UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                           Washington, D. C. 20549

                                   FORM 8-K/A

                                CURRENT REPORT

    Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


      Date of Report (Date of earliest event reported): January 27, 2003



                      HALLMARK FINANCIAL SERVICES, INC.
                      ---------------------------------
            (Exact name of registrant as specified in its charter)



            Nevada                  0-16090              87-0447375
 ----------------------------     -----------        -------------------
 (State or other jurisdiction     (Commission           (IRS Employer
      of incorporation)           File Number)       Identification No.)



     14651 Dallas Parkway, Suite 900, Dallas, Texas           75254
     ----------------------------------------------        ----------
        (Address of principal executive offices)           (Zip Code)


 Registrant's telephone number, including area code:  (972) 404-1637


                                Not Applicable
        (Former name or former address, if changed since last report.)




 The registrant hereby amends Item 7(a)  and Item 7(b) of its Current  Report
 on Form 8-K filed on January 29, 2003 and its amended Current Report on Form
 8-K/A filed on April 14, 2003,  for the purpose of correctly reporting  Rule
 11-02 (b)(5) of  Regulation S-X,  regarding Pro  Forma financial  statements
 required  in  connection  with  the  Registrant's  acquisition  of   Phoenix
 Indemnity Insurance Company.


 Item 7.  Financial Statements and Exhibits.
          a) Financial statements of business acquired



                     [This space left blank intentionally.]





                      Report of Independent Accountants



 To Board of Directors of
 Phoenix Indemnity Insurance Company

 In our opinion, the accompanying balance  sheet as of December 31, 2002  and
 the related statements  of operations,  comprehensive income,  stockholder's
 equity and  cash  flows  present  fairly,  in  all  material  respects,  the
 financial position of  Phoenix Indemnity Insurance Company  at  December 31,
 2002, and the results of its operations and its cash flows for the year then
 ended in conformity  with accounting  principles generally  accepted in  the
 United States of America.  These financial statements are the responsibility
 of the Company's management; our responsibility is to express an opinion  on
 these financial statements based on our audit.  We  conducted  our  audit of
 these statements in accordance with auditing standards generally accepted in
 the United States  of America, which  require that we  plan and perform  the
 audit to obtain reasonable assurance about whether the financial  statements
 are free of material misstatement.  An  audit includes examining, on a  test
 basis, evidence  supporting the  amounts and  disclosures in  the  financial
 statements,  assessing  the  accounting  principles  used  and   significant
 estimates made by management, and evaluating the overall financial statement
 presentation.  We believe that our audit provides a reasonable basis for our
 opinion.


 /s/ PricewaterhouseCoopers LLP
 PricewaterhouseCoopers LLP
 Dallas, Texas

 April 14, 2003




                      Report of Independent Accountants



 To Board of Directors of
 Phoenix Indemnity Insurance Company

 We  have  audited  the  accompanying  balance  sheet  of  Phoenix  Indemnity
 Insurance Company (the "Company")  as of December 31,  2001 and the  related
 statements of  operations, comprehensive  income, stockholder's  equity  and
 cash flows for  the year  then ended.   These financial  statements are  the
 responsibility of  the  Company's  management.   Our  responsibility  is  to
 express an opinion on these financial statements based on our audit.

 We conducted  our  audit in  accordance  with auditing  standards  generally
 accepted in the United States of  America.  Those standards require that  we
 plan and perform the audit to obtain reasonable assurance about whether  the
 financial statements are free of material  misstatement.  An audit  includes
 examining, on a test basis, evidence supporting the amounts and  disclosures
 in  the  financial  statements.    An  audit  also  includes  assessing  the
 accounting principles used and significant estimates made by management,  as
 well as evaluating the overall financial statement presentation.  We believe
 that our audit provides a reasonable basis for our opinion.

 In our opinion, such  financial statements present  fairly, in all  material
 respects, the financial position of the Company as of December 31, 2001  and
 the results of its operations and its cash flows for the year then ended, in
 conformity with  accounting  principles  generally accepted  in  the  United
 States of America.



 December 10, 2002
 (January 27, 2003 as to Note 12)

 /s/ Deloitte and Touche LLP




                       Phoenix Indemnity Insurance Company
                                 BALANCE SHEETS


                                                          December 31,
                                                      2002            2001
                                                  -----------     -----------
                        ASSETS
                        ------
 Investments:
   Debt securities, at estimated fair
     value, cost of $8,072,325 for 2002
     and $11,812,870 for 2001                    $  8,355,363    $ 11,986,036
   Equity securities, at estimated fair
     value, cost of $1,898,483 for 2002
     and $1,984,113 for 2001                        2,182,548       2,209,192
   Short-term investments                             334,881         334,902
                                                  -----------     -----------
   Total investments                               10,872,792      14,530,130

 Cash and cash equivalents                          6,944,946      12,161,194
 Investment income due and accrued                    126,900          97,071
 Reinsurance receivables                           11,086,237      12,305,940
 Prepaid reinsurance                                   38,264       4,231,383
 Premium receivable, net of allowance of
   $403,581 for 2002 and $416,792 for 2001          1,745,534       2,901,058
 Deferred policy acquisition costs                    918,429         115,377
 Property and equipment, net                           65,414         198,458
 Due from affiliates, net                             487,536         449,998
 Other assets                                          21,744          48,543
                                                  -----------     -----------
   Total assets                                  $ 32,307,796    $ 47,039,152
                                                  ===========     ===========
      LIABILITIES AND STOCKHOLDER'S EQUITY
      ------------------------------------
 Reserve for losses and loss
   adjustment expenses                           $ 15,740,230    $ 21,408,007
 Unearned premium                                   4,014,141       7,045,450
 Reinsurance payable                                        -       4,522,999
 Accounts payable and accrued expenses                800,858         533,324
 Other liabilities                                    232,497         244,462
                                                  -----------     -----------
   Total liabilities                               20,787,726      33,754,242

 Commitments and contingencies (Note 11)

 Stockholder's equity:
 Common stock, $6 par value; 500,000 shares
   authorized, issued and outstanding               3,000,000       3,000,000
 Additional paid-in capital                        18,795,457      19,658,190
 Accumulated deficit)                             (10,644,100)     (9,632,238)
 Accumulated other comprehensive income,
   net of tax                                         368,713         258,958
                                                  -----------     -----------
   Total stockholder's equity                      11,520,070      13,284,910
                                                  -----------     -----------
   Total liabilities and stockholder's equity    $ 32,307,796    $ 47,039,152
                                                  ===========     ===========


                 The accompanying notes are an integral part
                        of these financial statements



                       Phoenix Indemnity Insurance Company
                            STATEMENTS OF OPERATIONS

                                                    Year Ended December 31
                                                      2002            2001
                                                  -----------     -----------
 Revenues:
   Net premiums earned                           $ 16,717,486    $ 21,879,973
   Net investment income                              593,757       1,860,209
   Net realized capital gains and losses               34,662         843,671
                                                  -----------     -----------
     Total revenues                                17,345,905      24,583,853
                                                  -----------     -----------
 Costs and expenses:
   Losses and loss adjustment expenses             12,883,053      15,883,816
   Amortization of deferred policy
     acquisition costs                              4,315,028       5,432,936
   Underwriting and operating expenses                716,017       4,057,903
                                                  -----------     -----------
     Total costs and expenses                      17,914,098      25,374,655
                                                  -----------     -----------
 Operating loss                                      (568,193)       (790,802)

 Other expense                                       (502,769)       (582,055)
                                                  -----------     -----------
     Loss before income taxes                      (1,070,962)     (1,372,857)

 Income tax expense (benefit)                         (59,100)        260,000
                                                  -----------     -----------
    Net loss                                     $ (1,011,862)   $ (1,632,857)
                                                  ===========     ===========


                 The accompanying notes are an integral part
                        of these financial statements



