SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   For The Fiscal Year Ended December 31, 1997
                          Commission File Number 1-8538

                            WESTBRIDGE CAPITAL CORP.
             (Exact Name of Registrant as Specified in its Charter)

         DELAWARE                                     73-1165000
(State or Other Jurisdiction of         (I.R.S. Employer Identification Number)
Incorporation or Organization)

   777 Main Street, Fort Worth, Texas                   76102
(Address of Principal Executive Offices)              (Zip Code)

               Registrant's Telephone Number, Including Area Code:
                                 (817) 878-3300

        Registrant's Shareholder and Investor Relations Telephone Number:
                                 (817) 878-3850

           Securities Registered Pursuant to Section 12(b) of the Act:

              Common Stock (par value $.10) New York Stock Exchange

              $20,000,000 11.0% Senior Subordinated Notes Due 2002,
                             New York Stock Exchange

           $70,000,000 7-1/2% Convertible Subordinated Notes Due 2004,
                             New York Stock Exchange

           Securities Registered Pursuant to Section 12(g) of the Act:
                                      None

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 by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of Registrant's knowledge, in the definitive Proxy Statement or information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K.

The  aggregate  market  value of  voting  stock  held by  non-affiliates  of the
Registrant amounted to $3,087,892 as of March 9, 1998.

At March 9, 1998, 6,224,344 shares of Common Stock were outstanding.




<PAGE>


                                        2
                            WESTBRIDGE CAPITAL CORP.

                          1997 FORM 10-K ANNUAL REPORT

                                TABLE OF CONTENTS


                                     PART I

ITEM 1.  Business                                                          3

ITEM 2.  Properties                                                        19

ITEM 3.  Legal Proceedings                                                 19

ITEM 4.  Submission of Matters to a Vote of Security Holders               19


                                     PART II

ITEM 5.  Market for the Registrant's Common Stock and Related
         Stockholder Matters                                               20

ITEM 6.  Selected Financial Data                                           20

ITEM 7.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations                               22

ITEM 8.  Financial Statements and Supplementary Data                       34

ITEM 9.  Changes in and Disagreements on Accounting and Financial
         Disclosure                                                        74


                                    PART III

ITEM 10    Directors and Executive Officers of the Registrant              74

ITEM 11    Executive Compensation                                          77

ITEM 12    Security Ownership of Certain Beneficial Owners and Management  82

ITEM 13    Certain Relationships and Related Transactions                  84


                                     PART IV

ITEM 14    Exhibits, Financial Statement Schedules and Reports
           on Form 8-K                                                     85


<PAGE>


                                     PART I


ITEM 1.  BUSINESS

GENERAL

Westbridge  Capital  Corp.  is an  insurance  holding  company  engaged  in  the
development,  marketing,  underwriting and administration of medical expense and
supplemental  health insurance products  primarily to self-employed  individuals
and small business  owners in both urban and rural  markets.  As used herein the
terms  "Westbridge"  or the "Company"  refer to Westbridge and its  consolidated
subsidiaries,  unless the context  requires  otherwise.  The Company's  revenues
result  primarily  from  (i)  operating   insurance  companies  (the  "Insurance
Subsidiaries")  and (ii) general  insurance  agencies  marketing certain managed
health care plans which are  underwritten  by Health  Maintenance  Organizations
("HMOs") and other non-affiliated managed care organizations.

During  the  second  and  third  quarters  of  1997,  the  Company's   Insurance
Subsidiaries  experienced  a sharp  increase  in claims  submissions  on Medical
Expense and Medicare  Supplement  products  resulting in substantial  losses for
such  quarters.  In addition,  a backlog of pending  claims was paid during that
period  which  also  contributed  to  the  second  quarter's  losses.  Following
independent  reviews of the Company's claim reserves and an independent  benefit
analysis of claims,  the Company was required to make  substantial  additions to
the Insurance  Subsidiaries' claim reserves.  During the fourth quarter of 1997,
the Company suspended interest payments on its 11% Senior Subordinated Notes and
its 7-1/2%  Convertible  Subordinated  Notes, and suspended dividend payments on
its  Series A  Preferred  Stock,  resulting  in various  defaults  and events of
default on such  securities.  The Company also recognized a substantial  premium
deficiency by recording a non-cash charge to current  expenses of  approximately
$65 million in unamortized  deferred policy  acquisitions costs. The Company has
been working with Houlihan, Lokey, Howard & Zukin Capital since November 1997 to
assist it in exploring  its  strategic  alternatives  and is  continuing  active
discussions  with  its  insurance  regulatory  authorities  and  certain  of its
creditors.  See "ITEM 7 -  Management's  Discussion  and  Analysis of Results of
Operations and Financial Condition."

MARKETING DISTRIBUTION SYSTEM

The Company  markets  health  insurance  products  and managed care health plans
through a distribution  system  consisting of (i) general  agencies in which the
Company  has a  controlling  ownership  interest  and  (ii)  independently-owned
general agencies which have entered into exclusive  contractual  arrangements to
sell the Company's insurance products.

The Company has generally marketed its underwritten health insurance products to
individuals on a one-on-one basis through agents who are independent contractors
associated with general agencies. The Company's policies are sold to individuals
who are either not covered under group insurance  protection  normally available
to  employees  of  business  organizations  or who wish to  supplement  existing
coverage.  In many cases,  these  individuals  are either owners or employees of
small business groups.  In 1996, the Company began marketing managed care health
plans  underwritten  primarily  by HMOs and other  managed  care  organizations,
primarily  in urban  markets  where  managed  care is the  consumer's  preferred
health-care choice.

Agents'  sales  contacts  generally  result from leads  generated  either by the
Company's  telemarketing  subsidiary or through outside sources.  By utilizing a
predictive  automated  dialing  system,  the Company  believes its  wholly-owned
telemarketing  subsidiary,  Precision Dialing Services,  Inc. ("PDS") is able to
generate a large number of quality sales leads.  By providing its controlled and
independent  general  agencies  and their  agents  with these sales  leads,  the
Company  believes  it can  attract to  experienced  agents as well as new agents
entering the  business.  Consequently,  the Company  believes it can more easily
attract  new  agents and retain  agents who are a part of its  existing  general
agencies.

The Company has sought to develop its network of controlled  general agencies to
provide  it  with   flexibility   and  long-term   stability  in  its  marketing
relationships.  To the extent  that these  general  agencies  sell  commissioned
products of HMOs and other managed care  organizations,  they provide additional
fee and service income to the Company.

The principal general agencies in which the Company has a controlling  ownership
interest are LifeStyles Marketing Group, Inc. ("LifeStyles  Marketing"),  Senior
Benefits,  LLC ("Senior  Benefits"),  Health  Care-One  Insurance  Agency,  Inc.
("Health Care-One"), Health Care-One Marketing Group, Inc. ("HCO Marketing") and
Freedom Marketing. These general agencies market a variety of insurance products
underwritten by the Company,  as well as HMO,  Preferred  Provider  Organization
("PPO") and Medicare  SELECT products  underwritten by independent  managed care
organizations  such as Blue  Cross of  California  and  UniCARE  Life and Health
Insurance Company ("UniCARE"), each of which is a subsidiary of WellPoint Health
Networks Inc.  ("WellPoint").  The principal  independent  general agencies that
sell the  Company's  products are  Cornerstone  National  Marketing  Corporation
("Cornerstone")  and National Farm and Ranch Group, Inc. ("Farm & Ranch"),  each
of which currently markets the Company's Medical Expense products.

Since prior to 1991, the Company's  controlled and independent  general agencies
have  accounted  for  substantially  all of the Company's  first-year  premiums.
During 1997, LifeStyles Marketing, Cornerstone, Senior Benefits and Farm & Ranch
each  accounted for over 10% of the Company's  first-year  premiums and together
accounted  for  over  85% of the  Company's  first-year  premiums.  The  Company
believes that its  relationships  with its general  agencies are good.  However,
there can be no assurance that such relationships  will continue,  or if they do
continue, that they will be profitable for the Company. The Company's ability to
increase  production of its underwritten  products is expected to remain limited
for the foreseeable  future,  and these  limitations  could adversely affect the
Company's   relationships   with  these  general  agencies.   The  loss  of,  or
significantly  reduced sales efforts by, any of these general agencies,  and the
failure by the Company to replace such general agencies or otherwise offset such
losses,  could  have  a  material  adverse  affect  on the  Company's  business,
financial  condition or results of operations.  In the event the Company desires
to expand its marketing  distribution  system, there can be no assurance that it
will be able to form additional general agency relationships or, if formed, that
such  relationships  will result in  increased  sales or  profitability  for the
Company.

DESCRIPTION OF PRODUCT LINES

The major product lines  currently  marketed and  underwritten  by the Company's
Insurance Subsidiaries are:

      "Medical Expense Products," which include policies providing reimbursement
     for  various  costs of  medical  and  hospital  care and  offering  reduced
     deductibles  and  coinsurance  payments  to  policy-holders  which  use the
     Company's contracted PPOs; and

      "Critical Care and Specified  Disease  Products," which include  indemnity
     policies  for  treatment of specified  diseases  and "event  specific"  and
     "critical  care" policies which provide fixed benefits or lump sum payments
     upon diagnosis of internal cancer or other catastrophic diseases.

Historically,  the  Company  has  also  underwritten  a  significant  amount  of
"Medicare  Supplement  Products"  designed to provide  reimbursement for certain
expenses  not  covered  by  the  Medicare  program.  During  1997,  the  Company
significantly  reduced its  underwriting of these products in favor of marketing
the Medicare  Supplement  products of other  insurers due to the  relatively low
margins for these products.


<PAGE>



The major managed care products which are currently  marketed by the Company and
underwritten by unaffiliated HMOs and other managed care organizations are:

      HMO products underwritten by Blue Cross of California;

      PPO products underwritten by UniCARE; and

      Medicare  SELECT  products  underwritten  by  UniCARE  which  utilize  the
Company's network of contracted Medicare SELECT providers.


<PAGE>


Premium  revenue,  in thousands,  for each of the Company's  major  underwritten
product lines is set forth below:

<TABLE>
<CAPTION>
                                                             Year Ended December 31,
                                                          ------------------------------
                                                            1997       1996       1995
                                                          --------   --------   --------
<S>                                                      <C>        <C>        <C>
ACCIDENT AND HEALTH INSURANCE:
     Medical Expense Products:
       Direct business
         First-year                                       $ 26,621   $ 40,308   $ 16,352
         Renewal                                            36,680     15,906      9,990
       Acquired Business (1)                                10,438     14,057     19,569
       Other (3)                                             1,500      1,520      1,926
                                                          --------   --------   --------
     Total Medical Expense Products                         75,239     71,791     47,837
                                                          --------   --------   --------

     Critical Care and Specified Disease Products:
       Direct business
         First-year                                          1,229      1,227      1,254
         Renewal                                            12,216     12,520     13,009
       Acquired business (1) (2)                            20,052     16,465      8,901
       Reinsurance assumed                                       -      4,002      9,911
                                                          --------   --------   --------
     Total Critical Care and Specified Disease Products     33,497     34,214     33,075
                                                          --------   --------   --------

     Medicare Supplement Products:
       Direct business
         First-year                                          8,754     17,852     12,359
         Renewal                                            25,124     11,895      3,011
       Acquired business (1)                                15,546     17,788     20,645
       Other (3)                                             2,105      2,351      2,617
                                                          --------   --------   --------
     Total Medicare Supplemental Products                   51,529     49,886     38,632
                                                          --------   --------   --------
         Total Accident and Health Insurance               160,265    155,891    119,544
                                                          --------   --------   --------

LIFE INSURANCE:
     Total Life Insurance                                      832        889        549
                                                          --------   --------   --------
         Total Premium Revenue                            $161,097   $156,780   $120,093
                                                          ========   ========   ========
</TABLE>


(1)  Includes  revenue from  policies  acquired in the  acquisition  of National
     Financial Insurance Company ("NFIC") and American Insurance Company of
     Texas ("AICT") in April 1994.

(2)  Includes revenue from policies  acquired in the acquisition of Freedom Life
     Insurance Company of America's ("FLICA") parent, Freedom Holding Company
     ("FHC"), in May 1996.

(3) Represents pre-1987 discontinued lines of business.




<PAGE>




The Company's  products are designed with flexibility as to benefits and premium
payments and can be adapted to meet regional sales or competitive needs, as well
as those of the individual  policyholders.  These products have fixed, capped or
limited  benefits and are designed to reduce the potential  financial  impact of
covered illnesses and injuries.

Set forth below is a summary of the  principal  products  the Company  currently
underwrites,  as well as those which are no longer sold but continue to generate
premium revenue through renewals.

Medical Expense Products. The Company's Medical Expense products are designed to
reimburse  insureds for expenses  incurred  for hospital  confinement,  surgical
expenses,  physician  services,  out-patient  benefits and the cost of medicines
immediately  following  a hospital  stay.  Out-patient  benefits  and  maternity
benefits  are also  available.  The  policies  provide a number of options  with
respect to deductibles,  coinsurance percentages, maximum benefits and stop-loss
limits and offer reduced  deductibles and coinsurance  payments to policyholders
which use the Company's  contracted PPOs. In addition,  certain policies include
"inside  limits"  on  benefits  during  hospital  confinement.  After the annual
deductible  is met,  the insured is  responsible  for a  percentage  of eligible
expenses up to a specified  stop-loss limit.  Thereafter,  eligible expenses are
covered by the Company up to certain maximum policy limits.

The Company's Medical Expense products are individually  underwritten based upon
medical information provided by the applicant prior to issue. Information in the
application  is verified with the applicant  through a  tape-recorded  telephone
conversation or through written correspondence. These policies are conditionally
renewable at the Company's option.

The  Company's  Medical  Expense  products  are  marketed  primarily  by Freedom
Marketing,  LifeStyles  Marketing,  Cornerstone,  and Farm & Ranch  and are sold
primarily  to  members  of   non-affiliated   associations   which   consist  of
self-employed individuals, small business owners and members of the agricultural
community.

Critical Care and Specified  Disease Products.  The Company's  Critical Care and
Specified Disease products include indemnity  policies for hospital  confinement
and convalescent  care for treatment of specified  diseases and "event specific"
and "critical  care"  policies which provide fixed benefits or lump sum payments
upon  diagnosis  of  certain  types of  internal  cancer  or other  catastrophic
diseases.  Benefits are payable directly to the policyholder following diagnosis
of or treatment  for a covered  illness or injury.  The payments are designed to
help reduce the potential  financial  impact of these  illnesses or injuries and
may be used at the policyholder's discretion for any purpose,  including helping
to offset  non-medical  expenses  or  medical-related  expenses  not paid by the
policyholder's other health insurance. The amount of benefits provided under the
Company's  Critical  Care and  Specified  Disease  products  is not  necessarily
reflective of the actual cost expected to be incurred by the insured as a result
of the illness or injury.  Critical  Care and  Specified  Disease  products  are
generally guaranteed renewable.

Critical Care and Specified Disease products are generally issued by the Company
after  an  application  form  is  filled  out  by the  agent  on  behalf  of the
prospective insured. Policies are not available to anyone who has been diagnosed
as having the disease prior to the date of policy issuance.

The  Company's  Critical  Care and  Specified  Disease  products  are  currently
marketed by LifeStyles Marketing and Freedom Marketing.

Medicare Supplement Products. During 1997, the Company significantly reduced the
production  of its  Medicare  Supplement  products  in  favor of  marketing  the
Medicare Supplement products of other insurers. Medicare Supplement products are
low  margin  products  which  require a large  number of  in-force  policies  to
generate significant profits.

The Medicare Supplement products previously sold by the Company provide coverage
for many of the medical  expenses  which the federal  Medicare  program does not
cover,  such as copayments,  deductibles  and specified  losses which exceed the
federal  program's  maximum  benefits.  The Company also  underwrites a Medicare
SELECT policy which is designed to provide benefits which supplement Medicare at
attractive  rates by taking  advantage of  arrangements  with  hospitals,  other
health care  providers and PPOs.  These  arrangements  typically  provide that a
hospital or health care provider will agree to waive  Medicare's  Part A initial
deductible,  thereby  reducing  the total  benefit  expenses  associated  with a
hospital  stay.  The  Company's  Medicare  Supplement  Products  are  guaranteed
renewable.

The Omnibus  Budget  Reconciliation  Act of 1990  mandated,  among other things,
standardized policy features in Medicare Supplement plans and, in response,  the
NAIC created ten model Medicare  Supplement  plans.  In states that have adopted
the NAIC  model,  only those 10 policies  can be sold.  In  November  1993,  the
Company began underwriting four of the model plans.

Life Insurance. The Company began marketing its EZ-100 life plan in 1995. EZ-100
is an individually  underwritten  whole life insurance product designed to serve
as a complement to accident and health insurance  products.  EZ-100 is issued at
face  amounts  ranging  from $3,000 to $20,000 and may be marketed by any of the
Company's general agencies.

While the Company  substantially  discontinued  active  sales of  ordinary  life
insurance products in 1979, it continues to receive renewal premiums on ordinary
life policies in force sold prior to that date.

HOME OFFICE OPERATIONS

The Company's  operations are conducted  primarily at its Fort Worth office (the
"Home Office"). See "ITEM 2 - Properties." The functions carried out at the Home
Office  include  policy  issue and  underwriting,  policyowner  service,  claims
processing,  agency  service  and other  administrative  functions  such as data
processing, legal, accounting and actuarial.

The  Company's   policy  issue  and  underwriting   departments   review  policy
applications.  Although industry practice does not require physical examinations
and tests before a policy is issued, the Company's  underwriting  personnel will
generally  telephone an applicant  for a Medical  Expense  product to verify the
information  set forth in the policy  application  and the policy benefits being
sold and will  often  contact  the  applicant's  physician  in the  verification
process.  These  telephone  calls are  recorded.  Applicants  for the  Company's
Critical Care and Specified  Disease  products must certify in writing that they
meet certain health standards  established by the Company before the policy will
be issued.

The Company's  policyowner  service department and agency service department are
responsible  for responding to policyowner and agent requests for information or
services.  The claims processing  department reviews benefit claims submitted by
policyowners, determines the benefits payable and processes the claim payments.

RESERVE POLICY

The Company's  reserves consist of two separate  components:  the claim reserves
and the policy  benefit  reserves.  The claim  reserves are  established  by the
Company  for  benefit   payments   which  have  already  been  incurred  by  the
policyholder  but  which  have  not  been  paid by the  Company.  The  Company's
consulting  actuary  estimates  these  reserves  based  upon  analysis  of claim
inventories, loss ratios and claim lag studies. These estimates are developed in
the aggregate for claims incurred (whether or not reported).  The claim reserves
include an amount which will not be paid out until subsequent  reporting periods
but which is recorded in the current period for reporting  purposes.  See ITEM 7
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations - Recent Developments".

Policy  benefit  reserves are  established  by the Company for benefit  payments
which have not been  incurred  but which are  estimated  to be  incurred  in the
future.  The policy benefit  reserves are calculated  according to the net level
premium  reserve  method and are equal to the  discounted  present  value of the
Company's  expected future  policyholder  benefits minus the discounted  present
value of its expected  future net premiums.  These present value  determinations
are based upon assumed fixed investment yields, the age of the insured(s) at the
time of policy issuance,  expected morbidity and persistency rates, and expected
future  policyholder  benefits.  Except for  purposes of  reporting to insurance
regulatory  authorities  and for tax filing,  the Company's  claim  reserves and
policy  benefit  reserves are determined in accordance  with generally  accepted
accounting principles ("GAAP").

In determining the morbidity, persistency rate, claim cost and other assumptions
used in determining the Company's  policy benefit  reserves,  the Company relies
primarily upon its own benefit payment history and upon information developed in
conjunction  with  actuarial   consultants  and  industry  data.  The  Company's
persistency  rates have a direct impact upon its policy benefit reserves because
the  determinations  for this  reserve are, in part, a function of the number of
policies in force and expected to remain in force to maturity. If persistency is
higher or lower than expected,  future policyholder benefits will also be higher
or lower because of the different than expected number of policies in force, and
the policy benefit reserves will be increased or decreased accordingly.

The Company's  reserve  requirements are also  interrelated with product pricing
and profitability.  The Company must price its products at a level sufficient to
fund  its  policyholder  benefits  and  still  remain  profitable.  Because  the
Company's  policyholder  benefits  represent the single largest  category of its
operating expenses,  inaccuracies in the assumptions used to estimate the amount
of such  benefits  can  result in the  Company  failing  to price  its  products
appropriately and to generate  sufficient  premiums to fund the payment thereof.
The sharp increase in claims  submissions  experienced by the Company during the
second and third quarters of 1997 were  indicative of inadequate  pricing in the
Company's  Medical  Expense  and  Medicare  Supplement  products.   See  ITEM  7
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations - Recent Developments".

Because the discount  factor used in  calculating  the Company's  policy benefit
reserves is based upon the rate of return of the Company's  investments designed
to fund this reserve,  the amount of the reserve is dependent  upon the yield on
these  investments.  Provided that there is not material adverse experience with
respect to these benefits, changes in future market interest rates will not have
an impact on the profitability of policies already sold. Because fluctuations in
future market interest rates affect the Company's yield on new investments, they
also affect the discount  factor used to establish,  and thus the amount of, its
policy benefit  reserves for new sales. In addition,  because an increase in the
policy  benefit  reserves  in any period is  treated  as an  expense  for income
statement  purposes,  market interest rate  fluctuations can directly affect the
Company's  profitability for policies sold in such period. It is not possible to
predict future market interest rate fluctuations.

In accordance with GAAP, the Company's actuarial assumptions are generally fixed
at the time they are made, and absent  materially  adverse  benefit  experience,
they are not generally adjusted.  Nonetheless, the Company monitors the adequacy
of its policy benefit reserves on an ongoing basis by periodically analyzing the
accuracy of its  actuarial  assumptions.  The adequacy of the  Company's  policy
benefit  reserves may also be impacted by the  development  of new medicines and
treatment  procedures  which may alter the  incidence  rates of illness  and the
treatment  methods for illness and accident victims (such as out-patient  versus
in-patient  care) or prolong the life  expectancy  of such  victims.  Changes in
coverage  provided by major medical insurers or government plans may also affect
the adequacy of the Company's  reserves if, for example,  such  developments had
the effect of increasing or decreasing the incidence rate and per claim costs of
occurrences  against  which the  Company  insures.  An  increase  in either  the
incidence  rate or the per claim costs of such  occurrences  could result in the
Company needing to post additional reserves, which could have a material adverse
effect upon its business, financial condition or results of operations.

The Insurance Subsidiaries consist of National Foundation Life Insurance Company
("NFL"), FLICA, NFIC and AICT. The Insurance Subsidiaries are required to report
their results of operations and financial position to state regulatory  agencies
based  upon  statutory   accounting   practices  ("SAP").   Under  SAP,  certain
assumptions used in determining the policy benefit reserves, such as claim costs
and  investment  result  assumptions,  are often  more  conservative  than those
appropriate for use by the Company under GAAP. In particular,  SAP interest rate
assumptions for investment  results are fixed by statute and are generally lower
than those used by the Company  under GAAP.  Another  significant  difference is
that under SAP,  unlike  GAAP,  the Company is required to expense all sales and
other policy acquisition costs as they are incurred rather than capitalizing and
amortizing  them over the  expected  life of the policy.  Although the effect of
this  requirement  is  moderated  by the  allowance  under SAP of an  accounting
treatment known as the "two year  preliminary  term" reserve  valuation  method.
This  reserve  method  allows the  Company to defer any  accumulation  of policy
benefit reserves until after the second policy year. The immediate charge off of
sales and  acquisition  expenses and the sometimes  conservative  claim cost and
other valuation  assumptions under SAP generally cause a lag between the sale of
a policy and the emergence of reported earnings. Because this lag can reduce the
Company's  gain  from  operations  on a SAP  basis,  it can have the  effect  of
reducing  the amount of funds  available  for  dividend  distributions  from the
Insurance Subsidiaries to Westbridge. See ITEM 7 - "Liquidity, Capital Resources
and Statutory Capital and Surplus - Insurance Subsidiaries".

REGULATION

The  Company  and its  Insurance  Subsidiaries  are  subject to  regulation  and
supervision in all  jurisdictions  in which they conduct  business.  In general,
state insurance laws establish  supervisory  agencies with broad  administrative
powers relating to, among other things, the granting and revoking of licenses to
transact business,  regulation of trade practices,  premium rate levels, premium
rate increases,  licensing of agents,  approval of content and form of policies,
maintenance of specified  minimum  statutory  reserves and statutory capital and
surplus,  deposits  of  securities,  form  and  content  of  required  financial
statements,  nature of investments and limitations on dividends to stockholders.
The  purpose  of  such  regulation  and  supervision  is  primarily  to  provide
safeguards   for   policyholders   rather  than  to  protect  the  interests  of
stockholders.

The Company's health insurance  products are subject to rate regulation by state
insurance departments,  which generally require that certain minimum loss ratios
be maintained. The states in which the Company is licensed have the authority to
change  the  minimum  mandated  statutory  loss  ratios to which the  Company is
subject,  the manner in which these  ratios are computed and the manner in which
compliance with these ratios is measured and enforced.  Most states in which the
Company  writes  health   insurance   products  have  adopted  the  loss  ratios
recommended by the National Association of Insurance Commissioners ("NAIC"). The
Company is unable to  predict  the  impact of (i) any  changes in the  mandatory
statutory  loss ratios  relating to products  offered by the Company or (ii) any
change in the manner in which  these  minimums  are  computed or enforced in the
future.  The  Company  has not been  informed by any state that it does not meet
mandated minimum ratios,  and the Company believes that it is in compliance with
all such  minimum  ratios.  In the event the Company is not in  compliance  with
minimum  statutory loss ratios mandated by regulatory  authorities,  the Company
may be  required  to reduce or refund  premiums,  which  could  have a  material
adverse  effect on the  Company's  business,  financial  condition or results of
operations.  Similarly,  the Company's  ability to increase its premium rates in
response to adverse loss ratios is subject to  regulatory  approval.  Failure to
obtain  such  approval  could have a material  adverse  effect on the  Company's
business, financial condition and results of operations.

In December 1992, the NAIC adopted the Risk-Based Capital for Life and/or Health
Insurers  Model Act  ("the  Model  Act").  The  Model  Act  provides  a tool for
insurance regulators to determine the levels of statutory capital and surplus an
insurer must  maintain in relation to its  insurance  and  investment  risks and
whether  there is a need for possible  regulatory  attention.  The Model Act (or
similar  legislation  or  regulation)  has been  adopted  in  states  where  the
Insurance Subsidiaries are domiciled.

The Model Act provides  four levels of  regulatory  attention,  varying with the
ratio of the insurance company's total adjusted capital (defined as the total of
its statutory  capital and surplus,  asset  valuation  reserve and certain other
adjustments) to its risk-based  capital  ("RBC").  If a company's total adjusted
capital is less than 100 percent but greater  than or equal to 75 percent of its
RBC, or if a negative  trend (as defined by the  regulators)  has  occurred  and
total  adjusted  capital is less than 125  percent of RBC (the  "Company  Action
Level"),  the company must submit a  comprehensive  plan aimed at improving  its
capital position to the regulatory  authority proposing corrective actions. If a
company's  total  adjusted  capital is less than 75 percent but greater  than or
equal to 50 percent of its RBC (the "Regulatory  Action Level"),  the regulatory
authority  will perform a special  examination of the company and issue an order
specifying the corrective  actions that must be followed.  If a company's  total
adjusted capital is less than 50 percent but greater than or equal to 35 percent
of its RBC (the "Authorized Control Level"),  the regulatory  authority may take
any action it deems  necessary,  including  placing the company under regulatory
control.  If a company's  total adjusted  capital is less than 35 percent of its
RBC (the "Mandatory  Control  Level"),  the regulatory  authority must place the
company under its control.  The NAIC's  requirements are effective on a state by
state basis if, and when,  they are adopted by the  regulators in the respective
states. The Insurance Departments of the States of Delaware and Mississippi have
each adopted the NAIC's Model Act. At December 31, 1997,  total adjusted capital
for NFL, a  Delaware  domiciled  company,  and FLICA,  a  Mississippi  domiciled
company, exceeded the respective Company Action Levels.

The Texas Department of Insurance  ("TDI") has adopted its own RBC requirements,
the stated purpose of which is to require a minimum level of capital and surplus
to absorb  the  financial,  underwriting  and  investment  risks  assumed  by an
insurer.  Texas' RBC  requirements  differ from those adopted by the NAIC in two
principal  respects:  (i) they use different  elements to determine  minimum RBC
levels in their  calculation  formulas  and (ii) they do not  stipulate  "Action
Levels" (like those adopted by the NAIC) where corrective  actions are required.
However,  the  Commissioner  of the TDI  does  have the  power  to take  similar
corrective  actions if a company does not maintain the required minimum level of
statutory  capital and  surplus.  NFIC and AICT are  domiciled in Texas and must
comply with Texas RBC  requirements.  At December 31, 1997,  AICT's RBC exceeded
the  minimum  level  prescribed  by the TDI;  however,  NFIC's RBC was below the
minimum  level  prescribed  by the TDI.  As a  result  of the  statutory  losses
sustained by the Insurance  Subsidiaries  during 1997, certain  intercompany and
large cash transactions are subject to the approval of the domiciliary states.

The  Insurance  Subsidiaries  are  subject  to  periodic  examinations  by state
regulatory  authorities as part of their routine  regulatory  oversight process.
Texas recently completed a periodic examination of NFIC and AICT, and management
does not expect the results of these  examinations  to have a material effect on
the financial condition of the Company.  Mississippi is currently  conducting an
examination  of FLICA,  and the results of that  examination  will be  available
during 1998.

Many  states  have  enacted   insurance   holding   company  laws  that  require
registration  and  periodic  reporting  by  insurance   companies  within  their
jurisdictions.  Such legislation  typically places  restrictions on, or requires
prior notice or approval of,  certain  transactions  within the holding  company
system,  including,   without  limitation,   dividend  payments  from  insurance
subsidiaries  and the terms of loans and  transfers of assets within the holding
company structure.

Generally,  before the Company is permitted to market an insurance  product in a
particular state, it must obtain regulatory  approval from that state and adhere
to that  state's  insurance  laws and  regulations  which  include,  among other
things,  specific requirements  regarding the form, language,  premium rates and
policy benefits of that product.  Consequently,  although the Company's policies
generally provide for the same basic types and levels of coverage in each of the
states in which they are marketed,  the policies are not precisely  identical in
each state or other  jurisdiction  in which they are sold.  Such  regulation may
delay the  introduction  of new  products and may impede,  or impose  burdensome
conditions on, rate increases or other actions that the Company may wish to take
in order to  enhance  its  operating  results.  In  addition,  federal  or state
legislation  or  regulatory  pronouncements  may be enacted that may prohibit or
impose  restrictions on the ability to sell certain types of insurance  products
or impose other restrictions on the Company's operations.  For example,  certain
states in which the Company does business  have adopted NAIC model  statutes and
regulations  relating to market conduct  practices of insurance  companies.  Any
limitations  or other  restrictions  imposed  on the  Company's  market  conduct
practices by the  regulators of a state which has adopted the model statutes and
regulations  may also be imposed by the  regulators  in other  states which have
adopted such statutes and  regulations.  No assurances  can be given that future
legislative  or  regulatory  changes  will not  adversely  affect the  Company's
business, financial condition or results of operations.

Four states, Connecticut,  Massachusetts,  New Jersey and New York, have adopted
statutes or  insurance  department  regulations  that either  prohibit  sales of
policies that offer only  "specified or dread  disease"  coverage  (such as that
provided  by  certain  of the  Company's  Critical  Care and  Specified  Disease
products) or require  that such  coverage be offered in  conjunction  with other
forms of health  insurance.  The Company has never  written  insurance  in those
states and does not currently intend to enter those markets.  The Company has no
knowledge of legislative  initiatives  which would limit or prohibit the sale of
"specified  or dread  disease"  policies  in other  states in which the  Company
operates.

The Company may be required,  under the solvency or guaranty laws of most states
in which it does business,  to pay assessments (up to prescribed limits) to fund
policyholder losses or liabilities of insurance companies that become insolvent.
Insurance  company  insolvencies  increase the possibility that such assessments
may be  required.  These  assessments  may be deferred  or  forgiven  under most
guaranty  laws if they would  threaten an insurer's  financial  strength and, in
certain  instances,  may be offset against future premium taxes.  The incurrence
and amount of such  assessments may increase in the future without  notice.  The
Company pays the amount of such  assessments  as they are incurred.  Assessments
which  cannot be offset  against  future  premium  taxes are charged to expense.
Assessments   which  qualify  for  offset   against  future  premium  taxes  are
capitalized  and are offset against such future  premium  taxes.  As a result of
such assessments,  the Company paid approximately  $28,000 during the year ended
December 31, 1997.  The  likelihood  and amount of any other future  assessments
cannot be estimated and are beyond the control of the Company.

Although the U.S. Government  generally does not directly regulate the insurance
business,  federal  initiatives often impact the insurance business in a variety
of ways.  Current and proposed federal measures which may  significantly  affect
the insurance  business  include  controls on the cost of medical care,  medical
entitlement  programs (e.g.,  Medicare) and minimum  solvency  requirements  for
insurers.

The NAIC has recently taken action on the subject of assumption reinsurance. The
Assumption  Reinsurance  Model Act was  adopted in 1993 and is similar  but,  in
certain respects, less restrictive than the federal bill. The Model Act provides
a 25-month  notice period and may allow a transfer  after the expiration of such
period  even if the  assuming  insurer  does not have a higher  rating  than the
transferring  insurer.  The Model Act will have no legal effect  until  formally
adopted  by the  states,  although  it can be  expected  to be  relied  upon  by
regulators  in states  without  statutes,  regulations  or other  defined  rules
expressly governing assumption reinsurance.

INVESTMENTS

Investment income is an important source of revenue, and the Company's return on
invested  assets has a material effect on net income.  The Company's  investment
policy is  subject  to the  requirements  of  regulatory  authorities  regarding
maintenance  of  minimum  statutory  reserves  in  order to meet  future  policy
obligations  for  policies  in force.  Statutory  reserves  may only  consist of
certain types of admitted  investments and the percentage mix of those assets is
regulated  by  statute.  In  addition,  certain  assets  are held on  deposit in
specified  states and invested in specified  securities  in order to comply with
state law.  Although  the Company  closely  monitors its  investment  portfolio,
available  yields on  newly-invested  funds  and  gains or  losses  on  existing
investments  depend  primarily  on  general  market  conditions.  The  Company's
investment  portfolio  is  managed  by  Conseco  Capital  Management,   Inc.,  a
registered investment advisor.

Investment  policy is determined by the Investment  Committees of Westbridge and
the Insurance  Subsidiaries  in accordance  with  guidelines  set forth by their
respective Boards of Directors. The current policy of Westbridge and each of the
Insurance  Subsidiaries is to balance the portfolio between long- and short-term
investments so as to achieve long-term returns  consistent with the preservation
of capital  and  maintenance  of adequate  liquidity  to meet the payment of the
Company's  policy  benefits and claims.  The current  schedule of the  Company's
invested asset maturities  corresponds with the Company's expectations regarding
anticipated  cash flow payments based on the Company's  policy benefit and claim
cycle,  which the Company believes is medium term in nature. The Company invests
primarily in  fixed-income  securities  of the U.S.  Government  and its related
agencies, investment grade fixed-income corporate securities and mortgage-backed
securities.  Also,  up to 5% of the  Company's  assets may be invested in higher
yielding, non-investment grade securities.

