UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON D.C. 20549

                                    FORM 10-K

            MARK ONE:
            [X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
                 THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
                    FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

                                       OR

            [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
                THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
                         FOR THE TRANSITION PERIOD FROM

                                       TO

                    -------------------- --------------------

                         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 of                (I.R.S. Employer
      incorporation or organization)                identification No.)

               1301 CAPITAL OF TEXAS  HIGHWAY  AUSTIN, TEXAS 78746
          (Address of principal executive offices)       (Zip Code)

                                 (512) 328-0888
              (Registrant's telephone number, including area code)
          SECURITIES REGISTERED PURSUANT TO SECTION 12(b)OF THE ACT:

                            Name of Each Exchange on

            Title of Each Class                       Which Registered

            -------------------                   ------------------------
                   None                                      None

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g)OF THE ACT:
                          Common Stock, $.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  the  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in  Part  III of the  Form  10-K or any
amendment to this Form 10-K _____

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

          Aggregate Market Value at March 27, 2000: $7,530,176

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

                                               NUMBER OF SHARES
                                                OUTSTANDING AT
     TITLE OF EACH CLASS                        MARCH 27, 2000
     --------------------                      ----------------
Common Stock, $.10 par value                      2,745,233
                       DOCUMENTS INCORPORATED BY REFERENCE

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

============================================================================
<PAGE>

            AMERICAN PHYSICIANS SERVICE GROUP, INC., AND SUBSIDIARIES

                           ANNUAL REPORT ON FORM 10-K

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

                                     PART I

ITEM 1.  BUSINESS

GENERAL

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

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

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

FINANCIAL SERVICES

      APS Investment Services, Inc. ("Investment  Services"),  is a wholly-owned
subsidiary of the Company.  Through its subsidiaries,  APS Financial Corporation
("APS  Financial"),   and  APS  Asset  Management,   Inc.  (Asset  Management"),
Investment  Services  provides  investment and investment  advisory  services to
institutions  and individuals  throughout the United States.  Revenues from this
segment  were  57%,  60% and 44% of  Company  revenues  in 1999,  1998 and 1997,
respectively.

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

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

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

                                        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
SEC.  These rules,  which are designed to measure the  financial  soundness  and
liquidity of broker dealers, specify minimum net capital requirements. Since the
Company is not itself a  registered  broker  dealer,  it is not subject to these
rules.  However,  APS  Financial  is subject  to these  rules.  Compliance  with
applicable net capital requirements could limit operations of APS Financial such
as trading activities that require the use of significant amounts of capital and
limit  its  ability  to  pay  dividends.  A  significant  operating  loss  or an
extraordinary  charge against net capital could adversely  affect the ability of
APS  Financial  to expand or even  maintain its present  levels of business.  At
February  29,  2000,  APS  Financial  was in  compliance  with  all net  capital
requirements.

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

      Asset  Management,   a  Registered  Investment  Adviser,  was  formed  and
registered with the Securities and Exchange Commission in 1998. Asset Management
was  organized to manage fixed income and equity  assets for  institutional  and
individual  clients on a fee  basis.  Asset  Management's  mission is to provide
clients  with  investment   results  within  specific   client-determined   risk
parameters.

INSURANCE SERVICES

      APS  Insurance  Services,  Inc.,  ("Insurance  Services"),  an  80%  owned
subsidiary of the Company through its  wholly-owned  subsidiaries APS Facilities
Management,   Inc.  ("FMI")  and  American  Physicians  Insurance  Agency,  Inc.
("Agency"),  provides  management  and agency  services  to medical  malpractice
insurance companies.  Revenues from this segment contributed 24%, 34% and 48% of
Company revenues in 1999, 1998 and 1997, respectively.  Substantially all of the
revenue was attributable to American Physicians  Insurance Exchange ("APIE"),  a
reciprocal insurance exchange managed by FMI. A reciprocal insurance exchange is
an  organization  which sells  insurance  only to its  subscribers,  who pay, in
addition to their annual  insurance  premiums,  a contribution to the exchange's
surplus.  Such exchanges generally have no paid employees but instead enter into
a  contract  with  an  "attorney-in-fact",  that  provides  all  management  and
administrative  services for the exchange. As the attorney-in-fact for APIE, FMI
receives a percentage  of the earned  premiums of APIE,  as well as a portion of
APIE's  profits.  The amount of these  premiums  can be  adversely  affected  by
competition.  Substantial  underwriting losses or investment performance,  which
might result in a curtailment  or cessation of  operations  by APIE,  would also
adversely affect FMI's revenue. To limit possible underwriting losses or adverse
investment performance,  APIE currently reinsures its risk in excess of $250,000
per medical incident.  APIE offers medical professional  liability insurance for
physicians in Texas and Arkansas.  FMI's assets are not subject to any insurance
claims by policyholders of APIE.

                                        2

<PAGE>

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

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

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

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

                                        3

<PAGE>

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

      The following table presents  selected  financial and other data for APIE.
The management  agreement with FMI obligates APIE to pay management  fees to FMI
based on APIE's earned premiums before payment of reinsurance premiums.  The fee
percentage is 13.5% with the  provision  that any profits of APIE will be shared
equally with FMI so long as the total reimbursement (fees and profit sharing) do
not exceed a cap based on premium levels.  In 1999,  1998, 1997, 1996, and 1995,
management  fees  attributable  to profit  sharing  were  $329,000,  $1,750,000,
$1,961,000,  $1,191,000,  and  $700,000,  respectively.  The decrease in 1999 is
primarily  due to an overall  increase in  competition  in medical  professional
liability  insurance  in Texas as well as a  continued  trend of  rising  claims
against the insureds.

      (In thousands, except for number of insureds)

<TABLE>
<CAPTION>

                                                        Years Ended December 31,

                                       1999            1998            1997           1996             1995
                                       ----            ----            ----           ----             ----
Earned premiums before

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

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

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

                                        4

<PAGE>

CONSULTING

      On October 31, 1996,  the Company  invested  $3,300,000 in common stock of
Exsorbet Industries, Inc. ("Exsorbet") (NASDAQ:EXSO) with a put option. Exsorbet
was a diversified  environmental and technical services company. On November 26,
1996,  the Company  exercised  its put in exchange  for a note  receivable  from
Exsorbet. The note was secured by the shares that were subject to the put option
plus all the  stock  and  substantially  all of the  assets  of a  wholly  owned
subsidiary  of Exsorbet.  Subsequently,  Exsorbet  became known as  Consolidated
Eco-Systems, Inc. ("Con-Eco").

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

      In April,  1999,  the Company's  wholly owned  subsidiary,  APS Consulting
("APS Consulting"),  acquired the business of Eco-Systems, Inc. ("Eco-Systems"),
a subsidiary of Con-Eco, in connection with a debt restructuring  agreement with
Con-Eco. Under the terms of the restructuring  agreement,  Con-Eco had the right
to purchase  back the  business  of  Eco-Systems  for a nominal  amount upon the
occurrence  of certain  conditions.  Accordingly,  the Company did not initially
consolidate the operations of APS Consulting. In addition, the Company dismissed
its  lawsuit  against  Con-Eco,  but  retained  the  right  to  reinstitute  the
litigation at a later date.

      Subsequently,  the Company concluded that it was not probable that Con-Eco
would  exercise its option to reacquire  the stock and,  effective  September 1,
1999,  the Company began  consolidating  APS  Consulting.  The  acquisition  was
recorded using the purchase method of accounting. In addition, the Company wrote
off the remaining balance of the note due from Con-Eco. During the twelve months
ended  December  31, 1999 the Company  wrote off to bad debt  expense a total of
$1,293,000  related to this note  bringing the total written off related to this
note since inception to $1,685,000.

      APS Consulting is an environmental  consulting/engineering firm, comprised
of scientists and engineers specializing in remedial investigations, remediation
engineering,  air  quality,  waste  water,  regulatory  compliance,  solid waste
engineering,  litigation support/expert  testimony,  environmental resources and
industrial  hygiene and safety.  APS Consulting  offices are located in Jackson,
Mississippi; Mobile, Alabama; and Houston, Texas.

                                        5

<PAGE>

      Because of the wide range of expertise of its consultants,  APS Consulting
serves  clients  in a  broad  base  of  industries,  including:  petrochemicals;
agricultural chemicals; oil exploration,  refining and marketing; gas pipelines;
pulp and paper/forest  products;  manufacturing;  waste disposal and management;
state and local  government;  and law firms.  Its consultants and engineers have
expertise in  environmental  engineering,  chemical  engineering,  hydrogeology,
computer-aided  drafting and design,  civil  engineering,  geology,  biology and
micro biology.  Revenues from APS Consulting  contributed 4% of Company revenues
in 1999. As revenues and expenses of APS Consulting were not  consolidated  into
the totals of the Company until September,  1999, this percentage  reflects only
four months of revenues from APS Consulting.

REAL ESTATE

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

OTHER INVESTMENTS

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

                                        6

<PAGE>

      On January 1, 1998 the Company  invested  approximately  $2,000,000 in the
Convertible  Preferred  Stock of Uncommon  Care,  Inc.  ("Uncommon  Care").  The
Company  also made  available  to Uncommon  Care three lines of credit  totaling
$4,850,000.  The loans are at interest  rates varying from ten percent to twelve
percent,  payable  quarterly  until June 30, 2005, at which time the outstanding
principal and any accrued but unpaid interest are due and payable. Uncommon Care
is a developer  and  operator of  dedicated  Alzheimer's  care  facilities.  The
preferred shares owned by the Company are convertible  into  approximately a 34%
interest in the equity of Uncommon Care.  Two of Uncommon  Care's five directors
are  members of the  Company's  board of  directors.  The  Company  records  its
investment at cost.

