<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, 2000

                        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
        Concord, California                                 94520
(Address of principal executive offices)                  (Zip Code)

      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, 2000, the Registrant had 4,710,042 shares of common stock
and 1,853,300 shares of preferred stock outstanding.

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

                       ANCHOR PACIFIC UNDERWRITERS, INC.

                                     INDEX

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

                   Item 1.     Financial Statements:

                               Consolidated Balance Sheets, June 30, 2000 (unaudited) and December 31,
                               1999 ....................................................................       1

                               Consolidated Statements of Operations (unaudited) for the six
                               months and quarters ended June 30, 2000 and 1999 ........................       3

                               Consolidated Statements of Shareholders' Equity (Deficit) for the six
                               months ended June 30, 2000 (unaudited) and year ended December 31, 1999..       4

                               Consolidated Statements of Cash Flows (unaudited) for the six
                               months ended June 30, 2000 and 1999......................................       5

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

                   Item 2.     Management's Discussion and Analysis of Financial
                               Condition and Results of Operations......................................      10


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........................................................      15

                   Item 6.     Exhibits and Reports on Form 8-K.........................................      15

</TABLE>
<PAGE>

PART I - FINANCIAL INFORMATION

              Anchor Pacific Underwriters, Inc. and Subsidiaries
                          Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                               June 30,                December 31,
                                                                 2000                      1999
                                                          ------------------       -------------------
                                                             (unaudited)
<S>                                                       <C>                      <C>
Assets
Current Assets:
    Cash and cash equivalents - corporate funds           $          76,618        $                -
    Cash and cash equivalents - third-party
         administration fiduciary funds                           4,476,665                 4,686,823
    Accounts receivable, net                                        402,876                   465,337
    Prepaid expenses and other current assets                       152,779                   148,774
                                                          ------------------       -------------------
Total current assets                                              5,108,938                 5,300,934
                                                          ------------------       -------------------
Property and equipment                                            3,061,065                 2,918,110
Accumulated depreciation and amortization                        (2,415,832)               (2,287,299)
                                                          -------------------      --------------------
                                                                    645,233                   630,811

Other assets:
    Intangible assets, net                                          494,775                   527,813
    Other                                                            73,473                    60,477
                                                          ------------------       -------------------
                                                                    568,248                   588,290
                                                          ------------------       -------------------
Total assets                                              $       6,322,419        $        6,520,035
                                                          ==================       ===================
</TABLE>

                                       1
<PAGE>

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

<TABLE>
<CAPTION>
                                                                           June 30,               December 31,
                                                                             2000                     1999
                                                                       ------------------     ---------------------
                                                                          (unaudited)
<S>                                                                    <C>                    <C>
Liabilities and Shareholders' Equity (Deficit)
Current Liabilities:
    Cash and cash equivalents - third-party
         administration fiduciary funds                                $       4,476,665        $        4,686,823
    Cash overdraft                                                                     -                    55,926
    Accounts payable                                                             808,970                 1,161,334
    Accrued expenses                                                             242,693                   664,810
    Short-term debt                                                                    -                   200,000
    Current portion of long-term debt                                            437,000                   588,060
    Current portion of long-term liabilities                                     212,724                   194,529
                                                                       ------------------     ---------------------
Total current liabilities                                                      6,178,052                 7,551,482
                                                                       ------------------     ---------------------
Long-term liabilities, net of current portion                                    278,348                   353,127
                                                                       ------------------     ---------------------

Long-term debt, including $984,000 and $234,000 in 2000 and
1999, respectively, owed to related parties                                    1,701,485                 1,394,485
                                                                       ------------------     ---------------------
Total liabilities                                                              8,157,885                 9,299,094

Shareholders' equity (deficit):
    Preferred stock - $.02 par value; 2,500,000 shares
         authorized; none issued as of 12/31/99,
         1,853,300 issued as of 6/30/00                                           37,066                         -
    Common stock  - $.02 par value; 50,000,000
         shares authorized; 4,710,055 shares issued as
         of 12/31/99 and 4,710,042 as of 6/30/00                                  94,201                    94,201
    Additional paid-in capital                                                 6,158,787                 4,232,265
    Accumulated deficit                                                       (8,125,520)               (7,105,525)
                                                                       -------------------    ----------------------
Total shareholders' equity (deficit)                                          (1,835,466)               (2,779,059)
                                                                       ------------------     ---------------------
Total liabilities and shareholders' equity                             $       6,322,419        $        6,520,035
                                                                       ==================     =====================
</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,
                                              -----------------------------------       ------------------------------------
                                                   2000                 1999                 2000                1999
<S>                                           <C>                      <C>              <C>                     <C>
Revenues:
  Administrative fees and other income            $4,737,010           $5,024,437           $2,243,111          $ 2,556,792

