SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

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

                  For Quarterly Period Ended September 30, 2001

                          Commission File Number 1-8538


                             ASCENT ASSURANCE, INC.
             (Exact name of Registrant as specified in its Charter)

DELAWARE                                                              73-1165000
--------                                                              ----------
(State of Incorporation)                    (I.R.S. Employer Identification No.)

110 West Seventh Street, Suite 300, Fort Worth, Texas                      76102
-----------------------------------------------------                      -----
(Address of Principal Executive Offices)                              (Zip Code)

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

                                       N/A
--------------------------------------------------------------------------------
    (Former Name, Address and Former Fiscal Year, if changed since Last Report)

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 whether the Registrant has filed all reports required to
be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a plan confirmed by a court.

                                    YES X NO

Common Stock - Par Value $.01  6,500,000 Shares Outstanding at November 14, 2001



<PAGE>


                             ASCENT ASSURANCE, INC.
                               INDEX TO FORM 10-Q

<TABLE>


PART 1 - FINANCIAL INFORMATION                                               Page No.
------------------------------                                               --------
<S>                                                                          <C>

Item 1 - Financial Statements

Ascent Assurance, Inc. Condensed Consolidated Balance Sheets at
     September 30, 2001 and December 31, 2000                                     2

Ascent Assurance, Inc. Condensed Consolidated Statements of Operations
     for the Three and Nine Months Ended September 30, 2001 and 2000              3

Ascent Assurance, Inc. Condensed Consolidated Statements of
     Comprehensive Income for the Three and Nine Months Ended September
     30, 2001 and 2000                                                            4

Ascent Assurance, Inc. Condensed Consolidated Statements of Cash Flows
     for the Three and Nine Months Ended September 30, 2001 and 2000              5

Ascent Assurance, Inc. Consolidated Statement of Changes in Stockholders'
     Equity for the Nine Months Ended September 30, 2001                          6

Notes to Condensed Consolidated Financial Statements                              7

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

General                                                                          11

Operating Results                                                                13

Financial Condition                                                              15

Liquidity, Capital Resources and Statutory Capital and Surplus                   18











PART II - OTHER INFORMATION

Item 6 - Exhibits and Reports on Form 8-K                                        21

</TABLE>


<PAGE>


                             ASCENT ASSURANCE, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS


<TABLE>
                                                                             September 30,      December 31,
                                                                                 2001               2000
                                                                              (Unaudited)         (Audited)
                                                                            --------------    ---------------
<S>                                                                       <C>               <C>
                                                                          (in thousands, except per share data)
Assets
Investments:
      Fixed Maturities:
         Available-for-sale, at market value (amortized cost $95,269 and
            $104,081)                                                       $   95,949        $   100,590
      Equity securities, at market (cost $1,432 and $1,365)                      1,493              1,335
      Other investments                                                            396                398
      Short-term investments                                                    15,618              7,254
                                                                            --------------    ---------------
            Total Investments                                                  113,456            109,577

Cash                                                                             2,057              2,658
Accrued investment income                                                        1,598              1,965
Receivables from agents, net of allowance for doubtful accounts of
      $4,124 and $3,711                                                          7,934              8,737
Deferred policy acquisition costs                                               25,820             24,711
Property and equipment, net of accumulated depreciation of $4,033
      and $2,683                                                                 5,672              6,375
Other assets                                                                     6,902              6,455
                                                                            --------------    ---------------
            Total Assets                                                    $  163,439        $   160,478
                                                                            ==============    ===============

Liabilities, Preferred Stock and Stockholders' Equity
Liabilities:
      Policy liabilities and accruals:
         Future policy benefits                                             $   61,125        $    61,306
         Claim reserves                                                         36,283             42,778
                                                                            --------------    ---------------
            Total Policy Liabilities and Accruals                               97,408            104,084

Accounts payable and other liabilities                                          12,216             15,667
Notes payable                                                                   19,067              8,947
                                                                            --------------    ---------------
            Total Liabilities                                                  128,691            128,698
                                                                            --------------    ---------------

Redeemable Convertible Preferred Stock                                          29,870             27,705
                                                                            --------------    ---------------

Stockholders' Equity:
      Common stock ($.01 par value, 30,000,000 shares authorized;
         6,500,000 shares issued)                                                   65                 65
      Capital in excess of par value                                            27,897             27,620
      Accumulated other comprehensive income (loss), net of tax                    741             (2,324)
      Retained deficit                                                         (23,825)           (21,286)
                                                                            --------------    ---------------
            Total Stockholders' Equity                                           4,878              4,075
                                                                            --------------    ---------------

            Total Liabilities, Redeemable Convertible Preferred Stock
            And Stockholders' Equity                                        $  163,439        $   160,478
                                                                            ==============    ===============
</TABLE>

        See the Notes to the Condensed Consolidated Financial Statements.


<PAGE>


                             ASCENT ASSURANCE, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)


<TABLE>
                                                             Three Months Ended                 Nine Months Ended
                                                               September 30,                      September 30,
                                                     ------------------------------     --------------------------------
                                                         2001              2000              2001              2000
                                                     ------------     -------------     -------------     --------------
                                                                   (in thousands, except per share data)
<S>                                                  <C>              <C>               <C>               <C>
Revenues:
      Premiums:
         First-year                                  $   7,176        $    8,419        $   23,544        $   22,358
         Renewal                                        24,496            22,412            72,043            66,706
                                                     ------------     -------------     -------------     --------------
         Total premiums                                 31,672            30,831            95,587            89,064

      Net investment income                              2,186             2,626             6,802             6,970
      Fee, service and other income                      4,852             5,207            15,822            15,397
      Net realized gain (loss) on investments              211                28               306              (209)
                                                     ------------     -------------     -------------     --------------
         Total revenue                                  38,921            38,692           118,517           111,222
                                                     ------------     -------------     -------------     --------------


Benefits, claims and expenses:
      Benefits and claims                               22,392            24,516            71,767            71,160
      Decrease (increase) in deferred
         acquisition costs                               1,118            (1,955)           (1,109)           (5,893)
      Commissions                                        5,031             6,512            16,532            18,802
      General and administrative expenses                8,310             9,379            28,063            26,148
      Taxes, licenses and fees                           1,186             1,235             3,539             3,939
      Interest expense on notes payable                    640               198             1,296               435
                                                     ------------     -------------     -------------     --------------
         Total expenses                                 38,677            39,885           120,088           114,591

Income (loss) before income taxes                          244            (1,193)           (1,571)           (3,369)
Federal income tax benefit                                   -               406                 -             1,146
                                                     ------------     -------------     -------------     --------------

         Net income (loss)                           $     244        $     (787)       $   (1,571)       $   (2,223)

Preferred stock dividends                                  746               651             2,166             1,953
                                                     ------------     -------------     -------------     --------------
Loss applicable to common stockholders               $    (502)       $   (1,438)       $   (3,737)       $   (4,176)
                                                     ============     =============     =============     ==============

Basic and diluted loss per common share              $    (.08)       $     (.22)       $     (.57)       $     (.64)
                                                     ============     =============     =============     ==============

Weighted average shares outstanding:
      Basic                                              6,500             6,500             6,500             6,500
                                                     ============     =============     =============     ==============
      Diluted                                            6,500             6,500             6,500             6,500
                                                     ============     =============     =============     ==============

</TABLE>

        See the Notes to the Condensed Consolidated Financial Statements.