The following  table  provides  information  on the Company's  cash and invested
assets, in thousands, as of the dates indicated:

<TABLE>
<CAPTION>
                                                           Year Ended December 31,
                                                        ------------------------------
                                                          1997       1996       1995
                                                        --------   --------   --------

<S>                                                     <C>        <C>        <C>
Cash and cash equivalents                               $  1,030   $  1,013   $  2,013
                                                        --------   --------   --------
Bonds:
   U.S. Government and related agencies                   22,142     26,108     35,658
   State, county and municipal                             1,071        518      1,632
   Public utilities                                       11,273     11,016      8,700
   Industrial and miscellaneous                           94,263     53,955     40,490
                                                        --------   --------   --------
     Total Bonds                                         128,749     91,597     86,480
                                                        --------   --------   --------
Preferred stock                                            2,645        147        356
                                                        --------   --------   --------
Common stock                                               2,125      1,449        183
                                                        --------   --------   --------
Investment in Freedom Holding Company (1)                      -          -      6,173
                                                        --------   --------   --------
Other Invested Assets:
   Mortgage loans on real estate                             389        658        639
   Policy loans                                              284        282        285
   Short-term investments and certificates of deposit     12,654      8,072     15,246
   Investment real estate                                    566          -        141
                                                        --------   --------   --------
     Total Other Invested Assets                          13,893      9,012     16,311
                                                        --------   --------   --------
       Total Cash and Invested Assets                   $148,442   $103,218   $111,516
                                                        ========   ========   ========
</TABLE>


(1)  Represents  the Company's 40% ownership  interest prior to May 31, 1996. On
     May 31, 1996, the Company purchased the remaining 60% ownership interest of
     FLICA's parent,  FHC. Subsequent to that date, the Company has consolidated
     the accounts of FHC in accordance with GAAP.


Included in the invested  assets of the Company  outlined in the preceding table
are certain  high-yield  debt  securities  which are below a "BBB" or equivalent
rating.  These  high-yield debt securities  amounted to less than 1.6%, 1.5% and
0.7% of the Company's  total cash and invested assets at December 31, 1997, 1996
and 1995, respectively.

The  following  table  summarizes  consolidated  investment  results  (excluding
unrealized gains or losses) for the periods shown:

<TABLE>
<CAPTION>
                                                              Year Ended December 31,
                                                          --------------------------------
                                                            1997        1996        1995
                                                          --------    --------    --------
                                                         (in thousands, except percentages)
<S>                                                       <C>         <C>         <C>
Total invested assets, cash and cash equivalents          $148,442    $103,218    $111,516
Net investment income (1)                                    9,390       7,535       7,021
Realized gains on investments                                   84          96         182
Average gross annual yield on total investments               7.7%        7.2%        7.0%
</TABLE>


(1)  Excludes interest on receivables from agents of $1.6 million,  $1.2 million
     and $0.4  million for the years ended  December  31,  1997,  1996 and 1995,
     respectively.


The  following  table  summarizes  the  Company's  fixed  maturity   securities,
excluding  short-term  investments and certificates of deposit,  at December 31,
1997:

                            FIXED MATURITY SECURITIES

<TABLE>
<CAPTION>
                                                                 Carrying
                                                                Value(1),(2)   %
                                                                  --------   ------
                                                               (in thousands)
<S>                                                             <C>         <C>
Fixed maturity securities:
U.S. Government and governmental
   agencies and authorities (except
   mortgage-backed)                                               $ 11,668       9.1
States, municipalities and political
   subdivisions                                                      1,071       0.8
Finance                                                             33,581      26.1
Public utilities                                                    11,273       8.8
Mortgage-backed                                                     10,474       8.1
All other corporate bonds                                           60,682      47.1
                                                                  --------   -------
   Total fixed maturity securities                                $128,749     100.0
                                                                  ========   =======
</TABLE>


(1)  At December 31, 1997, all of the Company's  fixed  maturity  securities are
     classified as available-for-sale and are carried at estimated market value.

(2)  Estimated  market value  represents  the closing sales prices of marketable
securities.


The  Company's  fixed  maturity  investment  portfolio  at December 31, 1997 was
composed primarily of debt securities of the U.S.  Government,  corporations and
mortgage-backed  securities.  Investments in the debt securities of corporations
are principally in publicly-traded bonds.

Mortgage-backed  securities  represented  approximately  8.1%  of the  estimated
market value of the Company's  total  invested  assets at December 31, 1997. The
Company's  mortgage-backed   securities  portfolio  consists  entirely  of  U.S.
government agency pass-through certificates. Currently, the Company does not own
any collateralized mortgage obligations or non-agency  pass-through  securities.
All of these U.S. government agency  pass-through  securities have an investment
rating  of AAA and are  classified  NAIC  Class  1.  Mortgage-backed  securities
investors are  compensated  primarily for  reinvestment  risk rather than credit
quality  risk.  During  periods of  significant  interest rate  volatility,  the
underlying mortgages may prepay more quickly or more slowly than anticipated. If
the repayment of principal  occurs  earlier than  anticipated  during periods of
declining interest rates,  investment income may decline due to the reinvestment
of these funds at the lower current market rates.

The following  table  indicates by rating the composition of the Company's fixed
maturity securities portfolio, excluding short-term investments and certificates
of deposit, at December 31, 1997:

                          COMPOSITION OF FIXED MATURITY SECURITIES BY RATING

                                       Carrying
                                     Value(1),(2)      %
                                      ------------  -------
                                     (in thousands)
Ratings (3)

Investment grade:
   U.S. Government and agencies        $   22,142      17.2
   AAA                                      2,280       1.8
   AA                                       9,474       7.3
   A                                       40,266      31.3
   BBB                                     52,178      40.5
Non-Investment grade:
   BB                                       2,409       1.9
   B                                            -       -
                                       ----------   -------
     Total fixed maturity securities   $  128,749     100.0
                                       ==========   =======


(1)  At December 31, 1997, all of the Company's  fixed  maturity  securities are
     classified as available-for-sale and are carried at estimated market value.

(2)  Estimated  market value  represents  the closing sales prices of marketable
     fixed maturity securities.

(3)  Ratings are the lower of those assigned  primarily by Standard & Poor's and
     Moody's when available,  and shown in the table using the Standard & Poor's
     rating  scale.  Unrated  securities  are  assigned  ratings  based  on  the
     applicable  NAIC  designation  or the rating  assigned to  comparable  debt
     outstanding of the same issuer.  NAIC 1 fixed maturity securities have been
     classified as "A" and NAIC 2 fixed maturity securities have been classified
     as "BBB".


The NAIC assigns  securities  quality  ratings and uniform  prices  called "NAIC
Designations,"  which are used by insurers when preparing their annual statutory
reports.   The  NAIC  assigns   designations  to   publicly-traded  as  well  as
privately-placed securities. The ratings assigned by the NAIC range from Class 1
to Class 6 with Class 1 as the  highest  quality  rating.  The  following  table
summarizes   the  Company's   fixed  maturity   securities   according  to  NAIC
Designations and Standard & Poor's ratings at December 31, 1997:

                                NAIC DESIGNATIONS

<TABLE>
<CAPTION>
                                         Carrying
                                     Value (1), (2)       %
                                     ---------------   -------
<S>                                 <C>               <C>
NAIC Designations (3)
NAIC 1 (AAA, AA, A)                  $        74,162      57.6
NAIC 2 (BBB)                                  52,178      40.5
NAIC 3 (BB) and below                          2,409       1.9
                                     ---------------   -------
   Total fixed maturity securities   $       128,749     100.0
                                     ===============   =======
</TABLE>


(1)  At December 31, 1997, all of the Company's  fixed  maturity  securities are
     classified as available-for-sale and are carried at estimated market value.

(2)  Estimated  market value  represents  the closing sales prices of marketable
     fixed maturity securities.

(3)  Generally comparable to Standard & Poor's ratings. Comparisons between NAIC
     Designations and Standard & Poor's ratings are as published by the NAIC.


The scheduled maturities of the Company's fixed maturity  securities,  excluding
short-term investments and certificates of deposit, at December 31, 1997 were:

              COMPOSITION OF FIXED MATURITY SECURITIES BY MATURITY

                                                Carrying
                                              Value(1),(2)        %
                                                --------       -------

Scheduled Maturity

Due in one year or less                         $  3,500           2.7
Due after one year through five years             22,907          17.8
Due after five years through ten years            42,737          33.2
Due after ten years                               49,131          38.2
Mortgage-backed securities                        10,474           8.1
                                                --------       -------
     Total fixed maturity securities            $128,749         100.0
                                                ========       =======


(1)  At December 31, 1997, all of the company's  fixed  maturity  securities are
     classified as available-for-sale and are carried at estimated market value.

(2)  Estimated  market value  represents  the closing sales prices of marketable
     fixed maturity securities.


REINSURANCE

Ceded.  As is customary  in the  insurance  industry,  the  Company's  Insurance
Subsidiaries reinsure portions of the coverages it provides to its policyholders
to other insurance  companies on both an excess of loss and  coinsurance  basis.
Cession of  reinsurance  is  utilized  by an insurer to limit its  maximum  loss
thereby providing a greater  diversification of risk and minimizing exposures on
larger  risks.  Reinsurance  does not  discharge  the primary  liability  of the
original insurer with respect to such insurance,  but the Company, in accordance
with prevailing  insurance industry practice,  reports reserves and claims after
adjustment for reserves and claims ceded to other companies through reinsurance.

The  Company,  through  NFL and  FLICA,  entered  into a 90%  Coinsurance  Funds
Withheld  Reinsurance  Agreement (the "Coinsurance  Agreement") with a reinsurer
effective  July  1,  1996 on the  in-force  Cancer,  Heart  and  Intensive  Care
business.  The Coinsurance  Agreement  provided an initial ceding  commission of
$10.5  million,  of which $8.4 million was received in cash. On May 1, 1997, the
Coinsurance  Agreement was terminated and recaptured.  Consistent with the terms
of the agreement,  the unpaid portion of the initial ceding commission allowance
was repaid inclusive of interest at 15.0%. For the years ended December 31, 1997
and 1996,  the amount  repaid was  approximately  $8.6 million and $1.9 million,
respectively.  The ceding  allowance  payable  at  December  31,  1997 and 1996,
totaled $0 and $8.6 million,  respectively.  During the term of the  Coinsurance
Agreement, the Company maintained in trust, investments with an estimated market
value  equal  to 90% of the  active  life  reserves  on the  reinsured  business
approximating  $14.7 million at December 31, 1996. See NOTE 14 - REINSURANCE and
NOTE 16 - EXTRAORDINARY ITEM to the Company's Consolidated Financial Statements.

The  Company  generally  does  not  cede  risks  associated  with  its  Medicare
Supplement products or Life Insurance products.  However,  100% of the Company's
risks under its Accidental Death policies currently in force are reinsured.  The
Company also reinsures its risks under the Medical Expense products on an excess
of loss  basis so that its  maximum  payment to any one  beneficiary  during any
one-year  period is limited  ($100,000 in 1997) for any accident or illness.  In
accordance  with industry  practice,  the  reinsurance  agreements in force with
respect to these  policies are terminable by either party with respect to claims
incurred after the termination date and the expiration dates.

Assumed. In the past, the Company has utilized coinsurance  agreements to assume
premiums and increase  revenues.  NFL and FLICA were party to such  arrangements
prior to  NFL's  acquisition  of FHC.  In 1996,  prior to this  acquisition,  $4
million in premiums were assumed by NFL.  Subsequent to the  acquisition,  those
coinsurance arrangements were canceled.

HEALTH CARE REFORM

Numerous   proposals  have  been   introduced  in  Congress  and  various  state
legislatures to reform the present health care system.  Proposals have included,
among other  things,  modifications  to the  existing  employer-based  insurance
system, a quasi-related system of "managed competition" among health plans and a
single-payer,  public program. Most of these proposals are specifically directed
at the  individual  and small group health care market,  which is a  significant
portion of the Company's health business.  At present,  most health care reform,
other than that  related to the Medicare  program,  is taking place at the state
level. A number of states have passed or are considering  legislation that would
limit the differentials in rates that insurers could charge between new business
and  renewal  business  with  respect  to  similar  demographic  groups.   State
legislation  also has been adopted or is being considered that would make health
insurance  available to all small groups by requiring  coverage of all employees
and their dependents,  by limiting the applicability of pre-existing  conditions
exclusions,  by  requiring  insurers to offer a basic plan  exempt from  certain
mandated benefits as well as a standard plan, and by establishing a mechanism to
spread the risk of high risk employees to all small group insurers.

In  1996,   Congress  enacted  HR  3103  ("Health   Insurance   Portability  and
Accountability   Act",   or  "HIPAA"),   also   commonly   referred  to  as  the
Kennedy-Kassenbaum  Bill.  HIPAA  provisions  are applicable to both insured and
self-funded   employer  group  coverages  and  include  minimum   standards  for
pre-existing  condition exclusions,  waiver of pre-existing condition exclusions
for individuals  meeting minimum prior coverage  requirements and prohibition of
health related  exclusions of individuals  from employer group  coverage.  HIPAA
also provides  guaranteed  acceptance of small  employers with 2 to 50 employees
for  insured  coverage.  In  other  respects,  HIPAA's  group  and  small  group
provisions  are  largely in line with state  small  group  reform  laws  already
enacted  by the large  majority  of  states.  In the  individual  market,  HIPAA
requires  guaranteed  acceptance  for eligible  individuals  moving out of group
plans who have at least 18 months of prior coverage.  However,  most states have
or are expected to amend their laws to alleviate  any  inconsistencies  with the
federal  minimum  standards.  States  which have not already  enacted all of the
HIPAA group and small group  standards may enact state reforms  consistent  with
HIPAA.  The final  outcome of state  amendments or new  legislation,  as well as
federal regulations addressing these provisions, cannot be predicted.

The Company  cannot  predict what effect,  if any, yet to be enacted health care
legislation  or  proposals  will have on the  Company if and when  enacted.  The
Company  believes that the current  political  environment  in which it operates
will result in continued legislative scrutiny of health care reform and may lead
to additional legislative initiatives.  No assurance can be given that enactment
of any federal and/or state health care reforms will not have a material  effect
on the Company's business, financial condition or results of operations.



COMPETITION

The accident and health insurance industry is a highly  competitive  environment
and  includes  a  large  number  of  insurance  companies,  many of  which  have
substantially greater financial resources,  broader and more diversified product
lines,  favorable ratings from A.M. Best Company,  Inc. ("A.M. Best") and larger
staffs than the Company. The Company competes with other insurers to attract and
retain the  allegiance of its  independent  agents and  marketing  organizations
that, at this time, are responsible  for a significant  portion of the Company's
revenues.  Competitive  factors  applicable  to the Company's  business  include
product mix, policy benefits,  service to  policyholders  and premium rates. The
Company believes that its A.M. Best rating is not a significant factor affecting
its ability to sell its products in the markets that it serves.

Private  insurers and voluntary and  cooperative  plans,  such as Blue Cross and
Blue Shield and HMOs, provide various alternatives for defraying hospitalization
and  medical  expenses.  Much of this  insurance  is  sold on a group  basis  to
employer  sponsored  groups.  The federal  and state  governments  also  provide
programs  for the payment of the costs  associated  with  medical  care  through
Medicare  and  Medicaid.   These  major  medical  programs   generally  cover  a
substantial  amount of the medical expenses incurred as a result of accidents or
illnesses.  The  Company's  Medical  Expense  products  are  designed to provide
coverage which is similar to these major medical insurance programs but are sold
primarily to persons not covered by an employer sponsored group.

The  Company's  Critical  Care and  Specified  Disease  products are designed to
provide  coverage which is  supplemental  to major medical  insurance and may be
used to defray nonmedical as well as medical expenses.  Since these policies are
sold to complement major medical insurance, the Company competes only indirectly
with these insurers  providing major medical  insurance.  However,  expansion of
coverage  by other  insurers  could  adversely  affect the  Company's  business,
financial  condition or results of operations.  Medicare Supplement products are
designed to  supplement  the Medicare  program by  reimbursing  for expenses not
covered by such program.  To the extent that future  government  programs reduce
participation  by  private  entities  in such  government  programs,  they could
adversely  affect the  Company's  business,  financial  condition  or results of
operations.

The Company competes  directly with other insurers offering similar products and
believes that its current  benefits and premium rates are generally  competitive
with those  offered by other  companies.  Management  believes  that  service to
policyholders  and prompt and fair  payment of claims  continue to be  important
factors in the Company's ability to remain competitive.

In  addition  to product  and  service  competition,  there is also very  strong
competition  within the  supplemental  accident and health  insurance market for
qualified,  effective  agents.  The  recruitment and retention of such agents is
extremely  important  to the  success  and  growth  of the  Company's  business.
Management  believes  that  the  Company  is  competitive  with  respect  to the
recruitment and training of agents.  However, there can be no assurance that the
Company's  controlled  general  agencies  will be able to continue to recruit or
retain qualified,  effective agents.  The inability of the Company to adequately
recruit  and  retain  agents  could  have a  material  adverse  effect  upon the
Company's business, financial condition or results of operations.

Managed  health  care   organizations  also  operate  in  a  highly  competitive
environment and in an industry that is currently subject to significant  changes
from business consolidations, legislative reform, aggressive marketing practices
and market  pressures.  The  Company's  ability to increase  its fee and service
income  by   continuing  to  expand  its  marketing  of  managed  care  products
underwritten  primarily  by HMOs and other  managed  care  organizations  may be
adversely affected by the changes affecting this industry.



EMPLOYEES

At December 31,  1997,  the Company  employed  345 persons.  The Company has not
experienced any work stoppages, strikes or business interruptions as a result of
labor disputes involving its employees,  and the Company considers its relations
with its employees to be good.


ITEM 2.  PROPERTIES

On May 1, 1998, the Company intends to move its principal  offices from 777 Main
Street,  Fort Worth, Texas, to 110 West 7th Street, Fort Worth, Texas. The lease
for the new facility expires in April 2003.  Westbridge Printing Services,  Inc.
("WPS"),  the  Company's  wholly-owned  printing  subsidiary  which  prints  all
policies,  forms and  brochures of the  Insurance  Subsidiaries,  maintains  its
manufacturing  facility at 7333 Jack Newell Boulevard North, Fort Worth,  Texas,
under a lease  agreement  which expires in October,  2005.  The Company also has
lease agreements for certain sales offices of its affiliated  marketing agencies
in Arizona,  California  and Texas.  The Company  believes that the newly leased
facilities  will meet its  existing  needs and that the leases can be renewed or
replaced on reasonable terms if necessary.


ITEM 3.  LEGAL PROCEEDINGS

In the normal  course of its  business  operations,  the  Company is involved in
various  claims  and  other  business  related  disputes.   In  the  opinion  of
management, the Company is not a party to any pending litigation the disposition
of which  would  have a  material  adverse  effect  on the  Company's  business,
financial position or its results of operations.

On December 17, 1997, a purported  class action  complaint,  naming the Company,
two current directors of the Company, one former director of the Company and two
underwriters  of  the  Company's  7-1/2%   Convertible   Subordinated  Notes  as
defendants,  was filed in the  United  States  District  Court for the  Northern
District of Texas on behalf of persons who  purchased  securities of the Company
during the period  October 31, 1996  through  October 31,  1997.  The  complaint
alleges that the Company materially overstated its earnings due to the Company's
establishment of inadequate reserves for pending insurance claims. The plaintiff
seeks  unspecified  money  damages and certain  costs and  expenses.  Management
believes  that the lawsuit is without merit and it intends to defend this action
vigorously.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters  submitted  during the fourth  quarter of the fiscal  year
covered by this report to a vote of security holders of the Company.






<PAGE>



                                     PART II


ITEM 5.  MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCK-HOLDER MATTERS


Westbridge's  Common  Stock is listed on the New York Stock  Exchange and traded
under the symbol "WBC." The following table sets forth for the periods indicated
the high and low sales price for the Common  Stock,  by quarter,  as reported by
the New York Stock Exchange.

                                               High         Low
1998
First Quarter (through March 9, 1998)          0.938       0.438

1997
Fourth Quarter                                 4.938       0.375
Third Quarter                                 10.625       4.563
Second Quarter                                10.125       8.875
First Quarter                                 12.250       9.500

1996
Fourth Quarter                                 9.875       7.750
Third Quarter                                  8.750       7.500
Second Quarter                                 7.875       5.875
First Quarter                                  7.125       5.250


On March 9, 1998,  the closing  price of the Common  Stock on the New York Stock
Exchange  was $0.625 per share.  As of March 9, 1998,  there were  approximately
2,213 record holders of the Common Stock.

Westbridge  has not paid any cash  dividends  on the  Common  Stock and does not
anticipate  declaring  or  paying  cash  dividends  on the  Common  Stock in the
foreseeable  future. Both the Preferred Stock Purchase Agreement relating to the
Series A Preferred Stock and the Senior  Subordinated  Indenture relating to the
Senior  Subordinated  Notes,  impose certain  restrictions  upon Westbridge with
respect to the payment of dividends on the Common Stock.

For information  concerning statutory limitations on the payment of dividends to
Westbridge by the Insurance Subsidiaries and further discussion of the Company's
results of operations and liquidity,  see ITEM 7 - "Management's  Discussion and
Analysis of Financial  Condition  and Results of  Operations",  ITEM 1 "Business
-Regulation",  and NOTE 12 - STATUTORY  CAPITAL AND SURPLUS to the  Consolidated
Financial Statements.


ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

The  information  set forth below was selected or derived from the  Consolidated
Financial  Statements of the Company.  The information set forth below should be
read in  conjunction  with  "Management's  Discussion  and Analysis of Financial
Condition and Results of Operations" and the Consolidated  Financial  Statements
of the Company and related notes.


<PAGE>



<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                            ------------------------------------------------------------------------------
                                               1997               1996 (1)       1995              1994 (2)       1993
                                            -----------        -----------    -----------       -----------    -----------
                                                                 (in thousands, except share data)
<S>                                        <C>                <C>            <C>               <C>            <C>
Statement of Operation Data:
Premiums                                    $   161,097        $   156,780    $   120,093       $    98,703    $    68,731
Net investment income                            11,023              8,736          7,421             5,764          4,120
Fee and service income                           16,700              9,534          2,336             1,759          1,411
Net realized gains on investments                    84                 96            182               320          1,030
                                            -----------        -----------    -----------       -----------    -----------
       Total revenues                           188,904            175,146        130,032           106,546         75,292
                                            -----------        -----------    -----------       -----------    -----------
Benefits and claims                             136,866             94,187         70,465            53,623         33,153
Amortization of deferred policy
  acquisition costs                              30,873             22,907         11,553             9,711          8,159
Commissions                                      16,690              7,919         11,359            11,224          9,595
General and administrative expenses              31,407             27,123         21,926            16,847         14,349
Reorganization expense                            4,424                  -              -                 -              -
Recognition of premium deficiency                64,952                  -              -                 -              -
Taxes, licenses and fees                          5,995              5,951          4,101             3,230          2,724
Interest expense                                  7,102              4,462          2,432             3,067          2,552
                                            -----------        -----------    -----------       -----------    -----------
       Total expenses                           298,309            162,549        121,836            97,702         70,532
                                            -----------        -----------    -----------       -----------    -----------
(Benefit) provision for income taxes            (13,268)             4,410          2,813             2,764          1,562
Equity in FHC                                         -                 74            348               345            333
(Loss) income before
  extraordinary loss                            (96,137)             8,261          5,731             6,425          3,531
Extraordinary loss, net of
  income tax                                      1,007                  -            407                 -              -
                                            -----------        -----------    -----------       -----------    -----------
Net (loss) income                               (97,144)             8,261          5,324             6,425          3,531
Preferred stock dividends                         1,572              1,650          1,650             1,190              -
                                            -----------        -----------    -----------       -----------    -----------
(Loss) income applicable to
  common stockholders                       $   (98,716)       $     6,611    $     3,674       $     5,235    $     3,531
                                            ===========        ===========    ===========       ===========    ===========

Earnings Per Share:
   Basic                                    $    (16.07)       $      1.11    $      0.64       $      1.21    $      0.84
   Diluted                                  $    (16.07)       $      0.97    $      0.63       $      1.04    $      0.78
Book Value Per Share:
   Basic                                    $     (7.33)       $      7.93    $      7.14       $      5.95    $      5.06
   Diluted (3)                              $     (7.33)       $      8.07    $      7.50       $      6.90    $      5.06

Weighted Average
  Shares Outstanding:
   Basic                                      6,143,000          5,978,000      5,698,000         4,335,000      4,214,000
                                            ===========        ===========    ===========       ===========    ===========
   Diluted                                    6,143,000          8,477,000      5,829,000         6,185,000      4,538,000
                                            ===========        ===========    ===========       ===========    ===========

Balance Sheet Data:
Total cash and invested assets              $   148,442        $   103,218    $   111,516       $   108,838    $    57,434
Deferred policy acquisition costs                19,165             83,871         56,977            58,654         28,354
Total assets                                    202,856            220,716        200,999           187,581         97,067
Notes payable (4)                                13,100             21,210         15,807                 -              -
Senior subordinated debentures
  due 1996 (5)                                        -                  -              -            24,665         19,422
Senior subordinated notes
  due 2002 (5)                                   19,447             19,350         19,264                 -              -
Convertible subordinated notes
  due 2004 (6)                                   70,000                  -              -                 -              -
Redeemable preferred stock (7)                   19,000             20,000         20,000            20,000              -
Stockholders' (deficit) equity                  (45,418)            47,903         42,805            26,355         21,611

</TABLE>


(1) Includes operations of FLICA's parent, FHC, from June 1, 1996.

(2) Includes operations of NFIC and AICT from April 12, 1994.

(3)  Calculated   by  adding  the   redeemable   preferred   stock   balance  to
     stockholders'  equity and  dividing  the  resultant  sum by the  period-end
     shares   outstanding  plus  the  number  of  common  shares  issuable  upon
     conversion of the redeemable  preferred stock as if converted at the end of
     the period.

(4)  At December  31, 1997,  represents  balances of $13.1  million  outstanding
     against a $20.0 million revolving line of credit.

(5)  On February 28, 1995, the Company issued $20.0 million  principal amount of
     its 11% Senior Subordinated Notes due 2002 and issued 1,500,000  additional
     shares of Common Stock. The proceeds of these offerings were used, in part,
     to redeem the Senior Subordinated Debentures due 1996, on March 30, 1995.

(6)  On April 29, 1997, the Company issued $65.0 million principal amount of its
     7-1/2% Convertible  Subordinated Notes  ("Convertible  Notes") due 2004. On
     May 16, 1997, the Company  completed the sale of an additional $5.0 million
     of  its  Convertible  Notes  in  connection  with  the  underwriters'  over
     allotment option.

(7)  At December 31, 1997 consists of 19,000 shares of Series A Preferred Stock,
     which were  convertible,  at the  option of the  holders  thereof,  into an
     aggregate  of 2,259,214  shares of Common  Stock at a  conversion  price of
     $8.41 per share of Common Stock.


ITEM 7.  MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF RESULTS OF  OPERATIONS  AND
FINANCIAL CONDITION

RECENT DEVELOPMENTS

During  the  second  and  third  quarters  of  1997,  the  Company's   Insurance
Subsidiaries  experienced an increase in claims  submissions on Medical  Expense
and Medicare  Supplement  products  resulting in  substantially  increased  loss
ratios.  In  addition,  a backlog of pending  claims was paid during that period
which also contributed to the second quarter's  losses.  Independent  reviews of
the  Company's   claim  reserves  were  performed  as  of  September  30,  1997.
Additionally,  an  independent  benefit  analysis of claims was completed  which
indicated that  significant  rate increases,  which are not expected to be fully
implemented  until at least September  1998, and further  benefit  modifications
will be required to offset the current adverse claims experience. However, until
such time as the necessary  rate  increases,  and benefit  modifications  can be
fully implemented,  the Company expects that it will continue to incur operating
losses.  There can be no  assurance  that the full extent of such rate  increase
requests will be approved.

In  addition,   policy   persistency   has  declined  in  connection   with  the
implementation  of certain rate increases  together with intensified  competitor
solicitation  of the Company's  policyholders.  These events affected the future
profit margins available to absorb  amortization of Deferred Policy  Acquisition
Costs ("DPAC").  As a result of these adverse changes,  the Company  undertook a
revaluation of the  recoverability  of DPAC in the fourth quarter.  Based on the
results of this review and the impact of future  projected  premium revenues and
the  discontinuance of certain lines of business,  the Company determined that a
premium  deficiency  for certain  lines of business  existed as of December  31,
1997. A premium  deficiency  occurs when the  projected  present value of future
premiums  associated  with  these  policies  will not be  adequate  to cover the
projected present value of future payments for benefits and related amortization
of  DPAC.  Generally  accepted  accounting   principles  require  the  immediate
recognition of a premium deficiency by charging the unamortized DPAC to expense.
In this  connection,  for the  quarter and year ended  December  31,  1997,  the
Company recorded a non-cash charge to expense of approximately $65.0 million and
incurred  a  significant  loss  for the  year  ended  December  31,  1997.  This
adjustment has no impact on the Company's cash position at December 31, 1997 and
does not impact the statutory capital and surplus of the Insurance Subsidiaries.

As a result of these losses,  in November  1997, the Company  engaged  Houlihan,
Lokey,  Howard & Zukin to act as its financial  advisor to explore the Company's
strategic  alternatives which may include,  without  limitation,  a refinancing,
recapitalization  or other  corporate  reorganization  involving  a  significant
reduction  in,  or  exchange  of equity  for,  outstanding  indebtedness.  Since
November 1997, the Company has held discussions with the regulatory  authorities
in its domiciliary states of Delaware,  Texas and Mississippi and with an ad hoc
creditors'   committee   representing   both  the  holders  of  the  11%  Senior
Subordinated Notes ("Senior Subordinated Notes") due 2002 and the holders of its
7-1/2% Convertible Subordinated Notes ("Convertible Notes") due 2004.

In order to preserve  capital and maintain  flexibility  while it considers  its
strategic  alternatives,  the Company has suspended  its scheduled  debt service
payments on its Senior  Subordinated  Notes and Convertible Notes since November
1997 and suspended its dividend  payments on its outstanding  Series A Preferred
Stock since October 1997.  The failure to make the scheduled  interest  payments
constituted  payment  defaults under the  Indentures  relating to such Notes and
became events of default  thereunder  as of November 17, 1997. In addition,  the
failure to make such  interest  payments  also  resulted  in an event of default
under  its  Credit  Agreement  with a bank.  Other  covenant  defaults  are also
existing  under the Credit  Agreement and the  Indenture  relating to the Senior
Subordinated  Notes  (See  NOTE 7 -  FINANCING  ACTIVITIES).  As a result of the
foregoing events of defaults,  the holders of such  indebtedness may declare the
outstanding principal amount thereof,  together with accrued and unpaid interest
thereon,  to be due and payable  immediately.  If such  indebtedness  were to be
accelerated,  the Company  does not have the  ability to repay the  indebtedness
under the outstanding  Convertible Notes, the Senior  Subordinated Notes and the
Credit  Agreement.  There can be no assurance  that the Company will resume such
interest and dividend payments in the future.

The Report of Independent  Accountants  included herein refers to certain of the
foregoing  events  which  are  discussed  in NOTE 2 to the  Company's  financial
statements  and which raise  substantial  doubt about the  Company's  ability to
continue  as  a  going  concern.   See  ITEM  8  -  "Financial   Statements  and
Supplementary Data."

IMPACT OF YEAR 2000 ISSUE

The Company is analyzing  the issues  associated  with the  programming  code in
existing computer systems as the millennium ("Year 2000")  approaches.  The Year
2000 problem is pervasive and complex as virtually every computer operation will
be affected in some way by the rollover of the  two-digit  year value to 00. The
issue  is  whether  computer  systems  will  properly  recognize  date-sensitive
information  when  the  year  changes  to  2000.  Systems  that do not  properly
recognize such  information  could generate  erroneous data or cause a system to
fail.

Management  has  initiated an  enterprise-wide  program to prepare the Company's
computer systems, infrastructure, and facilities for the Year 2000. This program
includes  working  with  vendors and  business  partners to insure they are also
prepared for the Year 2000. The Company expects to incur internal staff costs as
well as consulting  and other  expenses  approximating  $3.0 million  related to
computer  systems,  infrastructure,  and  facilities  enhancements  necessary to
prepare for the Year 2000.

The Company  expects its Year 2000 program to be  completed  in a timely  basis;
however,  the Year 2000  computer  problem  creates  risk for the  Company  from
unforeseen problems in its own computer systems and from third parties with whom
the Company deals on financial transactions. Such potential, unforeseen problems
in the Company's  and/or third parties'  computer  systems could have a material
impact on the Company's ability to conduct its business.

BUSINESS OVERVIEW

The Company  derives its revenue  primarily  from  premiums  from its  insurance
products and, to a  significantly  lesser extent,  from fee and service  income,
income  earned on  invested  assets  and gains on the  sales or  redemptions  of
invested assets.  The Company's  primary expenses include benefits and claims in
connection with its insurance products,  amortization of DPAC,  commissions paid
on policy renewals,  general and administrative  expenses associated with policy
and  claims  administration,  taxes,  licenses  and  fees  and  interest  on its
indebtedness.  In addition to the foregoing expenses, Westbridge is obligated to
pay dividends on the Series A Preferred  Stock if and when declared by the Board
of Directors.

Fee and service income is generated from (i) commissions received by the Company
for sales of managed  care  products  underwritten  primarily  by HMOs and other
managed care  organizations,  (ii)  telemarketing  services provided by PDS, and
(iii) printing services provided by WPS.

Benefits  and claims are  comprised  of (i) claims  paid,  (ii) changes in claim
reserves for claims  incurred  (whether or not  reported),  and (iii) changes in
policy  benefit  reserves  based on  actuarial  assumptions  of  future  benefit
obligations not yet incurred on policies in force.

Under generally accepted accounting  principles,  a DPAC asset is established to
properly  match the costs of writing new business  against the  expected  future
revenues or gross profits from the policies.  The costs,  which are  capitalized
and  amortized,   consist  of  first-year   commissions  in  excess  of  renewal
commissions and certain home office expenses  related to selling,  policy issue,
and underwriting. The DPAC for accident and health policies and traditional life
policies are amortized over future premium revenues of the business to which the
costs are related.  The rate of amortization  depends on the expected pattern of
future premium  revenues for the block of policies.  The scheduled  amortization
for a block of policies is  established  when the policies are issued.  However,
the  actual  amortization  of DPAC  will  reflect  the  actual  persistency  and
profitability of the business.  For example,  if actual policy  terminations are
higher  than  expected  or if  future  losses  are  anticipated,  DPAC  could be
amortized more rapidly than  originally  scheduled or  written-off,  which would
reduce earnings in the applicable  period.  Also included in DPAC is the cost of
insurance purchased relating to acquired blocks of business.

Acquisitions.  Since 1992,  the Company has from time to time acquired  seasoned
blocks of business to supplement its revenue. These acquisitions included blocks
of: (i) Medicare Supplement products purchased from American Integrity Insurance
Company ("AII") in September 1992, (ii) Medicare  Supplement  products purchased
from Life and Health  Insurance  Company of America ("LHI") in March 1993, (iii)
Critical Care and Specified Disease products  purchased from Dixie National Life
Insurance  Company  ("DNL")  in  February  1994,  (iv)  policies  in  all of the
Company's  product lines  purchased in the acquisition of NFIC and AICT in April
1994,  and (v) Critical Care and  Specified  Disease  products  purchased in the
acquisition of the remaining 60% ownership  interest in Freedom Holding Company,
FLICA's parent, in May 1996.

Premiums. The following table shows the premiums, in thousands,  received by the
Company   as  a   result   of   internal   sales   and   acquisitions.   Certain
reclassifications  have been made to 1996  amounts  in order to  conform to 1997
presentation.
                                  Premiums (1)
                                               --------------------------------
                             Year Ended December 31,
                                               --------------------------------
                                                 1997        1996        1995
                                               --------    --------    --------

Company-issued policies:
     First-year premiums                       $ 36,800    $ 61,049    $ 34,561
     Renewal premiums                            78,261      47,421      36,417
                                               --------    --------    --------
       Total company-issued policy premiums     115,061     108,470      70,978
                                               --------    --------    --------

Acquired policies:
     AII                                          7,179       8,364       9,811
     LHI                                          1,533       1,820       2,089
     DNL                                          2,827       2,974       3,299
     NFIC and AICT                               21,061      26,207      33,110
     FLICA                                       12,605       7,744           -
     Other                                          831       1,201         806
       Total acquired policy premiums (2)        46,036      48,310      49,115
                                               --------    --------    --------
         Total Premiums                        $161,097    $156,780    $120,093
                                               ========    ========    ========


(1)  For a breakdown of premiums by product line, see "Business-Product Lines."

(2)  Premiums  for  the  acquired  policies  include   first-year   premiums  of
     $1,090,000,  $794,000 and  $213,000 for the years ended  December 31, 1997,
     1996 and 1995, respectively.


