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 June 30, 2002

                          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 July 31, 2002



<PAGE>



                             ASCENT ASSURANCE, INC.
                               INDEX TO FORM 10-Q

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


<TABLE>


PART 1 - FINANCIAL INFORMATION                                                 Page No.
------------------------------                                                 --------

Item 1 - Financial Statements

<S>                                                                              <C>
Ascent Assurance, Inc. Condensed Consolidated Balance Sheets at
  June 30, 2002 and December 31, 2001                                               2

Ascent Assurance, Inc. Condensed Consolidated Statements of Operations
  for the Three and Six Months Ended June 30, 2002 and 2001                         3

Ascent Assurance, Inc. Condensed Consolidated Statements of
  Comprehensive Income for the Three and Six Months Ended June 30,
  2002 and 2001                                                                     4

Ascent Assurance, Inc. Condensed Consolidated Statements of Cash Flows
  for the Three and Six Months Ended June 30, 2002 and 2001                         5

Ascent Assurance, Inc. Consolidated Statement of Changes in Stockholders'
  Equity for the Six Months Ended June 30, 2002                                     6

Notes to Condensed Consolidated Financial Statements                                7

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

General                                                                            12

Business Overview                                                                  12

Forward-Looking Statements                                                         13

Operating Results                                                                  14

Financial Condition                                                                17

Liquidity, Capital Resources and Statutory Capital and Surplus                     19



PART II - OTHER INFORMATION

Item 4 - Submission of Matters to a Vote of Security Holders                       22

Item 6 - Exhibits and Reports on Form 8-K                                          23

</TABLE>


<PAGE>


                             ASCENT ASSURANCE, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>

                                                                 June 30,        December 31,
                                                                   2002              2001
                                                               (Unaudited)        (Audited)
                                                              -------------     -------------
                                                           (in thousands, except per share data)
Assets
Investments:
  Fixed Maturities:
<S>                                                          <C>               <C>
    Available-for-sale, at market value (amortized cost
      $99,762 and $90,475)                                    $   100,484       $    90,217
  Short-term investments                                           10,265            21,801
  Other investments (cost $377 and $1,746)                            380             1,883
                                                              -------------     -------------
        Total Investments                                         111,129           113,901

Cash                                                                1,361             2,337
Accrued investment income                                           1,608             1,710
Receivables from agents, net of allowance for doubtful
  accounts of $4,325 and $4,013                                     7,111             7,412
Deferred policy acquisition costs                                  25,743            25,600
Property and equipment, net of accumulated depreciation
  of $4,847 and $3,904                                              4,648             5,436
Other assets                                                        7,287             6,197
                                                              -------------     -------------
          Total Assets                                        $   158,887       $   162,593
                                                              =============     =============

Liabilities, Preferred Stock and Stockholders' Equity
Liabilities:
  Policy liabilities and accruals:
    Future policy benefits                                    $    60,843       $    61,571
    Claim reserves                                                 32,823            37,202
                                                              -------------     -------------
      Total Policy Liabilities and Accruals                        93,666            98,773

Accounts payable and other liabilities                             12,442            11,760
Notes payable                                                      18,754            18,603
                                                              -------------     -------------
          Total Liabilities                                       124,862           129,136
                                                              -------------     -------------

Redeemable Convertible Preferred Stock                             32,225            30,635
                                                              -------------     -------------

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                                   28,067            28,017
  Accumulated other comprehensive income (loss)                       725              (121)
  Retained deficit                                                (27,057)          (25,139)
                                                              -------------     -------------
        Total Stockholders' Equity                                  1,800             2,822
                                                              -------------     -------------

Total Liabilities, Redeemable Convertible Preferred Stock
  And Stockholders' Equity                                    $   158,887       $   162,593
                                                              =============     =============
</TABLE>

        See the Notes to the Condensed Consolidated Financial Statements.


<PAGE>


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

<TABLE>

                                                Three Months Ended                 Six Months Ended
                                                     June 30,                          June 30,
                                          -----------------------------     -----------------------------
                                               2002            2001              2002            2001
                                          -------------   -------------     -------------   -------------
                                                       (in thousands, except per share data)
Revenues:
  Premiums:
<S>                                       <C>             <C>               <C>             <C>
    First-year                            $     5,857     $     8,543       $    11,886     $    16,368
    Renewal                                    22,165          23,398            45,070          47,547
                                          -------------   -------------     -------------   -------------
    Total premiums                             28,022          31,941            56,956          63,915

  Net investment income                         1,940           2,294             3,962           4,616
  Fee, service and other income                 3,131           5,362             6,496          10,971
  Net realized (loss) gain on investments        (468)             52              (417)             94
                                          -------------   -------------     -------------   -------------
    Total revenue                              32,625          39,649            66,997          79,596
                                          -------------   -------------     -------------   -------------


Benefits, claims and expenses:
  Benefits and claims                          19,844          24,558            40,820          49,375
  Increase in deferred acquisition costs         (207)         (1,110)             (143)         (2,227)
  Commissions                                   4,081           5,538             8,414          11,501
  General and administrative expenses           7,283           9,651            14,968          19,753
  Taxes, licenses and fees                        978           1,290             2,050           2,353
  Interest expense on notes payable               615             486             1,216             656
                                          -------------   -------------     -------------   -------------
    Total expenses                             32,594          40,413            67,325          81,411

