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

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                                    FORM 10-K
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(Mark one)
|X|  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934

                   For the fiscal year ended December 31, 2007

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

     For the transition period from _____________ to ____________

Commission File Number: 1-9293

                          PRE-PAID LEGAL SERVICES, INC.
             (Exact name of registrant as specified in its charter)

                 Oklahoma                                  73-1016728
      (State or other jurisdiction of                    (I.R.S. Employer
      incorporation or organization)                    Identification No.)

             One Pre-Paid Way
               Ada, Oklahoma                                   74820
 (Address of principal executive offices)                    (Zip Code)

Registrant's telephone number including area code:  (580) 436-1234

Securities registered pursuant to Section 12(b) of the Exchange Act:
                                                     Name of each exchange on
            Title of each class                          which registered
       Common Stock, $0.01 Par Value                 New York Stock Exchange

Securities registered under Section 12 (g) of the Exchange Act: None

Indicate by check mark if registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act. Yes [ ] No |X|

Indicate by check mark if registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes [ ] No |X|

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes |X| No [ ]

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

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated  filer, or a  non-accelerated  filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. Check one:

Large accelerated filer | |    Accelerated filer |X|    Non-accelerated file | |

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Act) Yes | | No |X|

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates  computed by reference to the price at which the common equity
was last sold, or the average bid and asked prices of such common equity,  as of
the last business day of the registrant's most recently  completed second fiscal
quarter. As of June 30, 2007: $576,352,000

Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest  practicable  date: As of February 15, 2008 there
were 12,432,491 shares of Common Stock, par value $.01 per share, outstanding.


DOCUMENTS INCORPORATED BY REFERENCE.
Portions  of our  definitive  proxy  statement  for our 2008  annual  meeting of
shareholders are incorporated into Part III of this Form 10-K by reference.
================================================================================





     



                          PRE-PAID LEGAL SERVICES, INC.
                                    FORM 10-K

                      For the Year Ended December 31, 2007

                                TABLE OF CONTENTS
PART I
------
ITEM 1.          BUSINESS
                     General
                     Industry Overview
                     Description of Memberships
                     Specialty Legal Service Plans
                     Provider Law Firms
                     Identity Theft Shield Provider
                     Marketing
                     Operations
                     Quality Control
                     Competition
                     Regulation
                     Employees
                     Foreign Operations
                     Availability of Information
ITEM 1A.         RISK FACTORS
ITEM 1B.         UNRESOLVED STAFF COMMENTS
ITEM 2.          PROPERTIES
ITEM 3.          LEGAL PROCEEDINGS
ITEM 4.          SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

PART II
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ITEM 5.          MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
                 SECURITIES
                     Market Price of and Dividends on the Common Stock
                     Recent Sales of Unregistered Securities
                     Issuer Purchases of Equity Securities
                     Shareholder Return Performance Graph
ITEM 6.          SELECTED FINANCIAL DATA
ITEM 7.          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
                     Overview of our Financial Model
                     Critical Accounting Policies
                     Other General Matters
                     Measures of Member Retention
                     Results of Operations
                         Comparison of 2007 to 2006
                         Comparison of 2006 to 2005
                     Liquidity and Capital Resources
                     Forward Looking Statements
ITEM 7A.         QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8.          FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9.          CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

ITEM 9A.         CONTROLS AND PROCEDURES
ITEM 9B.         OTHER INFORMATION

PART III         (Information required by Part III is incorporated by
--------         reference from our definitive proxy statement for our 2008
                 annual meeting of shareholders.)
PART IV
-------
ITEM 15.         EXHIBITS, FINANCIAL STATEMENT SCHEDULES

SIGNATURES





                         PRE-PAID LEGAL SERVICES, INC.
                                    FORM 10-K

                      FOR THE YEAR ENDED DECEMBER 31, 2007


                                     PART I

ITEM 1.       BUSINESS.
-----------------------

General

     We were one of the first companies in the United States organized solely to
design,  underwrite and market legal expense plans.  Our  predecessor  commenced
business in 1972 and began  offering legal expense  reimbursement  services as a
"motor  service  club" under  Oklahoma law. In 1976, we were formed and acquired
our predecessor in a stock exchange.  We began offering Memberships  independent
of the motor  service  club  product by adding a legal  consultation  and advice
service,  and in 1979 we  implemented a legal expense  benefit that provided for
partial  payment of legal fees in  connection  with the defense of certain civil
and criminal  actions.  Our legal expense plans  (referred to as  "Memberships")
currently provide for a variety of legal services in a manner similar to medical
plans. In most states and provinces,  standard plan benefits include  preventive
legal services,  motor vehicle legal defense  services,  trial defense services,
IRS audit  services  and a 25%  discount  off legal  services  not  specifically
covered by the Membership for an average monthly Membership fee of approximately
$21.  Additionally,  in approximately  44 states,  the Legal Shield rider can be
added to the  standard  plan for only $1 per month  and  provides  members  with
24-hour  access to a toll-free  number for attorney  assistance if the member is
arrested or detained.  Also, during the third quarter of 2003, we began offering
our Identity Theft Shield ("IDT") to new and existing members at $9.95 per month
if added to a legal  service  Membership  ("add-on  IDT") or it may be purchased
separately for $12.95 per month ("stand-alone  IDT"). The identity theft related
benefits include a credit report and related instructional guide, a credit score
and related  instructional guide, credit report monitoring with daily online and
monthly  offline   notification  of  any  changes  in  credit   information  and
comprehensive identity theft restoration services.