                       Phoenix Indemnity Insurance Company
                       STATEMENTS OF COMPREHENSIVE INCOME

                                                     Year Ended December 31
                                                      2002            2001
                                                  -----------     -----------
 Net loss                                        $ (1,011,862)   $ (1,632,857)

 Other comprehensive income (loss),
   before income tax:
 Unrealized holding gains (losses)
   arising during period                              134,193      (1,586,249)
 Reclassification adjustment for gains
   (losses) included in net loss                       34,662         843,671
                                                  -----------     -----------
 Other comprehensive income (loss),
   before income tax                                  168,855        (742,578)
 Income tax benefit (provision) related to
   items of other comprehensive income (loss)         (59,100)        260,000
                                                  -----------     -----------
 Other comprehensive income (loss),
   net of income tax                                  109,755        (482,578)
                                                  -----------     -----------
 Net comprehensive loss                          $   (902,107)   $ (2,115,435)
                                                  ===========     ===========


                 The accompanying notes are an integral part
                        of these financial statements



                       Phoenix Indemnity Insurance Company
                       STATEMENTS OF STOCKHOLDER'S EQUITY

                                                                                              Accumulated
                                                                                                Other
                                                                Additional                   Comprehensive     Total
                                                    Common        Paid in     Accumulated       Income      Stockholder's
                                                     Stock        Capital       Deficit         (Loss)         Equity
                                                  -----------   -----------   -----------     -----------    -----------
                                                                                             
 Balance at January 1, 2001                      $  3,000,000  $ 21,158,190  $ (7,999,381)   $    741,536   $ 16,900,345
   Net loss                                                                    (1,632,857)                    (1,632,857)
   Change in net unrealized holding gains
     losses), net of tax provision of $260,000                                                   (482,578)      (482,578)
   Return of capital                                             (1,500,000)                                  (1,500,000)
                                                  -----------   -----------   -----------     -----------    -----------
 Balance at December 31, 2001                       3,000,000    19,658,190    (9,632,238)        258,958     13,284,910
   Net loss                                                                    (1,011,862)                    (1,011,862)
   Changes in net unrealized holding gains
     (losses), net of tax benefit of $59,000                                                      109,755        109,755
   Capital contribution                                             337,267                                      337,267
   Return of capital                                             (1,200,000)                                  (1,200,000)
                                                  -----------   -----------   -----------     -----------    -----------
 Balance at December 31, 2002                    $  3,000,000  $ 18,795,457  $(10,644,100)        368,713   $ 11,520,070
                                                  ===========   ===========   ===========     ===========    ===========


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



                        Phoenix Indemnity Insurance Company
                             STATEMENTS OF CASH FLOWS

                                                     Year Ended December 31
                                                      2002            2001
                                                  -----------     -----------

 Cash flows from operating activities:
 Net loss                                        $ (1,011,862)   $ (1,632,857)

 Adjustments to reconcile net income to cash
   used in operating activities:
   Depreciation and amortization                      133,044         102,906
   Deferred income taxes                              (59,100)        260,000
   Net realized gains on investments                  (34,662)       (843,671)
   Changes in operating assets and liabilities:
     Accrued investment income                        (29,829)        220,660
     Reinsurance receivables                        1,901,975      (7,744,902)
     Premiums receivables                           1,155,524       5,069,883
     Deferred acquisition costs                      (803,051)        849,817
     Other assets                                      26,799          11,843
     Reserve for losses and loss
       adjustment expenses                         (5,667,777)     (5,565,009)
     Unearned premiums                              1,161,810      (5,915,381)
     Accounts payable and accrued expenses            267,534        (348,830)
     Reinsurance payable                           (5,205,271)      3,483,038
     Due from affiliate, net                          (37,538)       (651,418)
     Other liabilities                                 26,212           9,318
                                                  -----------     -----------
       Net cash used in operating activities       (8,176,192)    (12,694,603)

 Cash flows from investing activities:
   Purchases of property and equipment                      -          (8,389)
   Proceeds from investment maturities and sales    7,178,439      33,027,062
   Purchases of investments                        (3,355,783)     (6,645,100)
   Change in other investments                             21         (17,776)
                                                  -----------     -----------
       Net cash provided by investing activities    3,822,677      26,355,797

 Cash flows from financing activities:
   Capital contribution                               337,267               -
   Return of Capital                               (1,200,000)     (1,500,000)
                                                  -----------     -----------
       Net cash used in financing activities         (862,733)     (1,500,000)

 Net (decrease) increase in cash and
   cash equivalents                                (5,216,248)     12,161,194

 Cash and cash equivalents, beginning of year      12,161,194               -
                                                  -----------     -----------
 Cash and cash equivalents, end of year          $  6,944,946    $ 12,161,194
                                                  ===========     ===========
 Supplemental cash flow disclosures:
    Cash paid during the year for:
      Income taxes                               $          -    $    333,510
                                                  ===========     ===========


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





 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    Organization
    Phoenix Indemnity  Insurance Company  (the "Company"),  a stock  property
    and casualty insurer, is licensed in 24 states and currently writes  non-
    standard  private  passenger  automobile  coverages  in  New  Mexico  and
    Arizona.  At December 31, 2002 the Company was a wholly owned  subsidiary
    of Millers American Group, Inc.  ("MAG"), a holding company  incorporated
    in Texas.  MAG also owned, prior to  December 1, 2002, Trilogy  Holdings,
    Inc.  ("Trilogy"),  The  Millers  Insurance Company ("Millers"),  Millers
    Holding  Corporation, Inc.  ("Holding"),  a  wholly  owned subsidiary  of
    Millers, The Millers Casualty Insurance Company ("Casualty"), and Millers
    General  Agency,  Inc. ("MGA").  On December 1, 2002, Hallmark  Financial
    Services  Inc.  ("Hallmark")  acquired  MGA.  Effective  January 1, 2003,
    Hallmark acquired the Company.

    Summary of significant accounting policies
    The accompanying financial  statements are presented  in conformity  with
    accounting principles generally accepted in the United States of  America
    ("GAAP").   These accounting principles differ in certain  respects  from
    accounting practices prescribed  or permitted by  the Arizona  Department
    of Insurance.

    Use of Estimates - The preparation of financial statements in  accordance
    with  GAAP  requires  management  to make estimates  and assumptions that
    affect the reported amounts of assets and liabilities  and  disclosure of
    contingent liabilities at the  date of the  financial statements and  the
    reported amounts of  revenues and expenses  during the reporting  period.
    The  most  significant  estimates  include  those  used  in   determining
    deferred policy  acquisition  costs  and reserves  for  losses  and  loss
    adjustment expenses.   Actual  results  could differ  significantly  from
    those estimates.

    Investments -  Debt  and  equity securities  and  other  investments  are
    classified as  available  for sale  and  are carried  at  estimated  fair
    values with  unrealized  holding  gains and  losses  net  of  income  tax
    effects  are reported as a separate component  of equity  until realized.
    Realized gains and losses upon  disposition of securities are  determined
    by using the specific identification method.

    Costs  of  debt  securities  and  equity  securities  are  adjusted   for
    impairments, which are declines in value that are considered to be  other
    than temporary.  Impairment adjustments  are  included in  "Net  realized
    capital gains and losses."  In evaluating whether a  decline in value  is
    other than temporary,  the Company considers  several factors  including,
    but  not  limited  to   the  following:  (1)   whether  the  decline   is
    substantial; (2) the  duration (generally greater  than six months);  (3)
    the reasons for the decline  in value (credit event, interest related  or
    market fluctuation); (4)  the Company's ability  and intent  to hold  the
    investments for a period of  time to allow for  a recovery of value;  and
    (5) the financial condition of and near-term prospects of the issuer.

    Cash and Cash Equivalents  - The Company  considers all investments  with
    maturities  at  acquisition  of   three  months  or   less  to  be   cash
    equivalents.