  Interest income                                      7,261                8,956                3,299                2,719
                                              ---------------      ---------------      ---------------     ----------------
Total revenues                                     4,744,271            5,033,393            2,246,410            2,559,511

Operating expenses:
  Salaries, commissions and employee
    benefits                                       3,516,625            3,727,473            1,679,421            1,812,253
  Selling, general and administrative
    expenses                                       2,083,322            2,109,283            1,049,509            1,011,335
                                              ---------------      ---------------      ---------------     ----------------
Total operating expenses                           5,599,947            5,836,756            2,728,930            2,823,588
                                              ---------------      ---------------      ---------------     ----------------
                                                    (855,676)            (803,363)            (482,520)            (264,077)

Other income (expense):
  Amortization of goodwill & intangible
    assets                                           (33,038)             (33,060)             (16,508)             (16,530)
  Interest                                          (127,247)             (75,467)             (55,304)             (40,648)
  Other                                                2,176                1,351                2,785              (38,571)
                                              ---------------      ---------------      ----------------    ----------------
Total other income (expense)                        (158,109)            (107,176)             (69,027)             (95,749)
                                              ---------------      ----------------     ----------------    ----------------
Loss before income taxes                          (1,013,785)            (910,539)            (551,547)            (359,826)
Provision for income taxes                             6,210                4,870                1,500                    -
                                              ---------------      ---------------      ---------------     ---------------
Net (loss)                                       $(1,019,995)          $ (915,409)          $ (553,047)        $   (359,826)
                                              ===============      ================     ================    ================

Basic and diluted (loss) per common
  Share                                          $     (0.22)          $    (0.19)          $    (0.12)        $      (0.08)
                                              ===============      ================     ================    ================
Weighted average number of common
  shares outstanding                               4,710,051             4,710,056           4,710,049            4,710,056
                                              ===============      ================     ================    ================
</TABLE>
See accompanying notes

                                       3
<PAGE>

                       Anchor Pacific Underwriters, Inc.

           Consolidated Statements of Shareholders' Equity (Deficit)

<TABLE>
<CAPTION>
                                                     Preferred                 Additional
                         Common Stock                 Stock       Paid-In      Accumulated
                           Shares        Amount       Shares       Amount       Capital         (Deficit)          Total
                       -------------- ------------ ------------ ------------ -------------- ---------------- ----------------
<S>                    <C>            <C>          <C>          <C>          <C>            <C>              <C>
Balance at
12/31/98                   4,710,057     $ 94,201            -       $     -     $4,232,265     $ (4,627,554)      $ (301,088)

Canceled stock
(fractional shares)               (2)           -            -             -              -                -                -

Net loss                           -            -            -             -              -       (2,477,971)      (2,477,971)
                       -------------- ------------ ------------ ------------ -------------- ---------------- ----------------
Balance at
12/31/99                    4,710,055     $ 94,201           -        $    -     $4,232,265     $ (7,105,525)     $(2,779,059)

Canceled stock
(fractional shares)               (13)           -           -             -              -                -                -

Shares issued, net
of direct cost                      -            -   1,853,300        37,066      1,926,522                -        1,963,588

