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

                                  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
                                 MARCH 31, 2006

                                       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                                May 1, 2006
     --------------------                            ----------------
Common Stock, $.10 par value                             2,748,172

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




                                     PART I

                             FINANCIAL INFORMATION





                                     - 2 -




Item 1 - Financial Statements

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

(In thousands, except per share data)

                                                    Three Months Ended
                                                         March 31,
                                            ------------------------------------
                                                  2006                2005
                                               ----------           --------
Financial services                               $3,578              $3,267
Insurance services                                3,655               3,395
                                                 ------              ------
   Total revenues                                 7,233               6,662

Expenses:
Financial services                                3,285               2,950
Insurance services                                2,754               2,503
General and administrative                          518                 667
Gain on sale of assets (Note 4)                       -                 (35)
                                                 ------              ------
   Total expenses                                 6,557               6,085
                                                 ------              ------

Operating income                                    676                 577
Gain on investments (Note 5)                          7                 630
Loss on impairment of investment (Note 6)             -                 (39)
                                                 ------              ------

Income from operations before interest,
  income taxes and minority interest                683               1,168

Interest income                                     197                 122
Other income                                          6                  55
Interest expense                                      -                   4
Income tax expense                                  323                 477
Minority interests                                    1                  11
                                                 ------              ------

    Net income                                     $562                $853
                                                 ======              ======



The accompanying notes are an integral part of these condensed 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
                                                        March 31,
                                                ------------------------
                                                 2006              2005
                                                ------            ------
Net income per common share

Basic:
   Income from operations                       $ 0.20            $ 0.32
                                                ------            ------
       Net income                               $ 0.20            $ 0.32
                                                ======            ======

Diluted:
   Income from operations                       $ 0.19            $ 0.30
                                                ------            ------
       Net income                               $ 0.19            $ 0.30
                                                ======            ======

Basic weighted average shares
    outstanding                                  2,762             2,642
                                                ======            ======
Diluted weighted average
    shares outstanding                           2,909             2,867
                                                ======            ======




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

                                      - 4 -


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


(In thousands)



                                                                      March 31,                 December 31,
                                                                        2006                        2005
                                                                    ------------                ------------
ASSETS

                                                                                             
Current Assets:
  Cash and cash equivalents                                             $6,466                      $6,680
  Trading account securities                                                90                          --
  Trade receivables, net                                                   317                          42
  Notes receivable - current                                               645                         599
  Management fees and other receivables                                    991                       3,192
  Deposit with clearing organization                                       501                         501
  Investment in available-for-sale fixed
    income securities - current (Note 8)                                11,154                       9,662
  Net deferred income tax asset                                            342                         355
  Prepaid expenses and other                                               966                         632
                                                                       -------                      ------
      Total current assets                                              21,472                      21,663


Notes receivable, less current portion                                     405                         326
Property and equipment, net                                                669                         687
Investment in available-for-sale equity
  securities (Note 7)                                                    5,191                       5,017
Investment in available-for-sale fixed
  income securities - non-current (Note 8)                               3,353                       3,584
Net deferred income tax asset                                              560                         686
Goodwill                                                                 1,247                       1,247
Other assets                                                               252                         295
                                                                       -------                     -------
Total Assets                                                           $33,149                     $33,505
                                                                       =======                     =======







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

                                      - 5 -


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

(In thousands, except share data)



                                                                                      March 31,             December 31,
                                                                                        2006                    2005
                                                                                      ---------             ------------
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
                                                                                                          
  Accounts payable                                                                        $851                    $736
  Accrued incentive compensation                                                           612                   2,595
  Accrued expenses and other liabilities (Note 9)                                        3,171                   1,912
  Federal income tax payable                                                               185                      71
  Deferred gain - current                                                                  328                     469
                                                                                       -------                 -------
      Total current liabilities                                                          5,147                   5,783

Long term liabilities                                                                       --                      --
                                                                                       -------                 -------
      Total liabilities                                                                  5,147                   5,783

Minority interests                                                                          16                      15
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;
    2,754,472 and 2,784,120 issued and outstanding
    at 3/31/06 and 12/31/05, respectively                                                  275                     278
  Additional paid-in capital                                                             7,826                   8,204
  Retained earnings                                                                     19,300                  18,737
  Accumulated other comprehensive income,
     net of taxes                                                                          585                     488
                                                                                       -------                 -------
      Total shareholders' equity                                                        27,986                  27,707
                                                                                       -------                 -------
Total Liabilities and Shareholders' Equity                                             $33,149                 $33,505
                                                                                       ========                =======






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

                                      - 6 -


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



                                                                                            Three Months Ended March 31,
                                                                                             2006                 2005
                                                                                            ------               ------
Cash flows from operating activities:
                                                                                                            
     Net Income                                                                              $ 562                $ 853