Generally,  as a result of acquisitions of policies in force and the transfer of
assets and liabilities relating thereto, the Company receives higher revenues in
the form of premiums and net investment  income and experiences  higher expenses
in the form of  benefits  and  claims,  amortization  of DPAC,  commissions  and
general and  administrative  expenses.  The Company  expects that premiums,  net
investment  income,  net  realized  gains on  investments,  benefits and claims,
amortization  of DPAC,  commissions  and  general  and  administrative  expenses
attributable  to these  acquired  policies will continue to decline over time as
the acquired policies lapse.

Forward-Looking   Information.   The  preceding   statement  and  certain  other
statements  contained  in the  Business  section,  Management's  Discussion  and
Analysis of Financial  Condition and Results of Operations  and the Notes to the
Consolidated   Financial  Statements  are  forward-looking   statements.   These
forward-looking  statements  are based on  current  expectations  that  could be
affected  by the risks and  uncertainties  involved in the  Company's  business.
These  risks and  uncertainties  include,  but are not limited to, the effect of
economic  and market  conditions,  the extent of any  increase  in future  claim
submissions,  the availability of sufficient  statutory capital and surplus, the
ability to increase  premium  rates on in-force  policies to offset  higher than
anticipated  loss  ratios,  actions  that may be taken by  insurance  regulatory
authorities and the Company's  creditors  following recent operating losses, and
the risks described from time to time in the Company's reports to the Securities
and Exchange  Commission,  which include the Company's Quarterly Reports on Form
10-Q for the quarter ended March 31, 1997, June 30, 1997 and September 30, 1997,
the Company's  Registration Statement on Form S-1 dated as of March 28, 1997, as
amended,  and the Prospectus  dated April 24, 1997.  Subsequent  written or oral
statements  attributable  to the  Company  or  persons  acting on its behalf are
expressly  qualified  in their  entirety by the  cautionary  statements  in this
Quarterly  Report and those in the Company's  reports  previously filed with the
Securities and Exchange  Commission.  Copies of these filings may be obtained by
contacting the Company or the SEC.

RESULTS OF OPERATIONS

Year Ended December 31, 1997 Compared with Year Ended December 31, 1996

Premiums.  Premiums  increased  $4.3 million,  or 2.7%,  from $156.8  million to
$161.1 million. This increase resulted from an increase in renewal premiums from
Company-issued policies of $33.7 million, or 75.6%, and was offset by a decrease
in renewal  premiums  from  acquired  policies of $5.4  million,  or 10.7%,  and
decreases in first-year  premiums from  Company-issued  and acquired policies of
$22.8 million and $1.2 million, or 38.1% and 60.0%, respectively.

The increase in renewal premiums from  Company-issued  policies was attributable
to an increase  of $20.7  million,  or 118.3% in Medical  Expense  premiums,  an
increase of $13.0 million, or 92.2% in Medicare Supplement premiums, an increase
in Life Insurance and other premiums of $0.3 million,  or 50.0%,  and was offset
by a decrease of $0.3 million,  or 2.4%, in Critical Care and Specified  Disease
premiums.

The decrease in renewal  premiums from acquired  policies was  attributable to a
decrease of $5.4 million,  or 20.6%,  from the policies acquired in the NFIC and
AICT acquisition and to a decrease of $1.8 million,  or 12.6%, from the policies
acquired  from AII, LHI and DNL, and was offset by an increase of $1.8  million,
or 18.4%, from the policies acquired in the FLICA acquisition.

The  decrease  in   first-year   premiums  from   Company-issued   policies  was
attributable  to a  decrease  of $13.5  million,  or 33.5%  in  Medical  Expense
premiums,  a decrease of $9.1 million, or 50.8% in Medicare Supplement premiums,
and a decrease of $0.2 million, or 40.0%, in Life Insurance and other premiums.

The decrease in first-year premiums from acquired policies was attributable to a
decrease of $1.2  million,  or 60.0%,  from the  policies  acquired in the FLICA
acquisition.

Net Investment Income.  Net investment income increased $2.3 million,  or 26.4%,
from $8.7 million to $11.0 million.  This increase was  attributable to a higher
average  investment  base  resulting  from the net  proceeds  received  from the
Company's sale of its Convertible Notes during the second quarter.

Fee and Service Income. Fee and service income increased $7.2 million, or 75.8%,
from $9.5  million  to $16.7  million.  The  increase  was  primarily  due to an
increase of $6.4  million,  or 81%,  relating  to  commissions  on managed  care
product  sales  earned  by the  Company's  controlled  general  agencies  and an
increase of $0.8 million, or 47.1%, in other fees.

Benefits and Claims.  Benefits and claims expense  increased  $42.7 million,  or
45.3%,  from $94.2 million to $136.9 million.  This increase was attributable to
an increase in benefits  and claims  expense  from  Company-issued  and acquired
policies of $39.2 million and $3.5 million, or 65.7% and 10.1%, respectively.

The increase in benefits and claims  expense  from  Company-issued  policies was
primarily  attributable to an increase of $31.1 million, or 115.2%, from Medical
Expense  products,  an  increase  of  $6.4  million,  or  25.3%,  from  Medicare
Supplement  products,  an increase of $2.2 million, or 36.7%, from Critical Care
and Specified Disease products, and was offset by a decrease of $0.5 million, or
35.7% from Life Insurance and other products.

The increase in benefits and claims expense from acquired policies was primarily
attributable  to an  increase  of $2.9  million,  or  72.5%,  from the  policies
acquired in the FLICA  acquisition,  an increase of $0.3 million,  or 1.4%, from
the policies acquired in the NFIC and AICT acquisition,  and an increase of $0.3
million, or 3.1% from the policies acquired from AII, LHI and DNL.

During  the  second  and  third  quarters  of  1997,  the  Company's   Insurance
Subsidiaries  experienced an increase in claims  submissions on Medical  Expense
and Medicare  Supplement  products  resulting in  substantially  increased  loss
ratios.  In  addition,  a backlog of pending  claims was paid during that period
which also contributed to the second quarter's  losses.  Independent  reviews of
the  Company's   claim  reserves  were  performed  as  of  September  30,  1997.
Additionally,  an  independent  benefit  analysis of claims was completed  which
indicated that  significant  rate increases,  which are not expected to be fully
implemented  until at least September  1998, and further  benefit  modifications
will be required to offset the current adverse claims experience. However, until
such time as the necessary rate increases and benefit modifications can be fully
implemented,  the  Company  expects  that it will  continue  to incur  operating
losses.  There can be no  assurance  that the full extent of such rate  increase
requests will be approved.

Amortization  of DPAC. A portion of the Company's loss resulted from an increase
in  amortization  of DPAC due to lower  persistency as a result of rate increase
activity on inforce business.  As management  requests additional rate increases
for Medical Expense and Medicare Supplement products in order to resolve premium
pricing  disparities  and to reduce  adverse  claim loss ratios,  the  Company's
earnings  may be  negatively  impacted  by further  unanticipated  increases  in
amortization of DPAC during 1998.

Amortization  of DPAC  increased $8.0 million,  or 34.9%,  from $22.9 million to
$30.9 million.  This increase was attributable to an increase in amortization of
DPAC from Company-issued  policies of $10.9 million, or 63.7%, and was offset by
a decrease of $2.9 million, or 50.0%, from acquired policies.

The increase in amortization of DPAC from Company-issued  policies was primarily
attributable  to an increase  of $7.6  million  and $3.9  million,  or 71.0% and
97.5%, from Medical Expense and Medicare Supplement products,  respectively, and
was offset by a  decrease  of $0.5  million,  or 23.8%  from  Critical  Care and
Specified  Disease  products and a decrease of $0.1 million from Life  Insurance
and other products.

The  decrease in  amortization  of DPAC from  acquired  policies  was  primarily
attributable  to a  decrease  of $2.4  million,  or  104.3%,  from the  policies
acquired in the NFIC and AICT acquisition, a decrease of $0.7 million, or 43.8%,
from the policies  acquired from AII, LHI and DNL, and was offset by an increase
of $0.2 million, or 10.5%, from the policies acquired in the FLICA acquisition.

Commissions. Commissions increased $8.8 million, or 111.4%, from $7.9 million to
$16.7 million.  This increase was attributable to an increase of $4.1 million in
commissions on sales of Company-issued policies and an increase of $5.6 million,
or 114.3%, on sales of non-affiliated,  managed care insurance products, and was
offset by a decrease of $0.9 million, or 14.8%, from acquired policies.

General  and  Administrative  Expenses.   General  and  administrative  expenses
increased  $4.3 million,  or 15.9%,  from $27.1 million to $31.4  million.  This
increase was primarily  attributable  to increases in the allowance for doubtful
agent  receivables  and a change in  estimate  for the  recognition  of deferred
compensation expense. In addition,  fewer policies were eligible for deferral of
acquisition  costs as a  result  of the  reduction  in the  Company's  marketing
efforts for its underwritten  insurance products beginning in the second quarter
of 1996.

Reorganization  Expense.  As more fully described in "Recent  Developments",  in
response to the losses sustained by the Company in the second and third quarters
of 1997,  the  Company has hired a  financial  advisor to explore its  strategic
alternatives.  The Company is  responsible  for paying the fees of its financial
advisor  and  legal  counsel  and has  agreed  to pay the fees of the  financial
advisors and legal counsel to an ad hoc creditors'  committee in connection with
the efforts to formulate and evaluate transactional  alternatives.  During 1997,
the Company  incurred  approximately  $1.4 million in expenses during the fourth
quarter of 1997  related to these  efforts.  In addition,  the Company  incurred
approximately  $3.0 million during the second quarter of 1997 in connection with
a non-recurring internal reorganization.

Recognition  of  Premium   Deficiency.   As  more  fully  described  in  "Recent
Developments,"  in response to the  significant  increases in loss ratios on the
Company's  Medical Expense and Medicare  Supplement  products and the decline in
policy persistency, the Company undertook a revaluation of the recoverability of
DPAC in the fourth  quarter.  Based on the results of this review and the impact
of future projected premium revenues and the  discontinuance of certain lines of
business,  the Company determined that a premium deficiency for certain lines of
business existed as of December 31, 1997. A premium  deficiency  occurs when the
projected  present value of future premiums  associated with these policies will
not be adequate to cover the  projected  present  value of future  payments  for
benefits  and  related  amortization  of  DPAC.  Generally  accepted  accounting
principles require the immediate recognition of a premium deficiency by charging
the unamortized DPAC to expense.  In this  connection,  for the quarter and year
ended  December 31, 1997, the Company  recorded a non-cash  charge to expense of
approximately $65.0 million. This adjustment has no impact on the Company's cash
position at  December  31,  1997 and does not impact the  statutory  capital and
surplus of the Insurance Subsidiaries.

Taxes, Licenses and Fees. Taxes, licenses and fees remained relatively unchanged
from the prior year at $6.0 million as increases in premium  taxes due to higher
premiums  levels  in 1997 were  offset by  decreases  in state  levied  fees and
special assessments during the same period.

Interest Expense.  Interest expense increased $2.6 million,  or 57.8%, from $4.5
million to $7.1 million.  This increase is attributable to the accrued  interest
expense  related  to the  issuance  of $70.0  million  of the  Company's  7-1/2%
Convertible Notes.

(Benefit from) Provision for Income Taxes. During 1996, the provision for income
taxes was  calculated  by  applying  the 35%  statutory  federal tax rate to the
Company's pre-tax income for the year ended December 31, 1996. The change in the
(benefit from)  provision for income taxes during 1997 is directly  attributable
to the net loss  recorded by the Company for the year ended  December  31, 1997.
This net loss generated a significant amount of net operating loss carryforwards
("NOLs") that will be available for offset against  taxable income  generated in
future reporting periods. The Company has determined that it is more likely than
not that it will be unable to utilize  all of these  NOLs  prior to the  related
expiration  dates.  In this  connection,  the Company  has  recorded a valuation
allowance  that  significantly  reduces  its benefit  from income  taxes for the
current  year from the amount that would have been  derived by applying  the 35%
statutory  federal  tax rate to the  Company's  pre-tax  loss for the year ended
December 31,  1997.  See NOTE 11 - INCOME  TAXES to the  Company's  Consolidated
Financial Statements.

Extraordinary  Item. The Company  recognized an extraordinary  loss on the early
extinguishment of debt in the amount of $1.0 million, net of taxes, for the year
ended  December 31,  1997.  This  extraordinary  charge is comprised of (i) $0.4
million,  net of taxes,  related to the  termination and recapture of a block of
reinsured insurance policies and (ii) $0.6 million, net of taxes, related to the
recognition of  unamortized  financing  fees  associated  with the repayment and
refinancing of the Company's revolving credit facility with Fleet National Bank.

Year Ended December 31, 1996 Compared with Year Ended December 31, 1995

Premiums.  Premiums  increased $36.7 million,  or 30.6%,  from $120.1 million to
$156.8 million. The increase was attributable to first-year and renewal premiums
of Company-issued  policies increasing $26.5 million and $11.0 million, or 76.6%
and 30.2%, respectively,  and was offset by a decrease in premiums from acquired
policies of $0.8 million, or 1.6%.

The increase in first-year premiums of Company-issued  policies was attributable
to an increase of $26.1 million,  or 154.4%,  in Medical Expense premiums and an
increase  of $3.3  million,  or 28%,  in  Medicare  Supplement  premiums.  These
increases  were offset,  in part, by a decrease of $3.2 million in Critical Care
and Specified Disease premiums.

The increase in renewal premiums of Company-issued  policies was attributable to
an increase of $8.5 million,  or 283.3%, in Medicare  Supplement premiums and an
increase of $6.3, or 63%, in Medical  Expense  premiums.  These  increases  were
offset,  in part,  by a decrease of $3.3 million in Critical  Care and Specified
Disease premium.

The decrease in premiums of acquired  policies was attributable to a decrease of
$6.9  million,  or  20.9%,  from  the  policies  acquired  in the  NFIC and AICT
acquisition,  and a  decrease  of $1.4  million,  or  14.8%,  from the  policies
acquired from AII. These decreases were offset,  in part, by an increase of $7.7
million from the policies acquired in the FLICA acquisition.

Net Investment Income.  Net investment income increased $1.3 million,  or 17.6%,
from $7.4 million to $8.7  million.  This increase was primarily the result of a
$0.8 million  increase in interest  earned on receivables  due from agents.  The
remaining  increase is due primarily to a higher average  investment  base which
was offset, in part, by negative cash flows from operations.  The higher average
investment  base resulted from the  acquisition  of FLICA during the year and to
amounts borrowed to finance advances to general agencies.

Fee and Service Income. Fee and service income increased $7.2 million,  or 313%,
from $2.3 million to $9.5 million. The increase was primarily due to an increase
of $6.4  million of  commission  income on  managed  care  product  sales by the
Company's  controlled  general  agencies  and an  increase  of $0.9  million  of
telemarketing services earned by PDS.

Benefits and Claims.  Benefits and claims expense  increased  $23.7 million,  or
33.6%,   from  $70.5  million  to  $94.2  million.   Benefits  and  claims  from
Company-issued  policies increased $24.4 million,  or 62.7%, and were offset, in
part,  by a decrease  in  benefits  and claims  from  acquired  policies of $0.7
million,  or 2.2%.  In  connection  with the increase in premiums,  benefits and
claims increased $8.0 million, or 61.5%, from Medicare Supplement  products,  an
increase of $13.8  million,  or 95.2%,  from  Medical  Expense  products  and an
increase of $2.6 million from Critical Care and Specified Disease products. As a
result of continued lapses from a closed block of business,  benefits and claims
decreased $3.4 million, or 38.6%, from policies purchased from AII. The block of
business  acquired  from NFIC and AICT  reflected  an increase  in benefits  and
claims  expense  of $2.2  million,  or  11.8%,  and  was  primarily  related  to
disability income products. Additionally,  benefits and claims expense increased
$0.6 million due to the recent acquisition of FLICA.

Amortization of DPAC.  Amortization  of DPAC increased $11.3 million,  or 97.4%,
from $11.6 million to $22.9  million.  The increase  resulted from the growth in
sales which began in the second quarter of 1995.  Amortization of DPAC increased
$3.2 million for Medical Expense products,  $3.5 million for Medicare Supplement
products,  and $2.8 million for Critical Care and Specified Disease products,  a
portion of which was  attributable to a large group policy which lapsed in 1996.
Amortization  of DPAC also  increased  $4.1 million due to sales of new policies
underwritten  by NFIC and AICT.  This increase for NFIC and AICT was offset,  in
part,  by a $2.1  million  decrease  in  amortization  of the cost of  insurance
purchased which was capitalized in connection with the Company's  acquisition of
NFIC and AICT.  Further  offsetting  this increase in amortization of DPAC was a
decrease of $2.9  million from  discontinued  Medicare  Supplement  products and
Medical  Expense  products.  Amortization  of DPAC pertaining to FLICA increased
$2.3 million related to the Critical Care and Specified Disease products.

Commissions. Commissions decreased $3.5 million, or 30.7%, from $11.4 million to
$7.9  million.  This  decrease  was a  reflection  of lower  overall  net  level
commission  rates on new  business  production  as compared to level  commission
rates for products written in prior reporting periods.

General  and  Administrative  Expenses.   General  and  administrative  expenses
increased  $5.2  million,  or 23.7%,  from $21.9  million to $27.1  million as a
result of costs associated with expanding  marketing  operations and servicing a
growing  base  of  policyholders.   General  and   administrative   expenses  of
approximately  $0.6 million were  incurred  during 1996 as a result of acquiring
the remaining interests in Senior Benefits and American Senior Security Plans.

Taxes,  Licenses and Fees. Taxes,  licenses and fees increased $1.9 million,  or
46.3%,  from $4.1 million to $6.0  million.  The increase was  primarily  due to
growth in premium  revenues along with state fees charged for  examinations  and
various assessments, including guaranty fund assessments.

Interest Expense.  Interest expense increased $2.1 million,  or 87.5%, from $2.4
million to $4.5  million.  The increase was primarily due to an increase of $1.4
million associated with a revolving line of credit which became available to the
Company on  December  28,  1995 and an  increase  of $0.7  million  related to a
reinsurance treaty which was effective July 1, 1996.

Provision  for Income  Taxes.  The  provision  for income taxes  increased  $1.6
million,  or 57.1%,  from $2.8  million to $4.4  million.  The  increase was the
result of pre-tax income increasing $4.2 million, or 49.4%.

LIQUIDITY, CAPITAL RESOURCES, AND STATUTORY CAPITAL AND SURPLUS

Westbridge

Westbridge  is an  insurance  holding  company,  the  principal  assets of which
consist of the capital stock of its operating  subsidiaries and invested assets.
Accordingly,  Westbridge's  sources of funds are comprised of dividends from its
operating subsidiaries,  advances from non-insurance company subsidiaries, lease
payments on fixed  assets and tax  contributions  under a tax sharing  agreement
among Westbridge and its subsidiaries.  Westbridge's primary obligations include
principal  and  interest on its  indebtedness  and, if and when  declared by the
Board of Directors, dividends on its Series A Preferred Stock.

Dividends paid by the Insurance Subsidiaries to Westbridge are determined by and
subject to the  regulations of the insurance laws and practices of the insurance
departments  of their  respective  state of domicile.  NFL, a Delaware  domestic
company,  may not  declare or pay  dividends  from any source  other than earned
surplus without the Delaware  Insurance  Commissioner's  approval.  The Delaware
Insurance  Code defines  earned  surplus as the amount  equal to the  unassigned
funds as set forth in NFL's most recent  statutory  annual  statement  including
surplus  arising from unrealized  gains or revaluation of assets.  Delaware life
insurance  companies may generally pay ordinary  dividends or make distributions
of cash or other  property  within any twelve  month  period  with a fair market
value  equal  to or  less  than  the  greater  of  10%  of  surplus  as  regards
policyholders  as of the preceding  December 31 or the net gain from  operations
for the twelve month period  ending on the  preceding  December 31. During 1998,
NFL is  precluded  from  paying  dividends  without  the prior  approval  of the
Delaware Insurance Commissioner as its earned surplus is negative.  Further, NFL
has agreed to file for the prior approval of any dividends  declared or paid for
the foreseeable future.

NFIC and AICT, Texas domestic companies, may make dividend payments from surplus
profits or earned surplus  arising from its business.  The Texas  Insurance Code
defines earned surplus as unassigned surplus not including any unrealized gains.
Texas life  insurance  companies may  generally  pay ordinary  dividends or make
distributions  of cash or other  property  within any twelve month period with a
fair market value equal to or less than the greater of 10% of surplus as regards
policyholders  as of the preceding  December 31 or the net gain from  operations
for the twelve month period  ending on the  preceding  December 31. Any dividend
exceeding  the  applicable  threshold is considered  extraordinary  and requires
prior  approval of the Texas  Insurance  Commissioner.  During 1998,  NFIC's and
AICT's earned surplus is negative,  and as such,  each company is precluded from
paying dividends without the prior approval of the Texas Insurance Commissioner.

FLICA, a Mississippi  domestic company, may make dividend payments only from its
actual  net  surplus  computed  as  required  by  law in  its  statutory  annual
statement.  Mississippi  life  insurance  companies  may  generally pay ordinary
dividends  or make  distributions  of cash or other  property  within any twelve
month period with a fair market value not exceeding the lesser of 10% of surplus
as regards  policyholders  as of the preceding  December 31 or the net gain from
operations for the twelve month period ending on the preceding  December 31. Any
dividend  exceeding the applicable  threshold  amount requires prior approval of
the Mississippi  Insurance  Commissioner.  During 1998,  FLICA is precluded from
paying dividends to NFL without the prior approval of the Mississippi  Insurance
Commissioner  as it  recorded  a net loss  from  operations  for the year  ended
December 31, 1997.

Generally,  all states require insurance companies to maintain statutory capital
and surplus which is reasonable in relation to their  existing  liabilities  and
adequate to their financial needs. Delaware, Texas and Mississippi also maintain
discretionary  powers relative to the declaration and payment of dividends based
upon an insurance  company's  financial  position.  In light of the  significant
statutory  losses incurred by the Insurance  Subsidiaries  during the year ended
December 31, 1997,  Westbridge does not expect to receive any dividend  payments
from these entities for the foreseeable future.

Since November 1997, Westbridge suspended its scheduled interest payments on the
Senior  Subordinated  Notes, the Convertible Notes, and the dividend payments on
its Series A Cumulative Convertible Redeemable Exchangeable Preferred Stock (the
"Series A Preferred Stock"). The failure to make the scheduled interest payments
constituted  payment  defaults under the  Indentures  relating to such Notes and
became  events of default  thereunder  on November  17, 1997.  In addition,  the
failure to make such  interest  payments  also  resulted  in an event of default
under the Credit Agreement (as defined below).  Other covenant defaults are also
existing  under the Credit  Agreement and the  Indenture  relating to the Senior
Subordinated Notes. As a result of the foregoing events of defaults, the holders
of such  indebtedness  may declare the  outstanding  principal  amount  thereof,
together  with  accrued  and  unpaid  interest  thereon,  to be due and  payable
immediately.  If such indebtedness were to be accelerated,  the Company does not
have the ability to repay the  indebtedness  under the  outstanding  Convertible
Notes, the Senior  Subordinated  Notes and the Credit Agreement.  As of December
31,  1997,  the Company  had accrued  interest  totaling  $0.6  million and $3.5
million  in  connection  with its  outstanding  Senior  Subordinated  Notes  and
Convertible Notes, respectively.

The failure to declare and pay the scheduled  dividend on the Series A Preferred
Stock  constituted  an event of  non-compliance  under the terms of the Series A
Preferred  Stock  Agreement and resulted in an immediate  increase to 9.25% from
8.25% in the rate at which  dividends  accrue on the Series A  Preferred  Stock.
This   increase   will  remain  in  effect  until  such  time  as  no  event  of
non-compliance  exists. In addition, if the failure to declare and pay dividends
continues for six  consecutive  quarters,  the holders of the Series A Preferred
Stock  shall have the right to elect two  directors  to the  Company's  Board of
Directors.  As of December 31, 1997, the Company had approximately  $0.8 million
in cumulative, unpaid dividends on its Series A Preferred Stock.

As of March 9, 1998,  Westbridge  had  approximately  $12.8  million in cash and
invested  assets  remaining from the net proceeds of the sale of the Convertible
Notes.  The Company is continuing its discussions  with certain of its creditors
concerning various  transactional and strategic  alternatives which may include,
without   limitation,   a  refinancing,   recapitalization  or  other  corporate
reorganization  involving a signficant  reduction in, or exchange of equity for,
outstanding  indebtedness.  There can be no assurance that any such  transaction
will be effected.

The Convertible Notes may not be redeemed prior to May 1, 2000 and,  thereafter,
may be redeemed at the Company's option at a specified  declining  premium.  The
Convertible  Notes mature on May 1, 2004. The Senior  Subordinated  Notes may be
redeemed,  at the Company's option,  without premium,  on or after March 1, 1998
and mature in March 2002.  The Series A  Preferred  Stock may be redeemed at any
time at the Company's option and is subject to mandatory redemption on April 12,
2004.

Insurance Subsidiaries

The primary  sources of cash for the  Insurance  Subsidiaries  are  premiums and
income on invested assets.  Additional cash is periodically provided by advances
from  Westbridge  and from the sale of  short-term  investments  and  could,  if
necessary,  be provided through the sale of long-term  investments and blocks of
business.  The  Insurance  Subsidiaries'  primary uses for cash are benefits and
claims,  commissions,  general and administrative expenses,  taxes, licenses and
fees.

During  the  second  and  third  quarters  of  1997,  the  Company's   Insurance
Subsidiaries  experienced an increase in claims  submissions on Medical  Expense
and Medicare  Supplement  products  resulting in  substantially  increased  loss
ratios.  In  addition,  a backlog of pending  claims was paid during that period
which also contributed to the second quarter's  losses.  Independent  reviews of
the  Company's   claim  reserves  were  performed  as  of  September  30,  1997.
Additionally,  an  independent  benefit  analysis of claims was completed  which
indicated that  significant  rate increases,  which are not expected to be fully
implemented  until at least September  1998, and further  benefit  modifications
will be required to offset the current adverse claims experience. However, until
such time as the necessary rate increases and benefit modifications can be fully
implemented,  the  Company  expects  that it will  continue  to incur  operating
losses.  There can be no  assurance  that the full extent of such rate  increase
requests will be approved.

During the first and second  quarters of 1997, the Company  implemented  certain
rate increases on its Medicare Supplement products.  In addition,  as of July 1,
1997 the  Company  implemented  certain  rate  increases  and  modified  certain
features on some of its Medical Expense products.  Additionally,  an independent
benefit  analysis of claims paid was completed which indicated that  significant
additional  rate  increases,  which are expected to take more than six months to
fully implement,  and further benefit  modifications  will be required to offset
the current adverse claims experience. However, until such time as the necessary
additional  rate increases and benefit  modifications  can be  implemented,  the
Company expects that it will continue to incur operating losses. There can be no
assurance that the full extent of such rate increase requests will be approved.

During 1997, Westbridge made capital contributions  totaling approximately $45.3
million  to  its  Insurance  Subsidiaries.  To the  extent  that  the  Company's
Insurance  Subsidiaries  experience  further  statutory  operating losses during
1998, additional capital contributions by Westbridge will be required.

In the ordinary course of business, the Company advances commissions on policies
written by its general agencies and their agents.  The Company is reimbursed for
these advances from the commissions earned over the respective policy's life. In
the event  that  policies  lapse  prior to the time the  Company  has been fully
reimbursed, the general agency or the individual agents, as the case may be, are
responsible  for  reimbursing  the  Company for the  outstanding  balance of the
commission  advance.  For the years ended December 31, 1997,  1996 and 1995, the
Company has recorded a provision for uncollectible  commission advances totaling
$2.8 million,  $1.5 million and $0, respectively.  This increase in 1997 relates
to the Company's  projections  of future  renewal  commissions  that indicate an
expected short fall in amounts  necessary to satisfy and retire the  outstanding
receivables  as a result of increases in lapse rates on policies  supporting the
receivables. For the years ended 1997, 1996 and 1995, the Company charged-off $0
million, $0.9 million and $0 million,  respectively,  of reimbursable commission
advances which had  accumulated.  Future rate increases may result in additional
lapses that would lead to additional uncollectible receivables.

The Company finances the majority of its obligations to make commission advances
through  Westbridge  Funding  Corporation  ("WFC"),  an  indirect   wholly-owned
subsidiary of Westbridge.  On June 6, 1997, WFC entered into a Credit  Agreement
dated as of such date with LaSalle National Bank (the "Credit  Agreement").  See
NOTE 16 - EXTRAORDINARY ITEM to the Company's Consolidated Financial Statements.
This Credit Agreement  provides WFC with a three-year,  $20.0 million  revolving
loan facility (the "Receivables  Financing"),  the proceeds of which are used to
purchase agent advance  receivables from the Insurance  Subsidiaries and certain
affiliated marketing companies. WFC's obligations under the Credit Agreement are
secured by liens upon substantially all of WFC's assets. In connection with this
commission  advancing program,  at December 31, 1997, the Company's  receivables
from subagents totaled  approximately  $14.1 million,  and  approximately  $13.1
million  was  outstanding  under the  Credit  Agreement.  The  Credit  Agreement
terminates on June 5, 2000, at which time the outstanding principal and interest
thereunder will be due and payable.  As referred to above, there is currently an
event of default as well as certain technical defaults existing under the Credit
Agreement.  The Company is in discussions  with LaSalle National Bank concerning
these defaults.

WFC's  obligations under the Credit Agreement have been guaranteed by Westbridge
under the Guaranty Agreement,  and the Company has pledged all of the issued and
outstanding  shares of the capital stock of WFC, NFL and NFIC as collateral  for
that guaranty.

The Company also receives  commission  advances from the  unaffiliated  HMOs and
other managed care organizations and in turn advances commissions to its general
agencies and their agents. At December 31, 1997, the Company's  receivables from
its subagents related to these advances totaled  approximately $6.4 million, and
the Company  owed  approximately  $4.7  million to  unaffiliated  HMOs and other
managed care organizations.

Consolidated

The Company's  consolidated net cash used for operations  totaled $20.0 million,
$10.8  million  and $20.8  million  in 1997,  1996 and 1995,  respectively.  The
increase in the amount of net cash used for  operations was primarily the result
of the increase in the number of claims  processed  during 1997 coupled with the
increase in certain  medical costs covered by the Company's  Medical Expense and
Medicare Supplement  products as a result of medical cost inflation.  Additional
increases  in  consolidated  net cash used for  operations  related  to  amounts
remitted to reinsurers under certain reinsurance  arrangements.  These increases
in the consolidated net cash used for operations were offset,  in part, by lower
levels  of  additions  to DPAC as a result  of the  Company's  reduction  of its
marketing efforts for its underwritten  products beginning in the second quarter
of 1996. The reduction in cash used by operations in 1996 as compared to 1995 is
due  primarily  to  higher  net  income  from  operations  and  an  increase  in
policyholder liabilities.

Net cash (used for)  provided by investing  activities  for 1997,  1996 and 1995
totaled  ($40.4)  million,  $6.3  million and $0.4  million,  respectively.  The
increase  in the cash  outflow for 1997  represents  the  investment  of the net
proceeds from the issuance of the Convertible  Notes. Cash inflows for 1996 were
utilized to fund operating cash  requirements and were also  attributable to the
liquidation  of  investments  to support the increased  new business  production
which occurred during the first two quarters of 1996.

Net cash provided by financing  activities  totaled $60.4 million,  $3.5 million
and $19.5 million for 1997, 1996 and 1995, respectively.  For 1997, cash inflows
were provided by issuance of $70.0 million  aggregate  principal of  Convertible
Notes offset, in part, by cash payments of $7.0 million to retire a note payable
associated  with a recaptured  reinsurance  agreement,  $1.0 million to retire a
note with a related  party and $1.5  million in net  borrowings  and  repayments
associated with the Receivables  Financing program.  For 1996, cash was provided
by borrowings under the Receivables  Financing program with Fleet National Bank.
During 1995,  the Company  received  $29.3 million from the sale of Common Stock
and  Senior  Subordinated  Notes in a public  offering  and $15.8  million  from
borrowings  primarily under the  Receivables  Financing.  Offsetting  these cash
inflows  in 1995 was $25.0  million  paid to retire  Westbridge's  11.7%  Senior
Subordinated Debentures due 1996.

The Company will require additional  capital or a refinancing,  recapitalization
or other  reorganization  involving a  significant  reduction in, or exchange of
equity for,  outstanding  indebtedness  to satisfy its  short-term and long-term
cash  requirements  and there can be no  assurance  that  sufficient  additional
capital can be obtained.  The Company is evaluating  its strategic  alternatives
with its financial advisor.

The Company had no significant high-yield, unrated or less than investment grade
fixed maturity  securities in its investment  portfolio as of December 31, 1997,
and it is the  Company's  policy not to exceed  more than 5% of total  assets in
such  securities.  Changes in interest  rates may affect the market value of the
Company's investment  portfolio.  The Company's principal objective with respect
to the management of its investment portfolio is to meet its future policyholder
benefit  obligations.   In  the  event  the  Company  was  forced  to  liquidate
investments prior to maturity, investment yields could be compromised.

Inflation will affect claim costs on the Company's Medicare  Supplement products
and Medical  Expense  products.  Costs  associated  with a hospital stay and the
amounts  reimbursed by the Medicare program are each determined,  in part, based
on the  rate of  inflation.  If  hospital  and  other  medical  costs  that  are
reimbursed  by the  Medicare  program  increase,  claim  costs  on the  Medicare
Supplement products will increase.  Similarly, as the hospital and other medical
costs increase,  claim costs on the Medical Expense products will increase.  The
Company attempts to mitigate its exposure to inflation by incorporating  certain
limitations on the maximum benefits which may be paid under certain policies and
by filing for premium rate increases as necessary.




<PAGE>



ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Financial  Statements and Financial  Statement Schedules Covered by the
Following Report of Independent Accountants.


<TABLE>
<CAPTION>
                                                                                            Page
                                                                                          Number(s)

<S>                                                                                           <C>
Report of Independent Accountants                                                              35

Financial Statements:

     Consolidated Statements of Operations for the Three Years ended December 31, 1997         36

     Consolidated Balance Sheets at December 31, 1997 and 1996                                 37

     Consolidated Statements of Cash Flows for the Three Years ended December 31, 1997         39

     Consolidated Statements of Changes in Stockholders' Equity for the
         Three Years ended December 31, 1997                                                   41

     Notes to Consolidated Financial Statements                                                42


Financial Statement Schedules:

II.   Condensed Financial Information of Registrant as
         of and for the Three Years ended December 31, 1997                                    68

III.  Supplementary Insurance Information for the Three
         Years ended December 31, 1997                                                         71

IV.  Reinsurance for the Three Years ended December 31, 1997                                   72

V.    Valuation and Qualifying Accounts and Reserves for the
         Three Years ended December 31, 1997                                                   73

</TABLE>


All  other  Financial  Statement  Schedules  are  omitted  because  they are not
applicable or the required  information is shown in the Financial  Statements or
notes thereto.


<PAGE>


                        REPORT OF INDEPENDENT ACCOUNTANTS



To the Board of Directors
and Stockholders of
Westbridge Capital Corp.


In our opinion,  the  accompanying  consolidated  balance sheets and the related
consolidated statements of operations and stockholders' equity and of cash flows
present fairly, in all material  respects,  the financial position of Westbridge
Capital  Corp.  and its  subsidiaries  at December  31,  1997 and 1996,  and the
results of their  operations and their cash flows for each of the three years in
the period ended  December 31,  1997,  in  conformity  with  generally  accepted
accounting principles.  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  audits.  We  conducted  our audits of these
statements  in accordance  with  generally  accepted  auditing  standards  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  audits  provide  a
reasonable basis for the opinion expressed above.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  NOTE 2 to the
financial statements,  the Company has suffered recurring losses from operations
during the year ended  December 31, 1997 and has a net capital  deficiency  that
raise  substantial  doubt  about its  ability to  continue  as a going  concern.
Management's  plans in regard to these matters are also described in NOTE 2. The
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainty.