      In 1997, the Company formed APS Practice  Management,  Inc., later renamed
Syntera  HealthCare  Corporation  ("Syntera") with an initial  ownership of 85%.
Syntera  specialized in the management of OB/GYN and related medical  practices.
In  a  typical  transaction,  Syntera  acquired  the  non-medical  assets  of  a
physician's  practice  and  signed  a  long-term  management  contract  with the
physician  to  provide  the  majority  of the  non-medical  requirements  of the
practice,  such  as  non-professional   personnel,  office  space,  billing  and
collection,  and other  day-to-day  non-medical  operating  functions.  In turn,
Syntera was paid a variable management fee that rewarded the efficient operation
and the expansion of the practice.  On June 30, 1999 the Company  merged Syntera
with  another  unaffiliated  practice  management  company,  FemPartners,  Inc.,
resulting  in the  Company  owning  approximately  12% of the  total  equity  of
FemPartners, Inc., the surviving company. Prior to June 30, 1999 the Company has
accounted for its ownership in Syntera on the equity  basis.  Beginning  July 1,
1999,  as a result of the merger  with  FemPartners,  Inc.,  the  Company  began
recording its interest on the cost basis.

DISCONTINUED OPERATIONS

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

                                        7

<PAGE>

COMPETITION

      APS  Financial  and  Asset   Management  are  both  engaged  in  a  highly
competitive  business.  Their competitors  include,  with respect to one or more
aspects  of  business,  all of the  member  organizations  of the New York Stock
Exchange and other  registered  securities  exchanges,  all members of the NASD,
registered  investment advisors,  members of the various commodity exchanges and
commercial  banks  and  thrift  institutions.  Many of these  organizations  are
national rather than regional firms and have substantially greater personnel and
financial resources than the Company's. Discount brokerage firms oriented to the
retail market,  including  firms  affiliated  with  commercial  banks and thrift
institutions,   are  devoting   substantial  funds  to  advertising  and  direct
solicitation  of customers in order to increase their share of  commissions  and
other  securities  related income.  In many instances APS Financial is competing
directly  with  such  organizations.  In  addition,  there  is  competition  for
investment funds from the real estate, insurance, banking and thrift industries.

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

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

REGULATION

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

                                        8

<PAGE>

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

      APS Financial, as a registered broker dealer and NASD member organization,
is required by federal law to belong to the SIPC. When the SIPC fund falls below
a certain  minimum  amount,  members are required to pay annual  assessments  in
varying  amounts not to exceed .5% of their  adjusted  gross revenues to restore
the  fund.  The last  assessment  of APS  Financial  by the SIPC was in 1995 and
amounted to approximately $7,300. The SIPC fund provides protection for customer
accounts up to $500,000 per  customer,  with a limitation  of $100,000 on claims
for cash balances.

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

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

EMPLOYEES

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

                                        9

<PAGE>

ITEM 2.  PROPERTIES

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

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

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

ITEM 3.  LEGAL PROCEEDINGS

      The  Company is  involved in various  claims and legal  actions  that have
arisen  in the  ordinary  course  of  business.  Management  believes  that  any
liabilities  arising from these actions will not have a material  adverse effect
on the financial condition of the Company.

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

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

                          BOARD ELECTION

                 Nominee                   For           Against       Abstain
                 -------                   ---           -------       -------
                 Brad A. Hummel          2,755,051         35,491        --
                 Robert L. Myer          2,755,051         35,491        --
                 William A. Searles      2,755,051         35,491        --
                 Kenneth S. Shifrin      2,755,051         35,491        --



                                       10

<PAGE>

                                     PART II

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

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

                                   1999                            1998
                         -------------------------      ------------------------
                            High          Low               High         Low
                            ----          ---               ----         ---
      First Quarter       $5 1/8        $1 7/8             $7 5/8       $6 7/8
      Second Quarter      $3 7/8        $2 1/4             $7 1/2       $6 5/8
      Third Quarter       $5 1/16       $3 7/32            $7 1/4       $4 7/8
      Fourth Quarter      $7            $3 1/2             $5 1/2       $3 1/4


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

                                       11

<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

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

                                               SELECTED FINANCIAL DATA

                                                                1999              1998       1997       1996       1995
                                                                ----              ----       ----       ----       ----
<S>                                                              <C>            <C>        <C>        <C>        <C>
Selected income statement data:

   Revenues                                                      $19,115        $16,403    $13,065    $10,437    $16,124
   Earnings from continuing operations before income taxes
    and minority interests
                                                                   1,732          2,255      5,984      3,006      3,007
   Net earnings                                                    1,413          1,545      2,538      1,924      2,024
Per share amounts - diluted:
   Net earnings                                                     $.45           $.31       $.59       $.46       $.53
Diluted weighted average shares outstanding                        3,168          4,692      4,241      4,219      3,798
Selected balance sheet data:
   Total assets                                                  $32,924        $33,126    $30,737    $24,468    $23,740
   Long-term obligations                                           3,298             --         --         --        574
   Total liabilities                                              11,647          8,471      7,458      4,086      6,146
   Minority interests                                                 48             53        175         --         --
   Total equity                                                   21,229         24,602     23,104     20,382     17,594
   Book value per share                                             7.73           5.91       5.55       5.03       4.80


</TABLE>

                                       12

<PAGE>

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

FORWARD-LOOKING STATEMENTS

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

      The  forward-looking  statements  included herein are necessarily based on
various  assumptions  and estimates and are inherently  subject to various risks
and  uncertainties,  including risks and uncertainties  relating to the possible
invalidity of the underlying  assumptions and estimates and possible  changes or
developments  in  social,  economic,   business,  industry,  market,  legal  and
regulatory circumstances and conditions and actions taken or omitted to be taken
by  third  parties,  including  customers,   suppliers,  business  partners  and
competitors and  legislative,  judicial and other  governmental  authorities and
officials. Assumptions relating to the foregoing involve judgements with respect
to, among other things,  future economic,  competitive and market conditions and
future business  decisions,  all of which are difficult or impossible to predict
accurately  and many of which are beyond the  control of the  Company.  Any such
assumptions could be inaccurate and,  therefore,  there can be no assurance that
the  forward-looking  statements included in this Report on Form 10-K will prove
to be accurate.

                                       13

<PAGE>

RESULTS OF OPERATIONS

1999 COMPARED TO 1998

      Revenues  from  continuing  operations  increased  17% in 1999 compared to
1998. Net income  decreased 9% and diluted earnings per share increased 45%. The
reasons for these changes are described below.

FINANCIAL SERVICES

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

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

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

                                       14

<PAGE>

INSURANCE SERVICES

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

      Insurance  Services'  expenses increased 10% in 1999 compared to 1998. The
increase was  primarily due to higher  commission  rates paid to sales agents as
well as to increased  business received through agents requiring  commissions to
be paid.  Personnel costs also increased in 1999, primarily due to normal annual
merit raises.

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

CONSULTING

      The  Company  began  consolidating  the  earnings  of  APS  Consulting  in
September, 1999. No comparison to prior year, therefore, is possible.  Unaudited
pro-forma  financials show that revenues  decreased 28% in 1999 due primarily to
the loss of a major client  resulting from the  uncertainty  that arose with the
breakup of Con-Eco.

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

REAL ESTATE

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

     The 4% increase in real estate  expenses  resulted from increased  property
taxes due to higher  real  estate  taxable  values and  increased  fees paid for
building maintenance and improvements.

INVESTMENT AND OTHER

      The  substantial  rise in investment and other income was primarily due to
gains from the exchanges of Prime Medical common stock for the Company's  common
stock. As part of a buy-back  strategy,  the Company exchanged 720,700 shares of
Prime Medical  common stock for 1,441,400  shares of the Company's  common stock
held by two mutual fund companies.  The Company's  common stock was then retired
and gains totaling $1,635,000 were recorded.  In addition,  interest of $349,000
was  earned  from line of credit  loans  granted  by the  Company  to its former
physician practice management affiliate, Syntera and to Uncommon Care.

                                       15

<PAGE>

GENERAL AND ADMINISTRATIVE EXPENSES

      General and administrative expenses increased 98% over 1998. The increases
resulted  primarily from  recognizing  $1,293,000 of bad debt expense related to
the write-off of the Con-Eco note  receivable  and from expenses  related to the
merger of Syntera with FemPartners. Partially offsetting these expense increases
was lower legal fees in 1999.  Work  performed  in 1998  related to the Uncommon
Care preferred stock investment increased legal fees in 1998.

INTEREST

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

AFFILIATES

      The Company has one affiliate  accounted  for on the equity  basis,  Prime
Medical,  as of December 31, 1999. Prime Medical's operating income increased in
1999 but the  Company  recognized  a smaller  percentage (18% in 1998 vs. 14% in
1999) as a result of its exchange of Prime Medical  shares to acquire  shares of
the Company's common stock. Even with this drop in ownership percentage,  equity
earnings from Prime  Medical  increased  23% in 1999.  The Company,  through its
status as Prime Medical's largest  shareholder and through its representation on
PrimeMedical's  board,  continues to have significant influence at Prime Medical
and continues to account for its investment using the equity method.