Income (loss) before income taxes                  31            (764)             (328)         (1,815)
Federal income tax benefit                          -               -                 -               -
                                          -------------   -------------     -------------   -------------

      Net income (loss)                   $        31     $      (764)      $      (328)    $    (1,815)

Preferred stock dividends                         805             710             1,590           1,420
                                          -------------   -------------     -------------   -------------
Loss applicable to common stockholders    $      (774)    $    (1,474)      $    (1,918)    $    (3,235)
                                          =============   =============     =============   =============

Basic and diluted loss per common share   $      (.12)    $      (.23)      $      (.30)    $      (.50)
                                          =============   =============     =============   =============

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             Six Months Ended
                                                      June 30,                       June 30,
                                             -------------------------     ---------------------------
                                                 2002          2001            2002            2001
                                             -----------   -----------     -----------     -----------
                                                                 (in thousands)

<S>                                          <C>           <C>             <C>             <C>
Net income (loss)                            $      31     $    (764)      $    (328)      $  (1,815)
Other comprehensive income (loss):
  Unrealized holding gain (loss) arising
    during period, net of tax                    1,938          (452)            429             858
  Reclassification adjustment of loss (gain)
    on sales of investments included in
    net income, net of tax                         468           (52)            417             (94)
                                             -----------   -----------     -----------     -----------

Comprehensive income (loss)                  $   2,437     $  (1,268)      $     518       $  (1,051)
                                             ===========   ===========     ===========     ===========

</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            Six Months Ended
                                                                 June 30,                      June 30,
                                                        -------------------------     -------------------------
                                                            2002          2001            2002          2001
                                                        -----------   -----------     -----------   -----------
                                                                            (in thousands)
Cash Flow From Operating Activities:

<S>                                                     <C>           <C>             <C>           <C>
Net income (loss)                                       $      31     $    (764)      $    (328)    $  (1,815)
  Adjustments to reconcile net income (loss) to cash
  used for operating activities
    (Increase) decrease in accrued investment income         (132)         (180)            102           117
    Increase in deferred acquisition costs                   (207)       (1,110)           (143)       (2,227)
    Decrease (increase) in receivables from agents            246           (16)            301           383
    Increase in other assets                               (1,488)         (402)         (1,090)         (914)
    Decrease in policy liabilities and accruals            (3,013)       (2,999)         (5,107)       (4,840)
    Increase (decrease) in accounts payable and other
      liabilities                                             801        (2,147)            682        (2,079)
    Other, net                                              1,427         1,964           2,367         1,899
                                                        -----------   -----------     -----------   -----------
  Net Cash Used For Operating Activities                   (2,335)       (5,654)         (3,216)       (9,476)
                                                        -----------   -----------     -----------   -----------

Cash Flow From Investing Activities:

  Purchases of fixed maturity investments                 (11,043)       (8,014)        (33,907)      (12,998)
  Sales of fixed maturity investments                       9,995         4,367          19,011        13,408
  Maturities and calls of fixed maturity investments        1,430           265           4,888         2,644
  Sale of equity securities                                 1,477             -           1,477             -
  Net decrease (increase) in short-term and
     other investments                                        782        (4,943)         11,517        (5,322)
  Property and equipment purchased                           (140)          (66)           (155)         (480)
                                                        -----------    ----------     -----------   -----------
  Net Cash Provided By (Used For) Investing Activities      2,501        (8,391)          2,831        (2,748)
                                                        -----------    ----------     -----------   -----------

Cash Flow From Financing Activities:

  Issuance of notes payable                                    11        11,305              68        11,305
  Repayment of notes payable                                 (319)         (239)           (659)         (450)
  Deferred debt costs                                           -          (347)              -          (347)
                                                        -----------    ----------     -----------   -----------
  Net Cash (Used For) Provided By Financing Activities       (308)       10,719            (591)       10,508
                                                        -----------    ----------     -----------   -----------

Decrease In Cash During Period                               (142)       (3,326)           (976)       (1,716)
Cash At Beginning Of Period                                 1,503         4,268           2,337         2,658
                                                        -----------    ----------     -----------   -----------
Cash At End Of Period                                   $   1,361      $    942       $   1,361     $     942
                                                        ===========    ==========     ===========   ===========

Supplemental disclosures of cash flow information:
  Non-cash items:
    Preferred stock dividends                           $     805      $    710       $   1,590     $   1,420
                                                        ===========    ==========     ===========   ===========
    Issuance of notes for payment in kind of interest   $     378      $    277       $     742     $     277
                                                        ===========    ==========     ===========   ===========

</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    Income(Loss)     Earnings       Equity

<S>                                     <C>          <C>       <C>            <C>             <C>           <C>
Balance at December 31, 2001             6,500,000    $   65    $   28,017     $      (121)    $ (25,139)    $     2,822

  Net loss                                                                                          (328)           (328)
  Preferred Stock dividend                                                                        (1,590)         (1,590)
  Other comprehensive income                                                           846                           846
  Amortization of unearned compensation                                 50                                            50
                                        -----------   -------   ------------   -------------   -----------   -------------
Balance at June 30, 2002                 6,500,000    $   65    $   28,067     $       725     $ (27,057)    $     1,800
                                        ===========   =======   ============   =============   ===========   =============


</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) tele-survey services, (ii) printing services, and (iii) renewal
commissions  for  prior  year  sales  of  insurance  products   underwritten  by
unaffiliated insurance carriers.

