<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 JUNE 30, 1998      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  June 30, 1998, the Registrant had 4,710,057 
                      shares of common stock outstanding.



                    This document is comprised of 25 pages

================================================================================
<PAGE>
 
                       ANCHOR PACIFIC UNDERWRITERS, INC.
                                        

                                     INDEX
                                        
<TABLE>
<CAPTION>
<S>                      <C>                                                                      <C>
PART I.        FINANCIAL INFORMATION
 
               ITEM 1.   Financial Statements:

                         Consolidated Balance Sheets, June 30, 1998 (unaudited) and
                         December 31, 1997...................................................      1
 
                         Consolidated Statements of Operations for the six months
                         and quarters ended June 30, 1998 and 1997
                         (unaudited).........................................................      3
 
                         Consolidated Statements of Shareholders' Equity for the six
                         months ended June 30, 1998 (unaudited) and year ended December
                         31, 1997............................................................      4
   
                         Consolidated Statements of Cash Flows for the six months
                         ended June 30, 1998 and 1997
                         (unaudited).........................................................      5
 
                         Notes to Consolidated Financial Statements..........................      6
 
              ITEM 2.    Management's Discussion and Analysis of Financial
                         Condition and Results of Operations.................................      8
 
PART II.      OTHER INFORMATION
 
              ITEM 1.    Legal Proceedings...................................................     15
 
              ITEM 2.    Changes in Securities...............................................     15

              ITEM 3.    Defaults Upon Senior Securities.....................................     15
 
              ITEM 4.    Submission of Matters to a Vote of Security Holders.................     15
 
              ITEM 5.    Other Information...................................................     16
 
              ITEM 6.    Exhibits and Reports on Form 8-K....................................     16
</TABLE>
<PAGE>
 
PART I - FINANCIAL INFORMATION


              ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS

<TABLE> 
<CAPTION> 
                                                                       June 30,               December 31,
                                                                         1998                     1997
                                                                  -------------------      -------------------
                                                                     (unaudited)
<S>                                                               <C>                      <C> 
Assets
Current Assets:
    Cash and cash equivalents - corporate funds                    $         235,298         $         44,384
    Cash and cash equivalents - brokerage
         fiduciary funds                                                     898,842                1,203,594
    Cash and cash equivalents - third-party
         administration fiduciary funds                                    2,697,166                3,058,059
    Accounts receivable (less allowance for
         doubtful accounts of $46,273 and $45,543
            in 1998 and 1997, respectively)                                1,559,512                1,351,047
    Prepaid expenses and other current assets                                224,042                  375,475
                                                                  -------------------      -------------------
Total current assets                                                       5,614,860                6,032,559
                                                                  -------------------      -------------------


Property and equipment, less accumulated
            depreciation and amortization                                    685,522                  620,511
                                                                  -------------------      -------------------
 
Other assets:
    Goodwill, net                                                          1,754,559                1,803,713
    Intangible assets, net                                                   961,996                1,021,715
    Other                                                                    137,683                   59,667
                                                                  -------------------      -------------------
                                                                           2,854,238                2,885,095
                                                                  -------------------      -------------------


Total assets                                                       $       9,154,620         $      9,538,165
                                                                  ===================      ===================
</TABLE> 

                                       1
<PAGE>
 
              ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
                    CONSOLIDATED BALANCE SHEETS (CONTINUED)

<TABLE> 
<CAPTION> 
                                                                       June 30,               December 31,
                                                                         1998                     1997
                                                                  -------------------      -------------------
                                                                     (unaudited)
<S>                                                               <C>                      <C>     
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
    Cash and cash equivalents - third-party
         administration fiduciary funds                           $        2,697,166        $       3,058,059
    Net premiums payable - insurance companies                             2,012,888                2,035,032
    Accounts payable and accrued expenses                                    844,755                  948,484
    Current portion of long-term debt                                        579,705                  629,133
    Current portion of long-term liabilities                                 389,868                  574,083
                                                                  -------------------      -------------------
Total current liabilities                                                  6,524,382                7,244,791
                                                                  -------------------      -------------------


Long-term liabilities, net of current portion                                453,919                  506,944
                                                                  -------------------      -------------------


Long-term debt, including $210,000 in 1998 and
     $240,000 in 1997, owed to related parties, net
     of current portion                                                    1,573,567                1,329,188
                                                                  -------------------      -------------------



Shareholders' equity:
    Preferred stock - $.02 par value; 2,000,000 shares
             authorized; none issued and outstanding
    Common stock  - $.02 par value; 16,000,000
         shares authorized; 4,710,057 and 4,690,839
         shares issued as of 6/30/98 and 12/31/97,
         respectively                                                         94,201                   93,817
    Additional paid-in capital                                             4,232,265                4,215,649
    Accumulated deficit                                                   (3,723,714)              (3,852,224)
                                                                  -------------------      -------------------
Total shareholders' equity                                                   602,752                  457,242
                                                                  -------------------      -------------------
Total liabilities and shareholders' equity                                 9,154,620        $       9,538,165
                                                                  ===================      ===================
</TABLE> 

See accompanying notes.