<PAGE>



                             ASCENT ASSURANCE, INC.
            CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                   (Unaudited)
<TABLE>

                                                           Three Months Ended                  Nine Months Ended
                                                             September 30,                       September 30,
                                                      ----------------------------     -------------------------------
                                                           2001             2000            2001             2000
                                                      ------------     -----------     -------------     -------------
                                                                                          (in thousands)
<S>                                                   <C>              <C>             <C>               <C>

Net income (loss)                                     $     244        $   (787)       $   (1,571)       $  (2,223)
Other comprehensive income (loss):
       Unrealized holding gain arising during
          period, net of tax                              2,512             997             3,371              321
       Reclassification adjustment of (gain) loss
          on sales of investments included in
          net income, net of tax                           (211)            (18)             (306)             138
                                                      ------------     -----------     -------------     -------------

Comprehensive income (loss)                           $   2,545        $    192        $    1,494        $  (1,764)
                                                      ============     ===========     =============     =============

</TABLE>

        See the Notes to the Condensed Consolidated Financial Statements.


<PAGE>


                             ASCENT ASSURANCE, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>

                                                              Three Months Ended                 Nine Months Ended
                                                                 September 30,                     September 30,
                                                        -----------------------------     --------------------------------
                                                             2001             2000             2001              2000
                                                        ------------     ------------     -------------     --------------
                                                                                (in thousands)
<S>                                                     <C>              <C>              <C>               <C>
Cash Flow From Operating Activities:

Net income (loss)                                       $     244        $    (787)       $   (1,571)       $   (2,223)
      Adjustments to reconcile net income to cash
      provided by (used for) operating activities
         Decrease in accrued investment income                250              203               367               210
         Decrease (increase) in deferred
            acquisition costs                               1,118           (1,955)           (1,109)           (5,893)
         Decrease (increase) in receivables from
            agents                                            420             (595)              803            (1,360)
         Decrease (increase) in other assets                  467              994              (447)              165
         (Decrease) increase in policy liabilities
            and accruals                                   (1,836)          (1,922)           (6,676)            8,056
         (Decrease) increase in accounts payable
            and other liabilities                          (1,372)           5,856            (3,451)            6,759
         Decrease (increase) in deferred income
            taxes, net                                          -              118                 -              (831)
         Other, net                                           921             (726)            2,820             1,275
                                                        ------------     ------------     -------------     --------------
      Net Cash Provided By (Used For) Operating
         Activities                                           212            1,186            (9,264)            6,158
                                                        ------------     ------------     -------------     --------------

Cash Flow From Investing Activities:

      Purchases of fixed maturity investments              (2,941)         (10,369)          (15,939)          (19,375)
      Sales of fixed maturity investments                   6,083            6,433            19,491            10,147
      Maturities and calls of fixed maturity
         investments                                        2,517            1,285             5,161             3,283
      Purchases of equity securities                         (368)               -              (368)                -
      Sales of equity securities                              301                -               301                 -
      Net (increase) decrease in short term and
         other investments                                 (3,040)           3,308            (8,362)             (603)
      Property and equipment purchased                       (168)            (326)             (648)           (1,146)
                                                        ------------     ------------     -------------     --------------
      Net Cash Provided By (Used For) Investing
         Activities                                         2,384              331              (364)           (7,694)
                                                        ------------     ------------     -------------     --------------

Cash Flow From Financing Activities:

      Issuance of notes payable                                 -              974            11,305             2,862
      Repayment of notes payable                           (1,361)             (93)           (1,811)             (373)
      Deferred debt costs                                    (120)               -              (467)                -
                                                        ------------     ------------     -------------     --------------
      Net Cash (Used For) Provided By
         Financing Activities                              (1,481)             881             9,027             2,489
                                                        ------------     ------------     -------------     --------------

      Increase (Decrease) In Cash During Period             1,115            2,398              (601)              953
      Cash At Beginning Of Period                             942            3,665             2,658             5,110
                                                        ------------     ------------     -------------     --------------
      Cash At End Of Period                             $   2,057        $   6,063        $    2,057        $    6,063
                                                        ============     ============     =============     ==============
</TABLE>

        See the Notes to the Condensed Consolidated Financial Statements.


<PAGE>


                             ASCENT ASSURANCE, INC.
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                   (Unaudited)
                        (in thousands, except share data)
<TABLE>



                                                                                    Accumulated
                                                                      Capital          Other           Retained         Total
                                               Common Stock          in Excess     Comprehensive       (Deficit)     Stockholders'
                                            Shares      Amount     of Par Value     (Loss) Gain        Earnings         Equity
                                            ------      ------     ------------     -----------        --------         ------
<S>                                        <C>          <C>        <C>              <C>                <C>             <C>

Balance at December 31, 2000               6,500,000     $  65      $  27,620        $ (2,324)         $ (21,286)      $   4,075

  Net loss                                                                                                (1,571)         (1,571)
  Preferred Stock dividend                                                                                (2,166)         (2,166)
  Other comprehensive gain, net of tax                                                  3,065              1,198           4,263
  Amortization of unearned compensation                                   277                                                277
                                           ------------- -------    ------------     ----------        ----------     ------------
Balance at September 30, 2001              6,500,000     $  65      $  27,897        $    741          $ (23,825)      $   4,878
                                           ============= =======    ============     ==========        ==========     ============



</TABLE>


        See the Notes to the Condensed Consolidated Financial Statements.

<PAGE>


                             ASCENT ASSURANCE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


NOTE 1 - DESCRIPTION OF BUSINESS

Ascent Assurance,  Inc. ("Ascent"),  a Delaware company incorporated in 1982, 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.

The  Company's  revenues  result  primarily  from  premiums  and  fees  from the
insurance  products sold by its wholly owned  subsidiaries  National  Foundation
Life  Insurance  Company  ("NFL"),  Freedom  Life  Insurance  Company of America
("FLICA"),  National Financial Insurance Company ("NFIC") and American Insurance
Company of Texas ("AICT",  and together with NFL, NFIC and FLICA,  collectively,
the "Insurance  Subsidiaries") and marketed by NationalCare(R)  Marketing,  Inc.
("NCM"), also a wholly owned subsidiary.  To a lesser extent the Company derives
revenue from (i)  telemarketing  services,  (ii)  printing  services,  and (iii)
renewal commissions for prior year sales of unaffiliated insurance products.

NOTE 2 - ACCOUNTING PRINCIPLES

Basis  of  Presentation.   The  accompanying  unaudited  condensed  consolidated
financial  statements of the Company have been  prepared in accordance  with the
instructions  to Form 10-Q and Rule 10-01 of  Regulation  S-X and do not include
all of the information and footnotes required by accounting principles generally
accepted  in the United  States  ("GAAP")  for  complete  financial  statements.
Financial  statements  prepared  in  accordance  with  GAAP  require  the use of
management estimates. In the opinion of management,  all adjustments (consisting
of normal recurring accruals)  considered necessary for a fair presentation have
been included. Certain reclassifications have been made to 2000 amounts in order
to  conform  to  the  2001  financial  statement  presentation.   The  financial
statements  should  be read  in  conjunction  with  the  consolidated  financial
statements  and notes thereto  included in the  Company's  Annual Report on Form
10-K for the year ended December 31, 2000.

Future Policy Benefits.  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,   withdrawals,
persistency  and  other  assumptions  which  were  appropriate  at the  time the
policies were issued.  Assumptions used are based on the Company's experience as
adjusted to provide for possible adverse deviation.  Generally,  these actuarial
assumptions are fixed and, absent material adverse benefit  experience,  are not
adjusted.