     Adjustments to reconcile net income to cash
        provided by (used in) operating activities:
           Depreciation and amortization                                                       106                   67
           Extinguishment of debt and other                                                    108                   63
           Common stock awarded                                                                102                  159
           Gain on sale of assets                                                               --                  (35)
           Deferred gain on sale of building                                                  (141)                (122)
           Gain on sale of investment                                                           (7)                (630)
           Loss on impairment of investment                                                     --                   39
     Changes in operating assets and liabilities:
           Trade receivables                                                                  (275)                  15
           Trading account securities                                                          (90)                  --
           Income tax payable                                                                  (90)                 514
           Deferred income tax                                                                 139                 (278)
           Deferred compensation                                                                23                   --
           Management fees & other receivables                                               2,201                  811
           Prepaid expenses & other assets                                                    (344)                (271)
           Trade payables                                                                      115                  (41)
           Accrued expenses & other liabilities                                               (604)              (2,311)
                                                                                            ------               ------
              Net cash provided by (used in) operating activities                            1,805               (1,167)

Cash flows from investing activities:
     Capital expenditures                                                                      (57)                 (94)
     Proceeds from the sale of available-for-sale equity
        and fixed income securities                                                          2,741                1,154
     Purchase of available-for-sale equity securities                                       (3,987)              (4,616)
     Funds loaned to others                                                                   (243)                (381)
     Collection of notes receivable                                                             10                   60
                                                                                            ------               ------
              Net cash used in  investing activities                                        (1,536)              (3,877)

Cash flows from financing activities:
     Exercise of stock options                                                                  64                   17
     Purchase and cancellation of treasury stock                                              (577)                (258)
     Stock options expensed                                                                     27                   --
     Excess tax benefits from stock-based compensation                                           3                   --
                                                                                            ------               ------
              Net cash provided by (used in) financing activities                             (483)                (241)

Net change in cash and cash equivalents                                                    $  (214)            $ (5,285)

Cash and cash equivalents at beginning of period                                             6,680                9,673
                                                                                            ------               ------
Cash and cash equivalents at end of period                                                 $ 6,466              $ 4,388
                                                                                            ======               ======






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

                                      - 7 -


                     AMERICAN PHYSICIANS SERVICE GROUP, INC.
          CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND
                           COMPREHENSIVE INCOME (LOSS)
          For the three months ended March 31, 2005 and March 31, 2006
                                   (Unaudited)

(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, 2004              $ 265     $ 7,919      $ 13,948          $  --          $ 2,081         $ --        $ 24,213
                                    ------------------------------------------------------------------------------------------------
Comprehensive income:
  Net income                             --           --          853           $ 853             --              --            853
  Other comprehensive income:
    Unrealized loss on  securities,
    net of taxes of $200                 --           --            --           (389)           (389)            --           (389)
                                                                                ------

Comprehensive income:                    --           --            --          $ 464              --             --             --
                                                                               ======
Stock options exercised                  --           17            --             --              --             --             17
Treasury stock purchases                 --           --            --             --              --           (258)          (258)
Cancelled treasury stock                 (2)        (256)           --             --              --            258             --
Stock awarded                             1          158            --             --              --             --            159
                                    ------------------------------------------------------------------------------------------------
Balance March 31, 2005                $ 264      $ 7,838       $14,801           $ --          $ 1,692          $ --       $ 24,595
                                    ================================================================================================


Balance December 31, 2005             $ 278      $ 8,204      $ 18,737           $ --            $ 488          $ --       $ 27,707
                                    ------------------------------------------------------------------------------------------------
Comprehensive income:
  Net income                            --           --            562          $ 562               --            --            562
  Other comprehensive income:
    Unrealized gain on  securities,
    net of taxes of $50                 --           --            --              97               97            --             97
                                                                                 -----

Comprehensive income:                   --           --            --           $ 659               --            --             --
                                                                                 =====
Stock options exercised                  1           63            --              --               --            --             64
Stock options expensed                  --           27            --              --               --            --             27
Tax benefit from exercise
   of stock options                     --            3            --              --               --            --              3
Treasury stock purchases                --           --            --              --               --          (577)          (577)
Cancelled treasury stock                (5)        (572)           --              --               --           577             --
Stock awarded                            1          101            --              --               --            --            102
                                    ------------------------------------------------------------------------------------------------
Balance March 31, 2006               $ 275      $ 7,826       $19,300            $ --            $ 585          $ --       $ 27,986
                                    ================================================================================================


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

                                      - 8 -

                AMERICAN PHYSICIANS SERVICE GROUP, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2006
                                   (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  ("GAAP") 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 GAAP have been condensed or omitted pursuant to such rules and regulations.
The consolidated  financial statements for the three months ended March 31, 2006
and 2005  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,  2005  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 2006 presentation. A change in segment expenses on page 3 of
this report was made which reclassified  overhead charges of $181,000 previously
allocated to Insurance Services in 2005 to General and Administrative.

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

     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.