    Deferred  Policy   Acquisition  Costs   -   Acquisition  costs  such   as
    commissions, premium  taxes and certain  other expenses  which vary  with
    and are directly related to the production of business, are deferred  and
    amortized over the  effective period of  the related insurance  policies.
    The  method followed  in  computing  deferred  policy  acquisition  costs
    limits the amount of  such deferred costs  to their estimated  realizable
    value, which  gives  effect to  premiums  to  be earned,  loss  and  loss
    adjustment expenses and  certain other maintenance  costs expected to  be
    incurred as the premiums  are earned but  does not include  consideration
    of anticipated investment  income.  To  the extent  that deferred  policy
    acquisition costs  are  not  realizable, the  deficiency  is  charged  to
    income currently.

    Reinsurance Receivables  - Reinsurance  is commonly  utilized within  the
    industry  as  a  means  of  risk  sharing, and the Company is involved in
    many  reinsurance treaties  to  protect  from  catastrophic  losses.  The
    reinsuring companies are obligated  to the Company to  the extent of  the
    reinsured  portion  of  the  underlying risks.   The  amounts  for  ceded
    losses,  loss adjustment  expenses  and  unearned  premiums  represent  a
    continuing liability for  the Company in  the event  that reinsurers  are
    unable to meet their obligations under the reinsurance agreements.

    Property and Equipment - Property  and equipment are stated at cost  less
    accumulated depreciation.   Depreciation  and amortization  are  computed
    using the straight-line method with  estimated useful lives ranging  from
    5 to 7 years for furniture and equipment.

    Reserve for Losses and Loss Adjustment Expenses - The reserve for  unpaid
    losses and  loss adjustment  expenses is  based on  aggregate case  basis
    estimates for reported losses and estimates of incurred but not  reported
    losses based on past  experience.  Such reserve  is based upon  estimates
    and, while  management believes  that the  amount is  fairly stated,  the
    ultimate liability may vary from  the amount provided.  The methods  used
    to make  such estimates  and  to establish  the resulting  liability  are
    continually reviewed and any adjustments  to these methods are  reflected
    in current operations.

    Premiums - Premiums are earned on a pro rata basis over the terms of  the
    policies.  Unearned  premiums represent the  portion of premiums  written
    that relates to the  unexpired terms of the  policies in force.   Prepaid
    reinsurance  represents  the  unearned   portion  of  premiums  paid   to
    reinsurers.   Earned   premiums  include  amounts  relating  to   assumed
    reinsurance and are stated net of reinsurance ceded.

    Income Taxes - Effective September  1, 2000, the Company was included  in
    MAG's consolidated federal income tax  return.  Federal income taxes  are
    calculated as if the  Company and MAG filed  on a separate return  basis.
    Deferred tax  assets and  liabilities are  recognized for  the  estimated
    future  tax  consequences   attributable  to   differences  between   the
    financial statement carrying amounts  of existing assets and  liabilities
    of their respective tax bases.   Deferred tax assets and liabilities  are
    measured using enacted tax  rates in effect for  the year in which  those
    temporary  differences  are expected  to  be  recovered  or settled.  The
    effect on deferred tax  assets and liabilities of  a change in tax  rates
    is recognized in income in the period the change becomes effective.

    Recently issued accounting pronouncements
    In June  2001,  the FASB  issued  SFAS No.  141  "Business  Combinations"
    ("SFAS 141") and No.  142 "Goodwill and  Other Intangible Assets"  ("SFAS
    142").  SFAS  141 prohibits the  use of the  pooling of interests  method
    for business combinations initiated after June 30, 2001 and also  applies
    to all business combinations  accounted for by  the purchase method  that
    are completed after June 30, 2001.  There are also transition  provisions
    that apply to business  combinations completed before  July 1, 2001  that
    were accounted for  by the purchase  method.  SFAS  142 is effective  for
    fiscal years  beginning after  December  15, 2001  for all  goodwill  and
    intangible  assets recognized  in  an  entity's  statement  of  financial
    position at  that date  regardless of  when those  assets were  initially
    recognized.   The adoption  of  SFAS 141  and SFAS  142  did not  have  a
    material effect on the Company's financial statements.

    The  FASB  issued  SFAS  No.   143,  "Accounting  for  Asset   Retirement
    Obligations" ("SFAS 143") in June 2001 and SFAS No. 144, "Accounting  for
    the Impairment or Disposal of  Long-Lived Assets" ("SFAS 144") in  August
    2001.   SFAS  143   addresses  reporting  for  future  legal  obligations
    associated with  the retirement  of tangible  long-lived assets  and  the
    related asset  retirement costs.   SFAS 144  supercedes earlier  guidance
    with respect  to accounting  for  assets that  are  impaired or  will  be
    disposed  of through  sale  or  otherwise  and  is  effective  for  years
    beginning after December  15, 2001.   The adoption of  SFAS 143 and  SFAS
    144  did  not  have  a   material  effect  on  the  Company's   financial
    statements.

    In April  2002,  the  FASB  issued SFAS  No.  145,  "Rescission  of  FASB
    Statements No. 4,  44, and  64, Amendment of  FASB Statement  No 13,  and
    Technical Corrections"  ("SFAS 145").  SFAS  145  rescinds  SFAS  No.  4,
    "Reporting  Gains  and  Losses  from  Extinguishment  of  Debt,"  and  an
    amendment of that Statement, SFAS  No. 64, "Extinguishments of Debt  Made
    to  Satisfy  Sinking-Fund Requirements."  This  Statement  also  rescinds
    SFAS No. 44, "Accounting for Intangible Assets of Motor Carriers."   This
    Statement amends SFAS No.  13, "Accounting for  Leases," to eliminate  an
    inconsistency  between   the  required   accounting  for   sale-leaseback
    transactions and the required accounting for certain lease  modifications
    that  have   economic  effects   that  are   similar  to   sale-leaseback
    transactions.  This  Statement also amends  other existing  authoritative
    pronouncements to make various  technical corrections, clarify  meanings,
    or describe their applicability  under changed conditions.   SFAS 145  is
    effective for financial statements issued on or after May 15, 2002.   The
    adoption of SFAS  145 did  not have a  material effect  on the  Company's
    financial statements.

    In June  2002,  the FASB  issued  SFAS  No. 146,  "Accounting  for  Costs
    Associated With  Exit or  Disposal Activities"  ("SFAS 146").   SFAS  146
    addresses financial accounting  and reporting for  costs associated  with
    exit or  disposal activities  and nullifies  Emerging Issues  Task  Force
    ("EITF") Issue  No. 94-3,  "Liability  Recognition for  Certain  Employee
    Termination Benefits  and  Other Costs  to  Exit an  Activity  (including
    Certain Costs Incurred in a  Restructuring)."  SFAS 146 is effective  for
    exit or disposal activities that  are initiated after December 31,  2002.
    The Company does not expect the adoption  of SFAS 146 to have a  material
    effect on its financial statements.

    In October 2002, the FASB  issued SFAS No. 147, "Acquisitions of  Certain
    Financial Institutions" ("SFAS  147").  Except  for transactions  between
    two or more  mutual enterprises, this  Statement removes acquisitions  of
    financial  institutions  from  the  scope   of  both  Statement  72   and
    Interpretation 9 and  requires that those  transactions be accounted  for
    in accordance with  SFAS 141 and  SFAS 142. In  addition, this  Statement
    amends SFAS 144 to include  in its scope long-term  customer-relationship
    intangible  assets of  financial  institutions  such  as  depositor - and
    borrower-relationship intangible assets and credit cardholder  intangible
    assets. This statement was  effective October 1, 2002.   The adoption  of
    SFAS 147  did not  have  a material  effect  on the  Company's  financial
    statements.

