<PAGE>

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

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549
                               ________________

                                   FORM 10-Q


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

     For the Quarter Ended September 30, 1999    Commission File Number: 0-9628

                                      or

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

     For the transition period from [    ]  to  [      ]


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


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

    1800 Sutter Street, Suite 400                    94520
       Concord, California                         (Zip Code)
(Address of principal executive offices)

 Registrant's telephone number, including area code:  (925) 682-7707


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

                                     None

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

                         Common stock, $.02 par value


  Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or 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.  [X]Yes    [ ] No



     As of  September 30, 1999, the Registrant had 4,710,055 shares of common
stock outstanding.



                    This document is comprised of 60 pages

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

                       ANCHOR PACIFIC UNDERWRITERS, INC.

                                     INDEX


<TABLE>
<CAPTION>
<S>                                                                                     <C>
Part I.   FINANCIAL INFORMATION

          Item 1.  Financial Statements:

                   Consolidated Balance Sheets, September 30, 1999 (unaudited)
                   and December 31, 1998............................................     1


                   Consolidated Statements of Operations (unaudited) for the
                   nine months and quarters ended September 30, 1999 and 1998.......     3


                   Consolidated Statements of Shareholders' Equity (Deficit)
                   for the nine months ended September 30, 1999 (unaudited)
                   and year ended December 31, 1998.................................     4



                   Consolidated Statements of Cash Flows (unaudited) for the
                   nine months ended September 30, 1999 and 1998....................     5


                   Notes to Consolidated Financial Statements.......................     6

          Item 2.  Management's Discussion and Analysis of Financial
                   Condition and Results of Operations..............................     9


Part II.  OTHER INFORMATION

          Item 1.  Legal Proceedings................................................    17

          Item 2.  Changes in Securities............................................    17

          Item 3.  Defaults Upon Senior Securities..................................    17

          Item 4.  Submission of Matters to a Vote of Security Holders..............    17

          Item 5.  Other Information................................................    17

          Item 6.  Exhibits and Reports on Form 8-K.................................    17
</TABLE>
<PAGE>

PART I - FINANCIAL INFORMATION


               Anchor Pacific Underwriters, Inc. and Subsidiaries
                          Consolidated Balance Sheets



<TABLE>
<CAPTION>
                                                             September 30,      December 31,
                                                                1999               1998
                                                           ---------------    --------------
                                                             (unaudited)
<S>                                                       <C>                 <C>
Assets
Current Assets:
    Cash and cash equivalents - corporate funds               $   140,423        $   138,139
    Cash and cash equivalents - third-party
         administration fiduciary funds                         3,606,657          3,517,772
    Realizable value of net assets sold                                 -          2,054,995
    Accounts receivable (less allowance for
         doubtful accounts of $41,952 in
         1999 and 1998, respectively)                             530,550            527,827
    Prepaid expenses and other current assets                     174,664            191,749
                                                          ---------------    ---------------
Total current assets                                            4,452,294          6,430,482
                                                          ---------------    ---------------

Property and equipment                                          2,865,548          2,561,111
Accumulated depreciation and amortization                      (2,190,459)        (2,010,633)
                                                          ---------------    ---------------
                                                                  675,089            550,478
                                                          ---------------    ---------------
Other assets:
    Intangible assets, net                                        572,517            593,933
    Other                                                          44,585             80,431
                                                          ---------------    ---------------
                                                                  617,102            674,364
                                                          ---------------    ---------------

Total assets                                                  $ 5,744,485        $ 7,655,324
                                                          ===============    ===============
</TABLE>

                                       1
<PAGE>

               Anchor Pacific Underwriters, Inc. and Subsidiaries
                    Consolidated Balance Sheets (continued)



<TABLE>
<CAPTION>
                                                             September 30,             December 31,
                                                                1999                      1998
                                                           ----------------        ----------------
                                                              (unaudited)
<S>                                                        <C>                     <C>
Liabilities and Shareholders' Equity (Deficit)
Current Liabilities:
    Cash and cash equivalents - third-party
      administration fiduciary funds                             $ 3,606,657            $ 3,517,772
    Accounts payable                                               1,209,748                619,798
    Accrued expenses                                                 221,134                613,256
    Short-term debt                                                        -                200,000
    Current portion of long-term debt                                338,000              1,242,950
    Current portion of long-term liabilities                         369,246                451,068
                                                             ---------------        ---------------
Total current liabilities                                          5,744,785              6,644,844
                                                             ---------------        ---------------

Long-term liabilities                                                414,449                453,226
                                                             ---------------        ---------------
Long-term debt, including $315,000 and $480,000
 in 1999 and 1998, respectively, owed to related
 parties                                                           1,127,486                858,342
                                                             ---------------        ---------------
Shareholders' equity (deficit):
    Preferred stock - $.02 par value; 2,000,000
     shares authorized; none issued and outstanding
    Common stock - $.02 par value; 16,000,000
     shares authorized; 4,710,055 shares issued
     as of 9/30/99 and 4,710,057 as of 12/31/98                       94,201                 94,201
    Additional paid-in capital                                     4,232,265              4,232,265
    Accumulated deficit                                           (5,868,701)            (4,627,554)
                                                             ---------------        ---------------
Total shareholders' equity (deficit)                              (1,542,235)              (301,088)
                                                             ---------------        ---------------
Total liabilities and shareholders' equity
 (deficit)                                                       $ 5,744,485            $ 7,655,324
                                                             ===============        ===============
</TABLE>

See accompanying notes.

                                       2

<PAGE>

              Anchor Pacific Underwriters, Inc. and Subsidiaries
                     Consolidated Statements of Operations
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                              Nine Months                                   Quarters
                                                          Ended September 30,                         Ended September 30,
                                              ----------------------------------------     ---------------------------------------
                                                     1999                    1998                 1999                   1998
<S>                                           <C>                      <C>                 <C>                    <C>
Revenues:
  Administrative fees and other income        $      7,478,600         $     9,470,283     $      2,454,163       $      2,943,670
  Interest Income                                       13,087                   7,788                4,131                  1,740
                                              ----------------         ---------------     ----------------       ----------------
Total revenue                                        7,491,687               9,478,071            2,458,294              2,945,410