                                      - 9 -


4.  GAIN ON SALE OF ASSETS

     During the three  months ended March 31, 2006,  we  recognized  $141,000 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  September 2006. A total of $281,000
remains  to be  recognized  in the  coming  six  months,  with the final  amount
recognized in September,  2006. 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 three months of 2006 we did not recognize any
of these deferred gains as no HealthTronics common stock was sold in the period.
As of March 31, 2006,  there remained a balance of  approximately  $46,000 to be
recognized.

5.  GAIN (LOSS) ON INVESTMENTS

     Our gains resulted  primarily from the sales of  available-for-sale  equity
and fixed income  securities.  During the three months ended March 31, 2006,  we
received net cash proceeds of  approximately  $2,741,000 and recognized gains of
$7,000 resulting from these sales and scheduled maturities.

6.  LOSS ON IMPAIRMENT OF INVESTMENT

     Although  there was no loss  taken  thus far in 2006,  the prior  year loss
represents  an  impairment  in the value of our  investment in FIC common stock.
During 2004, the value of our investment in FIC had declined  significantly.  In
October  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 pre-tax charges to
earnings  totaling  $2,567,000 in 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.
During the first three months of 2005,  we took  additional  pre-tax  charges to
earnings  totaling  $39,000,  and  ultimately a total of $135,000  during all of
2005, further reducing our cost basis in FIC to $2,945,000,  or $7.65 per share.
While we currently continue to have the ability and the intent to hold the stock
indefinitely, we concluded that the additional uncertainty created by FIC's late
filings,  together with the lack of its current financial information,  dictated
that the 2004 and 2005  declines  should be viewed as other than  temporary.  In
July 2005,  FIC was able to file its 2003 Form 10-K but has yet to file any 2004
or 2005  Forms 10-Q or 10-K and thus  continues  to be  de-listed  on the NASDAQ
Stock Market.




                                     - 10 -


7.  INVESTMENT IN AVAILABLE-FOR-SALE EQUITY SECURITIES

     A portion of this balance sheet  account is comprised of our  investment in
FIC common  stock.  As mentioned in Footnote 6 above,  during 2005 and 2004,  we
recognized  "other  than  temporary"  impairment  losses and,  accordingly,  our
original  cost basis in the 385,000  shares of FIC common  stock we own has been
reduced from $14.67 per share to $7.65 per share during 2005.  The effect of any
"other than temporary"  impairment loss is to reclassify from accumulated  other
comprehensive  income the  unrealized  loss to realized loss in the statement of
operations. 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.  Changes in their fair market value deemed to be "other than  temporary"
are charged to earnings in the period that the  determination  was made.  As FIC
was trading above $7.65 per share at March 31, 2006, no impairment  charges were
necessary.


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

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


9.  ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities consists of the following:

                                     March 31               December 31
                                       2005                     2005
                                     --------                ----------
Commissions payable                 $ 623,000               $ 1,258,000
Customer deposits                   1,960,000                        --
Taxes payable                         246,000                   219,000
Vacation                              161,000                   161,000
401(k) plan matching                   91,000                   208,000
Other accrued liabilities              90,000                    66,000
                                   ----------                 ---------
                                   $3,171,000               $ 1,912,000
                                   ==========                 ==========





                                     - 11 -



10.   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 March 31, 2006
                                   --------------------------------------------
                                     Income            Shares         Per Share
                                   (Numerator)      (Denominator)       Amount
                                    ---------        -----------      --------
Basic EPS
  Net income                        $ 562,000          2,762,000        $ 0.20
                                                                        ======

Diluted EPS
  Effect of dilutive securities            --            147,000
                                     --------          ---------

  Net income                        $ 562,000          2,909,000        $ 0.19
                                     ========          =========        ======





                                     For the Three Months Ended March 31, 2005
                                   --------------------------------------------
                                      Income           Shares         Per Share
                                    (Numerator)     (Denominator)      Amount
                                     ---------       ----------        -------
Basic EPS
  Net income                         $ 853,000         2,642,000        $ 0.32
                                                                        ======

Diluted EPS
  Effect of dilutive securities             --           225,000
                                     ---------         ---------

  Net income                         $ 853,000         2,867,000        $ 0.30
                                     =========         ==========       ======






                                     - 12 -


11.    SEGMENT INFORMATION

The  Company's  segments are distinct by type of service  provided.  Comparative
financial  data for the three  months  period  ended March 31, 2006 and 2005 are
shown as follows:


                                                Three months ended March 31,
                                                2006                  2005
                                              --------             -----------
  Operating Revenue:
    Financial services                       $ 3,578,000           $ 3,267,000
    Insurance services                         3,655,000             3,395,000
    Corporate                                  2,100,000                    --
                                              ----------            ----------
  Total Segment Revenues                     $ 9,333,000           $ 6,662,000
                                              ==========            ==========