     Legal plan benefits are generally provided through a network of independent
provider  law  firms,  typically  one firm per  state or  province  and IDT plan
benefits are provided by Kroll Background  America,  Inc., a subsidiary of Kroll
Inc. ("Kroll"). Members have direct, toll-free access to Kroll or their provider
law firm rather than having to call for a referral. At December 31, 2007, we had
1,575,802  Memberships  in force with members in all 50 states,  the District of
Columbia and the Canadian  provinces of Ontario,  British Columbia,  Alberta and
Manitoba. Approximately 90% of such Memberships were in 29 states and provinces.

Industry Overview

     Legal service  plans,  while used in Europe for more than one hundred years
and representing more than a $4 billion European industry,  were first developed
in the  United  States  in the late  1960s.  Since  that  time,  there  has been
substantial  growth in the number of Americans entitled to receive various forms
of legal services through legal service plans. The National  Resource Center for
Consumers of Legal Services ("NRC")  previously  provided market information for
different  types of legal  service  plans  and  estimates  of  number  of users.
However,  the NRC is no longer in  existence  and we are  unaware of any current
comparable  information  sources.  In the  last  NRC  report  in  2002,  the NRC
estimated  there were 164 million  Americans  without any type of legal  service
plan. We believe the legal service plan industry  continues to evolve and market
acceptance of legal service plans, as indicated by the continuing  growth in the
number of individuals covered by plans, is increasing.

     "Public  Perceptions of Lawyers:  Consumer Research  Findings,  April 2002"
prepared on behalf of the American Bar  Association  concluded that nearly seven
in ten  households  had some  occasion  during the past year that might have led
them to hire a lawyer.  This report  further  suggested  that "for the consumer,
legal  services  are among the most  difficult  services to buy. The prospect of
doing so is rife with  uncertainty  and potential  risk." And further  concluded
that  "the  challenge  (and  opportunity)  for the legal  profession  is to make
lawyers more accessible and less threatening to consumers who might need them."

     The  American  Bar   Association's   web  site  also   reflects  the  legal
profession's  support of the legal  service  plan concept by saying "The ABA has
long supported  prepaid legal services plans as a way to increase  access to the
justice  system  for  low-  and  middle-income  Americans.   These  plans  allow
individuals and families to address legal issues before they become  significant
problems,  reducing demands on already overburdened court systems and instilling
confidence  in our justice  system.  The ABA web site  points out that:

o    Group legal plans are  important to  maintaining  confidence in our justice
     system and the rule of law.

o    Group legal plans efficiently and inexpensively  provide preventative legal
     services to low and middle income Americans.

o    Group legal services help ease the burden on overtaxed government programs.

o    Group legal plans enhance  productivity  by allowing  employees to focus on
     their jobs, not their legal troubles.

     Legal service plans are offered through various organizations and marketing
methods  and  contain a wide  variety  of  benefits.  Free plans  include  those
sponsored by labor unions,  elder hotlines,  the American Association of Retired
Persons and the National  Education  Association and employee  assistance  plans
that are also automatic  enrollment  plans without  direct cost to  participants
designed  to provide  limited  telephonic  access to  attorneys  for  members of
employee  groups.  There are also  employer  paid plans  pursuant  to which more
comprehensive benefits are offered by the employer as a fringe benefit. Finally,
there are individual  enrollment plans, other employment based plans,  including
voluntary  payroll  deduction  plans,  and  miscellaneous   plans.  These  plans
typically have more comprehensive benefits,  higher utilization,  involve higher
costs to participants,  and are offered on an individual enrollment or voluntary
basis. This is the market segment in which we compete.

     According  to the  latest  estimates  of the  census  bureaus of the United
States and Canada,  the two geographic areas in which we operate,  the number of
households  in the  combined  area  exceeds  138  million.  Since we have always
disclosed our members in terms of  Memberships  and  individuals  covered by the
Membership include the individual who purchases the Membership together with his
or her spouse and never  married  children  living at home up to age 21 or up to
age 23 if the  children  are full time  college  students,  we believe  that our
market share should be viewed as a percentage of households.  Historically,  our
primary  market focus has been the "middle"  eighty  percent of such  households
rather  than the upper and lower ten percent  segments  based on our belief that
the upper ten percent may already  have a  relationship  with an attorney or law
firm and the lower  ten  percent  may not be able to afford  the cost of a legal
service plan. As a percentage of this defined  "middle" market of  approximately
110 million  households,  we  currently  have an  approximate  1.5% share of the
estimated market based on our existing 1.6 million active  Memberships and, over
the last 30 years, an additional 6% of households have previously purchased, but
no longer own,  Memberships.  We  routinely  remarket  to  previous  members and
reinstated approximately 83,000, 76,000 and 79,000 Memberships during 2007, 2006
and 2005, respectively.

Description of Memberships

     The  Memberships we sell  generally  allow members to access legal services
through a network of independent law firms ("provider law firms") under contract
with us. Provider law firms are paid a monthly fixed fee on a capitated basis to
render  services to plan members  residing within the state or province in which
the provider law firm attorneys are licensed to practice.  Because the fixed fee
payments by us to provider law firms do not vary based on the type and amount of
benefits utilized by the member, this capitated arrangement provides significant
advantages  to us in managing  claims risk.  At December  31, 2007,  Memberships
subject to the capitated provider law firm arrangement  comprised  approximately
99% of our active Memberships. The remaining Memberships, approximately 1%, were
primarily sold prior to 1987 and allow members to locate their own lawyer ("open
panel")  to provide  legal  services  available  under the  Membership  with the
member's  lawyer  being  reimbursed  for  services   rendered  based  on  usual,
reasonable  and customary  fees, or are in states where there is no provider law
firm in place and our referral attorney network described below is utilized.