      Also  included  in equity in  earnings of  unconsolidated  affiliates  are
losses  totaling  $119,000 which  represents the Company's  portion of losses of
Syntera.  from  January  1 to June  30,  1999.  Subsequent  to the  merger  with
FemPartner's,  the Company began  accounting  for it's resulting 12% interest in
FemPartners on the cost basis.

1998 COMPARED TO 1997

      Revenues  from  continuing  operations  increased  26% in 1998 compared to
1997. Net income decreased 39% and diluted earnings per share decreased 48%. The
reasons for these changes are described below.

                                       16

<PAGE>

INVESTMENT SERVICES

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

      Investment services' expenses increased 71% from 1997. 94% of the increase
was at APS Financial and was transaction  volume-related.  The large increase in
revenues resulted in proportionately  greater sales commission expense,  support
personnel  expense,  transaction  charges  and  financial  information  services
expense.  Lower legal fees partially offset these increases.  Greater profits in
1998  also  increased  expenses  under  the  incentive  compensation  plan.  The
remainder  of the  increase  in  expenses  was  the  result  of  starting  Asset
Management in 1998.

INSURANCE SERVICES

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

      Insurance  Services' expenses increased 8% over 1997. The increase was the
result of increased commission expense and was due to the greater utilization of
commissioned  outside sales agents,  compared to salaried internal  personnel in
prior years.  Lower salary expense,  primarily due to lower incentive  payments,
partially offset the increased commissions.

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

REAL ESTATE

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

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

                                       17

<PAGE>

INVESTMENT AND OTHER

      The decline in  investment  and other  income was  primarily  due to lower
interest income, a result of available cash being fully invested in new start-up
companies, which yielded no current return.

GENERAL AND ADMINISTRATIVE EXPENSES

      General and administrative expenses increased 37% over 1997. The increases
resulted  from  recognizing  bad debt expense  related to the  impairment of the
Con-Eco note receivable and from expenses  related to guaranteeing an individual
investor's investment return. The Company had agreed to the guaranteed return to
settle  a  dispute   on  the   customer's   account  in  1995.   The   portfolio
under-performed  in 1998 and additional  funds were  contributed by the Company.
Lower management incentive expenses partially offset these increases in 1998.

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

AFFILIATES

      The Company had two  affiliates  accounted for on the equity basis,  Prime
Medical and Syntera.  Prime Medical's operating income increased in 1998 but net
earnings were reduced by  non-recurring  financing and development  costs.  This
resulted in a 23% decrease in equity earnings compared to 1997.  Syntera,  which
was started in 1997,  continued in the development  phase and reported a loss in
1998. The Company's share of Syntera's loss increased approximately 5% in 1998.

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

LIQUIDITY AND CAPITAL RESOURCES

      Net working capital was $1,582,000 and $1,782,000 at December 31, 1999 and
1998,  respectively.  The  decrease  in the  current  year is due  primarily  to
payments for purchases of property and equipment.  Historically, the Company has
maintained a strong working capital position and, using that base, has been able
to satisfy  its  operational  and  capital  expenditure  requirements  with cash
generated  from its operating and  investing  activities.  These same sources of
funds  have  also  allowed  the  Company  to  pursue  investment  and  expansion
opportunities   consistent   with  its  growth  plans.   In  1999,  the  Company
supplemented these traditional sources of funds with short-term bank borrowings.
Although it is uncertain that operating  activities  will provide  positive cash
flow in the year 2000, the Company has sufficient  borrowing capacity as well as
ample  liquidity  in its  holdings of Prime  Medical  shares to meet its working
capital requirements for the foreseeable future.

                                       18

<PAGE>

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

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

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

INFLATION

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

NEW ACCOUNTING PRONOUNCEMENTS

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

                                       19

<PAGE>

ITEM 7 (a)    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      The  Company  has some  exposure  to cash  flow and fair  value  risk from
changes in interest rates, which may affect its financial  position,  results of
operation  and cash flows.  The Company does not use financial  instruments  for
speculative  purposes,   but  does  maintain  a  trading  account  inventory  to
facilitate the business of its broker/dealer  subsidiary. At the end of 1999 the
inventory  balance  was  $635,000.  Historically,  the  Company  has turned this
inventory rapidly and has neither significant realized gains nor losses.

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

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

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

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

      None.


                                       20

<PAGE>

                                    PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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

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

Name                           Age          Position
----                           ---          --------
Kenneth S. Shifrin              50          Chairman of the Board, President
                                              and Chief Executive Officer

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

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

George S. Conwill               43          Vice President - Investment Services

Thomas R. Solimine              41          Controller

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

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

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


                                       21

<PAGE>

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

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

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

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

ITEM 11. EXECUTIVE COMPENSATION

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

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

                                       22

<PAGE>

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

(a)      1.       Financial Statements

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

         2.       Financial Statement Schedules

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

(b)      Reports on Form 8-K

(c)      Exhibits (1)

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

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

         4.1      Specimen of Common Stock Certificate. (2)

         4.2               Rights  Agreement,  dated as of  August  15,
                                    1999,  between American  Physicians  Service
                                    Group,  Inc. and American  Stock  Transfer &
                                    Trust  Company  which  includes  the form of
                                    Statement of  Resolutions  setting forth the
                                    terms of the Junior Participating  Preferred
                                    Stock,   Series   A,  the  form  of   Rights
                                    Certificate  as Exhibit B and the Summary of
                                    Rights  to  Purchase   Preferred  Shares  as
                                    Exhibit C. (10)

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

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

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

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

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

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

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

                                       23

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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


                                       24

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                       25

<PAGE>

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


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

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

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

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

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

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

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

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

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

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

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

                                       26

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

        10.63    Agreement of Plan of Merger dated August 31, 1999 between
                   FemPartners, Inc. and Syntera HealthCare Corporation. (11)

                                       27

<PAGE>

        10.64    Share Exchange Agreement dated August 31, 1999 between the
                   Company and David L. Berry, M.D. (11)

        10.65    Share Exchange Agreement dated August 31, 1999 between the
                   Company and Michael T. Breen, M.D. (11)

        10.66    Share Exchange Agreement dated August 31, 1999 between the
                   Company and Jonathan B. Buten, M.D. (11)

        10.67    Share Exchange Agreement dated August 31, 1999 between the
                   Company and Robert Casanova, M.D. (11)

        10.68    Share Exchange Agreement dated August 31, 1999 between the
                   Company and Antonio Cavazos, III, M.D. (11)

        10.69    Share Exchange Agreement dated August 31, 1999 between the
                   Company and Joe R. Childress, M.D. (11)

        10.70    Share Exchange Agreement dated August 31, 1999 between the
                   Company and Donald Columbus, M.D. (11)

        10.71    Share Exchange Agreement dated August 31, 1999 between the
                   Company and Devin Garza, M.D. (11)

        10.72    Share Exchange Agreement dated August 31, 1999 between the
                   Company and M. Reza Jafarnia, M.D. (11)

        10.73    Share Exchange Agreement dated August 31, 1999 between the
                   Company and Gary L. Jones, M.D. (11)

        10.74    Share Exchange Agreement dated August 31, 1999 between the
                   Company and Shelley Nielson, M.D. (11)

        10.75    Share Exchange Agreement dated August 31, 1999 between the
                   Company and Lawrence M. Slocki, M.D. (11)

        10.76    Loan Agreement dated June 16, 1999 between APS Consulting, Inc.
                   and APSC, Inc. (11)

        10.77    Promissory Note dated June 16, 1999 between APS Consulting,
                   Inc. and APSC, Inc. (11)

        10.78    Security Agreement dated June 16, 1999 between APS Consulting,
                   Inc. and APSC, Inc. (11)

                                       28

<PAGE>

        10.79    Subordination Agreement dated June 16, 1999 between the Company
                   and APSC, Inc. (11)

        10.80    Convertible Promissory Note dated April 27, 1999 between the
                   Company and Uncommon Care, Inc. (11)

        10.81    Replacement Convertible Promissory Note dated September 30,
                   1999 between the Company and Uncommon Care, Inc. (11)

        10.82    Liquidity Promissory Note dated September 30, 1999 between the
                   Company and Uncommon Care, Inc. (11)

        10.83    Replacement Liquidity Note dated October 15, 1999 between the
                   Company and Uncommon Care, Inc. (11)

        10.84    Co-Sale Rights Agreement dated August 31, 1999 between the
                   Company and FemPartners, Inc. (11)

        10.85    Replacement Promissory Note dated August 31, 1999 between the
                   Company and FemPartners, Inc. (11)

        10.86    Guaranty Agreement dated August 31, 1999 between the Company
                   and FemPartners, Inc.  (11)

         21.1     List of subsidiaries of the Company. (11)

         23.1        Independent Auditors Consent of KPMG LLP. (11)

         27.1           Financial Data Schedule (EDGAR filing).

         (*)       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

                                       29

<PAGE>

Regional Offices at Seven World Trade  Center,  13th Floor,  New York,  New York
     10048 and CitiCorp Center,  500 West Madison Street,  Suite 1400,  Chicago,
     Illinois  60661-2511.  Copies of such material can be obtained by mail from
     the Public Reference  Section of the Commission at 450 Fifth Street,  N.W.,
     Washington, D.C. 20549, at prescribed rates. Such reports, proxy statements
     and  other  information  concerning  the  Company  are also  available  for
     inspection at the offices of The NASDAQ National  Market,  Reports Section,
     1735 K Street, N.W., Washington, D.C. 20006. The Commission maintains a Web
     site that contains  reports,  proxy and  information  statements  and other
     information   regarding  registrants  that  file  electronically  with  the
     Commission at  "http://www.sec.gov " and makes available the same documents
     through Disclosure, Inc. at 800-638-8241.