  Reconciliation to Consolidated
   Statement of Operations:
     Total segment revenues                  $ 9,333,000           $ 6,662,000
     Less: Intercompany dividends             (2,100,000)                   --
                                             -----------           -----------
           Total Revenues                    $ 7,233,000           $ 6,662,000
                                             ===========           ===========

  Operating Income
     Financial services                       $  293,000             $ 317,000
     Insurance services                          901,000               892,000
     Corporate                                  (518,000)             (632,000)
                                              ----------             ---------
  Total segments operating income                676,000               577,000

  Gain on  investments                             7,000               630,000
  Loss on impairment of investment                    --               (39,000)
                                              ----------             ---------

  Income (loss) from operations before
   interest, income taxes and minority
   interest                                      683,000              1,168,000

  Interest income                                197,000                122,000
  Other gain                                       6,000                 55,000
  Interest expense                                    --                  4,000
  Income tax expense                             323,000                477,000
  Minority interest                                    1                     11
                                               ---------              ---------

  Net income                                   $ 562,000              $ 853,000
                                               =========              =========




                                     - 13 -


12.    STOCK-BASED COMPENSATION


     In December 2004, the Financial  Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123 (revised 2004),  Share-Based
Payment (SFAS 123 (R)). The standard amends SFAS 123, Accounting for Stock-Based
Compensation,  and concludes  that services  received from employees in exchange
for  stock-based  compensation  results in a cost to the  employer  that must be
recognized  in the  financial  statements.  The cost of such  awards  should  be
measured at fair value at grant date.

     On   January   1,   2006   we   adopted   SFAS   No.   123R.   We  use  the
Black-Scholes-Merton  option-pricing  model  to  determine  the  fair  value  of
stock-based  awards,  consistent with that used for pro forma  disclosures under
SFAS No. 123,  Accounting  for  Stock-Based  Compensation.  We have  elected the
modified  prospective  transition  method  as  permitted  by SFAS  No,  123R and
accordingly  prior  periods have not been restated to reflect the impact of SFAS
No. 123R. SFAS No. 123R requires that  stock-based  compensation be recorded for
all new and unvested stock options expected to vest as the requisite  service is
rendered  beginning  January 1,  2006,  the first day of our 2006  fiscal  year.
Stock-based  compensation  expense for awards granted on or before  December 31,
2005,  but  unvested  as of that date,  is based on the grant date fair value as
determined  under the pro forma provisions of SFAS No. 123. For the three months
ended March 31, 2006 we recorded  compensation  cost related to stock options of
$27,000 and a related  reduction  in income taxes of $10,000.  The  compensation
cost is the total fair value, at date of grant, of shares that vested during the
three month period.  No compensation  costs were  capitalized in the three month
period ended March 31, 2006.

     During the quarter ended March 31, 2006 7,000 options were  exercised  with
an intrinsic value of $20,000. We received proceeds of $64,000 from the exercise
of these  options.  Based on  unvested  options  outstanding  at March 31,  2006
compensation  costs  to  be  recorded  in  future  periods  are  expected  to be
recognized as follows:  2006, $96,000;  2007, $21,000;  2008, $19,000; and 2009,
$4,000.

     We have  adopted,  with  shareholder  approval,  the  "2005  Incentive  and
Non-Qualified Stock Option Plan" ("Incentive Plan"). The Incentive Plan provides
for the issuance of up to 350,000  shares of common stock to our  directors  and
key employees. A total of 128,000 of these options have been granted as of March
31, 2006,  113,000 of which are exercisable.  Under the previous plan, the "1995
Incentive  and  Non-Qualified   Stock  Option  Plan",   453,000  options  remain
unexercised,  of which  412,000  are  exercisable  at March 31,  2006.  Upon the
exercise of an option we issue the shares  from our  authorized,  but  un-issued
shares.

     The exercise price for each non-qualified option share is determined by the
Compensation Committee of the Board of Directors ("the Committee"). The exercise
price of a qualified  incentive stock option has to be at least 100% of the fair
market value of such shares on the date of grant of the option. Under the Plans,
option grants are limited to a maximum of ten-year terms; however, the Committee
has issued all currently  outstanding grants with five-year terms. The Committee
also determines  vesting for each option grant and traditionally has had options
vest in three approximately  equal annual  installments  beginning one year from
the date of grant.




                                     - 14 -


       Presented below is a summary of the stock options held by our employees
and our directors and the related transactions for the three months ended March
31. 2006 and the year ended December 31, 2005.


