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

                                  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 PERIOD ENDED JUNE 30, 2005

                                       OR

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

                                       TO

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

                         COMMISSION FILE NUMBER 0-11453

                     AMERICAN PHYSICIANS SERVICE GROUP, INC.
             (Exact name of registrant as specified in its charter)


                 TEXAS                                 75-1458323
     (State or other jurisdiction of                (I.R.S. Employer
      incorporation or organization)                identification No.)


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

                                 (512) 328-0888
              (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d ) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

YES     X         NO
     -------         -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

                                NUMBER OF SHARES
                                 OUTSTANDING at
       TITLE OF EACH CLASS                           JULY 20, 2005
       --------------------                         ----------------
   Common Stock, $.10 par value                         2,677,233

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





                                     PART I

                              FINANCIAL INFORMATION


                                       2






                    AMERICAN PHYSICIANS SERVICE GROUP, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

(In thousands, except per share data)

Item 1 - Financial Statements


                                                              Three Months Ended                         Six Months Ended
                                                                     June 30,                                  June 30,
                                                             2005                2004                    2005            2004
                                                          ---------          ----------              ----------       ---------
Revenues:
                                                                                                               
Financial services                                          $3,698              $4,227                  $6,965          $8,059
Insurance services                                           3,335               3,068                   6,730           6,526
                                                            ------              ------                  ------           -----

   Total revenues                                            7,033               7,295                  13,695          14,585

Expenses:
Financial services                                           3,270               3,660                   6,220           6,901
Insurance services                                           2,422               2,380                   4,925           5,002
General and administrative                                     722                 555                   1,389           1,068
Gain on sale of assets (Note 4)                                (49)                (44)                    (84)            (56)
                                                            ------              ------                 -------          ------

   Total expenses                                            6,365               6,551                  12,450          12,915
                                                            ------              ------                 -------          ------

Operating income                                               668                 744                   1,245           1,670
Gain on sale of investments (Note 5)                         1,346                 218                   1,976             245
Loss on impairment of investment (Note 6)                      (57)                  -                     (96)              -
Gain on extinguishment of debt (Note 7)                          -                  12                       -              75
                                                            ------              ------                 -------          ------

Income from continuing operations before interest,
  income taxes and minority interest                         1,957                 974                   3,125           1,990

Interest income                                                125                  72                     247             155
Other income                                                    29                  26                      84              18
Interest expense                                                 -                   2                       4               2
Income tax expense                                             742                 381                   1,219             778
Minority interests                                               2                   -                      13               -
                                                            ------              ------                 -------          ------

    Net income                                              $1,367                $689                  $2,220          $1,383
                                                           =======              ======                 =======         =======




The accompanying notes are a integral part of these consolidated financial
statements.

                                      - 3 -


                     AMERICAN PHYSICIANS SERVICE GROUP, INC.
           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS, continued
                                   (Unaudited)


(In thousands, except per share amounts)

                                   Three Months Ended        Six Months Ended
                                        June 30,                 June 30,
                                    ----------------         -----------------
                                    2005       2004          2005         2004
                                    ----       ----          ----         ----
Net income per common share

Basic:

  Income from operations           $ 0.51     $ 0.28         $ 0.84      $ 0.56
                                     ----       ----           ----        ----
    Net income                     $ 0.51     $ 0.28         $ 0.84      $ 0.56
                                     ====       ====           ====        ====

Diluted:

  Income from operations           $ 0.48     $ 0.25         $ 0.77      $ 0.49
                                     ----       ----           ----        ----
    Net income                     $ 0.48     $ 0.25         $ 0.77      $ 0.49
                                     ====       ====           ====        ====


Basic weighted average shares
    outstanding                     2,656      2,505          2,649       2,489
                                    =====      =====          =====       =====
Diluted weighted average
    shares outstanding              2,876      2,791          2,892       2,802
                                    =====      =====          =====       =====





See accompanying notes to condensed consolidated financial statements. 

                                      - 4 -




                     AMERICAN PHYSICIANS SERVICE GROUP, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                  (Unaudited)


(In thousands)



                                                                      June 30,                   December 31,
                                                                        2005                         2004
                                                                    ------------                -------------
ASSETS

Current Assets:
                                                                                                 
  Cash and cash equivalents                                             $6,059                      $9,673
  Trade receivables, net                                                     8                          19
  Notes receivable - current                                             1,072                         777
  Management fees and other receivables                                    917                       1,815
  Deposit with clearing organization                                       660                         660
  Investment in available-for-sale fixed
    income securities - current                                          5,451                       1,983
  Net deferred income tax asset                                            112                         124
  Income tax receivable                                                     69                          76
  Prepaid expenses and other                                               777                         642
                                                                    ------------                -----------
      Total current assets                                              15,125                      15,769


Notes receivable, less current portion                                     338                         141
Property and equipment, net                                                686                         619
Investment in available-for-sale equity
  securities (Notes 5 and 8)                                             7,558                       9,417
Investment in available-for-sale fixed
  income securities - non-current                                        3,643                       2,920
Goodwill                                                                 1,247                       1,247
Other assets                                                               267                         330
                                                                    ------------                -----------

Total Assets                                                           $28,864                     $30,443
                                                                    ============                ===========






The accompanying notes are an integral part of these consolidated financial
statements.

                                      - 5 -


                     AMERICAN PHYSICIANS SERVICE GROUP, INC.
                CONDENSED CONSOLIDATED BALANCE SHEETS, continued
                                  (Unaudited)

(In thousands, except share data)



                                                                                     June 30,               December 31,
                                                                                       2005                     2004
                                                                                   ------------            ------------
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
                                                                                                           
  Accounts payable                                                                        $226                    $266
  Accrued incentive compensation                                                           846                   2,500
  Accrued expenses and other liabilities (Note 10)                                       1,179                   1,842
  Deferred gain - current                                                                  488                     488
                                                                                      --------                --------
      Total current liabilities                                                          2,739                   5,096

Payable under loan participation agreements                                                 24                      24
Deferred tax liability - non-current                                                        15                     482
Deferred gain - non-current                                                                305                     627
                                                                                      --------                --------
      Total liabilities                                                                  3,083                   6,229

Minority interests                                                                          14                       1
Commitments and contingencies (Note 3)

Shareholders' Equity:
  Preferred stock, $1.00 par value, 1,000,000
    shares authorized, none issued or outstanding                                          --                       --
  Common stock, $0.10 par value, shares authorized 20,000,000;
    2,677,233 and 2,646,646 issued and outstanding
    at 06/30/05 and 12/31/04, respectively                                                 268                     265
  Additional paid-in capital                                                             7,695                   7,919
  Retained earnings                                                                     16,168                  13,948
  Accumulated other comprehensive income,
     net of taxes                                                                        1,636                   2,081
                                                                                      --------                --------
      Total shareholders' equity                                                        25,767                  24,213
                                                                                      --------                --------

Total Liabilities and Shareholders' Equity                                             $28,864                 $30,443
                                                                                      ========                ========







The accompanying notes are an integral part of these consolidated financial
statements.