Operating expenses:
  Salaries, commissions and employee
    benefits                                         5,460,479               6,021,155            1,733,006              1,940,734
  Selling, general and administrative
    expenses                                         3,100,945               3,380,511              991,662              1,108,085
                                              ----------------        ----------------     ----------------       ----------------
Total operating expenses                             8,561,424               9,401,666            2,724,668              3,048,819
                                              ----------------        ----------------     ----------------       ----------------
                                                    (1,069,737)                 76,405             (266,374)              (103,409)
Other income (expense):
  Amortization of tangible assets                      (47,835)                (33,801)             (14,775)               (11,267)
  Interest                                            (118,181)               (162,843)             (42,714)               (47,459)
  Other                                                 (1,024)                 15,406               (2,375)                 2,227
                                              ----------------        ----------------     ----------------       ----------------
Total other income (expense)                          (167,040)               (181,238)             (59,864)               (56,499)
                                              ----------------        ----------------     ----------------       ----------------

Loss before income taxes                            (1,236,777)               (104,833)            (326,238)              (159,908)

Benefit (provision) for income taxes                     4,370                   6,220                 (500)                   (51)
                                              ----------------        ----------------     ----------------       ----------------

Loss from continuing operations                     (1,241,147)               (111,053)            (325,738)              (159,857)
                                              ----------------        ----------------     ----------------       ----------------


Discontinued operations:
  Loss from discontinued operations,
    net of income taxes                                      -                  (2,542)                   -                (82,197)
                                              ----------------        ----------------     ----------------       ----------------
Loss from discontinued operations                            -                  (2,542)                   -                (82,197)
                                              ----------------        ----------------     ----------------       ----------------

Net loss                                      $     (1,241,147)       $       (113,595)    $       (325,738)      $       (242,054)
                                              ================        ================     ================       ================

Net loss per share:
  Loss from continuing operations             $          (0.26)       $          (0.02)    $          (0.07)      $          (0.03)
  Loss from discontinued operations                          -                       -                    -                  (0.02)
                                              ================        ================     ================       ================

Basic and diluted loss per common share       $          (0.26)       $          (0.02)    $          (0.07)      $          (0.05)
                                              ================        ================     ================       ================
Weighted average number of common
 shares outstanding                                  4,710,055               4,708,137            4,710,055              4,710,057
                                              ================        ================     ================       ================
</TABLE>

See accompanying notes

                                       3

<PAGE>

                       Anchor Pacific Underwriters, Inc.

           Consolidated Statements of Shareholders' Equity (Deficit)


<TABLE>
<CAPTION>
                                                                         Additional
                                               Common Stock                Paid-In         Accumulated
                                          Shares           Amount          Capital          (Deficit)            Total
                                    ---------------------------------------------------------------------------------------
<S>                                 <C>                   <C>            <C>              <C>                <C>
Balance at December 31,
1997                                       4,690,839      $    93,817    $  4,215,649     $   (3,852,224)    $      457,242

   Stock issued for services
      rendered                                18,888              378          16,622                  -             17,000
   Canceled stock -
      Fractional shares                          330                6              (6)                 -                  -

    Net loss                                       -                -               -           (775,330)          (775,330)
                                    ---------------------------------------------------------------------------------------

Balance at December 31,
1998                                       4,710,057      $    94,201    $  4,232,265     $   (4,627,554)    $     (301,088)
    Canceled stock -
       Fractional shares                          (2)               -               -                  -                  -

    Net Loss                                       -                -               -         (1,241,147)        (1,241,147)
                                    ---------------------------------------------------------------------------------------

Balance at September 30,
 1999 (Unaudited)                          4,710,055      $    94,201    $  4,232,265     $   (5,868,701)    $   (1,542,235)
                                    =======================================================================================
</TABLE>

See accompanying notes

                                       4
<PAGE>

              Anchor Pacific Underwriters, Inc. and Subsidiaries
                     Consolidated Statements of Cash Flows
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                               Nine Months
                                                                            Ended September 30,
                                                              ---------------------------------------------
                                                                    1999                        1998
<S>                                                           <C>                         <C>
Continuing operations activities:
Net income (loss)                                             $      (1,241,147)          $         187,146
Adjustments to reconcile net income (loss) to
 net cash provided by (used in) operating activities:
      Depreciation and amortization                                     179,826                     211,453
      Amortization of goodwill, other intangibles and
         organization expenses                                           21,416                      31,820
Changes in operating assets and liabilities:
      Accounts receivable                                                (2,723)                     69,512
      Prepaid expenses and other current assets                          17,082                     135,735
      Other assets                                                       35,846                    (384,560)
      Accounts payable and accrued expenses                              87,825                     (19,858)
                                                              -----------------           -----------------
Net cash provided by (used in) operating activities                    (901,875)                    231,248
                                                              -----------------           -----------------

Investment activities:
Notes Receivable, net                                                         -                         694
Purchases of property and equipment                                    (304,437)                   (242,739)
Net proceeds from sale of assets                                      2,165,003                           -
                                                              -----------------           -----------------
Net cash provided by (used in) investing activities                   1,860,566                    (242,045)
                                                              -----------------           -----------------

Financing activities:
Common stock issued:
     Private offering                                                         -                      15,297
     Warrants                                                                 -                       1,702
Borrowings on long-term debt                                            225,000                           -
Repayment on long-term debt and liabilities                          (1,181,407)                    (67,240)
                                                              -----------------           -----------------
Net cash (used in) financing activities                                (956,407)                    (50,241)
                                                              -----------------           -----------------

Net increase (decrease) in cash                                           2,284                     (61,038)
Cash and cash equivalents - corporate funds at
   beginning of period                                                  138,139                      73,409
                                                              -----------------           -----------------
Cash and cash equivalents - corporate funds at
   end of period                                              $         140,423           $          12,371
                                                              =================           =================

Supplemental cash flow information:
Cash paid during the period for:
     Interest                                                 $         118,181           $         162,843
                                                              =================           =================
     Income taxes                                             $           4,370           $           6,220
                                                              =================           =================
</TABLE>


See accompanying notes

                                       5
<PAGE>

               ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                  (Unaudited)
                               September 30, 1999

NOTE 1 - BASIS OF PRESENTATION
------------------------------

          The accompanying unaudited consolidated financial statements of Anchor
Pacific Underwriters, Inc. and its subsidiaries ("Anchor") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X.  Accordingly, they do not include all information and footnotes required by
generally accepted accounting principles for complete financial statements.  In
the opinion of management, all adjustments, consisting of normal recurring
accruals, considered necessary for a fair presentation have been included.
Operating results for the nine month period ended September 30, 1999, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999.  For further information, refer to the consolidated financial
statements and footnotes thereto included in Anchor's Annual Report on Form 10-K
for the year ended December 31, 1998.

Reclassifications
-----------------

          Prior years' balances have been reclassified to conform with the
current year presentation of discontinued operations.

