<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, 1999          Commission File Number: 0-9628

                                      or

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

     For the transition period from [      ]  to  [       ]


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


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


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


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


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

                                     None

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

                         Common stock, $.02 par value


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

     As of June 30, 1999, the Registrant had 4,710,056 shares of common stock
outstanding.

                    This document is comprised of 19 pages

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

                       ANCHOR PACIFIC UNDERWRITERS, INC.

                                     INDEX

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

          Item 1.   Financial Statements:

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

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

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

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

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

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

Part II.  OTHER INFORMATION

          Item 1.   Legal Proceedings..............................................    16

          Item 2.   Changes in Securities..........................................    16

          Item 3.   Defaults Upon Senior Securities................................    16

          Item 4.   Submission of Matters to a Vote of Security Holders............    16

          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,
                                                        1999             1998
                                                    ------------      -----------
                                                     (unaudited)
<S>                                                 <C>               <C>
Assets
Current Assets:
 Cash and cash equivalents - corporate funds        $    76,184       $   138,139
 Cash and cash equivalents - third-party
   administration fiduciary funds                     3,717,461         3,517,772
 Realizable value of net assets sold                          -         2,054,995
 Accounts receivable (less allowance for
   doubtful accounts of $41,952 in
  1999 and 1998, respectively)                          414,690           527,827
 Prepaid expenses and other current assets              304,351           191,749
                                                    -----------       -----------
Total current assets                                  4,512,686         6,430,482
                                                    -----------       -----------

Property and equipment                                2,790,353         2,561,111
Accumulated depreciation and amortization            (2,128,916)       (2,010,633)
                                                    -----------       -----------
                                                        661,437           550,478
Other assets:
 Intangible assets, net                                 560,873           593,933
 Other                                                   68,223            80,431
                                                    -----------       -----------
                                                        629,096           674,364
                                                    -----------       -----------

Total assets                                        $ 5,803,219       $ 7,655,324
                                                    -----------       -----------
</TABLE>

                                       1
<PAGE>

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

<TABLE>
<CAPTION>
                                                              June 30,       December 31,
                                                               1999              1998
                                                            -----------      -----------
                                                            (unaudited)
<S>                                                         <C>              <C>
Liabilities and Shareholders' Equity (Deficit)
Current Liabilities:
    Cash and cash equivalents - third-party
         administration fiduciary funds                     $ 3,717,461      $ 3,517,772
    Accounts payable                                            488,431          619,798
    Accrued expenses                                            587,085          613,256
    Short-term debt                                             175,000          200,000
    Current portion of long-term debt                           536,523        1,242,950
    Current portion of long-term liabilities                    298,055          451,068
                                                            -----------      -----------
Total current liabilities                                     5,802,555        6,644,844
                                                            -----------      -----------

Long-term liabilities                                           435,320          453,226
                                                            -----------      -----------

Long-term debt, including $315,000 and $480,000 in
 1999 and 1998, respectively, owed to related parties           781,841          858,342
                                                            -----------      -----------

Shareholders' equity (deficit):
    Preferred stock - $.02 par value; 2,000,000 shares
      authorized; none issued and outstanding
    Common stock  - $.02 par value; 16,000,000
      shares authorized; 4,710,056 shares issued as
      of 6/30/99 and 4,710,057 as of 12/31/98                    94,201           94,201
    Additional paid-in capital                                4,232,265        4,232,265
    Accumulated deficit                                      (5,542,963)      (4,627,554)
                                                            -----------      -----------
Total shareholders' equity (deficit)                         (1,216,497)        (301,088)
                                                            -----------      -----------
Total liabilities and shareholders' equity (deficit)        $ 5,803,219      $ 7,655,324
                                                            -----------      -----------
</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,
                                                  -------------------------------            ---------------------------------
                                                     1999                 1998                 1999                   1998
<S>                                               <C>                  <C>                   <C>                   <C>
Revenues:
  Administrative fees and other income            $5,024,437           $6,526,613            $2,556,792             $3,139,960
  Interest Income                                      8,956                6,048                 2,719                  2,282
                                                  ----------           ----------            ----------             ----------
Total revenue                                      5,033,393            6,532,661             2,559,511              3,142,242