                                      - 6 -



                     AMERICAN PHYSICIANS SERVICE GROUP, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)



                                                                                           Six Months Ended June 30,

                                                                                            2005                 2004
                                                                                         ---------            ----------
Cash flows from operating activities:

                                                                                                            
     Net Income                                                                            $ 2,220            $ 1,383
     Adjustments to reconcile net income to cash
        used in operating activities:
           Depreciation and amortization                                                       166                151
           Extinguishment of debt and other                                                    132                (33)
           Common stock awarded                                                                159                 --
           Gain on sale of assets                                                              (84)               (56)
           Deferred gain on sale of building                                                  (244)              (244)
           Gain on sale of investment                                                       (1,976)              (245)
           Impairment of investment                                                             96                 --
     Changes in operating assets and liabilities:
           Trade receivables                                                                    11                 --
           Trading account securities                                                           --                (19)
           Income tax receivable                                                               (52)               224
           Deferred income tax                                                                (226)               218
           Receivable from clearing organization                                                --               (143)
           Management fees & other receivables                                                 898                193
           Prepaid expenses & other assets                                                    (135)              (210)
           Trade payables                                                                      (40)               (14)
           Accrued expenses & other liabilities                                             (2,092)            (1,491)
                                                                                           --------           ---------
              Net cash used in operating activities                                         (1,167)              (286)

Cash flows from investing activities:
     Capital expenditures                                                                     (171)              (267)
     Proceeds from the sale of available-for-sale equity
        and fixed income securities                                                          4,175              1,116
     Purchase of available-for-sale equity securities                                       (5,281)            (2,196)
     Funds loaned to others                                                                   (770)              (370)
     Collection of notes receivable                                                            146                 --
                                                                                           --------           --------
              Net cash used in  investing activities                                        (1,901)            (1,717)

Cash flows from financing activities:
     Exercise of stock options                                                                 568                693
     Purchase and cancellation of treasury stock                                            (1,114)              (410)
                                                                                           --------           --------
              Net cash provided by (used in) financing activities                             (546)               283

Net change in cash and cash equivalents                                                   $ (3,614)          $ (1,720)

Cash and cash equivalents at beginning of period                                             9,673              8,989
                                                                                         ----------         ----------
Cash and cash equivalents at end of period                                                 $ 6,059            $ 7,269
                                                                                         ==========         ==========




     The accompanying notes are an integral part of these consolidated financial
statements.

                                     - 7 -




                     AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE 
                                 INCOME (LOSS)
            For the six months ended June 30, 2004 and June 30, 2005
                                      
(In thousands)



                                                                                           Accumulated
                                                 Additional                                   Other                      Total
                                       Common     Paid-In     Retained    Comprehensive    Comprehensive    Treasury   Shareholders'
                                       Stock      Capital     Earnings    Income (loss)    Income (loss)     Stock       Equity
                                    ------------------------------------------------------------------------------------------------
Balance December 31, 2003 (audited)   $ 245      $ 6,918      $ 12,314        $ --            $ (371)         $ --       $ 19,106
                                    ------------------------------------------------------------------------------------------------
Comprehensive income:
                                                                                                        
  Net income                           --           --          1,383         $1,383             --            --          1,383
  Other comprehensive income:
    Unrealized gain on  securities,
    net of taxes of $155               --           --            --              71             71            --             71
                                                                             --------
Comprehensive income:                  --           --            --          $1,454             --            --             --
                                                                             ========
Treasury stock purchase                --           --            --                             --          (410)          (410)
Stock options exercised                13          680            --                             --            --            693
Cancelled treasury stock               (4)        (406)           --                             --           410             --
Forgiveness of Uncommon Care Debt      --           --            60                             --            --             60
                                    ------------------------------------------------------------------------------------------------
Balance June 30, 2004 (unaudited)    $ 254      $ 7,192     $ 13,756           $ --           $ (300)        $ --       $ 20,902
                                    ================================================================================================


Balance December 31, 2004 (audited)  $ 265      $ 7,919     $ 13,948           $ --           $ 2,081       $ --        $ 24,213
                                    ------------------------------------------------------------------------------------------------
Comprehensive income:
  Net income                            --           --        2,220         $ 2,220              --          --          2,220
  Other comprehensive income:
    Unrealized loss on securities,
    net of taxes of $229                --           --           --            (445)            (445)        --           (445)
                                                                               -----

Comprehensive income:                   --           --           --         $ 1,775               --         --             --
                                                                             ========
Stock options exercised                 11          557           --                               --         --            568
Tax benefit from exercise
  of stock options                      --          166           --                               --         --            166
Treasury stock purchase                 --           --           --                               --       (1,114)       (1,114)
Cancelled treasury stock                (9)       (1,105)                                          --        1,114           --
Stock awarded                            1          158           --                               --         --            159
                                    ------------------------------------------------------------------------------------------------
Balance June 30, 2005 (unaudited)    $ 268      $ 7,695       $16,168          $ --            $ 1,636      $ --        $ 25,767
                                    ================================================================================================
                                                       

The accompanying notes are an integral part of these consolidated financial
statements


                                     - 8 -


                  AMERICAN PHYSICIANS SERVICE GROUP, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2005
                                   (Unaudited)


1.  GENERAL

         The accompanying unaudited condensed consolidated financial statements
have been prepared in conformity with accounting principles generally accepted
in the United States of America and pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to such rules and regulations. The consolidated
financial statements for the six months ended June 30, 2005 and 2004 reflect all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the financial position, results of operations and cash flows for
the periods presented. Such adjustments consist of only items of a normal
recurring nature. These consolidated financial statements have not been audited
by our independent registered public accounting firm. The operating results for
the interim periods are not necessarily indicative of results for the full
fiscal year.

         The notes to consolidated financial statements appearing in our Annual
Report on Form 10-K for the year ended December 31, 2004 filed with the
Securities Exchange Commission should be read in conjunction with this Quarterly
Report on Form 10-Q. There have been no significant changes in the information
reported in those notes other than from normal business activities.

         Certain reclassifications have been made to amounts in prior periods to
be consistent with the 2005 presentation.

2.  MANAGEMENT'S ESTIMATES

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

3.  CONTINGENCIES

         The Internal Revenue Service ("the IRS") has examined our federal
income tax return for the year ended December 31, 2003. On April 13, 2005 we
received notification that the IRS disagreed with the timing of bad debt
expenses deducted for tax purposes in 2003 related to worthless loans
receivable. As discussed in our Form 10-Q for the period ended March 31, 2005,




                                      - 9 -


we disputed the IRS' position and made no provision in the first quarter of 2005
for interest on the perceived underpayment in the 2003 year, which would have
been approximately $82,000. On July 13, 2005 we received notification from the
IRS informing us that they will allow our 2003 bad debt deduction and that no
penalty or interest will be charged.

         We are involved in various claims and legal actions that have arisen in
the ordinary course of business. Management believes that any liabilities
arising from these actions will not have a significant adverse effect on our
financial condition or results of operations.

4.  GAIN ON SALE OF ASSETS

         During the six months ended June 30, 2005, we recognized $244,000 of
deferred gain related to the November 2001 sale and subsequent leaseback of real
estate to Prime Medical (now called HealthTronics, Inc.). Due to our continuing
involvement in the property, we deferred recognizing approximately $2,400,000 of
the approximately $5,100,000 gain and are recognizing it in earnings, as a
reduction of rent expense, monthly through November 2006. A total of $691,000
remains to be recognized in the coming seventeen months. In addition, 15% of the
gain ($760,000) related to our then 15% ownership in the purchaser, was
deferred. As our ownership percentage in HealthTronics declines through our
sales of HealthTronics common stock, we recognize these gains proportionately to
our reduction of our interest in HealthTronics. During the first six months of
2005 we recognized $84,000 of these deferred gains, leaving a balance of
approximately $96,000 remaining to be recognized.