                                       2
<PAGE>
 
              ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)
<TABLE> 
<CAPTION> 
                                                        Six Months                                 Quarters
                                                      Ended June 30,                            Ended June 30,
                                            ------------------------------------      ------------------------------------
                                                 1998                 1997                 1998                 1997

<S>                                         <C>                    <C>                <C>                  <C>   
Revenues:
  Commissions, fees and other income           $  8,115,317        $  4,021,975         $  3,950,318         $  2,016,721
  Interest Income                                    34,774              42,135               17,648               20,540
                                            ----------------     ---------------      ---------------      ---------------
Total revenue                                     8,150,091           4,064,110            3,967,966            2,037,261

Operating expenses:
  Salaries, commissions and employee
    benefits                                      5,097,123           2,796,297            2,480,155            1,411,490
  Selling, general and administrative
    expenses                                      2,708,993           1,569,759            1,319,388              814,533
                                            ----------------     ---------------      ---------------      ---------------
Total operating expenses                          7,806,116           4,366,056            3,799,543            2,226,023
                                            ----------------     ---------------      ---------------      ---------------
                                                    343,975            (301,946)             168,423             (188,762)

Other income (expense):
  Amortization of goodwill &
    intangible assets                              (107,636)           (119,296)             (53,780)             (56,768)
  Interest                                         (141,045)            (99,329)             (62,541)             (48,111)
  Other                                              39,436              15,303               24,014               11,959
                                            ----------------     ---------------      ---------------      ---------------

Total other income (expense)                       (209,245)           (203,322)             (92,307)             (92,920)
                                            -----------------    ----------------     ----------------     ----------------

Income (loss) before income taxes                   134,730            (505,268)              76,116             (281,682)

Income tax expense                                    6,220               4,470                    -                    -
                                            ----------------     ---------------      ---------------      ---------------

Net income (loss)                              $    128,510        $   (509,738)        $     76,116         $   (281,682)
                                            ================     ================     ===============      ================

Basic and diluted income (loss)
  per common share                             $       0.03        $      (0.11)        $       0.02         $      (0.06)
                                            ================     ================     ===============      ================

Weighted average number of
  common shares outstanding                       4,710,057           4,530,649            4,710,057            4,605,092
                                            ================     ================     ===============      ================
</TABLE> 


See accompanying notes

                                       3
<PAGE>
 
                       ANCHOR PACIFIC UNDERWRITERS, INC.

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE> 
<CAPTION> 
                                                                     Additional      
                                           Common Stock                Paid-In      Accumulated
                                       Shares          Amount          Capital           Deficit            Total
                                  ---------------- --------------- ---------------- ---------------- ------------------
<S>                               <C>              <C>             <C>              <C>              <C> 
Balance at December 31,
      1996                              4,362,837  $       87,256  $     3,925,508     $ (2,905,533)      $  1,107,231
   Stock issued for warrants
      exercised                               567              11            1,691                -              1,702
   Bridge notes exchanged
       for stock                           50,000           1,000           44,000                -             45,000
   Issuance of stock for                  277,778           5,557          244,443                -            250,000
       cash
   Canceled stock:
      Fractional shares                      (343)             (7)               7                -                  -
   Net loss                                     -               -                -         (946,691)          (946,691)
                                  ---------------- --------------- ---------------- ----------------- ------------------

Balance at December 31,
      1997                              4,690,839  $       93,817  $     4,215,649     $ (3,852,224)      $    457,242
   Stock issued for services               18,888             378           16,622                -             17,000
      Fractional shares
       adjustment                             333               6               (6)               -                  -
   Canceled stock:
      Fractional shares                        (3)              -                -                -                  -
   Net income                                   -               -                -          128,510            128,510
                                  ---------------- --------------- ---------------- ---------------- ------------------

Balance at June 30, 1998
   (Unaudited)                          4,710,057  $       94,201  $     4,232,265     $ (3,723,714)      $    602,752
                                  ================ =============== ================ ================= ==================
</TABLE> 
 
See accompanying notes

                                       4
<PAGE>
 
              ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)
<TABLE> 
<CAPTION> 
                                                                                  Six Months
                                                                                Ended June 30,
                                                                  --------------------------------------------
                                                                          1998                      1997
<S>                                                                 <C>                       <C> 
OPERATING ACTIVITIES
Net income (loss)                                                   $        128,510           $     (509,738)
Items not requiring current use of cash:                           
      Depreciation and amortization                                          161,554                  151,597
      Amortization of goodwill and other intangibles                         118,776                  119,296
      Stock issued for services                                                    -                        -
Changes in items affecting operations:
      Cash and cash equivalents - brokerage
         fiduciary funds                                                     304,752                 (298,224)
      Accounts receivable                                                   (208,465)                 122,547
      Prepaid expenses and other current assets                              183,819                   (9,749)
      Other assets                                                           (24,232)                 (19,146)
      Deferred compensation                                                  (53,784)                  51,000
      Net premiums payable - insurance companies                             (22,144)                 132,694
      Accounts payable and accrued expenses                                 (103,729)                   87,773
                                                                    -----------------       -------------------
Cash provided by (used in) operating activities                              485,057                 (171,950)
                                                                    -----------------       -------------------

