 As Previously
                                   Reported               As Restated
                                 -------------           --------------

Assets                             $ 29,426                $ 24,796

Liabilities                          12,692                  11,433

Minority Interest                       111                     111

Shareholders' equity                 16,623                  13,252


                                      A-33
<PAGE>

<TABLE>
<CAPTION>
                                           For the Three Months
                                                  Ended                                   For the Year Ended
                                              December 31, 2000                            December 31, 2000
                                      ----------------------------------           --------------------------------------
                                       (Unaudited)
                                      As Previously                                As Previously
                                         Reported           As Restated              Reported              As Restated
                                      -------------        -------------           -------------           --------------
<S>                                      <C>                   <C>                   <C>                     <C>
Revenues                                 $4,260                $4,260                $18,347                 $18,347

Operating loss                           (2,354)               (7,462)                (2,535)                 (7,643)

Equity in loss of unconsolidated
 affiliates                                (378)                 (378)                  (467)                   (467)

Loss from continuing operations          (1,829)               (5,201)                (2,088)                 (5,460)

Net profit from discontinued
 operations                                  35                    35                    686                     686
                                        --------              --------                -------                 -------
Net loss                                $(1,794)              $(5,166)               $(1,402)                $(4,774)
                                        ========              ========                =======                 =======

Loss per common share:

Basic:
      Continuing operations              $(0.73)               $(2.09)                $(0.84)                 $(2.19)

      Discontinued operations              0.01                  0.01                   0.28                    0.28
                                         -------               -------                -------                 -------
Net loss                                 $(0.72)               $(2.07)                $(0.56)                 $(1.92)
                                         =======               =======                =======                 =======

Diluted:
     Continuing operations               $(0.73)               $(2.09)                $(0.84)                 $(2.19)

     Discontinued operations               0.01                  0.01                   0.28                    0.28
                                         -------               -------                -------                  -------
Net loss                                 $(0.72)               $(2.07)                $(0.56)                 $(1.92)
                                         =======               =======                =======                  =======
</TABLE>



                                      A-34