5.  GAIN ON SALE OF INVESTMENTS

         The gains resulted primarily from the sales of available-for-sale
equity and fixed income securities. During the three and six month periods ended
June 30, 2005, we received net cash proceeds of approximately $3,021,000 and
$4,175,000, respectively, and recognized gains of $1,346,000 and $1,977,000,
respectively, resulting from these sales.

6.  LOSS ON IMPAIRMENT OF INVESTMENT

         On June 4, 2003 we purchased from Financial Industries Corporation
("FIC")(OTC: FNIN.PK) and a foundation 339,879 shares of FIC's common stock as
an investment. Earlier in 2003 we had purchased 45,121 FIC shares in the open
market. The 385,000 shares represent an approximate 4% ownership in FIC. The
aggregate purchase price was approximately $5,647,000, which was all sourced
from our cash reserves. The shares purchased from FIC and the foundation are not
registered, but are subject to a registration rights agreement requiring FIC's
best efforts to register them within one year of the transaction. Due to FIC's
delay in filing its 2003 Form 10-K and its subsequent 10-Q's and 10-K, it has
not been able to register these shares and was delisted from the NASDAQ exchange
in July, 2004.






                                     - 10 -


         During 2004, the value of our investment in FIC had declined
significantly. On October 12, 2004, we determined that this decline in market
price should be considered "other than temporary" as defined in Statements of
Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities, as amended. Consequently, we recorded
pretax charges to earnings totaling $2,567,000 during the third and fourth
quarters of 2004. These charges reduced our cost basis in FIC from $5,647,000,
or $14.67 per share, to $3,080,000, or $8.00 per share which was equal to the
quoted market price of FIC shares on December 31, 2004. As discussed in our Form
10-K dated Decmber 31, 2004, we believe the decline in the market price of FIC
has been brought about by its failure to file its 2003 Form 10-K and its
subsequent de-listing from the NASDAQ Stock Market. We had expected FIC to bring
its filings current and pursue restoring its exchange listing by March 31, 2005.
These events have not yet occurred. As a result, we chose to take an additional
pretax charge to earnings during the first quarter of 2005 of $39,000, further
reducing our cost basis in FIC to $3,042,000, or $7.90 per share which was equal
to the quoted market price of FIC shares on March 31, 2005. While we currently
continue to have the ability and the intent to hold the stock indefinitely, we
concluded that the additional uncertainty created by the late filings together
with the lack of current financial information dictated that the decline should
be viewed as other than temporary. No additional charge to earnings resulting
from the FIC investment was taken during 2nd quarter of 2005 as FIC's price per
share had risen to $8.00 at June 30, 2005. This second quarter market value
increase resulted in an increase to our investment in available-for-sale equity
securites of $38,500, an increase in accumulated other comprehensive income of
$25,400 and an increase in non-current deferred tax liability of $13,100.

         In April 2004 we purchased $300,000 of Toys R Us bonds. In March, 2005
Toys R Us announced a plan of merger with another toy company and a planned
leveraged buyout which precipitated a drop in the price of the bonds. An
independent analysis indicated that the new debt to be issued will put the
existing bonds in a subordinated position. Since these bonds have a 2018
maturity, we believe that the impairment is "other than temporary" during our
shorter expected holding period. Consequently, we wrote a charge against
earnings of $57,000 using the quoted price of the bonds as of June 30, 2005. We
will continue to monitor and evaluate the situation at Toys R Us and further
determine if changes in fair market value of the investment are temporary or
"other than temporary".


7.  GAIN ON FORGIVENESS OF DEBT

         We recorded $12,000 and $75,000 during the three and six months ended
June 30, 2004, respectively, as gain on forgiveness of debt. None was recorded
in either period during 2005. The 2004 gain represents that amount of liability
that was released in the respective period by participants in our loan to an
affiliate, net of $15,000 interest due them from prior period payments made by
Uncommon Care. Due to poor operating results, Uncommon Care was in default and
not making scheduled payments under its loan agreement with us in which the
participations had been sold. As a result, the loan participants released us
from any obligations under the participation agreements. No further releases of
the remaining $24,000 were obtained during 2005.




                                     - 11 -


8.  INVESTMENT IN AVAILABLE-FOR-SALE EQUITY SECURITIES 

         A significant portion of this balance sheet account is comprised of our
investment in FIC common stock. As mentioned in Footnote 6 above, during the
first quarter of 2005, we recognized another "other than temporary" impairment
loss and, accordingly, our cost basis in the 385,000 shares of FIC common stock
we own was reduced from $8.00 per share to $7.90 per share. The effect of the
first quarter of 2005 "other than temporary" impairment loss of $39,000 was to
reclassify from accumulated other comprehensive income the unrealized losses to
realized losses in the statement of operations.The price has subsequently risen
back to $8.00 per share at June 30, 2005 but no recovery income was recorded in
earnings during the second quarter of 2005 and our basis remains at $7.90 per
share. As mentioned earlier, this second quarter market value increase resulted
in a net-of-tax increase to accumulated other comprehensive income of $25,400.
We classify all of these shares as securities available-for-sale and record
temporary unrealized changes in their value, net of tax, in our balance sheet as
part of Accumulated Other Comprehensive Income (Loss) in Stockholders' Equity.

         As part of this transaction we were granted options to purchase an
additional 323,000 shares of FIC's common stock at $16.42 per share. There is a
significant revenue-related performance requirement that must be met before
these options are exercisable. There are presently no registered FIC shares
available to issue upon the exercise of these options. We have assigned no value
to these options.


9.  INVESTMENT IN AVAILABLE-FOR-SALE FIXED INCOME SECURITIES

         We have invested primarily in U.S. government-backed securities with
maturities varying from one to three years, as well as three corporate bonds
with Standard and Poor's ratings of no lower than B (investment grade).


10.  ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities consists of the following:

                                       June 30             December 31
                                         2005                  2004
                                      ---------             ----------          
Commissions payable                   $ 750,000            $ 1,260,000
Taxes payable                            97,000                205,000
Vacation                                153,000                153,000
401(k) plan matching                    128,000                169,000
Other accrued liabilities                51,000                 55,000 
                                      ----------            -----------
                                     $1,179,000            $ 1,842,000
                                      ==========            ===========




                                     - 12 -


11.  NET INCOME PER SHARE

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

                                     For the Three Months Ended June 30, 2005   
                                   -------------------------------------------
                                       Income           Shares         Per Share
                                     (Numerator)     (Denominator)      Amount
                                     -----------      -----------      --------
Basic EPS
  Net income                         $1,367,000         2,656,000       $ 0.51
                                                                        ======

Diluted EPS
  Effect of dilutive securities              --           220,000
                                     -----------        ----------

  Net income                         $1,367,000         2,876,000       $ 0.48
                                     ===========        ==========      =======




                                     For the Three Months Ended June 30, 2004   
                                   -------------------------------------------
                                       Income           Shares         Per Share
                                     (Numerator)     (Denominator)      Amount
                                     ----------       -----------      --------
Basic EPS
  Net income                          $ 689,000         2,505,000       $ 0.28
                                                                        ======