    In November 2002,  the FASB  issued Interpretation  No. 45,  "Guarantor's
    Accounting  and   Disclosure  Requirements   for  Guarantees,   Including
    Indirect  Guarantees of  Indebtedness  of  Others"  ("FIN  45").  FIN  45
    elaborates on the disclosures  to be made by  a guarantor in its  interim
    and annual  financial  statements  about its  obligations  under  certain
    guarantees that  it has issued.  It also  clarifies that  a guarantor  is
    required to recognize, at the  inception of a guarantee, a liability  for
    the fair value  of the obligation  undertaken in  issuing the  guarantee.
    The  initial measurement  provisions  of  FIN  45  are  applicable  on  a
    prospective basis  to guarantees  issued or  modified after  December 31,
    2002. The  disclosure requirements  of  FIN 45  are effective  for  years
    ending  after  December 15, 2002.  The adoption of FIN 45 did not  have a
    material effect on the Company's financial statements.

    In December 2002, the  FASB issued SFAS  No. 148, "Accounting for  Stock-
    Based   Compensation-Transition   and   Disclosure"   ("SFAS 148").   The
    Statement amends SFAS 123  to provide alternative  methods of  transition
    for voluntary change  to the fair  value based method  of accounting  for
    stock-based  employee compensation.  In  addition,  SFAS 148  amends  the
    disclosure requirements of SFAS 123 to require  prominent disclosures  in
    both  annual  and  interim  financial  statements  about  the  method  of
    accounting for stock-based  employee compensation and  the effect of  the
    method used  on reported  results. SFAS 148  is effective  for  financial
    statements  for  fiscal  years  ending  after  December  15,  2002.   The
    adoption of SFAS  148 did  not have a  material effect  on the  Company's
    financial statements.

    In January 2003, the FASB issued Interpretation No. 46 "Consolidation  of
    Variable Interest Entities, an interpretation of ARB 51" ("FIN 46").  The
    primary  objectives  of   FIN  46  are   to  provide   guidance  on   the
    identification of entities  for which control  is achieved through  means
    other  than  through  voting  rights  ("variable  interest  entities"  or
    "VIEs") and how to  determine when and  which business enterprise  should
    consolidate the  VIE  (the "primary  beneficiary").  This new  model  for
    consolidation applies to an entity which either (1) the equity  investors
    (if any) do not have  a controlling financial interest or (2) the  equity
    investment at risk  is insufficient to  finance that entity's  activities
    without receiving additional  subordinated financial  support from  other
    parties. In addition, FIN 46  requires that both the primary  beneficiary
    and all other enterprises with  a significant variable interest in a  VIE
    make additional disclosures.   The Company does  not expect the  adoption
    of FIN 46 to have a material effect on its financial statements.

    Statutory financial information
    The  Company  prepares  its  statutory  basis  financial  statements   in
    accordance  with  accounting  principles  and  practices  prescribed   or
    permitted by the Arizona Department  of Insurance.  Prescribed  statutory
    accounting practices include  a variety of  publications of the  National
    Association  of  Insurance  Commissioners  ("NAIC"),  as  well  as  state
    laws, regulations and general administrative  rules.  Permitted statutory
    accounting  practices   encompass  all   accounting  practices   not   so
    prescribed.

    In March 1998, the NAIC adopted the Codification of Statutory  Accounting
    Principles ("Codification").   The  Codification,  which is  intended  to
    standardize  regulatory  accounting  and  reporting  for  the   insurance
    industry, was effective January 1,  2001.  However, statutory  accounting
    principles will continue to be  established by individual state laws  and
    permitted practices.  The impact of adoption of the Codification was  not
    material to the Company's statutory basis capital and surplus.

    Reconciliations of  statutory basis capital  and surplus  as of  December
    31,  2002 and  2001,  to  the  respective  amounts  as  reported  in  the
    accompanying financial statements prepared in accordance with  accounting
    principles  generally  accepted  in the United States of America ("GAAP")
    are as follows:

                                                      2002            2001
                                                  -----------     -----------
    Statutory basis capital and surplus          $ 10,137,673    $ 11,492,335
    Deferred acquisition costs                        918,429         115,377
    Reinstatement of non-admitted assets               49,590         106,764
    Adjustment of written premiums ceded              131,340       1,393,039
    Adjustment of the carrying value of
      investment securities                           283,038         177,395
                                                  -----------     -----------
    GAAP stockholder's equity                    $ 11,520,070    $ 13,284,910
                                                  ===========     ===========


    Reconciliations of statutory basis net loss for the years ended  December
    31,  2002 and  2001,  to  the  respective  amounts  as  reported  in  the
    accompanying financial statements prepared in accordance with GAAP are as
    follows:

                                                      2002            2001
                                                  -----------     -----------
    Statutory basis net loss                     $ (2,877,621)   $ (1,803,714)

    Adjustment of bad debt allowance                  319,751               -
    Changes in deferred acquisition costs             803,052        (849,817)
    Valuation allowances on premiums receivable             -        (137,768)
    Valuation allowances on related
      party receivables                                     -        (766,713)
    Adjustment of written premiums ceded                    -       1,393,039
    Recovery of intercompany balance receivable       593,423               -
    Realized gains on sales of investments             12,872         792,116
    Deferred income taxes                              59,100        (260,000)
    Other income                                       77,561               -
                                                  -----------     -----------
    GAAP net loss as reported herein             $ (1,011,862)   $ (1,632,857)
                                                  ===========     ===========


 2. INVESTMENTS

    Net investment income for the years ended December 31 is as follows:

                                                      2002            2001
                                                  -----------     -----------
     Gross investment income:
       Debt securities                           $    374,451    $  1,330,753
       Equity securities                              105,876         157,540
       Cash and cash equivalents                      123,376         389,342
       Other                                            4,678              54
                                                  -----------     -----------
     Total investment income                          608,381       1,877,689
     Less investment expenses                         (14,624)        (17,480)
                                                  -----------     -----------
     Net investment income                       $    593,757    $  1,860,209
                                                  ===========     ===========


    Proceeds  from sales, gross  realized gains, gross  realized losses,  and
    net realized gains  (losses) from sales of investment securities for  the
    years ended December 31, 2002 and 2001, consist of the following:

                                           December 31, 2002
                        -----------------------------------------------------
                                         Gross        Gross           Net
                                        Realized     Realized       Realized
                         Proceeds        Gains        Losses         Gains
                        -----------   -----------   -----------   -----------
     Bonds             $  7,108,665  $    269,895  $     (6,738) $    263,157
     Common stocks
     (non- affiliated)       69,774        52,132             -        52,132
                        -----------   -----------   -----------   -----------
                       $  7,178,439  $    322,027  $     (6,738) $    315,289
                        ===========   ===========   ===========   ===========

                                           December 31, 2001
                        -----------------------------------------------------
                                         Gross        Gross           Net
                                        Realized     Realized       Realized
                         Proceeds        Gains        Losses         Gains
                        -----------   -----------   -----------   -----------
     Bonds             $ 31,072,176  $    815,794  $    (73,203) $    742,591
     Preferred stocks     1,448,886       125,152       (24,072)      101,080
                        -----------   -----------   -----------   -----------
                       $ 32,521,062  $    940,946  $    (97,275) $    843,671
                        ===========   ===========   ===========   ===========


    At December 31,  2002, the Company identified two debt securities,  which
    were  considered to  be impaired, and  reduced their  carrying values  by
    $212,640.  Also  at December 31, 2002, the Company identified two  equity
    securities,  which were  considered  to be  impaired, and  reduced  their
    carrying  value  by $67,987.  These impairment losses have been  included
    in "Net realized capital gains and losses".