     Family Legal Plan
     The Family Legal Plan we currently market in most jurisdictions consists of
five basic benefit groups that provide  coverage for a broad range of preventive
and  litigation-related  legal  expenses.  The Family Legal Plan  accounted  for
approximately  91% of our Membership  fees  (including the add-on identity theft
shield benefit, 76% and 79%,  respectively,  excluding such add-ons) in 2007 and
2006.  In addition to the Family Legal Plan, we market other  specialized  legal
services  products  specifically  related to employment  in certain  professions
described below.

     In 12 states,  certain of our plans are available in the Spanish  language.
For the Spanish language plans, the provider law firms have both bilingual staff
and lawyers and we have bilingual staff for customer service, attorney resources
and marketing service  functions.  We will continue to evaluate making our plans
available in additional  languages in markets where demand for such a product is
expected to be sufficient to justify this additional cost.

     In exchange for a fixed monthly, semi-annual or annual payment, members are
entitled  to  specified  legal  services.   Those  individuals  covered  by  the
Membership include the individual who purchases the Membership along with his or
her spouse and never married  children  living at home up to age 21 or up to age
23 if the children are full time college students. Also included are children up
to age 18 for whom  the  member  is  legal  guardian  and any  dependent  child,
regardless  of age, who is mentally or  physically  disabled.  Each  Membership,
other than the Business  Owners' Legal Solutions Plan, is guaranteed  renewable,
except in the case of fraud or nonpayment of Membership fees.  Historically,  we
have not raised rates to existing  members.  If new benefits  become  available,
existing members may choose the newer, more  comprehensive plan at a higher rate
or keep their existing Memberships. Memberships are automatically renewed at the
end of each  Membership  period  unless the member  cancels prior to the renewal
date or fails to make payment on a timely basis.

     The basic legal service plan Membership is sold as a package  consisting of
five separate  benefit groups.  Memberships  range in cost from $14.95 to $25.00
per month  depending in part on the  schedule of  benefits,  which may vary from
state or province in  compliance  with  regulatory  requirements.  Benefits  for
domestic matters, bankruptcy and drug and alcohol related matters are limited in
most Memberships.

     Preventive  Legal  Services.   These  benefits  generally  offer  unlimited
toll-free access to a member's  provider law firm for advice and consultation on
any legal matter.  These  benefits  also include  letters and phone calls on the
member's behalf, review of personal contracts and documents, each up to 10 pages
in length,  last will and testament  preparation  for the member and annual will
reviews at no  additional  cost.  Additional  wills for spouse and other covered
members may be prepared at a cost of $20.

     Motor Vehicle Legal  Protection.  These benefits offer legal assistance for
matters  resulting from the operation of a licensed motor vehicle.  Members have
assistance available to them at no additional cost for: (a) defense in the court
of original  jurisdiction of moving traffic violations deemed  meritorious,  (b)
defense in the court of  original  jurisdiction  of any charge of  manslaughter,
involuntary manslaughter, vehicular homicide or negligent homicide as the result
of a licensed  motor vehicle  accident,  (c) up to 2.5 hours of  assistance  per
incident for  collection of minor property  damages (up to $2,000)  sustained by
the  member's  licensed  motor  vehicle in an  accident,  (d) up to 2.5 hours of
assistance per incident for collection of personal injury damages (up to $2,000)
sustained by the member or covered family member while driving,  riding or being
struck as a pedestrian by a motor vehicle, and (e) up to 2.5 hours of assistance
per  incident  in  connection  with an  action,  including  an  appeal,  for the
maintenance  or  reinstatement  of a member's  driver's  license  which has been
canceled,  suspended,  or revoked.  No coverage  under this benefit of the basic
legal service plan is offered to members for  pre-existing  conditions,  drug or
alcohol related matters,  or for commercial vehicles over two axles or operation
without a valid license.

     Trial  Defense.  These  benefits  offer  assistance  to the  member and the
member's  spouse through an increasing  schedule of benefits based on Membership
year.  Up to 60 hours are  available  for the  defense  of civil or  job-related
criminal  charges by the provider  law firm in the first  Membership  year.  The
criminal  action  must be  within  the scope and  responsibility  of  employment
activities of the member or spouse.  Up to 2.5 hours of assistance are available
prior to trial,  and the balance is  available  for actual trial  services.  The
schedule  of  benefits  under  this  benefit  area  increases  by 60 hours  each
Membership  year to: 120 hours in the second  Membership  year, 3 hours of which
are available for pre-trial  services;  180 hours in the third  Membership year,
3.5 hours of which are available for pre-trial services; 240 hours in the fourth
Membership year, 4 hours of which are available for pre-trial  services,  to the
maximum limit of 300 hours in the fifth  Membership year, 4.5 hours of which are
available  for  pre-trial  services.  This benefit  excludes  domestic  matters,
bankruptcy,  deliberate criminal acts, alcohol or drug-related matters, business
matters, and pre-existing conditions.

     In addition  to the  pre-trial  benefits of the basic legal plan  described
above,  there are additional  pre-trial hours available as an option, or add-on,
to the basic plan. These optional benefits cost $9.00 per month and add 15 hours
of  pre-trial  services  during the first year of the  Membership  increasing  5
additional  hours each  Membership  year to the maximum limit of 35 hours in the
fifth  Membership  year and  increases  total  pre-trial and trial defense hours
available  pursuant  to the  expanded  Membership  to 75 hours  during the first
Membership year to 335 hours in the fifth Membership year. These pre-trial hours
are in addition to those  hours  already  provided by the basic plan so that the
member,  in the  first  year of the  Membership,  has a  combined  total of 17.5
pre-trial hours available escalating to a combined total of 39.5 pre-trial hours
in the fifth Membership year. There were  approximately  530,000  subscribers of
this benefit at December 31, 2007 compared to 549,000 at December 31, 2006.