Recapitalization and Restatement
--------------------------------

          On January 6, 1995, Anchor merged with System Industries, Inc.
("System"), previously a dormant, publicly traded shell corporation.  As a
result of the merger, Anchor became a public company.  For accounting purposes,
the merger has been treated as a recapitalization of Anchor with Anchor as the
acquirer. Upon consummation of this merger, shareholders and certain creditors
of System each received one share of Anchor common stock and a one year warrant
to purchase one share of Anchor common stock at a price of $3.00 for every
42.3291 shares of issued and outstanding System common stock.

NOTE 2 - DISCONTINUED OPERATIONS
--------------------------------

          Since its inception, Anchor has expanded its insurance and third-party
administration service capabilities through internal growth as well as a series
of acquisitions.  From 1986 through 1990, Anchor, through a wholly- owned
subsidiary, Harden & Company Insurance Services, Inc. ("Harden"),  primarily
focused on providing administration services for group insurance benefit plans.
In 1990, Anchor began to diversify its business by providing property, casualty
and workers' compensation insurance products and services, as well as offering
market studies and program analysis for certain non-profit associations who had
endorsed Anchor's products.

          During the period from 1990 through 1996, Anchor further expanded its
property and casualty business by acquiring certain assets, including insurance
brokerage accounts. In 1994 Anchor acquired a property and casualty insurance
brokerage company, Putnam, Knudsen & Wieking, Inc. ("PKW"). Shortly thereafter
it consolidated all of its property and casualty insurance brokerage business
under PKW. After evaluating trends in the insurance industry, in mid-1998 the
Board of Directors of Anchor decided to sell its property and casualty business
and to focus on its third-party administration business. Anchor then engaged an
independent investment banker to solicit possible purchasers. After reviewing
seven acquisition proposals, Anchor sold substantially all the assets of PKW to
an unrelated third party for approximately $2,250,000 in cash, effective
December 31, 1998. The proceeds derived from the asset sale were largely used to
reduce debt and to make additional financial resources available for working
capital needs and third-party administration opportunities.

NOTE 3 - CONTINGENCIES
----------------------

          Anchor is subject to certain legal proceedings and claims arising in
the ordinary course of its business. It is management's opinion that the
resolution of these claims will not have a material effect on Anchor's
consolidated financial position.

                                       6
<PAGE>

NOTE 4 - 10% CONVERTIBLE SUBORDINATED DEBENTURES
------------------------------------------------

          In 1995, Anchor issued $370,000 of 10% Convertible Subordinated
Debentures (the "Debentures"). Subsequently, investors holding $270,000 of the
Debentures, including seven members of the Board of Directors, converted their
debentures into 200,000 shares of Anchor's common stock at $1.35 per share.
These conversions reduced Anchor's outstanding indebtedness by $270,000 and, in
turn, increased shareholders' equity by $270,000. As of September 30, 1999,
$40,000 of the Debentures had been repaid in full, and $60,000 remained
outstanding.

NOTE 5 - SUBORDINATED BRIDGE NOTES AND WARRANT
----------------------------------------------

          During 1996, Anchor raised $225,000 from five members of the Board of
Directors and other qualified investors through the issuance of 10% Subordinated
Bridge Notes with a Warrant to Purchase Shares of Anchor Common Stock ("Bridge
Notes"). The basic terms of the Bridge Notes were: (a) 10% interest per annum,
paid in arrears; (b) one year term; (c) for every $10,000 of principal invested,
the purchaser received a five year warrant to purchase 1,000 shares of Anchor
common stock at a purchase price of $1.75 per share; (d) "piggyback"
registration rights for three years; and (e) subordination provisions that
subordinate the Bridge Notes to Anchor's "Senior Debt" (as defined in the Bridge
Notes).

          In February 1997, Anchor offered the purchasers of said Bridge Notes
an opportunity to either change the terms of the warrants underlying the Bridge
Notes or to participate in the 1997 Offering (discussed below), by exchanging
the Bridge Notes. The basic terms of the two alternatives were: (a) in lieu of
receiving a five year warrant to purchase 1,000 shares of Anchor common stock at
a purchase price of $1.75 per share, for every $10,000 in principal invested,
the purchaser would receive a five year warrant to purchase 2,000 shares of
Anchor common stock at a purchase price of $1.35 per share; or (b) be allowed to
participate in the 1997 Offering by exchanging the Bridge Notes and receiving in
return (i) interest at the rate of 10% per annum up to the date of conversion;
(ii) Anchor common stock in place of the Bridge Notes at a conversion price
equal to $0.90 per share; and (iii) a five year warrant, equal to the number of
shares issued in place of the Bridge Notes, with the right to purchase Anchor's
common stock at a purchase price of $0.90 per share. Purchasers representing
$180,000 of said Bridge Notes chose alternative (a) above, and the remaining
$45,000 chose alternative (b) above. Subsequently, certain purchasers agreed to
extend the term of the Bridge Notes and as of September 30, 1999, $80,000 of the
Bridge Notes remained outstanding.

NOTE 6 - 1997 OFFERING
----------------------

          During 1997, Anchor raised $305,000 from seven members of the Board of
Directors and other qualified investors through a private offering of Anchor
common stock along with warrants to acquire shares of Anchor common stock (the
"1997 Offering").  Anchor utilized a substantial portion of the proceeds from
the 1997 Offering to support current and future working capital needs of Anchor.
The basic terms of the 1997 Offering were: (a) up to 555,000 shares of Anchor
common stock were available at a purchase price of $0.90 per share; (b) five
year warrants to acquire one share of Anchor common stock for each share of
Anchor common stock purchased at an exercise price of $0.90 per share; (c)
"piggyback" registration rights for three years; and (d) anti-dilution
protection for stock splits, stock dividends, recapitalizations and
reorganizations.

NOTE 7 - 10% CONVERTIBLE SUBORDINATED DEBENTURES, SERIES B
----------------------------------------------------------

          At the end of the third quarter 1998, Anchor commenced raising
additional funds from members of the Board of Directors and other qualified
investors by offering 10% Convertible Subordinated Debentures, Series B (the
"Series B Debentures"). At the close of the Series B Debentures offering on
January 25, 1999, Anchor had raised $495,000, with $200,000 provided by its
primary bank lender and the remaining $295,000 from five members of the Board of
Directors and other qualified investors. Anchor utilized a substantial portion
of the proceeds from the Series B Debentures to support current working capital
needs. The basic terms of the Series B Debentures were: (a) 10% interest,
payable semi-annually in arrears; (b) two year maturity; (c) conversion price of
$0.50 per share; (d) "Piggyback" registration rights for three years; (e) for
each $5,000 of Series B Debentures acquired, an investor received a five year
warrant to acquire 2,000 shares of Anchor common stock at an exercise price of
$0.50 per share; and (f) subordination provisions that subordinated the Series B
Debentures to Anchor's "Senior Debt" (as defined in the Series B Debentures).
The Series B Debentures contained a provision that allowed Anchor to redeem all
or a portion of their Series B Debentures, at par, plus any outstanding
interest, in the event Anchor sold PKW for an amount in excess of $2 million.
Anchor sold PKW for $2,250,000 cash, effective December 31, 1998. As of

                                       7
<PAGE>

September 30, 1999, Anchor has repurchased $230,000 of the Series B Debentures
including $200,000 repurchased from its primary lender.