INVESTING ACTIVITIES
Notes receivable, net                                                        (32,386)                  (9,466)
Purchases of property and equipment                                         (226,565)                  (4,648)
Purchases of customer list                                                    (9,904)                       -
                                                                    -----------------       -------------------
Cash provided by (used in) investing activities                             (268,855)                 (14,114)
                                                                    -----------------       -------------------

FINANCING ACTIVITIES
Issuance of stock:
    Common stock                                                              15,298                   240,.001
    Warrants exercised                                                         1,702                          -
Borrowings on long-term debt                                                       -                     35,000
Repayment on long-term debt and liabilities                                  (42,288)                  (211,903)
                                                                    -----------------       -------------------
Cash provided by (used in) financing activities                              (25,288)                    63,098
                                                                    -----------------       -------------------

Net increase (loss) in cash                                                  190,914                   (122,966)
Cash and cash equivalents - corporate funds at
   beginning of period                                                        44,384                    151,765
                                                                    -----------------       -------------------
Cash and cash equivalents - corporate funds at
   end of period                                                    $        235,298           $         28,799
                                                                    =================       ===================

SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
   Interest                                                         $        141,045           $         99,329
                                                                    =================       ===================

   Income taxes                                                     $          6,220           $          8,526
                                                                    =================       ===================
</TABLE> 

See accompanying notes

                                       5
<PAGE>
 
               ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (UNAUDITED)

                                  JUNE 30, 1998

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 six period ended June 30, 1998, are not necessarily
indicative of the results that may be expected for the year ending December 31,
1998. 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, 1997.

Reclassifications

         Certain prior years' balances have been reclassified to conform with
the current year presentation.

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 of System received 5%
of Anchor's then outstanding stock (195,789 shares) which amounted to one share
of Anchor common stock along with a 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. On January 6, 1997, 194,886 of these warrants
expired. In addition, certain creditors of System were to receive 5% of Anchor's
common stock (195,789 shares) and one warrant to purchase shares of common
stock. These shares of common stock and warrants remain reserved for issuance to
certain creditors of System pending a final determination by the System
Bankruptcy Creditor Committee. These unissued warrants will expire one year
after their issuance.

NOTE 2 - ACQUISITIONS

         Acquisitions by Anchor have involved both relatively small acquisitions
of insurance brokerage and administration accounts, as well as larger
acquisitions, such as the 1995 acquisitions of the insurance brokerage company,
Putnam, Knudsen & Wieking, Inc. ("PKW"), and the third-party administrators,
Harden & Company of Arizona ("Harden-AZ"), formerly Benefit Resources, Inc.
("BRI"). The results of operations from these acquisitions are included in
Anchor's consolidated financial statements from the date of purchase.

         Anchor conducts its third-party administration business through its
wholly-owned subsidiary, Harden & Company Insurance Services, Inc. ("Harden-CA")
and through Harden-CA's wholly-owned subsidiary, Harden-AZ. On January 1, 1998,
Harden-CA, assumed a significant volume of third-party administration business,
Pacific Heritage Administrators ("PHA"), from an insurance carrier in Portland,
Oregon. Effective March 20, 1998, Harden-CA acquired all of the outstanding
stock of Pacific Heritage Administrators of Nevada, Inc. ("PHA-NV") to further
its business of administering third-party health insurance contracts. Anchor
expects to continue to expand its third-party administration business.

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 - 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 acquire 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 (Note 6 below), by exchanging the
Bridge Notes. The basic terms of these 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. Certain purchasers agreed to extend the
term of the Bridge Notes. As of June 30, 1998, $140,000 of the Bridge Notes
remained outstanding.

NOTE 5 - 10% CONVERTIBLE SUBORDINATED DEBENTURES

         In 1995, Anchor issued $370,000 of 10% Convertible Subordinated
Debentures (the "Debentures") and $600,000 of Series A 10% Convertible
Subordinated Debenture (the "Series A Debenture"). Investors holding $270,000 of
the Debentures, including seven members of the Board of Directors, and the owner
of the $600,000 Series A Debenture, converted their debentures into 644,444
shares of Anchor's common stock at $1.35 per share. These conversions reduced
outstanding indebtedness by $870,000 and, in turn, increased shareholders'
equity by $870,000. Certain holders agreed to extend the term of the Debentures.
As of June 30, 1998, $40,000 of the Debentures had been repaid in full, and
$60,000 remained outstanding.