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. All significant inter-company accounts and transactions have been
eliminated. Certain reclassifications have been made to 2001 amounts in order to
conform to the 2002 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, 2001.

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.

Short-Term  Investments.  Short-term  investments  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
maturity and equity  securities are reported  directly in stockholders'  equity,
net of applicable deferred income taxes and, accordingly, will have no effect on
current operations.
<PAGE>

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  periodically 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.

Agent  Receivables.  In the ordinary  course of business,  the Company  advances
commissions on policies  written by its general  agencies and their agents.  Net
agent receivables were  approximately  $7.1 million and $7.4 million at June 30,
2002 and December 31, 2001,  respectively.  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.   The  Company   routinely   establishes   a  reserve  for
uncollectible  agents'  balances based upon historical  experience and projected
commission  earnings.  As of June 30, 2002 and December 31, 2001,  the Company's
allowances  for  uncollectible  commission  advances  were $4.3 million and $4.0
million, respectively.

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. Changes impacting the Company include: (1) changes in
economic  conditions;  (2)  changes  in state or federal  laws and  regulations,
particularly  insurance reform measures;  (3) writings of significant  blocks of
new business and (4) significant  changes in claims payment patterns as a result
of the implementation of a new claims administration system in May 2000. 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.

Notes Payable.  Notes payable are stated at cost, which approximates market.

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.
<PAGE>

As of June 30, 2002,  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, 2001 and
the first six months of 2002 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 June 30, 2002 and December 31, 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. For
the six months  ended June 30, 2002 and 2001,  stock  options of  1,073,350  and
943,600, respectively, that could potentially dilute basic earnings per share in
the future were not included in the  computation  of diluted  earnings per share
because to do so would have been anti-dilutive.

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

                                            Three Months Ended           Six Months Ended
                                                 June 30,                     June 30,
                                        -------------------------     -------------------------
                                            2002          2001            2002          2001
                                        -----------   -----------     -----------   -----------
                                           (amounts in thousands, except per share amounts)
<S>                                     <C>           <C>             <C>           <C>
Net income (loss)                       $      31     $    (764)      $    (328)    $  (1,815)
Preferred stock dividends                    (805)         (710)         (1,590)       (1,420)
                                        -----------   -----------     -----------   -----------
Loss applicable to common shareholders  $    (774)    $  (1,474)      $  (1,918)    $  (3,235)
                                        ===========   ===========     ===========   ===========
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        $    (.12)    $    (.23)      $    (.30)    $    (.50)
                                        ===========   ===========     ===========   ===========
</TABLE>


Recently Issued  Accounting  Pronouncements.  In June 2001, the FASB issued SFAS
142,  "Goodwill  and  Other  Intangible  Assets".  SFAS 142  supersedes  APB 17,
"Intangible  Assets," and is effective for fiscal years beginning after December
15,  2001.  SFAS  142  primarily  addresses  the  accounting  for  goodwill  and
intangible  assets  subsequent  to  their  initial  recognition.  SFAS  142  (1)
prohibits the amortization of goodwill and  indefinite-lived  intangible assets,
(2) requires testing of goodwill and  indefinite-lived  intangible  assets on an
annual basis for impairment  (and more  frequently if the occurrence of an event
or circumstance  indicates an impairment),  (3) requires that reporting units be
identified for the purpose of assessing potential future impairments of goodwill
and  (4)  removes  the  forty-year  limitation  on the  amortization  period  of
intangible  assets  that have finite  lives.  The  Company  adopted  SFAS 142 on
January 1, 2002 and did not  recognize an  impairment  loss upon  adoption.  The
Company has no goodwill or  indefinite-lived  intangible assets. The Company has
identified  intangible  assets totaling $2.9 million included in deferred policy
acquisition costs  representing the estimated present value of future profits of
certain  insurance  policies  acquired  prior to March  1999.  These  assets are
amortized over the premium paying lives of the policies  acquired based upon the
present  value of the  total  anticipated  future  premiums  applicable  to such
policies.  The Company has determined  that there is no indication of impairment
related to these  assets and that the useful  lives  assigned  to the assets are
appropriate.  Going  forward,  the  Company  will  test  these  intangibles  for
impairment  annually  or  more  frequently  if the  occurrence  of an  event  or
circumstances indicates impairment.

In August 2001, the FASB issued SFAS No. 143,  "Accounting for Asset  Retirement
Obligations".  SFAS No. 143 requires  that the fair value of a liability  for an
asset retirement  obligation be recognized in the period in which it is incurred
if a  reasonable  estimate  of fair  value  can be made.  The  associated  asset
retirement  costs  are  capitalized  as  part  of  the  carrying  amount  of the
long-lived asset. SFAS No. 143 will be effective for financial statements issued
for fiscal years  beginning  after June 15, 2002. An entity shall  recognize the
cumulative  effect  of  adoption  of SFAS  No.  143 as a  change  in  accounting
principle.  The  Company  does not  expect  the  adoption  of the  statement  to
materially impact the Company's results of operations and financial position.