                                Three Months Ended              Year Ended
                                      March 31,               December 31,
                                ------------------            ---------------
                                       2006                          2005
                                ------------------            ---------------
                                           Weighted                   Weighted
                                            Average                    Average
                                           Exercise                    Exercise
                                Shares       Price            Shares   Price
                                ------     --------           ------   ------
Balance at January 1           573,000       $7.92           721,000    $6.04
Options granted                 15,000       13.50           113,000    11.60
Options exercised               (7,000)       9.84          (251,000)    4.13
Options forfeited/expired           --          --           (10,000)    9.10
                               -------     --------          -------   ------
Balance at end of period       581,000       $8.04           573,000    $7.92
                               =======       =====           =======    =====
Options exercisable            525,000       $7.78           483,000    $7.96
                               =======       =====           =======    =====


     The weighted  average fair value of Company stock options  granted is $3.83
and $3.19 per  option for the three  months  ended  March 31,  2006 and the year
ended  December  31,  2005,  respectively.  The fair  value of the  options  was
calculated  using  the  Black-Scholes-Merton   option  pricing  model  with  the
following assumptions:


                                          Three months             Year
                                             ended                ended
                                         March 31, 2006      December 31, 2005
                                         --------------      -----------------
         Expected option term:              3.7 years             3.6 years
         Expected volatility                0.354                 0.363
         Expected dividend yield            1.85%                 2.15%
         Risk-free rate of return           4.72%                 4.33%


The  expected  volatility  assumptions  we  used  are  based  on the  historical
volatility of our common stock over the most recent period commensurate with the
estimated expected life of our stock options, such estimated life being based on
the historical  experience of our stock option  exercises.  The following  table
summarizes the Company's  options  outstanding and exercisable  options at March
31, 2006:





                                     - 15 -




                      Stock Options Outstanding                                   Stock Options Exercisable
     ------------------------------------------------------------     ---------------------------------------- ------------------
          Shares       Weighted      Aggregate       Average                         Weighted       Aggregate        Average
          ------
                       Average                      Remaining                        Average                        Remaining
                       Exercise      Intrinsic     Contractual                       Exercise       Intrinsic      Contractual
                        Price        Value (1)         Life              Shares       Price         Value (1)          Life
                        -----        ---------         ----              ------       -----         ---------          ----

                                                                                               
         581,000        $8.04        3,375,000       2.8 yrs.         525,000          7.78         3,184,000          2.7 yrs.


(1) Based on the $13.85 closing price of our stock at March 31, 2006.


     Prior to the  adoption of SFAS No.  123R,  we adopted  the  disclosure-only
provision of SFAS No. 123, but applied APB Option No. 25,  Accounting  for Stock
Issued to Employees,  in accounting for our stock option plans.  No compensation
expense  was  recognized  for the three  months  ended  March 31, 2005 under the
provisions  of APB No. 25. If we had elected to recognize  compensation  expense
for options  granted  based on their fair values at the grant dates,  consistent
with  Statement 123, net income and earnings per share would have changed to the
pro forma amounts indicated below:

                                                            Three Months Ended
                                                                March 31, 2005
                                                            ------------------
    Net income as reported                                        $853,000
    Deduct: Total additional stock-based employee
      compensation expense determined under fair
      value based method for all awards, net of
      related tax effects                                          (53,000)
                                                                   --------

    Pro forma net income                                          $800,000
                                                                   ========

    Net income per share
             Basic - as reported                                      $0.32
                                                                      =====
             Basic - pro forma                                        $0.30
                                                                      =====
             Diluted - as reported                                    $0.30
                                                                      =====
             Diluted - pro forma                                      $0.28
                                                                      =====



                                     - 16 -


13.      RECENT ACCOUNTING PRONOUNCEMENTS

     In February, 2006 the Financial Accounting Standards Board issued Statement
of Financial  Accounting  Standards,  or SFAS,  No. 155,  Accounting for Certain
Hybrid Financial  Instruments,  an amendment of FASB Statements No. 133 and 140.
This  Statement  Permits  fair  value  remeasurement  for any  hybrid  financial
instrument  that contains an embedded  derivative  that otherwise  would require
bifurcation;  clarifies which interest-only strips and principal-only strips are
not subject to the  requirements of Statement 133;  establishes a requirement to
evaluate  interests in securitized  financial assets to identify  interests that
are  freestanding  derivatives  or that are hybrid  financial  instruments  that
contain  an  embedded   derivative   requiring   bifurcation;   clarifies   that
concentrations  of credit  risk in the form of  subordination  are not  embedded
derivatives; and  amends  Statement  140  to  eliminate  the  prohibition  on  a
qualifying special-purpose entity from holding a derivative financial instrument
that pertains to a beneficial  interest other than another derivative  financial
instrument.  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.




                                     - 17 -

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:

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.

                                     - 18 -


o  APS  CLEARING. APS Clearing is dedicated  to the clearing and  settlement  of
trades involving syndicated bank loans, trade claims and distressed private loan
portfolios.  We  recognize  commissions  revenue,  and the related  compensation
expense, when the transaction is complete and fully funded.

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 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.

OTHER

     As of  March  31,  2006,  we have  the  following  significant  investments
accounted for as available-for-sale securities: (1) we own approximately 143,000
shares of HealthTronics (formerly Prime Medical) common stock, representing less
than 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.