     IRS Audit Protection Services.  This benefit offers up to 50 hours of legal
assistance  per year in the  event the  member,  spouse  or  dependent  children
receive written notification of an Internal Revenue Service ("IRS") audit or are
summoned in writing to appear  before the IRS  concerning  a tax return.  The 50
hours of assistance  are available in the following  circumstances:  (a) up to 1
hour  for  initial  consultation,  (b) up to 2.5  hours  for  representation  in
connection  with the audit if settlement  with the IRS is not reached  within 30
days, and (c) the remaining 46.5 hours of actual trial time if settlement is not
achieved prior to litigation. Coverage is limited to audit notification received
regarding  the tax return for years during which the  Membership  is  effective.
Representation  for  charges  of fraud  or  income  tax  evasion,  business  and
corporate tax returns and certain other matters are excluded from this benefit.

     With  pre-trial  benefits  limited  to 2.5 hours to 4.5 hours  based on the
Membership year for trial defense (without the pre-trial  option  described) and
3.5 hours for the IRS audit  benefit,  these  benefits  do not  ensure  complete
pre-trial coverage.  In order to receive additional pre-trial IRS audit or trial
defense  benefits,  a matter  must  actually  proceed  to  trial.  The  costs of
pre-trial  preparation  that exceed the benefits  under the  Membership  are the
responsibility  of the  member.  Provider  law  firms  under  the  closed  panel
Membership have agreed to provide to members any additional  pre-trial  services
beyond those  stipulated  in the  Membership at a 25% discount from the provider
law firm's  customary and usual hourly rate.  Retainer fees for these additional
services may be required.

     Preferred  Member Discount for All Other Services.  Provider law firms have
agreed to provide to members any legal services  beyond those  stipulated in the
Membership at a fee  discounted  25% from the provider law firm's  customary and
usual  hourly  rate.  This  "customary  and usual hourly rate" is a fixed single
hourly rate for each  provider  firm that is  generally an average of the firm's
various hourly rates for its attorneys  which typically vary based on experience
and expertise.

     Legal Shield Benefit
     In  approximately 44 states and four Canadian  provinces,  the Legal Shield
plan can be added to the standard or expanded Family Legal Plan for $1 per month
and provides  members with 24-hour access to a toll-free number for provider law
firm assistance if the member is arrested or detained.  The Legal Shield member,
if  detained,  can  present  their Legal  Shield  card to the  officer  that has
detained them to make it clear that they have access to legal representation and
that they are  requesting to contact a lawyer  immediately.  The benefits of the
Legal Shield plan are subject to conditions imposed by the detaining  authority,
which may not allow for the provider law firm to communicate  with the member on
an immediate  basis. The Legal Shield benefit was introduced in 1999. There were
approximately  1,080,000 Legal Shield  subscribers at December 31, 2007 compared
to approximately 1,032,000 at December 31, 2006.

     Identity Theft Shield Benefit
     During the third quarter of 2003, we announced a joint marketing  agreement
with Kroll Background  America Inc., a subsidiary of Kroll Inc., that allows our
independent  sales  associates to market  Kroll's  identity theft benefits in 50
states and four Canadian provinces. By adding the Identity Theft Shield to their
existing family Membership,  members have toll free access to the identity theft
specialists  at Kroll.  This benefit can be added to a legal service  Membership
for $9.95 per month or purchased  separately for $12.95 per month.  The identity
theft related benefits include a credit report and related  instructional guide,
a credit score and related  instructional  guide,  credit report monitoring with
daily  online  and  monthly  offline  notification  of  any  changes  in  credit
information and comprehensive  identity theft restoration  services.  There were
approximately  715,000 and 605,000  subscribers  at December  31, 2007 and 2006,
respectively,  comprised of 632,000 and 540,000  subscribers  at $9.95 per month
and 83,000 and 65,000 subscribers at $12.95 per month.

     Canadian Family Plan
     The Family  Legal Plan is currently  marketed in the Canadian  provinces of
Ontario, British Columbia,  Alberta and Manitoba. We began operations in Ontario
and British  Columbia during 1999 and Alberta and Manitoba in 2001.  Benefits of
the Canadian plan include expanded preventive benefits including assistance with
Canadian  Government  agencies,  warranty  assistance  and  small  claims  court
assistance as well as the preferred  member discount.  Canadian  Membership fees
collected  during  2007 were  approximately  $7.6  million  (including  positive
foreign  currency  translation  adjustments)  in U.S.  dollars  compared to $6.8
million collected in 2006 and $5.6 million collected in 2005.

Specialty Legal Service Plans

     In addition to the Family Legal Plan described  above,  we also offer other
specialty or niche legal service plans.  These  specialty  plans usually contain
many of the Family Legal Plan  benefits  adjusted as necessary to meet  specific
industry or  prospective  member  requirements.  In addition to those  specialty
plans described below, we will continue to evaluate and develop other such plans
as the need and market allow.