NOTE 8 - 10% CONVERTIBLE SUBORDINATED DEBENTURES, SERIES C
----------------------------------------------------------

          During the first nine months of 1999, Anchor raised $179,000 from
members of the Board of Directors and other qualified investors by offering 10%
Convertible Subordinated Debentures, Series C (the "Series C Debentures").
Anchor utilized a substantial portion of the proceeds from the Series C
Debentures to support current working capital needs. The basic terms of the
Series C Debentures were: (a) 10% interest, payable semi-annually in arrears;
(b) two year maturity; (c) conversion price of $0.60 per share; (d) "Piggyback"
registration rights for three years; (e) for each $5,000 of Series C Debentures
acquired, an investor received a five year warrant to acquire 2,000 shares of
Anchor common stock at an exercise price of $0.60 per share; and (f)
subordination provisions that subordinated the Series C Debentures to Anchor's
"Senior Debt" (as defined in the Series C Debentures).

          In September 1999, Anchor offered the investors of said Series C
Debentures the opportunity to either remain as investors in the Series C
Debentures or to convert their Series C Debentures into the Series D Debentures
(discussed below). The basic terms of the two alternatives were: (a) remain as
an investor of the Series C Debentures; or (b) exchange the Series C Debentures
and Warrants and receive in return (i) Series D Debentures at a conversion price
of $0.50 per share; and (ii) for each $5,000 of debentures originally purchased
a Warrant to acquire 3,000 shares of Anchor's common stock at a purchase price
of $0.50 per share. All of the Series C Debentures investors chose alternative
(b) above.

NOTE 9 - 10% CONVERTIBLE SUBORDINATED DEBENTURES, SERIES D
----------------------------------------------------------

          In September 1999, Anchor commenced raising additional funds from
members of the Board of Directors and other qualified investors by offering 10%
Convertible Subordinated Debentures, Series D (the "Series D Debentures"). As of
October 7, 1999, Anchor had received $244,000 from said investors and had oral
commitments for an additional $50,000 in the Series D Debentures. Anchor intends
to utilize a substantial portion of the proceeds from the Series D Debentures to
support current working capital needs. The basic terms of the Series D
Debentures are: (a) 10% interest, payable semi-annually in arrears; (b) two year
maturity; (c) conversion price of $0.50 per share; (d) "Piggyback" registration
rights for three years; (e) for each $5,000 of Series D Debentures acquired, an
investor receives a five year warrant to acquire 3,000 shares of Anchor common
stock at an exercise price of $0.50 per share; and (f) subordination provisions
that subordinates the Series D Debentures to Anchor's "Senior Debt" (as defined
in the Series D Debentures).

NOTE 10 - COMMITMENTS
---------------------

          On September 30, 1997, Anchor obtained a $1,600,000 bank loan. The
basic terms and conditions of this loan were: (a) monthly interest payments
equal to the bank's prime rate, plus 2.5%; (b) five year term; (c) monthly
principal payments in installments of $26,666 (Notwithstanding the foregoing
payment provisions, 75% of Anchor's monthly EBITDA were to be applied to
principal payments to the extent such percentage of monthly EBITDA was required
to make the scheduled payment of principal. To the extent that 75% of monthly
EBITDA fell short of the required principal payment, the difference was to be
added to the final payment.); and (d) a five year warrant to acquire 95,000
shares of Anchor common stock at a purchase price of $1.75 per share. The
proceeds of the loan were used to retire outstanding credit facilities with
another bank.

          On December 22, 1997, the bank that provided Anchor with the
$1,600,000 term loan also provided Anchor with a $250,000 loan to support
current working capital needs of Anchor in connection with Harden's expansion in
Portland, Oregon.

          On March 9, 1998, a term loan in the amount of $1,821,890 was entered
into between Anchor and the bank combining both the $1,600,000 term loan and the
$250,000 loan. The basic terms of this term loan were: (a) monthly interest
payments equal to bank's prime rate, plus 2.5%; (b) maturity date of October 5,
2002; and (c) monthly principal payments in installments of $33,125 beginning
April 5, 1998. All other terms and conditions contained in the term loan dated
September 30, 1997, including all amendments thereto and replacements therefor,
remained in place.

                                       8
<PAGE>

          On June 2, 1998, a new term loan in the amount of $1,741,841 was
entered into between Anchor and the bank which replaced the $1,821,890 term
loan. The basic terms of this new term loan are: (a) monthly interest payments
equal to bank's prime rate, plus 2.5%; (b) a maturity date of October 5, 2002;
and (c) monthly principal payments in installments of $16,500 beginning on June
5, 1998. The provision which required 75% of Anchor's monthly EBITDA to be
applied to principal payments was deleted. All other terms and conditions of the
term loan dated September 30, 1997, including all amendments thereto and
replacements therefor, remain operative.

          Effective December 31, 1998, based on a strategic decision to focus on
its third-party administration business, a purchase agreement was entered into
between PKW, Anchor and Talbot Agency of California, Inc. ("Talbot") whereby
Talbot acquired certain of PKW assets, including insurance brokerage accounts.
Consideration for said purchase was $2,250,000 cash, which was paid at the time
of the closing on January 15, 1999, based on a purchase price of 4.5 times
EBITDA. The proceeds of the sale have been used by Anchor to reduce debt and to
direct additional resources to third-party administration opportunities.

          On April 29, 1999, Anchor obtained a new $250,000 bank loan from its
primary lender. The basic terms and conditions of this loan were:  (a) monthly
interest payments equal to the bank's prime rate, plus 2.5%; (b) five month
term; (c) principal plus all accrued unpaid interest due at maturity, September
30, 1999; and (d) a five year warrant to acquire 100,000 shares of Anchor common
stock at a purchase price of $0.60 per share.  The proceeds of the loan were
used to support the current working capital needs of Anchor.