NOTE 6 - 1997 OFFERING

         During 1997, Anchor raised $305,000 from eight members of the Board of
Directors and other qualified investors through a private offering which
consisted of shares 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 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 - COMMITMENTS

         On September 30, 1997, Anchor obtained a $1,600,000 bank loan. The
basic terms and conditions of this loan are: (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 $26,666.67 (Not withstanding the foregoing, 75% of
Anchor's monthly earnings before interest, taxes, depreciation and amortization
("EBITDA") shall be applied to principal to the extent such percentage of
monthly EBITDA is required to make the scheduled payment of principal. To the
extent that 75% of monthly EBITDA falls short of the required principal payment,
the difference shall 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.

                                       7
<PAGE>
 
         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.

         As of March 9, 1998, a new term loan in the amount of $1,821,890.33 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 new term loan were: (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
$33,125.28 beginning on 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.

         On June 2, 1998, a new term loan in the amount of $1,741,841.30 was
entered into between Anchor and the bank which replaced the $1,821,890.33 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, 1002;
(c) monthly principal payments in installments of $16,500.00 beginning on June
5, 1998; and (d) deletion of the provision which required 75% of Anchor's
monthly EBITDA to be applied to principal to the extent such percentage of
monthly EBITDA was required to make the scheduled payment of principal. All
other terms and conditions contained in the term loan dated September 30, 1997,
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, a third-party employee benefits
administrator. Anchor was reorganized as a private California corporation in
March 1987, and became a public reporting Delaware corporation on January 6,
1995, when it merged with System.

         Since its inception, Anchor has expanded its insurance brokerage and
administration service capabilities through internal growth and a series of
acquisitions. Anchor expects to continue to expand its third-party
administration services operation and to explore other complementary expansion
opportunities.

         Historically, Anchor derived a majority of its revenues from
third-party administration services. As a result of acquisitions made during
1994 and 1996, Anchor significantly increased the percentage of its revenues
derived from property and casualty insurance brokerage activities. In July 1997
and January 1998, Harden entered into significant new contracts through its
marketing partners to provide third-party administration services in Los
Angeles, California and Portland, Oregon. These new contracts have substantially
increased the percentage of revenues derived from third-party administration
services.

         In conjunction with a new marketing strategy, Anchor has recently
reorganized the company's third-party administration services division. The
"Harden Group" has been established as the consolidated name for management,
organizational structure and marketing of third-party administration services.
Under the Harden Group identify, the current third-party administration
operations of Anchor will continue to function as before in their respective
territories. Currently, the Harden Group includes four third-party
administration operations providing services to clients through the Western
States from six offices located in Concord, Los Angeles and Fresno, CA;
Scottsdale, AZ; Portland, OR; and Las Vegas, NV. Another marketing office is
scheduled to be opened in Reno, NV later this year.

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

                                       8
<PAGE>
 
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1998 AND 1997

GENERAL

         Anchor derives its revenues from commissions and fees for claims
administration (including underwriting and risk analysis) services. Commissions
generally are based on a percentage of gross premiums and contingent
commissions, which, in turn, generally are based on underwriting profits derived
over a given period of time by the insurance carrier. Claims administration fees
generally are based on a percentage of premiums collected, or on a per capita
basis. Anchor does not assume any underwriting risk in connection with its
business.

         Fluctuations in premiums charged by insurance companies may materially
affect commission revenues. During the last nine years, the property and
casualty insurance industry has experienced a "soft market" in which the
underwriting capacity of insurance companies expanded, stimulating an increase
in competition and a decrease in premium rates, thereby reducing related
commissions and fees. In addition to the soft market for property and casualty
insurance, workers' compensation reform in California has had the effect of
reducing workers' compensation insurance premiums resulting in reduced
commissions generated by the sale of related insurance products. Although some
sources in the insurance industry have predicted future premium increases, the
likelihood of rate increases in the near future remains uncertain. Anchor
believes that revenues generated from anticipated future growth and continued
diversification of its business will offset weaknesses in the property and
casualty market and any loss of revenues that may result from workers'
compensation reform.

         Historically, inflation has impacted commission revenues by, among
other things, increasing property replacement costs and workers' compensation
and liability claims, thereby causing some clients to seek higher levels of
insurance coverage and, in turn, pay higher premiums. During the past several
years, the United States has experienced very low rates of inflation along with
gradual business expansion. Consequently, inflation has had minimal impact on
insurance pricing.

         At times, client uncertainty about the potential effect of health care
reform, could also affect Anchor's business. Anchor believes that its expertise
in two areas frequently identified in health care reform proposals (managed care
and managed competition), combined with its strategy of servicing middle market
clients, leave it well positioned to operate effectively in a managed care and
managed competition environment. Anchor also believes that in the current
political environment, the United States will experience incremental, rather
than sudden comprehensive changes in health care regulations. It is not possible
at this time, however, to predict the effect that any future health care reform
legislation will have on Anchor's business condition or operations. Anchor is
unaware of any current regulatory proposals that could have a material effect on
its liquidity, capital resources or operations.