/s/ Price Waterhouse LLP

PRICE WATERHOUSE LLP
Dallas, Texas
March 30, 1998



<PAGE>


                            WESTBRIDGE CAPITAL CORP.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                        (in thousands. except share data)


<TABLE>
<CAPTION>
                                                                December 31
                                                 ------------------------------------------
                                                     1997            1996           1995
                                                 -----------     -----------    -----------
<S>                                             <C>             <C>            <C>
Revenues:
   Premiums:
     First-year                                  $    37,890     $    61,843    $    34,774
     Renewal                                         123,207          94,937         85,319
                                                 -----------     -----------    -----------
                                                     161,097         156,780        120,093
   Net investment income                              11,023           8,736          7,421
   Fee and service income                             16,700           9,534          2,336
   Net realized gain on investments                       84              96            182
                                                 -----------     -----------    -----------
                                                     188,904         175,146        130,032
                                                 -----------     -----------    -----------
Benefits, claims and expenses:
   Benefits and claims                               136,866          94,187         70,465
   Amortization of deferred policy
     acquisition costs                                30,873          22,907         11,553
   Commissions                                        16,690           7,919         11,359
   General and administrative expenses                31,407          27,123         21,926
   Reorganization expense                              4,424               -              -
   Recognition of premium deficiency                  64,952               -              -
   Taxes, licenses and fees                            5,995           5,951          4,101
   Interest expense                                    7,102           4,462          2,432
                                                 -----------     -----------    -----------
                                                     298,309         162,549        121,836
                                                 -----------     -----------    -----------
(Loss) income before income taxes, equity
   in earnings of Freedom Holding
   Company and extraordinary loss                   (109,405)         12,597          8,196
(Benefit) provision for income taxes                 (13,268)          4,410          2,813
Equity in earnings of Freedom Holding Company              -              74            348
                                                 -----------     -----------    -----------
(Loss) income before extraordinary loss              (96,137)          8,261          5,731
Extraordinary loss, net of tax                         1,007               -            407
                                                 ===========     ===========    ===========
   Net (loss) income                             $   (97,144)    $     8,261    $     5,324
                                                 ===========     ===========    ===========

Preferred stock dividends                              1,572           1,650          1,650
                                                 -----------     -----------    -----------
(Loss) income applicable to
   common stockholders                           $   (98,716)    $     6,611    $     3,674
                                                 ===========     ===========    ===========

Earnings per common share:
   Basic:
     (Loss) income before extraordinary loss     $    (15.91)    $      1.11    $       .71
     Extraordinary loss                                 (.16)              -           (.07)
                                                 ===========     ===========    ===========
       Net (loss) income                         $    (16.07)    $      1.11    $       .64
                                                 ===========     ===========    ===========
   Diluted:
     (Loss) income before extraordinary loss     $    (15.91)    $       .97    $       .70
     Extraordinary loss                                 (.16)              -           (.07)
                                                 ===========     ===========    ===========
       Net (loss) income                         $    (16.07)    $       .97    $       .63
                                                 ===========     ===========    ===========

Weighted average shares outstanding:
   Basic                                           6,143,000       5,978,000      5,698,000
                                                 ===========     ===========    ===========
   Diluted                                         6,143,000       8,477,000      5,829,000
                                                 ===========     ===========    ===========
</TABLE>

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


<PAGE>



                            WESTBRIDGE CAPITAL CORP.
                           CONSOLIDATED BALANCE SHEETS
                                 (in thousands)

                                     ASSETS


                                                             December 31,
                                                         --------------------
                                                           1997        1996
                                                         --------    --------
Investments:
   Fixed maturities:
     Available-for-sale, at market value
       (amortized cost $122,840 and $90,020)             $128,749    $ 91,597
   Equity securities, at market                             4,770       1,596
   Mortgage loans on real estate                              389         658
   Investment real estate                                     566           -
   Policy loans                                               284         282
   Short-term investments and certificates of deposit      12,654       8,072
                                                         --------    --------

         Total Investments                                147,412     102,205

Cash and cash equivalents                                   1,030       1,013
Accrued investment income                                   2,453       1,889
Receivables from agents, net of $4,531 and
   $1,729 allowance for doubtful accounts                  20,503      18,311
Deferred policy acquisition costs                          19,165      83,871
Leasehold improvements and equipment, at cost (net of
   accumulated depreciation and amortization of
   $4,106 and $4,211)                                       1,141       1,311
Due from reinsurers                                         3,219       1,456
Commissions receivable                                      1,389       3,406
Deferred debt costs, net of accumulated amortization        4,046       2,816
Other assets                                                2,498       4,438
                                                         --------    --------

         Total Assets                                    $202,856    $220,716
                                                         ========    ========





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





<PAGE>




                            WESTBRIDGE CAPITAL CORP.
                           CONSOLIDATED BALANCE SHEETS
                        (in thousands, except share data)


   LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' (DEFICIT) EQUITY


                                                             December 31,
                                                        -----------------------
                                                           1997          1996
                                                        ---------     ---------
Liabilities:
   Policy liabilities and accruals:
     Future policy benefits                             $  55,811     $  54,204
     Claims                                                51,784        39,186
                                                        ---------     ---------
                                                          107,595        93,390
Accounts payable and accruals                               8,034         2,496
Commission advances payable                                 4,702         4,368
Other liabilities                                           6,396         1,700
Deferred income taxes, net                                      -        10,299
Notes payable                                              13,100        21,210
Convertible subordinated notes due 2004                    70,000             -
Senior subordinated notes, net of
   unamortized discount, due 2002                          19,447        19,350
                                                        ---------     ---------

         Total Liabilities                                229,274       152,813
                                                        ---------     ---------

Redeemable Preferred Stock                                 19,000        20,000
                                                        ---------     ---------

Stockholders' (Deficit) Equity:
   Common stock, ($.10 par value,
     30,000,000 shares authorized;
     6,195,439 and 6,039,994 shares issued)                   620           604
   Capital in excess of par value                          30,843        29,226
   Unrealized appreciation of investments
     carried at market value, net of tax                    4,649         1,057
   Retained (deficit) earnings                            (81,530)       17,186
                                                        ---------     ---------
                                                          (45,418)       48,073

   Less - Aggregate of shares held in treasury and
     investment by affiliate in Westbridge Capital
     Corp. common stock, at cost (28,600 at December
     31, 1996)                                                  -          (170)
                                                        ---------     ---------

         Total Stockholders' (Deficit) Equity             (45,418)       47,903
                                                        ---------     ---------

Commitments and contingencies:

         Total Liabilities, Redeemable Preferred
           Stock and Stockholders' (Deficit) Equity     $ 202,856     $ 220,716
                                                        =========     =========


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



<PAGE>



                            WESTBRIDGE CAPITAL CORP.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                               Year Ended December 31,
                                                                         -----------------------------------
                                                                            1997         1996         1995
                                                                         ---------    ---------    ---------
<S>                                                                     <C>          <C>          <C>
Cash Flows From Operating Activities:
   Net (loss) income applicable to common stockholders                   $ (98,716)   $   6,611    $   3,674
   Adjustments to reconcile net (loss) income applicable to common
     stockholders to cash used for operating activities:
       Recognition of premium deficiency                                    64,952            -            -
       Amortization of deferred policy acquisition costs                    30,873       22,907       11,553
       Additions to deferred policy acquisition costs                      (31,119)     (45,138)     (23,279)
       Depreciation expense                                                    470          497          486
       Equity in earnings of Freedom Holding Company                             -          (74)        (348)
       Increase in receivables from agents                                  (2,192)      (1,371)      (9,353)
       (Increase) decrease in due from reinsurers                           (1,763)       2,073         (856)
       Decrease (increase) in commissions receivable                         2,017       (3,406)           -
       Decrease (increase) in other assets                                   1,940        4,302       (1,512)
       Increase (decrease) in policy liabilities and accruals               14,205        2,995       (5,194)
       Increase (decrease) in accounts payable and accruals                  5,538       (1,027)       2,160
       Increase (decrease) in commission advances payable                      334        4,368          (56)
       Increase (decrease) in other liabilities                              4,696       (6,694)         445
       (Decrease) increase in deferred income taxes, net                   (10,299)       3,708        2,610
       Other, net                                                             (910)        (518)      (1,083)
                                                                         ---------    ---------    ---------

Net Cash Used For Operating Activities                                     (19,974)     (10,767)     (20,753)
                                                                         ---------    ---------    ---------

Cash Flows From Investing Activities:
   Acquisition of Freedom Holding Company                                        -       (3,970)           -
   Proceeds from investments sold:
     Fixed  maturities,  classified  as  held-to-maturity,  called  or
     matured                                                                     -            -        2,629
     Fixed  maturities,  classified as  available-for-sale,  called or
     matured                                                                 9,469        8,529          468
     Fixed maturities, classified as available-for-sale, sold               25,345       49,340        6,585
     Short-term  investments  and  certificates  of  deposit,  sold or
     matured                                                                    50      155,877       15,058
     Other investments sold or matured                                         817          556          136
     Cost of investments acquired                                          (75,745)    (203,849)     (23,629)
     Additions  to  leasehold  improvements  and  equipment, net of
     retirements                                                              (300)        (218)        (861)
                                                                         ---------    ---------    ---------
Net Cash (Used For) Provided By Investing Activities                       (40,364)       6,265          386
                                                                         ---------    ---------    ---------

Cash Flows From Financing Activities:
   Increase in deferred debt costs                                          (1,230)        (567)        (534)
   Redemption of senior subordinated debentures                                  -            -      (25,000)
   Issuance of convertible subordinated notes                               70,000            -            -
   Issuance of senior subordinated notes                                         -            -       19,200
   Issuance of notes payable                                                21,044       16,144       15,807
   Repayment of notes payable                                              (29,154)     (12,090)           -
   Issuance of common stock                                                    140          140       10,108
   Issuance of common stock warrants                                             -            -           74
   Purchase and cancellation of common stock                                  (445)        (125)        (146)
                                                                         ---------    ---------    ---------
Net Cash Provided By Financing Activities                                   60,355        3,502       19,509
                                                                         ---------    ---------    ---------
Increase (decrease) In Cash and Cash Equivalents, During Period                 17       (1,000)        (858)
Cash and Cash Equivalents, At Beginning Of Period                            1,013        2,013        2,871
                                                                         =========    =========    =========
Cash and Cash Equivalents, At End Of Period                              $   1,030    $   1,013    $   2,013
                                                                         =========    =========    =========

Supplemental Disclosures of Cash Flow Information:
   Cash paid during the year for:
     Interest                                                            $   3,002    $   3,861    $   2,336
     Income taxes                                                        $     118    $     982    $     960
</TABLE>

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

<PAGE>

WESTBRIDGE CAPITAL CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)



SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES:

One  thousand   shares  of  the  Company's   Series  A  Convertible   Redeemable
Exchangeable  Preferred  Stock ("Series A Preferred  Stock") were converted into
shares of Westbridge's  common stock,  par value $.10 per share ("Common Stock")
during  the year ended  December  31,  1997.  The  converted  shares of Series A
Preferred Stock had an aggregate  liquidation  preference of $1,000,000 and were
converted into 118,905 shares of Common Stock.

The Company  purchased the outstanding  capital stock of Freedom Holding Company
("FHC") in the second quarter of 1996 for a cash purchase price of $6.3 million.
This purchase resulted in the Company receiving assets and assuming  liabilities
as follows:

                             Assets                 $13,542,000
                             Liabilities            $ 5,780,000

Adjustments to reconcile net income to cash used for operating activities in the
Company's Consolidated Statement of Cash Flows exclude increases relating to the
acquired assets and liabilities of FHC.  Accordingly,  these  adjustments do not
correspond   to  the  changes  in  the  related  line  items  on  the  Company's
Consolidated Balance Sheets.




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


<PAGE>



                            WESTBRIDGE CAPITAL CORP.
      CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
                        (in thousands, except share data)
<TABLE>
<CAPTION>
                                                                           Unrealized                                  Total
                                                                           Appreciation                               Stock-
                                                             Capital      (Depreciation) Retained                     holders'
                                              Common Stock   in Excess          of       Earnings   Treasury Stock    Equity
                                            Shares   Amount  of Par Value   Investments  (Deficit)  Shares   Amount  (Deficit)
                                            ------    -----  ------------  -----------   ---------  -------  ------  ---------

<S>                <C>                    <C>        <C>    <C>           <C>           <C>         <C>     <C>     <C>
Balance at January 1, 1995                4,430,458   $ 443  $     19,328  $     (147)   $   6,901   28,600  $ (170) $  26,355

  Net income                                                                                 5,324                       5,324
  Preferred stock dividend                                                                  (1,650)                     (1,650)
  Unrealized appreciation of investments                                        2,740                                    2,740
  Issuance of shares under stock
     option plans                            85,300       8           230                                                  238
  Issuance of shares from an
     underwritten public offering         1,500,000     150         9,720                                                9,870
  Shares purchased and cancelled
     under stock option plans               (23,300)     (2)         (144)                                                (146)
  Issuance of stock warrants                                           74                                                   74
                                         ----------   -----   -----------   ---------    ---------   ------  ------   --------
Balance at December 31, 1995              5,992,458   $ 599   $    29,208   $   2,593    $  10,575   28,600  $ (170)  $ 42,805

  Net income                                                                                 8,261                       8,261
  Preferred stock dividend                                                                  (1,650)                     (1,650)
  Unrealized depreciation of investments                                       (1,536)                                  (1,536)
  Issuance of shares under stock
     option plans                            62,965       6           134                                                  140
  Award of restricted shares                                            8                                                    8
  Shares  purchased and cancelled
     under stock option plans               (15,429)     (1)         (124)                                                (125)
                                         ----------   -----   -----------   ---------    ---------   ------  ------   --------
Balance at December 31, 1996              6,039,994   $ 604   $    29,226   $   1,057    $  17,186   28,600  $ (170)  $ 47,903

  Net loss                                                                                 (97,144)                    (97,144)
  Preferred stock dividend                                                                  (1,572)                     (1,572)
  Unrealized appreciation of investments                                        3,592                                    3,592
  Preferred stock converted to common       118,905      12           937                                                  949
  Issuance of shares under stock
     option plans                            42,500       4           115                                                  119
  Award and issuance of restricted shares    67,000       7         1,179                                                1,186
  Cancellation of treasury stock            (28,600)     (3)         (167)                          (28,600)    170          0
  Shares purchased and cancelled
     under stock option plans               (44,360)     (4)         (447)                                                (451)
                                         ==========   =====   ===========   =========    =========   ======  ======   ========
Balance at December 31, 1997              6,195,439   $ 620   $    30,843   $   4,649    $ (81,530)       0  $    0   $(45,418)
                                         ==========   =====   ===========   =========    =========   ======  ======   ========
</TABLE>


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


<PAGE>


                            WESTBRIDGE CAPITAL CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS

Principles of Consolidation.  The consolidated  financial statements include the
accounts of  Westbridge  Capital Corp.  ("the  Company"),  and its  wholly-owned
subsidiaries,  National Foundation Life Insurance Company ("NFL"),  Freedom Life
Insurance Company of America  ("FLICA"),  National  Financial  Insurance Company
("NFIC"),  American Insurance Company of Texas ("AICT"), Freedom Holding Company
("FHC"),  Foundation  Financial  Services,  Inc. ("FFS"),  Westbridge  Marketing
Corporation  ("WMC"),   Westbridge  Financial  Corp.  ("Westbridge  Financial"),
Westbridge  Printing Services,  Inc. ("WPS"),  Precision Dialing Services,  Inc.
("PDS"),  Westbridge National Life Insurance Company ("WNL"), Flex-Plan Systems,
Inc. ("FPS"), Westbridge Funding Corporation ("WFC") (formerly known as National
Legal Services Company,  Inc.),  LifeStyles  Marketing Group, Inc.  ("LifeStyles
Marketing"),  Senior  Benefits,  LLC ("Senior  Benefits")  and  American  Senior
Security Plans, LLC ("ASSP"). The consolidated financial statements also include
the accounts of the Company's  80%-owned  subsidiary  Health Care-One  Marketing
Group,  Inc. ("HCO  Marketing") as well as the Company's  50%-owned  subsidiary,
Health  Care-One  Insurance  Agency,  Inc.  ("Health  Care-One").  The Company's
decision to consolidate  the accounts of Health  Care-One is based on the extent
to which the Company  exercises  control over Health  Care-One.  The Company has
agreed to  provide  100% of the  financing  required  to support  the  marketing
efforts of Health Care-One and also has significant input in its management. All
significant intercompany accounts and transactions have been eliminated.

Nature of Operations.  The Company, through its subsidiaries and affiliates,  is
licensed to market medical expense and supplemental  health  insurance  products
and managed care health  plans in 38 states and the  District of  Columbia.  The
major  underwritten  product lines  currently  being marketed by the Company are
Medical Expense products and Critical Care and Specified  Disease  products.  In
the  past,  the  Company  also  underwrote  a  significant  amount  of  Medicare
Supplement products. The Company also markets certain managed care health plans,
which are underwritten by health maintenance  organizations  ("HMO's") and other
non-affiliated managed care organizations.

Accounting  Principles  and  Regulatory  Matters.  The  consolidated   financial
statements have been prepared in accordance with generally  accepted  accounting
principles   ("GAAP").   These  principles  differ  from  statutory   accounting
principles,  which  must be used by NFL,  FLICA,  NFIC and AICT  (together,  the
"Insurance  Subsidiaries")  when reporting to state insurance  departments.  The
Insurance   Subsidiaries  are  subject  to  oversight  by  the  state  insurance
departments of Delaware,  Mississippi,  Texas and other states in which they are
authorized to conduct business.  These regulators perform periodic  examinations
of the Insurance  Subsidiaries' statutory financial statements and, as a result,
may propose adjustment to such statements.

Cash  Equivalents.  Cash equivalents  consist of highly liquid  instruments with
maturities at the time of acquisition of three months or less. Cash  equivalents
are stated at cost, which approximates market.

Investments.   The  Company's   fixed   maturity   portfolio  is  classified  as
available-for-sale  and is carried at estimated market value.  Equity securities
(common and nonredeemable preferred stocks) are also carried at estimated market
value.  Changes in aggregate  unrealized  appreciation  or depreciation on fixed
maturities and equity securities are reported directly in stockholders'  equity,
net of  applicable  deferred  income taxes and,  accordingly,  have no effect on
current operations. The Company's 40% equity investment in FHC was accounted for
on the equity basis (i.e., cost adjusted for equity in post-acquisition earnings
and amortization of excess cost) until May 31, 1996 and on a consolidated  basis
for the periods  subsequent to the  acquisition  of the remaining 60% of FLICA's
parent FHC.  Mortgage  loans on real estate and policy  loans are carried at the
unpaid principal balance.  Realized gains and losses on sales of investments are
recognized in current operations on the specific identification basis.

Concentrations of Credit Risk.  Financial  instruments that potentially  subject
the Company to  concentrations of credit risk consist primarily of cash and cash
equivalents, investments and receivables from agents. The Company maintains cash
and investments with various major financial institutions.  The Company performs
periodic  evaluations  of  the  relative  credit  standing  of  these  financial
institutions.  Concentrations  of credit risk with respect to  receivables  from
agents are limited due to the large number of agents and their dispersion across
many  geographic  areas.  The Company  establishes  an  allowance  for  doubtful
accounts  based upon  factors  surrounding  the credit risk of specific  agents,
historical trends and other information.  The Company's historical experience in
collection of these  receivables  falls within the recorded  allowances.  Due to
these  factors,  no  additional  credit  risk beyond the  amounts  provided  for
collection losses is believed inherent in the Company's receivables from agents.

Deferred Policy Acquisition Costs ("DPAC").  Policy acquisition costs consisting
of commissions  and other policy issue costs,  which vary with and are primarily
related to the  production  of new  business,  are deferred and  amortized  over
periods  not to exceed  the  estimated  premium-paying  periods  of the  related
policies.  Also included in DPAC is the cost of insurance  purchased on acquired
business.  The  amortization  of these costs is based on  actuarially  estimated
future  premium  revenues,  and the  amortization  rate is  adjusted  monthly to
reflect  actual  experience.  Projected  future  levels of premium  revenue  are
estimated using assumptions as to interest, mortality, morbidity and withdrawals
consistent  with  those  used  in  calculating  liabilities  for  future  policy
benefits.

Leasehold  Improvements and Equipment.  Leasehold improvements and equipment are
stated at cost less accumulated  depreciation and amortization.  Depreciation of
equipment is computed using the  straight-line  method over the estimated useful
lives (three to seven years) of the assets. Leasehold improvements are amortized
over the  estimated  useful  lives of the  related  assets or the  period of the
lease,  whichever is shorter.  Maintenance and repairs are expensed as incurred,
and  renewals and  betterments  which  materially  extend the useful life of the
underlying assets are capitalized.

Future Policy  Benefits and Claims.  Liabilities  for future policy benefits not
yet incurred are computed primarily using the net level premium method including
actuarial  assumptions  as  to  investment  yield,   mortality,   morbidity  and
withdrawals.  Claim  reserves  represent  the  estimated  liabilities  on claims
reported  plus claims  incurred  but not yet  reported.  These  liabilities  are
subject to the impact of future changes in claim  experience and, as adjustments
become necessary, they are reflected in current operations.

Recognition  of Revenue.  Life  insurance  and accident and health  premiums are
recognized as revenue when received.  Benefits and expenses are associated  with
related premiums so as to result in a proper matching of revenues with expenses.
Fee and service income and investment income are recognized when earned.

Use of Estimates.  The  preparation of financial  statements in conformity  with
generally accepted  accounting  principles 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 financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

Income Taxes.  The Company records income taxes based on the asset and liability
approach,  which requires the recognition of deferred tax liabilities and assets
for the expected  future tax  consequence of temporary  differences  between the
carrying amounts and the tax basis of assets and liabilities.

Earnings Per Share. In February 1997, the Financial  Accounting  Standards Board
("FASB") issued Statement of Financial  Accounting  Standards  ("SFAS") No. 128,
"Earnings Per Share," (the "Statement") that revises the standards for computing
earnings per share previously found in APB Opinion No. 15, "Earnings Per Share."
The Statement  established  two measures of earnings per share:  "basic earnings
per share"  and  "diluted  earnings  per  share."  Basic  earnings  per share is
computed by dividing  income  available to common  shareholders  by the weighted
average number of common shares outstanding during the period.  Diluted earnings
per share  reflects the  potential  dilution  that could occur if  securities or
other contracts to issue common stock were converted or exercised. The Statement
requires dual  presentation of basic and diluted  earnings per share on the face
of the income  statement for all entities  with  potential  dilutive  securities
outstanding.  Diluted weighted average shares exclude all convertible securities
for loss periods.

The Statement also requires a reconciliation of the numerator and denominator of
the basic earnings per share computation to the numerator and denominator of the
diluted earnings per share  computation.  The Statement is effective for interim
and annual periods ending after December 15, 1997. The Company  adopted SFAS No.
128 for the year ended December 31, 1997 and has restated the earnings per share
computations for 1996 and 1995 to conform to this pronouncement.

The following table reflects the  calculation of basic and diluted  earnings per
share:
<TABLE>
<CAPTION>
                                                                          December 31,
                                                               -------------------------------
                                                                 1997        1996       1995
                                                               --------    --------   --------
                                                         (Amounts in 000's, except per share amounts)
<S>                                                           <C>         <C>        <C>
Basic:
     (Loss) income available to common shareholders            $(98,716)   $  6,611   $  3,674
                                                               ========    ========   ========
     Average weighted shares outstanding                          6,143       5,978      5,698
                                                               ========    ========   ========
     Basic earnings per share                                  $ (16.07)   $   1.11   $   0.64
                                                               ========    ========   ========

Diluted:
     (Loss) income available to common shareholders            $(98,716)   $  6,611   $  3,674
     Adjustment for conversion of Series A Preferred Stock            -       1,650          -
                                                               --------    --------   --------
     Adjusted (loss) income available to common shareholders   $(98,716)   $  8,261   $  3,674
                                                               ========    ========   ========

     Average weighted shares outstanding                          6,143       5,978      5,698
     Adjustment for conversion of Series A Preferred Stock            -       2,378          -
     Adjustment for restricted stock                                  -           4          -
     Adjustment for options and warrants                              -         117        131
                                                               --------    --------   --------
     Adjusted average weighted shares outstanding                 6,143       8,477      5,829
                                                               ========    ========   ========

     Diluted earnings per share                                $ (16.07)   $   0.97   $   0.63
                                                               ========    ========   ========
</TABLE>


For the year  ended  December  31,  1995,  the  Series  A  Preferred  Stock  was
antidilutive  and has been excluded from the calculation of diluted earnings per
share.

Recently Issued  Accounting  Pronouncements.  In June 1997, the FASB issued SFAS
No. 130,  "Reporting  Comprehensive  Income," ("SFAS 130"). This  pronouncement,
effective for calendar year 1998 financial  statements,  requires  comprehensive
income  and  its  components  to be  reported  either  in a  separate  financial
statement,  combined and included  with the statement of income or included in a
statement of changes in stockholders'  equity.  Comprehensive  income equals the
total of net income and all other non-owner changes in equity.  For the Company,
comprehensive  income will equal its reported  consolidated  net income plus the
change  in  the  unrealized  appreciation  of  marketable  securities  from  the
previously  reported  period.   Currently,   this  unrealized   appreciation  of
marketable  securities,  net of tax, is reported in the  Company's  Consolidated
Balance Sheets as a separate component of stockholders' equity. Accordingly, the
adoption of SFAS 130 in 1998 will require the Company to modify its presentation
of the information already disclosed in the Consolidated Financial Statements.

Also in June 1997, the FASB issued SFAS No. 131,  "Disclosures about Segments of
an Enterprise and Related  Information," ("SFAS 131"). This pronouncement,  also
effective  for  calendar  year 1998  financial  statements,  requires  reporting
segment  information  consistent with the way executive  management of an entity
disaggregates its operations internally to assess performance and make decisions
regarding resource allocations.  Among the information to be disclosed, SFAS 131
requires  an  entity  to report a measure  of  segment  profit or loss,  certain
specific  revenue and expense items and segment  assets.  SFAS 131 also requires
reconciliations  of total segment  revenues,  total  segment  profit or loss and
total  segment  assets  to the  corresponding  amounts  shown  in  the  entity's
consolidated financial statements. The Company does not expect that its adoption
of SFAS 131 in 1998 will  significantly  change the number or designation of the
reportable   segments   currently   disclosed  in  its  Consolidated   Financial
Statements.

In December 1997, the Accounting  Standards Executive Committee issued Statement
of Position  ("SOP") 97-3,  "Accounting by Insurance and Other  Enterprises  for
Insurance-Related  Assessments,"  which  provides  guidance  on  accounting  for
insurance-related  assessments.  The  Company  is  required  to  adopt  SOP 97-3
effective January 1, 1999.  Previously issued financial statements should not be
restated  unless the SOP is adopted  prior to the  effective  date and during an
interim  period.  The  adoption  of SOP 97-3 is not  expected to have a material
impact on the Company's results of operations, liquidity or financial position.

Reclassifications.  Certain  reclassifications  have  been made to 1996 and 1995
amounts in order to conform to 1997 financial statement presentation.

NOTE 2 - RECENT DEVELOPMENTS

During  the  second  and  third  quarters  of  1997,  the  Company's   Insurance
Subsidiaries  experienced an increase in claims  submissions on Medical  Expense
and Medicare  Supplement  products  resulting in  substantially  increased  loss
ratios.  In  addition,  a backlog of pending  claims was paid during that period
which also contributed to the second quarter's  losses.  Independent  reviews of
the  Company's   claim  reserves  were  performed  as  of  September  30,  1997.
Additionally,  an  independent  benefit  analysis of claims was completed  which
indicated that  additional  rate  increases,  which are not expected to be fully
implemented  until at least September  1998, and further  benefit  modifications
will be required to offset the current adverse claims experience. However, until
such time as the necessary rate increases and benefit modifications can be fully
implemented,  the  Company  expects  that it will  continue  to incur  operating
losses.  There can be no  assurance  that the full extent of such rate  increase
requests will be approved.

In  addition,   policy   persistency   has  declined  in  connection   with  the
implementation  of certain rate increases  together with intensified  competitor
solicitation  of the Company's  policyholders.  These events affected the future
profit margins available to absorb  amortization of Deferred Policy  Acquisition
Costs ("DPAC").  As a result of these adverse changes,  the Company  undertook a
revaluation of the  recoverability  of DPAC in the fourth quarter.  Based on the
results of this review and the impact of future  projected  premium revenues and
the  discontinuance of certain lines of business,  the Company determined that a
premium  deficiency  for certain  lines of business  existed as of December  31,
1997. A premium  deficiency  occurs when the  projected  present value of future
premiums  associated  with  these  policies  will not be  adequate  to cover the
projected present value of future payments for benefits and related amortization
of  DPAC.  Generally  accepted  accounting   principles  require  the  immediate
recognition of a premium deficiency by charging the unamortized DPAC to expense.
In this  connection,  for the  quarter and year ended  December  31,  1997,  the
Company recorded a non-cash charge to expense of approximately $65.0 million and
incurred  a  significant  loss  for the  year  ended  December  31,  1997.  This
adjustment has no impact on the Company's cash position at December 31, 1997 and
does not impact the statutory capital and surplus of the Insurance Subsidiaries.

As a result of these losses,  in November  1997, the Company  engaged  Houlihan,
Lokey,  Howard & Zukin to act as its financial  advisor to explore the Company's
strategic  alternatives which may include,  without  limitation,  a refinancing,
recapitalization  or other  corporate  reorganization  involving  a  significant
reduction  in,  or  exchange  of equity  for,  outstanding  indebtedness.  Since
November 1997, the Company has held discussions with the regulatory  authorities
in its domiciliary states of Delaware,  Texas and Mississippi and with an ad hoc
creditors'   committee   representing   both  the  holders  of  the  11%  Senior
Subordinated Notes ("Senior Subordinated Notes") due 2002 and the holders of its
7-1/2% Convertible Subordinated Notes ("Convertible Notes") due 2004.

In order to preserve  capital and maintain  flexibility  while it considers  its
strategic  alternatives,  the Company has suspended  its scheduled  debt service
payments on its Senior  Subordinated  Notes and Convertible Notes since November
1997 and suspended its dividend  payments on its outstanding  Series A Preferred
Stock  effective  October  1997.  The  failure  to make the  scheduled  interest
payments  constituted  payment  defaults under the  Indentures  relating to such
Notes and became  events of default  thereunder  as of  November  17,  1997.  In
addition,  the failure to make such interest  payments also resulted in an event
of default under its Credit Agreement with a bank.  Other covenant  defaults are
also  existing  under the Credit  Agreement  and the  Indenture  relating to the
Senior Subordinated Notes. As a result of the foregoing events of defaults,  the
holders of such  indebtedness  may  declare  the  outstanding  principal  amount
thereof,  together  with  accrued  and unpaid  interest  thereon,  to be due and
payable  immediately.  If such indebtedness were to be accelerated,  the Company
does not have the  ability  to repay  the  indebtedness  under  the  outstanding
Convertible Notes, the Senior Subordinated Notes and the Credit Agreement. There
can be no  assurance  that the Company  will resume such  interest  and dividend
payments in the future.

The accompanying  consolidated  financial statements have been prepared assuming
the  Company  will  continue  as a going  concern.  As  such,  the  consolidated
financial   statements   do  not  include  any   adjustments   relating  to  the
recoverability  and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern.

NOTE 3 - INVESTMENTS

Major categories of investment income are summarized as follows:

                                                       Year Ended December 31,
                                                     ---------------------------
                                                      1997      1996      1995
                                                     -------   -------   -------
                                 (in thousands)

Fixed maturities                                     $ 8,268   $ 6,607   $ 6,542
Mortgage loans on real estate                             42        62        71
Short-term investments and certificates of deposit       891       513       250
Interest on receivables from agents                    1,633     1,201       400
Other                                                    426       584       424
                                                     -------   -------   -------
                                                      11,260     8,967     7,687
   Less: Investment expenses                             237       231       266
                                                     =======   =======   =======
   Net investment income                             $11,023   $ 8,736   $ 7,421
                                                     =======   =======   =======







Realized gains (losses) on investments are summarized as follows:

                             Year Ended December 31,
                                                     -----------------------
                                                      1997     1996     1995
                                                     -----    -----    -----
                                 (in thousands)

Fixed maturities                                     $ 535    $(146)   $ 185
Equity securities                                     (385)     238        -
Short-term investments and certificates of deposit       -        -       (3)
Other                                                  (66)       4        -
                                                     =====    =====    =====
Realized gains on investments                        $  84    $  96    $ 182
                                                     =====    =====    =====



Unrealized  appreciation  on  investments  reflected  directly in  stockholders'
equity is summarized as follows:

                                                 Year Ended December 31,
                                                     -----------------
                                                      1997      1996
                                                     -------   -------
                                 (in thousands)

Balance at beginning of year                         $ 1,057   $ 2,593
Unrealized appreciation (depreciation), net
   of tax, on fixed maturities available-for-sale      2,816    (1,328)
Unrealized appreciation (depreciation), net of
   tax, on equity securities and other investments       776      (208)
                                                     =======   =======
Balance at end of year                               $ 4,649   $ 1,057
                                                     =======   =======


Estimated  market  values  represent  the  closing  sales  prices of  marketable
securities.  The amortized  cost and estimated  market values of  investments in
fixed  maturities at December 31, 1997 and 1996,  are  summarized by category as
follows: <TABLE> <CAPTION>

                                                      Gross       Gross    Estimated
                                          Amortized Unrealized  Unrealized   Market
1997 Available-for-Sale                      Cost      Gains      Losses     Value
----------------------------------------   --------   --------   --------   --------
                                 (in thousands)
<S>                                       <C>        <C>        <C>        <C>
U.S. Government and governmental
    agencies and authorities               $ 11,331   $    347   $     10   $ 11,668
States, municipalities, and political
    subdivisions                                997         74          -      1,071
Finance companies                            32,073      1,512          4     33,581
Public utilities                             10,854        430         11     11,273
Mortgage-backed securities                   10,237        265         28     10,474
All other corporate bonds                    57,348      3,552        218     60,682
                                           ========   ========   ========   ========
Balance at December 31, 1997               $122,840   $  6,180   $    271   $128,749
                                           ========   ========   ========   ========
</TABLE>




<TABLE>
<CAPTION>

                                                       Gross      Gross     Estimated
                                           Amortized Unrealized Unrealized    Market
1996 Available-for-Sale                      Cost       Gains     Losses      Value
----------------------------------------    -------    -------    -------    -------
                                 (in thousands)
<S>                                        <C>        <C>        <C>        <C>
U.S. Government and governmental
    agencies and authorities                $12,813    $   227    $    53    $12,987
States, municipalities, and political
    subdivisions                                518          -          -        518
Finance companies                            24,545        487        159     24,873
Public utilities                             10,818        215         17     11,016
Mortgage-backed securities                   12,950        234         63     13,121
All other corporate bonds                    28,376        879        173     29,082
                                            =======    =======    =======    =======
Balance at December 31, 1996                $90,020    $ 2,042    $   465    $91,597
                                            =======    =======    =======    =======
</TABLE>

The   amortized   cost   and   estimated   market   value  of   investments   in
available-for-sale fixed maturities as of December 31, 1997, are shown below, in
thousands, summarized by year to maturity. Mortgage-backed securities are listed
separately.  Expected maturities may differ from contractual  maturities because
borrowers may have the right to call or prepay  obligations with or without call
or prepayment penalties.

                                    Estimated
                                                Amortized     Market
                                                  Cost        Value
                                                 --------    --------
                                                    (in thousands)

Due in one year or less                          $  3,492    $  3,500
Due after one year through five years              22,309      22,907
Due after five years through ten years             40,902      42,737
Due after ten years                                45,900      49,131
Mortgage-backed securities                         10,237      10,474
                                                 --------    --------
                                                 $122,840    $128,749
                                                 ========    ========


A summary of unrealized  appreciation reflected directly in stockholders' equity
at  December   31,  1997  and  1996,   on   investments   in  fixed   maturities
available-for-sale, is as follows:

                                                 Year Ended December 31,
                                                   --------------------
                                                     1997        1996
                                                   --------    --------
                                 (in thousands)

Amortized cost                                     $122,840    $ 90,370
Estimated market value                              128,749      91,947
                                                   --------    --------
Excess of market value to amortized cost              5,909       1,577
Estimated tax                                         2,068         552
                                                   --------    --------
Unrealized appreciation, net of tax                $  3,841    $  1,025
                                                   ========    ========


Proceeds  from  sales  of  investments  in  fixed   maturity   securities   were
approximately  $34.0 million in 1997 and $57.9  million in 1996.  Gross gains of
$654,000 and gross losses of $119,000 were realized on fixed maturity investment
sales  during 1997.  Gross gains of $535,000  and gross losses of $681,000  were
realized on fixed maturity investment sales during 1996.