Net loss                            -            -           -             -              -       (1,019,995)      (1,019,995)
                       -------------- ------------ ------------ ------------ -------------- ---------------- ----------------
Balance at
6/30/00
(Unaudited)                 4,710,042     $ 94,201    1,853,300     $ 37,066     $6,158,787     $ (8,125,520)     $(1,835,466)
                       ============== ============ ============ ============ ============== ================ ================
</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,
                                                              -------------------------------------------
                                                                    2000                     1999
<S>                                                           <C>                        <C>
Continuing operations activities:
Net (loss)                                                    $      (1,019,995)             $  (915,409)
Items not requiring the current use of cash:
      Depreciation and amortization                                     128,533                  118,090
      Amortization of goodwill and other intangibles                     33,038                   33,060
Changes in items affecting operations:
      Accounts receivable                                                62,461                  113,137
      Prepaid expenses and other current assets                          (4,005)                (112,602)
      Other assets                                                      (12,996)                  12,208
      Accounts payable                                                 (352,364)                (267,547)
      Accrued liabilities                                              (422,117)                       -
                                                              -------------------      -------------------
Net cash (used in) operating activities                              (1,587,445)              (1,019,063)
                                                              -------------------      -------------------

Investment activities:
Purchases of property and equipment                                     (142,955)               (229,049)
Net proceeds from sale of assets                                               -               2,165,004
                                                              -------------------      ------------------
Net cash provided by (used in) investing activities                    (142,955)               1,935,955
                                                              -------------------      ------------------

Financing activities:
Preferred stock issued, net                                           1,963,588                        -
Cash overdraft                                                          (55,926)                       -
Borrowings on long-term debt                                            575,000                  344,000
Repayment on long-term debt and liabilities                            (675,644)              (1,322,847)
                                                              ------------------       -------------------
Net cash provided by (used in) financing activities                   1,807,018                 (978,847)
                                                              ------------------       -------------------

Net increase in cash                                                     76,618                  (61,955)
Cash and cash equivalents-corporate funds at
   beginning of period                                                        -                  138,139
                                                              ------------------       ------------------
Cash and cash equivalents-corporate funds at
   end of period                                               $         76,618         $         76,184
                                                              ==================       ==================

Supplemental cash flow information:
Cash paid during the period for:
     Interest                                                  $        123,247         $         75,467
                                                              ==================       ==================
     Income taxes                                              $          6,210         $          4,870
                                                              ==================       ==================
</TABLE>

See accompanying notes

                                       5
<PAGE>

              Anchor Pacific Underwriters, Inc. and Subsidiaries
                  Notes to Consolidated Financial Statements
                                  (Unaudited)
                                 June 30, 2000

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

          The accompanying unaudited consolidated financial statements of Anchor
Pacific Underwriters, Inc. and its subsidiaries ("Anchor" and/or "Company") 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 month period ended June 30, 2000,
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2000.  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, 1999.

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

          Certain reclassifications have been made to the prior year financial
statements to conform with the current year financial statement presentation.
Such reclassifications have had no effect on net income as previously reported.

NOTE 2 - RECENT DEVELOPMENTS, CHANGE IN CONTROL OF COMPANY
----------------------------------------------------------

          On November 29, 1999, the Company and Ward North America Holding, Inc.
("Ward") executed a letter of intent whereby Ward would acquire a controlling
ownership interest in the Company and nominees of Ward would assume a majority
of the seats on the Company's Board of Directors.  The November 29, 1999 letter
of intent was further modified by the parties pursuant to a February 18, 2000
binding Letter Agreement that specifically bound the parties to certain funding
and structural commitments.

          Effective March 9, 2000, the Company and Ward entered into a
Securities Purchase Agreement ("Agreement") which superseded and replaced in its
entirety the binding Letter Agreement dated February 18, 2000 and letter of
intent dated November 29, 1999.  The Agreement provides that Ward would purchase
from the Company a package of debt and equity securities and that it would make
available a $1,000,000 loan facility.  The specific securities and facility are
described below:

          (a)  Series E Convertible Debentures (the "Series E Debentures").  The
Series E Debentures have a two year term; conversion price of $0.50 per share
and "Piggyback" registration rights for three years.  For each $5,000 of Series
E Debentures acquired, Ward received a five year warrant to acquire 3,000 shares
of the Company's common stock at an exercise price of $0.50 per share.  The
Series E Debentures are subordinate to the Company's "Senior Debt" (as defined
in the Series E Debentures) and are superior to all other debentures of the
Company, including without limitation the Series A, B, C and D debentures
previously issued by Anchor, and shall constitute "Senior Debt" for purposes of
those debentures.  As of June 30, 2000, Ward has invested $500,000 in the Series
E Debentures;