          On September 30, 1999, a new term loan in the amount of $931,485.75
was entered into between Anchor and the bank combining both the balance owing on
the $1,741,841 term loan and the $250,000 bank loan. The basic terms of this new
term loan are: (a) monthly interest payments equal to bank's prime rate, plus
2.5%; (b) a maturity date of October 7, 2002; and (c) monthly principal payments
in installments of $16,500 beginning on November 7, 1999. All other terms and
conditions contained in the term loan dated September 30, 1997, (except for the
provision which required 75% of Anchor's monthly EBITDA to be applied to
principal payments which had been deleted earlier) including all amendments
thereto and replacements therefor, remain operative.

 Item 2.  Management's Discussion and Analysis of Financial Condition and
Results of Operations

Background

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

          Since its inception, Anchor has expanded its insurance and third-party
administration service capabilities through internal growth as well as a series
of acquisitions.  As part of its expansion strategy in 1994, Anchor acquired
Benefit Resources, Inc. ("BRI") a third-party employee benefits administration
business located in Scottsdale, Arizona.  In 1998, Anchor caused BRI to change
its name to Harden & Company of Arizona, (`Harden-AZ").  In 1995, certain third-
party administration accounts were acquired by Harden-CA from Dutcher Insurance
Agency, Inc. ("Dutcher"), located in Stockton, California.  In July 1997,
Harden-CA took over a third-party administration business, located in Los
Angeles, California, that was previously serviced by an unrelated third party.
As a result of declining revenues on the Los Angeles business due to carrier
rate increases, the Los Angeles office was closed at the end of February 1999,
with the remaining business now being serviced from the Concord, California
office.  In connection with the closure of the Los Angles office, approximately
15 employees who worked in that office were laid-off.

          Effective January 1, 1998, Anchor and Harden-CA entered into an
agreement to acquire the third-party administration business of Pacific Heritage
Administrators ("PHA"), a firm based in Portland, Oregon. This contract allowed
Anchor to expand its marketing and servicing territory in Oregon, Washington,
Idaho and Nevada and substantially enhanced Anchor's revenues in 1998.

          In conjunction with a new marketing strategy, in June 1998 Anchor
reorganized the company's third-party administration services division.  In the
new organizational structure, "Harden Group" was established as the consolidated
name for the management and marketing of third-party administration services.
Harden Group

                                       9
<PAGE>

includes: Harden & Company Insurance Services, Inc. ("Harden-CA"); Harden &
Company of Arizona ("Harden-AZ"); Pacific Heritage Administrators ("PHA") a
division of Harden-CA; and Pacific Heritage Administrators of Nevada, Inc.
("PHA-NV").

          Under Harden Group identity, the current third-party administration
operations of Anchor continue to function as before in their respective
territories. Currently, Harden Group includes four third-party administration
operations providing services to clients throughout the Western States from six
offices located in Concord and Fresno, California; Scottsdale, Arizona;
Portland, Oregon; and Las Vegas and Reno, Nevada. Anchor continues to look for
opportunities to expand its third-party administration services in the Western
United States.

General

Continuing Operations

          Third-Party Claims Administration and Employee Benefits Consulting

          The employee benefits business of Anchor is conducted through Harden
Group and primarily involves third-party health benefits administration
activities.  This business group engages in designing, implementing and
administering health benefit plans for small to medium sized employer groups.
Administration services provided by Harden Group include receiving and managing
employer plan contributions and/or premium payments, monitoring employee and
dependent eligibility, preparing required government and tax reports, handling
day-to-day administration, reviewing and analyzing claims data for coverage, and
managing the claims settlement process.  Anchor, through Harden Group, also
helps develop insurance products and services tailored to the specific needs of
the client, provides risk analysis and conducts loss control and cost studies
for insurance companies and self-insured employers.  As compensation for its
claims administration services, Harden Group generally receives fees based
either on a percentage of premiums collected or on a per capita basis.

          During 1999, Anchor has reorganized its Harden Group senior management
structure to be more responsive to the demands of an evolving marketplace.
Product development and new product sales continue to be a high priority, as
does geographical diversification into other marketing territories in the
western states.

Discontinued Operations

          Insurance Brokerage

          Anchor first entered the insurance brokerage business in 1990 through
an acquisition. Thereafter it grew its insurance brokerage business primarily
through acquisitions, the largest being PKW. Following the 1994 acquisition of
PKW, Anchor consolidated all of its property and casualty insurance brokerage
business into PKW. This segment of Anchor's business focused on property and
casualty (both commercial and personal lines), health, life and disability, as
well as workers' compensation. PKW acted as an agent on behalf of insurers and
other intermediaries in soliciting, negotiating and effecting contracts of
insurance, and as a broker in procuring insurance contracts on behalf of
insureds.

          As an insurance agent and broker, PKW derived its income from the sale
of insurance products and services and the receipt of commissions generated
therefrom. Effective as of December 31, 1998, Anchor sold certain assets,
including all of the insurance brokerage accounts of PKW, for approximately
$2,250,000 in cash. The proceeds derived from the PKW asset sale were largely
used to reduce debt and to make additional financial resources available for
working capital needs and third-party administration opportunities.

                                      10
<PAGE>

Results of Continuing Operations -- Nine Months Ended September 30, 1999 and
1998

Reclassifications

          The prior years' balances detailed below have been reclassified to
conform with the current year presentation of discontinued operations.

Revenues

          Total Revenues. Total revenues for the nine months ended September 30,
1999, were $7,491,687, a decrease of $1,986,384 or 21%, as compared to
$9,478,071 in revenues for the same period in 1998. The decrease in revenue in
this nine month period was primarily due to the declining revenues as a result
of carrier rate increases and lost business in Harden Group's former Los Angeles
office as well as its PHA office. In February 1999 Harden Group closed the Los
Angeles office. Anchor's revenues vary from quarter to quarter as a result of
the timing of policy renewals and net new/lost business production, whereas
expenses are fairly uniform throughout the year.

          Fees. Fees from Harden Group (including underwriting and risk
analysis) services for the first nine months of 1999, were $7,478,600, a
decrease of $1,991,683 or 21%, as compared to $9,470,283 in fees for the same
period in 1998. This decrease in fee income is the direct result of declining
revenue due to carrier rate increases and lost business generated from Harden
Group's former Los Angeles office as well as its PHA office.

          Fee revenues generated by Anchor in the first nine months of 1999 from
third-party administration services consist of revenues generated by Harden
Group. The third-party administration revenues are primarily derived from: (a)
an insurance product underwritten by one insurance carrier, which is rated A-
(Excellent); (b) the administration of insurance programs underwritten by
various insurance carriers for a number of self-insured employers; and (c)
dental administration. Self-insurance is an alternative to fully insured
programs in which a client assumes a manageable portion of its insurance risks,
usually (although not always) placing the less predictable and larger loss
exposure with an excess insurance carrier.