Diluted EPS
  Effect of dilutive securities              --           286,000
                                      ----------        ----------

  Net income                          $ 689,000         2,791,000        $ 0.25
                                      ==========        ==========       ======







                                     - 13 -


                                      For the Six Months Ended June 30, 2005    
                                    -----------------------------------------
                                       Income          Shares         Per Share
                                     (Numerator)    (Denominator)      Amount
                                     ----------      -----------       --------
Basic EPS
  Net income                         $2,220,000        2,649,000         $ 0.84
                                                                         ======

Diluted EPS
  Effect of dilutive securities              --          243,000
                                      ----------       ----------

  Net income                         $2,220,000        2,892,000         $ 0.77
                                      ==========       ==========        ======




                                      For the Six Months Ended June 30, 2004    
                                    -----------------------------------------
                                       Income          Shares         Per Share
                                     (Numerator)    (Denominator)       Amount
                                     ----------      -----------      ---------
Basic EPS
  Net income                         $1,383,000       2,489,000          $ 0.56
                                                                         ======

Diluted EPS
  Effect of dilutive securities              --         313,000
                                     -----------      ----------

  Net income                         $1,383,000       2,802,000          $ 0.49
                                     ===========      ==========         ======



12.    SEGMENT INFORMATION

The Company's segments are distinct by type of service provided. Comparative
financial data for the three and six month periods ended June 30, 2005 and 2004
are shown as follows:

                                                 Three months ended June 30,
                                                    2005               2004    
                                                  --------          ---------- 
 Operating Revenue:                                       
   Financial services                           $ 3,698,000        $ 4,227,000
   Insurance services                             3,335,000          3,068,000
                                                -----------         -----------
 Total Segment Revenues                         $ 7,033,000        $ 7,295,000
                                                ===========         ===========







                                     - 14 -


                                                 Three months ended June 30,
                                                     2005            2004 
                                               -------------------------------

Operating Income
  Financial services .........................   $   428,000    $   567,000
  Insurance services .........................       913,000        688,000
  Corporate ..................................      (673,000)      (511,000)
                                                   ----------     ----------
Total segments operating income ......               668,000        744,000

Gain on sale of  investments ..............        1,346,000        218,000
Loss on impairment of investment ..........          (57,000)            --
Gain on extinguishment of debt ............               --         12,000
                                                   ----------     ----------

Income from operations before interest
  income taxes and minority interest .....         1,957,000        974,000

Interest income ...........................          125,000         72,000
Other gain ................................           29,000         26,000
Interest expense ..........................               --          2,000
Income tax expense ........................          742,000        381,000
Minority interest .........................            2,000             --
                                                  ----------     ----------

Net income ..............................        $ 1,367,000      $ 689,000
                                                  ===========     ==========





                                                Six months ended June 30,
                                                   2005            2004 
                                               ------------    ------------
Operating Revenue:

    Financial services ...................     $  6,965,000    $  8,059,000
    Insurance services ...................        6,730,000       6,526,000
    Corporate ............................               --       1,600,000
                                               ------------    ------------
         Total Segment Revenues .........      $ 13,695,000    $ 16,185,000
                                               ============    ============

Reconciliation to Consolidated
  Statement of Operations:
    Total segment revenues ................... $ 13,695,000    $ 16,185,000
    Less: Intercompany dividends .............           --      (1,600,000)
                                               ------------    ------------
          Total Revenues ....................  $ 13,695,000    $ 14,585,000
                                               ============    ============






                                     - 15 -


                                                  Six months ended June 30,
                                                    2005            2004 
                                                 -----------    ------------
Operating Income                    
   Financial services .....................      $ 745,000      $ 1,158,000
   Insurance services ....................       1,805,000        1,524,000
   Corporate .............................      (1,305,000)      (1,012,000)
                                                -----------      -----------
Total segments operating income ..........       1,245,000        1,670,000

Gain on sale of  investments .............       1,976,000          245,000
Loss on impairment of investment .........         (96,000)              --
Gain on extinguishment of debt .............            --           75,000
                                                ----------       ----------

Income from operations before interest
   income taxes and minority interest ......     3,125,000       1,990,000

Interest income ..............................     247,000         155,000
Other gain ...................................      84,000          18,000
Interest expense .............................       4,000           2,000
Income tax expense ...........................   1,219,000          78,000
Minority interest ...........................       13,000              --
                                                 ---------       ---------
Net income ................................... $ 2,220,000     $ 1,383,000
                                               ===========     ===========





13.    STOCK-BASED COMPENSATION



         We have adopted the disclosure-only provisions of Statement of
Accouting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS
123"), as amended by SFAS 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure", but measure compensation expense for our stock-based
employee compensation plans using the intrinsic value method prescribed by APB
Opinion No. 25, Accounting for Stock Issued to Employees. Proforma disclosures
of net income and earnings per share as if the fair value-based method
prescribed by SFAS 123 had been applied in measuring compensation expense
follow. For purposes of the proforma disclosures, the estimated fair value of
the options is amortized to expense over the option's vesting periods.





                                     - 16 -



                                                   Three Months Ended June 30,
                                                       2005            2004
                                                   -----------     -----------

Net income as reported .........................   $ 1,367,000      $  689,000

Deduct: Total additional stock-based employee
  compensation expense determined under
  fair value based method for all awards,
  net of related tax effects ..................       (82,000)        (87,000)
                                                    ----------      ----------

Pro forma net income ..........................   $ 1,285,000       $ 602,000
                                                   ===========      ==========

Net income per share
         Basic - as reported .................        $  0.51         $  0.28
                                                      =======         =======
         Basic - pro forma ....................       $  0.48         $  0.24
                                                      =======         =======
         Diluted - as reported ................       $  0.48         $  0.25
                                                      =======         =======
         Diluted - pro forma ..................       $  0.45         $  0.22
                                                      =======         =======





                                                     Six Months Ended June 30,
                                                        2005           2004
                                                    -----------   ------------

Net income as reported ..........................   $ 2,220,000   $  1,383,000

Deduct: Total additional stock-based employee
  compensation expense determined under
  fair value based method for all awards,
  net of related tax effects ....................      (134,000)      (173,000)
                                                     -----------   ------------

Pro forma net income ............................   $ 2,086,000   $  1,210,000
                                                     ===========   ============

Net income per share
         Basic - as reported ....................       $  0.84       $  0.56
                                                        =======       ========
         Basic - pro forma ......................       $  0.79       $  0.49
                                                        =======       ========
         Diluted - as reported ..................       $  0.77       $  0.49
                                                        =======       ========
         Diluted - pro forma ....................       $  0.72       $  0.43
                                                        =======       ========







                                     - 17 -


14.    RECENT ACCOUNTING PRONOUNCEMENTS

         In December 2004, the FASB issued SFAS 153, Exchanges of Nonmonetary
Assets, an amendment of APB No. 29, Accounting for Nonmonetary Transactions.
SFAS 153 requires exchanges of productive assets to be accounted for at fair
value, rather than at carryover basis, unless (1) neither the asset received nor
the asset surrendered has a fair value that is determinable within reasonable
limits or (2) the transactions lack commercial substance. SFAS 153 is effective
for nonmonetary asset exchanges occurring in fiscal periods beginning after June
15, 2005. The Company does not expect the adoption of this standard to have a
material effect on its financial position, results of operations or cash flows.