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

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

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

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

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

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

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

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

(10)     Filed as an Exhibit to the  Current  Report on Form 8-K of the  Company
         dated September 22, 1999 and incorporated by reference herein.

(11)     Filed herewith.


                                       30

<PAGE>

                                   SIGNATURES

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

                                   AMERICAN PHYSICIANS SERVICE GROUP, INC.


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

                                   Date:  March 29, 2000

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

By: /s/ Kenneth S. Shifrin

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

Date:    March 29, 2000



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

Date:    March 29, 2000



<PAGE>

By: /s/ Thomas R. Solimine

    -----------------------
     Thomas R. Solimine
     Controller

     (Principal Accounting Officer)

Date:    March 29, 2000



By: /s/ Robert L. Myer

    -----------------------
     Robert L. Myer, Director

Date:    March 29, 2000



By: /s/ William A. Searles

    -------------------------
     William A. Searles, Director

Date:    March 29, 2000



By: /s/ Brad A. Hummel

    ----------------------
     Brad A. Hummel, Director

Date:    March 29, 2000


                                       31

<PAGE>

                                       A-1

                                   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, 1999, 1998, and 1997                            A-3

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

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

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

         Notes to Consolidated Financial Statements                         A-10


                                       A-1

<PAGE>

                          Independent Auditors' Report

                          ----------------------------

         The Board of Directors and Shareholders
         American Physicians Service Group, Inc.:


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

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

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

                                                             /s/ KPMG, LLP
                                                             -------------
         Austin, Texas
         March 28, 2000

                                       A-2

<PAGE>

                     AMERICAN PHYSICIANS SERVICE GROUP, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)
<TABLE>
<CAPTION>
                                                                                 Year Ended December 31,
                                                                     -------------------------------------------------
                                                                         1999              1998              1997
                                                                    ------------    ---------------     ------------
<S>                                                                     <C>                 <C>              <C>
REVENUES:

  Financial services                                                    $10,835             $9,914           $5,726
  Insurance services (Note 2)                                             4,683              5,655            6,287
  Consulting                                                                768                ---              ---
  Real estate (Note 5)                                                      710                713              704
  Investments and other                                                   2,119                121              348
                                                                         ------             ------           ------
    Total revenues                                                       19,115             16,403           13,065
EXPENSES:

  Financial services                                                      9,764              9,039            5,299
  Insurance services                                                      4,558              4,129            3,819
  Consulting                                                                712                ---              ---
  Real estate                                                               548                527              503
  General and administrative (Note 18)                                    3,663              1,851            1,352
  Interest                                                                  254                 59               21
                                                                         ------              -----           ------
    Total expenses                                                       19,499             15,605           10,994
                                                                         ------             ------           ------
Operating income (loss)                                                    (384)               798            2,071
Equity in earnings of unconsolidated
  affiliates (Note 13)                                                    2,116              1,457            2,014


Gain on sale of portion of subsidiary                                       ---                ---            1,899
                                                                          -----             ------           ------
   Earnings from continuing operations before
     income taxes                                                         1,732              2,255            5,984

Income tax expense (Note 9)                                                 621                863            2,341
Minority interest                                                             5               (178)            (175)
                                                                          -----             ------           ------
Earnings from continuing operations                                       1,116              1,214            3,468
DISCONTINUED OPERATIONS: (Note 12)

  Profit/(loss) from discontinued  operations of income
  tax expense/(benefit) of $153, $171 and ($48) in 1999,
  1998 and 1997, respectively                                               297                331             (94)
Loss on disposal of computer software segment,
   net of income tax benefit of $431 in 1997                                ---                ---            (836)
                                                                         ------             ------           ------
Net gain / (loss) from discontinued operations                              297                331            (930)
                                                                         ------             ------           ------
    NET EARNINGS                                                         $1,413             $1,545           $2,538
                                                                         ======            =======           ======

</TABLE>

See accompanying notes to consolidated financial statements

                                       A-3

<PAGE>

                    AMERICAN PHYSICIANS SERVICE GROUP, INC.

                CONSOLIDATED STATEMENTS OF OPERATIONS, continued

(In thousands, except per share data)
<TABLE>
<CAPTION>
                                                                                 Year Ended December 31,
                                                                     -------------------------------------------------
                                                                         1999              1998              1997
                                                                       --------          ---------    -------------
Earnings per common share: (Note 15)
<S>                                                                       <C>                <C>             <C>
Basic:
   Earnings from continuing operations                                    $0.36              $0.29           $0.84
   Discontinued operations                                                 0.09               0.08           (0.22)
                                                                          -----              -----           ------
      Net earnings                                                        $0.45              $0.37           $0.62
                                                                         ======              =====           =====
Diluted:
   Earnings from continuing operations                                    $0.35              $0.24           $0.81
   Discontinued operations                                                 0.09               0.07           (0.22)
                                                                         ------              -----           -----
      Net earnings                                                        $0.45              $0.31           $0.59
                                                                         ======              =====           =====
Basic weighted average shares outstanding                                 3,142              4,163           4,106
                                                                         ======              =====           =====
Diluted weighted average shares outstanding                               3,168              4,692           4,241
                                                                         ======              =====           =====

</TABLE>

See accompanying notes to consolidated financial statements


                                       A-4

<PAGE>

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

(In thousands except share data)
                                                        December 31,
                                              ----------------------------------
                                                   1999                  1998
                                               -----------            ----------
ASSETS
Current Assets:

  Cash and cash investments                     $2,275                   $3,214
  Cash - restricted (Note 16)                      376                       --
  Trading account securities                       635                      641
  Management fees and other
   receivables     (Note 2)                      1,344                      968
  Notes receivable, net - current (Note 3)         270                      196
  Deposit with clearing broker                   1,042                    1,036
  Receivable from clearing broker                  147                      106
  Prepaid expenses and other                       279                      339
  Income taxes receivable                          200                       --
  Deferred income tax asset (Note 9)               633                    1,279
                                                ------                   ------
     Total current assets                        7,201                    7,779
Notes receivable, net - less current
  portion (Note 3)                               4,937                    4,287
Property and equipment (Note 5)                  1,820                    1,653
Investment in affiliate (Note 13)               12,096                   13,089
Other investments (Note 17)                      6,078                    6,052
Goodwill (Note 18)                                 573                       --
Other assets                                       219                      266
                                                ------                  -------

     Total Assets                              $32,924                  $33,126
                                               =======                  =======

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,

                                                --------------------------------
                                                     1999                  1998
                                                --------------       -----------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable - trade                          $1,242                $910
   Payable to clearing broker                           624                 593
   Notes payable - short term (Note 7)                   12                  --
   Income taxes payable                                  --                 292
   Accrued incentive compensation                       818                 823
   Accrued expenses and other
    liabilities (Note 6)                              2,923               3,379
                                                      -----               -----
       Total current liabilities                      5,619               5,997
   Net deferred income tax liability
      (Note 9)                                        2,730               2,474
   Notes payable - long term (Note 7)                 3,298                  --
                                                      -----               ------
       Total liabilities                             11,647               8,471

Minority interest                                        48                  53

Shareholders' Equity:
   Preferred stock, $1.00 par value, 1,000,000
     shares authorized                                   --                  --
   Common stock, $0.10 par value, 20,000,000;
     issued 2,745,233 at 12/31/99 and
     4,160,083 at 12/31/98                              278                 416
   Additional paid-in capital                         5,549               5,481
   Retained earnings                                 15,402              18,705
                                                     ------              ------
       Total shareholders' equity                    21,229              24,602
Commitments and contingencies
   (Notes 5, 7, 8, 10, 11, 12,16)
       Total Liabilities and Shareholders'
       Equity                                       $32,924             $33,126
                                                    =======             =======

See accompanying notes to consolidated financial statements


                                       A-6

<PAGE>

                     AMERICAN PHYSICIANS SERVICE GROUP, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

<TABLE>
<CAPTION>

                                                                                    Year Ended December 31,
                                                                          ------------------------------------------
                                                                           1999              1998               1997
                                                                           ----              ----               ----
<S>                                                                     <C>                <C>                <C>
Cash flows from operating activities:

  Cash received from customers                                          $17,205            $16,017            $13,080
  Cash paid to suppliers and employees                                  (16,770)           (14,390)            (9,247)
  Change in trading account securities                                        6                (86)               250
  Change in receivable from clearing broker                                  16               (447)              (177)
  Interest paid                                                            (254)               (59)               (21)
  Income taxes paid                                                        (385)              (439)              (772)
  Interest and other investment proceeds                                    484                234                219
                                                                        --------          ---------          ---------
      Net cash provided by operating activities                             302                830              3,332

Cash flows from investing activities:

  Proceeds from the sale of property and equipment                          ---                 13                 55
  Payments for purchase property and equipment                             (413)              (206)              (312)
  Net change in marketable securities                                      (100)               ---                  5
  Proceeds from equity owners investment                                    ---                259                ---
  Investment in preferred stock                                             ---             (2,073)            (5,292)
  Proceeds from sale of insurance exchange                                  ---                ---              1,000
  Proceeds from sale of 20% of Insurance Serv                               ---                ---              2,000
  Proceeds received in acquisition                                           75                ---                ---
  Proceeds from prior year disposition                                       40                ---                ---
  Funds loaned to others                                                 (4,992)            (3,020)              (834)
  Collection of notes receivable                                          1,488              2,085                109
  Discontinued Operations                                                  (578)               502                ---
  Other                                                                     (59)               ---                (82)
                                                                        --------          ---------          ---------
    Net cash used in by investing activities                             (4,539)            (2,440)            (3,351)

Cash flows from financing activities:

  Repayment of long term obligations                                        ---                ---               (542)
  Proceeds from long-term obligations                                     3,825                  8                ---
  Payment of long-term debt                                                (577)               ---                ---
  Funds held for others                                                     376                ---                ---
  Purchase/retire treasury stock                                            (25)              (147)              (337)
  Exercise of stock options                                                  75                 75                316
  Distribution to minority interest                                         ---               (300)               ---
                                                                        --------          ---------          ---------
    Net cash (used in)/ provided by financing activities                  3,674               (364)              (563)
                                                                        --------          ---------          ---------
Net change in cash and cash equivalents                                   ($563)           ($1,974)             ($582)
                                                                        --------          ---------          ---------
Cash and cash equivalents at beginning of period                          3,214              5,188              5,770
                                                                        --------          ---------          ---------
Cash and cash equivalents at end of period, including
    restricted cash                                                      $2,651             $3,214             $5,188
                                                                        ========          =========          =========

</TABLE>

See accompanying notes to consolidated financial statements


                                       A-7

<PAGE>

                     AMERICAN PHYSICIANS SERVICE GROUP, INC.

                CONSOLIDATED STATEMENTS OF CASH FLOWS, continued

(In thousands)
<TABLE>
<CAPTION>

                                                                                    Year Ended December 31,
                                                                          -----------------------------------------
                                                                          1999              1998               1997
                                                                          ----              ----               ----
Reconciliation of net earnings to net cash from operating activities:

<S>                                                                      <C>              <C>                <C>
Net earnings                                                             $1,413           $1,545             $2,538
Adjustments to reconcile net earnings to net cash from
   operating activities:
Depreciation and amortization                                               733              618                436
(Earnings)/loss from discontinued operations                               (450)            (502)               200
Loss on disposal of discontinued operations                                 ---              ---              1,209
Minority interest in consolidated earnings/(loss)                            (5)             178                175
Undistributed earnings of affiliate                                      (2,116)          (1,457)           (2,014)
Provision for bad debts                                                   2,023              361                ---
Gain on exchange of stock                                                (1,635)             ---                ---
Stock warrants received                                                     (45)             ---                ---
Gain on sale of fixed assets                                                 ---              (1)               ---
Gain on sale or disposition of assets                                        ---             ---            (2,032)
(Gain) loss on sale of securities                                            ---             ---                 41
Change in federal income tax payable                                       (492)              66                876
Provision for deferred taxes                                                826              373                 56
Change in trading securities                                                  6              (86)               250
Change in receivable from clearing broker                                    16             (447)               177
Change in management fees & other receivables                               209             (153)              (26)
Change in prepaids & other current assets                                    96              169              (191)
Change in long term assets                                                  ---               52                ---
Change in trade payables                                                    202                9                 90
Change in accrued expenses & other liabilities                             (479)             105              1,547
                                                                          ------           -----              -----

   Net cash from operating activities                                      $302             $830             $3,332
                                                                           =====           =====             ======

</TABLE>

Summary of non-cash transactions:

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

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


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

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

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

See  accompanying  notes to  consolidated  financial statements

                                       A-8

<PAGE>

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

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


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

                                                                 Additional      Unrealized                      Total
                                            Common Stock           Paid-In        Holding        Retained    Shareholders'
                                         Shares       Amount       Capital         Gains         Earnings       Equity
                                      ------------- ----------- -------------- --------------- ------------- --------------
                                      ------------- ----------- -------------- --------------- ------------- --------------
<S>                                      <C>              <C>           <C>               <C>        <C>            <C>
Balance January 1, 1997                  4,049,195        $405          5,366             (11)       14,622         20,382
Net earnings                                    --          --             --              --         2,538          2,538
Unrealized loss on securities
 available for sale, net of tax                 --          --             --              11            --             11
Shares issued (Note 11)                    164,666          16            300              --            --            316
Shares repurchased & cancelled             (53,000)         (5)          (332)             --            --          ( 337)
Income tax benefit of non-qualified
 option exercises                               --          --            194              --            --            194
                                      ------------- ----------- -------------- --------------- ------------- --------------
Balance December 31, 1997                4,160,861         416          5,528              --        17,160         23,104
Net earnings                                    --          --             --              --         1,545          1,545
Shares issued (Note 11)                     25,833           3             72              --            --             75
Shares repurchased & cancelled             (26,611)         (3)          (144)             --            --           (147)
Income tax benefit of non-qualified
 option exercises                               --          --             25              --            --             25
                                      ------------- ----------- -------------- --------------- ------------- --------------
Balance December 31, 1998                4,160,083         416          5,481              --        18,705         24,602
Net earnings                                    --          --             --              --         1,413          1,413
Shares issued (Note 11)                     32,950           3             72              --            --             75
Shares repurchased & cancelled          (1,447,800)       (141)           (24)             --        (4,716)        (4,881)
Income tax benefit of non-qualified
 option exercises                               --          --             20              --            --             20
                                      ------------- ----------- -------------- --------------- ------------- --------------
Balance December 31, 1999                2,745,233        $278          5,549              --        15,402         21,229
                                      =====================================================================================

</TABLE>

See accompanying notes to consolidated financial statements.

                                       A-9

<PAGE>

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


(1)      Summary of Significant Accounting Policies

(a)      General

         American  Physicians  Service  Group,  Inc.  through its  subsidiaries,
         provides financial services that include brokerage and asset management
         services to individuals and institutions,  and insurance  services that
         consist of management services for malpractice insurance companies. The
         financial   services   business  has  clients   nationally.   Insurance
         management is a service  provided  primarily in Texas, but is available
         to clients  nationally.  American  Physicians  Service Group, Inc. also
         owns space in the office  building  which  serves as its  headquarters.
         Through its real estate  subsidiary  it leases space that is surplus to
         its  needs.   During  the  three  years   presented  in  the  financial
         statements,  financial  services  generated  57% of total  revenues and
         insurance services generated 24%.

         American Physicians Services Group, Inc. has one affiliate; Prime
         Medical  Services,  Inc., of which it owns  approximately  14%. Prime
         Medical is the country's largest provider of  lithotripsy (non-invasive
         kidney stone  fracturing)  services.  The Company also has a preferred
         stock investment in a company which develops and operates Alzheimer's
         care facilities.

(b)      Estimates

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

(c)      Principles of Consolidation

         The consolidated  financial statements include the accounts of American
         Physicians  Service Group,  Inc. and of subsidiary  companies more than
         50% owned  ("Company").  Investments in affiliated  companies and other
         entities  in which  the  Company's  investment  is less than 50% of the
         common  shares  outstanding  and where the Company  exerts  significant
         influence are accounted for by the equity method.  Investments in other
         entities  in  which  the  Company's  investment  is  less  than  20% is
         accounted for by the cost method.

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

                                      A-10


<PAGE>

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

         Summary of Significant Accounting Policies, continued

         (d)      Revenue Recognition

         Investment  services  revenues  related to securities  transactions are
         recognized on a trade date basis.

         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.

         Consulting revenues related to environmental  engineering/consulting is
         recognized monthly based upon billable hours.

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

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

         (e)      Marketable Securities

         The Company's  investments in debt and equity securities are classified
         in three categories and accounted for as follows:

                  Classification                       Accounting

                  Held to maturity                     Amortized cost

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

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

                                      A-11

<PAGE>

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

(1)      Summary of Significant Accounting Policies, continued

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

         (f)      Property and Equipment

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

         (g)      Long-Lived Assets

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

         (h)      Goodwill

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

         (i)      Income Taxes

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

         (j)      Earnings Per Share

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

                                      A-12

<PAGE>

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

(1)      Summary of Significant Accounting Policies, continued

         (k)      Cash and Cash Equivalents

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

         (l)      Notes Receivable

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

         (m)      Stock-Based Compensation

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

         (n)      Reclassification

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

         (o)      Other Comprehensive Income

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

                                      A-13

<PAGE>

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


(2)      Management Fees and Other Receivables

         Management fees and other receivables consist of the following:

                                                              December 31,
                                                        1999               1998
                                                    --------            -------
         Management fees receivable                 $304,000            501,000
         Trade accounts receivable                   778,000            173,000
         Less:  allowance for doubtful
                accounts                             (20,000)            (8,000)
         Accrued interest receivable                 162,000             21,000
         Other receivables                           120,000            281,000
                                                     -------            -------
                                                  $1,344,000            968,000
                                                  ==========            =======


         The Company earns management fees by providing  management  services to
         American Physicians  Insurance Exchange ("APIE") under the direction of
         APIE's Board of Directors.  Subject to the direction of this Board, FMI
         sells and issues  policies,  investigates,  settles and defends claims,
         and  otherwise  manages  APIE's  affairs.  The Company  has  previously
         managed other insurance companies.