          Interest Income. Interest income consists of interest earned on funds
held in fiduciary accounts and interest earned on investments. Interest income
was $13,087 and $7,788 for the nine months ended September 30, 1999 and 1998,
respectively.

Expenses

          Total Expenses. Total operating expenses for the first nine months of
1999, were $8,561,424, a decrease of $840,242 or 8.9% as compared to operating
expenses of $9,401,666 for the same period in 1998. As discussed below, the
decrease in total expenses resulted primarily from a decrease in selling,
general and administration expenses and employee compensation and benefits
resulting from the closure of Harden Group's Los Angeles office as well as the
reduction of staff at the Concord, Portland and Scottsdale offices in response
to the reduction in revenues.

          Employee Compensation and Benefits. Employee compensation and benefits
for the first nine months of 1999, were $5,460,479, a decrease of $560,676 or
9.3% as compared to $6,021,155 for the same period in 1998. The decrease related
primarily to the closure of Harden Group's Los Angeles office and the reduction
of staff at the Concord, Portland and Scottsdale offices in response to the
reduction in revenue.

          Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $3,100,945 and $3,380,511 for the nine months ended
September 30, 1999 and 1998, respectively. The $279,566 or 8.3% decrease in
1999, as compared to 1998, resulted primarily from the closure of Harden Group's
Los Angeles office. General and administrative expenses include rent, travel,
insurance, postage, telephone, supplies and other miscellaneous expenses.

          Interest Expense. Interest expense was $118,181 and $162,843, for the
first nine months of 1999 and 1998, respectively. The decrease in interest
expense of $44,662 in the first nine months of 1999, as compared to the same
period in 1998, was due to the decrease in borrowings under the bank term loan.

                                      11
<PAGE>

          Amortization of Goodwill and Other Intangibles. Goodwill represents
the excess of the cost of acquisitions over the fair value of net assets
acquired. Other intangibles include covenants not to compete, customer lists and
other contractual rights. Amortization of goodwill and other intangibles was
$47,835 and $33,801, for the first nine months of 1999 and 1998, respectively.
The increase in amortization and other intangibles in the first nine months of
1999 is a result of increased intangibles at Harden-AZ.

Income Taxes

          Anchor's expense for income taxes was $4,370 for the first nine months
of 1999 as compared to $6,220 for the first nine months of 1998.

Results of Continuing Operations -- Quarters Ended September 30, 1999 and 1998

Reclassifications

          The prior years' balances detailed below have been reclassified to
conform with the current year presentation of discontinued operations.

Revenues

          Total Revenues. Total revenues for the third quarter of 1999, were
$2,458,294, a decrease of $487,116 or 16.5%, as compared to 1998 third quarter
revenues of $2,945,410. The decrease in revenue in this three month period was
primarily due to the declining revenues as a result of carrier rate increases
and lost business in Harden Group's former Los Angeles office as well as its PHA
office. Anchor's revenues vary from quarter to quarter as a result of the timing
of policy renewals and net new/lost business production, whereas expenses are
fairly uniform throughout the year.

          Fees. Fees from Harden Group (including underwriting and risk
analysis) services for the third quarter of 1999, were $2,454,163, a decrease of
$489,507 or 16.6%, as compared to $2,943,670 in fees for the same period in
1998. This decrease in fee income is the direct result of declining revenue due
to carrier rate increases and lost business generated from Harden Group's former
Los Angeles office as well as its PHA office.

          Fee revenues generated by Anchor in the third quarter of 1999 from
third-party administration services consist of revenues generated by Harden
Group. The third-party administration revenues are primarily derived from: (a)
an insurance product underwritten by one insurance carrier, which is rated A-
(Excellent); and (b) the administration of insurance programs underwritten by
various insurance carriers for a number of self-insured employers. Self-
insurance is an alternative to fully insured programs in which a client assumes
a manageable portion of its insurance risks, usually (although not always)
placing the less predictable and larger loss exposure with an excess insurance
carrier.

          Interest Income. Interest income consists of interest earned on funds
held in fiduciary accounts and interest earned on investments. Interest income
was $4,131 and $1,740 for the quarters ended September 30, 1999 and 1998,
respectively.

Expenses

          Total Expenses. Total operating expenses for the third quarter of
1999, were $2,724,668, a decrease of $324,151 or 10.6% as compared to operating
expenses of $3,048,819 for the same period in 1998. As discussed below, the
decrease in total expenses resulted primarily from a decrease in selling,
general and administration expenses and employee compensation and benefits
resulting from the closure of Harden Group's Los Angeles office as well as the
reduction of staff at the Concord, Portland and Scottsdale offices in response
to the reduction in revenues.

          Employee Compensation and Benefits. Employee compensation and benefits
for the third quarter of 1999, were $1,733,006, a decrease of $207,728 or 10.7%
as compared to $1,940,734 for the same period in 1998. The decrease related
primarily to the closure of Harden Group's Los Angeles office as well as the
reduction of staff at the Concord, Portland and Scottsdale offices in response
to the reduction in revenues.

                                      12
<PAGE>

          Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $991,662 and $1,108,085 for the quarters ended
September 30, 1999 and 1998, respectively. The $116,423 or 10.5% decrease in
1999, as compared to 1998, resulted primarily from the closure of Harden Group's
Los Angeles office. General and administrative expenses include rent, travel,
insurance, postage, telephone, supplies and other miscellaneous expenses.

          Interest Expense. Interest expense was $42,714 and $47,459, for the
third quarter of 1999 and 1998, respectively. The decrease in interest expense
of $4,745 in the third quarter of 1999, as compared to the same period in 1998,
was due to the decrease in borrowings under the bank term loan.

          Amortization of Goodwill and Other Intangibles. Goodwill represents
the excess of the cost of acquisitions over the fair value of net assets
acquired. Other intangibles include covenants not to compete, customer lists and
other contractual rights. Amortization of goodwill and other intangibles was
$14,775 and $11,267, for the third quarter of 1999 and 1998, respectively. The
increase in amortization and other intangibles is a result of increased
intangibles at Harden-AZ.

Income Taxes

          Anchor's minimum annual required tax payment due was reported during
the first quarter 1999 and 1998. Therefore, there was no income tax expense
reported for the quarters ended September 30, 1999 and 1998, respectively as
Anchor received refunds of overpaid taxes in both quarters. An analysis of
Anchor's provision for income taxes is presented in Note 9 of the Notes to
Consolidated Financial Statements in Anchor's Form 10-K for the year ending
December 31, 1998.