         In December 2004, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards, or SFAS, No. 123 (revised 2004),
"Share-Based Payment". Statement 123(R) will provide investors and other users
of financial statements with more complete and neutral financial information by
requiring that the compensation cost relating to share-based payment
transactions be recognized in financial statements. That cost will be measured
based on the fair value of the equity or liability instruments used. Statement
123(R) covers a wide range of share-based compensation arrangements including
share options, restricted share plans, performance-based awards, share
appreciation rights, and employee share purchase plans. Statement 123(R)
replaces FASB Statement No. 123, Accounting for Stock-Based Compensation, and
supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees.
Statement 123, as originally issued in 1995, established as preferable a
fair-value-based method of accounting for share-based payment transactions with
employees. However, that Statement permitted entities the option of continuing
to apply the guidance in Opinion 25, as long as the footnotes to financial
statements disclosed what net income would have been had the preferable
fair-value-based method been used. Public entities (other than those filing as
small business issuers) will be required to apply Statement 123(R) as of the
first interim or annual reporting period that begins after December 31, 2005. We
are currently evaluating the effect of adoption of SFAS 123(R) will have on our
overall results of operations and financial position





                                     - 18 -

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Forward-Looking Statements

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

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

GENERAL

         We provide (1) financial services, including brokerage and investment
services to individuals and institutions, and (2) insurance services, including
management and agency services to medical malpractice insurance companies.

FINANCIAL  SERVICES.  We provide  investment and investment  advisory  services 
to institutions  and individuals  throughout the United States through the 
following subsidiaries:



                                     - 19 -


   o   APS FINANCIAL. APS Financial is a fully licensed broker/dealer that
       provides brokerage and investment services primarily to institutional and
       high net worth individual clients. APS Financial also provides portfolio
       accounting, analysis, and other services to insurance companies, banks
       and public funds. We recognize commissions revenue, and the related
       compensation expense, on a trade date basis.

   o   ASSET MANAGEMENT. Asset Management manages fixed income and equity assets
       for institutional and individual clients on a fee basis. We recognize fee
       revenues monthly based on the amount of funds under management.


INSURANCE SERVICES. Through Insurance Services we provide management and agency
services to medical malpractice insurance companies through the following
subsidiary:

   o     FMI. APS Facilities Management, Inc., dba APMC Insurance Services,
         Inc., or FMI, provides management and administrative services to APIE,
         a regional insurance exchange that sells medical professional liability
         insurance only to its physician subscribers, who pay annual insurance
         premiums and maintenance fees to APIE. APIE is governed by a physician
         board of directors. Pursuant to a management agreement and the
         direction of this board, FMI manages and operates APIE, including
         performing policy issuance, claims investigation and settlement, and
         all other management and operational functions. As a management fee,
         FMI receives a percentage of APIE's earned premiums and a portion of
         APIE's profit, subject to a cap based on premium levels. We recognize
         revenues for the management fee portion based on a percentage of earned
         premium on a monthly basis, and we recognize revenues for the
         management fee portion based on profit sharing in the fourth quarter,
         when it is certain the managed company will have an annual profit.
         FMI's assets are not subject to APIE policyholder claims.

         In addition, as of June 30, 2005, we have the following significant
investments accounted for as available-for-sale securities: (1) we own
approximately 296,000 shares of HealthTronics (formerly Prime Medical) common
stock, representing about 1% of its outstanding common stock, and (2) we own
385,000 shares of Financial Industries Corporation, representing approximately
4% of its outstanding common stock. We account for these investments as
available-for-sale securities, which means they are reflected on our
consolidated balance sheets at fair value, and fluctuations in fair value are
recognized as unrealized gains or losses excluded from earnings and reported as
a separate component of stockholders' equity, net of income taxes.




                                     - 20 -


CRITICAL ACCOUNTING POLICIES AND ESTIMATES

         The preparation of our consolidated financial statements requires us to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses. On an on-going basis, we evaluate our
estimates, including those related to, impairment of assets; bad debts; income
taxes; and contingencies and litigation. We base our estimates on historical
experience and on various other assumptions that we believe to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.

         We believe the following critical accounting policies and estimates
affect our more significant judgments and estimates used in the preparation of
our consolidated financial statements. We periodically review the carrying value
of our assets to determine if events and circumstances exist indicating that
assets might be impaired. If facts and circumstances support this possibility of
impairment, our management will prepare undiscounted and discounted cash flow
projections, which require judgments that are both subjective and complex.
Management may also obtain independent valuations.

         Our financial services revenues are composed primarily of commissions
on securities trades and asset management fees. Revenues related to securities
transactions are recognized on a trade date basis. Asset management fees are
recognized as a percentage of assets under management during the period based
upon the terms of agreements with the applicable customers.

         Our insurance service revenues related to management fees are
recognized monthly at 13.5% of the earned premiums of the managed company. We
also share equally any profits of the managed company, to a maximum of 3% of the
earned insurance premiums. Any past losses of the managed company are carried
forward and applied against earnings before any profits are shared. The profit
sharing component is recorded in the fourth quarter based on the audited
financial results of the managed company.

          On June 4, 2003 we purchased from Financial Industries Corporation
("FIC")(OTC: FNIN.PK) and a foundation 339,879 shares of FIC's common stock as
an investment. Earlier in 2003 we had purchased 45,121 FIC shares in the open
market. The 385,000 shares represent an approximate 4% ownership in FIC. The
aggregate purchase price was approximately $5,647,000, which was all sourced
from our cash reserves. The




                                     - 21 -


shares purchased from FIC and the foundation are not registered, but are subject
to a registration rights agreement requiring FIC's best efforts to register them
within one year of the transaction. Due to FIC's delay in filing its 2003 Form
10-K and its subsequent 10-Q's and 10-K, it has not been able to register these
shares and was de-listed from the NASDAQ exchange in July, 2004.

         During 2004, the value of our investment in FIC had declined
significantly. On October 12, 2004, we determined that this decline in market
price should be considered "other than temporary" as defined in Statements of
Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities, as amended. Consequently, we recorded
a pretax charge to earnings of $2,567,000 in 2004. The charge reduced our cost
basis in FIC from $5,647,000, or $14.67 per share, to $3,080,000, or $8.00 per
share which was equal to the quoted market price of FIC shares on December 31,
2004. As discussed in our Form 10-K dated December 31, 2004, we believe the
decline in the market price of FIC had been brought about by its failure to file
its 2003 Form 10-K and its subsequent de-listing from the NASDAQ Stock Market.
We had expected FIC to bring its filings current and pursue restoring its
exchange listing during 2004. These events have not yet occurred. As a result,
we recorded an additional pretax charge to earnings of $39,000 in the first
quarter of 2005. The charge reduced our cost basis in FIC from $3,080,000, or
$8.00 per share, to $3,041,000, or $7.90 per share which was equal to the quoted
market price of FIC shares on March 31, 2005. While we currently continue to
have the ability and the intent to hold the stock indefinitely, we concluded
that the additional uncertainty created by the late filings together with the
lack of current financial information dictated that the decline should be viewed
as other than temporary. We will continue to closely monitor FIC's situation. No
additional charge was necessary in the second quarter of 2005 as the quoted
market price of FIC shares had risen to $8.00 on June 30, 2005.