Claim  Reserves.  Claim reserves  represent the estimated  liabilities on claims
reported plus claims  incurred but not yet  reported.  The process of estimating
claim  reserves  involves  the active  participation  of  experienced  actuarial
consultants with input from the underwriting,  claims, and finance  departments.
The  inherent  uncertainty  in  estimating  claim  reserves  is  increased  when
significant  changes  occur.  Examples of such changes  include:  (1) changes in
economic  conditions;  (2)  changes  in state or federal  laws and  regulations,
particularly  insurance reform measures;  (3) changes in production  sources for
existing lines of business;  (4) writings of significant  blocks of new business
and (5)  significant  changes  in claims  payment  patterns.  As a result of the
implementation  of a new claims  administration  system in May 2000, the Company
experienced significant changes in its claims payment patterns. During 2001, the
Company's claims payment patterns  accelerated,  which resulted in a significant
reduction in pending  claims  inventory at  September  30, 2001 from  historical
levels. This significant change in the claims payment patterns has increased the
inherent  uncertainty in estimating  claim reserves.  Because claim reserves are
estimates,  management  monitors  reserve  adequacy  over time,  evaluating  new
information as it becomes  available and adjusting  claim reserves as necessary.
Such adjustments are reflected in current operations.

Federal  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.  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.

As of September 30, 2001,  the Company has reported  cumulative  pre-tax  losses
since  March  31,  1999,   the  date  it  emerged  from  Chapter  11  bankruptcy
proceedings.  Realization of the Company's  deferred tax asset is dependent upon
the return of the Company's  operations to profitability.  Pre-tax losses during
2000 and the first nine months of 2001 were principally  attributable to adverse
claims experience for certain major medical products.  Management  believes that
such  product  losses  can be  significantly  reduced  through  aggressive  rate
increase   management.   However,   projections  of  future   profitability  are
significantly  discounted  when  evaluating the  recoverability  of deferred tax
assets and do not  overcome  the negative  evidence of  cumulative  losses under
GAAP.  Accordingly,  the Company has increased its deferred tax asset  valuation
allowance  to fully  reserve all net deferred tax assets as of December 31, 2000
and September 30, 2001.

Earnings  Per Share.  Under GAAP there are two  measures of earnings  per share:
"basic earnings per share" and "diluted earnings per share".  Basic earnings per
share is computed by dividing  income  applicable 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.
Diluted weighted shares exclude all convertible securities for loss periods.

The following table reflects the calculation of basic and diluted EPS:
<TABLE>

                                               Three Months Ended               Nine Months Ended
                                                 September 30,                    September 30,
                                           ---------------------------    ----------------------------
                                              2001             2000            2001           2000
                                           ----------     ------------    ------------    ------------
                                                (amounts in thousands, except per share amounts)
<S>                                        <C>            <C>             <C>             <C>
Net income (loss)                          $   244        $    (787)      $  (1,571)      $  (2,223)
Preferred stock dividends                     (746)            (651)         (2,166)         (1,953)
                                           ----------     ------------    ------------    ------------
Loss applicable to common shareholders     $  (502)       $  (1,438)      $  (3,737)      $  (4,176)
                                           ==========     ============    ============    ============
Weighted average shares outstanding:
  Basic                                      6,500            6,500           6,500           6,500
  Diluted                                    6,500            6,500           6,500           6,500
Basic and diluted loss per share           $  (.08)       $    (.22)      $    (.57)      $    (.64)
                                           ==========     ============    ============    ============
</TABLE>


NOTE 3 - PREFERRED STOCK

Dividends  on the  Company's  preferred  stock are  payable  in cash or  through
issuance of additional  shares of preferred stock, at the Company's  option.  On
September 30, 2001,  preferred stock  dividends  accrued in the third quarter of
2001 were paid through the issuance of 746 shares of preferred  stock and a $302
distribution of cash.

NOTE 4 - COMMITMENTS AND CONTINGENCIES

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.

NOTE 5 - IMPLEMENTATION OF NEW ACCOUNTING PRONOUNCEMENTS

In 1998, the National  Association of Insurance  Commissioners  ("NAIC") adopted
the Codification of Statutory Accounting Principles guidance, which replaced the
Accounting  Practices and Procedures  manual as the NAIC's  primary  guidance on
statutory  accounting.  The  Codification  provides  guidance  for  areas  where
statutory accounting has been silent and changes current statutory accounting in
certain  areas.  The  Insurance  Department  of the  State  of  Domicile  of the
Company's Insurance  Subsidiaries has adopted the Codification effective January
1, 2001.  Codification  guidance did not materially  impact statutory surplus of
the Company's Insurance Subsidiaries.

In June  1998,  the  FASB  issued  SFAS  No.  133,  "Accounting  for  Derivative
Instruments and Hedging  Activities" ("SFAS 133"). This statement (as amended by
SFAS No. 137,  "Accounting for Derivative  Instruments  and Hedging  Activities,
Deferral of the  Effective  Date of SFAS No. 133, an amendment of SFAS No. 133")
is effective for fiscal years beginning  after June 15, 2000. The  pronouncement
established  accounting  and  reporting  standards for  derivative  instruments,
including  certain  derivative  instruments  embedded in other contracts and for
hedging activities. As the Company has not participated in derivative or hedging
activities, the Company's financial statements are not affected by SFAS 133.

In March 2000,  the FASB  issued FASB  Interpretation  No. 44,  "Accounting  for
Certain  Transactions  Involving Stock  Compensation - an  interpretation of APB
Opinion No. 25" ("FIN 44").  The Company  adopted FIN 44 on a prospective  basis
effective July 1, 2000. The adoption of FIN 44 did not have a material impact on
the Company's results of operations, liquidity or financial position.

In June 2001,  the FASB  issued  SFAS No. 141,  "Business  Combinations"  ("SFAS
141").  This statement  supercedes APB Opinion No. 16, "Business  Combinations",
and FASB  Statement No. 38,  "Accounting  for  Preacquisition  Contingencies  of
Purchased  Enterprises",  and establishes accounting and reporting standards for
business  combinations.  Under the statement,  all business  combinations in the
scope of the statement  are to be accounted  for using one method,  the purchase
method.  The  provisions  of the  statement  apply to all business  combinations
initiated  after  June  30,  2001.  As the  Company  has not  been a part of any
business  combinations   initiated  after  the  effective  date,  the  Company's
financial statements are not affected by SFAS 141.

In June 2001,  the FASB  issued  SFAS No. 142,  "Goodwill  and Other  Intangible
Assets"  ("SFAS 142").  The  statement is effective  for fiscal years  beginning
after  December 15, 2001 and will require  intangible  assets as defined in SFAS
No. 141 to be  reclassified  into  goodwill,  cessation of the  amortization  of
goodwill  and the testing for  impairment  of goodwill at  transition  and on an
annual basis or more  frequently if the  occurrence of an event or  circumstance
indicates an impairment. The Company will adopt SFAS 142 on January 1, 2002. The
Company does not expect the adoption of the statement to  materially  impact the
Company's results of operations and financial position.