In August 2001, the FASB approved SFAS No. 144,  "Accounting  for the Impairment
or Disposal of Long-Lived Assets." The Statement requires that long-lived assets
to be disposed of other than by sale be considered  held and used until they are
disposed of. SFAS No. 144 requires that  long-lived  assets to be disposed of by
sale be  accounted  for under the  requirements  of SFAS No.  121.  SFAS No. 121
requires  that such assets be measured at the lower of carrying  amounts or fair
value less cost to sell and to cease depreciation  (amortization).  SFAS No. 144
requires a  probability-weighted  cash flow  estimation  approach in  situations
where  alternative  courses  of  action  to  recover  the  carrying  amount of a
long-lived asset are under consideration or a range of possible future cash flow
amounts are estimated.  As a result,  discontinued  operations will no longer be
measured on a net realizable  basis,  and future operating losses will no longer
be recognized before they occur. Additionally, goodwill will be removed from the
scope of SFAS No.  121. As a result,  goodwill  will no longer be required to be
allocated  to  long-lived  assets to be tested for  impairment.  SFAS No. 144 is
effective  for  financial  statements  issued for fiscal years  beginning  after
December 15, 2001, and interim  periods within those fiscal years.  The adoption
of the statement did not materially  impact the Company's  results of operations
and financial position.

In April 2002, the FASB issued SFAS No. 145,  "Rescission of FASB Statements No.
4, 44 and 64,  Amendment of FASB  Statement No. 13, and Technical  Corrections".
SFAS No. 145  rescinds  SFAS No. 4,  which  required  all gains and losses  from
extinguishment  of debt to be  aggregated  and, if  material,  classified  as an
extraordinary  item, net of related income tax effect. As a result, the criteria
in  Opinion  30  will  now be used to  classify  those  gains  and  losses.  The
provisions of this  Statement  related to the  rescission of SFAS No. 4 shall be
applied in fiscal years  beginning  after May 15, 2002. SFAS No. 145 amends SFAS
No. 13 to require that certain lease  modifications  that have economic  effects
similar to  sale-leaseback  transactions  be accounted for in the same manner as
sales-leaseback  transactions.  The provisions of this Statement related to SFAS
No. 13 shall be effective for  transactions  occurring  after May 15, 2002.  The
Company does not expect the adoption of the statement to  materially  impact the
Company's results of operations and financial position.
<PAGE>

On June 28, 2002, the FASB voted in favor of issuing SFAS 146,  "Accounting  for
Exit or Disposal  Activities".  SFAS 146 addresses  significant issues regarding
the  recognition,  measurement  and reporting of costs that are associated  with
exit  and  disposal  activities,  including  restructuring  activities  that are
currently  accounted for pursuant to the guidance that the Emerging  Issues Task
Force  (EITF) has set forth in the EITF Issue No. 94-3,  "Liability  Recognition
for Certain  Employee  Termination  Benefits and Other Costs to Exit an Activity
(including  Certain Costs Incurred in a  Restructuring)".  The scope of SFAS 146
also includes (1) costs related to  terminating a contract that is not a capital
lease  and  (2)  termination  benefits  that  employees  who  are  involuntarily
terminated receive under the terms of a one-time benefit arrangement that is not
an ongoing benefit arrangement or an individual deferred compensation  contract.
SFAS 146 will be  effective  for  financial  statements  issued for fiscal years
beginning after December 31, 2002. The Company has not yet determined the impact
of SFAS 146 on results of operations and financial position.

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
June 28, 2002,  preferred stock dividends  accrued in the second quarter of 2002
were paid through the issuance of 805 shares of preferred stock.

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.




<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 June 30, 2002 as compared to December 31, 2001 and results of operations  for
the three and six months ended June 30, 2002 as compared to the comparable  2001
periods for the Company.  This discussion  updates the "Management's  Discussion
and Analysis of Financial  Condition and Results of Operations" in the Company's
2001 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) tele-survey  services,  (ii) printing services,
and (iii)  renewal  commissions  received by the Company for prior year sales of
insurance products for unaffiliated insurance carriers.

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.



<PAGE>


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. In particular,  forward-looking statements can be identified by
the use of  words  such as  "may",  "will",  "should",  "expect",  "anticipate",
"estimate",  "continue", or similar words. 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:

|X|  any  limitation  imposed on the Company's  ability to control the impact of
     rising health care costs, especially prescription drugs, and rising medical
     service utilization rates through product and benefit design,  underwriting
     criteria, premium rate increases, utilization management and negotiation of
     favorable provider contracts;

|X|  the impact of  changing  health  care  trends on the  Company's  ability to
     accurately estimate claim and settlement expense reserves;

|X|  developments in health care reform and other regulatory  issues,  including
     the Health Insurance  Portability and  Accountability Act of 1996 ("HIPPA")
     and increased  privacy  regulation,  and changes in laws and regulations in
     key states where the Company operates;

|X|  the Company's ability to meet minimum regulatory  capital  requirements for
     its Insurance Subsidiaries;

|X|  the  ability  of  the  Company  to  maintain  adequate  liquidity  for  its
     non-insurance   subsidiary   operations   including  financing  by  NCM  of
     commission advances to agents;

|X|  default by issuers of fixed maturity investments owned by the Company;

|X|  and the loss of key management personnel.