Operating expenses:
  Salaries, commissions and employee benefits      3,727,473            4,080,421             1,812,253              1,974,881
  Selling, general and administrative expenses     2,109,283            2,272,427             1,011,335              1,052,314
                                                  ----------           ----------            ----------             ----------
Total operating expenses                           5,836,756            6,352,848             2,823,588              3,027,195
                                                  ----------           ----------            ----------             ----------
                                                    (803,363)             179,813              (264,077)               115,047
Other income (expense):
  Amortization of goodwill & intangible assets       (33,060)             (22,534)              (16,530)               (11,267)
  Interest                                           (75,467)            (115,384)              (40,648)               (49,738)
  Other                                                1,351               13,180               (38,571)                 8,416
                                                  ----------           ----------            ----------             ----------
Total other income (expense)                        (107,176)            (124,738)              (95,749)               (52,589)
                                                  ----------           ----------            ----------             ----------

Income (loss) before income taxes                   (910,539)              55,075              (359,826)                62,458

Benefit (provision) for income taxes                   4,870                6,220                     -                      -
                                                  ----------           ----------            ----------             ----------

Income (loss)from continuing operations           $ (915,409)          $   48,855            $ (359,826)            $   62,458
                                                  ----------           ----------            ----------             ----------

Discontinued operations:
  Income from discontinued operations,
    net of income taxes                                    -               79,655                     -                 13,658
                                                  ----------           ----------            ----------             ----------
Income from discontinued operations                        -               79,655                     -                 13,658
                                                  ----------           ----------            ----------             ----------

Net income (loss)                                 $ (915,409)          $  128,510            $ (359,826)            $   76,116
                                                  ----------           ----------            ----------             ----------

Net income (loss) per share:
  Income (Loss) from continuing operations        $    (0.19)          $     0.01            $    (0.19)            $     0.01
  Income from discontinued operations                      -                 0.02                     -                   0.01
                                                  ----------           ----------            ----------             ----------

Basic and diluted income (loss) per
  common share                                    $    (0.19)          $     0.03            $    (0.19)            $     0.02
                                                  ----------           ----------            ----------             ----------
Weighted average number of
  common shares outstanding                        4,710,056            4,710,057             4,710,056              4,710,057
                                                  ----------           ----------            ----------             ----------
</TABLE>

See accompanying notes

                                       3
<PAGE>

                       Anchor Pacific Underwriters, Inc.

           Consolidated Statements of Shareholders' Equity (Deficit)

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

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

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

Balance at December 31, 1998       4,710,057          $94,201      $4,232,265        $(4,627,554)       $  (301,088)
    Canceled stock -
       Fractional shares                  (1)               -               -                  -                  -

    Net Loss                               -                -               -           (915,409)          (915,409)
                                 ----------------------------------------------------------------------------------

Balance at June 30, 1999
   (Unaudited)                     4,710,056          $94,201      $4,232,265        $(5,542,963)       $(1,216,497)
                                 ----------------------------------------------------------------------------------
</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,
                                                           -------------------------------------
                                                               1999                       1998
<S>                                                        <C>                         <C>
Continuing operations activities:
Net income (loss)                                          $  (915,409)                $ 128,510
Adjustments to reconcile net income (loss) to net
 cash provided by (used in) operating activities:
      Depreciation and amortization                            118,090                   139,532
      Amortization of goodwill, other intangibles
       and organization expenses                                33,060                    23,695
Changes in operating assets and liabilities, net
  of effect of purchases of subsidiaries:
      Accounts receivable                                      113,137                    45,422
      Prepaid expenses and other current assets               (112,602)                  128,962
      Other assets                                              12,208                    80,376
      Accounts payable and accrued expenses                   (267,547)                 (103,729)
                                                           -----------                 ---------
Net cash provided by (used in) operating activities         (1,019,063)                  442,768
                                                           -----------                 ---------

Investment activities:
Purchases of property and equipment                           (229,049)                 (226,565)
Net proceeds from sale of assets                             2,165,004                         -
                                                           -----------                 ---------
Net cash provided by (used in) investing activities          1,935,955                  (226,565)
                                                           -----------                 ---------

Financing activities:
Borrowings on long-term debt                                   344,000                   261,379
Repayment on long-term debt and liabilities                 (1,322,847)                 (286,668)
                                                           -----------                 ---------
Net cash (used in) financing activities                       (978,847)                  (25,289)
                                                           -----------                 ---------