                                     - 19 -


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  clearing  of trade  claims and asset  management  fees.
Revenues  related to  securities  transactions  are  recognized  on a trade date
basis.  Revenues from the clearing and settlement of trades involving syndicated
bank loans,  trade claims and distressed  private loan portfolios are recognized
when the  transaction is complete and fully funded.  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.

       Stock-Based Compensation

     In December  2004, the FASB issued a revision  ("SFAS No.  123(R)") to SFAS
No. 123,  Accounting  for  Stock-Based  Compensation  ("SFAS No. 123"),  and the
Company was required to adopt SFAS No. 123(R) in the first quarter of 2006. SFAS
No. 123(R) supersedes Accounting Principles Board Opinion No. 25, Accounting for
Stock  Issued to  Employees  (APB No.  25),  and  related  Interpretations,  and
requires that all stock-based  compensation,  including options,  be expensed at
fair value, as of the grant date, over the



                                     - 20 -


vesting  period.  Companies  are required to use an option  pricing model (e.g.:
Black-Scholes or Binomial) to determine  compensation  expense,  consistent with
the model previously used in the already  required  disclosures of SFAS No. 148,
Accounting for Stock-Based  Compensation-Transition and Disclosure. The adoption
of SFAS No.  123(R) has not had a  material  effect on the  Company's  financial
position, operations or cash flow.

     At March 31, 2006, the Company has several stock-based  compensation plans,
which are described more fully in Note 12 to the audited consolidated  financial
statements  contained in our most  recently  filed  Annual  Report on Form 10-K.
Prior to  January 1, 2006,  the  Company  accounted  for these  plans  under the
recognition  and measurement  principles of APB No. 25, under which  stock-based
employee  compensation  cost was not  reflected  in net  income,  as all options
granted under these plans had an exercise price equal to the market value of the
underlying  common stock on the date of grant.  In accordance with SFAS No. 123,
as amended by SFAS No. 148, the Company provided footnote  disclosure of the pro
forma stock-based  compensation  cost, net loss and net loss per share as if the
fair-value  based method of expense  recognition and  measurement  prescribed by
SFAS No. 123 had been applied to all employee options.

     As a result of adopting SFAS No.  123(R) on January 1, 2006,  the Company's
net gain for the quarter ended March 31, 2006 is $27,000 less than it would have
been if the Company had continued to account for stock-based  compensation under
APB No. 25.  Basic and diluted net income per share  would be  unchanged  if the
Company had not adopted SFAS No.  123(R).  The  adoption of SFAS No.  123(R) had
minimal effect on the Company's  Statement of Cash Flows,  as there were minimal
exercises of stock options in the three months ended March 31, 2006.

RESULTS OF OPERATIONS

REVENUES

     Revenues from operations  increased $571,000 (9%) in the three months ended
March 31, 2006, respectively, compared to the same period in 2005. Our operating
income increased  $99,000 (17%) in the current year three months compared to the
same period in 2005. Our net income decreased $291,000 (34%) in the current year
three  months,  compared  to the same  period in 2005.  Lastly,  our diluted net
income per share decreased $0.11 (37%) in the current year three months compared
to the same period in 2005. The reasons for these changes are described below.




                                     - 21 -


FINANCIAL SERVICES

     Our financial  services  revenue  increased  $311,000  (10.0%) in the first
three  months of 2006  compared  to the same period in 2005.  Revenues  from our
investment  banking division  increased $725,000 (967%) while those from our new
subsidiary, APS Clearing, contributed $154,000. Investment banking revenues were
up  substantially  due to the ramping up of the business in the third quarter of
2005,  primarily through the hiring of an investment  banking managing director.
Bank debt trading  generated  revenues were not recorded in the first quarter of
2005 as APS Clearing was not formed  until later in 2005.  Partially  offsetting
these  revenue  increases was a decrease in  commission  revenues  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.  Commission  revenues fell $568,000  (18%) in the first three
months of 2006 compared to the same period in 2005.  Revenue from our investment
grade  trading  continued to be flat in a rising  interest rate  environment  in
which the Fed has raised rates fifteen times since June 2004 (for a total of 375
basis points).  Revenue from trading of non-investment  grade (high yield bonds)
has also been generally  weaker due to the increasing  general level of interest
rates, poor fundamentals and price transparency  created by automated  reporting
processes such as TRACE.

     Our  financial  services  expenses  increased  $335,000  (11%) in the three
months  ended  March 31, 2006  compared to the same period in 2005.  The primary
reason for the current year  increase is a $167,000  (9%) increase in commission
expense in the current  year three month  period  compared to the same period in
2005 resulting from  commissions paid on increased  investment  banking and bank
debt trading  revenues  mentioned  above. In addition,  salaries  expense was up
$136,000  (34%) due primarily to the hiring of two full time managers to head up
the  investment  banking and bank debt trading  divisions.  Also,  normal annual
merit  raises as well as an increase  in  performance-related  forgivable  loans
contributed to the increase in salaries expense.  Incentive  compensation  costs
totaled $50,000 in the current year quarter  compared to zero in the same period
in 2005 as a  result  of the  profits  generated  from  our  investment  banking
division.  Partially  offsetting  these  expense  increases  is  a  decrease  in
professional  fees of $60,000  (54%) in the three month  period  ended March 31,
2006  compared to the same period in 2005  primarily  as a result of higher fees
incurred in 2005 related to Sarbanes Oxley compliance.