          (b)  a $200,000 bridge loan facility to the Company evidenced by a
promissory note ("Bridge Loan"); bearing interest at the rate of 10% per annum
with a maturity date of July 1, 2000.  The principal amount and all accrued
interest under the Bridge Loan were applied by Ward toward the purchase of
Series A Convertible Preferred stock, described below;

          (c)  1,853,3000 shares of Series A Convertible Preferred stock
("Series A Preferred") at a purchase price of $2,000,000, which constitute 62.6%
of Anchor's common stock on a fully diluted basis; and

          (d)  a $1,000,000 convertible loan facility (the "Convertible Loan")
which was made available immediately following the closing of the purchase of
the Series A Preferred. The Convertible Loan is convertible, at Ward's option,
into shares of Series A Preferred stock which are further convertible into a
number of shares of

                                       6
<PAGE>

common stock, which, when added to the shares of common stock issued or issuable
pursuant to the Series E Debentures (not including the warrants accompanying the
Series E Debentures) and other shares of Series A Preferred issued to Ward,
would constitute 73.5% of the Company's common stock on a fully diluted basis
following such conversion, assuming the maximum amount of $1,000,000 was
borrowed by the Company pursuant to the Convertible Loan. As of June 30, 2000,
Company has borrowed $475,000 under the terms of the Convertible Loan.

          Under the terms of the Agreement, Ward agreed that during the 36 month
period following the closing of the transaction neither Ward or its affiliates
would make any further acquisitions of Anchor's securities unless Ward first
made a tender offer (the "Tender Offer") to buy all of the shares of Anchor's
common stock not then owned by Ward or its affiliates at a purchase price equal
to the greater of: (i) $0.80 per share (as adjusted for stock splits,
       -------
combinations or dividends with respect to such shares) or (ii) the price per
share determined by assuming the value of Anchor to be equal to Anchor's
earnings before income taxes ("EBIT") for the 12 full calendar months preceding
the month in which the offer is made, multiplied by six and divided by the
number of shares outstanding of the Company on a fully diluted basis.

          In connection with the transaction, all of Company's directors
resigned with the exception of James R. Dunathan. Gordon Silverstein, Donald
Putnam and R. William MacCullough resigned on March 9, 2000. Earl Wiklund, Audie
Dudum, James Wieking, Michael Sanford, Lawrence Hayes and Steven Gonsalves
resigned on March 14, 2000. As the sole remaining director, Mr. Dunathan
appointed Jeffrey S. Ward, Kevin P. Jasper, Russ A. Whitmarsh, Gerard A.C.
Bakker, William Beasley and John F. Darden to the Board of Directors. As of June
30, 2000, William Beasley has resigned as director.

NOTE 3 - DISCONTINUED OPERATIONS
--------------------------------

          During the period from 1990 through 1996, Anchor 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 conducted through its wholly-
owned subsidiary, Harden & Company Insurance Services, Inc. ("Harden Group").
Effective December 31, 1998, Anchor sold substantially all the assets of PKW to
an unrelated third party for approximately $2,250,000 in cash. 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.

          In 1999, Anchor caused PKW to change its name to Shelby Insurance
Services, Inc. ("Shelby").  Effective March 9, 2000, Anchor sold all of the
capital stock of Shelby to James R. Dunathan, a member of the Board of
Directors.

NOTE 4 - 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.

NOTE 5 - 10% CONVERTIBLE SUBORDINATED DEBENTURES
------------------------------------------------

          In 1995, Anchor issued $370,000 of 10% Convertible Subordinated
Debentures (the "Debentures"). Investors holding $270,000 of the Debentures,
including one member of the Board of Directors (Mr. Dunathan who held $20,000),
converted the Debentures into 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. On March 15, 2000, Anchor repaid the
remaining outstanding Debentures ($60,000) with the proceeds from the Series A
Preferred shares purchased by Ward.

                                       7
<PAGE>

NOTE 6 - SUBORDINATED BRIDGE NOTES AND WARRANT
----------------------------------------------

          During 1996, Anchor raised $225,000 from one member of the Board of
Directors (Mr. Dunathan who purchased $10,000) and other qualified investors
through the issuance of 10% Subordinated Bridge Notes with a Warrant to Purchase
Shares of Anchor Common Stock ("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 (including Director,
Mr. Dunathan who held $10,000) of said Bridge Notes chose alternative (a) above,
and the remaining $45,000 chose alternative (b) above.  On March 15, 2000,
Anchor repaid the remaining $80,000 of said Bridge Notes ($10,000 of which was
repaid to Mr. Dunathan) with the proceeds from the Series A Preferred shares
purchased by Ward.