Liquidity and Capital Resources

          Anchor reported net cash flows used in operations of $(901,875) for
the nine months ended September 30, 1999, compared to net cash flows provided by
operations of $231,248 for the same period in 1998. During 1999, Anchor repaid
$800,000 of the existing line of credit and met its operating and capital needs
from various sources, including the use of proceeds received from the sale of
PKW and the use of proceeds received from the sale of Series C and D Debentures.

          Capital and certain acquisition related expenditures were $304,437 and
$242,739 for the nine months ended September 30, 1999 and 1998, respectively.
The 1999 expenditures primarily involved expenditures related to software
development and implementation to update the eligibility and claims processing
system.

          Short-term borrowings, current portion of long-term debt and current
portion of long-term liabilities at September 30, 1999, totaling in the
aggregate $707,246 (as compared to $1,894,018 at December 31, 1998), consisted
of: (a) $198,000 representing the current portion of the term bank loans further
described in Note 10 to the Financial Statements, above; (b) approximately
$19,387 of future fixed payments under a consulting agreement entered into with
a company affiliated with the former shareholders of Harden-AZ; (c) $44,049
representing the current portion of obligations with regard to certain real
property leased by PKW prior its acquisition by Anchor and its subsequent
relocation to Anchor's executive offices; (d) $60,000 of the Debentures; (e)
$80,000 of the Bridge Notes; (f) approximately $23,700 representing obligations
relating to the purchase of furniture, fixtures and computer equipment at the
PHA location; and (g) approximately $282,110 for certain other current
liabilities.

          At September 30, 1999, long-term liabilities and long-term debt, less
the current portion discussed above, totaled $1,541,935 (as compared to
$1,311,568 at December 31, 1998), and primarily consisted of: (a) $733,486
representing the long-term portion outstanding under a term bank loan further
described in Note 10 to the Financial Statements, above; (b) approximately
$343,449 representing deferred rent with regard to certain real property
currently leased by Anchor; (c) $250,000 of Series B Debentures; (d) $144,000 of
Series D Debentures; and (e) approximately $71,000 for certain other long-term
liabilities.

          Reference is made to Notes 4 through 10 to the Financial Statements
included in this Form 10-Q for further information on Anchor's fund raising
activities and borrowings from its primary bank lender.

                                      13
<PAGE>

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

Year 2000 Update

          Impact of Year 2000.  The "Year 2000 Issue" is the result of computer
          --------------------
programs being written using two digits rather than four to define the
applicable year.  Computer programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000.  This
situation could result in a system failure or miscalculations causing
disruptions to operations, including, among other things, a temporary inability
to process transactions, send payments, or engage in similar normal business
activities.

          State of Readiness. Anchor's plan to achieve Year 2000 compliance in
          ------------------
its electronic information systems is proceeding on schedule. A team has been
created to coordinate the identification and implementation of the necessary
changes required for computer systems and applications. Anchor hired an outside
computer consultant, OASYS Networks, Inc. ("OASYS"), to assist in the management
of the Year 2000 project. OASYS provided a Limited-Scope Assessment which
involved an analysis of all networked "objects" and compliance information on
all installed applications that are not specific to the insurance industry.
OASYS analysis was limited to the PC, PC Network and associated peripherals
environment. During the course of this assessment, which was completed during
the third quarter 1999, OASYS:

          1.  Developed an assessment project plan and a schedule that was
              approved by Anchor.
          2.  Prepared a comprehensive inventory of network environment
              (Hardware). In connection with preparing such inventory, OASYS
              identified and asset tagged all equipment, recorded serial
              numbers, identified installed devices and identified BIOS
              manufacture and version information.
          3.  Integrated Anchor's existing Year 2000 data into the OASYS reports
              and procedures, where applicable.
          4.  Conducted a comprehensive inventory of network environment
              (Software/Firmware).
          5.  Tested all functional computer hardware for Year 2000 and leap
              year compliance, where applicable.
          6.  Collected compliance statements from vendors for non-testable
              hardware equipment (modems, routers, etc.). Cross-referenced
              compliance data with Anchor's existing data, where applicable.
          7.  Researched and reported compliance data on all COTS (Common Off
              The Shelf) applications.
          8.  Built a project binder to track compliance statements and document
              all testing of hardware objects.
          9.  Interviewed key personnel to identify various dependencies and
              interface risks that were not immediately apparent through the
              physical inventory process.
          10. Conferred with Anchor's team to prioritize issues and created a
              Mission Critical listing of all hardware, software, dependencies
              and interfaces.
          11. Provided a database to Anchor which is being used to identify and
              track all new hardware objects introduced into the environment.
          12. Prepared a closing Risk Analysis report.


          In addition, OASYS began providing Year 2000 Inbound and Outbound
Compliance Communications on April 1, 1999. Inbound Year 2000 Compliance
Communications involve requests from outside parties (such as venders,
suppliers, etc.) for information and status on Anchor's Year 2000 compliance.
Once received, OASYS responded, documented, tracked and serviced such requests
with periodic summaries having been reported to Anchor's team. Outbound Year
2000 Compliance Communications were requests initiated by Anchor seeking the
status of another entities' Year 2000 compliance. These requests were initiated,
documented and tracked by OASYS.

                                      14
<PAGE>

          Anchor's team has also been focused on obtaining mainframe Year 2000
compliance at its three principal offices located in Concord, California,
Scottsdale, Arizona and Portland, Oregon.  The status of the effort for each
office is described below.

            Harden-CA (Concord, CA):
            ------------------------

            Hardware:    Current operating system has been reviewed and updated
                         and is Year 2000 compliant.
            Software:    Both the billing and claims systems are being upgraded.
                         The project is 90% complete with scheduled compliance
                         by the end of November 1999.
            Conversion:  Converting the entire system to the Resource
                         Information Management System, version 2.7 ("RIMS"),
                         which is Year 2000 compliant. Conversion scheduled for
                         completion by mid-year 2000.

            Harden-AZ (Scottsdale, AZ):
            ---------------------------

            Hardware:    Current operating system has been reviewed and is
                         Year 2000 compliant.
            Software:    Currently on RIMS, 2.7 which is Year 2000 compliant.
            Upgrades:    Recently upgraded software and hardware.

            Harden-PHA (Portland, OR):
            --------------------------

            Hardware:    Current operating system is Year 2000 compliant.
            Software:    Claims and billing systems are currently Year 2000
                         compliant.
            Conversion:  Converting entire system to RIMS, which is Year 2000
                         compliant. Conversion scheduled for completion by year-
                         end 2000.