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 six months ended
June 30, 2002 and 2001. (In thousands except insurance operating ratios.)

<TABLE>
                                             Three Months Ended            Six Months Ended
                                                  June 30,                      June 30,
                                         -------------------------     -------------------------
                                             2002          2001            2002          2001
                                         -----------   -----------     -----------   -----------

<S>                                      <C>           <C>             <C>           <C>
Premiums                                 $  28,022     $  31,941       $ 56,956      $  63,915
Other                                          654           970          1,330          1,872
                                         -----------   -----------     -----------   -----------
Total insurance operating revenue           28,676        32,911         58,286         65,787
                                         -----------   -----------     -----------   -----------

Benefits and claims                         19,844        24,558         40,820         49,375
Commissions                                  3,377         4,690          7,006          9,551
Increase in deferred acquisition costs        (207)       (1,110)          (143)        (2,227)
General and administrative expense           5,708         6,714         11,617         13,905
Taxes, licenses and fees                       955         1,138          1,977          2,043
                                         -----------   -----------     -----------   -----------

Total insurance operating expenses          29,677        35,990         61,277         72,647

                                         -----------   -----------     -----------   -----------
  Insurance Operating Results               (1,001)       (3,079)        (2,991)        (6,860)
                                         -----------   -----------     -----------   -----------

Fee and service income                       2,477         4,392          5,166          9,099
Fee and service expenses                    (2,302)       (3,937)        (4,832)        (8,108)
                                         -----------   -----------     -----------   -----------

  Fee and Service Results                      175           455            334            991
                                         -----------   -----------     -----------   -----------

Net investment income                        1,940         2,294          3,962          4,616
Net realized (loss) gain on investments       (468)           52           (417)            94
Interest expense on notes payable             (615)         (486)        (1,216)          (656)
                                         -----------   -----------     -----------   -----------

  Income (Loss) Before Income Taxes             31          (764)          (328)        (1,815)

Income tax benefit                               -             -              -              -
                                         -----------   -----------     -----------   -----------

    Net Income (Loss)                    $      31     $    (764)      $   (328)     $  (1,815)
                                         ===========   ===========     ===========   ===========

Insurance operating ratios*
  Benefits and claims                         70.8%         76.9%          71.7%          77.3%
  Commissions                                 12.1%         14.7%          12.3%          14.9%
  Increase in deferred acquisition costs      -0.7%         -3.5%          -0.3%          -3.5%
  General and administrative expenses         19.9%         20.4%          19.9%          21.1%
  Taxes, licenses and fees                     3.4%          3.6%           3.5%           3.2%

</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 second quarter of 2002, income before income taxes was $31,000
compared to a loss before income taxes of ($764,000) for the corresponding  2001
period.  For the first six  months of 2002,  the  pre-tax  loss was  ($328,000),
compared to a pre-tax  loss of ($1.8)  million for the six months ended June 30,
2001. Pre-tax results of operations  improved for the three and six months ended
June 30,  2002  compared  to the  corresponding  2001  periods  due to  improved
insurance operating results that were offset by lower fee and service income and
investment results and increased interest expense.

The $2.1 million and $3.9 million improvement in insurance operating results for
the three and six months ended June 30, 2002 is principally  attributable to the
6.1  percentage  point and 5.6  percentage  point  reduction  in the benefit and
claims to premium ratio, due to a favorable change in major medical product mix.
Since July 2000,  the Company has been  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  previously
marketed major medical products.

Fee and service  income  decreased  $280,000  and $657,000 for the three and six
months  ended  June  30,  2002  principally  due  to  lower  sales  volumes  for
tele-survey  and  printing  operations,  as a  result  of  the  recent  economic
downturn.

Net  investment  income  decreased  $354,000  and $654,000 for the three and six
months ended June 30, 2002 compared to the comparable 2001 periods primarily due
to a decline in  receivables  from  agents and lower fixed  maturity  investment
yields,  emphasized by a repositioning of the Company's  investment portfolio in
the latter part of 2001. During the second quarter of 2002, the Company recorded
net realized  investment  losses of $468,000 which were  principally  due to the
write-down of a WorldCom, Inc. bond investment.

The  $129,000 and  $560,000  increase in interest  expense for the three and six
months ended June 30, 2002 is due to debt financing  obtained from Credit Suisse
First Boston Management  Corporation in April 2001.  Interest expense related to
this  financing was $543,000 and $1.1 million for the three and six months ended
June 30, 2002,  and included  $378,000 and $742,000,  respectively,  of interest
paid in kind by issuance of additional notes (see "Liquidity,  Capital Resources
and Statutory Capital and Surplus").