RESULTS OF OPERATIONS

REVENUES

         Revenues from operations decreased $262,000 (4%) and $890,000 (6%) in
the three and six month periods ended June 30, 2005, respectively, compared to
the same periods in 2004. Our income from operations before interest, income
taxes and minority interest increased $983,000 (101%) and $1,135,000 (57%) in
the current year three and six months, respectively, compared to the same
periods in 2004. Our net income increased $678,000 (98%) and $837,000 (61%) in
the current year three and six months, respectively, compared to the same
periods in 2004. Lastly, our diluted net income per share increased $0.23 (92%)
and $0.28 (57%) in the current year three and six months, respectively, compared
to the same periods in 2004. The reasons for these changes are described below.


                                     - 22 -


FINANCIAL SERVICES

         Our financial services revenue decreased $529,000 (13%) and $1,094,000
(14%) in the three and six month periods ended June 30, 2005, respectively,
compared to the same periods in 2004. Lower commission revenues were earned at
APS Financial, the broker/dealer, which derives most of its revenue from
transactions in the fixed income market, in both investment and non-investment
grade securities. During the second quarter of 2005 our revenue in the
investment grade sector was the hardest hit as the investment climate for bonds
continued to be soft. The Federal Reserve has raised rates four times since the
beginning of the year, a total of 100 basis points. This continues the trend
started in June 2004, since which the Fed has raised rates nine times for a
total of 225 basis points. The resulting increase in bond yields causes a
decrease in bond prices and a subsequent decline in trading volume. Inflationary
pressures continued to be aggravated by rising oil prices which set a new record
high in June, rising to over $60 per barrel. Although our performance in the
high yield markets was relatively better than the investment grade market, that
market began a sharp correction in the first quarter of 2005 which continued
into the second led predominately by the automotive sector. Many of our
customers have chosen to stay relatively liquid, reducing their commitment of
funds in the fixed income securities where we earn the majority of our
commissions.

         Our financial services expenses decreased $390,000 (11%) and $681,000
(10%) in the three and six month periods ended June 30, 2005, respectively,
compared to the same periods in 2004. The primary reason for the current year
decrease is a $264,000 (11%) and $595,000 (13%) decrease in commission expense
in the current year three and six month periods, respectively, compared to the
same periods in 2004 resulting from the decrease in commission income mentioned
above. In addition, incentive compensation costs were down $275,000 (69%) and
$421,000 (77%) in the three and six months of 2005, respectively, compared to
same periods in 2004, primarily as a result of lower profits at APS Financial
for 2005 as well as higher minimum performance thresholds placed upon management
in 2005. Partially offsetting these decreases was an increase in payroll expense
of $100,000 (32%) and $212,000 (35%) in the three and six month periods ended
June 30, 2005, respectively, compared to the same periods in 2004. Payroll was
up as a result of normal annual merit raises as well as the hiring of two new
full-time positions. Also, professional fees increased $45,000 (108%) and
$112,000 (130%) in the three and six month periods ended June 30, 2005,
respectively, compared to the same periods in 2004 as a result of fees incurred
related to Sarbanes Oxley compliance.




                                     - 23 -


INSURANCE SERVICES

         Our insurance services revenues from our premium-based insurance
management segment, APS Insurance Services, increased $267,000 (9%) and $204,000
(3%) in the three and six month periods ended June 30, 2005, respectively,
compared to the same periods in 2004. Management fee revenues rose $240,000
(11%) and $529,000 (13%) in the three and six month periods ended June 30, 2005,
respectively, compared to the same periods in 2004 as a result of an increase in
earned premium brought about by new business growth in the latter half of 2004.
Earned premium was $34.1 million at June 30, 2005 compared to $30.2 million at
June 30, 2004. Going forward, written premiums, which earn out pro-ratably over
an annual basis, have decreased by approximately $3.0 million this year compared
to 2004. The result so far this year has been a decrease of $20,500 (2%) and
$294,000 (13%) in pass-through commissions earned by third-party agents in the
three and six month periods, respectively, compared to the same periods in 2004.
As noted in the following paragraph, commissions paid to third party independent
agents decreased by an equivalent amount, resulting in no impact on net income.
Looking forward, we should expect the rate of growth in management fee revenues
in the second half of the year to slow compared to the first half. Risk
management fee income has increased $36,000 (181%) but has decreased $34,000
(20%) in the three and six month periods ended June 30, 2005, respectively,
compared to the same periods in 2004. The three month increase is due to new
business written during the quarter. The six month decrease is due to one of our
large group's risk rating being upgraded this year which resulted in their not
having to pay risk management fees in 2005.

         Insurance services expenses increased $42,000 (2%) but decreased
$77,000 (2%) in the three months ended June 30, 2005 compared to the same period
in 2004. The current quarter increase is primarily due to an increase in payroll
of $29,000 (4%) and employee benefits $20,000 (21%) in 2005 compared to the same
three months in 2004. Payroll related costs were up due to normal annual merit
raises and increased health insurance costs. In addition, professional fees
increased $22,000 (78%) and $82,000 (179%) in the current year three and six
months, respectively, as a result of fees incurred related to Sarbanes Oxley
compliance. Partially offsetting these increases was a decrease in commissions
expense of $21,000 (2%) and $294,000 (13%), respectively, in the three and six
month periods ended June 30, 2005 compared to the same periods in 2004 due to
the above-mentioned decrease in commissions paid to third party independent
agents.

GENERAL AND ADMINISTRATIVE EXPENSES

         General and  administrative  expenses  increased  $167,000  (30%) and 
$321,000  (30%) in the three and six month periods ended June 30, 2005, 
respectively, compared to the same periods in 2004. Salaries expense increased 
$98,000 (62%) and $113,000 (36%)



                                     - 24 -


in the current year three and six month periods, respectively, compared to the
same periods in 2004 resulting from a severance payment to a former employee who
has since been retained as a tax consultant. In addition, incentive compensation
expense increased $91,000 (58%) and $137,000 (45%) in the current year three and
six month periods, respectively, compared to the same periods in 2004 resulting
form additional bonuses that will be paid on the gains from the sale of
HealthTronics common stock completed in 2005. Lastly, outside professional fees
increased $77,000 (77%) during the current year six months as a result of fees
incurred related to Sarbanes Oxley compliance.


GAIN ON SALE OF ASSETS

         During the six months ended June 30, 2005, we recognized $244,000 of
deferred gain related to the November 2001 sale and subsequent leaseback of real
estate to Prime Medical (now called HealthTronics, Inc.) Due to our continuing
involvement in the property, we deferred recognizing approximately $2,400,000 of
the approximately $5,100,000 gain and are recognizing it in earnings, as a
reduction of rent expense, monthly through November 2006. A total of $691,000
remains to be recognized in the coming seventeen months. In addition, 15% of the
gain ($760,000) related to our then 15% ownership in the purchaser, was
deferred. As our ownership percentage in HealthTronics declines through our
sales of HealthTronics common stock, we recognize these gains proportionately to
our reduction of our interest in that company. During the first six months of
2005 we recognized $84,000 of these deferred gains, leaving a balance of
approximately $96,000 remaining to be recognized. The increase in both periods
of the current year is the result of an increased number of HealthTronics shares
of common stock sold during 2005.


GAIN ON SALE OF INVESTMENTS

         The increase in the current three and six month periods of 2005 is due
to the sale of a greater number of available-for-sale equity and fixed income
securities in 2005 than were sold in the comparable periods of 2004.