          Costs to Address the Year 2000 Issue. Anchor completed its programming
          ------------------------------------
efforts for the Year 2000 related projects during the third quarter of 1999.
Final certification testing will continue during the remainder of the 1999 year.
Anchor's focus has not only been on its internal systems, but also upon the
compliance of its key business partners, vendors and other suppliers.
Management believes that the redeployment of Anchor's resources has not
adversely impacted new product or software development.  The total cost of Year
2000 compliance is not expected to be material to the company's financial
position.  The estimated total cost of the Year 2000 Project is not expected to
exceed $250,000.

          Risks Presented by the Year 2000 Issue. The failure to correct a
          --------------------------------------
material Year 2000 problem could result in an interruption in, or a failure of,
certain normal business activities or operations. Such failures could materially
and adversely affect Anchor's results of operations, liquidity and financial
condition. Due to the general uncertainty inherent in the Year 2000 problem,
resulting in part from the uncertainty of the Year 2000 readiness of its key
business partners, vendors and other suppliers, Anchor is unable to determine at
this time whether the consequences of Year 2000 failures will have a material
impact on Anchor's results of operations, liquidity or financial condition.
Anchor believes that, with the completion of the Project as currently scheduled,
the possibility of significant interruptions of normal operations should be
reduced.

          Readers are cautioned that forward-looking statements contained in the
Year 2000 Update should be read in conjunction with Anchor's disclosures below
under the head "Forward-Looking Statements".

Forward-Looking Statements

          This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of that term under the Private Securities Litigation Reform
Act of 1995.  Additional written or oral forward-looking statements may be made
by Anchor from time to time, in filings with the Securities and Exchange
Commission or otherwise.  Statements contained herein that are not historical
facts are forward-looking statements made pursuant to the safe harbor provisions
referenced above.  For example, discussions concerning Anchor's ability to
create new products and services, and expansion of Anchor through internal
growth of existing and new products and services, may involve forward-looking
statements.  In addition, when used in this discussion, the words,
"anticipates," "expects," "intends," "plans" and variations thereof and similar
expressions are intended to identify

                                      15
<PAGE>

forward-looking statements.

          Forward-looking statements are inherently subject to risks and
uncertainties, some of which cannot be predicted or quantified based on current
expectations.  Consequently, future events and actual results could differ
materially from those set forth in, contemplated by, or underlying the forward-
looking statements contained in this filing.  Statements in this Quarterly
Report, particularly in the Notes to Financial Statements, Management's
Discussion and Analysis of Financial Condition and Results of Operations and
Year 2000 Update, describe certain factors, among others, that could contribute
to or cause such differences.  Such forward-looking statements involve risks and
uncertainties, and actual results could differ from those described herein.
While the statements represent management's current judgment as to the near-term
future prospects of its business, such risks and uncertainties could cause
actual results to differ from the above statements.  Factors which could cause
actual results to differ include the following:  Harden Group's relationship
with new insurance carriers and marketing partners and their ability to
effectively provide third-party administration services; controlling operating
costs; the impact of competitive products, pricing and services; the
availability of capital to finance current operations and future expansion; the
cyclical nature of the health insurance markets; and unanticipated regulatory
changes.  Other risk factors are detailed in Anchor's filings with the
Securities and Exchange Commission.  Anchor assumes no obligation to update
forward-looking statements.

Strategy

          Until recently, Anchor's business has consisted of two basic
operations: (i) third-party administration services (Harden Group); and (ii)
property and casualty insurance brokerage (PKW).

          During the last several years, Anchor's third-party administration
services experienced steady expansion. Revenues derived from the operations of
Harden Group, as a percentage of Anchor's overall revenues, grew from 57% at
December 31, 1996 to 80% at December 31, 1998. Conversely, Anchor's property and
casualty insurance business was subjected to considerable competitive pressures
through much of the 1990's. During this period the insurance industry has
generally experienced over capacity which, in turn, has negatively impacted both
insurance premiums and brokerage commissions. The financial results of PKW
during mid-1998 reflected these developments. In light of these external and
internal trends, the Board of Directors made a strategic decision during mid-
1998 to sell PKW, the property and casualty insurance brokerage operation. This
transaction was completed, effective December 31, 1998.

          Anchor's current strategy is to focus on expanding Harden Group, its
third-party administration services division by: (a) continuing to develop,
through its marketing partners, specialized affiliated business units that
target selected insurance industry market segments defined by industry type,
geographic location and consumer demographics; (b) creating new products and
services; and (c) strengthening management, sales and marketing staff. In
conjunction with this strategy, Anchor intends to seek to manage its affairs to
achieve expansion through internal growth of its existing and new product lines.
Anchor also intends to consider new acquisition and merger opportunities in the
third-party administration services business.

          As part of its strategy to focus on the third-party administration
services business, Anchor has re-organized its Harden Group senior management
structure to be more responsive to the demands of an evolving marketplace. To
that end, effective May 1, 1999, senior management of Harden Group was
consolidated into four positions from the previous structure of nine officers in
three geographic operations (Concord, CA, Portland, OR and Scottsdale, AZ).

                                      16
<PAGE>

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

          Anchor and its subsidiaries are parties from time to time to various
lawsuits that arise in the normal course of business.  Management is not aware
of any lawsuits to which Anchor or its subsidiaries is currently a party or to
which any property of Anchor or any of its subsidiaries is subject, which might
materially adversely affect the financial condition or results of operations of
Anchor.

Item 2.  Changes in Securities

None.

Item 3.  Defaults Upon Senior Securities

None.

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

None.

Item 5.  Other Information

None.

Item 6.  Exhibits and Reports on Form 8-K

A.  Exhibits

4.10   Form of 10% Convertible Subordinated Debenture, Series D

4.10a  Form of Warrant to Purchase Shares of Common Stock of Anchor Pacific
       Underwriters, Inc.

10.36  Business Loan Agreement dated September 30, 1999, between Anchor and
       Imperial Bank, and related documents.

27.0   Financial Data Schedule

B.  Reports on Form 8-K

None

                                      17
<PAGE>

                                   SIGNATURES


          Pursuant to the requirements of the Securities Exchange Act of 1934,
Anchor has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.


                                           ANCHOR PACIFIC UNDERWRITERS, INC.




Date:   November 5, 1999                   /s/ James R. Dunathan
       -----------------------             -------------------------------------
                                           James R. Dunathan
                                           President and Chief Executive Officer



Date:   November 5, 1999                   /s/ Earl Wiklund
       -----------------------             -------------------------------------
                                           Earl Wiklund
                                           Senior Vice President and Chief
                                           Financial Officer


                                      18