NOTE 7 - 1997 OFFERING
----------------------

          During 1997, Anchor raised $305,000 from 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 fund 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 8 - 10% CONVERTIBLE SUBORDINATED DEBENTURES, SERIES B
----------------------------------------------------------

          At the end of the third quarter 1998, Anchor commenced raising
additional funds by offering 10% Convertible Subordinated Debentures, Series B
(the "Series B Debentures"). Anchor raised $495,000, $200,000 from its primary
bank lender and the remaining $295,000 from one member of the Board of Directors
(Mr. Dunathan who purchased $15,000 of the Series B Debentures) and other
qualified investors. Anchor utilized the proceeds from the Series B Debentures
to fund 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 permitted 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 a result of the December 31, 1998 sale of
PKW in excess of $2 million, Anchor repurchased $230,000 of the Series B
Debentures including $200,000 from its primary lender. On March 15, 2000, Anchor
repaid $145,000 ($15,000 of which was repaid to Mr. Dunathan) of the outstanding
Series B Debentures with the proceeds from the Series A Preferred shares
purchased by Ward. As of June 30, 2000, $120,000 of the Series B Debentures
remained outstanding.

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

          During the first nine months of 1999, Anchor raised $179,000 from one
member of the Board of Directors (Mr. Dunathan who purchased $9,000) 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 fund 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;

                                       8
<PAGE>

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 Series C 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,
including Director, Mr. Dunathan, chose alternative (b) above.

NOTE 11 - 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.

          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.

          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) a maturity date
of September 30, 1999; (c) principal plus all accrued unpaid interest due at
maturity; 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 was
entered into between Anchor and the bank combining both the balances 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
payment in installments of $16,500 which began 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.

                                       9
<PAGE>

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

Background

          Since its inception, Anchor has expanded its insurance and third-party
administration service capabilities through internal growth as well as a series
of acquisitions.  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.

          Anchor continues to take steps to strengthen Harden Group's management
and sales and marketing staff and is currently re-organizing the entire
division, including completion of the Company's systems' consolidation.  In
connection with the recent financing by Ward, management is taking steps to
create "Ward Benefits Group".  As part of this process Harden Group will be
renamed Ward Benefits Group.

Results of Operations - Six Months Ended June 30, 2000 and 1999

Reclassifications

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

Revenues

          Total Revenues.  Total revenues for the six months ended June 30,
2000, were $4,744,271, a decrease of $289,122 or 5.7%, as compared to $5,033,393
in revenues for the same period in 1999. The decrease in revenue in this six
month period was primarily due to the declining revenue in Harden Group's
California and Arizona offices. 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 six months of 2000, were $4,737,010, a decrease
of $287,427 or 5.7%, as compared to $5,024,437 in fees for the same period in
1999. This decrease in fee income is the direct result of declining revenue
generated from Harden Group's California and Arizona offices.

          Fee revenues generated by Anchor in the first six months of 2000 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 A-
(Excellent); (b) the administration of insurance programs underwritten by
various insurance carriers for a number of self-insured employers; and (c)
dental insurance 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 $7,261 and $8,956 for the six months ended June 30, 2000 and 1999,
respectively.

                                       10
<PAGE>

Expenses

          Total Expenses.  Total operating expenses for the first six months of
2000, were $5,599,947, a decrease of $236,809 or 4.1% as compared to operating
expenses of $5,836,756 for the same period in 1999. 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 management's cost control measures.

          Employee Compensation and Benefits.  Employee compensation and
benefits for the first six months of 2000, were $3,516,625, a decrease of
$210,848 or 5.7% as compared to $3,727,473 for the same period in 1999. The
decrease related primarily to management's cost control measures in response to
the reduction in revenues.