     Business Owners' Legal Solutions Plan
     The Business  Owners' Legal  Solutions  plan was developed  during 1995 and
provides  business  oriented legal service benefits for small businesses with 99
or fewer  employees.  This plan was  developed  and test  marketed  in  selected
geographical  areas and more widely marketed beginning in 1996 at a monthly rate
of $69.00.  This plan provides  small  businesses  with legal  consultation  and
correspondence   benefits,   contract  and  document  reviews,  debt  collection
assistance  and  reduced  rates for any  non-covered  areas.  During  1997,  the
coverage  offered  pursuant to this plan was expanded to include  trial  defense
benefits and Membership in  GoSmallBiz.com,  an unrelated Internet based service
provider.  Through  GoSmallBiz.com,   members  may  receive  unlimited  business
consultations from business consultants and have access to timely small business
articles,  educational software,  Internet tools and more. This expanded plan is
currently  marketed at a monthly  rate ranging from $69 to $150 ($175 in Canada)
depending  on the number of  employees  and  provides  business  oriented  legal
service benefits for any for-profit  business with 99 or fewer  employees.  This
plan is  available in 46 states and three  Canadian  provinces  and  represented
approximately  5.3%,  5.1% and 3.4% of our Membership fees during 2007, 2006 and
2005, respectively.

     Commercial Driver Legal Plan
     The  Commercial   Driver  Legal  Plan,   developed  in  1986,  is  designed
specifically  for  the  professional  truck  driver  and  offers  a  variety  of
driving-related   benefits,   including   coverage  for  moving  and  non-moving
violations.  This plan provides  coverage by a provider law firm for persons who
drive a commercial  vehicle.  This legal service plan is currently offered in 45
states.  In certain states,  the Commercial Driver Legal Plan is underwritten by
the Road America Motor Club, an unrelated motor service club. During each of the
years  ended  December  31,  2007,  2006  and  2005,  this  plan  accounted  for
approximately  .9% of Membership fees. The Plan underwritten by the Road America
Motor  Club is  available  at the  monthly  rate of $35.95 or at a group rate of
$32.95.  Plans underwritten by us are available at the monthly rate of $32.95 or
at a group rate of $29.95.  Benefits  include the motor vehicle related benefits
described above, defense of Department of Transportation  violations and the 25%
discounted  rate for services  beyond plan scope,  such as defense of non-moving
violations.  The Road America  Motor Club  underwritten  plan  includes bail and
arrest bonds and services for family vehicles.

     Home-Based Business Rider
     The Home-Based  Business plan was designed to provide small business owners
access to commonly needed legal services. It can be added to the Expanded Family
Legal Plan in approved states.  To qualify,  the business and residence  address
must be the same with three or fewer employees and be a for-profit business that
is not publicly  traded.  Benefits  under this plan include  unlimited  business
telephone  consultation,  review of three  business  contracts per month,  three
business and debt  collection  letters per month and  discounted  trial  defense
rates.  This plan  also  includes  Membership  in  GoSmallBiz.com.  This plan is
available in 37 states and two Canadian provinces and represented  approximately
1.8% of our Membership fees during each of 2007, 2006 and 2005.

     Comprehensive Group Legal Services Plan
     In late 1999 we introduced the Comprehensive  Group plan,  designed for the
large group employee benefit market. This plan, available in 36 states, provides
all  the  benefits  of the  Family  Legal  Plan as  well  as  mortgage  document
preparation,  assistance with  uncontested  legal  situations such as adoptions,
name  changes,  separations  and  divorces.   Additional  benefits  include  the
preparation  of health care power of attorney and living wills or  directives to
physicians.  Although  sales of this plan  during  the last three  years  (2,735
Memberships, 5,892 Memberships and 4,444 Memberships during 2007, 2006 and 2005,
respectively)  are not significant  compared to our total  Membership  sales, we
still  believe this plan  improves our  competitive  position in the large group
market. We continue to emphasize group marketing to employee groups of less than
50 rather than larger groups where there is more competition,  price negotiation
and typically a longer sales cycle.

     Other than additional  benefits such as the Legal Shield and Identity Theft
Shield  benefits  described  above,  the  basic  structure  and  design  of  the
Membership  benefits has not significantly  changed over the last several years.
The  consistency in plan design and delivery  provides us  consistent,  accurate
data about plan utilization which enables us to manage our benefit costs through
the capitated  payment  structure to provider firms. We frequently  evaluate and
consider  other plan benefits that may include other services  complimentary  to
the basic legal service plan.

Provider Law Firms

     Our Memberships  generally allow members to access legal services through a
network of  independent  provider  law firms under  contract  with us  generally
referred to as "provider law firms."  Provider law firms are paid a fixed fee on
a per capita basis to render services to plan members  residing within the state
or province as provided by the contract. Because the fixed fee payments by us to
provider law firms in connection  with the  Memberships do not vary based on the
type and amount of benefits  utilized by the member,  this arrangement  provides
significant advantages to us in managing our cost of benefits. Pursuant to these
provider  law firm  arrangements  and due to the volume of revenue  directed  to
these  firms,  we have the  ability to more  effectively  monitor  the  customer
service aspects of the legal services  provided,  the financial leverage to help
ensure a customer  friendly  emphasis  by the  provider  law firms and access to
larger,  more diversified law firms.  Through our members,  we are typically the
largest client base of our provider law firms.

     Provider  law  firms are  selected  to serve  members  based on a number of
factors,  including recommendations from provider law firms and other lawyers in
the area in which the candidate  provider law firm is located and in neighboring
states,  our  investigation of bar association  standing and client  references,
evaluation of the education,  experience and areas of practice of lawyers within
the firm, on-site evaluations by our management,  and interviews with lawyers in
the firm who would be  responsible  for providing  services.  Most  importantly,
these  candidate  law  firms  are  evaluated  on  the  firm's  customer  service
philosophy.