Included in fixed  maturities  at December  31, 1997 and 1996,  are  high-yield,
unrated or less than investment grade corporate debt securities  comprising less
than 1.6% and 1.5% of total cash and  invested  assets at December  31, 1997 and
1996, respectively.

Investment  securities on deposit with insurance  regulators in accordance  with
statutory  requirements  at December 31, 1997 and 1996 had a par value  totaling
$26.5 million and $21.9 million, respectively.

As of December 31, 1997,  the Company had  restricted  access to $1.8 million of
invested cash in connection with the processing of premium  collections  through
the Automated Clearing House (ACH) banking system.

NOTE 4 - ACQUISITIONS

Acquisition of Remaining Interest of FHC

On May 31, 1996,  the Company  completed  its  acquisition  of the remaining 60%
equity  interest in Freedom Holding  Company  ("FHC").  FHC is a holding company
which owns 100% of FLICA, a Mississippi domiciled insurer licensed in 33 states.
The purchase price was $6.3 million in cash, and the  transaction  was accounted
for under the purchase method.  Prior to the acquisition,  the Company accounted
for its 40% investment in FHC using the equity method.  The Company's portion of
FHC's earnings  prior to the  acquisition in 1996 accounted for using the equity
method was $74,000 in 1996 and $348,000 in 1995. The Company received a $120,000
dividend in 1995 from FHC.

Beginning  June 1, 1996, the results of operations of FHC have been reflected in
the  Company's  Consolidated  Statements of  Operations  and of Cash Flows.  The
present value of future profits associated with the purchase are being amortized
in relation to premium revenues over the remaining life of the business.  At the
time of the  acquisition,  the Company,  through NFL,  reinsured the majority of
business  underwritten by FLICA.  Subsequent to the acquisition of the remaining
interest  of  FHC,  the  coinsurance  agreements  between  FLICA  and  NFL  were
cancelled.  The  acquisition  did  not  have  a  material  pro-forma  impact  on
operations.

NOTE 5 - MARKETING OPERATIONS

LifeStyles Marketing Group, Inc.

In September 1987, NFL consummated an agency contract with LifeStyles  Agency of
Arlington,   Texas  ("LifeStyles  Marketing")  granting  its  agency  force  the
exclusive right, subject to territorial production  requirements,  to sell NFL's
Medical Expense products  developed in 1987 and 1988.  During the second quarter
of 1988,  the  Company  agreed  with  the  owners  of  LifeStyles  Marketing  to
restructure  the  insurance  agency as a joint  venture.  Under the terms of the
definitive   agreement   consummated  in  November  1988,  WMC,  a  wholly-owned
subsidiary of the Company, held a 51%-voting interest in the entity,  LifeStyles
Marketing. Effective January 1, 1997, WMC acquired the remaining 49% of LMG.

The Company provides financing to LifeStyles Marketing.  LifeStyles  Marketing's
revenues and expenses during 1997 approximated  $11.9 million and $10.7 million,
respectively. Revenues and expenses were $13.3 million and $12.4 million in 1996
and  $9.1  million  and $8.4  million  in 1995,  respectively.  Of the  revenues
received, $7.8 million were derived from NFL in the form of commission income on
insurance  products  sold for NFL during  1997,  $11.1  million in 1996 and $7.7
million in 1995.

Profits and losses of  LifeStyles  Marketing are allocated 50% to WMC and 50% to
the President of LifeStyles Marketing.  However, because of the Company's voting
and financial control, the operations of the joint venture are consolidated with
the Company's operations and, accordingly, all significant intercompany accounts
and transactions are eliminated.

The Company  had,  prior to 1996  recognized  100% of the  cumulative  losses of
LifeStyles Marketing.  During 1996, those cumulative losses were fully recovered
through earnings.

Senior Benefits, LLC

In  November  1993,  the  Company  acquired a 50%  ownership  interest in Senior
Benefits.  In June 1996,  the  Company  acquired  the  remaining  50%  ownership
interest in Senior  Benefits.  Senior  Benefits'  revenue and expenses were $5.3
million and $4.9 million during 1997,  $1.6 million and $1.4 million during 1996
and $1.0 million and $1.1 million  during 1995,  respectively.  Senior  Benefits
primarily  markets Medicare  Supplement  products for  non-affiliated  insurance
carriers  although it previously sold Medicare  Supplement  products for NFL. Of
the revenues received,  $674,000 were derived from NFL in the form of commission
income on insurance  products sold during 1997 ($770,000 in 1996 and $982,000 in
1995.)  Through  December  31,  1997,  the  Company had loaned  Senior  Benefits
approximately  $0.5  million  in the form of  working  capital  advances.  These
advances will be repaid in the future through positive cash flows generated from
renewal  commissions,  from advanced  commissions from non-affiliated  insurance
carriers, and if and when profits are recognized from continuing operations.

Health Care-One Insurance Agency, Inc.

In 1995, the Company formed Health Care-One,  which markets  insurance  products
for non-affiliated  insurance carriers. The Company owns 50% of Health Care-One.
The Company is providing  financing to Health Care-One during the start-up phase
of operations. Health Care-One's revenue and expenses were $5.1 million and $4.8
million and $4.4 million and $4.1 million in 1997 and 1996, respectively. Health
Care-One's  operations were not significant in 1995.  Through  December 31, 1997
and 1996, the Company had loaned Health Care-One  approximately $0.8 million and
$1.2 million in the form of first-year commission advances.  These advances will
be repaid in the future  through  positive  cash flows  generated  from  renewal
commissions,  from advanced commissions from non-affiliated  insurance carriers,
and if and when profits are recognized from continuing operations.  The minority
interest in pre-tax  income  subject to  profit-sharing  and  recognized  by the
Company is $107,000 and $44,000 at December 31, 1997 and 1996, respectively.

Health Care-One Marketing Group, Inc.

In February 1996, the Company formed HCO Marketing.  The Company owns 80% of HCO
Marketing which commenced operations in March 1996. In 1997, HCO Marketing broke
even and its operations were not significant in 1996. Through December 31, 1997,
the Company had advanced  $0.8 million at December 31, 1997 to HCO  Marketing to
fund  operations.  These advances will be repaid in the future through  positive
cash flows generated from renewal  commissions,  from advanced  commissions from
non-affiliated  insurance carriers,  and if and when profits are recognized from
continuing operations.

NOTE 6 - FUTURE POLICY BENEFITS

Future policy benefits have been calculated using  assumptions  (which generally
contemplate the risk of adverse deviation) for withdrawals,  interest, mortality
and  morbidity  appropriate  at the  time the  policies  were  issued.  The more
material assumptions are as follows:

LIFE PRODUCTS

Withdrawals  Standard industry tables are used for issues through 1975.  Company
experience is used for issues subsequent to 1975.

Interest          Level 4% for issues through 1965;  level 4.5% for 1966 through
                  1969  issues,  and 6%  graded  to 4.5% in 25  years  for  1970
                  through  1981  issues.  Issues for 1982  through  1987 are 10%
                  graded to 7% at year 10. ART issues in 1988 and later are 8.5%
                  for 5 years graded to 7.5% in year 20. Participating  policies
                  are 4.5% for issues  through  1965;  5% for 1966  through 1969
                  issues,  and  graded  from  6% to 5% in 25  years  for  issues
                  subsequent to 1969; 1995 and later issues are 6% level.

Mortality         Based on  modifications  of the 1955-1960  Select and Ultimate
                  Basic Tables and, for certain  issues from 1975 through  1981,
                  modifications  of the 1958 CSO.  Issues for 1981  through 1994
                  use  modifications  of the 1965-1970 Select and Ultimate Basic
                  Tables.  Issues  subsequent to 1994 use  modifications  of the
                  1975-1980 Ultimate Basic Tables.

ACCIDENT AND HEALTH PRODUCTS

Withdrawals       Issues  through  1980 are based on industry  experience;  1981
                  through  1996  issues  are based on  industry  experience  and
                  Company  experience,  where  available.  Policies  acquired in
                  acquisitions  are based on  recent  experience  of the  blocks
                  acquired.

Interest          Issues  through  1980 are 6% graded to 4.5% in 25 years;  most
                  1981  through  1992  issues  are 10%  graded to 7% in 10 years
                  except for  certain  NationalCare  and  Supplemental  Hospital
                  Income  issues  which  are  8%  graded  to 6% in 8  years  and
                  LifeStyles  Products  which  are 9%  graded to 7% in 10 years.
                  1993 and later issues are 7% level. Policies acquired from AII
                  in 1992 are 6.4% level. Policies acquired from LHI in 1993 and
                  DNL in 1994 are 6% level. Policies acquired in the Acquisition
                  of NFIC and AICT are 7% level.

Mortality         Issues through 1980 use the 1955-1960  Ultimate Table;  issues
                  subsequent  to 1980  through 1992 use the  1965-1970  Ultimate
                  Table. 1993 and later issues use the 1975-1980 Ultimate Table.
                  Policies  acquired in acquisitions use the 1965-1970  Ultimate
                  Table.

Morbidity         Based on industry  tables  published  in 1974 by  Tillinghast,
                  Nelson  and  Warren,   Inc.,  as  well  as  other   population
                  statistics and morbidity studies.

NOTE 7 - FINANCING ACTIVITIES

Common Stock Offering

On February 28, 1995,  the Company issued 1.5 million shares of its Common Stock
in an underwritten public offering.  The Shares of Common Stock were issued at a
price of $7.00 per share, less an underwriting  discount of $.42 per share. As a
result of the issuance of the Common Stock,  the conversion rate of the Series A
Preferred Stock has been adjusted. See NOTE 9 - REDEEMABLE PREFERRED STOCK.

Subordinated Notes

On February  28, 1995,  the Company  issued $20.0  million  aggregate  principal
amount of its 11% Senior  Subordinated Notes due 2002 (the "Senior  Subordinated
Notes") in an underwritten  public offering.  The Senior Subordinated Notes were
issued at par, less an underwriting discount of 4%.

The  Company  may redeem the Senior  Subordinated  Notes at any time on or after
March 1, 1998,  upon  30-days  written  notice,  at par plus  accrued  interest.
Following  the death of any  holder  of the  Senior  Subordinated  Notes and the
request for repayment,  the Company will repay such holder's Senior Subordinated
Notes at par plus accrued interest.  The Company is not obligated to redeem more
than  $50,000 in principal  amount per holder per calendar  year or in aggregate
for all holders more than $250,000 in principal  amount per calendar  year.  The
Senior  Subordinated  Notes contain certain  covenants which limit the Company's
ability to (i) incur certain types of  indebtedness,  (ii) pay dividends or make
distributions  to  holders  of  the  Company's  equity   securities,   or  (iii)
consolidate,  merge,  or  transfer  all or  substantially  all of the  Company's
assets.  The Senior  Subordinated Notes also contain covenants which require the
Company  to  maintain  (i) a minimum  amount of  liquid  assets,  (ii) a minimum
consolidated net worth, and (iii) a minimum fixed charge ratio.

Since  November  1997,  the Company  suspended  the scheduled  monthly  interest
payments on these Senior Subordinated Notes. At December 31, 1997, approximately
$0.5 million has been  accrued on such Senior  Subordinated  Notes.  See further
discussion herein regarding covenant defaults.

Subordinated Debentures

In  March  1986,  the  Company  completed  a public  offering  of  25,000  Units
consisting  of $25.0  million  principal  amount of 11.70%  Senior  Subordinated
Debentures due 1996 (the  "Debentures")  and warrants to purchase 800,000 shares
of the Company's Common Stock (the "Warrants") at $12.25 per share. The Warrants
expired unexercised on March 15, 1991.

In August 1987, NFL  purchased,  in an open market  transaction,  $5 million par
value of the Debentures.  For GAAP reporting purposes,  the purchased Debentures
were no longer treated as part of the Company's consolidated debt.

In February 1994, NFL sold at par value, to an unrelated  party,  the $5 million
par value of the Debentures  held in its portfolio.  This  transaction  has been
accounted for, on a consolidated basis as an issuance of debt.

Concurrent with the Common Stock and Note  offerings,  on February 29, 1995, the
Company placed funds in escrow  sufficient to cover all remaining  principal and
interest  payments on its outstanding 11.7% Senior  Subordinated  Debentures due
1996,  which were called for redemption on March 30, 1995. The redemption  price
was par plus accrued  interest.  This  redemption  prior to  scheduled  maturity
resulted  in a loss from  early  extinguishment  of debt.  The loss  related  to
amortization of the remaining  original issue discount and write-off of deferred
financing costs,  offset in part by interest earned on the funds in escrow. This
loss is  reported  as an  extraordinary  item in the  accompanying  consolidated
statements of operations.

Senior Note

On December 22, 1995,  the Company  issued a $1.0 million  principal  amount 10%
Senior  Note due 2002  (the  "Senior  Note")  to the  Chairman  of the  Board of
Directors,  a related  party.  The Senior Note was issued at par. In  connection
with the Senior Note  issuance,  the Company also issued a Common Stock purchase
Warrant for  135,501  shares of Common  Stock at an exercise  price of $7.38 per
share.

In May 1997, the Company used a portion of the proceeds from the public offering
of  its  Convertible  Subordinated  Notes  to  repay  the  amounts  outstanding,
including  accrued  interest,  under this  Senior  Note.  The loss on this early
extinguishment of debt was immaterial for the year ending December 31, 1997.

Convertible Subordinated Notes

On April 29, 1997,  the Company  completed the sale of $65.0  million  aggregate
principal  amount of its  7-1/2%  Convertible  Subordinated  Notes Due 2004 (the
"Convertible  Notes") in an underwritten  public offering.  On May 16, 1997, the
Company  completed  the sale of an  additional  $5.0 million of its  Convertible
Notes  in  connection  with the  underwriters'  over-allotment  option.  The net
proceeds  of  the  transaction   approximated   $68.0  million  after  deducting
underwriting  commissions  and other  expenses  incurred in connection  with the
sales. Each $1,000 principal amount of the Convertible Notes is convertible into
91.575 shares of Westbridge  Common Stock (6,410,250 shares in the aggregate) at
an  initial   conversion   price  of  $10.92  per  share,   subject  to  certain
anti-dilution  adjustments.  Also,  at the  initial  closing for the sale of the
Convertible   Notes,   Westbridge   sold  to  the   underwriters,   for  nominal
consideration,  warrants  to  purchase  297,619  shares of  Common  Stock in the
aggregate  at an  exercise  price  of  $10.92  per  share,  subject  to  certain
anti-dilution  provisions.  The  warrants are  exercisable  for a period of four
years commencing on April 29, 1998.

Interest on the Convertible Notes is payable semi-annually on May 1 and November
1 of each year,  commencing  November 1, 1997.  Since November 1997, the Company
has suspended the scheduled  interest  payments on these  Convertible  Notes. At
December  31,  1997,  approximately  $3.5  million  has  been  accrued  on  such
Convertible Notes. See further discussion herein regarding covenant defaults.

On May 1,  1997,  Westbridge  contributed  approximately  $7  million of the net
proceeds  from  the  sale of the  Convertible  Notes  to  recapture  a block  of
insurance   policies  that  had   previously   been   reinsured   consisting  of
approximately  $9.0 million in total  recapture  costs less  approximately  $2.0
million  in  unearned  premium  reserves  due to NFL  and  FLICA.  See  NOTE  16
EXTRAORDINARY  ITEM.  As  of  December  31,  1997,  Westbridge  had  contributed
approximately $38.3 million of additional proceeds to the Insurance Subsidiaries
to enhance  statutory  capital and surplus.  The Company has used  approximately
$6.7 million in net proceeds to settle  certain  intercompany  balances with its
Insurance  Subsidiaries and for other general corporate purposes.  Subsequent to
December 31, 1997,  Westbridge  contributed an additional  $1.0 million and used
$1.8 million of the net proceeds to  collateralize a $1.5 million standby letter
of credit ("LOC") for the purpose of potential  future capital  contributions to
NFIC.  This  collateralized  LOC expires  after a one-year term and future draws
upon this LOC are  subject  to certain  provisions  regarding  NFIC's  statutory
capital and surplus levels.

Credit Arrangement

The Company finances the majority of its obligations to make commission advances
through  Westbridge  Funding  Corporation  ("WFC"),  an  indirect   wholly-owned
subsidiary of Westbridge.  On June 6, 1997, WFC entered into a Credit  Agreement
dated as of such date with LaSalle National Bank (the "Credit  Agreement").  See
NOTE  16 -  EXTRAORDINARY  ITEM.  This  Credit  Agreement  provides  WFC  with a
three-year, $20.0 million revolving loan facility (the "Receivables Financing"),
the proceeds of which are used to purchase  agent advance  receivables  from the
Insurance  Subsidiaries  and  certain  affiliated  marketing  companies.   WFC's
obligations  under the Credit Agreement are secured by liens upon  substantially
all of WFC's  assets.  As of December 31, 1997,  $13.1  million was  outstanding
under  the  Credit  Agreement  (interest  rate  of 9%).  The  Company  incurs  a
commitment fee on the unused portion of the Credit  Agreement at a rate of 0.50%
per annum.  The Credit  Agreement  terminates on June 5, 2000, at which time the
outstanding  principal  and  interest  thereunder  will be due and  payable.  As
referred to herein,  there is  currently  an event of default as well as certain
technical  defaults  existing  under the  Credit  Agreement.  The  Company is in
discussions with LaSalle National Bank concerning these defaults.

WFC's  obligations under the Credit Agreement have been guaranteed by Westbridge
under the Guaranty Agreement,  and the Company has pledged all of the issued and
outstanding  shares of the capital stock of WFC, NFL and NFIC as collateral  for
that  guaranty.  As of December 31, 1997, the Company had placed $2.5 million of
cash in a cash collateral account in connection with this Credit Agreement.  The
maintenance  of this cash  collateral  account  allows WFC to borrow against the
Credit Agreement and purchase agent advance receivables at face value.

Ceding Allowance Payable

During 1996, the Company borrowed  approximately  $10.5 million from a reinsurer
in connection with a Coinsurance Funds Withheld Reinsurance  Agreement (See NOTE
14 -  REINSURANCE).  The  borrowing  was to be repaid,  inclusive of interest at
12.5%, as statutory  profits  emerged on the reinsured block of business.  As of
December 31, 1996,  $8.6 million in ceding  allowance was due to this reinsurer.
On May 1, 1997,  Westbridge  contributed  approximately  $7.0 million of the net
proceeds  from the sale of the  Convertible  Notes to  recapture  this  block of
business. This contribution was comprised of approximately $9.0 million in total
recapture costs  calculated at an interest rate of 15% less  approximately  $2.0
million  in  unearned  premium  reserves  due to NFL  and  FLICA.  See  NOTE  16
EXTRAORDINARY ITEM.

Covenant Defaults

As  described  herein,  since  November  1997,  the  Company has  suspended  its
scheduled interest payments on the Senior Subordinated Notes and the Convertible
Notes. The failure to make the scheduled interest payments  constituted  payment
defaults  under the  Indentures  relating  to such  Notes and  became  events of
default  thereunder on November 17, 1997. In addition,  the failure to make such
interest  payments  also  resulted  in an  event of  default  under  the  Credit
Agreement (as defined herein).  Other covenant  defaults are also existing under
the Credit  Agreement  and the  Indenture  relating  to the Senior  Subordinated
Notes.  As a result of the  foregoing  events of  defaults,  the holders of such
indebtedness may declare the outstanding principal amount thereof, together with
accrued and unpaid interest thereon, to be due and payable immediately.  If such
indebtedness  were to be  accelerated,  the Company does not have the ability to
repay the  indebtedness  under the  outstanding  Convertible  Notes,  the Senior
Subordinated Notes and the Credit Agreement. The Company is currently in ongoing
discussions  with its creditors  regarding  its  transactional  alternatives  to
resolve these  matters which may include,  without  limitation,  a  refinancing,
recapitalization  or other  corporate  reorganization  involving  a  significant
reduction in, or exchange of equity for, outstanding indebtedness.

Deferred Debt Costs. In connection with the Company's financing activities,  the
Company  defers the costs  incurred in connection  with the issuance of debt and
amortizes  such costs on a  straight-line  basis over the  related  term of each
underlying debt issue.

NOTE 8 - CLAIM RESERVES

The following table provides a reconciliation  of the beginning and ending claim
reserve balances, on a  gross-of-reinsurance  basis, for 1997, 1996 and 1995, to
the amounts reported in the Company's balance sheet:

                                           Year Ended December 31,
                                       --------------------------------
                                         1997        1996        1995
                                       --------    --------    --------
                                               (in thousands)

Balance at January 1 (Gross)           $ 39,186    $ 39,063    $ 41,387
   Less: reinsurance recoverables on
     claim reserves                       1,456       3,419       1,457
                                       --------    --------    --------
Net balance at January 1                 37,730      35,644      39,930
Incurred related to:
   Current year                         111,459      80,821      67,239
   Prior years                           22,512      14,242       2,698
                                       --------    --------    --------
     Total incurred                     133,971      95,063      69,937
                                       --------    --------    --------
Current year reserves acquired                -         788           -
Paid related to:
  Current year                           77,168      68,199      46,755
  Prior years                            45,704      25,297      27,468
  Current year acquired business              -         269           -
                                       --------    --------    --------
     Total paid                         122,872      93,765      74,223
                                       --------    --------    --------
Balance at December 31                   48,829      37,730      35,644
  Plus:  reinsurance recoverables
     on claim reserves                    2,955       1,456       3,419
                                       --------    --------    --------
Balance at December 31 (Gross)         $ 51,784    $ 39,186    $ 39,063
                                       ========    ========    ========

Included in reinsurance  recoverables on claims reserves is  approximately  $1.9
million and $1.5  million  relating  to paid claims as of December  31, 1997 and
1996, respectively.

NOTE 9 - REDEEMABLE PREFERRED STOCK

On April 12,  1994,  the Company  issued  20,000  shares of Series A  Cumulative
Convertible  Redeemable  Exchangeable  Preferred  Stock (the "Series A Preferred
Stock"), at a price of $1,000 per share. The Series A Preferred Stock was issued
in a private  placement and was subsequently  registered with the Securities and
Exchange Commission under a registration  statement which was declared effective
in October 1994. The following  summarizes the significant terms of the Series A
Preferred Stock:

      Liquidation preference of $1,000 per share.

      Cumulative  annual  dividend  rate of 8.25%,  subject to increase to 9.25%
upon non-compliance by the Company with certain restrictions.

      At December 31, 1994, the Series A Preferred  Stock was convertible by the
     holders thereof into the 2,285,720  shares of the Company's Common Stock at
     a  conversion  price of $8.75 per share.  As a result of the  Common  Stock
     offering in 1995, the conversion price was adjusted to $8.41 per share. One
     thousand  shares of the Company's  Series A Preferred  Stock were converted
     into shares of Westbridge's common stock, par value $.10 per share ("Common
     Stock") during the year ended  December 31, 1997.  The converted  shares of
     Series  A  Preferred  Stock  had an  aggregate  liquidation  preference  of
     $1,000,000 and were converted into 118,905 shares of Common Stock.

      The Series A Preferred  Stock were  convertible  into 2,259,214  shares of
Common Stock as of December 31, 1997.

      On or after  April 12,  1995,  the Series A  Preferred  Stock may,  at the
     option  of  the  Company,   be  exchanged  for  an  amount  of  Convertible
     Subordinated  Notes due April 12, 2004, equal to the aggregate  liquidation
     preference of the Series A Preferred Stock being exchanged. The Convertible
     Subordinated  Notes would bear  interest at 8.25% and be  convertible  into
     Common  Stock at a price of $8.41  per  share,  in each  case,  subject  to
     certain adjustments.

      The Company is required to redeem all shares of Series A Preferred  Stock,
or any Convertible Subordinated Notes outstanding on April 12, 2004.

      The  Company  may redeem any and all  shares of Series A  Preferred  Stock
outstanding on or after April 12, 1997.

In connection with the issuance of the Series A Preferred  Stock,  the placement
agent was  granted a warrant  to  purchase  120,000  shares at $8.75 per  share,
subject to certain  adjustments.  As a result of the  February  28,  1995 Common
Stock  issuance,  the conversion  price of the Warrant was adjusted to $8.41 per
share.

Since November 1997, the Company has suspended the scheduled  dividend  payments
on its Series A Preferred  Stock.  The failure to declare and pay the  scheduled
dividend on the Series A Preferred Stock  constituted an event of non-compliance
under the terms of the Series A Preferred  Stock  Agreement  and  resulted in an
immediate  increase to 9.25% from 8.25% in the rate at which dividends accrue on
the Series A Preferred  Stock.  This  increase  will remain in effect until such
time as no event of non-compliance exists. At December 31, 1997, $0.8 million of
cumulative, unpaid dividends have been accrued.

NOTE 10 - DEFERRED POLICY ACQUISITION COSTS ("DPAC")

A summary of DPAC by major  product  line of insurance  follows (in  thousands):
<TABLE>
<CAPTION>

                                              1997                        1996                         1995
                                     ------------------------    ------------------------     -----------------------
                                                  Accident                    Accident                    Accident
                                                     and                         and                         and
                                      Life         Health         Life         Health         Life         Health
                                     -------     ------------    --------    ------------     ------     ------------
<S>                                <C>          <C>             <C>         <C>              <C>        <C>
Balance at beginning
   of year                           $  569      $    83,302     $   205     $    56,772      $  31      $    58,623
Deferrals:
   Commissions                          189           27,744         430          39,423        122           16,517
   Issue costs                           42            3,144          63           5,222         30            6,484
                                     -------     ------------    --------    ------------     ------     ------------
                                        800          114,190         698         101,417        183           81,624

Cost of insurance purchased               -                -           -           4,663          -              126
Purchase accounting
   adjustment                             -                -           -               -          -          (13,403)
Recognition of premium
   deficiency                           (32)         (64,920)          -                                           -
Amortization expense                   (206)         (30,667)       (129)        (22,778)        22          (11,575)
                                     =======     ============    ========    ============     ======     ============
Balance at end of year               $  562      $    18,603     $   569     $    83,302      $ 205      $    56,772
                                     =======     ============    ========    ============     ======     ============
</TABLE>


The cost of  insurance  purchased in 1996 is related to the  acquisition  of the
remaining  60%  ownership  interest  in  FHC  and  its  wholly-owned   insurance
subsidiary, FLICA. This amount is being amortized in relation to premium revenue
over the remaining  life of the business.  Interest  accrues on the  unamortized
balance at 7% per year.  Amortization  of this cost of insurance  purchased  was
approximately $0.6 million and $0.3 million in 1997 and 1996, respectively,  net
of interest accretion of $0.2 million and $0.2 million.

In  connection  with the  Company's  acquisition  of NFIC and AICT in 1994,  the
related  cost of insurance  purchased is being  amortized in relation to premium
revenues  over the  remaining  life of the  business.  Interest  accrues  on the
unamortized  balance  at 7% per year.  Amortization  of this  cost of  insurance
purchased was approximately $1.5 million, $1.8 million and $2.3 million in 1997,
1996 and 1995,  respectively,  net of the respective  interest accretion of $0.3
million, $0.5 million and $1.3 million.

During  1995,  the  Company  recorded  purchase  accounting  adjustments  to the
allocation  of the  purchase  price of NFIC and AICT as these  adjustments  fell
within the  allocation  period  following the  acquisition,  in accordance  with
Statement of Financial Accounting Standard No. 38 "Accounting for Preacquisition
Contingencies of Purchased Enterprises."

Recognition of Premium Deficiency. During the second and third quarters of 1997,
the  Company's  Insurance   Subsidiaries   experienced  an  increase  in  claims
submissions on Medical  Expense and Medicare  Supplement  products  resulting in
substantially increased loss ratios. In addition, policy persistency declined in
connection  with the  implementation  of certain rate  increases  together  with
intensified competitor solicitation of the Company's policyholders. These events
affected the future profit margins available to absorb DPAC.

As a result of these adverse changes, the Company undertook a revaluation of the
recoverability  of DPAC in the fourth  quarter of 1997.  Based on the results of
this  review  and the  impact  of  future  projected  premium  revenues  and the
discontinuance  of certain  lines of  business,  the Company  determined  that a
premium deficiency for certain lines of business existed at December 31, 1997. A
premium  deficiency  occurs when the projected  present value of future premiums
associated  with these  policies  will not be  adequate  to cover the  projected
present value of future payments for benefits and related  amortization of DPAC.
GAAP requires the immediate  recognition of a premium deficiency by charging the
unamortized DPAC to expense. In this connection, the Company recorded a non-cash
charge to expense of approximately  $65.0 million for the quarter and year ended
December 31, 1997.  This adjustment has no impact on the Company's cash position
at December  31, 1997 and does not impact the  statutory  capital and surplus of
the Insurance Subsidiaries.

NOTE 11 - INCOME TAXES

The (benefit  from)  provision  for income taxes is  calculated as the amount of
income  taxes  expected to be payable  for the current  year plus (or minus) the
deferred  income  tax  expense  (or  benefit)  represented  by the change in the
deferred income tax accounts at the beginning and end of the year. The effect of
changes in tax rates and federal  income tax laws are  reflected  in income from
continuing operations in the period such changes are enacted.

The tax effect of future taxable temporary differences  (liabilities) and future
deductible temporary differences (assets) are separately calculated and recorded
when such  differences  arise.  A valuation  allowance,  reducing any recognized
deferred tax asset,  must be recorded if it is determined that it is more likely
than not that such deferred tax asset will not be realized.

The Company and its wholly-owned subsidiaries,  other than NFIC, AICT and FLICA,
file a  consolidated  federal  income  tax  return.  NFIC,  AICT and FLICA  file
separate federal income tax returns.

The (benefit from) provision for U.S. federal income taxes charged to continuing
operations was as follows:
<TABLE>
<CAPTION>
                                                       Year Ended December 31,
                                                   ----------------------------------
                                                     1997         1996         1995
                                                   --------     --------     --------
                                                              (in thousands)

<S>                                                <C>          <C>          <C>
Current                                            $   (926)    $   (804)    $  1,032
Deferred                                            (12,342)       5,214        1,781
                                                   --------     --------     --------
Total (benefit from) provision for income taxes    $(13,268)    $  4,410     $  2,813
                                                   ========     ========     ========
</TABLE>


Provision has not been made for state and foreign  income tax expense since such
expense is minimal.  In addition,  as described in NOTE 16 - EXTRAORDINARY ITEM,
the Company  recognized an extraordinary  loss of approximately $1.0 million for
the year  ended  December  31,  1997.  This  amount  has been  reflected  in the
accompanying  financial  statements,  net of approximately  $519,000 in deferred
taxes.

The  differences  between  the  effective  tax rate and the  amount  derived  by
multiplying the (loss) income before income taxes by the federal income tax rate
for the Company's last three years was as follows:

                                                 Year Ended December 31,
                                                  ---------------------
                                                  1997     1996    1995
                                                   ---      ---     ---
                                 (in thousands)

Statutory tax rate                                 (34%)     34%     34%
Unutilized loss carryforwards                       22%       -       -
Equity earnings of unconsolidated subsidiary         -        -      (1%)
Other items, net                                     -        1%      -
                                                   ---      ---     ---
Effective tax rate                                 (12%)     35%     33%
                                                   ===      ===     ===


Deferred  taxes are recorded for  temporary  differences  between the  financial
reporting  basis and the federal  income tax basis of the  Company's  assets and
liabilities.  The sources of these  differences  and the estimated tax effect of
each are as follows:

                                           Year Ended December 31,
                                            ---------------------
                                              1997         1996
                                            --------     --------
                                               (in thousands)

Deferred Tax Liabilities
   Deferred policy acquisition costs     $         -     $ 18,581
   Invested assets                                 -          231
   Unrealized gain on investments              2,410          553
   Other deferred tax liabilities              1,118        1,822
                                            --------     --------
     Total deferred tax liability           $  3,528       21,187
                                            --------     --------

Deferred Tax Assets:
   Deferred policy acquisition costs        $  3,662  $         -
   Policy reserves                             3,514        7,196
   Net operating loss carryforwards           24,640        8,296
   Tax credit carryforwards                       11           11
   Other deferred tax assets                     429          263
   Valuation allowance                       (28,728)      (4,878)
                                            --------     --------
     Total deferred tax asset               $  3,528     $ 10,888
                                            ========     ========
Net deferred tax liability               $         -     $ 10,299
                                            ========     ========


A valuation  allowance of approximately  $23.8 million has been provided for the
year ended December,  31, 1997 for the tax effect of the Company's net operating
loss carryovers and other deductible temporary differences since it appears more
likely than not that such benefits  will not be realized.  For 1996, a valuation
allowance  was  provided  for a portion  of the  Company's  net  operating  loss
carryovers.  The change in the valuation allowance for 1997 relates primarily to
the increase in net operating losses and decrease in DPAC.

Under the provisions of pre-1984 life insurance tax  regulations,  NFL was taxed
on the lesser of  taxable  investment  income or income  from  operations,  plus
one-half of any excess of income from operations over taxable investment income.
One-half  of the excess  (if any) of the income  from  operations  over  taxable
investment  income, an amount which was not currently subject to taxation,  plus
special deductions allowed in computing the income from operations,  were placed
in a special memorandum tax account known as the policyholders' surplus account.
The  aggregate  accumulation  in the account at December 31, 1997,  approximated
$2.5 million.  Federal  income taxes will become  payable on this account at the
then current tax rate when and to the extent that the account exceeds a specific
maximum,  or  when  and if  distributions  to  stockholders,  other  than  stock
dividends and other limited  exceptions,  are made in excess of the  accumulated
previously taxed income.  The Company does not anticipate any transactions  that
would cause any part of the amount to become taxable and, accordingly,  deferred
taxes  which  would  approximate  $0.9  million  have not been  provided on such
amount.

At December 31, 1997,  NFL has  approximately  $7.9 million in its  shareholders
surplus  account from which it could make  distributions  to the Company without
incurring any federal tax liability.  The amount of dividends  which may be paid
by NFL to the Company is limited by statutory regulations.

At  December  31,  1997,  the  Company and its  wholly-owned  subsidiaries  have
aggregate net operating loss  carryforwards of  approximately  $70.4 million and
$61.9   million  for  regular  tax  and   alternative   minimum  tax   purposes,
respectively, which expire in 2003 through 2013.

NOTE 12 - STATUTORY CAPITAL AND SURPLUS

Under  applicable  Delaware law, NFL must maintain minimum  aggregate  statutory
capital and surplus of $550,000.  Under applicable Texas law, NFIC and AICT must
each maintain minimum  aggregate  statutory capital and surplus of $1.4 million.
Under Mississippi law, FLICA is required to maintain minimum capital and surplus
of $1.0 million. The State of Georgia requires licensed out-of-state insurers to
maintain  minimum  capital of $1.5  million,  and the  Commonwealth  of Kentucky
requires  minimum  surplus of $2.0  million.  These  levels are higher  than the
requirements  of any  other  states  in which  the  Insurance  Subsidiaries  are
currently  licensed.  Accordingly,  the minimum aggregate  statutory capital and
surplus which NFL, NFIC and FLICA must each maintain is $3.5 million.  AICT must
maintain a minimum of $1.5 million.  At December 31, 1997,  aggregate  statutory
capital  and  surplus  for NFL,  NFIC,  AICT and FLICA was $18.3  million,  $3.3
million, $4.0 million and $12.0 million,  respectively.  Although NFIC's capital
and surplus is below $3.5 million at December 31, 1997, NFIC voluntarily  ceased
writing new business effective December 15, 1997.  Moreover,  NFIC's capital and
surplus  exceeds  the minimum  requirements  for its state of  domicile,  Texas.
Statutory net losses for NFL,  NFIC,  AICT and FLICA for the year ended December
31, 1997,  were $(28.9)  million,  $(20.4)  million,  $(4.2)  million and $(3.1)
million, respectively. FLICA through its parent FHC, is wholly-owned by NFL, and
AICT is wholly-owned by NFIC. Accordingly,  statutory capital and surplus of the
parent includes the statutory capital and surplus of the respective  subsidiary.
Westbridge used proceeds from its public offering of Convertible Notes (See NOTE
7 - FINANCING  ACTIVITIES) to contribute  $30.2 million and $15.1 million to NFL
and NFIC, respectively, during 1997.