INSURANCE SERVICES

     Total revenues from our insurance  services segment increased $260,000 (8%)
in the three month  period  ended March 31, 2006  compared to the same period in
2005.  Current year increases in commission  income and in management  fees were
the primary  reasons for this  growth.  Pass  through  commission  income was up
$202,000  (19%) in 2006 as a result of higher  commission  rates and  higher new
business written at our managed



                                     - 22 -


medical  malpractice  insurance  company,  APIE,  compared to the same period in
2005.  As noted in the  following  paragraph,  commissions  paid to third  party
independent agents increased by an equivalent amount,  resulting in no impact on
net income.  Management fee revenues increased $108,000 (5%) in the three months
ended  March 31,  2006  compared  to the same  period in 2005  primarily  due to
writing a large  extended  reporting  period  policy that earns out  immediately
instead of earning out pro-rata over twelve months, as is normally the case. New
written business at APIE was up $2.7 million (208%) in the current quarter,  but
despite our more  intense  marketing  effort and an overall 13%  increase in the
number of doctors insured, premiums from renewal business were down $2.8 million
(17%)  compared to the same period in the prior  year.  This  decline in renewal
business was caused by increased competition.

     Insurance  services expenses  increased  $251,000 (10%) in the three months
ended March 31, 2006  compared to the same period in 2005.  The current  quarter
increase is primarily due to a $202,000 (19%)  increase in  commissions  expense
due  to  the  above-mentioned  increase  in  commissions  paid  to  third  party
independent  agents during the first quarter of 2006 compared to the same period
in 2005. Also,  payroll  increased  $64,000 (8%) in the three months ended March
31, 2006  compared to the same period in 2005 as a result of normal merit raises
as well as the addition of two new managerial positions.


GENERAL AND ADMINISTRATIVE EXPENSES

     General and  administrative  expenses decreased $150,000 (22%) in the three
month  period  ended  March 31, 2006  compared to the same period in 2005.  This
decrease  is  primarily  due to  lower  professional  fees and  lower  incentive
compensation  expenses.  Professional fees declined $67,000 (66%) in the current
quarter as costs  associated with internal  controls  disclosures and procedures
under the  Sarbanes-Oxley  Act of 2002 ("SOX 404") compliance are minimal in the
first quarter of 2006 compared to the first quarter of 2005 when we were ramping
up our  compliance  efforts.  With the most recent  deadline delay and continued
uncertainty  as to what,  if any,  relief is to be  granted  to  non-accelerated
filers like us, we have  slowed our efforts in an attempt to control  future SOX
404 compliance costs.  Incentive compensation expense decreased $66,000 (35%) in
the current year three month periods  compared to the same period in 2005 due to
lower investment gains in 2006.


GAIN ON SALE OF ASSETS

     During the three  months ended March 31, 2006,  we  recognized  $141,000 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



                                     - 23 -


$5,100,000  gain and are  recognizing  it in  earnings,  as a reduction  of rent
expense,  monthly  through  September  2006.  A total of $281,000  remains to be
recognized  in the  coming  six  months,  with the final  amount  recognized  in
September, 2006. 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 three months of 2006 we did not recognize any of
these deferred gains as no HealthTronics common stock was sold in the period. As
of March 31,  2006,  there  remained  a balance of  approximately  $46,000 to be
recognized.


GAIN ON INVESTMENTS

     The  decrease in the current  three month period of is due to the sale of a
large number of available-for-sale equity securities in 2005 compared to a small
gain on the sale of an  available-for-sale  fixed  income  security in the first
three months of 2006.


LOSS ON IMPAIRMENT OF INVESTMENT

     The loss recorded in the first  quarter of 2005  represents a write-down of
our investment in Financial  Industries ("FIC") common stock,  having previously
resolved that declines in FIC's stock price will be considered to be "other than
temporary".  As explained on page 19 of this report, we record pretax charges to
earnings should the common stock price on the last day of each interim or annual
period fall below the adjusted cost basis of our investment in FIC. In the first
three months of 2005, that charge totaled $39,000. As our adjusted cost basis in
FIC is $7.65 and with the stock price  above $8.00 per share in 2006,  there was
no need to take an additional  charge in the current period. We will continue to
monitor and evaluate the situation at Financial Industries.


INTEREST INCOME

     Our interest income increased $75,000 (61%) in the three month period ended
March 31, 2006 compared to the same period in 2005. The current year three month
increase was due to interest earned on a higher rate as well as on a much higher
balance of interest-bearing fixed income securities. At March 31, 2006 there was
a balance in investment  securities held of $14.5 million  compared to a balance
of $9.3 million held at March 31, 2005.