     Approximately  87% of  provider  law firms,  representing  98% of our legal
service  members,  are  connected  to us via  high-speed  digital  links  to our
management   information   systems,   thereby  providing  real-time   monitoring
capability.  This  online  connection  offers the  provider  law firm  access to
specially designed software developed by us for administration of legal services
by the firm.  These  systems  provide  statistical  reports  of each law  firm's
activity  and  performance  and allow  virtually  all of the  members  served by
provider law firms to be monitored on a near real-time  basis.  The few provider
law firms that are not online with us typically have a small Membership base and
must provide  various  weekly  reports to us to assist in monitoring  the firm's
service level.  The combination of the online  statistical  reporting and weekly
service reports for smaller provider law firms allows quality control monitoring
of over 15 separate  service  delivery  benchmarks.  In  addition,  we regularly
conduct  extensive random surveys of members who have used the legal services of
a provider law firm. We survey members in each state every 60 days,  compile the
results of such  surveys and provide the  provider law firms with copies of each
survey and the overall summary of the results. If a member indicates on a survey
the service did not meet their  expectation,  the member is contacted as soon as
possible to resolve the issue.

     Each month, provider law firms are presented with a comprehensive report of
ratings  related to our online  monitoring,  member  complaints,  member  survey
evaluations,  telephone  reports and other  information  developed in connection
with member service monitoring. If a problem is detected, we recommend immediate
remedial actions to the provider law firms to eliminate service deficiencies. In
the event the  deficiencies  of a provider law firm are not  eliminated  through
discussions and additional training with us, such deficiencies may result in the
termination of the provider law firm. We are in constant  communication with our
provider law firms and meet with them  frequently  for additional  training,  to
encourage increased  communications with us and to share suggestions relating to
the timely and effective delivery of services to our members.

     Each attorney member of the provider law firm rendering  services must have
at least two years of experience as a lawyer,  unless we waive this  requirement
due to special  circumstances  such as  instances  when the lawyer  demonstrates
significant  legal  experience  acquired  in an  academic,  judicial  or similar
capacity other than as a lawyer.  We provide  customer  service  training to the
provider law firms and their support staff through on-site  training that allows
us to observe  the  individual  lawyers of provider  law firms as they  directly
assist the members.

     Agreements with provider law firms: (a) generally permit termination of the
agreement by either party upon 60 days prior  written  notice,  (b) permit us to
terminate the Agreement for cause  immediately upon written notice,  (c) require
the firm to maintain a minimum  amount of  malpractice  insurance on each of its
attorneys,   in  an  amount  not  less  than  $100,000,  (d)  preclude  us  from
interference  with the  lawyer-client  relationship,  (e) provide  for  periodic
review of  services  provided,  (f) provide for  protection  of our  proprietary
information  and (g)  require  the  firm to  indemnify  us  against  liabilities
resulting  from legal  services  rendered  by the firm.  We are  precluded  from
contracting  with  other  law  firms to  provide  the same  service  in the same
geographic  area,  except  in  situations  where the  designated  law firm has a
conflict  of  interest,  we enroll a group of 500 or more  members,  or when the
agreement is terminated by either party.  Provider law firms are precluded  from
contracting  with other prepaid legal  service  companies  without our approval.
Provider  law firms  receive a fixed  monthly  payment  for each  member who are
residents in the service area and are  responsible  for providing the Membership
benefits without additional remuneration.  If a provider law firm delivers legal
services  to an open  panel  member,  the law firm is  reimbursed  for  services
rendered  according  to the open panel  Membership.  As of  December  31,  2007,
provider law firms averaged  approximately  56 employees each and on average are
relatively evenly split between support staff and lawyers.

     We have had occasional disputes with provider law firms, some of which have
resulted in litigation.  The toll-free  telephone lines utilized and paid for by
the  provider  law firms are owned by us so that in the event of a  termination,
the members'  calls can be rerouted very quickly.  Nonetheless,  we believe that
our relations  with  provider law firms are  generally  very good. At the end of
2007,  we had  provider  law firms  representing  47 states  and four  provinces
compared  to 48 states and four  provinces  at the end of 2006.  During the last
three calendar years, our relationships with a total of seven provider law firms
were  terminated  by us or the  provider law firm.  As of December 31, 2007,  33
provider  law firms have been under  contract  with us for more than eight years
with the average tenure of all provider law firms being approximately 9.4 years.

     There are  occasions  when  members need to be referred by the provider law
firm or PPL to an attorney  outside the provider law firm.  These  instances are
for  geographic  reasons,  expertise  reasons or if the matter is a conflict  of
interest for the provider  law firm.  We have an extensive  database of referral
lawyers developed for PPL and the provider law firms to access when members need
services to be  coordinated  outside the  provider  law firm.  Lawyers with whom
members  have   experienced   verified  service   problems,   or  are  otherwise
inappropriate for the referral system, are removed from our database of referral
lawyers.


Identity Theft Shield Benefits Provider

     Kroll is one of the world's  leading risk  consulting  companies.  For more
than 30 years, Kroll has helped companies,  government  agencies and individuals
reduce their exposure to risk and capitalize on business opportunities. Kroll is
an operating unit of Marsh & McLennan  Companies,  Inc., the global professional
services firm. With offices in more than 65 cities in the U.S. and abroad, Kroll
can operate and  restructure  businesses;  scrutinize  accounting  practices and
financial  documents;  gather  and filter  electronic  evidence  for  attorneys;
recover  lost or damaged  data from  computers  and  servers;  conduct  in-depth
investigations;   screen  domestic  and  foreign-born  job  candidates;  protect
individuals;  and enhance  security  systems  and  procedures.  Kroll's  clients
include  many of the world's  largest  and most  prestigious  corporations,  law
firms, academic institutions,  non-profit  organizations,  sovereign governments
and high net-worth individuals,  entertainers and celebrities.  Kroll's seasoned
professionals were handpicked and recruited from leading  management  consulting
companies,  top  law  firms,  international  auditing  companies,  multinational
corporations,  special  operations  forces,  law  enforcement  and  intelligence
agencies. Kroll also maintains a network of highly trained specialists in cities
throughout  the world who can respond to global needs 24 hours a day, seven days
a week.  Over the last three years,  Kroll has  developed a unique  solution for
victims of  identity  theft and this  service is now  available  to our  members
through the Identity  Theft Shield  benefit.  Similar to the provider law firms,
Kroll is paid a fixed fee on a monthly  per capita  basis to render  services to
IDT members.