         Anchor has taken steps to strengthen the sales management at the Harden
Group by hiring seasoned sales and marketing executives to take over marketing
responsibilities. Product development and new product sales continue to be a top
priority, as does geographical diversification into other states and marketing
territories. The Harden Group has been successful in securing an alternative
insurance carrier to strengthen and broaden their product offerings in the small
group market, as well as to facilitate geographic diversification. This new
insurance carrier has negotiated a multi-year, exclusive contract with the
Harden Group which management believes will enhance sales opportunities in
California and Arizona. Furthermore, the Harden Group has entered into
significant new contracts to provide third-party administration services through
its marketing partners. These new contracts have increased the percentage of
revenues Anchor derives from third-party administration services. The new
third-party administration services operation, PHA, in Oregon has also
substantially added to the increase in revenues and is expected to provide a
platform for expanding marketing activities in the northern tier of the western
states (Oregon, Washington, Idaho and Nevada).

REVENUES

         TOTAL REVENUES. Total revenues for the six months ended June 30, 1998,
were $8,150,091, an increase of $4,085,981 or 100%, as compared to $4,064,110 in
revenues for the same period in 1997. The increase in revenue in this six month
period was primarily due to the increase in fee income derived from third-party
administration services at Harden-CA, which included $2,708,978 from PHA, in
Portland, Oregon.

                                       9
<PAGE>
 
         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.

         Commissions and fees make up substantially all of Anchor's revenues.
The following table sets forth the percentages of Anchor's revenues attributable
to insurance brokerage services (for which commissions are generated), and
third-party administration, underwriting and risk analysis services (for which
fees are generated), for the six months ended June 30, 1998, 1997 and 1996.

<TABLE> 
<CAPTION> 
================================================================================================================
         SIX MONTHS ENDED JUNE 30,                    1998                  1997                   1996
----------------------------------------------------------------------------------------------------------------
<S>                                                  <C>                   <C>                    <C> 
Insurance Brokerage Commissions                          20%                 41%                    43%
----------------------------------------------------------------------------------------------------------------
Third-Party Administration Fees                          80%                 59%                    57%
----------------------------------------------------------------------------------------------------------------
         Total                                          100%                100%                   100%
================================================================================================================
</TABLE> 
         As of July 1, 1997 and January 1, l998, the Harden Group entered into
new administration contracts through its marketing partners to provide
third-party administration services in Los Angeles, California and Portland,
Oregon. As a result of these contracts, the percentage of its revenues that are
derived from third-party administration services has substantially increased.

         COMMISSIONS. Commissions for property and casualty insurance brokerage
services are reported net of sub-broker commissions and generally are recognized
as of the effective date of the insurance policy, except for commissions on
installment premiums which are recognized periodically as billed. Commissions
for the first six months of 1998 were $1,588,704, a decrease of $38,851 or 2.4%,
compared to $1,627,555 of commissions for the same period of 1997. A net loss of
commission revenue at PKW accounted for all of the decrease.

         FEES. Fees from the Harden Group, Anchor's third-party administration
services division (including underwriting and risk analysis), for the first six
months of 1998 were $6,526,613 an increase of $4,132,283 or 172.6%, as compared
to $2,394,330 in fees for the same period in 1997. This increase in fee income
is largely the direct result of new business generated from projects associated
with the new insurance carrier and new administrative contracts, as discussed
above, and administrative fees generated from the release of new products.

         Fee revenues reported by Anchor in the first six months of 1998 from
third-party administration services consist of revenues generated by the Harden
Group. The third-party administration revenues are primarily derived from: (a)
an insurance product underwritten by one insurance carrier, which is A-
(Excellent); and (b) the administration of insurance programs underwritten by
various insurance carriers for a number of self-insured employers. The insurance
product, described in (a) above, accounted for approximately 13% of the
third-party administration revenues (or approximately 8.5% of Anchor's total
revenues) in the first six months of 1998, and revenues related to the
administration of self-insured programs, described in (b) above, accounted for
substantially all of the remaining portion of revenues in the first six months
of 1998. 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.

         As of July 1, 1997 and January 1, 1998, respectively, the Harden Group
has entered into contracts through its marketing partners to provide third-party
administration services in Los Angeles, California and Portland, Oregon.
Management expects that these recent agreements will continue to increase the
percentage of income derived from third-party administration services in 1998
and future years. In addition, the contract in Oregon will allow the Harden
Group to expand its marketing and servicing territory in Oregon, Washington,
Idaho and Nevada.