<PAGE>


                             ASCENT ASSURANCE, INC.
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


GENERAL

The following discussion provides management's assessment of financial condition
at September 30, 2001 as compared to December 31, 2000 and results of operations
for the three and nine  months  ended  September  30,  2001 as  compared  to the
comparable  2000  periods  for  the  Company.   This   discussion   updates  the
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations"  in the  Company's  2000  Report on Form 10-K and  should be read in
conjunction therewith.

Business  Overview.  The Company's  revenues result  primarily from premiums and
fees from the insurance products sold by its wholly owned subsidiaries  National
Foundation Life Insurance  Company  ("NFL"),  Freedom Life Insurance  Company of
America ("FLICA"),  National  Financial  Insurance Company ("NFIC") and American
Insurance  Company of Texas  ("AICT",  and  together  with NFL,  NFIC and FLICA,
collectively,  the  "Insurance  Subsidiaries")  and marketed by  NationalCare(R)
Marketing,  Inc. ("NCM"), also a wholly owned subsidiary. To a lesser extent the
Company derives revenue from (i) telemarketing services, (ii) printing services,
and (iii) renewal  commissions  for prior year sales of  unaffiliated  insurance
products.

The  Company's  operations  are  comprised of one  segment,  Accident and Health
insurance.  The principal products currently marketed by NCM and underwritten by
the Insurance  Subsidiaries are medical expense  reimbursement  policies.  These
products are designed with flexibility as to benefits, deductibles,  coinsurance
and premium payments, which can be adapted to meet regional sales or competitive
needs, as well as those of the individual  policyholders.  The principal product
groups currently  underwritten by the Insurance  Subsidiaries are  comprehensive
major  medical   products,   hospital/surgical   major   medical   products  and
supplemental specified disease products:

o    Comprehensive  major medical  products are generally  designed to reimburse
     insureds for eligible expenses incurred for hospital confinement,  surgical
     expenses,   physician  services,   outpatient  services  and  the  cost  of
     medicines.

o    Hospital/surgical major medical products are similar to comprehensive major
     medical  products  except that  benefits  are limited to  hospital/surgical
     services   (services  such  as  routine  well  care  physician  visits  and
     prescription drugs are excluded) and deductibles and coinsurance provisions
     are generally higher.

o    Supplemental  specified  disease  products include  indemnity  policies for
     hospital  confinement  and  convalescent  care for  treatment  of specified
     diseases and "event  specific"  policies,  which provide fixed  benefits or
     lump sum payments  upon  diagnosis of certain  types of internal  cancer or
     other catastrophic diseases.

Prior to 1998, the Insurance  Subsidiaries also underwrote  Medicare  Supplement
products  designed to provide  reimbursement for certain expenses not covered by
the Medicare program. The Insurance Subsidiaries continue to receive premiums on
Medicare Supplement policies sold prior to that date.

Forward-Looking Statements.  Statements contained in this analysis and elsewhere
in  this   document   that  are  not  based  on   historical   information   are
forward-looking statements and are based on management's projections,  estimates
and  assumptions.  Management  cautions  readers  regarding its  forward-looking
statements.  The Private  Securities  Litigation  Reform Act of 1995  provides a
"safe harbor" for forward-looking  statements.  Various statements  contained in
the  Management's  Discussion and Analysis of Results of Operation and Financial
Condition, are forward-looking statements.  These forward-looking statements are
based on the intent,  belief or current  expectations of the Company and members
of its senior  management team. While the Company believes that its expectations
are based on  reasonable  assumptions  within the bounds of its knowledge of its
business and  operations,  prospective  investors  are  cautioned  that any such
forward-looking statements are not guarantees of future performance, and involve
risks and  uncertainties,  and that actual  results may differ  materially  from
those contemplated by such forward-looking  statements.  Important factors known
to management  that could cause actual results to differ  materially  from those
contemplated by the forward-looking  statements in this Report include,  but are
not limited to:

o    further  adverse  claims  experience  in  excess  of  management's  current
     expectations or other events  adversely  impacting the Company's  liquidity
     position,

o    actions that may be taken by insurance regulatory authorities,

o    adverse  developments  in the timing or results  of the  Company's  current
     strategic  business plan to return operations to profitability by improving
     claims experience and reducing overhead expenses,

o    the loss of key personnel,

o    and the  effect of  changing  economic  and market  conditions,  especially
     medical expense inflation and health care reform initiatives.

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 Report and those in the Company's  reports  previously  filed
with the SEC.  Copies of these filings may be obtained by contacting the Company
or the SEC.


<PAGE>


OPERATING RESULTS

Results of  operations  for Ascent are  reported  for the three and nine  months
ended  September 30, 2001 and 2000.  (In thousands  except  insurance  operating
ratios.)

<TABLE>
                                                     Three Months Ended                   Nine Months Ended
                                                        September 30,                       September 30,
                                                 ------------------------------     ------------------------------
                                                      2001             2000            2001             2000
                                                 ------------      ------------     ------------     -------------
<S>                                              <C>               <C>              <C>              <C>

Premiums                                         $  31,672         $  30,831        $  95,587        $   89,064
Other                                                  788               960            2,659             2,455
                                                 ------------      ------------     ------------     -------------
Total insurance operating revenue                   32,460            31,791           98,246            91,519
                                                 ------------      ------------     ------------     -------------

Benefits and claims                                 22,392            24,516           71,767            71,160
Commissions                                          4,219             4,965           13,770            13,823
Decrease (increase) in deferred
      acquisition costs                              1,118            (1,955)          (1,109)           (5,893)
General and administrative expense                   5,529             7,542           19,434            20,756
Taxes, licenses and fees                             1,076               988            3,119             3,448
                                                 ------------      ------------     ------------     -------------

Total insurance operating expenses                  34,334            36,056          106,981           103,294

                                                 ------------      ------------     ------------     -------------
      Insurance Operating Results                   (1,874)           (4,265)          (8,735)          (11,775)
                                                 ------------      ------------     ------------     -------------

Fee and service income                               4,064             4,247           13,163            12,942
Fee and service expenses                            (3,703)           (3,631)         (11,811)          (10,862)
                                                 ------------      ------------     ------------     -------------

      Fee and Service Results                          361               616            1,352             2,080
                                                 ------------      ------------     ------------     -------------

Net investment income                                2,186             2,626            6,802             6,970
Net realized gain on investments                       211                28              306              (209)
Interest expense on notes payable                     (640)             (198)          (1,296)             (435)
                                                 ------------      ------------     ------------     -------------

      Income (loss) Before Income Taxes                244            (1,193)          (1,571)           (3,369)

Income tax benefit                                       -               406                -             1,146
                                                 ------------      ------------     ------------     -------------

      Net Income (Loss)                          $     244         $    (787)       $  (1,571)       $   (2,223)
                                                 ============      ============     ============     =============

Insurance operating ratios*
      Benefits and claims                             70.7%             79.5%            75.1%             79.9%
      Commissions                                     13.3%             16.1%            14.4%             15.5%
      Decrease (increase) in deferred
         acquisition costs                             3.5%             (6.3)%           (1.2)%            (6.6)%
      General and administrative expenses             17.0%             23.7%            19.8%             22.7%
      Taxes, licenses and fees                         3.4%              3.2%             3.3%              3.9%
</TABLE>



*Ratios are calculated as a percent of premium with the exception of the general
     and administrative expense ratio which is calculated as a percent of total
     insurance operating revenue.