Dividends paid by the Insurance Subsidiaries to Westbridge are determined by and
subject to the  regulations of the insurance laws and practices of the insurance
departments  of their  respective  state of domicile.  NFL, a Delaware  domestic
company,  may not  declare or pay  dividends  from any source  other than earned
surplus without the Delaware  Insurance  Commissioner's  approval.  The Delaware
Insurance  Code defines  earned  surplus as the amount  equal to the  unassigned
funds as set forth in NFL's most recent  statutory  annual  statement  including
surplus  arising from unrealized  gains or revaluation of assets.  Delaware life
insurance  companies may generally pay ordinary  dividends or make distributions
of cash or other  property  within any twelve  month  period  with a fair market
value  equal  to or  less  than  the  greater  of  10%  of  surplus  as  regards
policyholders  as of the preceding  December 31 or the net gain from  operations
for the twelve month period  ending on the  preceding  December 31. During 1998,
NFL is  precluded  from  paying  dividends  without  the prior  approval  of the
Delaware Insurance Commissioner as its earned surplus is negative.  Further, NFL
has agreed to file for the prior approval of any dividends  declared or paid for
the foreseeable future.

NFIC and AICT, Texas domestic companies, may make dividend payments from surplus
profits or earned surplus  arising from its business.  The Texas  Insurance Code
defines earned surplus as unassigned surplus not including any unrealized gains.
Texas life  insurance  companies may  generally  pay ordinary  dividends or make
distributions  of cash or other  property  within any twelve month period with a
fair market value equal to or less than the greater of 10% of surplus as regards
policyholders  as of the preceding  December 31 or the net gain from  operations
for the twelve month period  ending on the  preceding  December 31. Any dividend
exceeding  the  applicable  threshold is considered  extraordinary  and requires
prior  approval of the Texas  Insurance  Commissioner.  During 1998,  NFIC's and
AICT's earned surplus is negative,  and as such,  each company is precluded from
paying dividends without the prior approval of the Texas Insurance Commissioner.

FLICA, a Mississippi  domestic company, may make dividend payments only from its
actual  net  surplus  computed  as  required  by  law in  its  statutory  annual
statement.  Mississippi  life  insurance  companies  may  generally pay ordinary
dividends  or make  distributions  of cash or other  property  within any twelve
month period with a fair market value not exceeding the lesser of 10% of surplus
as regards  policyholders  as of the preceding  December 31 or the net gain from
operations for the twelve month period ending on the preceding  December 31. Any
dividend  exceeding the applicable  threshold  amount requires prior approval of
the Mississippi  Insurance  Commissioner.  During 1998,  FLICA is precluded from
paying dividends to NFL without prior  regulatory  approval as it recorded a net
loss from operations for the year ending December 31, 1997.

Generally,  all states require insurance companies to maintain statutory capital
and surplus which is reasonable in relation to their  existing  liabilities  and
adequate to their financial needs. Delaware, Texas and Mississippi also maintain
discretionary  powers relative to the declaration and payment of dividends based
upon an insurance  company's  financial  position.  In light of the  significant
statutory  losses incurred  during the year ended December 31, 1997,  Westbridge
does not expect to receive any dividends from its Insurance Subsidiaries for the
foreseeable future.

In December 1992, the NAIC adopted the Risk-Based Capital for Life and/or Health
Insurers  Model Act  ("the  Model  Act").  The  Model  Act  provides  a tool for
insurance regulators to determine the levels of statutory capital and surplus an
insurer must  maintain in relation to its  insurance  and  investment  risks and
whether  there is a need for possible  regulatory  attention.  The Model Act (or
similar  legislation  or  regulation)  has been  adopted  in  states  where  the
Insurance Subsidiaries are domiciled.

The Model Act provides  four levels of  regulatory  attention,  varying with the
ratio of the insurance company's total adjusted capital (defined as the total of
its statutory  capital and surplus,  asset  valuation  reserve and certain other
adjustments) to its risk-based  capital  ("RBC").  If a company's total adjusted
capital is less than 100 percent but greater  than or equal to 75 percent of its
RBC, or if a negative  trend (as defined by the  regulators)  has  occurred  and
total  adjusted  capital is less than 125  percent of RBC (the  "Company  Action
Level"),  the company must submit a  comprehensive  plan aimed at improving  its
capital position to the regulatory  authority proposing corrective actions. If a
company's  total  adjusted  capital is less than 75 percent but greater  than or
equal to 50 percent of its RBC (the "Regulatory  Action Level"),  the regulatory
authority  will perform a special  examination of the company and issue an order
specifying the corrective  actions that must be followed.  If a company's  total
adjusted capital is less than 50 percent but greater than or equal to 35 percent
of its RBC (the "Authorized Control Level"),  the regulatory  authority may take
any action it deems  necessary,  including  placing the company under regulatory
control.  If a company's  total adjusted  capital is less than 35 percent of its
RBC (the "Mandatory  Control  Level"),  the regulatory  authority must place the
company under its control.  The NAIC's  requirements are effective on a state by
state basis if, and when,  they are adopted by the  regulators in the respective
states. The Insurance Departments of the States of Delaware and Mississippi have
each adopted the NAIC's Model Act. At December 31, 1997,  total adjusted capital
for NFL, a  Delaware  domiciled  company,  and FLICA,  a  Mississippi  domiciled
company, exceeded the respective Company Action Levels.

The Texas Department of Insurance  ("TDI") has adopted its own RBC requirements,
the stated purpose of which is to require a minimum level of capital and surplus
to absorb  the  financial,  underwriting  and  investment  risks  assumed  by an
insurer.  Texas' RBC  requirements  differ from those adopted by the NAIC in two
principal  respects:  (i) they use different  elements to determine  minimum RBC
levels in their  calculation  formulas  and (ii) they do not  stipulate  "Action
Levels" (like those adopted by the NAIC) where corrective  actions are required.
However,  the  Commissioner  of the TDI  does  have the  power  to take  similar
corrective  actions if a company does not maintain the required minimum level of
statutory  capital and  surplus.  NFIC and AICT are  domiciled in Texas and must
comply with Texas RBC  requirements.  At December 31, 1997,  AICT's RBC exceeded
the  minimum  level  prescribed  by the TDI;  however,  NFIC's RBC was below the
minimum  level  prescribed  by the TDI.  As a  result  of the  statutory  losses
sustained by the Insurance  Subsidiaries  during 1997, certain  intercompany and
large cash transactions are subject to the approval of the domiciliary states.


In December 1990, the Company and NFL entered into an agreement  under which NFL
issued  a  surplus  certificate  to the  Company  in  the  principal  amount  of
$2,863,000  in exchange  for  $2,863,000  of the  Company's  assets.  The unpaid
aggregate  principal under the surplus  certificate  bears interest at an agreed
upon  rate not to exceed  10% and is  repayable,  in whole or in part,  upon (i)
NFL's surplus  exceeding  $7,000,000,  exclusive of any surplus  provided by any
reinsurance  agreements and (ii) NFL receiving prior approval for repayment from
the Delaware State  Insurance  Commissioner.  During 1993 and 1994, NFL received
such approval and repaid $2,086,000 to the Company.  No principal  payments have
been made subsequent to 1994. The unpaid aggregate  principal under this surplus
certificate totaled $777,000 as of December 31, 1997 and 1996.

The statutory  financial  statements of the Insurance  Subsidiaries are prepared
using  accounting  methods  which are  prescribed  or permitted by the insurance
department of the respective companies' state of domicile.  Prescribed statutory
accounting  practices  include a variety of  publications of the NAIC as well as
state laws,  regulations and general  administrative rules.  Permitted statutory
accounting practices encompass all accounting practices not so prescribed.

NOTE 13 - EMPLOYEE BENEFIT PLANS

The Company applies ABP Opinion No. 25 and related interpretations in accounting
for  its  employee  benefit  plans,  which  are  described  below.  Accordingly,
compensation  expense is not recognized  for qualified  stock option plans until
such options are exercised.  If compensation cost for the Company's stock option
plans had been determined based on the estimated market value at the grant dates
for awards  under those plans  consistent  with the method  provided by SFAS No.
123, the Company's  net income and earnings per share would have been  reflected
by the  following  pro forma  amounts for the years ended  December 31, 1996 and
1995. There were no material grants of stock options during 1997.

                                               Year Ended December 31,
                                           ------------------------------
                                                1996             1995
                                           -------------    -------------

Net income, as reported                  $     8,261,000  $     5,324,000
Net income, pro forma                    $     8,037,000  $     5,270,000
Basic earnings per share, as reported    $          1.11  $          0.64
Basic earnings per share, pro forma      $          1.07  $          0.64
Diluted earnings per share, as reported  $          0.97  $          0.63
Diluted earnings per share, pro forma    $          0.95  $          0.62


The  estimated  market  value of each option  grant is  estimated on the date of
grant using the Black-Scholes  options pricing model with the following weighted
average assumptions used for grants during the years ended December 31, 1996 and
1995:

             Dividend yield                            0%
             Expected volatility                   70.00%
             Risk-free rate of return               5.80%
             Expected life                          5.0 years



<PAGE>




The Company adopted, as of July 1, 1982, an employee incentive stock option plan
(the "ISO Plan").  The ISO Plan  authorizes the Company's  Board of Directors to
issue to key  full-time  employees of the Company,  or any of its  subsidiaries,
non-transferrable  options to purchase up to 580,000 (as adjusted to give effect
for stock  dividends paid in 1983) shares,  in the  aggregate,  of the Company's
Common  Stock.  Options  granted  under the ISO Plan are  intended to qualify as
either "incentive stock options" under Section 422A of the Internal Revenue Code
of 1986, as amended (the "Code"),  or as non-qualified  stock options as defined
under the Code. The ISO Plan provides that the option price per share will be no
less than the estimated  market value for a share of the Company's  Common Stock
on the  date of  grant.  To date,  all  option  prices  have  been  equal to the
estimated  market  value of the  stock on the date of  grant.  The ISO plan also
provides that shares  available  upon the exercise of options  granted under the
ISO Plan may be paid for with cash or by tendering  shares of Common Stock owned
by  optionee(s),   or  a  combination  of  the  foregoing.  All  vested  options
outstanding  are  exercisable for a period not to exceed ten years from the date
the option was granted,  except that no option is exercisable until at least one
year after its grant. In addition,  the ISO Plan provides that no one owning 10%
of the total combined voting power of all classes of the Company's  stock, or of
the stock of any  subsidiary,  is eligible to be awarded  options  under the ISO
Plan.

The Company also  adopted,  as of September  5, 1985,  a second  employee  stock
option  plan (as  amended,  the "1985  Plan").  The 1985 Plan  provides  for the
granting,  to eligible  employees of the Company or its  subsidiaries,  of stock
options to  purchase  up to a total of 200,000  shares of the  Company's  Common
Stock.  Options granted under the 1985 Plan are treated as "non-qualified  stock
options"  for  purposes of the Code and the option  price per share shall not be
less than 90% of the estimated market value of the Company's Common Stock on the
date of grant. All options  outstanding are exercisable  within seven years from
the date the option was granted,  except that no option is exercisable  until at
least one year after its grant.

A third  employee  stock  option  plan,  was  adopted  as of March 26,  1992 (as
amended, the "1992 Plan"). The 1992 Plan provides for the granting,  to eligible
employees of the Company or its subsidiaries, of stock options to purchase up to
a total of 300,000 shares of the Company's  Common Stock.  Options granted under
the 1992 Plan are treated as  "non-qualified  stock options" for purposes of the
Code and the option price per share shall not be less than 90% of the  estimated
market value of the  Company's  Common  Stock on the date of grant.  All options
outstanding  are  exercisable  within  seven  years from the date the option was
granted,  except that no option is exercisable until at least one year after its
grant.

On April 19,  1996,  the  Company  adopted a  Restricted  Stock  Plan (the "1996
Plan").  This 1996 Plan  provides for the granting of up to 1,000,000  shares of
Common Stock subject to certain  restrictions  and  adjustments.  The restricted
shares are subject to vesting  requirements  ("the restriction  period") ranging
from twelve months for  non-employee  directors to sixty months for employees or
other authorized  grantees.  During the restriction  period, the grantee may not
sell, assign, transfer,  pledge, encumber or otherwise dispose of or hypothecate
such  an  award.  Upon  satisfaction  of the  vesting  schedule  and  any  other
applicable  restrictions,  terms or conditions,  the grantee will be entitled to
receive the shares. The total  compensation  expense recognized in the Company's
statement of operations for the year ending December 31, 1997 was $611,000.


<PAGE>



Information  regarding  the  Company's  restricted  stock plan is  summarized as
follows:

                                                     Year Ended December 31,
                                                     ---------------------
                                                       1997         1996
                                                     --------     --------

Restricted stock outstanding at beginning of year       7,000            -
Restricted stock awards during the year:
  Non-employee directors                               12,000        7,000
  Employees                                           455,000            -
  Agents                                               11,800            -
Restricted stock vested during the year:
  Non-employee directors                               (7,000)           -
  Employees                                           (60,000)           -
  Agents                                                    -            -
Restricted stock forfeitures during the year:
  Non-employee directors                                    -            -
  Employees                                          (194,000)           -
  Agents                                                 (300)           -
                                                     --------     --------
Restricted stock outstanding at end of year           224,500        7,000
                                                     ========     ========


Weighted average grant price:
  Non-employee directors                             $  9.125     $   6.75
  Employees                                          $  9.060            -
  Agents                                             $  9.750            -


Information regarding the Company's stock option plans is summarized as follows:
<TABLE>
<CAPTION>

                                                   Year Ended December 31,
                                              ----------------------------------
                                                1997         1996         1995
                                              --------     --------     --------
                                 (in thousands)

<S>                                            <C>          <C>          <C>
Options outstanding at beginning of year       336,529      411,994      375,294
Options granted during the year:
   Price granted at $5.40                            -            -      116,000
   Price granted at $5.60                            -            -        6,000
   Price granted at $8.25                        1,000        4,000            -
Options exercised during the year:
   Price ranging from $1.88 to $5.40           (42,500)     (62,965)     (85,300)
                                              --------     --------     --------
Options cancelled during the year:
   Price ranging from $1.88 to $7.65          (176,029)     (16,500)           -
                                              ========     ========     ========
   Options outstanding at end of year          119,000      336,529      411,994
                                              ========     ========     ========
</TABLE>


At December 31, 1997, options for 20,000 shares were exercisable under the stock
options plans at a price of $1.88 and options for 99,000 shares were exercisable
at a price  ranging from $5.18 to $8.25.  Also,  at December 31, 1997,  1996 and
1995,  options for  154,000,  10,000 and 6,000  shares,  respectively,  remained
available for future grant under the plans.

In September  1986,  the Company  established a retirement  savings plan for its
employees.  The plan permits all employees who have been with the Company for at
least one year to make  contributions  by salary  reduction  pursuant to section
401(k) of the Internal Revenue Code. The plan allows employees to defer up to 3%
of their salary with  partially  matching  discretionary  Company  contributions
determined  by the  Company's  Board of Directors.  Employee  contributions  are
invested in any of five  investment  funds at the  discretion  of the  employee.
Company  contributions  are in the  form  of the  Company's  Common  Stock.  The
Company's  contributions  to the  plan  in  1997,  1996  and  1995  approximated
$106,000, $102,000, and $79,000, respectively.

NOTE 14 - REINSURANCE

The Insurance  Subsidiaries  cede  insurance to other insurers and reinsurers on
both life and accident and health business.  Reinsurance  agreements are used to
limit maximum losses and provide greater  diversity of risk. The Company remains
liable to  policyholders  to the extent the  reinsuring  companies are unable to
meet their  treaty  obligations.  Total  accident  and health  premiums  of $3.6
million,  $4.1 million, and $2.8 million, were paid to reinsurers in 1997, 1996,
and 1995,  respectively.  Face amounts of life  insurance in force  approximated
$53.1  million,  $87.0 million and $43.4 million at December 31, 1997,  1996 and
1995,  respectively.  No life  insurance  was reinsured as of December 31, 1997,
1996 and 1995, respectively.



<PAGE>


The  Company,  through  NFL and  FLICA,  entered  into a 90%  Coinsurance  Funds
Withheld Reinsurance Agreement (the "Agreement") with a reinsurer effective July
1,  1996 on the  inforce  Critical  Care and  Specified  Disease  business.  The
Agreement provided an initial ceding commission of $10.5 million,  of which $8.4
million was received in cash. This ceding commission allowance was to be repaid,
inclusive of interest at 12.5%, as statutory  profits emerged from the reinsured
block of business.  For the year ended December 31, 1996, the repayment was $1.9
million.  The ceding allowance  payable for the year ended December 31, 1996 was
$8.6 million.  The Company  exercised its option to terminate and recapture this
Agreement on April 1, 1997  consisting  of  approximately  $9.0 million in total
recapture costs  calculated at an interest rate of 15% less  approximately  $2.0
million  in  unearned  premium  reserves  due to NFL  and  FLICA.  See  NOTE  16
EXTRAORDINARY ITEM.

In late 1993,  NFL entered  into a  coinsurance  treaty  with FLICA.  FLICA is a
wholly-owned subsidiary of FHC. Under the terms of the treaty, NFL assumed a 90%
pro-rata share of certain Critical Care and Specified Disease business.  For the
years  ended  December  31,  1997,  1996 and 1995,  $0, $2.3  million,  and $5.1
million,  respectively,  of assumed premiums under this  coinsurance  treaty are
included  as premium  revenue in the  consolidated  financial  statements.  This
coinsurance treaty was cancelled  subsequent to the acquisition of the remaining
interest of FLICA's parent FHC, on May 31, 1996.

In May 1987, NFL entered into a coinsurance  treaty with FLICA.  Under the terms
of the  treaty,  NFL  assumed a 50%  pro-rata  share of all  insurance  business
written by FLICA from  January 1, 1987 through  December  31, 1988.  In November
1988, the  coinsurance  treaty was amended to extend through 1997. For the years
ended  December 31, 1997,  1996 and 1995,  $0, $1.7  million,  and $4.3 million,
respectively,  of assumed premiums under the coinsurance  treaty are included as
revenue in the consolidated  financial  statements.  This coinsurance treaty was
cancelled  subsequent to the  acquisition  of the remaining  interest of FLICA's
parent FHC, on May 31, 1996.

In March 1990,  NFL  entered  into a  coinsurance  treaty  with  Paramount  Life
Insurance  Company  ("Paramount").  Under the terms of the treaty,  which was in
effect from April 1, 1990 through May 31, 1995,  NFL assumed 90% of the Critical
Care and Specified Disease policies written by Paramount. The treaty effectively
ended upon the purchase of this block of business by NFL from Paramount. For the
year  ended  December  31,  1997,  1996  and  1995,  $0,  $0 and  $0.6  million,
respectively, of assumed premiums under this coinsurance treaty were recorded as
revenue.


<PAGE>



NOTE 15 - COMMITMENTS AND CONTINGENCIES

The Company's future minimum lease payments for non-cancelable operating leases,
relating  primarily to office facilities and data processing  equipment having a
remaining  term in excess of one year,  at December  31, 1997,  aggregated  $9.8
million.  The amounts due by year are as follows:  1998-$2.6 million;  1999-$1.9
million;   2000-$1.5  million;   2001-$1.1  million,   2002-$1.1  million,   and
thereafter-$1.6  million.  Aggregate rental expense included in the consolidated
financial  statements for all operating leases  approximated $4.4 million,  $4.2
million and $3.4 million in 1997, 1996 and 1995, respectively.

In the normal course of their business operations,  the Insurance  Subsidiaries,
continue to be involved in various claims,  lawsuits (alleging actual as well as
substantial  exemplary  damages)  and  regulatory  matters.  In the  opinion  of
management,  the disposition of these or any other legal matters will not have a
material  adverse  effect  on the  Company's  business,  consolidated  financial
position or results of operations.



<PAGE>


In the ordinary  course of business,  the Company has advanced  commissions  and
made loans to agents collateralized by future commissions. First-year commission
advances to agents are  recorded as  receivables  from agents and totaled  $20.5
million as of December 31, 1997. Westbridge holds a secured promissory note (the
"Elkins Note"), from NFC Marketing,  Inc. ("NFC"), an Arkansas corporation which
is wholly-owned by Elkins. The balance of this note recorded on the books of the
Company at December  31, 1997 is  approximately  $752,000.  The note,  which was
renegotiated  in October 1994,  represents  principal and accrued  interest on a
loan made by  Westbridge  to NFC for the  purpose  of  expanding  its  marketing
efforts.  The Company collects $25,000 per month until this note and the related
accrued interest is satisified.  Payment of the principal and interest under the
Elkins Note has been  guaranteed  by Elkins.  In addition,  under the terms of a
Security  Agreement  delivered  to  Westbridge  by  NFC,  following  a  default,
Westbridge has the right to apply monies, balances,  credit or collections which
it may hold for NFC on deposit,  or which might  otherwise  be payable to NFC by
NFL (including,  among other things, agents' commissions payable by NFL to NFC),
to offset the unpaid balance of the Elkins Note.

The  Company's  Insurance  Subsidiaries  are subject to  extensive  governmental
regulation  and  supervision at both federal and state levels.  Such  regulation
includes premium rate levels, premium rate increases, policy forms, minimum loss
ratios,  dividend payments,  claims settlement,  licensing of insurers and their
agents,  capital  adequacy,   transfer  of  control,  and  amount  and  type  of
investments.  Additionally,  there are numerous health care reform proposals and
regulatory   initiatives  under   consideration  which  if  enacted  could  have
significant impact on the Company's revenues and results of operations.

NOTE 16 - EXTRAORDINARY ITEM

For the year ended  December 31, 1997,  the Company  recognized  an aggregate of
$1,007,000 in extraordinary  losses,  net of taxes. Of this amount, (i) $574,000
resulted from the recognition of unamortized  financing fees associated with the
prepayment and refinancing of the Company's revolving credit facility with Fleet
National Bank (See NOTE 7 FINANCING ACTIVITIES); and (ii) $433,000 resulted from
the  termination  and  recapture  of the block of reinsured  insurance  policies
referred to in NOTE 14 - REINSURANCE.


<PAGE>


NOTE 17 - RECONCILIATION TO STATUTORY REPORTING

A reconciliation of net (loss) income as reported by the Insurance  Subsidiaries
under  practices  prescribed  or permitted by  regulatory  authorities  and that
reported herein by the Company on a consolidated GAAP basis is as follows:
<TABLE>
<CAPTION>
                                                          Year Ended December 31,
                                                   --------------------------------
                                                     1997        1996        1995
                                                   --------    --------    --------
                                                             (in thousands)

<S>                                               <C>         <C>         <C>
Net (loss) income as reported by the Insurance
   Subsidiaries on a statutory basis               $(49,618)   $    870    $ (6,296)
Additions to (deductions from) statutory basis:
   Future policy benefits and claims                  2,493      (2,016)        166
   FHC pre-acquisition statutory earnings                 -      (1,388)          -
   Deferred policy acquisition costs,
     net of amortization                                735      22,434      15,329
   Deferred uncollected and advance premiums             44      (1,719)        138
   Coinsurance Funds Withheld reinsurance treaty      8,575      (7,336)          -
   Recognition of premium deficiency                (64,952)          -           -
   Extraordinary item                                (1,007)          -           -
   Income taxes                                      13,970      (4,214)     (2,837)
   Subsidiary companies, eliminations,
     and other adjustments                           (6,664)      2,001      (1,355)
   Other, net                                          (720)       (371)        179
                                                   --------    --------    --------
Consolidated net (loss) income as reported
   herein on a GAAP basis                          $(97,144)   $  8,261    $  5,324
                                                   ========    ========    ========
</TABLE>

A reconciliation  of the statutory capital and surplus reported by the Insurance
Subsidiaries  under regulatory  practices to  stockholders'  (deficit) equity as
reported herein by the Company on a consolidated GAAP basis is as follows:

<TABLE>
<CAPTION>
                                                        Year Ended December 31,
                                                    --------------------------------
                                                      1997        1996        1995
                                                    --------    --------    --------
                                                              (in thousands)
<S>                                                <C>         <C>         <C>
Capital and surplus as reported by the Insurance
   Subsidiaries on a statutory basis                $ 21,592    $ 18,648    $ 24,038
Deductions from (additions to) a statutory basis:
   Future policy benefits and claims                 (10,147)         10      (9,723)
   Deferred policy acquisition costs                  19,165      83,871      56,977
   Nonadmitted assets                                    832       4,818       1,124
   Coinsurance Funds Withheld reinsurance treaty           -      (8,831)          -
   Income taxes                                       (1,037)    (13,242)     (9,447)
   Deferred, uncollected and advance premiums            249     (12,651)        241
   Asset valuation reserve                             1,049       1,157         823
   Unrealized appreciation on investments,
     gross of deferred taxes                           4,039       1,620       3,667
   Other, net                                          1,248       3,997       6,255
                                                    --------    --------    --------

Combined insurance subsidiaries stockholders'
   equity on a GAAP basis                             36,990      79,397      73,955

Subsidiary companies (deficit) equity,
   eliminations and other adjustments                (82,408)    (31,494)    (31,150)
                                                    --------    --------    --------

Consolidated stockholders' (deficit) equity in
   accordance with GAAP                             $(45,418)   $ 47,903    $ 42,805
                                                    ========    ========    ========
</TABLE>


<PAGE>


NOTE 18 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Summarized  quarterly financial data for each of the Company's last two years of
operations is as follows (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                  Quarter Ended
                                                  ------------------------------------------------
1997                                                March         June      September     December
-----------------------------------------------   ---------    ---------    ---------    ---------

<S>                                               <C>          <C>          <C>          <C>
Premium income                                    $  40,820    $  41,022    $  40,450    $  38,805
Net investment income                                 2,226        2,530        3,207        3,060
Net realized (losses) gains on investments              (60)         192          223         (271)
Fee, service and other income                         3,502        4,106        4,525        4,567
Benefits, claims and other expenses                  43,826       57,329       79,125      118,029
Net income (loss) before extraordinary loss           1,730       (6,161)     (19,968)     (71,738)
Extraordinary loss, net of tax                            -       (1,007)           -            -
Preferred stock dividend                                396          392          392          392
Income (loss) applicable to common stockholders       1,334       (7,560)     (20,360)     (72,130)
Earnings per share:
  Basic:
     Income (loss) before extraordinary item      $    0.22    $   (1.07)   $   (3.29)   $  (11.64)
     Extraordinary item                           $       -    $   (0.16)   $       -    $       -
       Net earnings (loss)                        $    0.22    $   (1.23)   $   (3.29)   $  (11.64)
  Diluted:
     Income (loss) before extraordinary item      $    0.20    $   (1.07)   $   (3.29)   $  (11.64)
     Extraordinary item                           $       -    $   (0.16)   $       -    $       -
       Net earnings (loss)                        $    0.20    $   (1.23)   $   (3.29)   $  (11.64)
</TABLE>



<TABLE>
<CAPTION>
                                                          Quarter Ended
                                             ------------------------------------------
1996                                          March       June     September   December
------------------------------------------   --------   --------   --------    --------

<S>                                          <C>        <C>        <C>         <C>
Premium income                               $ 35,410   $ 39,040   $ 40,688    $ 41,642
Net investment income                           2,116      2,191      2,283       2,146
Net realized gains (losses) on investments         85        116        (28)        (77)
Fee, service and other income                   1,777      2,017      2,440       3,300
Benefits, claims and other expenses            37,040     40,334     41,890      43,285
Preferred stock dividend                          413        412        412         413
Income applicable to common stockholders        1,160      1,585      1,858       2,008
Earnings per share:
  Basic                                      $   0.19   $   0.27   $   0.31    $   0.33
  Diluted                                    $   0.19   $   0.24   $   0.27    $   0.28
</TABLE>





<PAGE>


                                   SCHEDULE II

                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                    WESTBRIDGE CAPITAL CORP. (PARENT COMPANY)
                 STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
                                 (in thousands)


<TABLE>
<CAPTION>
                                                              Year Ended December 31,
                                                        -------------------------------------
                                                          1997            1996         1995
                                                        --------        --------     --------
<S>                                                     <C>             <C>          <C>
Net investment income                                   $  1,579        $     62     $     23
Realized gains on investments                                984               -            -
Intercompany income derived from:
  Interest on Surplus Certificates                            78              78           78
  Rental of leasehold improvements and equipment           1,926           1,703        1,597
Interest on advances to subsidiaries                         266             192          182
Other income                                                 228             106          120
                                                        --------        --------     --------
                                                           5,061           2,141        2,000
                                                        --------        --------     --------

General and administrative expenses                        4,349           2,128        2,085
Reorganization expense                                     1,324               -            -
Taxes, licenses and fees                                     164              90           97
Interest expense                                           5,846           2,496        2,432
                                                        --------        --------     --------
                                                          11,683           4,714        4,614
                                                        --------        --------     --------
Loss before income taxes and equity in undistributed
  net earnings of subsidiaries and FHC                    (6,622)         (2,573)      (2,614)
  (Benefit from) provision for income taxes               (3,939)            432        1,427
                                                        --------        --------     --------
                                                         (10,561)         (2,141)      (1,187)
Equity in undistributed net (losses) earnings of
  subsidiaries and FHC                                   (86,419)         10,402        6,918
                                                        --------        --------     --------
(Loss) income before extraordinary item                  (96,980)          8,261        5,731

Extraordinary loss (1) (2)                                   164(1)            -          407(2)
                                                        --------        --------     --------
     Net income                                          (97,144)          8,261        5,324

Preferred stock dividends                                  1,572           1,650        1,650
                                                        --------        --------     --------

(Loss) income applicable to common stockholders          (98,716)          6,611        3,674

Retained earnings at beginning of year                    17,186          10,575        6,901
                                                        --------        --------     --------
Retained (deficit) earnings at end of year              $(81,530)       $ 17,186     $ 10,575
                                                        ========        ========     ========
</TABLE>


(1)   From early extinguishment of debt, net of income tax benefit of $85.

(2)   From early extinguishment of debt, net of income tax benefit of $210.



The  condensed  financial  information  should be read in  conjunction  with the
Westbridge Capital Corp. December 31, 1997 consolidated financial statements and
notes thereto.


<PAGE>


                                   SCHEDULE II

                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                    WESTBRIDGE CAPITAL CORP. (PARENT COMPANY)

                                 BALANCE SHEETS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                   Year Ended December 31,
                                                                    ---------------------
                                                                      1997         1996
                                                                    --------     --------
<S>                                                               <C>           <C>
Assets:
   Cash and other short-term investments                            $  3,317     $  1,241
   Fixed maturities, at market value                                  15,198            -
   Equity securities, at market value                                  1,038            -
   Investment real estate                                                566            -
   Investment in consolidated subsidiaries                            38,224       77,946
   Accrued investment income                                             288           50
   Leasehold improvements and equipment, net                             960        1,100
   Advances due from subsidiaries                                      4,181        2,557
   Receivable from subsidiary on Surplus Certificate                     777          777
   Other assets                                                        4,618        6,540
                                                                    --------     --------
     Total Assets                                                   $ 69,167     $ 90,211
                                                                    ========     ========
Liabilities:
   Senior subordinated notes, net                                   $ 19,447     $ 19,350
   Convertible subordinated notes                                     70,000            -
   Senior note payable                                                     -        1,038
   Payable to subsidiaries                                                36          929
   Interest payable                                                    4,077            -
   Other liabilities                                                   2,025          991
                                                                    --------     --------
     Total Liabilities                                                95,585       22,308
                                                                    --------     --------

Redeemable Preferred Stock                                            19,000       20,000
                                                                    --------     --------

Stockholders' Equity:
   Common stock                                                          620          604
   Capital in excess of par value                                     30,843       29,226
   Unrealized appreciation of investments
     carried at market value                                           4,649        1,057
   Retained (deficit) earnings                                       (81,530)      17,186
                                                                    --------     --------
                                                                     (45,418)      48,073
                                                                    --------     --------
   Less:  Aggregate shares held in treasury and investment
          by affiliate in Parent Company's common stock, at cost
         (28,600 shares at December 31, 1996)                              -         (170)
                                                                    --------     --------
     Total Stockholders' (Deficit) Equity                            (45,418)      47,903
                                                                    --------     --------

       Total Liabilities, Redeemable Preferred Stock
         and Stockholders' Equity                                   $ 69,167     $ 90,211
                                                                    ========     ========
</TABLE>


     The condensed financial  information should be read in conjunction with the
Westbridge Capital Corp. December 31, 1997 consolidated financial statements and
notes thereto.


<PAGE>


                                   SCHEDULE II

                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                    WESTBRIDGE CAPITAL CORP. (PARENT COMPANY)

                             STATEMENT OF CASH FLOWS
                                 (in thousands)


<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                                ----------------------------------
                                                                  1997         1996         1995
                                                                --------     --------     --------
<S>                                                            <C>          <C>          <C>
Cash Flows From Operating Activities:
   (Loss) income applicable to common stockholders              $(98,716)    $  6,611     $  3,674
   Adjustments to reconcile net (loss) income to cash
     provided by (used for) operating activities:
   Equity in undistributed net loss (income) of subsidiaries      86,419      (10,402)      (6,918)
   Accrued investment income                                        (238)         (16)         (12)
   Advances due from subsidiaries, net                            (2,536)       1,471        1,383
   Other liabilities                                               5,111         (138)          10
   Other, net                                                      1,539        1,120       (1,178)
                                                                --------     --------     --------
     Net Cash Used For Operating Activities                       (8,421)      (1,354)      (3,041)
                                                                --------     --------     --------

Cash Flows From Investing Activities:
   Proceeds from sale of investments                              42,268            -            -
   Cost of investments acquired                                  (57,366)           -            -
   Additions to leasehold improvements and equipment,
     net of retirements                                             (349)        (165)        (703)
   Decrease in notes receivable                                      288          158            -
   Investment in subsidiaries                                    (43,105)       1,038            -
                                                                --------     --------     --------
     Net Cash (Used For) Provided by Operating Activities        (58,264)       1,031         (703)
                                                                --------     --------     --------

Cash Flows From Financing Activities:
   Retirement of subordinated debentures                               -            -      (25,000)
   Issuance of senior subordinated notes                               -            -       19,200
   Issuance of convertible subordinated notes                     70,000            -            -
   (Retirement) issuance of senior note payable                   (1,103)         103          927
   Issuance of common stock                                          140          140       10,108
   Issuance of common stock warrants                                   -            -           74
   Purchase and cancellation of common stock                        (276)        (125)        (146)
                                                                --------     --------     --------
     Net Cash Provided By Financing Activities                    68,761          118        5,163
                                                                --------     --------     --------
     Increase (Decrease) in Cash and Short-Term
       Investments During the Year                                 2,076         (205)       1,419
     Cash and Other Short-Term Investments at
       Beginning of Year                                           1,241        1,446           27
                                                                ========     ========     ========
     Cash and Other Short-Term Investments at End of Year       $  3,317     $  1,241     $  1,446
                                                                ========     ========     ========
</TABLE>


The  condensed  financial  information  should be read in  conjunction  with the
Westbridge Capital Corp. December 31, 1997 consolidated financial statements and
notes thereto.