<PAGE>



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             Six Months Ended
                                         June 30,                      June 30,
                                -------------------------     -------------------------
                                    2002          2001            2002          2001
                                -----------   -----------     -----------   -----------
Major medical:
<S>                             <C>           <C>             <C>           <C>
  First-year                    $   5,605     $   8,036       $  11,379     $  15,376
  Renewal                          12,025        11,895          24,386        23,983
                                -----------   -----------     -----------   -----------
    Subtotal                       17,630        19,931          35,765        39,359
                                -----------   -----------     -----------   -----------

Supplemental specified disease:
  First-year                           95           326             246           584
  Renewal                           5,633         5,882          11,343        12,043
                                -----------   -----------     -----------   -----------
    Subtotal                        5,728         6,208          11,589        12,627
                                -----------   -----------     -----------   -----------

Medicare supplement:
  First-year                            -             -               -             -
  Renewal                           4,140         5,159           8,570        10,592
                                -----------   -----------     -----------   -----------
    Subtotal                        4,140         5,159           8,570        10,592
                                -----------   -----------     -----------   -----------

Other                                 524           643           1,032         1,337
                                -----------   -----------     -----------   -----------
Consolidated Premium Revenue    $  28,022     $  31,941       $  56,956     $  63,915
                                ===========   ===========     ===========   ===========
</TABLE>

Total premiums  decreased by $3.9 million,  or 12.3%,  for the second quarter of
2002 and $7.0 million,  or 10.9%,  for the six months of 2002 as compared to the
corresponding  2001 periods as a result of accelerated  lapsing of major medical
products  marketed  prior to July 2000 and the normal  lapsing  of  supplemental
specified  disease  and  medicare  supplement  policies.  Premiums  from the new
comprehensive  major medical  product,  for which  marketing began in July 2000,
were $8.1 million and $15.2  million for the three and six months ended June 30,
2002 and $4.5 million and $7.4 million, respectively, for the comparable periods
in 2001. The Company is principally marketing major medical products.

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 6.1 percentage points and 5.6 percentage points for the
three and six months ended June 30, 2002 compared to the  comparable  periods in
2001 due  primarily  to the  improved mix of major  medical  products  discussed
above.  Continued  improvement  in the  Company's  benefit and claims to premium
ratio is dependent  upon the Company's  ability to control the impact of rapidly
rising  health  care costs on in force  business  through  timely  premium  rate
increases,   utilization   management  and  negotiation  of  favorable  provider
contracts.

Commissions. The commissions to premiums ratio declined by 2.6 percentage points
for the three and six months  ended June 30, 2002 as compared to the  comparable
2001 periods,  due to a higher percentage of renewal premiums to total premiums.
Commission rates on first year premiums are significantly  higher than those for
renewal premiums.


<PAGE>



General and Administrative  Expense. For the three and six months ended June 30,
2002,  general and  administrative  expenses  decreased over the comparable 2001
periods by 0.5 percentage points and 1.2 percentage points, respectively,  which
improved  insurance  operating  results by approximately  $143,000 and $699,000,
respectively.  The decrease was due  principally  to a decrease in the amount of
business in its first year for which expenses are generally greater.


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.
<TABLE>

                                            June 30, 2002                December 31, 2001
                                      -------------------------     -------------------------
                                         Market                        Market
Fixed Maturity Securities                Value           %             Value         %
------------------------------------  -----------   -----------     -----------   -----------
                                     (in thousands)                (in thousands)
U.S. Government and governmental
  agencies and authorities (except
<S>                                   <C>                 <C>       <C>                <C>
  mortgage-backed)                    $  10,838           10.8      $  10,823          12.0
Finance                                  21,331           21.2         20,307          22.5
Public utilities                          7,295            7.3          7,452           8.2
Mortgage-backed                          21,267           21.2         10,731          11.9
States, municipalities and political
  subdivisions                            2,761            2.7          2,226           2.5
All other corporate bonds                36,992           36.8         38,678          42.9
                                      -----------    -----------    -----------   -----------
    Total fixed maturity securities   $ 100,484          100.0      $  90,217         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>

                                           June 30, 2002               December 31, 2001
                                     -------------------------     -------------------------
Composition of Fixed Maturity           Market                        Market
Securities by Rating                    Value           %             Value           %
-----------------------------------  -----------   -----------     -----------   -----------
                                    (in thousands)                (in thousands)
Ratings
Investment grade:
<S>                                  <C>                <C>        <C>                 <C>
  U.S. Government and agencies       $  30,232          30.1       $  20,451           22.7
  AAA                                    3,727           3.7           2,180            2.4
  AA                                     6,777           6.8           9,160           10.2
  A                                     37,226          37.0          28,318           31.4
  BBB                                   21,316          21.2          29,723           32.9
Non-Investment grade:
  BB                                       973           1.0             250            0.3
  B and below                              233           0.2             135            0.1
                                     -----------   -----------     -----------    -----------
    Total fixed maturity securities  $ 100,484         100.0       $  90,217          100.0
                                     ===========   ===========     ===========    ===========
</TABLE>
<PAGE>

The scheduled contractual maturities of the Company's fixed maturity securities,
excluding  short-term  investments and certificates of deposit, at June 30, 2002
and  December  31, 2001 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>

                                                June 30, 2002                December 31, 2001
                                          -------------------------      -------------------------
Composition of Fixed Maturity                Market                         Market
Securities by Maturity                       Value           %              Value           %
---------------------------------------   -----------   -----------      -----------   -----------
                                           (in thousands)               (in thousands)
Scheduled Maturity