    The  cost or  amortized  cost, gross  unrealized  gains and  losses,  and
    estimated fair  value of investments in available-for-sale securities  as
    of December 31, 2002 and 2001, are as follows:

                                             December 31, 2002
                              -------------------------------------------------
                               Cost or       Gross        Gross      Estimated
                              Amortized    Unrealized   Unrealized     Fair
                                Cost         Gains        Losses       Value
                              ----------   ----------   ----------   ----------
    Debt securities:
      U.S. Treasury
        activities and
        obligations of U.S.
        government agencies  $ 3,601,171  $   174,923  $         -  $ 3,776,094
     Corporate securities      4,471,154      108,115            -    4,579,269
                              ----------   ----------   ----------   ----------
    Total debt maturities    $ 8,072,325  $   283,038  $         -  $ 8,355,363
                              ==========   ==========   ==========   ==========
    Equity securities:
      Preferred stocks       $ 1,220,700  $    84,330  $    (6,500) $ 1,298,530
      Common stocks              677,783      229,113      (22,878)     884,018
                              ----------   ----------   ----------   ----------
    Total equity securities  $ 1,898,483  $   313,443  $   (29,378) $ 2,182,548
                              ==========   ==========   ==========   ==========


                                             December 31, 2001
                              -------------------------------------------------
                               Cost or       Gross        Gross      Estimated
                              Amortized    Unrealized   Unrealized     Fair
                                Cost         Gains        Losses       Value
                              ----------   ----------   ----------   ----------
    Debt securities:
      U.S. Treasury
        activities and
        obligations of U.S.
        government agencies  $ 5,394,235  $   337,363  $   (64,552) $ 5,667,046
    Corporate securities       6,418,635            -      (99,645)   6,318,990
                              ----------   ----------   ----------   ----------
    Total debt maturities    $11,812,870  $   337,363  $  (164,197) $11,986,036
                              ==========   ==========   ==========   ==========
    Equity securities:
      Preferred stocks       $ 1,220,700  $    31,800  $   (22,500) $ 1,230,000
      Common stocks              763,413      273,385      (57,606)     979,192
                              ----------   ----------   ----------   ----------
    Total equity securities  $ 1,984,113  $   305,185  $   (80,106) $ 2,209,192
                              ==========   ==========   ==========   ==========

    Property  and  casualty  insurance companies  are  required  to  maintain
    assets with  state regulatory authorities.   Such assets are included  as
    components  of  debt securities  and  have  an aggregate  fair  value  of
    $3,601,172 and $3,968,916 at December 31, 2002 and 2001, respectively.

    The  amortized  cost and  estimated  fair  value of  debt  securities  at
    December 31,  2002, by contractual maturity,  are shown below.   Expected
    maturities will differ from contractual maturities because borrowers  may
    have the right to call or prepay obligations with or without penalties.

                                                       December 31, 2002
                                                  ---------------------------
                                                                   Estimated
                                                  Amortized          Fair
                                                     Cost            Value
                                                  -----------     -----------
       Due in one year or less                   $          -    $          -
       Due after one year through five years        6,025,335       6,285,277
       Due after five years through ten years       1,184,982       1,208,078
       Due after ten years                            862,008         862,008
                                                  -----------     -----------
       Total                                     $  8,072,325    $  8,355,363
                                                  ===========     ===========


 3.   FAIR VALUE OF FINANCIAL INSTRUMENTS

      In the  normal  course of  business,  the Company  invests  in  various
      financial assets and incurs  various financial liabilities.   Estimated
      fair value amounts have been determined by the Company using  available
      market information and appropriate  valuation methodologies.   However,
      considerable judgment is required to  interpret market data to  develop
      the estimates  of fair  value.   Accordingly, the  estimates  presented
      herein are not necessarily indicative of the amounts the Company  could
      realize in a  current market  exchange.   The use  of different  market
      assumptions and/or estimation methodologies may have a material  effect
      on the estimated fair value amounts.

      The  Company's   financial  instruments   include:    cash   and   cash
      equivalents,  investments,   premiums   and   reinsurance   receivable,
      reinsurance premiums payable, accounts payable and drafts  outstanding.
      The Company has  estimated that the  carrying amount of  cash and  cash
      equivalents,   short-term   investments,   premiums   and   reinsurance
      receivable, reinsurance premiums payable,  accounts payable and  drafts
      outstanding approximates fair value due to the short-term maturities of
      these  instruments.  The fair value  of the  Company's investments  was
      $10,537,911  as  of December 31, 2002,  which  exceeded  the  amortized
      cost by  $567,103.  The  fair  value  of the Company's investments  was
      $14,195,228 as of December 31, 2001, which exceeded the amortized  cost
      by $398,245.


 4.   DEFERRED POLICY ACQUISITION COSTS

      Deferred policy acquisition  costs ("DPAC") and  the components of  the
      change in DPAC were as follows:

                                                 Year Ended December 31,
                                               ---------------------------
                                                   2002            2001
                                               -----------     -----------
           Balance, beginning of year         $    115,377    $    965,194
           Change in balance:
             Deferrals                           5,002,703       4,583,119
             Amortization                       (4,015,593)     (4,622,467)
             Premium deficiency                   (184,058)       (810,469)
                                               -----------     -----------
             Net change                            803,052        (849,817)
                                               -----------     -----------
           Balance, end of year               $    918,429    $    115,377
                                               ===========     ===========


 5. PROPERTY AND EQUIPMENT

    Property  and  equipment  are  carried  at  cost,  less  allowances   for
    depreciation,  and consist  of the  following at  December 31,  2002  and
    2001:

                                                   2002            2001
                                               -----------     -----------
           Leasehold improvements             $      7,200    $      7,200
           Furniture and equipment               2,275,853       2,275,853
                                               -----------     -----------
                                                 2,283,053       2,283,053
           Accumulated depreciation             (2,217,639)     (2,084,595)
                                               -----------     -----------
           Property and equipment, net        $     65,414    $    198,458
                                               ===========     ===========


    Depreciation expense was $133,044 and $217,027 for 2002 and 2001,
    respectively.


 6. RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES

    Activity in the reserve for losses and loss adjustment expenses is
    summarized as follows (in thousands):

                                                   2002            2001
                                               -----------     -----------
           Balance at January 1               $     21,408    $     26,973
             Less reinsurance receivables            8,115           4,483
                                               -----------     -----------
             Net balance at January 1               13,293          22,490

             Incurred related to:
               Current year                         12,184          18,870
               Prior years                             699          (2,986)
                                               -----------     -----------
             Total incurred                         12,883          15,884
                                               -----------     -----------
             Paid related to:
                 Current year                        6,467          12,085
                 Prior years                         9,517          12,996
                                               -----------     -----------
             Total paid                             15,984          25,081
                                               -----------     -----------
             Net balance at December 31             10,192          13,293
             Plus reinsurance receivables            5,548           8,115
                                               -----------     -----------
           Balance at December 31             $     15,740    $     21,408
                                               ===========     ===========


    Changes in the provision for incurred losses and loss adjustment expenses
    are  the  result  of  ongoing analysis of recent loss development trends.
    Original estimates are  increased  or decreased as additional information
    becomes known regarding individual claims.  For the  year  ended December
    31, 2002 and 2001, the provisions for incurred losses and loss adjustment
    expenses  attributable  to  insured  events  of  prior years increased by
    approximately  $0.7  million  and  decreased approximately  $3.0 million,
    respectively,  as  a result  of  higher  than anticipated losses and loss
    adjustment expenses in 2002 and lower than  anticipated  losses and  loss
    adjustment  expenses  in  2001 principally on  auto  liability  lines  of
    insurance.


 7. REINSURANCE

    The  Company  limits  the  maximum  net  loss  on  any  one  incident  by
    reinsuring  (ceding) certain levels  of  risks  principally through quota
    share  agreements  with  other  insurers  or  reinsurers,  either  on  an
    automatic basis under general  reinsurance contracts or  on an individual
    risk basis.  Reinsurance  contracts  do not  relieve  the    Company from
    obligations  to  its  policyholders.  In  the event that  the  reinsuring
    companies  are  unable   to  meet  their  obligations  under  reinsurance
    agreements  significant losses  to the  Company could  occur.  Management
    believes  that  all  amounts currently  due  from  reinsurers  are  fully
    collectible.