         INTEREST INCOME. Interest income consists of interest earned on
insurance premiums and other funds held in fiduciary accounts and interest
earned on investments. Interest income was $34,774 and $42,135 for the six
months ended June 30, 1998 and 1997, respectively.

                                       10
<PAGE>
 
EXPENSES

         TOTAL EXPENSES. Total operating expenses for the first six months of
1998, were $7,806,116, an increase of $3,440,060 or 78.8% as compared to
operating expenses of $4,366,056 for the same period in 1997. As discussed
below, the increase in total expenses resulted primarily from an increase in
selling, general and administration expenses and employee compensation and
benefits related to the recent expansion of the third-party administration
services business at the Harden Group.

         EMPLOYEE COMPENSATION AND BENEFITS. Employee compensation and benefits
for the first six months of 1998, were $5,097,123, an increase of $2,300,826 or
82.3% as compared to $2,796,297 for the same period in 1997. The increase
related primarily to greater staffing needs required to service new third-party
administration projects at Harden-CA, including a $1,365,489 increase which
resulted from the hiring of new employees to staff the PHA operation.

         SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $2,708,993 and $1,569,759 for the six months ended
June 30, 1998 and 1997, respectively. The $1,139,234 or 72.5% increase in 1998,
as compared to 1997, resulted primarily from an increase in expenses associated
with the increased third-party administration services business at Harden-CA,
including PHA which accounted for $874,222 of the increase. General and
administrative expenses include rent, travel, insurance, postage, telephone,
supplies and other miscellaneous expenses.

         INTEREST EXPENSE. Interest expense was $141,045 and $99,329, for the
first six months of 1998 and 1997, respectively. The increase in interest
expense of $41,716 in the first six months of 1998, as compared to the same
period in 1997, was due to the increase in borrowings on the bank line of
credit.

         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 $107,636
and $119,296, for the first six months of 1998 and 1997, respectively. The
decrease in amortization and other intangibles is a result of intangibles at PKW
becoming fully amortized.

INCOME TAXES

         Anchor's expense for income taxes was $6,220 and $4,470 for the first
six months of 1998 and 1997, respectively. An analysis of Anchor's provision for
income taxes is presented in Note 9 of the Notes to Consolidated Financial
Statements in Anchor's Annual Report on Form 10-K for the year ending December
31, 1997.

RESULTS OF OPERATIONS -- QUARTERS ENDED JUNE 30, 1998 AND 1997

REVENUES

         TOTAL REVENUES. Total revenues for the second quarter of 1998, were
$3,967,966, an increase of $1,930,705 or 94.8%, as compared to 1997 second
quarter revenues of $2,037,261. The increase in revenue in this three month
period was primarily due to the increase in fee income derived from third-party
administration services at Harden-CA which included $1,366,267 from the new
business at PHA.

         COMMISSIONS. Commissions for the second quarter of 1998 were $810,358,
a decrease of $17,166 or 2%, compared to $827,524 of commissions for the same
period of 1997. A net loss of commission revenue at PKW accounted for all of the
decrease.

         FEES. Fees from the Harden Group, Anchor's third-party administration
services division (including underwriting and risk analysis), for the second
quarter of 1998, were $3,139,960, an increase of $1,950,720 or 164%, as compared
to $1,189,240 in fees for the same period in 1997. This increase in fee income
is largely the direct result of new business generated from projects associated
with the new insurance carrier and new administrative contracts, as discussed
above, and administrative fees generated from the release of new products.

                                       11
<PAGE>
 
         INTEREST INCOME. Interest income was $17,648 and $20,540 for the
quarters ended June 30, 1998 and 1997, respectively.

EXPENSES

         TOTAL EXPENSES. Total operating expenses for the second quarter of
1998, were $3,799,543, an increase of $1,573,520 or 70.7% as compared to
operating expenses of $2,226,023 for the same period in 1997. As discussed
below, the increase in total expenses resulted primarily from an increase in
selling, general and administration expenses and employee compensation and
benefits related to the recent expansion of the third-party administration
services business at the Harden Group.

         EMPLOYEE COMPENSATION AND BENEFITS. Employee compensation and benefits
for the second quarter of 1998, were $2,480,155, an increase of $1,068,665 or
75.7% as compared to $1,411,490 for the same period in 1997. The increase
related primarily to greater staffing needs required to service new third-party
administration projects at Harden-CA, including a $668,042 increase which
resulted from the hiring of new employees to staff PHA.

         SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $1,319,388 and $814,533 for the quarters ended June
30, 1998 and 1997, respectively. The $504,855 or 62% increase in 1998, as
compared to 1997, resulted primarily from an increase in expenses associated
with the increased third-party administration services business at Harden-CA,
including the new PHA office which accounted for $425,327 of the increase.

         INTEREST EXPENSE. Interest expense was $62,541 and $48,111, for the
second quarter of 1998 and 1997, respectively. The increase in interest expense
of $14,430 in the second quarter of 1998, as compared to the same period in
1997, was due to the increase in borrowings on the bank line of credit.

         AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Amortization of
goodwill and other intangibles was $53,780 and $56,768, for the second quarter
of 1998 and 1997, respectively. The decrease in amortization and other
intangibles is a result of intangibles at PKW becoming fully amortized.

INCOME TAXES

         Anchor's minimum annual required tax payment due was reported during
the first quarter of 1998 and 1997. Therefore, there was no income tax expense
reported for the quarters ended June 30, 1998 and 1997, respectively. An
analysis of Anchor's provision for income taxes is presented in Note 9 of the
Notes to Consolidated Financial Statements in Anchor's Annual Report on Form
10-K for the year ending December 31, 1997.

LIQUIDITY AND CAPITAL RESOURCES

         Anchor reported net cash flows provided by operations of $485,057 for
the six months ended June 30, 1998, compared to net cash flows (used in)
operations of $(171,950) for the same period in 1997. During 1997, Anchor met
its operating and capital needs from various sources, including borrowing under
its existing credit agreements and the use of proceeds received from the 1997
Offering. See Note 6, above.

         In 1995, Anchor issued $370,000 of 10% Convertible Subordinated
Debentures (the "Debentures") and $600,000 of Series A 10% Convertible
Subordinated Debentures (the "Series A Debenture"). Investors holding $270,000
of the Debentures, including seven members of the Board of Directors, and the
owner of the $600,000 Series A Debenture, converted their debentures into
644,444 shares of Anchor's common stock at $1.35 per share. These conversions
reduced Anchor's outstanding indebtedness by $870,000 and, in turn, increased
shareholders' equity by $870,000. Certain holders agreed to extend the term of
the Debentures. As of June 30, 1998, $40,000 of the Debentures had been repaid
in full, and $60,000 remained outstanding.

         During 1996, Anchor raised $225,000 from five members of the Board of
Directors and other qualified investors through the issuance of Bridge Notes. As
of June 30, 1998, $140,000 of the Bridge Notes remained outstanding (for further
information, refer to Note 4 above).

                                       12
<PAGE>
 
         During 1997, Anchor raised $305,000 from eight members of the Board of
Directors and other qualified investors through a private offering which
consisted 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 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.

         Capital and certain acquisition related expenditures were $226,565 and
$4,648 for the six months ended June 30, 1998 and 1997, respectively. The larger
1998 expenditures primarily involved the acquisition of furniture, fixtures and
computer equipment at the new PHA, Portland, Oregon location. During the first
six months of 1997, the largest expenditure involved computer equipment
purchased by Harden-CA.

         Short-term debt, current portion of long-term debt and current portion
of long-term liabilities at June 30, 1998, totaling in the aggregate $969,573
(as compared to $1,203,216 at December 31, 1997) consisted of: (a) $198,000
representing the current portion of a $1,741,841.30 term bank loan; (b)
approximately $129,000 of future fixed payments under a consulting agreement
entered into with a company affiliated with the former shareholders of
Harden-AZ; (c) $154,800 representing the current portion of obligations with
regard to certain real property leased by PKW prior to its acquisition by Anchor
and relocation to Anchor's executive offices; (d) $60,000 of Debentures; (e)
$140,000 of the Bridge Notes; and (f) approximately $485,773 for certain other
current liabilities.

         On September 30, 1997, Anchor obtained a $1,600,000 bank loan. The
basic terms and conditions of this loan are: (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 $26,666.67 (Not withstanding the foregoing, 75% of
Anchor's monthly EBITDA shall be applied to principal to the extent such
percentage of monthly EBITDA is required to make the scheduled payment of
principal. To the extent that 75% of monthly EBITDA falls short of the required
principal payment, the difference shall 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 the Harden Group's expansion in
Portland, Oregon.

         On March 9, 1998, a term loan in the amount of $1,821,890.33 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) a maturity date of
October 5, 2002; and (c) monthly principal payments in installments of
$33,125.28 beginning on 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.

         On June 2, 1998, a new term loan in the amount of $1,741,841.30 was
entered into between Anchor and the bank which replaced the $1,821,890.33 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, 1002;
(c) monthly principal payments in installments of $16,500.00 beginning on June
5, 1998; and (d) deletion of the provision which required 75% of Anchor's
monthly EBITDA to be applied to principal to the extent such percentage of
monthly EBITDA was required to make the scheduled payment of principal. All
other terms and conditions of the term loan dated September 30, 1997, including
all amendments thereto and replacements therefor, remain operative.