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

                                      A-14

<PAGE>

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

(3)      Notes Receivable

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


                                                                                                            December 31,

                                                                                                        1999            1998
                                                                                                        ----            ----
Reagan Publishing Company

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

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

                                                                                                         --        3,709,000
Uncommon Care, Inc.

Revolving Line of Credit: This note is unsecured with a maximum of $1,250,000.  The note is
interest only at 12%, payable semi-annually.  The note matures April 30, 2000, but may be
extended until November 30, 2001.  Maturity may be accelerated if the borrower obtains specific     730,000              --
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.

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            2,141,000         745,000
quarterly.  Any outstanding principal is due June 30, 2005.

FemPartners, Inc. (Formerly Syntera HealthCare Corporation)

Upon  the  merger  of  Syntera  HealthCare  Corporation  with  FemPartners,  APS
restructured  the line of credit,  which now bears interest at 8%.  Payments are
interest only,  paid quarterly  through  November 30, 2001.  Quarterly  combined
principal  and interest  payments  begin  December 1, 2001 and continue  through
September  1, 2004,  at which  time the total  outstanding  balance is due.  The
maturity date of this note can be accelerated if FemPartners conducts an initial
public  offering or other public sale of its common stock.  If such occurs,  the
note shall mature and become due and payable the latter of September 1, 2002 or the
5th business day after the date of such initial public offering or other public sale.             2,193,000          580,000

Employees

Three employees have loans from the Company as employment inducements, totaling $200,000.
The notes are non-interest bearing and are being forgiven and amortized monthly over three to
four year periods.  The notes are due and payable should the employees terminate employment.
A fourth employee note in the amount of $50,000 was issued in December 1999 and paid in full
on March 2, 2000. In addition, loans totaling $86,000 were granted to a key employee for
advanced education fees. $20,000 is due June 30, 2000 while an additional $32,850 payment is
due at June 30, 2003 and 2004, respectively.The latter two notes are forgivable in the amount
of approximately $14,000 on each December 31st that the employee is employed by the Company        336,000          437,000
beginning in 2000 and continuing through 2004.                                                     -------          -------


                                                                                                 5,400,000        5,627,000
Less allowance for doubtful accounts                                                              (193,000)      (1,144,000)
                                                                                                 ---------       ----------
                                                                                                 5,207,000        4,483,000
Less current portion                                                                               270,000          196,000
                                                                                                 ---------       ----------
Long term portion                                                                               $4,937,000       $4,287,000
                                                                                                ==========       ==========


</TABLE>
                                      A-15

<PAGE>

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

(3)      Notes Receivable, continued

         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 the sale of a financial asset. In the
         aggregate  these  officers  and  directors  contributed   approximately
         $259,000 to fund a 10.8% interest in the loan. They participated in the
         earnings from the loan on a pro-rata basis.

         On October 31, 1996, the Company invested $3,300,000 in common stock of
         Exsorbet Industries, Inc. ("Exsorbet") (NASDAQ:EXSO) with a put option.
         Exsorbet  was  a  diversified   environmental  and  technical  services
         company.  On  November  26,  1996,  the  Company  exercised  its put in
         exchange for a note receivable  from Exsorbet.  The note was secured by
         the shares  that were  subject to the put option plus all the stock and
         substantially  all  of the  assets  of a  wholly  owned  subsidiary  of
         Exsorbet.   Subsequently,   Exsorbet   became  known  as   Consolidated
         Eco-Systems, Inc. ("Con-Eco").

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

         In April,  1999, the Company's wholly owned subsidiary,  APS Consulting
         ("APS  Consulting"),   acquired  the  business  of  Eco-Systems,   Inc.
         ("Eco-Systems"),  a subsidiary of Con-Eco,  in  connection  with a debt
         restructuring   agreement   with  Con-Eco.   Under  the  terms  of  the
         restructuring  agreement,  Con-Eco had the right to  purchase  back the
         business of  Eco-Systems  for a nominal  amount upon the  occurrence of
         certain  conditions.   Accordingly,   the  Company  did  not  initially
         consolidate the operations of APS Consulting.  In addition, the Company
         dismissed  its  lawsuit  against  Con-Eco,  but  retained  the right to
         reinstitute the litigation at a later date.

         Subsequently,  the  Company  concluded  that it was not  probable  that
         Con-Eco would exercise its option to reacquire the stock and, effective
         September 1, 1999, the Company began consolidating APS Consulting.  The
         acquisition  was recorded using the purchase  method of accounting.  In
         addition,  the Company wrote off the remaining  balance of the note due
         from  Con-Eco.  During the year  ended  December 31, 1999 the Company
         wrote off to bad debt expense a total of $1,293,000 bringing the total
         written off since inception to $1,685,000.

                                      A-16
<PAGE>

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

(3)      Notes Receivable, continued

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

         Following  a  renegotiation  of the  debt  in  November  1997,  Con-Eco
         defaulted on the note.  Con-Eco's stock was delisted during 1998 as the
         Company  considered  the loan to be impaired. A portion of the note
         receivable was written off in 1999 prior to the acquisition of
         Eco-Systems (See Note 18) and has been recorded as follows:

                                                              December 31,

                                                     1999                  1998
                                                     ----                  ----

Recorded loan amount                                $ --             $3,709,000

Less allowance for impairment                         --                880,000
                                                    -----            ----------

                                                    $ --             $2,829,000
                                                   ======            ==========



         A reconciliation of the allowance for impairment of the Company's notes
           receivable follows:

                                                         Year Ended December 31,

                                                         1999              1998
                                                         ----              ----

Balance at the beginning of the period              $1,144,000       $  653,000

Amounts charged off                                 (1,144,000)        (100,000)

Additional provision                                   193,000          591,000
                                                    ----------       ----------

Balance at the end of period                         $ 193,000       $1,144,000
                                                      =========      ==========


                                      A-17

<PAGE>

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

(4)      FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

         CASH AND CASH EQUIVALENTS

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

         TRADING ACCOUNT SECURITIES

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

         MANAGEMENT FEES AND OTHER RECEIVABLES

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

         NOTES RECEIVABLE

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

         RECEIVABLE FROM CLEARING BROKER

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

                                      A-18

<PAGE>

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

(4)      Fair Value of Financial Instruments, continued

         OTHER INVESTMENTS

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

         Accounts Payable

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

         LIMITATIONS

         Fair value  estimates  are made at a specific  point in time,  based on
         relevant  market   information  and  information  about  the  financial
         instrument.  Fair  value  estimates  are based on  existing  on-and-off
         balance sheet financial  instruments without attempting to estimate the
         value of  anticipated  future  business  and the  value of  assets  and
         liabilities  that  are  not  considered  financial  instruments.  Other
         significant  assets and liabilities  that are not considered  financial
         assets or  liabilities  include the deferred  tax assets,  property and
         equipment, investment in affiliates, other assets, accrued expenses and
         income tax payable. In addition,  the tax ramifications  related to the
         realization of the  unrealized  gains and losses can have a significant
         effect on fair  value  estimates  and have not been  considered  in the
         aforementioned estimates.

(5)      PROPERTY AND EQUIPMENT

         Property and equipment consists of the following:

                                                                December 31,
                                                       -------------------------
                                                         1999              1998
                                                       ---------        --------
         Office condominium                            $1,574,000      1,796,000
         Furniture and equipment                        2,582,000      3,173,000
                                                        ---------      ---------
                                                        4,156,000      4,969,000
         Accumulated depreciation and amortization      2,336,000      3,316,000
                                                        ---------      ---------
                                                        1,820,000      1,653,000
                                                        =========      =========


                                      A-19

<PAGE>

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

(5)      Property and Equipment, continued

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

(6)      Accrued Expenses and Other Liabilities

         Accrued expenses and other liabilities consists of the following:

                                                     1999                  1998
                                                ---------            ----------

        APS Systems disposition costs
         (discontinued operations)
                                                  $10,000            $1,026,000
        Taxes payable - other                     160,000               115,000
        Deferred income                           528,000               740,000
        Contractual/legal claims                1,409,000             1,202,000
        Vacation payable                          116,000               134,000
        Funds held for others                     402,000                20,000
        Other                                     298,000               142,000
                                                  -------               -------
                                               $2,923,000            $3,379,000
                                               ==========             =========


(7)      Notes Payable

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

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

                                      A-20

<PAGE>

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

(8)      Commitments and Contingencies

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

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

                                      A-21
<PAGE>

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

(8)      Commitments and Contingencies, continued

         The Company has guaranteed the future yield of a customer's  investment
         portfolio  beginning in January 1995 for up to a five and one-half year
         period.  Management  believes that the Company's  financial  statements
         adequately  provide for any loss that might occur under this agreement;
         however,  as  defined  in  AICPA  Statement  of  Position  94-6,  it is
         reasonably  possible that the  Company's  estimate of loss could change
         over the  remaining  term of the  agreement.  Management  is  unable to
         determine  the  range  of  potential  adjustment  since  it is based on
         securities markets, which are beyond its ability to control.