    For the years ended December 31, 2002 and 2001, amounts assumed and ceded
    under reinsurance agreements were as follows (in thousands):

                                            December 31, 2002
                            -------------------------------------------------
                              Direct      Assumed       Ceded          Net
                            ----------   ----------   ----------   ----------
      Premiums written     $    24,312  $        19  $    (6,270) $    18,061
      Earned premium            30,346           46      (13,675)      16,717
      Losses and loss
       adjustment expenses
       incurred                 22,083          479       (9,679)      12,883


                                            December 31, 2001
                            -------------------------------------------------
                              Direct      Assumed       Ceded          Net
                            ----------   ----------   ----------   ----------
      Premiums written     $    35,521  $     1,823  $   (23,414)   $  13,930
      Earned premium            39,360        3,899      (21,379)      21,880
      Losses and loss
        adjustment expenses
        incurred                29,050        3,016      (16,182)      15,884


    The maximum amount of unearned premium which would have been due from  or
    to the Company if all of  the Company's reinsurance had been canceled  as
    of December 31, 2002 and 2001, would be as follows:

                                                     2002         2001
                                                  ---------     ---------
      Assumed unearned premium reserve payable   $    3,893    $   31,500
      Ceded unearned prepaid premium                 38,264     4,231,000


    The  Company  has  unsecured reinsurance recoverables for loss  and  loss
    adjustment expenses, unearned premiums ceded, and contingent commissions,
    net of related allowance for doubtful accounts, which  are significant in
    relation to stockholder's equity, with the following reinsurers:

                                                     2002         2001
                                                  ---------     ---------
      St. Paul Fire & Marine Insurance Company   $  112,000    $1,050,000
      Acceptance Insurance Company                        -       805,000
      AXA Reassurances                                    -     7,918,000


 8. INCOME TAXES

    The  Company's  federal  tax  return  was  combined  with  MAG,  Trilogy,
    Millers,  Millers  Holding,  Casualty,  and  MGA.   The   method  of  tax
    allocation  among  the  companies  was  subject  to  written   agreement,
    approved by  the Board  of Directors,  whereby the  allocation was  based
    upon separate  return calculations with  current credit  for net  losses.
    Intercompany tax balances are settled annually when the return is filed.

    As  of December 31, 2002,  the Company had operating loss carry  forwards
    in the  amount of  approximately  $5,300,000.  All  operating loss  carry
    forwards  will expire in 2021.  The Company has no income taxes  incurred
    in current and prior years that  will be available for recoupment in  the
    event of future losses.

    The income tax provision  consist  of  the  following  components for the
    years ended December 31:

                                                     2002         2001
                                                  ---------     ---------
             Current                             $        -    $        -
             Deferred                               (59,100)      260,000
                                                  ---------     ---------
             Provision for income taxes          $  (59,100)   $  260,000
                                                  =========     =========

    The  provision  for federal income taxes incurred is different from  that
    which would  be obtained  by applying  the statutory  federal income  tax
    rate to income before income  taxes.  The significant items causing  this
    difference are as follows:

                                                     2002         2001
                                                  ---------     ---------
           Provision (benefit) computed at
             statutory rate                      $ (328,987)   $ (597,290)
           Change in valuation allowance            285,000     1,030,000
           Dividends received deduction             (21,573)      (38,413)
           Tax exempt interest                            -        (5,979)
           Investments                                    -      (138,613)
           Other                                      6,460        10,295
                                                  ---------     ---------
           Provision for income taxes            $  (59,100)   $  260,000
                                                  =========     =========


    The tax  effect of temporary  differences are  separately calculated  and
    recorded when such  differences arise.   A valuation allowance,  reducing
    any recognized deferred tax asset,  is recorded if it is determined  that
    it is  more likely  than not that  such deferred  tax asset  will not  be
    realized.  The  Company established a  valuation allowance of  $4,285,000
    and  $4,627,000 at  December  31,  2002 and  2001,  respectively,  as  it
    determined that  it is not  more likely than  not that  the Company  will
    realize the benefit of its deferred tax assets.

    The tax effects  of temporary differences that  give rise to  significant
    portions of the deferred tax assets and deferred tax liabilities were  as
    follows (in thousands):

                                                        2002         2001
                                                     ---------     ---------
         Deferred tax assets:
         Discounted losses and loss adjustment
           expense reserves and unearned premiums   $      635    $    1,253
         Tax credit and net operating loss
           carryforwards                                 1,849           772
         Goodwill                                        1,978         2,147
         Investment impairments                            176            81
         Premium receivable allowance                      152           531
         Other deferred assets                              92            73
                                                     ---------     ---------
         Total deferred tax assets                       4,882         4,857
                                                     ---------     ---------

         Deferred policy acquisition costs                 321            40
         Unrealized holding gain on investments            198           139
         Other deferred tax liabilities                     78            51
                                                     ---------     ---------
         Total deferred tax liabilities                    597           230

         Valuation allowance                            (4,285)       (4,627)
                                                     ---------     ---------
           Net deferred tax asset                   $        -    $        -
                                                     =========     =========


 9. DIVIDEND RESTRICTIONS

    Arizona insurance regulations generally limit distributions of unassigned
    surplus  made  by property  and  casualty  insurers in any  year, without
    prior regulatory approval, to the lesser of 10% of policyholders' surplus
    of the previous year-end or net investment income for the prior year.  No
    distributions are  available in 2003  without prior regulatory  approval.
    Distributions of  $1,200,000 and  $1,500,000 were  made during  2002  and
    2001,  respectively.   The  distribution  for 2002  exceeded  the  amount
    allowed by  the  Arizona Department  of  Insurance and  was  subsequently
    reclassified as a return of shareholder's capital.


 10.RELATED PARTY TRANSACTIONS

    The Company had a receivable of  $480,000 from MGA at December 31,  2002.
    Hallmark assumed  the obligation to  the Company in  connection with  its
    acquisition  of  MGA  effective  December  1, 2002.   A  portion  of  the
    receivable in the amount of $337,267, is included in equity as a  capital
    contribution for  the year  ended December  31, 2002.   The  Company  had
    receivables of $549,004  from Millers and payables  of $99,004 to MAG  at
    December 31, 2001.

    The Company repaid capital of $1,200,000  and  $1,500,000  to  MAG during
    2002 and 2001, respectively.

    The Company  paid management fees  of $1,200,000 to  MAG during 2002  and
    2001, respectively.

    The Company  has an  agreement  whereby MAG  provides policy  and  claims
    administration services through  a third party  administrator.  Fees  for
    such services are based  on varying percentages of earned premiums,  fees
    per policy processed  or fees per  claim processed.   Total fees paid  to
    MAG  under  this  agreement  during  the  year  ended  December 31,  2002
    were  $2,371,306 for  policy  administration  and  $2,056,410  for  claim
    administration. Total fees  paid to MAG under  this agreement during  the
    year ended December  31, 2001 were  $2,949,375 for policy  administration
    and $3,813,129 for claims administration.

    During the  year ended December  31, 2002, MAG  defaulted on payments  of
    $510,000 to the third party administrator for policy and claims  services
    for the  Company's business.   The Company  had previously  paid MAG  for
    such services pursuant  to an inter-company agreement.   The Company  has
    continued receiving  services from  the third  party administrator  after
    year-end and is now paying the provider directly for such services.


 11. COMMITMENTS AND CONTINGENCIES

    In  the  normal course of its  operations, the Company has been named  as
    defendant  in various  legal  actions,  some of  which  seek  substantial
    amounts for denied claims and other punitive damages.  In the opinion  of
    management  and  its  legal  counsel,  the  ultimate  liability,  if  any
    resulting from the disposition of these claims, will not have a  material
    adverse  effect   on  the  Company's   financial  position,  results   of
    operations or cash flows.