          Selling, General and Administrative Expenses.  Selling, general and
administrative expenses were $2,083,322 and $2,109,283 for the six months ended
June 30, 2000 and 1999, respectively.  The $25,961 or 1.2% decrease in 2000, as
compared to 1999, resulted primarily from management's efforts to control costs.
General and administrative expenses include rent, travel, insurance, postage,
telephone, supplies and other miscellaneous expenses.

          Interest Expense.  Interest expense was $127,247 and $75,467, for the
first six months of 2000 and 1999, respectively. The increase in interest
expense of $51,780 in the first six months of 2000, as compared to the same
period in 1999, was due to the increase in borrowings under the bank term loan
and the Convertible Loan, the issuance of additional debentures, as well as
increases in interest rates.

          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
$33,038 and $33,060, for the first six months of 2000 and 1999, respectively.

Income Taxes

          Anchor's expense for income taxes was $6,210 for the first six months
of 2000 as compared to $4,870 for the first six months of 1999.

Results of Operations -- Quarters Ended June 30, 2000 and 1999

Reclassifications

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

Revenues

          Total Revenues.  Total revenues for the second quarter of 2000, were
$2,246,410, a decrease of $313,101 or 12.2%, as compared to 1999 second quarter
revenues of  $2,559,511.  The decrease in revenue in this three month period was
primarily due to the declining revenues in Harden Group's California and Arizona
offices.  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 second quarter of 2000, were $2,243,111, a decrease
of $313,681 or 12.3%, as compared to $2,556,792 in fees for the same period in
1999. This decrease in fee income is the direct result of declining revenue
generated from Harden Group's California and Arizona offices.

          Fee revenues generated by Anchor in the second quarter of 2000 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 A-
(Excellent); (b) the administration of insurance programs underwritten by
various insurance carriers for a number of self-insured

                                       11
<PAGE>

employers; and (c) dental insurance 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 $3,299 and $2,719 for the quarters ended June 30, 2000 and 1999,
respectively.

Expenses

          Total Expenses.  Total operating expenses for the second quarter of
2000, were $2,728,930, a decrease of $94,658 or 0.7% as compared to operating
expenses of $2,823,588 for the same period in 1999. 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 management's cost control measures in response to the reduction
in revenues.

          Employee Compensation and Benefits.  Employee compensation and
benefits for the second quarter of 2000, were $1,679,421, a decrease of $132,832
or 7.3% as compared to $1,812,253 for the same period in 1999. The decrease
related primarily to management's cost control measures in response to the
reduction in revenues.

          Selling, General and Administrative Expenses.  Selling, general and
administrative expenses were $1,049,509 and $1,011,335 for the quarters ended
June 30, 2000 and 1999, respectively.  The $38,174 or 3.8% increase in 2000, as
compared to 1999, resulted primarily from increased legal and accounting costs.
General and administrative expenses include rent, travel, insurance, postage,
telephone, supplies and other miscellaneous expenses.

          Interest Expense.  Interest expense was $55,304 and $40,648, for the
second quarter of 2000 and 1999, respectively. The increase in interest expense
of $14,656 in the second quarter of 2000, as compared to the same period in
1999, was due to the increase in borrowings under the bank term loan and the
Convertible Loan, the issuance of additional debentures, as well as increases in
interest rates.

          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
$16,508 and $16,530, for the second quarter of 2000 and 1999, respectively.

Income Taxes

          Anchor's expense for income taxes was $1,500 for the second quarter of
2000 as compared to no income tax expensed reported for the second quarter of
1999.

Liquidity and Capital Resources

          Anchor reported net cash flows used by operations of $1,587,445 for
the six months ended June 30, 1999, compared to net cash flows used by
operations of $1,019,063 for the same period in 1999. During the first six
months of 2000, Anchor met its operating and capital needs with the proceeds
from the Series A Preferred shares purchased by Ward and borrowings under the
Series E Debentures and the Convertible Loan (as further discussed in footnote 2
to the Financial Statements, above).

          Capital and certain acquisition related expenditures were $142,955 and
$229,049 for the six months ended June 30, 2000 and 1999, respectively.  The
2000 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 June 30, 2000, totaling in the aggregate
$649,724 (as compared to $982,589 at December 31, 1999), consisted of:  (a)
$198,000 representing the current portion of the term bank loans further
described in footnote 11 to the Financial Statements, above; (b) approximately
$36,455 of future fixed payments under a consulting agreement entered into

                                       12
<PAGE>

with a company affiliated with the former shareholders of Harden-AZ; (c) $69,037
representing deferred rent with regard to certain real property leased by
Anchor; (d) $120,000 of Series B Debentures; (e) $119,000 of Series D
Debentures; and (f) approximately $107,232 for certain other current
liabilities.