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

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

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

(9)      Income Taxes

         Income tax expense (benefit) consists of the following:

                                                 Year Ended December 31,
                                            -----------------------------------
                                               1999          1998         1997
                                               ----          ----         ----
         Continuing Operations
         Federal

           Current                         $(245,000)     $332,000   $1,394,000
           Deferred                          826,000       399,000      777,000
         State                                40,000       132,000      170,000
         Discontinued Operations             153,000       171,000     (479,000)
                                             -------       -------    ---------
                                            $774,000    $1,034,000   $1,862,000
                                            ========     =========   ==========


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

                                      A-22
<PAGE>

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


(9)      Income Taxes, continued

                                                   Year Ended December 31,
                                          --------------------------------------
                                            1999         1998             1997
                                            ----         ----             ----
         Expected federal income tax
            expense
                                          $744,000     $877,000       $1,556,000
         State taxes                        40,000      132,000          170,000
         Other, net                        (10,000)      25,000          136,000
                                            ------     --------        ---------
                                          $774,000   $1,034,000       $1,862,000
                                          ========   ==========       ==========

         The tax effect of temporary  differences that gives rise to significant
         portions  of  deferred  tax  assets and  deferred  tax  liabilities  at
         December 31, 1999 and 1998 are presented below:

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

                                                      1999                1998
                                                      ----                ----
        Deferred tax assets:
        Net operating loss carryforwards          $172,000            $186,000
        Accrued expenses                           537,000             774,000
        Accounts receivable, principally due
          to allowance for doubtful accounts        96,000              94,000
        Deferred income                            (26,000)             378,000
        Market value allowance                       2,000              17,000
        Other                                       56,000              48,000
                                                    ------              ------
        Total gross deferred tax assets            837,000           1,497,000
        Less valuation allowance                  (172,000)           (186,000)
                                                 ---------           ---------
        Net deferred tax assets                    665,000           1,311,000
                                                   -------           ---------
        Deferred tax liabilities:
        Investment in Prime Medical Services,
         Inc. due to use of equity method for
         financial reporting
                                                (2,730,000)         (2,474,000)
        Capitalized expenses, principally
         due to deductibility for tax
         purposes                                  (32,000)            (32,000)
                                                  --------            --------
        Total gross deferred tax liabilities    (2,762,000)         (2,506,000)
                                                ----------         -----------
        Net deferred tax liability             $(2,097,000)        $(1,195,000)
                                               ============        ============


                                      A-23

<PAGE>

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

(9)      Income Taxes, continued

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

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

         In assessing the realizability of deferred tax assets, management
         considers whether it is more likely than not that some portion or all
         of the deferred tax assets will not be realized. The ultimate realiza-
         tion of deferred tax assets is dependent upon the generation of future
         taxable income during the periods in which those temporary defferences
         become deductible. Management considers the scheduled reversal of
         deferred tax liabilities, projected future taxable income, and tax
         planning strategies in making this assessment. Based upin the level of
         historical taxable income and projections for future taxable income
         over the periods which the deferred tax assets are deductible, manage-
         ment believes it is more likely than not that the Company will realize
         the benefits of these deductible differences net of existing valuation
         allowances at December 31, 1999 and 1998.

(10)     Employee Benefit Plans

         The Company has an  employee  benefit  plan  qualifying  under  Section
         401(k)  of the  Internal  Revenue  Code  for  all  eligible  employees.
         Employees   become  eligible  upon  meeting  certain  service  and  age
         requirements.  Employees may defer up to 15% (not to exceed  $10,000 in
         1999) of their annual  compensation under the plan. The Company, at its
         discretion,  may  contribute  up to  200%  of the  employees'  deferred
         amount.  For  the  years  ended  December  31,  1999,  1998  and  1997,
         contributions  by  the  Company  aggregated,   $121,000,  $126,000  and
         $92,000, respectively.

(11)     Stock Options

         The  Company  has  adopted,  with  shareholder   approval,   the  "1995
         Non-Employee  Directors Stock Option Plan"  ("Directors  Plan") and the
         "1995  Incentive  and  Non-Qualified  Stock  Option  Plan"  ("Incentive
         Plan").  The Directors  Plan provides for the issuance of up to 200,000
         shares  of  common  stock to  non-employee  directors  who serve on the
         Compensation  Committee.  The  Directors  Plan  is  inactive  and it is
         assumed the remaining 50,000 shares will not be granted.  The Incentive
         Plan, as amended with  shareholder  approval in 1998,  provides for the
         issuance of up to 1,200,000  share of common stock to directors and key
         employees.

                                      A-24
<PAGE>

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

(11)     Stock Options, continued

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

         The Company has adopted the disclosure-only  provisions of Statement of
         Financial  Accounting  Standards No. 123,  Accounting  for  Stock-Based
         Compensation ("Statement 123"), but applies Accounting Principles Board
         Opinion No. 25, Accounting for Stock Issued to Employees, in accounting
         for its  stock  option  plans.  No cost from  stock-based  compensation
         awards was recognized in 1999, 1998 or 1997. If the Company had elected
         to recognize  compensation  cost of options  granted  based on the fair
         value at the grant dates, consistent with Statement 123, net income and
         earnings  per  share  would  have  changed  to the  pro  forma  amounts
         indicated below:
<TABLE>
<CAPTION>

                                                                        Year Ended December 31,
                                                          ----------------------------------------------------
                                                               1999              1998              1997
                                                               ----              ----              ----
         <S>                                                 <C>                <C>            <C>
         Pro forma net income                                $859,000           $810,000       $1,989,000
         Pro forma earnings per share - basic                    0.27               0.19             0.48
                                        - diluted                0.27               0.16             0.46

</TABLE>

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

                                          1999          1998          1997
                                          ----          ----          ----
            Risk-free interest rate       5.60%         5.21%         6.16%
            Expected holding period       3.90 years    3.90 years    3.90 years
            Expected volatility           .689           .401         .480
            Expected dividend yield         -0-            -0-          -0-


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


                                      A-25
<PAGE>

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



(11)     Stock Options, continued

<TABLE>
<CAPTION>
                                                            Year Ended December 31,
                                --------------------------------------------------------------------------------
                                          1999                       1998                     1997
                                ------------------------   ------------------------     ------------------------

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

</TABLE>


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

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

                                             Stock Options                      Stock Options Exercisable
                                              Outstanding
                              --------------------------------------------      ----------------------------
                                               Average        Weighted                          Weighted
                                              Remaining        Average                           Average
              Range of                       Contractual      Exercise                          Exercise
          Exercise Prices         Shares         Life           Price                Shares       Price
                                 ---------    ---------        ------                -------     ------
        <S>                      <C>          <C>              <C>                   <C>         <C>
        $3.25 to $5.00             487,000    3.7 years        $ 3.93                170,000     $ 3.76
        $5.01 to $7.75             617,000    2.8 years        $ 6.71                322,000     $ 6.57
        $7.76 to $10.50            178,000    1.5 years        $ 9.85                176,000     $ 9.87
                                   -------    ---------        ------                -------     ------
        Total                    1,282,000                                           668,000
                                 =========                                           =======
</TABLE>


(12)     Discontinued Operations

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


                                      A-26
<PAGE>

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

(12)     Discontinued Operations, continued

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

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

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


         Summary  operating  data for the year  ended  December  31,  1999 is as
follows:

                  Total revenue                                        $266,000
                  Cost of sales                                         (12,000)
                  Other operating expenses                             (296,000)
                  Reversal of allowance                                 492,000
                  Income taxes                                         (153,000)
                                                                       --------
                  Net income                                           $297,000
                                                                       ========

(13)     Investment in Affiliate

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


                                      A-27

<PAGE>

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

(13)     Investment in Affiliate, continued

         aggregate,   have  reduced  the  Company's  ownership  to  14%  of  the
         outstanding common stock of Prime Medical.  The Company's investment in
         Prime Medical is accounted for using the equity  method.  The 2,344,000
         shares  of  Prime  Medical  common  stock  held by the  Company  had an
         approximate   market   value  of   $21,387,000   (carrying   amount  of
         $12,096,000)  at December 31, 1999 based on the market closing price of
         $9.125 per share.

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

         The  condensed  balance  sheet and  statement of  operations  for Prime
         Medical follows:

              Condensed balance sheet at December 31, 1999 and 1998
              -----------------------------------------------------
                                                    1999                 1998
                                                    ----                 ----
              Current assets                   $58,012,000           70,006,000
              Long-term assets                 188,815,000          171,320,000
                                               -----------          -----------
              Total assets                     246,827,000          241,326,000
                                               ===========          ===========
              Current liabilities              $20,493,000           28,465,000
              Long-term liabilities            129,651,000          123,111,000
              Shareholders' equity              96,683,000           89,750,000
                                               ----------            ----------
              Total liabilities and equity    $246,827,000          241,326,000
                                              ============          ===========

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

                                                   1999                   1998
                                                   ----                   ----
              Total revenue                  $112,174,000            104,636,000
                                             ============            ===========
              Net income                      $15,039,000             10,794,000
                                              ===========             ==========


(14)     Segment Information

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

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


                                      A-28
<PAGE>

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

(14)     Segment Information, continued

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

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

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

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

         Discontinued operations include medical software sales.