<PAGE>


Overview. For the third quarter of 2001, income before income taxes was $244,000
compared to a loss before  income  taxes of $1.2  million for the  corresponding
2000 period. The $1.4 million improvement in pre-tax income resulted principally
from a  decrease  in  losses  from the  Group  Preferred  Provider  Organization
("GPPO")  product,  the principal major medical  product  marketed by FLICA from
1998 to July  2000,  due to rate  increases  implemented  during  2001  for this
product. In addition,  general and administrative expenses for the third quarter
of  2000   included   $650,000  of   non-recurring   expenses   related  to  the
implementation in May 2000, of the Company's new policy  administration and data
processing  systems.  The Company's  insurance  operations  were not  materially
impacted by the terrorist attacks of September 11, 2001. However,  the Company's
telemarketing  and  printing  subsidiaries  experienced  a decline in demand for
their products and services that is expected to be temporary.

For the first nine months of 2001,  the pre-tax loss was $1.6 million,  compared
to a pre-tax loss of $3.4 million for the nine months ended  September 30, 2000.
Pre-tax  operating losses for both  year-to-date  2001 and 2000 were principally
attributable  to losses from the GPPO  product  that  resulted  from higher than
expected claims frequency.  Consequently, FLICA has required significant capital
contributions  during 2001 and 2000 to comply with statutory capital and surplus
requirements.  Adverse  claims  experience  for the GPPO  product  in  excess of
management's  current  expectations  would  have a  material  adverse  impact on
FLICA's ability to meet minimum statutory  capital and surplus  requirements and
maintain its new business production at current levels (see "Liquidity,  Capital
Resources and Statutory Capital and Surplus").

Since July 2000, the Company has been successfully marketing a new major medical
policy in all significant  marketing  regions.  This new product was designed to
produce a substantially  lower benefits and claims to premium ratio than the old
GPPO product. At September 30, 2001, the new major medical product comprised 45%
of in force major medical  products as compared to 14% at December 31, 2000. The
Company's  ability  to  continue  marketing  its new major  medical  product  is
dependent  upon the  financing  of  commission  advances  made to agents for new
business production (see "Liquidity, Capital Resources and Statutory Capital and
Surplus").

The following narratives discuss the principal components of insurance operating
results.

Premiums.  Premium  revenue,  in  thousands,  for each major product line is set
forth below:
<TABLE>

                                         Three Months Ended                    Nine Months Ended
                                            September 30,                        September 30,
                                   --------------------------------     -------------------------------
                                       2001               2000              2001              2000
                                   -------------      -------------     -------------     -------------
<S>                                <C>                <C>               <C>               <C>
Major medical:
      First-year                   $    6,683         $    7,158        $   22,059        $   20,005
      Renewal                          13,394             10,301            37,377            27,609
                                   -------------      -------------     -------------     -------------
         Subtotal                      20,077             17,459            59,436            47,614
                                   -------------      -------------     -------------     -------------

Supplemental specified disease:
      First-year                          271                325               855             1,051
      Renewal                           5,794              6,573            17,837            19,867
                                   -------------      -------------     -------------     -------------
         Subtotal                       6,065              6,898            18,692            20,918
                                   -------------      -------------     -------------     -------------

Medicare supplement:
      First-year                            -                  -                 -                 -
      Renewal                           4,945              5,330            15,536            18,404
                                   -------------      -------------     -------------     -------------
         Subtotal                       4,945              5,330            15,536            18,404
                                   -------------      -------------     -------------     -------------

Other                                     585              1,144             1,923             2,128
                                   -------------      -------------     -------------     -------------
Consolidated Premium Revenue       $   31,672         $   30,831        $   95,587        $   89,064
                                   =============      =============     =============     =============
</TABLE>

Total premiums  increased by $841,000,  or 3%, for the third quarter of 2001 and
$6.5  million,  or  7%,  for  the  nine  months  of  2001  as  compared  to  the
corresponding 2000 periods. Premium revenue increased as new business production
and rate increases for the GPPO and other products  offset the expected  decline
in renewal  premiums  from  lapsation  of in force  business.  As the Company is
principally  marketing major medical  products,  the percentage of major medical
premiums to total  premiums  increased to 63% for the third quarter of 2001 from
56% for the  corresponding  prior  period.  Premiums from the GPPO major medical
product,  for which  marketing was  discontinued in July 2000, were $8.8 million
and $29.1  million  for the three  and nine  months  ended  September  30,  2001
compared to $11.1 million and $26.3 million for the corresponding  2000 periods.
Premiums for the new major medical product, which the Company began marketing in
July 2000,  were $5.6  million  and $13.0  million for the three and nine months
ended September 30, 2001.

Benefits and Claims.  Benefits and claims are comprised of (1) claims paid,  (2)
changes in the claim reserves for claims incurred (whether or not reported), and
(3) changes in future policy benefit reserves.  The ratio of benefits and claims
to  premiums  decreased  by 8.8% for the third  quarter of 2001  compared to the
third  quarter of 2000 due  primarily to declining  losses from the GPPO product
attributable  to lower overall  premium volume and a lower loss ratio  resulting
from premium rate increases. Despite the improvement for the third quarter 2001,
incurred  benefit  and  claims  experience  for the GPPO major  medical  product
remains  significantly  higher  than  pricing  assumptions  due to  higher  than
expected claims frequency. Additional adverse claims experience for the old GPPO
product in excess of  management's  current  expectations  could have a material
adverse impact on FLICA's ability to meet minimum  statutory capital and surplus
requirements  (See  "Liquidity,  Capital,  Resources and  Statutory  Capital and
Surplus").

Interest   Expense.   Interest   expense   increased   $442,000  and   $861,000,
respectively, for the three and nine months ended September 30, 2001 compared to
the  comparable  2000 periods due to the $11 million debt  financing from Credit
Suisse First Boston  Management  Corporation  obtained in April,  2001.  For the
three months and nine months ended  September  30,  2001,  the interest  expense
related to the $11 million  financing was $514,000 and  $813,000,  respectively,
including  $349,000  and  $627,000  of  interest  paid in kind  by  issuance  of
additional notes.

FINANCIAL CONDITION

Investments.  The  following  table  summarizes  the  Company's  fixed  maturity
securities, excluding short-term investments and certificates of deposit. All of
the Company's fixed maturity securities are classified as available-for-sale and
are carried at estimated  market value.  Estimated  market value  represents the
closing  sales  prices  of  marketable  securities.   Investments  in  the  debt
securities of corporations are principally in publicly traded bonds.