          At June 30, 2000, long-term liabilities and long-term debt, less the
current portion discussed above, totaled $1,979,833 (as compared to $1,747,612
December 31, 1999), and primarily consisted of:  (a) $601,486 representing the
long-term portion outstanding under a term bank loan further described in
footnote 11 to the Financial Statements, above; (b) approximately $230,126
representing deferred rent with regard to certain real property currently leased
by Anchor; (c) $475,000 outstanding under the Convertible Loan further described
in footnote 2 to the Financial Statements, above; (d) $125,000 of Series D
Debentures; (e) $500,000 of Series E Debentures; and (e) approximately $48,221
for certain other long-term liabilities.

          Reference is made to footnotes 2 through 11 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.

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

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 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 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 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 operations and future expansion; the cyclical
nature of the health insurance markets; and unanticipated regulatory changes.
Additionally, on March 9, 2000 Anchor entered into an Agreement with Ward
pursuant to which there was a change in both the ownership structure and the
composition of the Board of Directors.  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

          On November 29, 1999 Anchor entered into a letter of intent with Ward
North America Holding, Inc. ("Ward") whereby Ward would acquire a controlling
interest in Anchor. On March 9, 2000, Anchor and Ward signed an Agreement
pursuant to which Ward acquired a controlling interest in Anchor through the
purchase of Series A Convertible Preferred shares ("Series A Preferred"). The
Series A Preferred shares are senior to the Company's common stock and vote on
an as converted basis of ten for each share of Series A Preferred. In connection
with its investment, all of Anchor's directors resigned except for James R.
Dunathan. As the sole remaining director, Mr. Dunathan appointed one
representative of Anchor and five representatives of Ward to the board of
directors of Anchor.

                                       13
<PAGE>

          Ward is a San Diego, California based company that specializes in
providing outsourced claims management, loss control, field adjusting and
catastrophe support to the Insurance and Alternative Risk markets through over
70 offices in the United States and Canada. The investment in Anchor represents
the first time Ward has been involved in employee benefits administration.
Anchor's management and board of directors believe that Ward will be able to
provide needed capital to the Company. In turn, this will enable Anchor to
accelerate the systems consolidation process and to pursue further expansion
opportunities.

          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 additional acquisition and merger opportunities
in the third-party administration services business.

                                       14
<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

          Pursuant to notice duly given, the Annual Meeting of Shareholders of
Anchor was held on May 23, 2000 at which time the number of shares represented
and voted in person or by proxy were:  2,811,892 by proxy, and 0 in person.  In
addition, the number of shares represented and voted in person or by proxy on
behalf of the Series A preferred were:  18,533,000 by proxy, and 0 in person.
The total number of shares present in person and by proxy equaled 59.7% of the
total common shares issued and outstanding (91.8% including the Series A
Preferred converted to common shares) as of March 24, 2000, the record date of
said meeting.

          The shareholders approved the first proposal which was the election of
the 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, or until their successors are elected and have been qualified:
Gerard A.C. Bakker, William R. Beasley, John F. Darden, James R. Dunathan, Kevin
P. Jasper, Jeffrey S. Ward and Russ A. Whitmarsh.

          The second proposal which 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, 1999 was tabled at the request of the Series A Preferred shareholder.  As of
June 30, 2000, Odenberg has not been reappointed, nor has another independent
auditor been appointed as their replacement.

Item 5.   Other Information

None.

Item 6.   Exhibits and Reports on Form 8-K

A.  Exhibits

27.0      Financial Data Schedule

B.  Reports on Form 8-K

None

                                       15
<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:     August 9, 2000                 /s/ Jeffrey S. Ward
       -------------------------         --------------------------------------
                                         Jeffrey S. Ward
                                         President and Chief Executive Officer


Date:     August 9, 2000                 /s/ John F. Darden
       -------------------------         --------------------------------------
                                         John F. Darden
                                         Chief Financial Officer

                                       16