<PAGE>





                                  SCHEDULE III

                            WESTBRIDGE CAPITAL CORP.
                       SUPPLEMENTARY INSURANCE INFORMATION
                                 (in thousands)


<TABLE>
<CAPTION>
                                                     Other
                                                     Policy
                              Deferred               Claims                     Benefits   Amortization
                               Policy     Future      and                 Net     and       of Policy       Other
                             Acquisition  Policy    Benefits  Premium Investment Claims     Acquisition   Operating Premiums
Segment                        Costs      Benefits  Payable   Revenue   Income   Expense       Costs      Expenses  Written*
-----------------------------  ---------  --------  --------  --------  -------  ---------  ------------  --------  --------

<S>                           <C>        <C>       <C>       <C>       <C>      <C>        <C>           <C>       <C>
Year ended December 31, 1997:
Insurance operations           $  19,165  $ 55,811  $ 51,784  $161,097  $ 7,325  $ 136,866  $     30,873  $ 91,633  $ 73,611
Fee and service income                                                                                              ========
  activities                           -         -         -         -    1,547          -             -    27,564
Corporate (parent company)             -         -         -         -    2,151          -             -    11,373
                               =========  ========  ========  ========  =======  =========  ============  ========
     Total                     $  19,165  $ 55,811  $ 51,784  $161,097  $11,023  $ 136,866  $     30,873  $130,570
                               =========  ========  ========  ========  =======  =========  ============  ========


Year ended December 31, 1996:
Insurance operations           $  83,871  $ 54,204  $ 39,186  $156,780  $ 6,514  $  94,187  $     22,907  $ 16,385  $107,149
Fee and service income                                                                                              ========
  activities                           -         -         -         -    1,784          -             -    24,433
Corporate (parent company)             -         -         -         -      438          -             -     4,637
                               =========  ========  ========  ========  =======  =========  ============  ========
     Total                     $  83,871  $ 54,204  $ 39,186  $156,780  $ 8,736  $  94,187  $     22,907  $ 45,455
                               =========  ========  ========  ========  =======  =========  ============  ========


Year ended December 31, 1995:
Insurance operations           $  56,977  $ 46,620  $ 39,063  $120,093  $ 7,095  $  70,465  $     11,553  $ 23,533  $ 98,996
Fee and service income                                                                                              ========
  activities                           -         -         -         -        -          -             -    11,670
Corporate (parent company)             -         -         -         -      326          -             -     4,615
                               =========  ========  ========  ========  =======  =========  ============  ========
     Total                     $  56,977  $ 46,620  $ 39,063  $120,093  $ 7,421  $  70,465  $     11,553  $ 39,818
                               =========  ========  ========  ========  =======  =========  ============  ========
</TABLE>



*Premiums Written--Amounts do not apply to life insurance.



<PAGE>



                            WESTBRIDGE CAPITAL CORP.

                                   SCHEDULE IV

                                   REINSURANCE
                       (in thousands, except percentages)


<TABLE>
<CAPTION>
                                                                 Assumed               Percentage
                                                  Ceded to        From                  of Amount
                                      Gross        Other         Other          Net      Assumed
                                      Amount     Companies      Companies      Amount    to Net
                                      --------   -----------   ------------   --------    ----

<S>                               <C>           <C>           <C>            <C>          <C>
Year ended December 31, 1997:
Life insurance in force               $ 53,065   $         -   $          -   $ 53,065       -
                                   ===========   ============  ============   ========
Premiums:
   Life                               $    830   $         -   $          -   $    830       -
   Accident and health                 161,867         3,635          2,035    160,267       1.27%
                                   -----------   ------------  ------------   --------
       Total premiums                 $162,697   $     3,635   $      2,035   $161,097       1.26%
                                   ===========   ============  ============   ========

Year ended December 31, 1996:
Life insurance in force               $ 86,978   $         -   $          -   $ 86,978       -
                                   ===========   ============  ============   ========
Premiums:
   Life                               $    889   $         -   $          -   $    889       -
   Accident and health                 155,952         4,063          4,002    155,891       2.57%
                                   -----------   ------------  ------------   --------
       Total premiums                 $156,841   $     4,063   $      4,002   $156,780       2.55%
                                   ===========   ============  ============   ========

Year ended December 31, 1995:
Life insurance in force               $ 43,441   $         -   $          -   $ 43,441       -
                                   ===========   ============  ============   ========
Premiums:
   Life                               $    549   $         -   $          -   $    549       -
   Accident and health                 112,444         2,811          9,911    119,544       8.29%
                                   -----------   ------------  ------------   --------
       Total premiums                 $112,993   $     2,811   $      9,911   $120,093       8.25%
                                   ===========   ============  ============   ========
</TABLE>







<PAGE>


                                   SCHEDULE V

                            WESTBRIDGE CAPITAL CORP.

                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
                                 (in thousands)


<TABLE>
<CAPTION>
                                    Additions
                                                             Charged                        Balance
                                              Balance at        to                            at
                                               Beginning     Costs and      Deductions      End of
                                               of Period     Expenses      (Charge Offs)    Period
                                             ------------   ------------   ------------   ------------

<S>                                         <C>            <C>            <C>            <C>
Year ended December 31, 1997:
Allowance for doubtful agents' balances      $      1,729   $      2,802   $          -   $      4,531
                                             ============   ============   ============   ============

Year ended December 31, 1996:
Allowance for doubtful agents' balances      $      1,187   $      1,462   $       (920)  $      1,729
                                             ============   ============   ============   ============

Year ended December 31, 1995:
Allowance for doubtful agents' balances      $      1,137   $         50   $          -   $      1,187
                                             ============   ============   ============   ============
</TABLE>








<PAGE>




ITEM 9.  CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.


                                    PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Westbridge's executive officers are as follows:

<TABLE>
<CAPTION>
                                                                             Years with
    Officer Name           Age   Position with the Company                   the Company
-------------------------   --   -----------------------------------------   ------------

<S>                         <C>  <C>                                                  <C>
Martin E. Kantor            75   Chairman of the Board and                             21
                                  Chief Executive Officer

Patrick J. Mitchell         39   President, Chief Operating Officer,                    2
                                  Chief Financial Officer and Treasurer

Patrick H. O'Neill          47   Executive Vice President, General Counsel              0
                                  and Secretary
</TABLE>

Mr.  Kantor has served as Chairman of the Board and Chief  Executive  Officer of
Westbridge  since January 1993.  Mr. Kantor had served as Chairman of the Board,
President and Chief  Operating  Officer of Westbridge  since prior to 1992.  Mr.
Kantor has served as  Chairman  of the Board of NFL since prior to 1992 and also
became Chief Executive Officer of NFL in 1985. Following the acquisition of each
of NFIC,  AICT and FLICA,  Mr.  Kantor was  appointed  Chairman of the Board and
Chief Executive Officer of each entity.

Mr. Mitchell has served as President,  Chief Operating Officer,  Chief Financial
Officer,  Treasurer and Director since October 1997. Mr.  Mitchell had served as
Executive Vice President,  Chief Financial  Officer and Treasurer since May 1996
and joined the Company in August 1995 as Vice President, Chief Financial Officer
and Treasurer.  Mr.  Mitchell is also President and Director of NFL, NFIC,  AICT
and FLICA. Prior to joining Westbridge, he served as Vice President, Finance for
Bankers Life and Casualty Company. From 1989 to 1993, Mr. Mitchell was Assistant
Vice President, Finance for Reliance Standard Life Insurance Company.

Mr.  O'Neill  joined  Westbridge  in  September  1997 as Senior Vice  President,
General  Counsel and  Secretary.  In November  1997, Mr. O'Neill was promoted to
Executive  Vice  President.  In  addition,  Mr.  O'Neill  serves as Senior  Vice
President, General Counsel, Secretary and Director of NFL, NFIC, AICT and FLICA.
Prior to joining  Westbridge  and since 1990,  Mr. O'Neill served as founder and
President  of the Law Offices of Patrick H.  O'Neill,  P.C.  Prior to 1990,  Mr.
O'Neill was a partner in the Law Firm of Camp, Jones, O'Neill, Hall & Bates.





Westbridge's directors are as follows:

<TABLE>
<CAPTION>
                                                                                         Expiration
                                                                            Years with   of Term of
       Director Name        Age   Position with the Company                the Company      Office
-------------------------   ---   --------------------------------------   ------------   ---------

<S>                          <C>                                                     <C>       <C>
Martin E. Kantor             75   Chairman of the Board, Chief Executive             21        1998
                                     Officer

Patrick J. Mitchell          39   Director, President, Chief Operating                2        1999
                                     Officer, Chief Financial Officer and
                                     Treasurer

Joseph C. Sibigtroth         82   Director                                           14        1998

Barry L. Stevens             51   Director                                            1        1998

Barth P. Walker              83   Director                                           16        1998

Marvin H. Berkeley           75   Director                                           16        1999

Glenn O. Phillips            68   Director                                           11        1999

Arthur W. Feinberg           74   Director                                           13        2000

George M. Garfunkel          59   Director                                            4        2000

Peter J. Millock             51   Director                                            2        2000
</TABLE>

Martin E. Kantor has served as Chairman of the Board and Chief Executive Officer
of  Westbridge  since  January  1993.  Mr.  Kantor had served as Chairman of the
Board,  President and Chief Operating Officer of Westbridge since prior to 1992.
Mr.  Kantor has served as  Chairman  of the Board of NFL since prior to 1992 and
also became Chief Executive Officer of NFL in 1985. Following the acquisition of
each of NFIC, AICT and FLICA, Mr. Kantor was appointed Chairman of the Board and
Chief  Executive  Officer  of each  entity.  Mr.  Kantor may be deemed a control
person of the Company by virtue of his ownership of 708,767  shares,  or 11.39%,
of the outstanding  shares of the Company's  Common Stock at March 9, 1998. This
amount does not include shares held in various trusts  established by Mr. Kantor
for the benefit of his children and grandchildren over which he has no voting or
investment power and as to which Mr. Kantor disclaims beneficial ownership,  see
Note (1) under "Principal Stockholders".

Patrick J.  Mitchell has served as President,  Chief  Operating  Officer,  Chief
Financial  Officer,  Treasurer and Director since October 1997. Mr. Mitchell had
served as Executive Vice President,  Chief Financial Officer and Treasurer since
May  1996 and  joined  the  Company  in  August  1995 as Vice  President,  Chief
Financial Officer and Treasurer.  Mr. Mitchell is also President and Director of
NFL,  NFIC,  AICT and  FLICA.  Prior to  joining  Westbridge,  he served as Vice
President, Finance for Bankers Life and Casualty Company. From 1989 to 1993, Mr.
Mitchell  was  Assistant  Vice  President,  Finance for Reliance  Standard  Life
Insurance Company.

Joseph C. Sibigtroth has been a director since 1984. Mr. Sibigtroth is a retired
consulting  actuary  and had been a private  consulting  actuary  since prior to
1992. Mr.  Sibigtroth has served as Chairman of both the Mortality and Morbidity
Committees  of the American  Society of  Actuaries,  and as Treasurer of the New
York State Guaranty Corporation.

Barry L. Stevens has been a director of Westbridge  since 1997.  Mr. Stevens has
been the  director of the Bureau of  Investments  for the  Treasury  Department,
State of Michigan,  since February 1989. From January 1985 to February 1989, Mr.
Stevens served as the Assistant Director, Bureau of Investments for the Treasury
Department,  State of Michigan.  Prior to that  period,  Mr.  Stevens  served as
Senior  Equity  Analyst  and  Administrator  of the  Equity  Division,  Treasury
Department, State of Michigan.

Barth P. Walker has been a director of  Westbridge  since 1982.  Mr.  Walker has
been a senior member of Walker & Walker,  a law firm in Oklahoma City,  Oklahoma
since prior to 1992.

Marvin H. Berkeley has been a director of Westbridge  since 1982.  Dr.  Berkeley
has served as Professor of Management of the University of North Texas,  Denton,
Texas,  since  prior to 1992,  and is former  Dean of the  College  of  Business
Administration of the University of North Texas. Dr. Berkeley is also a director
of Irving National  BankShares,  Inc.,  Irving,  Texas. Dr. Berkeley is a former
advisory  director of Enersyst  Development  Center,  Inc., a former director of
John Watson Landscape Illumination, Inc., and a former Governor of International
Insurance Society, Inc.

Glenn O. Phillips has been a director of Westbridge  since 1987. Mr. Phillips is
an Insurance  Consultant and has served as Partner with  Professional  Insurance
Group since December 1994. Mr.  Phillips served as a Consultant for the National
Registry  Corp.  from June 1994 through  1995 and as  President  and Director of
Financial Services of America from 1991 through 1994.

Arthur W. Feinberg has been a director of Westbridge  since 1985.  Mr.  Feinberg
has served as the Chief of Geriatric  Medicine of the  Department of Medicine of
North Shore University  Hospital,  Manhasset,  New York since prior to 1992. Dr.
Feinberg  also has been,  since prior to 1992, a Professor,  Clinical  Medicine,
Cornell  University  Medical  College.  Dr.  Feinberg  was formerly a Regent and
Chairman of the Board of Governors of the American College of Physicians.

George M. Garfunkel has been a director of Westbridge  since 1994. Mr. Garfunkel
is a founding partner of the Great Neck, New York law firm of Garfunkel,  Wild &
Travis P.C., which  specializes in the  representation  of clients in the health
care industry.  He is also a director of Berkshire Taconic Community Foundation,
Inc.

Peter J. Millock has been a director of Westbridge  since July 1996. Mr. Millock
is Counsel in private  practice with the law firm of Nixon,  Hargrave,  Devans &
Doyle LLP,  Albany,  New York.  Mr.  Millock  previously  served for 15 years as
general  counsel and chief legal  officer for the New York State  Department  of
Health.

Board Committees

The  Board  formed  an  Executive  Committee  on June 22,  1995.  The  Executive
Committee is composed of Mr. Garfunkel (Chairman),  Dr. Feinberg and Mr. Kantor.
The Executive  Committee  possesses all the powers and authority of the Board in
the management and direction of the business and affairs of the Company,  except
as limited by law. The Executive Committee met twice during 1997.

The Board formed a  Compensation  Committee on May 30,  1996.  The  Compensation
Committee  is  composed  of Mr.  Phillips  (Chairman),  Mr.  Garfunkel  and  Dr.
Feinberg.

The  Compensation  Committee  has  responsibility  for  reviewing  and approving
salaries, bonuses and other compensation and benefits of executive officers, and
advising  management  regarding  benefits  and  other  terms and  conditions  of
compensation for executive  officers.  The  Compensation  Committee did not meet
during 1997.

The Audit  Committee  of the Board is composed  of Mr.  Walker  (Chairman),  Dr.
Berkeley, and Mr. Sibigtroth.  The Audit Committee, which met twice during 1997,
recommends  to the Board the firm to be  employed as the  Company's  independent
accountants,  reviews  details  of each  audit  engagement  and  audit  reports,
including  all  management  reports  by the  independent  accountants  regarding
internal  controls,  and reviews resolution of any material matters with respect
to appropriate  accounting principles and practices to be used in preparation of
the Company's financial statements.

The Board does not have a Nominating Committee.

The Board met six times during 1997.  Each member of the Board attended at least
75% of the Board  meetings  and all  meetings of any  committee  of the Board on
which such Director served during 1997.

ITEM 11.  EXECUTIVE COMPENSATION

Summary of Compensation

The following table sets forth  information on cash and other  compensation paid
or accrued for each of the fiscal years ended  December 31, 1997,  1996 and 1995
to those persons who were at the end of the 1997 fiscal year the Chief Executive
Officer and the four most highly compensated  executive officers of the Company,
for services in all capacities to the Company and its subsidiaries.

<TABLE>
<CAPTION>
                                                                      Long-Term Compensation/
                                                                         Restricted Stock            All Other
            Name and                                                   Awards (6)/Securities        Compensation
       Principal Position         Year      Salary       Bonus           Underlying Options           (1) (5)
    ------------------------- -- -------- ------------ ----------- --- ----------------------- -- -----------------
<S>                              <C>      <C>          <C>                      <C>                 <C>
    Martin E. Kantor             1997     $  492,500   $        0               60,000              $          0
    Chairman of the              1996     $  477,462   $        0                    0              $      2,850
    Board and Chief              1995     $  403,615   $   50,000                    0              $      2,772
    Executive Officer

    Patrick J. Mitchell (2)      1997     $  279,958   $        0               45,000              $      3,225
    President, Chief             1996     $  204,519   $        0                    0              $      1,425
    Operating Officer, Chief     1995     $   55,819   $   25,000               25,000              $          0
    Financial Officer and
    Treasurer

    James W. Thigpen (3)         1997     $  233,333   $        0               60,000              $  2,535,054
    President and Chief          1996     $  387,692   $        0                    0              $      2,375
    Operating Officer            1995     $  346,638   $   50,000                    0              $      2,310

    Stephen D. Davidson (4)      1997     $  243,645   $        0               45,000              $      2,215
    Executive Vice               1996     $  255,048   $        0                    0              $      2,375
    President and Chief          1995     $  183,462   $   40,000               30,000              $      2,310
    Marketing Officer
</TABLE>


(1)  Amounts shown represent  matching  contributions of the Company credited to
     the named executive officers under the Company's 401(k) plan.

(2)  Effective October 31, 1997,  Patrick Mitchell was named President and Chief
     Operating Officer.

(3)  Effective  August 18, 1997,  James Thigpen  ceased serving as President and
     Chief Operating Officer.

(4)  Effective  December 1, 1997,  Steven  Davidson  ceased serving as Executive
     Vice President and Chief Marketing Officer.

(5)  The  amounts  reported  for  James  Thigpen  include  (a)  the  payment  of
     approximately  $1.5  million  in  satisfaction  of  obligations  under  his
     employment  agreement plus accrued  vacation,  (b)  approximately  $850,000
     representing  the fair  market  value of the  immediate  vesting  of 60,000
     shares of  restricted  stock awarded on January 1, 1997 and the fair market
     value,  net of  consideration  paid by Mr. Thigpen,  in connection with his
     exercise of options to purchase 34,500 shares of stock during 1997, and (c)
     forgiveness  of $95,500 of  interest-free  salary  advances.  See ITEM 13 -
     "Certain Relationships and Related Transactions".

(6)  On January 1, 1997, Messrs. Kantor, Mitchell, Thigpen and Davidson received
     restricted  stock  grants of 60,000,  45,000,  60,000  and  45,000  shares,
     respectively.  In September 1997, Mr. O'Neill  received a restricted  stock
     grant of 30,000 shares. These shares vest and are issuable over a period of
     four years.  Related  compensation  expense will be reported in  subsequent
     reporting periods as vesting criteria are satisfied and shares are issued.


Each director of the Company who is not a salaried employee or consultant of NFL
receives  $2,500 per  meeting  of the Board  attended.  Additionally,  all Audit
Committee  members who attend  special  Audit  Committee  meetings  which do not
coincide with meetings of the Board receive  $1,000 per special Audit  Committee
meeting  attended.  All directors are reimbursed for their expenses  incurred in
attending meetings of the Board.  Additionally,  Dr. Feinberg received $6,000 in
consultation fees from the Company during 1997.

Options Granted in Last Fiscal Year

Each non-employee  director is entitled to receive automatic,  non-discretionary
and fixed  annual  grants of stock  options  under the 1992 Stock  Option  Plan,
subject to the  availability  of shares of Common Stock  issuable under the 1992
Plan (the "Plan").  Pursuant to the Plan, a stock option to acquire 5,000 shares
of Common Stock was granted to each non-employee director serving as a member of
the Board on January  14,  1993.  Thereafter,  a stock  option to acquire  1,000
shares of Common Stock was and will  automatically  be granted  each  succeeding
year  (immediately  following the Company's  annual meeting of  stockholders) to
each  non-employee  director  serving  as a member  of the  Board at such  time.
Additionally,  each non-employee  director,  upon becoming a member of the Board
for the first  time,  is entitled  to receive a stock  option to purchase  5,000
shares of Common  Stock.  The option  price per share is the average of the mean
high and low trading prices for the Common Stock for the fifth through the ninth
trading day following the relevant grant date.  Each option becomes  exercisable
on the first anniversary of the date of grant and may thereafter be exercised in
whole or in part  during the term of the  option by  payment of the full  option
price for the number of underlying shares to be acquired upon any such exercise.
Each  option  will  expire  seven  years  after the date on which the  option is
granted,  subject to  earlier  termination  upon an  optionee's  termination  of
service  as a  director,  other  than  as  a  result  of  retirement,  death  or
disability.  During 1997, a stock option to acquire 1,000 shares of Common Stock
was granted to Mr. Millock.  There were no other stock options granted to any of
the named executive officers or non-employee directors under the Plan.

Each  non-employee  director  who has not been an  employee  during the one year
period  immediately  preceding  (a) the initial grant date (as defined below and
with respect to any initial  grant to such member) and (b) any annual grant date
(as  defined  below and with  respect to any annual  grant to such  member)  (an
"Eligible Director") shall automatically  participate in the fixed formula grant
portion of the restricted Stock Plan. Each eligible director shall automatically
be granted 5,000 shares of  restricted  Common Stock  immediately  following the
Company's annual  stockholders  meeting at which the eligible  director is first
elected to the Board (the "Initial Grant Date"), commencing with the 1996 Annual
Meeting (each, an "Initial Grant"). In addition, each eligible director who does
not receive the grant described in the preceding sentence shall automatically be
granted 1,000 shares of restricted Common Stock each year, immediately following
the Company's annual stockholders meeting in such year (the "Annual Grant Date")
commencing with the 1996 Annual Meeting (each, an "Annual Grant"). All shares of
restricted  Common Stock granted to eligible  directors shall become 100% vested
on the first anniversary of the Initial Grant Date or the Annual Grant Date that
relates to any such award.  During 1997,  each eligible  non-employee  director,
other than Mr.  Millock,  received a grant of 1,000 shares of restricted  Common
Stock  pursuant to the restricted  Stock Plan.  Mr. Millock  received a grant of
5,000 shares of restricted common stock pursuant to the restricted Stock Plan.

<TABLE>
<CAPTION>
                                                                           Number of                 Value of
                                                                     Securities Underlying      Unexercised In-The
                                                                      Unexercised Options         Money Options
                                          Shares                      at Fiscal Year End        at Fiscal Year End
         Name and Principal              Acquired        Value           (Exercisable/            (Exercisable/
              Position                 On Exercise     Realized         Unexercisable)            Unexercisable)
------------------------------------- --------------- ------------ -------------------------- -----------------------
                (a)                        (b)            (c)                 (d)                      (e)

<S>                                    <C>           <C>                  <C>                     <C>
Martin E. Kantor                                 -             -                    -                          -
Chairman of the Board
and Chief Executive Officer

Patrick J. Mitchell                              -             -             25,000/                $    10,156/
President and Chief                                                               0                           0
Operating Officer

James W. Thigpen                            34,500    $  284,500                  0/                $         0/
President and Chief                                                               0                           0
Operating Officer

Stephen D. Davidson                              -             -                  0/                $         0/
Executive Vice President                                                          0                           0
and Chief Marketing Officer
</TABLE>


The values listed in columns (c) and (e) represent  the  difference  between the
estimated  market value of the Company's  Common Stock and the exercise price of
the options at exercise and at December 31, 1997, respectively.

Long-term Incentive Plans/Defined Benefit or Actuarial Plans

During 1997, the Company did not have any Long-term  Incentive  Plans  ("LTIP"),
defined benefit plans or actuarial plans in effect.

Employment Agreements

The Company is party to an employment agreement with Martin E. Kantor,  pursuant
to which Mr. Kantor is employed as the Chairman of the Board and Chief Executive
Officer of the Company and NFL. The Company has agreed to employ Mr.  Kantor for
a period of commencing on April 1, 1996, and ending on the fifth  anniversary of
such date.  The  employment  period  will be  automatically  extended  each year
thereafter  unless an  employee,  with  respect  to his own  employment,  or the
Company gives notice to the contrary.

Effective  January 1, 1998, Mr. Kantor's base salary is $492,000 per annum.  Mr.
Kantor's  base  salary  will be  reviewed  annually  for  increase  at the  sole
discretion of the Company's Board. Mr. Kantor is also entitled to participate in
and receive all benefits under any and all bonus, short- or long-term incentive,
savings and retirement plans, and welfare benefit plans, practices, policies and
programs  maintained or provided by the Company and/or its  subsidiaries for the
benefit of senior executives.

If Mr.  Kantor's  employment is terminated by reason of death, or by the Company
due to "disability" (as defined in the Employment Agreements),  such employee or
his legal representative will be entitled to, among other things,  (a)(i) in the
case of death,  (x) his base salary for a period of three  months after the date
of death,  plus (y) a death  benefit in an amount  equal to three times the base
salary at the rate in effect on the date of termination less any amounts paid to
the  employee's  beneficiary(ies)  pursuant to the group and/or other  corporate
life insurance  policies  maintained by the Company or NFL, and (ii) in the case
of disability, his base salary for 36 months after the date of termination;  (b)
certain accrued benefits and a pro rata bonus payment for the year in which such
death or disability  occurs,  and (c) immediate and  accelerated  vesting of all
restricted  stock grants  previously  awarded to the employee.  If an employee's
employment is terminated by the Company  without  cause,  or by the employee for
"good reason" (as defined in the Employment Agreements and which, in the case of
Mr.  Kantor's  Employment  Agreement,  includes the  occurrence  of a "change in
control" as defined  therein),  such employee will be entitled to (a) a lump sum
payment  equal  to three  times  the sum of (i) his  base  salary,  and (ii) the
highest  annual  bonus  awarded  to  him,  (b)  certain  accrued  benefits,  (c)
continuation  of  the  health  and  welfare  benefits,  and  (d)  immediate  and
accelerated  vesting of all restricted  stock grants  previously  awarded to the
employee.  If an employee's  employment is terminated for "cause" (as defined in
the  Employment  Agreements),  such  employee  will be entitled  to, among other
things,  (a) his base  salary  through the date of  termination  and (b) certain
accrued  benefits.  If the Company  terminates his employment (other than due to
death, disability, or for cause), such employee will be entitled to, among other
things, (a) his base salary through the date of termination, (b) certain accrued
benefits,  and (c) continuation of the health and welfare benefits.  In addition
to the foregoing, if Mr. Kantor's employment is terminated other than for cause,
Mr. Kantor will be entitled to repayment,  within thirty business days after the
date of termination,  of the outstanding  principal amount (and any accrued, but
unpaid,  interest  through the date of  repayment) of any loans  (including  the
Senior Note) (as defined in ITEM 13 "Certain  Transactions"),  or other advances
made by him to the Company, NFL or any affiliate of either such entity.

If any payment or  distribution by the Company or any subsidiary or affiliate to
an employee  would be subject to any "golden  parachute  payment"  excise tax or
similar tax, and if, and only if, such  payments  less the excise tax or similar
tax is less than the maximum  amount of  payments  which could be payable to the
employee  without the imposition of the excise tax or similar tax, then and only
then, and only to the extent necessary to eliminate the imposition of the excise
tax or similar tax (and after taking into account any  reduction in the payments
provided by reason of Section 280G of the Code in any other plan, arrangement or
agreement),  (A) any cash payments under the Employment Agreement shall first be
reduced (if necessary,  to zero), and (B) all other non-cash  payments under the
Employment Agreement shall next be reduced.

If Mr.  Kantor's  employment  is  terminated  by the  Company for cause or if an
employee voluntarily terminates his employment without good reason, for a period
of  eighteen  months,  such  employee  shall  not (i)  solicit  or take away the
patronage of (a) any customers or agents of the Company, NFL or any affiliate of
either as of the date of such termination,  or (b) any prospective  customers or
agents of the Company or any affiliate whose business the Company and/or NFL was
actively soliciting on the date of such termination, and with which the employee
had business  contact while employed by the Company and NFL, or (ii) directly or
indirectly, induce or solicit any employees or agents of the Company, NFL or any
affiliate  of  either  to  leave  or  terminate   their   employment  or  agency
relationship with the Company or NFL.

If a claim for payment or benefits under the  Employment  Agreement is disputed,
Mr.  Kantor will be reimbursed  for all attorney  fees and expenses  incurred in
pursuing such claim,  provided that Mr. Kantor is successful as to at least part
of the disputed  claim by reason of litigation,  arbitration  or settlement.  In
addition,  the Employment  Agreement provides that if Mr. Kantor is made a party
or are threatened to be made a party to any action, suit or proceeding,  whether
civil,  criminal,  administrative or  investigative,  by reason of the fact that
either is or was a director or officer of the Company or any subsidiary or is or
was  serving at the  request of the  Company or any  subsidiary  as a  director,
officer,  member,  employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including, without limitation, service
with  respect to  employee  benefit  plans,  each will be  indemnified  and held
harmless by the  Company or a  subsidiary  of the Company to the fullest  extent
authorized  by applicable  law against all expenses  incurred or suffered by the
Executives.  This indemnification will continue as to the executives even if the
Executives  have  ceased to be an officer,  director or agent,  or are no longer
employed by the Company or any subsidiary.

The Company has also entered into a separate  agreement  with each of Patrick J.
Mitchell and Patrick H. O'Neill,  pursuant to which each such person is entitled
to  participate in and receive all benefits  provided to senior  officers of the
Company and to receive a severance  payment upon the  termination  of his or her
employment  by the Company for reasons  other than  cause,  as  applicable.  The
amount of severance  payable to Mr. Mitchell would be equal the aggregate salary
(excluding  bonus)  paid to him  during the  calendar  year  preceding  any such
termination of employment.  The amount of severance payable to Mr. O'Neill would
equal his current annual salary (excluding bonus).

On August  18,  1997,  James  Thigpen  ceased  serving  as  President  and Chief
Operating  Officer.  Pursuant to the terms of his Employment  Agreement with the
Company,  Mr. Thigpen  received the  following:  (a) a lump sum payment of $1.38
million  equal to three times the sum of his base salary and the highest  annual
bonus  awarded to him,  (b)  certain  accrued  benefits  totaling  approximately
$168,000,  (c) continuation of health and welfare benefits and (d) immediate and
accelerated  vesting of the 60,000 shares of restricted stock grants  previously
awarded to Mr.  Thigpen on January 1, 1997 with a fair market  value of $562,500
on the  date of  vesting.  In  addition,  as  described  in  ITEM 13 -  "Certain
Relationships  and Related  Transactions",  the Company  forgave  $95,500 of Mr.
Thigpen's  outstanding  indebtedness  to the  Company for  non-interest  bearing
salary advances.  Further,  the Company  transferred to Mr. Thigpen the title to
his company-owned  vehicle with a fair value of approximately  $31,000.  Also in
connection with his retirement,  Mr. Thigpen exercised options to acquire 10,000
shares of the Company's  Common Stock with an aggregate  market value of $39,500
net of the related consideration paid by Mr. Thigpen.

Compensation Committee Interlocks and Insider Participation

Since its formation on May 30, 1996, the Compensation Committee has consisted of
Messrs. Phillips (Chairman), Garfunkel and Dr. Feinberg, all of whom are outside
directors.



<PAGE>


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Principal Stockholders
<TABLE>
<CAPTION>
                                                      Number
Name and Address                                     of Shares               Percent
------------------------------------------           ---------              --------
<S>                                                   <C>                    <C>
Martin E. Kantor (1)                                   708,767                11.39%
777 Main Street
Fort Worth, Texas  76102

George M. Garfunkel (2)                                455,568                 7.31%
111 Great Neck Road, Suite 503
Great Neck, New York  11021

President & Fellows of Harvard College (3)             594,530                 8.72%
c/o Harvard Management Company, Inc.
600 Atlantic Avenue
Boston, Massachusetts  02210

Edwin S. Marks (4)                                     346,100                 5.56%
135 East 57th Street
New York, New York  10022

Credit Suisse First Boston (5)                       1,426,739                18.65%
Uetlibergstrasse 231
P.O. Box 900
CH-8045 Zurich, Switzerland

Forest Investment Management LLC (6)                   413,862                 6.23%
53 Forest Avenue
Old Greenwich, Connecticut  06870

Founders Financial Group, L.P. (6)                     413,862                 6.23%
53 Forest Avenue
Old Greenwich, Connecticut  06870

Michael A. Boyd, Inc. (6)                              413,862                 6.23%
53 Forest Avenue
Old Greenwich, Connecticut  06870

Michael A. Boyd (6)                                    413,862                 6.23%
53 Forest Avenue
Old Greenwich, Connecticut  06870

Pecks Management Partners Ltd (7)                    1,510,280                19.53%
One Rockefeller Plaza
New York, New York  10020
</TABLE>


(1)  Based upon information  supplied by Mr. Kantor.  Mr. Kantor has sole voting
     and dispositive  power as to the shares indicated  above.  Excludes 440,408
     shares (7.08%) held in trusts  established by Mr. Kantor for the benefit of
     his children and  grandchildren  over which he has no voting or  investment
     power and as to which Mr. Kantor disclaims beneficial ownership.

(2)  Based upon information  supplied by Mr. Garfunkel.  Includes 440,408 shares
     beneficially  owned  by Mr.  Garfunkel  as  trustee  under  various  trusts
     established by Mr. Kantor and referred to in Note (1) above, over which Mr.
     Garfunkel has sole voting and investment power.

(3)  Based upon  information  provided by the  stockholder  and  represents  the
     number  of  shares  of  Common  Stock  into  which  the  shares of Series A
     Cumulative Convertible  Exchangeable  Redeemable Preferred Stock ("Series A
     Preferred Stock") held by such holder are convertible. Each share of Series
     A Preferred  Stock,  which generally does not vote with the Common Stock in
     the election of directors or on other matters,  is convertible into 118.906
     shares of Common Stock.

(4)  Based upon the stockholder's Schedule 13D dated January 21, 1997. Mr. Marks
     has sole  voting  and  dispositive  power  with  respect  to 175,700 of the
     346,100  total shares  indicated  above.  Mr.  Marks has shared  voting and
     dispositive power with respect to the remaining 170,400 shares beneficially
     owned by Nancy A. Marks and the Marks Family Foundations.

(5)  Based upon the  stockholder's  Schedule 13G dated  January 7, 1998.  Credit
     Suisse First Boston has sole voting and  dispositive  power with respect to
     the  shares  indicated  above.  Based  upon  information  provided  by  the
     stockholder,  the shares  indicated above represent the number of shares of
     Common Stock into which the 7-1/2% Convertible  Subordinated Notes due 2004
     (the "Convertible Notes") held by such holder are convertible.  Each $1,000
     unit of Convertible  Notes,  which  generally does not vote with the Common
     Stock in the election of directors or on other matters, is convertible into
     91.575 shares of Common Stock.

(6)  Based upon the  stockholders'  Schedule 13G dated  February  17, 1998,  the
     shares  are  held for the  benefit  of  Forest  Investment  Management  LLC
     ("Forest"),   an  Investment   Advisor,   Founders   Financial  Group  L.P.
     ("Founders"),  in its  capacity as the owner of a  controlling  interest in
     Forest,  (c) Michael A. Boyd,  Inc. ("MAB,  Inc."),  in its capacity as the
     general  partner of Founders and (d) Michael A. Boyd ("Mr.  Boyd"),  in his
     capacity as the sole director and  shareholder of MAB, Inc.  (collectively,
     the "Filing Parties").  The Filing Parties have sole voting and dispositive
     powers as to the shares indicated above. In addition,  the shares indicated
     above  represent the number of shares of Common Stock into which 400 shares
     of  Series A  Preferred  Stock  and 4,000  units of  Convertible  Notes are
     convertible.

(7)  Based upon the  stockholder's  Schedule 13G dated  February  23, 1998,  the
     shares are held in the  investment  advisory  accounts of Pecks  Management
     Partners Ltd.  Therefore,  various persons have the right to receive or the
     power to direct the receipt of dividends from or the proceeds from the sale
     of the shares. The shares indicated above represent the number of shares of
     Common Stock into which 5,000 shares of Series A Preferred Stock and 10,000
     units of Convertible Notes are convertible.

Security Ownership of Management

The  following  table sets forth as of March 9, 1998 (except for shares owned by
Messrs. Davidson,  Kantor, and Mitchell,  through participation in the Company's
401(k) Plan,  which are as of November 30,  1997) the number and  percentage  of
shares of Common Stock owned by the directors of the Company and all nominees as
directors,  each of the executive  officers named in the table under "Summary of
Compensation"  and all  executive  officers  and  directors  as a group.  To the
Company's  knowledge,  the  persons  listed  below  each  have sole  voting  and
investment power as to all shares indicated as owned by them.
<TABLE>
<CAPTION>

                                                                         Number of
Name                                                                   Shares Owned                Percent
----------------------------------------------------------------      -------------                -------
<S>                                                                          <C>                  <C>
Marvin H. Berkeley (i) .........................................             19,200                      *
Stephen D. Davidson (ii) (vii)..................................              1,071                      *
Arthur W. Feinberg (i)..........................................             20,098                      *
George M. Garfunkel (i) (iii)...................................            455,568                  7.31%
Martin E. Kantor (ii) (iv)......................................            708,767                 11.39%
Peter J. Millock (i)............................................              6,000                      *
Patrick J. Mitchell (i) (ii) ...................................             25,634                      *
Patrick H. O'Neill..............................................                  0                      *
Glenn O. Phillips (i)...........................................              8,500                      *
Joseph C. Sibigtroth (i)........................................              9,000                      *
Barry L. Stevens................................................             11,500                      *
James W. Thigpen (viii).........................................                  0                      *
Barth P. Walker (i) (v).........................................             18,379                      *
All executive officers and directors as a group (13) (vi).......          1,283,717                 20.39%
</TABLE>
 .........
*Less than 1%

(i)  The  number of  shares  owned by  Messrs.  Berkeley,  Feinberg,  Garfunkel,
     Millock, Mitchell,  Phillips,  Sibigtroth and Walker includes 7,000, 7,000,
     6,000, 5,000, 25,000, 7,000, 7,000 and 7,000 shares, respectively,  subject
     to stock options granted and  exercisable  within sixty (60) days under the
     Company's stock option plans.