<PAGE>


<TABLE>

                                                  September 30, 2001               December 31, 2000
                                              ---------------------------    -----------------------------
                                               Market                          Market
Fixed Maturity Securities                      Value               %           Value               %
-----------------------------------------     --------------  -----------    --------------    -----------
                                              (in thousands)                 (in thousands)
<S>                                           <C>             <C>            <C>               <C>
U.S. Government and governmental
     agencies and authorities (except
     mortgage-backed)                         $  10,872           11.3       $   10,462           10.4
Finance                                          21,299           22.2           23,445           23.3
Public utilities                                  7,629            8.0            6,787            6.7
Mortgage-backed                                  11,787           12.3           13,302           13.2
States, municipalities and political
     subdivisions                                 2,057            2.1            1,982            2.0
All other corporate bonds                        42,305           44.1           44,612           44.4
                                              ------------    -----------    -------------    ------------
        Total fixed maturity securities       $  95,949          100.0       $  100,590          100.0
                                              ============    ===========    =============    ============
</TABLE>

The following  table  indicates by rating the composition of the Company's fixed
maturity securities portfolio, excluding short-term investments and certificates
of  deposit.  Ratings  are the lower of those  assigned by Standard & Poor's and
Moody's, when available,  and are shown in the table using the Standard & Poor's
rating scale.  Unrated  securities are assigned  ratings based on the applicable
NAIC's  designation or the rating assigned to comparable debt outstanding of the
same issuer.  NAIC 1 fixed maturity  securities have been classified as "A" (and
above) and NAIC 2 fixed maturity securities have been classified as "BBB".
<TABLE>

                                                   September 30, 2001                December 31, 2000
                                              ------------------------------    ------------------------------
Composition of Fixed Maturity                  Market                            Market
Securities by Rating                           Value                %            Value               %
----------------------------------------      --------------  --------------    --------------  --------------
                                              (in thousands)                    (in thousands)
<S>                                           <C>             <C>               <C>             <C>
Ratings
-------
Investment grade:
     U.S. Government and agencies             $  21,624           22.5         $  22,754            22.6
     AAA                                          2,862            3.0             2,885             2.9
     AA                                           7,960            8.3             8,305             8.3
     A                                           34,727           36.2            38,552            38.3
     BBB                                         28,054           29.2            27,168            27.0
Non-Investment grade:
     BB                                               -            -                 674             0.7
     B and below                                    722            0.8               252             0.2
                                              ------------    -------------    ------------    -------------
        Total fixed maturity securities       $  95,949          100.0         $ 100,590           100.0
                                              ============    =============    ============    =============
</TABLE>

The scheduled contractual maturities of the Company's fixed maturity securities,
excluding  short-term  investments and certificates of deposit, at September 30,
2001 and December 31, 2000 are shown in the table below. Expected maturities may
differ from contractual  maturities because borrowers may have the right to call
or prepay obligations with or without penalties.
<TABLE>

                                                   September 30, 2001                  December 31, 2000
                                              --------------------------------   -------------------------------
Composition of Fixed Maturity                  Market                              Market
Securities by Maturity                         Value                  %            Value                %
-------------------------------------------   ---------------   --------------   --------------   ---------------
                                              (in thousands)                     (in thousands)
<S>                                           <C>               <C>              <C>              <C>
Scheduled Maturity

Due in one year or less                       $    7,913             8.2         $    7,073             7.0
Due after one year through five years             25,962            27.1             28,877            28.7
Due after five years through ten years            26,470            27.6             26,327            26.2
Due after ten years                               23,817            24.8             25,011            24.9
Mortgage-backed and asset-backed securities       11,787            12.3             13,302            13.2
                                              -------------    --------------    -------------    ---------------
        Total fixed maturity securities       $   95,949           100.0         $  100,590           100.0
                                              =============    ==============    =============    ===============
</TABLE>

Claim  Reserves.  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.  Claim reserves totaled $36.3 million at September 30,
2001 as  compared  to $42.8  million  at  December  31,  2000.  The  process  of
estimating  claim  reserves  involves the active  participation  of  experienced
actuarial  consultants  with input from the  underwriting,  claims,  and finance
departments.  The inherent uncertainty in estimating claim reserves is increased
when significant changes occur. Examples of such changes include: (1) changes in
economic  conditions;  (2)  changes  in state or federal  laws and  regulations,
particularly  insurance reform measures;  (3) changes in production  sources for
existing lines of business;  (4) writings of significant  blocks of new business
and (5)  significant  changes  in claims  payment  patterns.  As a result of the
implementation  of a new claims  administration  system in May 2000, the Company
experienced significant changes in its claims payment patterns. During 2001, the
Company's claims payment patterns  accelerated,  which resulted in a significant
reduction in pending  claims  inventory at  September  30, 2001 from  historical
levels. This significant change in the claims payment patterns has increased the
inherent  uncertainty in estimating  claim reserves.  Because claim reserves are
estimates,  management  monitors  reserve  adequacy  over time,  evaluating  new
information as it becomes  available and adjusting  claim reserves as necessary.
Such adjustments are reflected in current operations.

Management   considers  many  factors  when  setting  reserves  including:   (1)
historical trends; (2) current legal  interpretations of coverage and liability;
(3) loss  payments  and pending  levels of unpaid  claims;  and (4) product mix.
Based on these  considerations,  management believes that adequate provision has
been made for the  Company's  claim  reserves.  Actual  claims paid may deviate,
perhaps substantially, from such reserves.

Future Policy Benefit  Reserves.  Future policy benefit reserves are established
by the Company for benefit  payments  that have not been  incurred but which are
estimated to be incurred in the future.  Future policy benefit  reserves totaled
$61.1 million at September 30, 2001 as compared to $61.3 million at December 31,
2000.  Future 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 GAAP.

In determining the morbidity, persistency rate, claim cost and other assumptions
used in determining the Company's  future 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  policy benefit reserve  requirements are also  interrelated  with
product  pricing and  profitability.  The Company  must price its  products at a
level sufficient to fund its policyholders benefits and still remain profitable.
Because the  Company's  claim and  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 increases in claim ratios experienced by the Company during
2000 and into  2001 were  indicative  of  inadequate  pricing  in the  Company's
principal major medical product marketed through June 2000.

In accordance  with GAAP,  the  Company's  actuarial  assumptions  are generally
fixed, and absent materially adverse benefit experience,  they are not generally
adjusted. 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  (such  as  out-patient   versus   in-patient  care)  or  prolong  life
expectancy. 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.



LIQUIDITY, CAPITAL RESOURCES AND STATUTORY CAPITAL AND SURPLUS

Ascent.   Ascent's  principal  assets  consist  of  the  capital  stock  of  its
subsidiaries  and invested  assets.  Accordingly,  Ascent's sources of funds are
primarily  comprised of dividends and advances from non-insurance  subsidiaries.
The  Company's  principal  uses of cash  are for  capital  contributions  to its
Insurance  Subsidiaries  and general and  administrative  expenses.  The Company
funded  capital  contributions  to its Insurance  Subsidiaries  of $18.2 million
during the nine months ended  September 30, 2001 as compared to $4.8 million for
the  corresponding  prior year  period.  As of September  30, 2001,  Ascent held
approximately $889,000 in unrestricted cash and invested assets.

During the first quarter 2001, the Company  determined  that  continued  adverse
claims  experience for the old GPPO product would require Ascent to make capital
contributions  to FLICA in excess of those originally  planned.  Ascent obtained
financing  (see below) and  contributed  an  additional  $11 million to FLICA in
April 2001 to enable FLICA to comply with minimum  statutory capital and surplus
requirements  promulgated  by the states of Texas and  Florida.  If the  adverse
claims  experience  for  the  old  GPPO  product  exceeds  management's  current
estimates,  Ascent would be required to make additional capital contributions to
FLICA in excess of those  currently  projected  for 2001.  Additional  financing
would be required by Ascent in order to make any such "excess" contributions. As
a result,  adverse claims  experience for the old GPPO product or other products
written  by  the  Insurance  Subsidiaries  in  excess  of  management's  current
estimates could have a material adverse effect on Ascent's liquidity and capital
resources  and,  due to  potential  restrictions  on the  ability  of  FLICA  to
underwrite new policies, its results of operations.