Net increase (decrease) in cash                                (61,955)                  190,914
Cash and cash equivalents-corporate funds at
   beginning of period                                         138,139                    44,384
                                                           -----------                 ---------
Cash and cash equivalents-corporate funds at
   end of period                                                76,184                   235,298
                                                           -----------                 ---------
Supplemental cash flow information:
Cash paid during the period for:
     Interest                                                   75,467                   115,384
                                                           -----------                 ---------
     Income taxes                                                4,870                     6,220
                                                           -----------                 ---------
</TABLE>

See accompanying notes

                                       5
<PAGE>

              ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)
                                 June 30, 1999

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

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

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

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

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

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

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

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

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

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

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

                                       6
<PAGE>

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

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

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

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

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

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

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

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

          At the end of the third quarter 1998, Anchor commenced raising
additional funds from members of the Board of Directors and other qualified
investors by offering 10% Convertible Subordinated Debentures, Series B (the
"Series B Debentures"). At the close of the Series B Debentures offering on
January 25, 1999, Anchor had raised $495,000, with $200,000 provided by its
primary bank lender and the remaining $295,000 from five members of the Board of
Directors and other qualified investors. Anchor has utilized a substantial
portion of the proceeds from the Series B Debentures to support current working
capital needs. The basic terms of the Series B Debentures were: (a) 10%
interest, payable semi-annually in arrears; (b) two year maturity; (c)
conversion price of $0.50 per share; (d) "Piggyback" registration rights for
three years; (e) for each $5,000 of Series B Debentures acquired, an investor
received a five year warrant to acquire 2,000 shares of Anchor common stock at
an exercise price of $0.50 per share; and (f) subordination provisions that
subordinate the Series B Debentures to Anchor's "Senior Debt" (as defined in the
Series B Debentures). The Series B Debentures contained a provision that allowed
Anchor to redeem all or a portion of their Series B Debentures, at par, plus any
outstanding interest, in the event Anchor sold PKW for an amount in excess of $2
million. Anchor sold PKW for $2,250,000 cash, effective December 31, 1998. As of
June 30, 1999,

                                       7
<PAGE>

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

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

          At the end of the first quarter 1999, Anchor commenced raising
additional funds from members of the Board of Directors and other qualified
investors by offering 10% Convertible Subordinated Debentures, Series C (the
"Series C Debentures"). As of July 30, 1999, Anchor had raised $144,000 and had
oral commitments from investors to purchase an additional $50,000 of Series C
Debentures. Anchor intends to utilize a substantial portion of the proceeds from
the Series C Debentures to support current and future working capital needs of
Anchor. The basic terms of the Series C Debentures are: (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 receives a five year
warrant to acquire 2,000 shares of Anchor common stock at an exercise price of
$0.60 per share; and (f) subordination provisions that subordinate the Series C
Debentures to Anchor's "Senior Debt" (as defined in the Series C Debentures).

NOTE 9 - 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. As of June 30, 1999, $734,364 of the
bank term loan remained outstanding.

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

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

                                       8
<PAGE>

the loan were used to support current working capital needs of Anchor.

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

Background

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

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

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

          In conjunction with a new marketing strategy, in June 1998 Anchor
reorganized the company's third-party administration services division. In the
new organizational structure, "Harden Group" was established as the consolidated
name for the management and marketing of third-party administration services.
Harden Group includes: Harden & Company Insurance Services, Inc. ("Harden-CA");
Harden & Company of Arizona ("Harden-AZ"); Pacific Heritage Administrators
("PHA") a division of Harden-CA; and Pacific Heritage Administrators of Nevada,
Inc. ("PHA-NV").

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

General

Continuing Operations

          Third-Party Claims Administration and Employee Benefits Consulting

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

                                       9
<PAGE>

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

Discontinued Operations

     Insurance Brokerage

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

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

Results of Continuing Operations -- Six Months Ended June 30, 1999 and 1998

Reclassifications

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

Revenues

     Total Revenues. Total revenues for the six months ended June 30, 1999, were
$5,033,393, a decrease of $1,499,268 or 23.0%, as compared to $6,532,661 in
revenues for the same period in 1998. The decrease in revenue in this six month
period was primarily due to the declining revenues in Harden Group's Los Angeles
office as a result of carrier rate increases. 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 1999, were $5,024,437, a decrease of
$1,502,176 or 23.0%, as compared to $6,526,613 in fees for the same period in
1998. This decrease in fee income is the direct result of declining revenue
generated from Harden Group's Los Angeles office.