 12. SUBSEQUENT EVENTS

    In  2002,  Hallmark purchased from  a bank a  promissory note in  default
    payable by MAG (the "Millers  Note") which was guaranteed by Trilogy  and
    secured by  all of the  issued and outstanding  capital stock of  Millers
    and the Company.

    In lieu of immediate  foreclosure of the collateral securing the  Millers
    Note, Hallmark  negotiated with  MAG  to accept  all of  the  outstanding
    capital stock  of the  Company in  satisfaction of  $7.0 million  of  the
    outstanding  balance  of  the  Millers Note.  The  proposed exchange  was
    contingent on  execution of  a mutually  acceptable definitive  agreement
    and regulatory approval  of Hallmark's Form A  application for change  of
    control  previously  filed with the Arizona Department of Insurance.  The
    Arizona Department of Insurance  approved the transaction on January  27,
    2003.   The  effective  date of  the  transaction was  January  1,  2003.
    Therefore, effective January 1,  2003, the Company became a  wholly-owned
    subsidiary of Hallmark.



 Item 7.  Financial Statements and Exhibits
          b)  Pro forma financial information

      The  following  unaudited  Pro  Forma  Consolidated  Balance  Sheet  of
      Hallmark  is  presented  as  if the  acquisition  of  the  Company  had
      occurred  on  December 31,  2002.  The following  unaudited  Pro  Forma
      Consolidated Statements  of Operations of Hallmark  for the year  ended
      December 31, 2002 assume this transaction had occurred as of January 1,
      2002.  The Pro  Forma Consolidated  Balance Sheet was derived from  the
      Consolidated Balance Sheet of Hallmark and its subsidiaries  filed with
      Hallmark's Annual Report on  Form  10-KSB as of and for the year  ended
      December 31,  2002.  The Pro Forma Consolidated Statement of Operations
      were derived from the Consolidated Statements of Operations of Hallmark
      and its subsidiaries filed with Hallmark's Annual Report on Form 10-KSB
      as  of  and  for  the  year  ended December 31, 2002.  In  management's
      opinion,  all of the  material  adjustments  necessary  to  reflect the
      effects  of the acquisition transaction have been made.  The  Pro Forma
      Consolidated Balance  Sheet  is  not necessarily indicative of what the
      actual  financial position would have been assuming the transaction had
      been completed as of December  31, 2002, nor does it purport to present
      the future financial position of Hallmark.  Additionally, the Pro Forma
      Consolidated Statement  of Operations is not necessarily indicative  of
      what  the actual  results of  operations of  Hallmark would  have  been
      assuming  the transaction had  been completed at the beginning  of  the
      period  presented,  nor does  it  purport  to present  the  results  of
      operations for future periods.

      The Acquisition

      In  2002,  Hallmark purchased from a bank a promissory note in  default
      payable by MAG (the "Millers Note") which was guaranteed by Trilogy and
      secured by  all of the  issued and outstanding capital stock of Millers
      and the Company.

      In lieu of immediate foreclosure of the collateral securing the Millers
      Note, Hallmark  negotiated with  MAG  to accept  all of the outstanding
      capital stock of the Company in  satisfaction of  $7.0 million  of  the
      outstanding balance  of the  Millers Note.  The  proposed exchange  was
      contingent on execution of  a mutually  acceptable definitive agreement
      and regulatory approval of Hallmark's Form A  application for change of
      control previously filed with the Arizona Department of Insurance.  The
      Arizona Department of Insurance approved the transaction on January 27,
      2003.   The  effective  date of  the  transaction was  January 1, 2003.
      Therefore, effective January 1, 2003, the Company became a wholly-owned
      subsidiary of Hallmark.

      The  acquisition of  the Company  was accounted  for by  Hallmark as  a
      purchase transaction in accordance with SFAS 141.  The following  table
      summarizes  the  estimated  fair values  of  the  assets  acquired  and
      liabilities assumed by Hallmark at the date of acquisition:


                           At January 1, 2003
                            ($ In Thousands)

             Investments                            $  10,873
             Cash and cash equivalents                  6,945
             Furniture, fixtures and equipment              -
             Deferred tax asset, net                    3,365
             Other assets                              12,997
             Intangible assets                              -
             Goodwill                                       -
                                                     --------
             Total assets acquired                     34,180
                                                     --------
             Unpaid losses and loss adjustment
               expense                                 15,886
             Other liabilities                          3,642
                                                     --------
             Total liabilities assumed                 19,528
                                                     --------
             Net assets acquired                    $  14,652
                                                     ========




                     Hallmark Financial Services, Inc.
              UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEET
                             ($ in thousands)


                                        Hallmark Financial  Phoenix Indemnity                                        Consolidated
                                          Services, Inc.    Insurance Company      Combined          Proforma          Pro forma
                                        December 31, 2002   December 31, 2002     Historical       Adjustments     December 31, 2002
                                            (Audited)           (Audited)      December 31, 2002   (Unaudited)        (Unaudited)
                                           ------------       ------------       ------------      ------------       ------------
                                                                                                      
 Assets
 Investments:
 Debt securities, held to maturity,
   at amortized cost                      $       7,679      $       8,355      $      16,034     $           -      $      16,034
 Equity securities, available for sale,
   at market value                                  122              2,183              2,305                                2,305
 Short-term investments, at cost which
   approximates market value                      8,927                335              9,262                                9,262
                                           ------------       ------------       ------------      ------------       ------------
 Total investments                               16,728             10,873             27,601                 -             27,601

 Cash and cash equivalents                        8,453              6,945             15,398                               15,398
 Restricted cash                                  1,072                                 1,072                                1,072
 Prepaid reinsurance premiums                     8,550                 38              8,588                                8,588
 Premiums receivable from lender for
   financed premiums (net of allowance
   for doubtful accounts)                        11,593                                11,593                               11,593
 Premiums receivable                              1,012              1,745              2,757                                2,757
 Accounts receivable                              2,129                128              2,257                                2,257
 Reinsurance recoverable                         12,929             11,086             24,015                               24,015
 Deferred policy acquisition costs                1,367                918              2,285              (918) (c)         1,367
 Prepaid commissions                              3,899                                 3,899                                3,899
 Excess of cost over net assets acquired          5,171                                 5,171                                5,171
 Intangible assets                                  540                                   540                 -  (b)(c)        540
 Note receivable                                  6,500                                 6,500            (6,500) (d)             -
 Current federal income taxes recoverable            33                                    33                                   33
 Deferred federal income taxes                    1,021                                 1,021             3,365  (c)         4,386
 Other assets                                     1,832                575              2,407              (575) (a)(c)      1,832
                                           ------------       ------------       ------------      ------------       ------------
 Total assets                             $      82,829      $      32,308      $     115,137     $      (4,628)     $     110,509
                                           ============       ============       ============      ============       ============

 (a)   Elimination of intercompany balance
 (b)   Recognition of $706 of acquired identified
       intangible assets for insurance in force and licenses
 (c)   Adjustments of assets acquired and liabilities assumed
       to estimated fair value as required by SFAS 141
 (d)   Consolidation entry






                    Hallmark Financial Services, Inc.
              UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEET
                             ($ in thousands)


                                        Hallmark Financial  Phoenix Indemnity                                        Consolidated
                                          Services, Inc.    Insurance Company      Combined          Proforma          Pro forma
                                        December 31, 2002   December 31, 2002     Historical       Adjustments     December 31, 2002
                                            (Audited)           (Audited)      December 31, 2002   (Unaudited)        (Unaudited)
                                           ------------       ------------       ------------      ------------       ------------
                                                                                                      