         At June 30, 1998, long-term liabilities and long-term debt, less the
current portion discussed above, totaled $2,027,486 (as compared to $1,836,132
at December 31, 1997), and primarily consisted of: (a) $1,526,167 representing
the long-term portion outstanding under a $1,741,841.30 term bank loan
maintained and further described above; (b) approximately $39,900 representing
the long-term portion of obligations with regard to certain real property leased
by PKW prior to its acquisition by Anchor and relocation to Anchor's executive
offices; (c) approximately $317,359 representing deferred rent with regard to
certain real property currently leased by 

                                       13
<PAGE>
 
Anchor; (d) approximately $47,400 representing obligations relating to the
purchase of furniture, fixtures and computer equipment at the new PHA location;
and (e) approximately $96,660 for certain other long-term liabilities. In May
1995, PKW entered into a sublease with respect to 82% of PKW's prior office
space. The sublease expired on September 30, 1997, and was extended by the
subtenant through November 30, 1999, the date on which the term of the master
lease expires and requires PKW to provide a multi-year rent subsidy. In December
1995, PKW entered into a sublease with respect to an additional 10% of PKW's
prior office space. The sublease expires on November 30, 1999, and requires PKW
to provide a multi-year rent subsidy. In October, 1997, PKW entered into a
sublease with respect to the remaining 8% of PKW's prior office space. The
sublease expires on November 30, 1999, and requires PKW to provide a multi-year
rent subsidy.

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

YEAR 2000 ISSUES

         Anchor has established a plan to achieve Year 2000 compliance in its
electronic information systems. A corporate team has been created to coordinate
the identification and implementation of the necessary changes required to
computer systems and applications. An initial impact assessment is being
completed and renovation efforts began in the second quarter of 1998.

         Anchor is working to complete programming efforts for the Year 2000
related projects by June 30, 1999, with final certification testing occurring in
the remainder of the 1999 year. Anchor's focus is not only 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
will not adversely impact new product or software development. The total cost of
Year 2000 compliance is presently estimated to not exceed $250,000 through 1999.

FORWARD-LOOKING INFORMATION

         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 (Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934). 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 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 Quarterly Report. Statements in
this Quarterly Report, particularly in the Notes to Consolidated Financial
Statements and Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 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 the new insurance carrier 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 operations and future
expansion; the cyclical nature of the property and casualty and health insurance
markets; and unanticipated regulatory changes.

                                       14
<PAGE>
 
STRATEGY

         Anchor's current plan is to expand the 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 seeks to manage its affairs to achieve expansion through
internal growth of its existing and new product lines. Anchor also regularly
considers acquisitions and merger opportunities and other business expansion
alternatives.

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

         Pursuant to notice duly given, the Annual Meeting of Shareholders of
Anchor was held on May 12, 1998 at which time the number of shares represented
and voted in person or by proxy were: 3,394,497 by proxy, and 0 in person. The
total number of shares present in person and by proxy equaled 75% of the total
shares issued and outstanding as of March 13, 1998, the record date of said
meeting. The shareholders approved the following proposals:

         The first proposal was the election of directors. The following
directors, being all of the nominees as set forth in the proxy statement, were
elected to serve until the next annual meeting of shareholders and until their
successors are elected and have been qualified: James R. Dunathan, Earl Wiklund,
Audie J. Dudum, Steven A. Gonsalves, Lawrence A. Hayes, R. William MacCullough,
Donald B. Putnam, Michael R. Sanford, Gordon M. Silverstein and James P.
Wieking.

         The second proposal was the approval to amend Anchor's 1994 Stock
Option Plan to increase the aggregate number of shares of Anchor's common stock
that may be issued pursuant to the exercise of options granted under the Plan
from 700,000 shares to 1,000,000 shares, as adjusted for changes in
capitalization. Said proposal received the following votes: 2,730,249 (60.48%)
for; 35,469 (0.78%) against; 1,167 (0.03%) abstained; and 627,612 (13.90%)
broker non-votes.

         The third proposal was the ratification of the reappointment of
independent auditors, Odenberg, Ullakko, Muranishi & Co. ("Odenberg") to audit
the financial statements of Anchor for the current fiscal year ending December
31, 1998. Said proposal received the following votes: 3,351,469 (74.24%) for;
10,625 (0.23%) against; 32,403 (0.72%) abstained; and zero broker non-votes.

                                       15
<PAGE>
 
ITEM 5.  OTHER INFORMATION

None.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

A.  Exhibits

10.33 Business Loan Agreement dated June 2, 1998, between Anchor and Imperial
      Bank, and related documents.

27.0  Financial Data Schedule

B.  Reports on Form 8-K

None

                                       16
<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.

<TABLE>
<CAPTION>  
                                                       ANCHOR PACIFIC UNDERWRITERS, INC.



<S>       <C>                                          <C>                                  
Date:     August 10, 1998                              /s/ James R. Dunathan
          ------------------------------------         -----------------------------------------------------
                                                       James R. Dunathan
                                                       President and Chief Executive Officer



Date:     August 10, 1998                              /s/ Earl Wiklund
          ------------------------------------         -----------------------------------------------------
                                                       Earl Wiklund
                                                       Senior Vice President and Chief Financial Officer


</TABLE> 

                                       17