LOSS ON IMPAIRMENT OF INVESTMENT

         The loss in the second quarter of 2005 represents a write-down of our
investment in Toys R Us bonds. In April 2004 we purchased $300,000 of Toys R Us
bonds. In March, 2005 Toys R Us announced a plan of merger with another toy
company and a




                                     - 25 -


planned leveraged buyout which precipitated a drop in the price of the bonds. An
independent analysis indicated that the new debt to be issued will put the
existing bonds in a subordinated position. Since these bonds have a 2018
maturity, we believe that the impairment is "other than temporary" during our
shorter expected holding period. Consequently, we wrote a charge against
earnings of $57,000 using the quoted price of the bonds as of June 30, 2005. We
will continue to monitor and evaluate the situation at Toys R Us and further
determine if changes in fair market value of the investment are temporary or
"other than temporary".

         The loss in the six months ended June 30, 2005 also included a
write-down of our investment in Financial Industries ("FIC") common stock that
was made in the first quarter. During that quarter, we determined that the
decline in market value of FIC common stock should be considered "other than
temporary" and we recorded a pretax charge to earnings of $39,000. This charge
reduced our cost basis in FIC from $3,080,000, or $8.00 per share, to
$3,041,000, or $7.90 per share which was equal to the quoted market price of FIC
shares on March 31, 2005. We believe the decline in the market price of FIC has
been brought about by its failure to file its 2003 Form 10-K and its subsequent
de-listing from the NASDAQ Stock Market. We had expected FIC to bring its
filings current and pursue restoring its exchange listing but these events have
not yet occurred. While we currently continue to have the ability and the intent
to hold the stock indefinitely, we concluded that the additional uncertainty
created by the late filings together with the continued lack of current
financial information dictated that the decline should be viewed as other than
temporary. At June 30, 2005 the price had recovered to $8.00 per share but no
recovery income was recorded as none is permitted unless the investment is
actually sold. As mentioned in our 2004 annual report on Form 10-K, we will
continue to monitor and evaluate the situation at FIC and further determine if
changes in fair market value of the investment are temporary or "other than
temporary".


GAIN ON FORGIVENESS OF DEBT

          During the three and six months ended June 30, 2004, we recorded
$12,000 and $75,000, respectively, as gains on forgiveness of debt. This
represented that amount of liability that were released by participants in our
loan to this affiliate. Due to poor operating results, Uncommon Care was in
default and not making scheduled payments under its loan agreement with us in
which the participations had been sold. As a result, the loan participants
released us from any obligations under the participation agreements. For the
three and six months ended June 30, 2005, no further releases of liabilities
have been acquired, therefore no gains were recorded. No further releases of the
remaining $24,000 were obtained during 2005.




                                     - 26 -


INTEREST INCOME

         Our interest income increased $53,000 (74%) and $92,000 (59%) in the
three and six month periods ended June 30, 2005, respectively, compared to the
same periods in 2004. The current year three and six month increases were due to
interest earned on a much higher balance of interest-bearing fixed income
securities. At June 30, 2005 there was a balance of $9.1 million compared to a
balance of $2.7 million held at June 30, 2004.


OTHER INCOME  (LOSS)

         Our other income increased $3,000 (12%) and $66,000 (367%) for the
three and six month periods ended June 30, 2005, respectively, compared to the
same periods in 2004. The increase in the current year six month period
represents primarily inventory gains of $18,000 on securities held at APS
Financial during 2005 compared to inventory losses of $28,000 in 2004.


LIQUIDITY AND CAPITAL RESOURCES

         WORKING CAPITAL

         Our net working capital was $12,386,000 and $10,673,000 at June 30,
2005 and December 31, 2004, respectively. The increase in the current year was
due primarily to cash received upon the sale of long-term available-for-sale
equity securities which was used, in part, to purchase short-term
available-for-sale fixed income securities. Cash and cash equivalents decreased
during this period by $3,614,000 as there were net cash uses in operating,
investing and financing activities. Cash from operating activities decreased
primarily as a result of cash paid in March for incentive compensation earned
and accrued in 2004. Cash from investing activities decreased as purchases of
available-for-sale securities exceeded cash received from the sales of other
available-for-sale securities. Cash from financing activities decreased due to
purchases of treasury stock exceeding cash received from the exercise of
employee stock options. For details of the amounts described above, refer to the
Condensed Consolidated Statements of Cash Flows on page 7 of this Form 10-Q.

         Historically, we have maintained a strong working capital position and,
as a result, we have been able to satisfy our operational and capital
expenditure requirements with cash generated from our operating and investing
activities. These same sources of funds have also allowed us to pursue
investment and expansion opportunities consistent



                                     - 27 -


with our growth plans. Although there can be no assurance our operating
activities will provide positive cash flow in 2005, we are optimistic that our
working capital requirements will be met for the foreseeable future for the
following reasons: (1) our current cash position is very strong, with a balance
of approximately $6.1 million comprising 21 percent of our total assets; (2) our
investments in available-for-sale equity and fixed income securities could
provide an additional $13.6 million should the need arise; and (3) we renewed a
line of credit in April 2005 that is described below.

         LINE OF CREDIT

                  During April 2005, we renewed a $3.0 million line of credit
that was originally established in November 2003 with PlainsCapital Bank. The
loan called for interest payments only to be made on any amount drawn until
April 15, 2006, when the entire amount of the note, principal and interest then
remaining unpaid, became due and payable. At June 30, 2005, there were no draws
taken against this line of credit. We are in compliance with the covenants of
the loan agreement, including requirements for a minimum of $5.0 million of
unencumbered liquidity and a minimum 2 to 1 net worth ratio.

         CAPITAL EXPENDITURES

                  Our capital expenditures for equipment were $171,000 in the
six months of 2005. The majority of these expenditures were necessary to upgrade
our reporting software at our insurance services subsidiary. At June 30, 2005,
our reporting software upgrade is considered to be "in progress" with
anticipated implementation in phases during the rest of 2005 and 2006. Those
assets purchased during 2005 that have not been placed in service, are
appropriately not being depreciated. We expect capital expenditures in 2005 to
be approximately $500,000, including $200,000 in improvements to our business
intelligence reporting software. Our 2005 capital expenditure budget is expected
to be funded through cash on hand.


ADOPTION OF RECENT ACCOUNTING PRONOUNCEMENTS

         In December 2004, the FASB issued SFAS 153, Exchanges of Nonmonetary
Assets, an amendment of APB No. 29, Accounting for Nonmonetary Transactions.
SFAS 153 requires exchanges of productive assets to be accounted for at fair
value, rather than at carryover basis, unless (1) neither the asset received nor
the asset surrendered has a fair value that is determinable within reasonable
limits or (2) the





                                     - 28 -


transactions lack commercial substance. SFAS 153 is effective for nonmonetary
asset exchanges occurring in fiscal periods beginning after June 15, 2005. The
Company does not expect the adoption of this standard to have a material effect
on its financial position, results of operations or cash flows.