Ascent  received  debt  financing  for  the  $11  million  capital  contribution
described  above  from a loan  made by Credit  Suisse  First  Boston  Management
Corporation,  which is an  affiliate  of Special  Situations  Holdings,  Inc. --
Westbridge (Ascent's largest stockholder). The credit agreement relating to that
loan provided  Ascent with total loan  commitments  of $11 million (all of which
has been drawn).  The loan bears interest at a rate of 12% per annum and matures
in April,  2004.  Absent any  acceleration  following  an event of default,  the
Company  may elect to pay  interest in kind by  issuance  of  additional  notes.
During the third quarter of 2001, Ascent issued $349,000 in additional notes for
payment of interest in kind. The credit agreement  relating to the loan provides
for a facility  fee of $1.5  million  which is payable  upon  maturity or upon a
change in control, as defined.  Ascent's obligations are secured,  pursuant to a
guarantee and security agreement and pledge agreements,  by substantially all of
the assets of Ascent and its  subsidiaries  (excluding the capital stock and the
assets  of AICT,  FLICA,  NFL,  NFIC,  NCM,  Ascent  Funding,  Inc.  and  Ascent
Management,  Inc., some or all of which is pledged as collateral for receivables
financing  described  below).  Ascent's  subsidiaries  (other than those  listed
above) have also guaranteed Ascent's  obligations under the credit agreement and
the  loan.  Adverse  claims  experience  for the old GPPO  product  in excess of
management's  current  estimates  could  result in events of  default  under the
credit agreement and related agreements.

Dividends on Ascent's Redeemable Convertible Preferred Stock ("Preferred Stock")
may be paid in cash or by issuance of additional  shares of Preferred  Stock, at
the Company's option.  On September 30, 2001,  preferred stock dividends accrued
in the third  quarter of 2001 were paid  through  the  issuance of 746 shares of
preferred stock and a $303 distribution of cash.

Insurance   Subsidiaries.   The  primary  sources  of  cash  for  the  Insurance
Subsidiaries  are  premiums,   sales  and  maturities  of  invested  assets  and
investment  income  while the  primary  uses of cash are  benefits  and  claims,
commissions,  general and administrative expenses, and taxes, licenses and fees.
Cash  contributions  of $18.2  million were funded  during the nine months ended
September 30, 2001, by Ascent to its Insurance  Subsidiaries to maintain capital
and  surplus  (see  "Ascent"   discussion   above).   The  Company's   Insurance
Subsidiaries  recorded combined  statutory losses of $13.0 million for the first
nine months of 2001 and $17.0 million for the twelve  months ended  December 31,
2000.  The statutory  losses  resulted  from 1) higher than expected  claims and
benefits for the old GPPO major medical product (see "Operating Results") and 2)
costs  associated with increased new business  production which must be expensed
under  statutory  accounting (for GAAP, such costs are deferred and amortized as
related premiums are recorded).

Dividends  paid by the Company's  Insurance  Subsidiaries  are determined by and
subject to the  regulations of the insurance laws and practices of the insurance
department of the state of domicile.  The Insurance  Subsidiaries  are precluded
from  paying  dividends  during  2001  without  the prior  approval of the Texas
Insurance Commissioner as the Companies' earned surplus is negative.

Inflation will affect claim costs on the Company's Medicare supplement and major
medical  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 major  medical  products  will  increase.  The  Company  has
somewhat   mitigated  its  exposure  to  inflation  by   incorporating   certain
limitations on the maximum benefits which may be paid under some of its policies
and by filing for premium rate increases as necessary.

Consolidated. The Company's consolidated net cash provided by operations totaled
$212,000 and $1.2 million for the third quarter of 2001 and 2000,  respectively.
The decrease in cash flow from operations for 2001 was primarily attributable to
an increase in the cash basis ratio of benefits and claims to premiums. Net cash
provided by investing  activities for the third quarter of 2001 and 2000 totaled
$2.4 million and $331,000,  respectively.  Cash provided by investing activities
was primarily from the sale of fixed maturity investments.

Net cash (used for) provided by financing  activities totaled $(1.5) million and
$881,000  for the  third  quarter  of 2001  and  2000,  respectively.  Financing
activities  during the third  quarter of 2001 include $1.2 million in repayments
related to the  Company's  Receivables  Financing  Program  (defined  below) and
$140,000 in repayments related to the term loan facility.  Financing  activities
for the corresponding period in 2000 included $1.0 million of borrowings related
to the Company's  Receivables Financing Program and $140,000 of repayments under
the term loan facility.

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.
The Company finances the majority of its obligations to make commission advances
through Ascent Funding,  Inc.  ("AFI"),  an indirect wholly owned  subsidiary of
Ascent. AFI has entered into a Credit Agreement (the "LaSalle Credit Agreement")
with LaSalle Bank, N.A. ("LaSalle").  The LaSalle Credit Agreement,  as amended,
provides AFI with a $7.5 million revolving loan facility,  the proceeds of which
are used to purchase agent advance receivables from affiliates. At September 30,
2001,  approximately  $5.1  million was  outstanding  under the  LaSalle  Credit
Agreement.  The LaSalle Credit Agreement expires June 5, 2002, at which time the
outstanding  principal and interest will be due and payable.  Under the terms of
the  LaSalle  Credit  Agreement,  agent  advances  made within six months of the
expiration  date (after  December 5, 2001) are not eligible for  financing.  The
Company has  received a commitment  from LaSalle for a six month  renewal of the
LaSalle Credit  Agreement until December 5, 2002. The Company expects to execute
definitive  documentation for that renewal by November 30, 2001.  Failure of the
Company to finanlize the current  renewal or obtain  additional  renewals of the
LaSalle  Credit  Agreement  beyond  December 2002 could have a material  adverse
effect on Ascent's  liquidity and capital resources and its ability to pay agent
commission advances required for new business  production.  Failure by Ascent to
maintain new business production at current levels could have a material adverse
effect on Ascent's results of operations.

AFI's  obligations  under the LaSalle Credit Agreement are secured by liens upon
substantially all of AFI's assets.  The Company has guaranteed AFI's obligations
under the  LaSalle  Credit  Agreement,  and has  pledged  all of the  issued and
outstanding  shares  of the  capital  stock  of  AFI,  NFL,  FLICA  and  NFIC as
collateral  for that guaranty  (the  "Guaranty  Agreement").  As of November 14,
2001,  there  were no events of default  under the  LaSalle  Credit or  Guaranty
Agreements.   However,   additional  adverse  claims  experience  in  excess  of
management's  current  expectations for the old GPPO major medical product could
result in events of default under the Guaranty  Agreement,  Credit Agreement and
term loan facility discussed below.

In July 1999, Ascent  Management,  Inc. ("AMI") entered into a $3.3 million term
loan  facility  with  LaSalle,  proceeds  of  which  were  used to  fund  system
replacement  costs.  The term loan facility is secured by  substantially  all of
AMI's assets and the Guaranty Agreement.  Under the terms of the loan, principal
is payable in 60 equal  monthly  installments  beginning  January 31,  2000.  At
September 30, 2001,  approximately  $2.4 million was outstanding  under the term
loan facility.




<PAGE>


                             ASCENT ASSURANCE, INC.

                                     PART II

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

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


3.1       Second  Amended  and  Restated  Certificate  of  Incorporation  of the
          Company  filed with the  Secretary  of State of  Delaware on March 24,
          1999  (incorporated  by reference to Exhibit 3.1 to the Company's Form
          8-A filed on March 25, 1999).

3.2       Amended and Restated By-Laws of the Company, effective as of March 24,
          1999  (incorporated  by reference to Exhibit 3.2 to the Company's Form
          8-A filed on March 25, 1999).