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

     Interest Income. Interest income consists of interest earned on funds held
in fiduciary accounts and interest earned on investments. Interest income was
$8,956 and $6,048 for the six months ended June 30, 1999 and 1998, respectively.

                                       10
<PAGE>

Expenses

     Total Expenses. Total operating expenses for the first six months of 1999,
were $5,836,756, a decrease of $516,092 or 8.1% as compared to operating
expenses of $6,352,848 for the same period in 1998. As discussed below, the
decrease in total expenses resulted primarily from a decrease in selling,
general and administration expenses and employee compensation and benefits
resulting from the closure of Harden Group's Los Angeles office as well as the
reduction of staff at the Concord, Portland and Scottsdale offices in response
to the reduction in revenues.

     Employee Compensation and Benefits. Employee compensation and benefits for
the first six months of 1999, were $3,727,473, a decrease of $352,948 or 8.7% as
compared to $4,080,421 for the same period in 1998. The decrease related
primarily to the closure of Harden Group's Los Angeles office and the reduction
of staff at the Concord, Portland and Scottsdale offices in response to the
reduction in revenue.

     Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $2,109,283 and $2,272,427 for the six months ended
June 30, 1999 and 1998, respectively. The $163,144 or 7.2% decrease in 1999, as
compared to 1998, resulted primarily from the closure of Harden Group's Los
Angeles office. General and administrative expenses include rent, travel,
insurance, postage, telephone, supplies and other miscellaneous expenses.

     Interest Expense. Interest expense was $75,467 and $115,384, for the first
six months of 1999 and 1998, respectively. The decrease in interest expense of
$39,917 in the first six months of 1999, as compared to the same period in 1998,
was due to the decrease in borrowings under the bank term loan.

     Amortization of Goodwill and Other Intangibles. Goodwill represents the
excess of the cost of acquisitions over the fair value of net assets acquired.
Other intangibles include covenants not to compete, customer lists and other
contractual rights. Amortization of goodwill and other intangibles was $33,060
and $22,534, for the first six months of 1999 and 1998, respectively.

Income Taxes

     Anchor's expense for income taxes was $4,870 for the first six months of
1999 as compared to $6,220 for the first six months of 1998.

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

Reclassifications

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

Revenues

     Total Revenues. Total revenues for the second quarter of 1999, were
$2,559,511, an decrease of $582,731 or 18.6%, as compared to 1998 second quarter
revenues of $3,142,242. The decrease in revenue in this three month period was
primarily due to the declining revenues in Harden Group's Los Angeles office as
a result of carrier rate increases. 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 1999, were $2,556,792, a decrease of $583,168
or 18.6%, as compared to $3,139,960 in fees for the same period in 1998. This
decrease in fee income is the direct result of declining revenue generated from
Harden Group's Los Angeles office.

     Fee revenues generated by Anchor in the second quarter of 1999 from third-
party administration services consist of revenues generated by Harden Group. The
third-party administration revenues are primarily derived from: (a) an insurance
product underwritten by one insurance carrier, which is A-(Excellent); and (b)
the

                                       11
<PAGE>

administration of insurance programs underwritten by various insurance carriers
for a number of self-insured employers. Self-insurance is an alternative to
fully insured programs in which a client assumes a manageable portion of its
insurance risks, usually (although not always) placing the less predictable and
larger loss exposure with an excess insurance carrier.

     Interest Income. Interest income consists of interest earned on funds held
in fiduciary accounts and interest earned on investments. Interest income was
$2,719 and $2,282 for the quarters ended June 30, 1999 and 1998, respectively.

Expenses

     Total Expenses. Total operating expenses for the second quarter of 1999,
were $2,823,588, a decrease of $203,607 or 6.7% as compared to operating
expenses of $3,027,195 for the same period in 1998. As discussed below, the
decrease in total expenses resulted primarily from a decrease in selling,
general and administration expenses and employee compensation and benefits
resulting from the closure of Harden Group's Los Angeles office as well as the
reduction of staff at the Concord, Portland and Scottsdale offices in response
to the reduction in revenues.