         In December 2004, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards, or SFAS, No. 123 (revised 2004),
"Share-Based Payment". Statement 123(R) will provide investors and other users
of financial statements with more complete and neutral financial information by
requiring that the compensation cost relating to share-based payment
transactions be recognized in financial statements. That cost will be measured
based on the fair value of the equity or liability instruments used. Statement
123(R) covers a wide range of share-based compensation arrangements including
share options, restricted share plans, performance-based awards, share
appreciation rights, and employee share purchase plans. Statement 123(R)
replaces FASB Statement No. 123, Accounting for Stock-Based Compensation, and
supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees.
Statement 123, as originally issued in 1995, established as preferable a
fair-value-based method of accounting for share-based payment transactions with
employees. However, that Statement permitted entities the option of continuing
to apply the guidance in Opinion 25, as long as the footnotes to financial
statements disclosed what net income would have been had the preferable
fair-value-based method been used. Public entities (other than those filing as
small business issuers) will be required to apply Statement 123(R) as of the
first interim or annual reporting period that begins after December 31, 2005. We
are currently evaluating the effect of adoption of SFAS 123(R) will have on our
overall results of operations and financial position.


Item 3.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT 
              MARKET RISK

         We have exposure to changes in interest rates and the market values of
our investments but have no material exposure to fluctuations in foreign
currency.

Interest Rate Risk

          Our exposure to market risk for changes in interest rates relates to
both our investment portfolio and our revenues generated through commissions at
our financial services segment. All of our marketable fixed income securities
are designated as available-for-sale and, accordingly, are presented at fair
value on our balance sheets. Fixed rate securities may have their fair market
value adversely affected due to a rise in interest rates, and we may suffer
losses in principal if forced to sell securities that have declined in market
value due to changes in interest rates.


                                     - 29 -


         Changes in interest rates could have an impact at our broker/dealer
subsidiary, APS Financial. The general level of interest rates may trend higher
or lower in 2005, and this move may impact our level of business in different
fixed-income sectors. If a generally improving economy is the impetus behind
higher rates, then while our investment grade business may drop off, our high
yield business might improve with improving credit conditions. A volatile
interest rate environment in 2005 could also impact our business as this type of
market condition can lead to investor uncertainty and their corresponding
willingness to commit funds.

         As we currently have no debt and do not anticipate the need to take on
any debt in 2005, interest rate changes will have no impact on our financial
position as it pertains to interest expense.

Investment Risk

          As of June 30, 2005, our recorded basis in debt and equity securities
was approximately $16.7 million. We regularly review the carrying value of our
investments and identify and record losses when events and circumstances
indicate that such declines in the fair value of such assets below our
accounting basis are other-than-temporary. See Footnote 6 to this report on Form
10-Q for a detailed description of charges to earnings in the prior year and the
current quarter that were considered to be "other than temporary".

        We also have an investment of 296,000 shares of common sock of
HealthTronics, Inc. Although we have an unrealized gain of approximately
$2,356,000 as of June 30, 2005, this investment can also be at risk should
market or economic conditions change for the worse or should adverse situations
occur at HealthTronics, such as a major product line becoming obsolete. The
remainder of our corporate equity and fixed income investments share the same
risks as HealthTronics but our exposure is much lower.



Item 4.              CONTROLS AND PROCEDURES

         We maintain disclosure controls and procedures that are designed to
ensure that information required to be disclosed by us in reports that we file
or submit under the Securities Exchange Act, is recorded, processed, summarized
and reported within the time periods specified in the SEC's rules and forms and
that such information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosures. In
designing and evaluating the disclosure controls and procedures,




                                     - 30 -


management recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurances of achieving the
desired control objectives, and management necessarily is required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and
procedures. As of the end of the period covered by this report, and under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we evaluated the effectiveness of
the design and operation of these disclosure procedures. Based on this
evaluation and subject to the foregoing, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures were
effective in reaching a reasonable level of assurance of achieving management's
desired controls and procedures objectives.

         There have been no changes in internal controls over financial
reporting that occurred during our most recent fiscal quarter that have
materially affected, or are reasonably likely to affect, our internal control
over financial reporting.

         As part of a continuing effort to improve our business processes we are
evaluating our internal controls and may update certain controls to accommodate
any modifications to our business processes or accounting procedures.






                                     - 31 -





                                    PART II

                               OTHER INFORMATION







                                     - 32 -



Item 1. LEGAL PROCEEDINGS

         We are involved in various claims and legal actions that have arisen in
the ordinary course of business. Management believes that any liabilities
arising from these actions will not have a significant adverse effect on our
financial condition or results of operations.



Item 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

         Items 2(a) through(d) are inapplicable.

         (e)  Stock Repurchases






                                                                                            (d)    Maximum
                                                                     (c)  Total Number           Dollar Value
                                                                           of Shares             of Shares that
                                                                         Purchased as Part         May yet be
Period                       a) Total Number      (b) Average              of Publicly           Purchased under
                                of shares           Price Paid           Announced  Plans          the Plans or
                                Purchased (1)        per Share             or Programs              Programs
                               -------------       ------------         -----------------        ----------------           

                                                                                            
Apr 1, 2005 - Apr 30, 2005          7,100              $ 12.94                7,100                $ 1,384,000
May 1, 2005 - May 28, 2005         62,470              $ 12.24               62,470                $   618,000
June 1, 2005 - June 31, 2005           --                   --                   --                $   618,000



(1)   Of the total shares purchased 14,570 were purchased in open market 
      transactions and 55,000 were purchased in private transactions. Our share
      repurchase program was announced August 17, 2004 and authorizes the
      purchase of up to $2 million of common stock.




Item 3.   Defaults Upon senior Securities

           Not Applicable





                                     - 33 -


Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
         
         On June 14, 2005 the annual meeting of American Physicians Service 
Group, Inc. was held in Austin, Texas. Shareholders voted and approved the 
following motions:

ELECTION OF DIRECTORS

         The names of the directors elected at the meeting along with numbers of
votes for and withheld are as follows:


Name                                 For                          Withheld 
---------------------               ----------------              ---------

Lew N. Little, Jr.                    1,995,831                    242,927
Jackie Majors                         1,996,928                    241,830
William A. Searles                    1,996,931                    241,827
Kenneth S. Shifrin                    2,004,331                    234,427
Cheryl Williams                       2,005,827                    232,931



PROPOSAL 2 - TO APPROVE THE 2005 INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN

The Plan provides for the granting of options to purchase up to 350,000 shares
of our common stock with certain provisions. The votes for, against and abstain
are as follows:

For                        Against          Abstain or Non-Vote        
-----------               -----------       -------------------
1,150,207                  421,892          666,659

Proposal 2 Passed






                                     - 34 -


PROPOSAL 3 - TO APPROVE THE AMERICAN PHYSICIANS SERVICE GROUP, INC. AFFILIATED 
             GROUP DEFERRED COMPENSATION PLAN

The Plan provides for the granting of up to 150,000 shares of our common stock
to directors and key employees. Shares granted under the Plan are in lieu of
cash awards or stock option grants under current incentive plans and do not
represent additional incentives. The votes for, against and abstain are as
follows:

For                        Against          Abstain or Non-Vote        
-----------               -----------       -------------------
1,197,029                  376,070          665,659

Proposal 3 Passed



Item 5.  OTHER INFORMATION

           Not Applicable


Item 6.  EXHIBITS 

                  Exhibits

         31.1     Section 302 Certification of Chief Executive Officer
         31.2     Section 302 Certification of Chief Financial Officer

         32.1     Section 906 Certification of Chief Executive Officer
         32.2     Section 906 Certification of Chief Financial Officer








                                     - 35 -