Marketing

     Multi-Level Marketing
     We  market  Memberships  through  a  multi-level   marketing  program  that
encourages individuals to sell Memberships and allows individuals to recruit and
develop  their  own  sales  organizations.  Commissions  are  paid  only  when a
Membership is sold. No commissions are paid based solely on recruitment.  When a
Membership is sold,  commissions are paid to the associate  making the sale, and
to other  associates (on average,  eight others at December 31, 2007 compared to
nine others at December  31, 2006 and  December 31, 2005) who are in the line of
associates  who  directly or  indirectly  recruited  the selling  associate.  We
provide  training  materials,  organize  area-training  meetings  and  designate
personnel at the home office specially trained to answer questions and inquiries
from associates.  We offer various communication avenues to our sales associates
to  keep  such  associates  informed  of any  changes  in the  marketing  of our
Memberships.  The  primary  communication  vehicles we utilize to keep our sales
associates  informed include  extensive use of conference  calls and e-mail,  an
interactive  voice-mail service, The Connection monthly magazine, an interactive
voice response system and our website, prepaidlegal.com.

     Multi-level  marketing is primarily  used for  marketing  based on personal
sales  since it  encourages  individual  or  group  face-to-face  meetings  with
prospective  members and has the potential of attracting a large number of sales
personnel  within  a  short  period  of  time.  Our  marketing  efforts  towards
individuals  typically target the middle income family or individual and seek to
educate  potential  members  concerning  the  benefits of having ready access to
legal  counsel  for a variety  of  everyday  legal  problems.  Memberships  with
individuals or families sold by the multi-level  sales force  constituted 75% of
our  Memberships in force at December 31, 2007,  compared to 76% at December 31,
2006  and 80% at  December  31,  2005.  Although  other  means  of  payment  are
available,  approximately 74% of fees on Memberships purchased by individuals or
families are paid on a monthly basis by means of automatic  bank draft or credit
card.

     Group marketing
     Our marketing  efforts towards  employee  groups,  principally on a payroll
deduction  payment basis,  are designed to permit our sales  associates to reach
more potential members with each sales presentation and strive to capitalize on,
among other things, what we perceive to be a growing interest among employers in
the  value  of  providing  legal  and  identity  theft  service  plans  to their
employees.  Memberships sold through employee groups  constituted  approximately
25% of total Memberships in force at December 31, 2007,  compared to 24% and 20%
at December 31, 2006 and 2005, respectively. Most employee group Memberships are
sold to school systems, governmental entities and businesses. We emphasize group
marketing  to employee  groups of less than 50 rather than larger  groups  where
there is more competition, price negotiation and typically a longer sales cycle.
No  group  accounted  for  more  than  1%  of  our  consolidated  revenues  from
Memberships  during 2007, 2006 or 2005.  Substantially all group Memberships are
paid on a monthly  basis.  We are  active in  legislative  lobbying  efforts  to
enhance  our  ability  to market  to public  employee  groups  and to  encourage
Congress to reenact  legislation  to permit legal  service  plans to qualify for
pre-tax payments under tax qualified employee cafeteria plans.

     Affirmative Defense Response System
     We developed the Affirmative  Defense  Response System ("ADRS") during 2006
to provide businesses and their employees a way to minimize their risk in regard
to  identity  theft by  encouraging  businesses  to take  proactive  measures to
protect non-public information.  Once our sales associates have been through the
required  training,  they can begin to offer businesses the forms they will need
and  the  education   their  employees  will  require  to  take  reasonable  and
affirmative  steps to reduce the harm and risk of having a breach of  non-public
information.  We encourage  businesses to host mandatory  employee  meetings and
training  sessions on identity theft and privacy  compliance.  At such meetings,
our  associates  will provide the  employees of the business an  opportunity  to
purchase our legal service and identity  theft plans.  Since our Identity  Theft
Shield provides identity  restoration  benefits and our legal plans provide help
on  related  issues,  we  believe  the  majority  of the  time in  restoring  an
employee's  identity is covered by our plan and therefore is not done on company
time or at company expense. We believe our suite of services including our legal
plan,  the  Legal  Shield  and  the  Identity  Theft  Shield  provide  employees
assistance in every phase of identity theft - before, during and after the crime
occurs.  The ADRS was  developed to enhance our group  marketing  efforts and we
intend to continue to utilize this program in 2008.