     Employee Compensation and Benefits. Employee compensation and benefits for
the second quarter of 1999, were $1,812,253, a decrease of $162,628 or 8.2% as
compared to $1,974,881 for the same period in 1998. The decrease related
primarily to the closure of Harden Group's Los Angeles office as well as the
reduction of staff at the Concord, Portland and Scottsdale offices in response
to the reduction in revenues.

     Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $1,011,335 and $1,052,314 for the quarters ended
June 30, 1999 and 1998, respectively. The $40,979 or 3.9% decrease in 1999, as
compared to 1998, resulted primarily from the closure of Harden Group's Los
Angeles office. General and administrative expenses include rent, travel,
insurance, postage, telephone, supplies and other miscellaneous expenses.

     Interest Expense. Interest expense was $40,648 and $49,738, for the second
quarter of 1999 and 1998, respectively. The decrease in interest expense of
$9,090 in the second quarter of 1999, as compared to the same period in 1998,
was due to the decrease in borrowings under the bank term loan.

     Amortization of Goodwill and Other Intangibles. Goodwill represents the
excess of the cost of acquisitions over the fair value of net assets acquired.
Other intangibles include covenants not to compete, customer lists and other
contractual rights. Amortization of goodwill and other intangibles was $16,530
and $11,267, for the second quarter of 1999 and 1998, respectively. The increase
in amortization and other intangibles is a result of increased intangibles at
Harden-AZ.

Income Taxes

     Anchor's minimum annual required tax payment due was reported during the
first quarter 1999 and 1998. Therefore, there was no income tax expense reported
for the quarters ended June 30, 1999 and 1998, 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 Form 10-K for the year ending
December 31, 1998.

Liquidity and Capital Resources

     Anchor reported net cash flows (used in) by operations of $(1,019,063) for
the six months ended June 30, 1999, compared to net cash flows provided by
operations of $442,768 for the same period in 1998. During 1999, Anchor repaid
$800,000 of the existing line of credit and met its operating and capital needs
from various sources, including the use of proceeds received from the sale of
PKW and the use of proceeds received from the sale of Series C Debentures.

     Capital and certain acquisition related expenditures were $229,049 and
$226,565 for the six months ended June 30, 1999 and 1998, respectively. The 1999
expenditures primarily involved expenditures related to software development and
implementation to update the eligibility and claims processing system.

                                       12
<PAGE>

     Short-term borrowings, current portion of long-term debt and current
portion of long-term liabilities at June 30, 1999, totaling in the aggregate
$1,009,578 (as compared to $1,894,018 at December 31, 1998), consisted of: (a)
$571,523 representing the current portion of the term bank loans further
described in footnote 9 to the Financial Statements, above; (b) approximately
$60,435 of future fixed payments under a consulting agreement entered into with
a company affiliated with the former shareholders of Harden-AZ; (c) $43,082
representing the current portion of obligations with regard to certain real
property leased by PKW prior its acquisition by Anchor and relocation to
Anchor's executive offices; (d) $60,000 of the Debentures; (e) $80,000 of the
Bridge Notes; (f) approximately $47,400 representing obligations relating to the
purchase of furniture, fixtures and computer equipment at the PHA location; and
(g) approximately $147,138 for certain other current liabilities.

     At June 30, 1999, long-term liabilities and long-term debt, less the
current portion discussed above, totaled $1,217,161 (as compared to $1,311,568
at December 31, 1998), and primarily consisted of: (a) $412,841 representing the
long-term portion outstanding under a term bank loan further described in
footnote 9 to the Financial Statements, above; (b) approximately $338,231
representing deferred rent with regard to certain real property currently leased
by Anchor; (c) $250,000 of Series B Debentures; (d) $119,000 of Series C
Debentures; and (e) approximately $97,089 for certain other long-term
liabilities. In May 1995, PKW entered into a sublease with respect to 82% of the
office space previously occupied by PKW. The terms of the sublease required PKW
to provide a rent subsidy. 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. In December 1995, PKW entered into a sublease with
respect to an additional 10% of the office space previously occupied by PKW. The
sublease expires on November 30, 1999, and required PKW to provide a rent
subsidy. In October 1997, PKW entered into a sublease with the respect to the
remaining 8% of the office space previously occupied by PKW. The sublease
expires on November 30, 1999, and required PKW to provide a rent subsidy.
Following the sale of PKW, Anchor has assumed these remaining lease obligations
all of which expire on November 30, 1999.