<TABLE>
<CAPTION>


                                                                       1999              1998             1997
                                                                       ----              ----             ----
        <S>                                                     <C>                <C>              <C>
        Operating Revenues:
          Financial services                                    $10,835,000        $9,914,000       $5,726,000
          Insurance services                                      4,683,000         5,655,000        6,287,000
          Consulting                                                768,000                --               --
          Real estate                                               853,000           865,000          867,000
          Corporate                                               4,839,000         1,721,000          982,000
                                                                  ---------         ---------          -------
                                                                $21,978,000        18,155,000       13,862,000
                                                                ===========        ==========       ==========
        Reconciliation to Consolidated
         Statement of Earnings:

          Total segment revenues                                $21,978,000        18,155,000       13,862,000
          Less: intercompany profits                               (143,000)         (152,000)        (163,000)
                intercompany dividends                           (2,720,000)       (1,600,000)        (634,000)
                                                                -----------       -----------        ---------
                 Total Revenues                                 $19,115,000       $16,403,000      $13,065,000
                                                                ===========       ===========      ===========
        Operating Profit (Loss):
          Financial services                                       $998,000          $810,000          372,000
          Insurance services                                         40,000         1,437,000        2,385,000
          Consulting                                                 58,000                --               --
          Real estate                                               305,000           338,000          362,000
          Corporate                                                 935,000          (187,000)        (389,000)
                                                                    -------         ---------        ---------
                                                                 $2,336,000        $2,398,000       $2,730,000
                                                                 ==========        ==========       ==========
        Reconciliation to Consolidated
         Statement of Earnings:

          Total segment operating profits                         2,336,000         2,398,000        2,730,000
          Less:   intercompany dividends                         (2,720,000)       (1,600,000)        (634,000)
                  other                                                  --                --          (25,000)
                                                            ---------------- ----------------         --------

                 Operating Income                                 $(384,000)         $798,000       $2,071,000
</TABLE>


                                      A-29
<PAGE>

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

(14)     Segment Information, continued
<TABLE>
<CAPTION>

                                                                      1999              1998             1997
                                                                      ----              ----             ----
        <S>                                                     <C>               <C>              <C>
        Equity in earnings of affiliates                          2,116,000         1,457,000        2,014,000
        Gain on sale of interest in subsidiary                                             --        1,899,000
                                                            ---------------- ----------------        ---------
                                                                         --
        Earnings from continuing operations before income
         taxes and minority interests
                                                                  1,732,000         2,255,000        5,984,000
        Income tax expense                                          621,000           863,000        2,341,000
        Minority interests                                            5,000          (178,000)        (175,000)
                                                                      -----         ---------        ---------
        Earnings from continuing operations                       1,116,000         1,214,000        3,468,000
                                                                  ---------         ---------        ---------
        Net profit(loss) from discontinued operations,
         net of income tax                                          297,000           331,000         (930,000)
                                                                    -------           -------        ---------
        Net earnings                                             $1,413,000        $1,545,000       $2,538,000
                                                                 ==========        ==========       ==========
        Identifiable assets:
          Financial Services                                     $4,480,000         3,964,000        2,346,000
          Insurance Services                                      1,281,000         1,640,000        2,585,000
          Consulting                                              1,155,000                --               --
          Real Estate                                             1,286,000         1,324,000        1,283,000
          Corporate:
             Investment in equity

               method investees                                  12,096,000        17,064,000       15,606,000
             Other                                               12,586,000         8,928,000        8,561,000
          Discontinued Operations                                    40,000           206,000          356,000
                                                                     ------           -------          -------
                                                                $32,924,000       $33,126,000      $30,737,000
                                                                ===========       ===========      ===========
        Capital expenditures:
          Financial Services                                        $47,000            55,000          154,000
          Insurance Services                                         44,000            44,000           33,000
          Consulting                                                     --                --               --
          Real Estate                                               129,000            58,000               --
          Corporate                                                 193,000            49,000           26,000
          Discontinued Operations                                        --                --           99,000
                                                               ------------       -----------           ------
                                                                   $413,000          $206,000         $312,000
                                                                   ========           =======          =======

</TABLE>

                                      A-30

<PAGE>

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

(14)      Segment Information, continued
<TABLE>
<CAPTION>

                                                                       1999              1998             1997
                                                                       ----              ----             ----
        <S>                                                        <C>               <C>              <C>
        Depreciation/amortization expenses:
          Financial Services                                       $413,000          $279,000         $118,000
          Insurance Services                                         94,000            90,000           90,000
          Consulting                                                 31,000                --               --
          Real Estate                                               103,000           107,000          110,000
          Corporate                                                  74,000            78,000           62,000
          Discontinued Operations                                    18,000            64,000           56,000
                                                            ---------------            ------           ------
                                                                   $733,000          $618,000         $436,000
                                                                   ========          ========         ========


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

          Insurance services

            Company A                                            $2,454,000        $3,970,000       $4,659,000

</TABLE>

         At December 31, 1999 the Company had long-term contracts with company A
         and was  therefore  not  vulnerable  to the risk of a near-term  severe
         impact from a reasonably possible loss of the revenue.

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

(15)     Earnings Per Share

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

                                      A-31

<PAGE>

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


(15)     Earnings Per Share, cont.

<TABLE>
<CAPTION>



                                                               For the Year Ended December 31, 1999
                                                               ------------------------------------
                                                              Income             Shares           Per-Share
                                                            (Numerator)        (Denominator)        Amount
                                                            ----------          -----------       ---------
         <S>                                                 <C>                   <C>                 <C>
         Earnings from continuing operations
                                                             $1,116,000

         Basic EPS

         Income available to common stockholders
                                                              1,116,000            3,142,000           $.36
                                                                                                       ====
         Effect of Dilutive Securities

         Options                                                     --               26,000
                                                              ---------            ---------
         Diluted EPS
         Income available to common stockholders and
         assumed conversions
                                                             $1,116,000            3,168,000           $.35
                                                             ==========            =========           ====




                                                               For the Year Ended December 31, 1998
                                                               ------------------------------------
                                                             Income              Shares           Per-Share
                                                           (Numerator)        (Denominator)        Amount
                                                           ----------         ------------         ------
         Earnings from continuing operations
                                                            $1,214,000

         Basic EPS

         Income available to common stockholders
                                                            $1,214,000            4,163,000           $.29
                                                                                                       ====
         Effect of Dilutive Securities

         Options                                                    --               74,000
         Contingently issuable shares                          (76,000)             456,000
                                                               --------              -------
         Diluted EPS

         Income available to common stockholders and
         assumed conversions
                                                             $1,138,000           4,692,000           $.24
                                                             ==========           =========           ====
</TABLE>

                                      A-32
<PAGE>

(15)    Earning Per Share, continued

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

<TABLE>
<CAPTION>
                                                               For the Year Ended December 31, 1997
                                                               ------------------------------------
                                                            Income             Shares           Per-Share
                                                         (Numerator)        (Denominator)        Amount
                                                         ----------                              ------
         <S>                                             <C>                    <C>                 <C>
         Earnings from continuing operations
                                                         $3,468,000

         Basic EPS

         Income available to common stockholders
                                                          3,468,000             4,106,000           $.84
                                                                                                   ====
         Effect of Dilutive Securities

         Options                                                --                114,000
         Contingently issuable shares                      (18,000)                21,000
                                                           --------                ------
         Diluted EPS

         Income available to common stockholders and
         assumed conversions
                                                         $3,450,000              4,241,000           $.81
                                                         ==========              =========           ====
</TABLE>


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

(16)     Cash - Restricted

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


                                      A-33
<PAGE>

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


(17)     Other Investments

         Other investments consists of the
          following investments:                        1999            1998
                                                     ----------      -----------

         Investment in Uncommon Care, Inc.           $2,078,000      $2,078,000

         Investment in FemPartners, Inc.              3,855,000              --

         Investment in Syntera HealthCare                    --       3,974,000

         Investment in Probex                           100,000              --

         Stock warrants in Probex                        45,000              --
                                                     ----------      -----------

                  Total                              $6,078,000      $6,052,000
                                                      =========       =========



         On January 1, 1998 the Company invested approximately $2,078,000 in the
         Convertible  Preferred Stock of Uncommon Care, Inc.  ("Uncommon Care").
         Uncommon Care is a developer and operator of dedicated Alzheimer's care
         facilities.  The preferred  shares owned by the Company are convertible
         into approximately a 34% interest in the equity of Uncommon Care.

         On June 30, 1999 the Company merged  Syntera with another  unaffiliated
         practice  management  company,  FemPartners,  Inc.,  resulting  in  the
         Company owning  approximately  12% of the total equity of  FemPartners,
         Inc. Prior to June 30, 1999 the Company has accounted for its ownership
         in Syntera on the equity basis.  Beginning July 1, 1999, as a result of
         the merger with  FemPartners,  Inc.,  the Company  began  recording its
         interest on the cost basis.

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

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

                                      A-34

<PAGE>

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

(18)     Acquisition Through Foreclosure

         Effective  September  1,  1999  the  Company  began  consolidating Eco-
         Systems as a wholly-owned subsidiary .  The Company's  basis in its
         investment represents   the   remainder   of  the  note   due  from
         Eco-Systems, approximately $630,000 as of September, 1999. The Company
         has accounted for the transaction  using the purchase method of
         accounting.  Goodwill is amortized  using the  straight  line method of
         amortization  over a period of ten years.  At December 31, 1999 the
         Company has  amortized a total of $20,000.

         Unaudited  proforma  combined  income data for the years ended December
         31, 1999 and 1998 of the Company,  assuming the purchase was  effective
         January 1, 1998 is as follows:

                  ($ in thousands, except per share data)

                                                         1999             1998
                                                        ------            ----

                       Total revenues                 $20,798           $19,819

                       Total expenses                  19,619            17,895
                                                       ------            ------

                       Net income                      $1,179            $1,924
                                                       ======            ======

                       Diluted earnings per share        $.37              $.39
                                                         ====              ====


                                      A-35