3.3       Amendment to the By-Laws of the Company, effective as of April 5, 2000
          (incorporated  by reference to Exhibit 3.3 to the Company's  Quarterly
          Report on Form 10-Q for the quarter ended June 30, 2000).

4.1       Form of Common Stock Certificate (incorporated by reference to Exhibit
          4.1 to the Company's Form 8-A filed on March 25, 1999).

4.2       Form of Warrant Certificate, included in the Form of Warrant Agreement
          (incorporated  by reference to Exhibit 4.2 to the  Company's  Form 8-A
          filed on March 25, 1999).

4.3       Form of Warrant  Agreement  dated as of March 24,  1999,  between  the
          Company and LaSalle  National Bank, as warrant agent  (incorporated by
          reference to Exhibit 4.3 to the Company's  Form 8-A filed on March 25,
          1999).

4.4       Form of  Preferred  Stock  Certificate  (incorporated  by reference to
          Exhibit 4.4 to the  Company's  Annual Report on Form 10-K for the year
          ended December 31, 1998).

10.1      First  Amendment  to  Guaranty  Agreement  dated as of March 24,  1999
          between  Westbridge  Capital Corp.  in favor of LaSalle  National Bank
          (incorporated  by reference to Exhibit 10.12 to the  Company's  Annual
          Report on Form 10-K for the year ended December 31, 1998).

10.2      Registration  Rights  Agreement dated as of March 24, 1999 between the
          Company   and  Special   Situations   Holdings,   Inc.  -   Westbridge
          (incorporated  by reference to Exhibit 10.13 to the  Company's  Annual
          Report on Form 10-K for the year ended December 31, 1998).

10.3      1999 Stock  Option  Plan dated as of March 24, 1999  (incorporated  by
          reference to the Company's  Schedule 14A filed with the  Commission on
          April 30, 1999)

10.4      Installment   Note  Agreement  dated  July  20,  1999  between  Ascent
          Management,  Inc. and LaSalle Bank National Association  (incorporated
          by reference to Exhibit 10.4 to the Company's Quarterly Report on Form
          10-Q for the quarter ended September 30, 1999).

10.5      Second  Amendment  to Credit  Agreement  dated August 12, 1999 between
          Ascent   Funding,   Inc.   and  LaSalle  Bank   National   Association
          (incorporated by reference to Exhibit 10.5 to the Company's  Quarterly
          Report on Form 10-Q for the quarter ended September 30, 1999).

10.6      Second  Amendment  to Guaranty  Agreement  dated July 20, 1999 between
          Ascent   Assurance,   Inc.  and  LaSalle  Bank  National   Association
          (incorporated by reference to Exhibit 10.6 to the Company's  Quarterly
          Report on Form 10-Q for the quarter ended September 30, 1999).

10.7      Third  Amendment  to Guaranty  Agreement  dated April 17, 2000 between
          Ascent   Assurance,   Inc.  and  LaSalle  Bank  National   Association
          (incorporated by reference to Exhibit 10.7 to the Company's  Quarterly
          Report on Form 10-Q for the quarter ended June 30, 2000).

10.8      Extension of Employment Agreement,  dated as of September 15, 1998, by
          and among the Company,  Westbridge Management Corp. and Mr. Patrick J.
          Mitchell  (incorporated  by reference to Exhibit 10.8 to the Company's
          Quarterly Report on Form 10-Q for the quarter ended June 30, 2000).

10.9      Extension of Employment Agreement,  dated as of September 15, 1998, by
          and among the Company,  Westbridge Management Corp. and Mr. Patrick H.
          O'Neill  (incorporated  by reference to Exhibit 10.9 to the  Company's
          Quarterly Report on Form 10-Q for the quarter ended June 30, 2000).

10.10     Fourth  Amendment to Guaranty  Agreement dated August 10, 2000 between
          Ascent   Assurance,   Inc.  and  LaSalle  Bank  National   Association
          (incorporated by reference to Exhibit 10.10 to the Company's Quarterly
          Report on Form 10-Q for the quarter ended September 30, 2000).

10.11     First Amendment to Pledge Agreement, dated as of November 30, 2000, by
          and among Ascent Assurance, Inc. and LaSalle Bank National Association
          (incorporated  by reference to Exhibit 10.22 to the  Company's  Annual
          Report on Form 10-K for the year ended December 31, 2000).

10.12     Fifth Amendment to Guaranty Agreement,  dated as of November 30, 2000,
          by  and  among  Ascent  Assurance,  Inc.  and  LaSalle  Bank  National
          Association  (incorporated  by  reference  to  Exhibit  10.23  to  the
          Company's  Annual Report on Form 10-K for the year ended  December 31,
          2000).

10.13     Third Amendment to Credit Agreement, dated as of November 30, 2000, by
          and among Ascent Funding,  Inc. and LaSalle Bank National  Association
          (incorporated  by reference to Exhibit 10.24 to the  Company's  Annual
          Report on Form 10-K for the year ended December 31, 2000).

10.14     First Amendment to Security Agreement,  dated as of November 30, 2000,
          by and  among  Ascent  Management,  Inc.  and  LaSalle  Bank  National
          Association  (incorporated  by  reference  to  Exhibit  10.25  to  the
          Company's  Annual Report on Form 10-K for the year ended  December 31,
          2000).

10.15     Credit Agreement dated April 17, 2001 between Ascent  Assurance,  Inc.
          and Credit Suisse First Boston Management Corporation (incorporated by
          reference  to Exhibit 10.1 to the  Company's  Form 8-K filed April 25,
          2001).

10.16     Guaranty and Security  Agreement dated April 17, 2001 among Foundation
          Financial Services, Inc.,  NationalCare(R)Marketing,  Inc., LifeStyles
          marketing  Group,  Inc.,  Precision  Dialing  Service,   Inc.,  Senior
          Benefits,  L.L.C., and Westbridge  Printing Services,  Inc. and Credit
          Suisse First Boston management Corporation  (incorporated by reference
          to Exhibit 10.2 to the Company's Form 8-K filed April 25, 2001).

10.17     Pledge Agreement dated April 17, 2001 between Ascent  Assurance,  Inc.
          and Credit Suisse First Boston Management Corporation (incorporated by
          reference  to Exhibit 10.3 to the  Company's  Form 8-K filed April 25,
          2001).

10.18     Sixth Amendment to Guaranty  Agreement and Waiver dated April 17, 2001
          between Ascent  Assurance  Inc. and LaSalle Bank National  Association
          (incorporated  by reference to Exhibit 10.4 to the Company's  Form 8-K
          filed April 25, 2001).

10.19     Fourth  Amendment  to Credit  Agreement  dated April 17, 2001  between
          Ascent   Funding,   Inc.   and  LaSalle  Bank   National   Association
          (incorporated  by reference to Exhibit 10.5 to the Company's  Form 8-K
          filed April 25, 2001).

(b)      Reports on Form 8-K

No Reports on Form 8-K were filed during the quarter ended September 30, 2001.




<PAGE>


                                                                       Form 10-Q



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



                                            ASCENT ASSURANCE, INC.




                                            /s/ Cynthia B. Koenig
                                           ------------------------------------
                                           Cynthia B. Koenig
                                           Senior Vice President,
                                           Chief Financial Officer and Treasurer
                                           (Principal Financial and
                                           Accounting Officer)
















Dated at Fort Worth, Texas
November 14, 2001