     Reference is made to footnotes 4 through 9 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.


Year 2000 Update

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

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

     1.   Develop an assessment project plan and a schedule to be approved by
          Anchor.
     2.   Prepare a comprehensive inventory of network environment (Hardware).
          In connection with preparing such inventory, OASYS will identify and
          asset tag all equipment, record serial numbers, identify installed
          devices and identify BIOS manufacture and version information.
     3.   Integrate Anchor's existing Year 2000 data into the OASYS reports and
          procedures, where applicable.
     4.   Conduct a comprehensive inventory of network environment
          (Software/Firmware).

                                       13
<PAGE>

     5.   Test all functional computer hardware for Year 2000 and leap year
          compliance, where applicable.
     6.   Collect compliance statements from vendors for non-testable hardware
          equipment (modems, routers, etc.). Cross-reference compliance data
          with Anchor's existing data, where applicable.
     7.   Research and report compliance data on all COTS (Common Off The Shelf)
          applications.
     8.   Build a project binder to track compliance statements and document all
          testing of hardware objects.
     9.   Interview key personnel to identify various dependencies and interface
          risks that are not immediately apparent through the physical inventory
          process.
     10.  Confer with Anchor's team to prioritize issues and create a Mission
          Critical listing of all hardware, software, dependencies and
          interfaces.
     11.  Provide a database to Anchor which will be used to identify and track
          all new hardware objects introduced into the environment.
     12.  Prepare a closing Risk Analysis report.

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

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


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

          Hardware:           Current operating system is under review;
                              scheduled compliance by the end of third quarter
                              1999.
          Software:           Both the billing and claims systems are being
                              upgraded; scheduled compliance by the end of third
                              quarter 1999.
          Conversion:         Converting the entire system to the Resource
                              Information Management System, version 2.7
                              ("RIMS"), which is Year 2000 compliant. Conversion
                              scheduled for completion by mid-year 2000.

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

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

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

          Hardware:           Current operating system is under review;
                              scheduled compliance by the end of third quarter
                              1999.
          Software:           Claims and billing systems are currently Year 2000
                              compliant.
          Conversion:         Converting entire system to RIMS, which is Year
                              2000 compliant. Conversion scheduled for
                              completion by year-end 2000.

     Costs to Address the Year 2000 Issue. Anchor's team is working to complete
     ------------------------------------
programming efforts for the Year 2000 related projects by September 30, 1999,
with final certification testing occurring during 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
not expected to be material to the company's financial position. The estimated
total cost of the Year 2000 Project is expected to not exceed $250,000.

                                       14
<PAGE>

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

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


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 filing. Statements in this Quarterly
Report, particularly in the Notes to Financial Statements, Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations and
Year 2000 Update, describe certain factors, among others, that could contribute
to or cause such differences. Such forward-looking statements involve risks and
uncertainties, and actual results could differ from those described herein.
While the statements represent management's current judgment as to the near-term
future prospects of its business, such risks and uncertainties could cause
actual results to differ from the above statements. Factors which could cause
actual results to differ include the following: Harden Group's relationship with
new insurance carriers and marketing partners and their ability to effectively
provide third-party administration services; controlling operating costs; the
impact of competitive products, pricing and services; the availability of
capital to finance current operations and future expansion; the cyclical nature
of the health insurance markets; and unanticipated regulatory changes. Other
risk factors are detailed in Anchor's filings with the Securities and Exchange
Commission. Anchor assumes no obligation to update forward-looking statements.

Strategy

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

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

                                       15
<PAGE>

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

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

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

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

Item 2.  Changes in Securities

None.

Item 3.  Defaults Upon Senior Securities

None.

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

None.

Item 5.  Other Information

None.

Item 6.  Exhibits and Reports on Form 8-K

A.   Exhibits

10.35     Business Loan Agreement dated April 29, 1999, 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.


                              ANCHOR PACIFIC UNDERWRITERS, INC.



Date:  August 6, 1999         /s/ James R. Dunathan
       ------------------     -------------------------------------------------
                              James R. Dunathan
                              President and Chief Executive Officer



Date:  August 6, 1999         /s/ Earl Wiklund
       ------------------     -------------------------------------------------
                              Earl Wiklund
                              Senior Vice President and Chief Financial Officer

                                       17