<S>                                       <C>                  <C>       <C>                 <C>
Due in one year or less                   $   7,427            7.4       $   5,909           6.6
Due after one year through five years        23,906           23.8          27,451          30.4
Due after five years through ten years       27,699           27.5          24,165          26.8
Due after ten years                          20,185           20.1          21,961          24.3
Mortgage-backed and asset-backed
     securities                              21,267           21.2          10,731          11.9
                                          -----------    -----------     -----------   -----------
        Total fixed maturity securities   $ 100,484          100.0       $  90,217         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 $32.8 million at June 30, 2002
as compared to $37.2  million at December  31, 2001.  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. Changes impacting the Company include: (1) changes in
economic  conditions;  (2)  changes  in state or federal  laws and  regulations,
particularly  insurance reform measures;  (3) writings of significant  blocks of
new business and (4) significant  changes in claims payment patterns as a result
of the implementation of a new claims administration system in May 2000. 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
$60.8  million at June 30,  2002 as compared  to $61.6  million at December  31,
2001.  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.
<PAGE>

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.

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

General. The primary sources of cash for the Company's  consolidated  operations
are premiums and fees from  insurance  policies,  sales and maturity of invested
assets and  investment  income  while the primary  uses of cash are  payments of
insurance  policy  benefits,  claims  and  commissions,  and  general  operating
expenses.  Net cash used in operations totaled ($2.3) million and ($3.2) million
for the three and six months ended June 30, 2002, compared to ($5.7) million and
($9.5) million for the comparable  2001 periods,  respectively.  The decrease in
cash used by operations is principally  due to decreases in the cash basis ratio
of benefits and claims to premiums  and  decreases  in  commissions  and general
operating expenses.

Ascent is a holding  company,  the  principal  assets  of which  consist  of the
capital  stock of its  subsidiaries  and  invested  assets.  Ascent's  principal
sources of funds are comprised of dividends from its non-insurance subsidiaries.
The Insurance  Subsidiaries  are precluded from paying  dividends  without prior
approval of the Texas  Insurance  Commissioner  as the  Insurance  Subsidiaires'
earned  surplus is negative due to statutory  losses  incurred in recent  years.
Ascent's  principal  uses of cash  are for  capital  contributions  to  maintain
minimum   statutory   capital  and  surplus   requirements   for  the  Insurance
Subsidiaries  and general and  administrative  expenses.  Ascent funded  capital
contributions to the Insurance  Subsidiaries totaling approximately $1.8 million
and  $16.6  million  during  the six  months  ended  June  30,  2002  and  2001,
respectively.  As of  June  30,  2002,  Ascent  had  approximately  $795,000  in
unrestricted cash and invested assets.

The statutory  losses incurred during recent years resulted from (1) significant
losses for comprehensive  major medical products marketed prior to July 2000 due
to higher than expected claims frequency 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).
Adverse claims experience for the previously  marketed major medical products in
excess of management's  current estimates or adverse claims experience for other
insurance  products  would require Ascent to make capital  contributions  to the
Insurance  Subsidiaries  in  excess  of  those  currently  projected  for  2002.
Additional  financing  would be  required  by  Ascent  in order to make any such
"excess"  contributions.  As a result,  adverse claims  experience  could have a
material adverse effect on the Insurance  Subsidiaries'  ability to meet minimum
statutory capital and surplus  requirements and maintain new business production
at current  levels and  therefore,  have a material  adverse  impact on Ascent's
liquidity and capital resources and results of operations.

CSFB  Financing.  Ascent  received debt financing to fund an $11 million capital
contribution  to FLICA in April 2001 from Credit Suisse First Boston  Management
Corporation,  ("CSFB"),  which is an affiliate of Special  Situations  Holdings,
Inc. - Westbridge (Ascent's largest stockholder).  The credit agreement relating
to  that  loan  ("CSFB  Credit  Agreement")  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 three months ended
June 30,  2002,  Ascent  issued  $378,000  in  additional  notes for  payment of
interest in kind which  increased the notes payable  balance to CSFB at June 30,
2002 to approximately  $12.7 million.  The CSFB Credit Agreement  provides for a
facility fee of $1.5 million  which is payable upon maturity or upon a change in
control,  as defined.  This facility fee is being accrued as additional interest
payable over the term of the loan.

Ascent's  obligations  to CSFB are secured,  pursuant to a guaranty and security
agreement and pledge  agreements,  by substantially  all of the assets of Ascent
and its subsidiaires (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 bank  financing  described  below).  Ascent's
subsidiaries  (other  than those  listed  above) have also  guaranteed  Ascent's
obligations  under the CSFB Credit  Agreement.  At June 30, 2002,  there were no
events of default;  however, adverse claims experience in excess of management's
current  expectations  could  result in events of default  under the CSFB Credit
Agreement.

Bank Financing. The majority of commission advances to NCM's agents are financed
through Ascent Funding,  Inc.  ("AFI"),  an indirect wholly owned  subsidiary of
Ascent.  AFI has entered into a Credit  Agreement (the "Credit  Agreement") with
LaSalle Bank, NA ("LaSalle")  which  currently  provides AFI with a $6.5 million
revolving  loan  facility,  the  proceeds  of which are used to  purchase  agent
advance  receivables  from NCM and other  affiliates.  As of June 30, 2002, $4.1
million was outstanding under the Credit Agreement.  AFI incurs a commitment fee
on the unused portion of the Credit Agreement at a rate of 0.50% per annum.