                                     - 24 -


OTHER INCOME (LOSS)

         Our other income decreased $49,000 (89%) for the three month period
ended March 31, 2006 compared to the same period in 2005. The decrease in the
current year three month period is primarily due to inventory losses on
securities held at APS Financial totaling $6,000 in 2006 compared to inventory
gains of $18,000 in 2005.


LIQUIDITY AND CAPITAL RESOURCES

     WORKING CAPITAL

     Our net working  capital was  $16,325,000 and $15,880,000 at March 31, 2006
and December 31,  2005,  respectively.  The increase in the current year was due
primarily to cash received from operations.  Cash and cash equivalents decreased
$214,000  during this period as cash provided by operations was more than offset
by net cash used in investing  and  financing  activities.  Cash from  operating
activities increased primarily due to cash received from APIE for profit sharing
($2.0 million) that was recorded in 2005 as well as from an advance payment from
a trade claim  transaction  that was  completed in April,  2006 ($2.0  million).
Partially  offsetting  this was cash paid in the current  quarter for  incentive
compensation  earned and  accrued in 2005 ($2.2  million).  Cash from  investing
activities decreased $1.5 million as purchases of available-for-sale  securities
exceeded cash received  from the sales of other  available-for-sale  securities.
Cash from financing  activities  decreased $483,000 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 with our growth plans. Although there can be
no assurance our operating  activities will provide  positive cash flow in 2006,
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 $6.5 million comprising 20 percent
of our total assets; (2) our investments in available-for-sale  equity and fixed
income  securities  could  provide an additional  $16.4 million  should the need
arise;  and (3) we  renewed  a line of credit  in April  2006 that is  described
below.




                                     - 25 -


     LINE OF CREDIT

     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, 2007, when the entire amount
of the note,  principal  and  interest  then  remaining  unpaid,  became due and
payable.  At March 31,  2006,  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 $57,000 in the three months of
2006. The majority of these  expenditures  were primarily  hardware and software
upgrades to our computer network.  We expect capital  expenditures in 2006 to be
approximately $250,000 and is expected to be funded through cash on hand.


ADOPTION OF RECENT ACCOUNTING PRONOUNCEMENTS

     In February, 2006 the Financial Accounting Standards Board issued Statement
of Financial  Accounting  Standards,  or SFAS,  No. 155,  Accounting for Certain
Hybrid Financial  Instruments,  an amendment of FASB Statements No. 133 and 140.
This  Statement  permits  fair  value  remeasurement  for any  hybrid  financial
instrument  that contains an embedded  derivative  that otherwise  would require
bifurcation;  clarifies which interest-only strips and principal-only strips are
not subject to the  requirements of Statement 133;  establishes a requirement to
evaluate  interests in securitized  financial assets to identify  interests that
are  freestanding  derivatives  or that are hybrid  financial  instruments  that
contain  an  embedded   derivative   requiring   bifurcation;   clarifies   that
concentrations  of credit  risk in the form of  subordination  are not  embedded
derivatives; and  amends  Statement  140  to  eliminate  the  prohibition  on  a
qualifying special-purpose entity from holding a derivative financial instrument
that pertains to a beneficial  interest other than another derivative  financial
instrument.  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.





                                     - 26 -


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.  A one  percent  change in  interest  rates on our
current cash and fixed income  securities  balance of approximately  $21 million
would  result in a change of $210,000  annually in interest  income.  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.

     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 2006,  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 2006 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 2006,  interest  rate  changes  will  have no  impact  on our  financial
position as it pertains to interest expense.

INVESTMENT RISK

     As of March 31, 2006, our recorded basis in debt and equity  securities was
approximately  $19.7  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.


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


                                     - 27 -


Officer and Chief Financial Officer,  as appropriate,  to allow timely decisions
regarding  required  disclosures.  In designing and  evaluating  the  disclosure
controls and procedures, 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.






                                     - 28 -







                                    PART II

                               OTHER INFORMATION







                                     - 29 -


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

                                                                                                   
Jan 1, 2006 - Jan 31, 2006                 20,600                 $ 13.01                 20,600               $ 1,750,000
Feb 1, 2006 - Feb 28, 2006                 12,856                 $ 12.86                 12,856               $ 1,585,000
Mar 1, 2006 - Mar 31, 2006                 10,800                 $ 13.28                 10,800               $ 1,442,000



(1)           Of the total shares purchased 44,256 were purchased in open market
              transactions and none were purchased in private transactions. Our
              original share repurchase program was announced August 17, 2004
              and was increased by an additional 2,000,000 on December 12, 2005.



Item 3.   DEFAULTS UPON SENIOR SECURITIES
          --------------------------------
           Not Applicable


Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
         ---------------------------------------------------
         Not Applicable



                                     - 30 -


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






                                     - 31 -