 Liabilities and stockholder's equity
 Liabilities:
 Notes payable                            $       1,803      $           -      $       1,803     $           -      $       1,803
 Note payable related party                       8,600                                 8,600                                8,600
 Net advances from lender for
   financed premiums                             10,905                                10,905                               10,905
 Unpaid losses and loss adjustment               17,667             15,740             33,407               146  (c)        33,553
   expense
 Unearned premiums                               15,551              4,014             19,565              (918) (c)        18,647
 Unearned revenue                                 6,872                                 6,872                                6,872
 Accrued agent profit sharing                       450                                   450                                  450
 Reinsurance balances payable                     3,764                                 3,764                                3,764
 Accrued ceding commission payable                2,536                                 2,536                                2,536
 Accounts payable and other accrued               5,542              1,034              6,576              (488) (a)         6,088
   expenses
 Pension liability                                  604                                   604                                  604
                                           ------------       ------------       ------------      ------------       ------------
 Total liabilities                               74,294             20,788             95,082            (1,260)            93,822

 Stockholder's equity:
 Common stock                                       356              3,000              3,356            (3,000) (d)           356
 Capital in excess of par value                  10,875             18,795             29,670           (18,795) (d)        10,875
 Retained earnings                               (1,491)           (10,644)           (12,135)           18,796  (d)(c)      6,661
 Accumulated other comprehensive
   income                                          (162)               369                207              (369) (d)          (162)
 Treasury stock                                  (1,043)                 -             (1,043)                              (1,043)
                                           ------------       ------------       ------------      ------------       ------------
 Total stockholder's equity                       8,535             11,520             20,055            (3,368)            16,687
                                           ------------       ------------       ------------      ------------       ------------
 Total liabilities and
   stockholder's equity                   $      82,829      $      32,308      $     115,137     $      (4,628)     $     110,509
                                           ============       ============       ============      ============       ============

 (a)   Elimination of intercompany balance
 (b)   Recognition of $706 of acquired identified
       intangible assets for insurance in force and licenses
 (c)   Adjustments of assets acquired and liabilities assumed
       to estimated fair value as required by SFAS 141
 (d)   Consolidation entry





                        Hallmark Financial Services, Inc.
           UNAUDITED CONSOLIDATED PRO FORMA STATEMENTS OF OPERATIONS
             ($ in thousands, except shares and per share amounts)


                                        Hallmark Financial  Phoenix Indemnity Combined Historical                      Pro forma
                                          Services, Inc.    Insurance Company   Twelve Months                        Twelve Months
                                         12 Months Ending   12 Months Ending        Ending          Pro forma            Ending
                                        December 31, 2002   December 31, 2002  December 31, 2002   Adjustments     December 31, 2002
                                           ------------       ------------       ------------      ------------       ------------
                                                                                                      
 Revenues
 Gross premiums earned                    $      52,486      $      17,878      $      70,364                        $      70,364
 Ceded premiums earned                          (32,273)            (1,161)           (33,434)                             (33,434)
                                           ------------       ------------       ------------      ------------       ------------
 Net premiums earned                             20,213      $      16,717             36,930                               36,930

 Commission & fees                                1,561                                 1,561                                1,561
 Investment income, net of expenses                 531                594              1,125                                1,125
 Finance charges                                  2,484                                 2,484                                2,484
 Processing and service fees                        457                                   457                                  457
 Other income                                       551                 35                586                                  586
                                           ------------       ------------       ------------      ------------       ------------
   Total revenue                                 25,797             17,346             43,143                               43,143

 Losses and expenses:
 Losses and loss adjustment expenses             36,463             12,883             49,346                               49,346
 Reinsurance recoveries                         (21,161)                 -            (21,161)                             (21,161)
                                           ------------       ------------       ------------      ------------       ------------
   Net losses and loss adjustment expenses       15,302             12,883             28,185                               28,185

 Acquisition costs, net                            (605)             4,315              3,710                                3,710
 Other acquisition and underwriting
   expenses (net of ceding commission)            7,468                                 7,468                                7,468
 Operating expenses                               2,611              1,219              3,830                                3,830
 Interest expense                                   983                                   983               637 (a)          1,620
 Amortization of intangible assets                    2                                     2                                    2
                                           ------------       ------------       ------------      ------------       ------------
   Total benefits, losses and expenses           25,761             18,417             44,178               637             44,815

 Net income (loss) from operations
   before federal income tax                         36             (1,071)            (1,035)             (637)            (1,672)

 Federal income tax expense (benefit)                13                (59)               (46)             (229)              (275)
                                           ------------       ------------       ------------      ------------       ------------
 Net income (loss)                        $          23      $      (1,012)     $        (989)    $        (408)     $      (1,397)
                                           ============       ============       ============      ============       ============

 Basic and diluted earnings per share
 (11,049,133 and 11,126,822 shares
 outstanding)

 Net income (loss)                        $           -      $       (0.09)     $       (0.09)    $       (0.04)     $       (0.13)
                                           ============       ============       ============      ============       ============


 (a) Represents additional interest expense of $637 related to debt incurred to complete the acquisition.
 (b) FASB 141 required Hallmark to estimate the fair value of the Company's assets acquired and liabilities
     assumed as of the date of the acquisition and allocate the consideration paid to those fair values.
     Any excess of fair value of net assets acquired over consideration paid is required to first be
     allocated as a pro rata reduction of the amounts that otherwise would have been assigned to all of the
     acquired assets except (a) financial assets other than investments accounted for by the equity method,
     (b) assets to be disposed of by sale, (c) deferred tax assets, (d) prepaid assets relating to pension
     or other postretirement benefit plans, and (e) any other current assets.  If any excess remains after
     reduction to zero the amounts that otherwise would have been assigned to those assets, that remaining
     excess must be recognized as an extraordinary gain in the period the acquisition is completed.




     The calculation of the fair value of the Company's net assets acquired
     at January 1, 2003 and the determination of excess of fair value of net
     assets acquired over cost is as follows (in thousands):


     Net assets acquired at 1/1/03 (historical basis)           $ 11,520
     Fair value of acquired identified intangible assets             706
     Fair value adjustment to unearned premium                       918
     Fair value adjustment to loss reserves                         (146)
     Reversal of valuation allowance on net deferred tax
       asset acquired                                              3,365
                                                                 -------
     Fair value of net assets acquired in 1/1/03 before
       basis adjustments                                          16,363
     Consideration paid in form of debt incurred to complete
       the acquisition                                            (6,500)
                                                                 -------
     Excess of fair value of net assets acquired over cost
       at 1/1/03 before basis adjustments                          9,863
     Pro rata reduction of assets acquired other than
       specified exceptions:
        Identified intangible assets                                (706)
        Deferred policy acquisition costs                           (918)
        Fixed Assets                                                 (65)
        Other assets                                                 (22)
                                                                 -------
     Excess of fair value of net assets acquired over cost
        at 1/1/03                                               $  8,152
                                                                 =======

     The $8.152 million excess of fair value of net assets acquired over
     liabilities assumed will be recognized by Hallmark as an extraordinary
     gain during the quarter ended March 31, 2003.  This extraordinary gain
     is not included in the consolidated pro forma statement of operations
     above.



 Item 7. Exhibits


      Exhibits.

      2(a) *  Purchase Agreement dated December 6, 2002,  among Hallmark
              Financial Services, Inc., Millers American Group, Inc. and
              Trilogy Holdings, Inc.

      *       Previously  filed  with  the Company's Form 8-K filed with
              the Commission on January 27, 2003.



                                SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934,
 the Registrant has duly caused this report to be signed on its behalf by the
 undersigned hereunto duly authorized.


                                HALLMARK FINANCIAL SERVICES, INC.


 Date: May 12, 2003             By: /s/ Timothy A. Bienek
                                    --------------------------------
                                    Timothy A. Bienek, President and
                                    Chief Operating Officer