The  Credit  Agreement  expires  June 5,  2003,  at which  time the  outstanding
principal  and interest  will be due and payable.  Under the terms of the Credit
Agreement,  agent advances made within six months of the expiration  date (after
December  5, 2002) are not  eligible  for  financing.  Failure of the Company to
obtain additional renewals of the Credit Agreement could have a material adverse
impact on Ascent's liquidity and capital  resources.  Lack of adequate financing
would impair the Company's  ability to pay competitive  commission  advances and
reduce new  business  sales  needed to replace  the normal  lapsing of  existing
policies. Therefore, failure by Ascent to maintain new business sales at current
levels  would  result in  declining  premium  revenue  and could have a material
adverse impact on Ascent's results of operations.
<PAGE>

AFI's  obligations  under  the  Credit  Agreement  are  secured  by  liens  upon
substantially  all of AFI's assets.  AFI's principal assets at June 30, 2002 are
net agent  receivables of $7.1 million and a cash collateral  account pledged to
LaSalle of $2.6 million.  In addition,  Ascent has guaranteed  AFI's  obligation
under the 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 June 30, 2002, there were no events
of default  under the Credit or Guaranty  Agreements.  However,  adverse  claims
experience in excess of management's current expectations 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") received a $3.3 million term loan
facility with LaSalle,  proceeds of which were used to fund system  replacements
costs. Advances under the term loan facility are 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 June
30,  2002,  approximately  $1.9  million  was  outstanding  under  the term loan
facility.

Preferred Stock.  Dividends on Ascent's redeemable  convertible  preferred stock
(which is 100% owned by Special Situations  Holdings,  Inc. - Westbridge) may be
paid in cash or by issuance of  additional  shares of  preferred  stock,  at the
Company's  option.  On June 28, 2002,  preferred stock dividends  accrued in the
second quarter of 2002 were paid through the issuance of 805 shares of preferred
stock.

Inflation.  Inflation  impacts  claim  costs and  overall  operating  costs and,
although inflation has been lower the last few years, hospital and medical costs
have  still  increased  at a higher  rate  than  general  inflation,  especially
prescription drug costs. New, more expensive and wider use of pharmaceuticals is
inflating  health care costs.  The Company will  continue to  establish  premium
rates in  accordance  with  trends in  hospital  and  medical  costs  along with
concentrated efforts in various cost containment programs. However, there can be
no  assurance  that these  efforts  will fully offset the impact of inflation or
that  increases  in premium  rates will equal or exceed  increasing  health care
costs.












<PAGE>


                             ASCENT ASSURANCE, INC.

--------------------------------------------------------------------------------
                                     PART II

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

On May 9, 2002, Ascent Assurance,  Inc. held its annual meeting of shareholders.
At the meeting, the shareholders elected two directors of the Company.

The shareholders elected John H. Gutfreund and Michael A. Kramer to serve on the
Company's  Board of  Directors  for a three  year  term  expiring  in 2005.  The
following table reflects the votes cast at the annual meeting:
<TABLE>

                                 For                 Withheld
                         -------------------    -------------------
<S>                           <C>                     <C>
   John H. Gutfreund          6,364,412               2,901
   Michael A. Kramer          6,365,249               2,064

       Total Votes Cast       6,367,313

</TABLE>

Directors whose terms continued and the years in which their term expires are as
follows:
<TABLE>

          Director                          Term Expiration
  ------------------------------     -----------------------------
<S>                                             <C>
  Richard H. Hershman                           2003
  Robert A. Peiser                              2003
  Patrick J. Mitchell                           2004
  James K. Steen                                2004
  Paul E. Suckow                                2004

</TABLE>



<PAGE>


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).

10.10Fourth  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).

10.11First 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, 2001).

10.12Fifth  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, 2001).

10.13Third 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, 2001).

10.14First  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, 2001).

10.15Credit  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).

10.16Guaranty  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).

10.17Pledge  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).

10.18Sixth  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).

10.19Fourth  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).

10.20Fifth Amendment to Credit  Agreement dated November 27, 2001 between Ascent
     Funding,  Inc.  and LaSalle  Bank  National  Association  (incorporated  by
     reference to Exhibit 10.31 to the Company's  Annual Report on Form 10-K for
     the year ended December 31, 2001).

10.21Employment  Agreement,  dated September 16, 2001, by and among the Company,
     Ascent  Management,  Inc.,  and Mr.  Patrick J. Mitchell  (incorporated  by
     reference to Exhibit 10.32 to the Company's  Annual Report on Form 10-K for
     the year ended December 31, 2001).

10.22Employment  Agreement,  dated September 16, 2001, by and among the Company,
     Ascent  Management,  Inc.,  and Mr.  Patrick H.  O'Neill  (incorporated  by
     reference to Exhibit 10.33 to the Company's  Annual Report on Form 10-K for
     the year ended December 31, 2001).

10.23Sixth  Amendment  to Credit  Agreement  dated May 15, 2002  between  Ascent
     Funding, Inc. and LaSalle Bank National Association.


(b) Reports on Form 8-K

No reports on Form 8-K were filed during the quarter ended June 30, 2002.




<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
July 31, 2002