(ii) The  number  of shares  owned by  Messrs.  Davidson,  Kantor  and  Mitchell
     includes  1,071,  6,070 and 534,  respectively,  which  are  owned  through
     participation in the Company's 401(k) plan.

(iii) See Note (2) under "Principal Stockholders."

(iv) See Note (1) under "Principal Stockholders."

(v)  Excludes  270,751 shares  (4.35%) held in trusts  established by Mr. Walker
     for the  benefit of his  children  and  grandchildren  over which he has no
     voting or investment power and as to which Mr. Walker disclaims  beneficial
     ownership.

(vi) The number of shares owned by all executive officers and directors includes
     an aggregate of 71,000 shares (1.13%)  subject to stock options granted and
     exercisable  within sixty (60) days to all executive officers and directors
     as a group under the  Company's  stock  option plans and 7,675 shares owned
     through participation in the Company's 401(k) Plan.

(vii)Mr. Davidson ceased serving as an executive officer on December 1, 1997. As
     such,  the Company is unaware of any  outstanding  common stock held by Mr.
     Davidson as of March 9, 1998,  except for the shares owned by Mr.  Davidson
     through participation in the Company's 401(k) plan. See (ii) above.

(viii) Mr. Thigpen ceased serving as an executive officer on August 18, 1997. As
     such, the Company is unaware of any outstanding common stock held by Mr.
     Thigpen as of March 9, 1998.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities  Exchange Act of 1934, as amended,  requires the
Company's directors and executive officers, and persons who own more than 10% of
the Common  Stock,  to file with the  Securities  and Exchange  Commission  (the
"SEC") and the New York Stock  Exchange,  reports of  ownership  and  changes in
ownership   of   the   Common   Stock.   Directors,   executive   officers   and
greater-than-10%  stock-holders  are required by SEC  regulations to furnish the
Company  with copies of all Section  16(a)  reports  they file.  Based solely on
review  of the  copies of such  reports  furnished  to the  Company  or  written
representations that no other reports were required,  the Company believes that,
during  1997,  all  other  filing  requirements  applicable  to  its  directors,
executive officers and greater-than-10%  stockholders were complied with, except
that  Patrick H.  O'Neill  did not timely  file a Form 3 upon his being named an
executive officer. This Form 3 has subsequently been filed by Mr. O'Neill.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Certain Transactions

On December 13, 1995, Mr. Kantor,  the Chairman of the Board and Chief Executive
Officer of the Company made a $1 million loan to the Company which was evidenced
by a 10% Senior Note due December 22, 2002 (the "Senior  Note").  In  connection
with the loan, Mr. Kantor  received a warrant to purchase  135,501 shares of the
Company's  Common  Stock at an  exercise  price of $7.38 per  share,  subject to
certain adjustments (the "Warrant"). On May 6, 1997, subsequent to the Company's
public  offering  of its $70  million  aggregate  principal  7-1/2%  Convertible
Subordinated  Notes due 2004,  the Company paid Mr. Kantor  approximately  $1.14
million,  representing  principal and accrued  interest,  in order to retire the
Senior Note.

As described in ITEM 11 - EXECUTIVE COMPENSATION - "Employment  Agreements",  on
August 18, 1997, the Company forgave a loan to Mr. Thigpen, former President and
Chief Operating Officer,  in the aggregate amount of $95,500.  This indebtedness
resulted  from certain  interest-free  salary  advances to Mr.  Thigpen over the
course of his tenure as an executive officer of the Company.

                                     PART IV


ITEM 14.  FINANCIAL STATEMENT SCHEDULES, EXHIBITS AND REPORTS ON FORM 8-K

(a)      The documents set forth below are filed as part of this report.

(1)  Financial Statements:

Reference  is made to ITEM 8,  "Index  to  Financial  Statements  and  Financial
Statement Schedules."

(2)  Financial Statement Schedules:

Reference  is made to ITEM 8,  "Index  to  Financial  Statements  and  Financial
Statement Schedules."

All  other  schedules  are  omitted  because  they  are not  applicable,  or not
required,  or because the  required  information  is  included in the  financial
statements or notes thereto.





<PAGE>


(3) Exhibits:

The following  exhibits are filed herewith.  Exhibits  incorporated by reference
are indicated in the parentheses following the description.

3.1  Restated   Certificate  of  Incorporation  of  Westbridge  filed  with  the
     Secretary of State of Delaware on July 28, 1994  (incorporated by reference
     to Exhibit 3.1 to Amendment No. 1 to the Company's  Registration  Statement
     No. 33-81380 on Form S-1).

3.2  By-Laws of  Westbridge,  effective  as of June 24,  1994  (incorporated  by
     reference to Exhibit 3.2 to Amendment No. 1 to the  Company's  Registration
     Statement No. 33-81380 on Form S-1).

4.1  Specimen Certificate for Westbridge Common Stock (incorporated by reference
     to Exhibit 4.1 to Amendment No. 1 to the Company's  Registration  Statement
     No. 2-78200 on Form S-1).

4.2  Indenture  between  Westbridge and Liberty Bank & Trust Company of Oklahoma
     City,  National   Association,   as  Trustee,   including  form  of  Senior
     Subordinated Note  (incorporated by reference to Exhibit 2 to the Company's
     Form 8-A dated July 19, 1995).

Indenture,  dated as of April 24,  1997,  between  Westbridge  and  First  Union
National Bank, as Trustee, relating to the 7-1/2% Convertible Subordinated Notes
due 2004,  including  form of Convertible  Subordinated  Note  (incorporated  by
reference to Exhibit 4.1 to the Company's  Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997).

Underwriters'  Warrant  Agreement,  dated  as of  April  29,  1997,  by an among
Westbridge  Capital  Corp.,  Forum  Capital  Markets  L.P.  and Raymond  James &
Associates,  Inc.,  including  form of Warrant  (incorporated  by  reference  to
Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997).

10.1 Westbridge  Employee Incentive Stock Option Plan (incorporated by reference
     to Exhibit 10.1 to Amendment No. 1 to the Company's  Registration Statement
     No. 2-78200 on Form S-1).

10.2 Description of Cash Bonus Plan  (incorporated by reference to the Company's
     Annual Report on Form 10-K for the year ended December 31, 1988).

10.3 Stockholders'  Agreement  dated April 2, 1988, by and among the Company and
     the other stockholders of LifeStyles  Marketing Group, Inc., named therein,
     as amended  (incorporated  by reference to the  Company's  Annual Report on
     Form 10-K for the year ended December 31, 1988).

10.4 Supplement to General  Agent's  Agreement with Phillip D. Elkins as amended
     on February 8, 1990  (incorporated  by  reference to the  Company's  Annual
     Report on Form 10-K for the year ended December 31, 1990).



<PAGE>


10.5 Assumption  Reinsurance  Agreement,  dated  June  20,  1991,  by and  among
     National  Foundation  Life Insurance  Company and Bankers  Protective  Life
     Insurance Company  (incorporated by reference to Exhibit 2 to the Company's
     Report on Form 8-K dated August 27, 1991).

10.6 Assumption  Reinsurance  Agreement  dated  September 16, 1992, by and among
     National Foundation Life Insurance Company and American Integrity Insurance
     Company  (incorporated  by reference to Exhibit 2 of the Company's  Current
     Report on Form 8-K dated September 25, 1992).

10.7 Westbridge  1992 Stock  Option Plan  (incorporated  by reference to Exhibit
     28.4 to the Company's Registration Statement No. 33-55192 on Form S-8).

10.8 First Amendment to the 1992 Stock Option Plan (incorporated by reference to
     the Company's  Annual  Report on Form 10-K for the year ended  December 31,
     1992).

10.9 Second  Amendment to the 1992 Stock Option Plan  (incorporated by reference
     to Exhibit 10.21 to Amendment No.1 to the Company's  Registration Statement
     No. 33-31830 on Form S-1).

10.10Preferred Stock Purchase Agreement dated as of April 1, 1994 by and between
     Westbridge  Capital Corp. and each of the purchasers named on the signature
     pages thereto  (incorporated  by reference to Exhibit 10.1 to the Company's
     Current Report on Form 8-K dated April 26, 1994).

10.11Westbridge  Capital Corp. 10% Senior Note Due 2002 dated December 22, 1995,
     (incorporated  by reference to the Company's Annual Report on Form 10-K for
     the year ended December 31, 1995).

10.12Warrant to Purchase  Common Stock of  Westbridge  Capital  Corp.  (transfer
     restricted)  dated  December  22, 1995,  (incorporated  by reference to the
     Company's Annual Report on Form 10-K for the year ended December 31, 1995).

Employment  Contract of Martin E. Kantor  (incorporated  by reference to Exhibit
10.1 to the Company's  Quarterly Report on Form 10-Q for the quarter ended March
31, 1996).

10.14Employment  Contract of Patrick J. Mitchell  (incorporated  by reference to
     Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q for the quarter
     ended March 31, 1996).

10.15Master General Agent's Contract by and between American  Insurance  Company
     of Texas and National Farm & Ranch Group, Inc., effective as of the 1st day
     of  September,  1994,  (incorporated  by  reference  to  Exhibit  10.25  to
     Amendment No. 2 to the  Company's  Registration  Statement No.  33-81380 on
     Form S-1, as filed on August 9, 1996).

10.16Master  General  Agent's  Contract  by  and  between   National   Financial
     Insurance  Company and National Farm & Ranch Group,  Inc.,  effective as of
     the 1st day of June,  1995,  (incorporated by reference to Exhibit 10.26 to
     Amendment No. 2 to the  Company's  Registration  Statement No.  33-81380 on
     Form S-1, as filed on August 9, 1996).

10.17Master General  Agent's  Contract by and between  National  Foundation Life
     Insurance  Company and National Farm & Ranch Group,  Inc.,  effective as of
     the 1st day of September, 1994, (incorporated by reference to Exhibit 10.27
     to Amendment No. 2 to the Company's  Registration Statement No. 33-81380 on
     Form S-1, as filed on August 9, 1996).

10.18Master General Agent's Contract by and between American  Insurance  Company
     of Texas and Cornerstone National Marketing  Corporation  effective,  as of
     the 19th day of October, 1994,  (incorporated by reference to Exhibit 10.28
     to Amendment No. 2 to the Company's  Registration Statement No. 33-81380 on
     Form S-1, as filed on August 9, 1996).

10.19Master General Agent's Contract by and between National Financial Insurance
     Company and Cornerstone National Marketing Corporation, effective as of the
     19th day of October,  1994,  (incorporated by reference to Exhibit 10.29 to
     Amendment No. 2 to the Company's Registration Statement No.
     33-81380 on Form S-1, as filed on August 9, 1996).

10.20Master General  Agent's  Contract by and between  National  Foundation Life
     Insurance Company and Cornerstone National Marketing Corporation, effective
     as of the 19th day of October,  1994,  incorporated by reference to Exhibit
     10.30 to Amendment No. 2 to the Company's Registration Statement No.
     33-81380 on Form S-1, as filed on August 9, 1996).

10.21Master  General  Agent's  Contract by and between  Freedom  Life  Insurance
     Company of America and John P. Locke,  d.b.a.  1ST MILLION,  dated the 31st
     day of May, 1996,  (incorporated by reference to Exhibit 10.31 to Amendment
     No. 2 to the Company's  Registration Statement No. 33-81380 on Form S-1, as
     filed on August 9, 1996).

10.22Westbridge  Capital  Corp.  1996  Restricted  Stock Plan  (incorporated  by
     reference  to the  Company's  Proxy  Statement  for the  Annual  Meeting of
     Stockholders of the Company held on May 30, 1996).



<PAGE>


10.23Reinsurance  Agreement between National Foundation Life Insurance Company &
     Freedom  Life  Insurance  Company of  America  and  Reassurance  Company of
     Hannover,  effective  July 1, 1996  (incorporated  by  reference to Exhibit
     10.34 to the Company's  Quarterly Report on Form 10-Q for the quarter ended
     September 30, 1996).

10.24Credit  Agreement  dated  as of June 6,  1997  between  Westbridge  Funding
     Corporation and LaSalle National Bank (incorporated by reference to Exhibit
     10.1 to the Company's  Quarterly  Report on Form 10-Q for the quarter ended
     June 30, 1997).

10.25Guaranty  Agreement dated as of June 6, 1997 by Westbridge Capital Corp. in
     favor of LaSalle  National Bank  (incorporated by reference to Exhibit 10.2
     to the Company's  Quarterly  Report on Form 10-Q for the quarter ended June
     30, 1997).

10.26Pledge  Agreement  dated as of June 6, 1997  between  Westbridge  Marketing
     Corporation and LaSalle National Bank (incorporated by reference to Exhibit
     10.3 to the Company's  Quarterly  Report on Form 10-Q for the quarter ended
     June 30, 1997).

10.27Security  Agreement  dated as of June 6, 1997  between  Westbridge  Funding
     Corporation  for the  benefit of LaSalle  National  Bank  (incorporated  by
     reference to Exhibit 10.4 to the  Company's  Quarterly  Report on Form 10-Q
     for the quarter ended June 30, 1997).

10.28Second Amended and Restated Receivables Purchase and Sale Agreement,  dated
     as of June 6, 1997 between  National  Foundation  Life  Insurance  Company,
     National Financial Insurance Company,  American Insurance Company of Texas,
     Freedom  Life  Insurance  Company  of  America,   and  Westbridge   Funding
     Corporation  (incorporated  by reference  to Exhibit 10.5 to the  Company's
     Quarterly Report on Form 10-Q for the quarter ended June 30, 1997).

10.29Amended and Restated Non-Insurance Company Sellers Receivables Purchase and
     Sale Agreement,  dated as of June 6, 1997 between  American Senior Security
     Plans, L.L.C.,  Freedom Marketing,  Inc., Health Care-One Insurance Agency,
     Health Care-One  Marketing  Group,  Inc.,  LSMG,  Inc.,  Senior Benefits of
     Texas,  Inc.,  and  Westbridge  Marketing   Corporation   (incorporated  by
     reference to Exhibit 10.6 to the  Company's  Quarterly  Report on Form 10-Q
     for the quarter ended June 30, 1997).

10.30* Stock Sale and Purchase  Agreement by and between the other  stockholders
     of LifeStyles Marketing Group, Inc., named therein and Westbridge Marketing
     Corporation dated December 31, 1997.

10.31* Employment Contract of Patrick H. O'Neill.

21.1* List of Subsidiaries of Westbridge Capital Corp.

24.1* Consent of Price Waterhouse LLP

27.1* Financial Data Schedule.


(b)      Report on Form 8-K.

         Westbridge  filed no reports on Form 8-K during the last quarter of the
year covered by this report.




------------------------
*        Filed Herewith.



<PAGE>


                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this report to be signed on its
behalf by the undersigned,  thereunto duly authorized, on the 30th day of March,
1998.

                                                        WESTBRIDGE CAPITAL CORP.

                                                            /s/ Martin E. Kantor
                                                              (Martin E. Kantor,
                                                       Chairman of the Board and
                                                        Chief Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE                             TITLE                                  DATE
-----------------------------------   ------------------------------------   --------------

<S>                                  <C>                                    <C>
/s/ Martin E. Kantor                  Director, Chairman of the Board        March 30, 1998
--------------
(Martin E. Kantor)                    and Chief Executive Officer
                                       (Principal Executive Officer)

/s/ Marvin H. Berkeley                Director                               March 30, 1998
--------------
(Marvin H. Berkeley)

/s/ Arthur S. Feinberg                Director                               March 30, 1998
--------------
(Arthur S. Feinberg)

/s/ George M. Garfunkel               Director                               March 30, 1998
--------------
(George M. Garfunkel)

/s/ Peter J. Millock                  Director                               March 30, 1998
--------------
(Peter J. Millock)

/s/ Patrick J. Mitchell               Director, President, Chief Operating   March 30, 1998
--------------
(Patrick J. Mitchell)                 Officer, Chief Financial Officer and
                                        Treasurer
                                        (Principal Financial and Accounting
                                         Officer)

/s/ Glenn O. Phillips                 Director                               March 30, 1998
--------------
(Glenn O. Phillips)

/s/ Joseph C. Sibigtroth              Director                               March 30, 1998
--------------
(Joseph C. Sibigtroth)

/s/ Barry L. Stevens                  Director                               March 30, 1998
--------------
(Barry L. Stevens)

/s/ Barth P. Walker                   Director                               March 30, 1998
--------------
(Barth P. Walker)
</TABLE>




<PAGE>


                                INDEX OF EXHIBITS




Exhibit
Number   Description of Exhibit

10.28* Stock Sale and Purchase  Agreement by and between the other  stockholders
     of LifeStyles Marketing Group, Inc., named therein and Westbridge Marketing
     Corporation dated December 31, 1997.

10.31* Employment Contract of Patrick H. O'Neill.

21.1* List of Subsidiaries of Westbridge Capital Corp.

24.1* Consent of Price Waterhouse LLP

27.1* Financial Data Schedule.






* Filed Herewith


<PAGE>
                                                                   Exhibit 10.28


-------------------------------------------------------------------------------
STOCK  ACQUISITION  AGREEMENT BY AND BETWEEN CURT DUWE AND WESTBRIDGE  MARKETING
CORPORATION PAGE 6 STOCK SALE AND PURCHASE AGREEMENT

                                 BY AND BETWEEN

                              CURT DUWE, AS SELLER
               AND WESTBRIDGE MARKETING CORPORATION, AS PURCHASER



STATE OF TEXAS             ss.
                                    ss.
COUNTY OF TARRANT ss.


     WHEREAS,  Curt  Duwe  owns 49 shares  of the  capital  stock of  Lifestyles
Marketing  Group,  Inc.,  a  Delaware  corporation,  (hereinafter  "Lifestyles")
represented by Stock Certificate Nos. 11 14, which constitutes  forty-nine (49%)
percent  of all of the  issued  outstanding  shares  of  capital  stock  in such
corporation;

     and WHEREAS,  Westbridge  Marketing  Corporation,  a Delaware  corporation,
(hereinafter  "Westbridge Marketing") owns 51 shares of the remaining issued and
outstanding capital stock of Lifestyles  represented by Stock Certificate No. 6,
which  constitutes  fifty-one (51%) percent of all of the issued and outstanding
shares of capital stock in such corporation;

     and WHEREAS, Westbridge Marketing desires to purchase from Curt Duwe all of
his 49 shares of capital stock in Lifestyles;

     and WHEREAS,  Curt Duwe has agreed to sell all of his 49 shares of stock in
Lifestyles to Westbridge  Marketing for and in  consideration  of the payment of
the sum of $10,000.00,  together with the performance by Westbridge Marketing of
all  of  the  other  conditions,  covenants,  promises,   representations,   and
warranties contained herein.

     NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS that in consideration of the
mutual  promises  of  the  parties;   in  reliance  upon  the   representations,
warranties, covenants, and conditions contained in this Agreement; and for other
good and valuable consideration, the parties agree as follows:

                                    ARTICLE 1
                                      Sale
         1.01 Curt Duwe  agrees to, and does  hereby,  sell,  convey,  transfer,
assign,  and  deliver  to  Westbridge  Marketing  all of the right,  title,  and
interest  in his 49 shares of  capital  stock in  Lifestyles  which  shares  are
represented by Stock Certificate Nos. 11 and 14 and which constitutes forty-nine
(49%) percent of the issued and outstanding  capital stock in such  corporation.
Westbridge Marketing agrees to, and does hereby,  purchase from Curt Duwe all of
his right, title, and interest in such capital stock.
                             Consideration for Sale
         1.02 In consideration of the sale and transfer of Curt Duwe's 49 shares
of capital stock in Lifestyles, represented by Stock Certificate Nos. 11 and 14,
together with the  representations,  warranties,  and covenants of Curt Duwe set
forth in this Agreement, Westbridge Marketing agrees to, and does hereby, pay to
Curt Duwe the sum of $10,000.00,  the receipt and sufficiency of which is hereby
acknowledged and confessed by Curt Duwe.



                                    ARTICLE 2
                   Curt Duwe's Representations and Warranties

     Curt Duwe hereby  represents and warrants to Westbridge  Marketing that the
following facts and  circumstances  are true and correct:  2.01 Curt Duwe is the
sole owner of 49 shares of issued and  outstanding  capital  stock of Lifestyles
represented by Stock  Certificate  Nos. 11 and 14 which  constitutes  forty-nine
(49%) percent of the issued and outstanding stock of such corporation.  No other
person or persons have any claim, right, title,  interest, or lien in, to, or on
all or any part of such shares of stock.

                                    ARTICLE 3

                   Westbridge Marketing's Representations and
                 Warranties Westbridge Marketing represents and
                        warrants to Curt Duwe as follows:

                                    Authority

     3.01 Westbridge Marketing has full power and authority to execute, deliver,
and consummate this Agreement. All corporate acts, reports, and returns required
to be filed by  Westbridge  Marketing any  government or regulatory  agency with
respect to this  transaction have been, or will be properly filed. No provisions
exist  in an  contract,  document,  or  other  instrument  to  which  Westbridge
Marketing is a party,  or by which  Westbridge  Marketing is bound that would be
violated by the consummation of the transactions contemplated by this Agreement.
Organization and Standing of Westbridge Marketing 3.02 Westbridge Marketing is a
corporation  duly organized,  validly  existing,  and in good standing under the
laws of the State of  Delaware,  with its  principal  place of  business in Fort
Worth, Texas, and it possesses  appropriate  corporate power to own property and
carry on its business as it is now being conducted.

                                    ARTICLE 4
                General Provisions Survival of Representations,
                            Warranties, and Covenants

     4.01 The representations,  promises, warranties,  covenants, and conditions
set forth above as  contained  in this  Agreement,  or  contained in any writing
delivered  pursuant to this  Agreement,  shall  survive  beyond the date of this
Agreement.  4.02 All notices that are required or that may be given  pursuant to
the terms of this  Agreement  shall be in writing and shall be sufficient in all
respects  if given in writing  and  delivered  personally  or by  registered  or
certified mail, return receipt requested,  postage pre-paid,  as follows:  If to
Curt Duwe: Curt Duwe 3756 Country Club Circle Fort Worth, Texas 76109


                           If to Westbridge Marketing:

                           Westbridge  Marketing  Corporation  777 Main  Street,
                           Suite 1000 Fort Worth, Texas 76102.

                             Assignment of Agreement

     4.03 This Agreement shall be binding on and inure to the benefit of the
parties to this Agreement and their respective successors and permitted assigns.
This  Agreement  may not,  however,  be assigned by any other party  without the
written  consent of all parties and any  attempt to make an  assignment  without
such consent is void.
                                  Governing Law

     4.04 This  Agreement  shall be  construed  and  governed by the laws of the
State of Texas.  Amendment;  Waiver

     4.05 This Agreement may be amended only in writing by the mutual consent of
all parties,  evidenced by all  necessary  and proper  corporate  authority.  No
waiver  of any  provision  of this  Agreement  shall  arise  from any  action or
inaction of any party,  except an  instrument in writing  expressly  waiving the
provision executed by the party entitled to the benefit of the provision. Entire
Agreement

     4.06 This  Agreement,  together with any  documents  and exhibits  given or
delivered  pursuant to this Agreement,  constitutes the entire agreement between
the parties to this Agreement regarding the stock purchase and sale which is the
subject matter of this Agreement.  No party shall be bound by any  communication
between them on the subject matter of this Agreement unless the communication is
(a) in writing,  (b) bears a date contemporaneous with or subsequent to the date
of this Agreement, and (c) is agreed to by all parties to this Agreement. On the
execution of this Agreement,  all prior agreements or understandings between the
parties shall be null and void.


     As  evidence  of our  acceptance  and  execution  of  this  Agreement,  the
undersigned have affixed their respective  signatures  hereto on this ______ day
of _________________________, 1997.




                                            ------------------------------
                                            Curt Duwe




                                            ------------------------------
                                            Westbridge Marketing Corporation
                                           by its President, Patrick J. Mitchell
<PAGE>
                                                                   Exhibit 10.31




-----------------------------------------------------------------
EMPLOYMENT CONTRACT/PATRICK H. O'NEILL - PAGE 6
                            WESTBRIDGE CAPITAL CORP.

                    EMPLOYMENT CONTRACT OF PATRICK H. O'NEILL


         By  this  Agreement,  Westbridge  Capital  Corp.,  referred  to in this
Agreement as  Employer,  located at 777 Main  Street,  Fort Worth,  Texas 76102,
employs Patrick H. O'Neill,  referred to in this Agreement as Employee,  of 4001
Briarhaven  Court,  Fort  Worth,  Texas  76109,  who accepts  employment  of the
following terms and conditions:


                                    ARTICLE 1

                               TERM OF EMPLOYMENT

         1.01 By this Agreement, Employer employs Employee, and Employee accepts
employment  with  Employer,  commencing on the 22nd of September,  1997,  for an
indefinite term.


                                    ARTICLE 2

                                  COMPENSATION

                               Basic Compensation

         2.01 As  compensation  for all services  rendered under this Agreement,
Employee  shall be paid by Employer a minimum  salary of $225,000 per year which
shall be payable in equal  semi-monthly  installments on the first and fifteenth
days of each month  during the period of  employment.  The amount  paid shall be
prorated for any period of partial employment.

                                Restricted Stock

         2.02 As additional  incentive  compensation  for all services  rendered
under  this  Agreement,   Employee  shall  immediately   receive  on  the  above
commencement  date a  restrictive  stock  award from  Employer  in the amount of
30,000 shares pursuant to the 1996  Restricted  Stock Plan of Employer and which
awarded shares shall have the following vesting schedule during the term of this
Agreement:  10% on its first  anniversary of this  Agreement,  25% on its second
anniversary of this Agreement,  30% on its third  anniversary of this Agreement,
and 35% on its fourth anniversary of this Agreement; provided, however, that any
current shares of restricted  stock hereby awarded shall  immediately  and fully
vest upon the total disability or death of Employee.


                                    ARTICLE 3

                               DUTIES OF EMPLOYEE

         3.01 Employee is employed as Senior Vice President and General  Counsel
and shall work at the office of Employer located at 777 Main Street, Fort Worth,
Texas 76102.  Employee shall perform all duties  commonly  discharged by general
counsel and the heads of company law departments.  Additionally, Employee may be
required to perform  supervisory  duties over other  departments of Employer and
its subsidiaries.

         3.02  Employee  shall  devote  his  entire  productive  time,  ability,
attention,  and  energies to the  business  of Employer  during the term of this
Agreement  with the exception of time  reasonably  required in the winding up of
the current caseload,  current client matters, and other current business of the
Law  Offices of Patrick  H.  O'Neill,  P.C.  Other than  winding up the  current
caseload,  current client matters, and other current business of the Law Offices
of Patrick H. O'Neill,  P.C.,  Employee shall not directly or indirectly  render
any  services of a business,  commercial,  or  professional  nature to any other
person or  organization,  whether  or not for  compensation,  without  the prior
written consent of Employer.


                                    ARTICLE 4

                      EMPLOYEE'S OBLIGATIONS OTHER THAN TO
                                PERFORM SERVICES

                           Non-competition by Employee

         4.01 During the term of this Agreement, Employee shall not, directly or
indirectly,  either  as an  employee,  employer,  consultant,  general  counsel,
attorney,   insurance  agent,  marketer,  general  agent,  principal,   partner,
stockholder,  corporate  officer,  director,  manager  of  a  limited  liability
company,  or in any  other  individual  or  representative  capacity,  engage or
participate in any business that is in  competition,  in any manner  whatsoever,
with the business of Employer, or any of its subsidiaries.


                                    ARTICLE 5

                          EMPLOYEE BENEFITS AND BONUSES

                                    Benefits

         5.01  Employer  agrees to  include  Employee  as a  participant  and/or
recipient in the current insurance benefits program and 401K plan of Employer.

                                     Bonuses

         5.02 In addition to  Employee's  salary  provided in paragraph  2.01 of
this Agreement,  Employer may, in its sole  discretion  choose to pay Employee a
cash bonus at the end of each calendar  year during the term of this  Agreement.
Upon termination of employment, Employee shall not be entitled to any portion of
the bonus for the employment year of termination.

                   Restricted Stock and Stock Option Programs

         5.03 In addition to  Employee's  salary  provided in Paragraph  2.01 of
this Agreement and discretionary  bonuses provided for in Paragraph 5.02 of this
Agreement,  Employer  may,  in its sole  discretion,  choose  to award and allow
Employee to participate in the company's restricted stock and stock option plans
and programs currently in place or hereinafter adopted.


                                    ARTICLE 6

                 REIMBURSEMENT OF EXPENSES INCURRED BY EMPLOYEE

                                Business Expenses

         6.01 Employee is authorized to incur reasonable  business  expenses for
promoting  the business of Employer and  handling its legal  affairs,  including
expenditures  for  entertainment,  gifts,  and travel.  Employer will  reimburse
Employee for all such  reasonable  expenses  upon  Employee's  presentation  and
itemized account of such expenditures.


                                    ARTICLE 7

                           PROPERTY RIGHTS OF PARTIES

                                  Trade Secrets

         7.01 During the term of  employment,  Employee  will have access to and
become  familiar with various trade  secrets,  consisting of formulas,  devices,
secret  inventions,   processes,  and  compilations  of  information,   records,
specifications,  actuarial data, marketing  strategies,  marketing  organization
formations, and marketing organization compensation formulas, owned by Employer,
and/or any of its  subsidiaries,  and  regularly  used in the  operation  of the
business  of  Employer,  and/or  any of its  subsidiaries.  Employee  shall  not
disclose any such trade  secrets,  directly or  indirectly,  nor use them in any
way, either during the term of this Agreement or at any time thereafter,  except
as  required in the course of his  employment.  All files,  records,  documents,
drawings, specifications,  equipment, and similar items relating to the business
of  Employer,  and/or  any of its  subsidiaries,  whether  or  not  prepared  by
Employee,  shall  remain the  exclusive  property of  Employer  and shall not be
removed from the premises of Employer, and/or any of its subsidiaries, under any
circumstances without the prior written consent of Employer.

                          Return of Employer's Property

         7.02  On  the  termination  of  employment  or  whenever  requested  by
Employer,  Employee  shall  immediately  deliver to  Employer  all  property  in
Employee's  possession  or  under  Employee's  control  belonging  to  Employer,
including, but not limited to all marketing records, agents records,  accounting
records,  computer  terminals  and tapes,  accounting  machines,  and all office
furniture and fixtures,  supplies,  and other  personal  property  placed in the
office  of  Employer  at 777 Main  Street,  Fort  Worth,  Texas  76102,  in good
condition, ordinary wear and tear excepted.


                                    ARTICLE 8

                             OBLIGATIONS OF EMPLOYER

                      Indemnification of Losses of Employee

         8.01  Employer  shall  indemnify  Employee for all losses  sustained by
Employee  as a direct  result of the  discharge  of his duties  required by this
Agreement.

                               Working Conditions

         8.02 Employer will provide Employee with a private office, furnishings,
library,  equipment,   services  of  associate  general  counsels,   paralegals,
administrative assistants,  secretarial and stenographic services, and any other
facilities  and services as are suitable to Employee's  position or required for
the  establishment and maintenance of a corporate law department or otherwise in
performance of Employee's duties.


                                    ARTICLE 9

                                   TERMINATION

                           Termination by Either Party

         9.01 This Agreement may be terminated, with or without cause, by either
party by giving  seven  (7) days'  written  notice of  termination  to the other
party.  Such  termination  shall not prejudice  any remedy that the  terminating
party may have at law or in equity under this Agreement.

                Effect of Termination by Employer on Compensation

         9.02 In the event of  termination of this Agreement by Employer for any
reason  except  gross  negligence,  fraud,  theft,  or  actual  and  intentional
dishonesty perpetrated by Employee upon Employer,  Employee shall be entitled to
compensation earned but not paid to Employee prior to the date of termination as
provided in this Agreement,  computed pro rata up to and including that date. In
addition,  provided such termination is for any reason except gross  negligence,
fraud, theft, or actual and intentional  dishonesty perpetrated by Employee upon
Employer, Employee shall be entitled to the following severance payment:

                  The sum of Employee's  then current  annual salary  (excluding
                  any  annual   bonus  paid)   payable  in  equal   semi-monthly
                  installments  on the first and  fifteenth  days of each  month
                  during the year following the month of such termination.

              Effect of Termination by Employer on Restricted Stock

         9.03  Additionally,  upon  termination  of this  Agreement by Employer,
Employee  shall  be  entitled  to  the  immediate  vesting  of  such  additional
percentage  of  non-vested  shares of  restricted  stock as  represented  on the
anniversary date of the otherwise  applicable  vesting schedule through the year
next following the year of such termination.

                Effect of Termination by Employee on Compensation

         9.04 In the  event  of  termination  of  this  Agreement  by  Employee,
Employee  shall be entitled to the salary earned but not paid to Employee  prior
to the date of termination as provided in this  Agreement,  computed pro rata up
to  and  including  that  date.   Employee  shall  be  entitled  to  no  further
compensation  or vesting of restricted  stock or stock options after the date of
such termination.


                                   ARTICLE 10

                               GENERAL PROVISIONS

                                     Notices

         10.01 All notices or other communications required under this Agreement
may be effected  either by personal  delivery in writing or by  certified  mail,
return  receipt  requested.  Notice  shall be  deemed to have  been  given  when
delivered  or mailed to the parties at their  respective  addresses as set forth
above or when mailed to the last address  provided in writing to the other party
by the addressee.

                              Entirety of Agreement

         10.02 This Agreement supersedes all other agreements, either oral or in
writing,  between the parties to this Agreement,  with respect to the employment
of Employee by Employer. This Agreement contains the entire understanding of the
parties and all of the covenants and agreements between the parties with respect
to such employment.

         EXECUTED at Fort Worth, Texas on _____________________, 1997.


                                                     EMPLOYER

                            Westbridge Capital Corp.

                                              By: ______________________________
                                                      Fred E. Crosley, President


                                                                        EMPLOYEE

                                             -----------------------------------
                               Patrick H. O'Neill

<PAGE>

                                  Exhibit 21.1


                    SUBSIDIARIES OF WESTBRIDGE CAPITAL CORP.


        Percentage Subsidiary                                   Ownership

  1     National Foundation Life Insurance Company (Delaware)     100%

  2     American Insurance Company of Texas (Texas)               100%

  3     National Financial Insurance Company (Texas)              100%

  4     Freedom Life Insurance Company of America (Mississippi)   100%

  5     Freedom Holding Company (Kentucky)                        100%

  6     Westbridge Funding Corporation (Delaware)                 100%
             (Formerly National Legal Services Company, Inc.)

  7     Foundation Financial Services, Inc. (Nevada)              100%

  8     Westbridge Marketing Corporation (Delaware)               100%

  9     Westbridge Printing Services, Inc. (Delaware)             100%

10      Flex-Plan Systems, Inc. (Delaware)                        100%

11      Westbridge Financial Corp. (Delaware)                     100%

12      Precision Dialing Services, Inc. (Delaware)               100%

13      Westbridge National Life Insurance Company (Arizona)      100%

14      Senior Benefits, LLC (Arizona)                            100%

15      American Senior Security Plans, LLC (Delaware)            100%

16      Health Care-One Marketing Group, Inc. (Texas)              80%

17      LifeStyles Marketing Group, Inc. (Delaware)               100%

18      Health Care-One Insurance Agency, Inc. (California)        50%




<PAGE>


                                  Exhibit 24.1



                       CONSENT OF INDEPENDENT ACCOUNTANTS


We  hereby  consent  to the  incorporation  by  reference  in this  Registration
Statement  on Form  S-8 (No.  33-55192)  of  Westbridge  Capital  Corp.  and its
subsidiaries  of our report dated March 30,  1998,  appearing on page 35 of this
Form 10-K.






/s/ Price Waterhouse LLP

PRICE WATERHOUSE LLP
Dallas, Texas
March 30, 1998