     General
     Sales  associates  are generally  engaged as independent  contractors,  are
provided with training materials and are given the opportunity to participate in
our training  programs.  Sales  associates  are required to complete a specified
training  program prior to marketing our  Memberships  to employee  groups.  All
advertising and solicitation materials used by sales associates must be approved
by us  prior to use.  At  December  31,  2007,  we had  442,361  "vested"  sales
associates compared to 444,499 and 468,365 "vested" sales associates at December
31, 2006 and 2005, respectively.  A sales associate is considered to be "vested"
if he or she has personally  sold at least three new  Memberships per quarter or
if he or she retains a personal  Membership.  A vested  associate is entitled to
continue to receive  commissions  on prior sales after all  previous  commission
advances have been recovered. However, a substantial number of vested associates
do not continue to market the  Membership,  as they are not required to do so in
order to continue to be vested.  During 2007, we had 90,123 sales associates who
personally sold at least one  Membership,  of which 49,117 (55%) made first time
sales. During 2006 and 2005 we had 90,206 and 103,248 sales associates producing
at least one  Membership  sale,  respectively,  of which 49,955 (55%) and 61,238
(59%),  respectively,  made first time sales.  During  2007,  we had 9,047 sales
associates who personally sold more than ten  Memberships  compared to 8,858 and
11,221  in 2006 and  2005,  respectively.  A  substantial  number  of our  sales
associates  market our Memberships on a part-time basis only. For the year 2007,
new  sales  associates  enrolled  decreased  14%  to  148,802  with  an  average
enrollment  fee of $57  from  the  172,999  enrolled  in 2006  with  an  average
enrollment fee of $50.

     We derive  revenues from our multi-level  marketing sales force,  including
one-time  enrollment  fee from each new  sales  associate  for which we  provide
initial marketing supplies and enrollment  services to the associate.  We have a
field  training  program,  titled  Certified  Field  Trainer  ("CFT"),  aimed at
increasing  the  level  of  new  Membership  sales  per  associate.   Associates
successfully   complete  the  program  by  writing  three  new  Memberships  and
recruiting a new sales  associate or by personally  selling five new Memberships
within 45 days of the associate's start date.  Associates in states that require
the  associate  to become  licensed  have 45 days  from the issue  date on their
license  to  complete  the  same  requirements.  Amounts  collected  from  sales
associates are intended primarily to offset our costs incurred in recruiting and
training and  providing  materials to sales  associates  and are not intended to
generate  profits from such  activities.  Other  revenues from sales  associates
represent the sale of marketing  supplies and promotional  materials and include
fees  related to our  eService  program for  associates.  The  eService  program
provides subscribers Internet based back office support such as reports, on-line
documents,  tools, a personal e-mail account and multiple personalized web sites
with "flash" movie presentations.

     We continually  review our compensation plan for the multi-level  marketing
force to assure that the various financial  incentives in the plan encourage our
desired  goals.  We  offer  various  incentive  programs  from  time to time and
frequently adjust the program to maintain appropriate  incentives and to improve
Membership production and retention.

     We hold our International  Convention once a year, typically in the spring,
and a Leadership  Summit,  typically in the fall,  and routinely  host more than
10,000 of our sales  associates  at these  events.  These events are intended to
provide additional training,  corporate updates,  new announcements,  motivation
and associate  recognition.  Additionally,  we offer the Player's Club incentive
program  providing  additional  incentives  to our  associates  as a reward  for
consistent,  quality business. Associates can earn the right to attend an annual
incentive trip by meeting  certain  qualification  requirements  and maintaining
certain personal retention rates.  Associates can also earn the right to receive
additional monthly bonuses by meeting the monthly qualification requirements for
twelve consecutive  months and maintaining  certain personal retention rates for
the Memberships sold during that twelve month period.

     Regional Vice Presidents
     Prior to January 1, 2007,  we had a group of  approximately  115  employees
that  served as Regional  Vice  Presidents  ("RVPs")  and were  responsible  for
associate  activity in given  geographic  regions and had the ability to appoint
independent contractors as Area Coordinators within the RVP's region.  Effective
January 1, 2007, we dramatically revamped this program by reducing the number of
RVPs from  approximately 115 to 15; eliminated the employee  relationship of the
RVPs so that all are independent  contractors;  significantly increased both the
size of their regions and the commission override percentages that can be earned
by the RVPs;  put in place  additional  bonus  compensation  available  based on
growth in their  assigned  regions;  replaced the previous  large number of Area
Coordinators with  substantially  fewer Regional Managers appointed by the RVPs;
created  commission  overrides  than can be earned by the  Regional  Managers in
their  regions  and  created  a  new  class  of  appointees,  Certified  Meeting
Coordinators that are appointed by the Regional Managers.  Additionally, we have
significantly  increased the frequency of communications between us and the RVPs
and the frequency and the amount of reporting both from and to, the RVPs.

     The RVP/Regional  Manager/Certified  Meeting Coordinator program provides a
basis to  effectively  monitor  current  sales  activity,  further  educate  and
motivate the sales force and  otherwise  enhance the  relationships  between the
associates and us. New products,  incentives and  initiatives  will be channeled
through the RVPs.

     Pre-Paid Legal Benefits Association
     The PPL Benefits Association  ("PPLBA") was founded in 1999 with the intent
of providing  sales  associates  the  opportunity  to have access,  at their own
expense,  to health  insurance and life  insurance  benefits.  Membership in the
Association  allows a sales  associate to become  eligible to enroll in numerous
benefit programs,  as well as take advantage of attractive affinity  agreements.
Membership in this  Association is open to sales associates that reach a certain
level within our marketing  programs who also maintain an active  personal legal
services Membership. The PPLBA is a separate association not owned or controlled
by us and is governed by an 8 member Board of Directors,  including four officer
positions.  None of the  officers  or  directors  of the PPLBA serve in any such
capacity with us. The PPLBA employs a Director of Associate Benefits paid by the
Association.  Affinity programs available to members of the PPLBA include credit
cards,  long-distance,  wireless services,  vehicle purchasing services,  safety
trip plan,  mortgage and real estate assistance and a travel club. As determined
by its Board of  Directors,  some of the revenue  generated by the PPLBA through
commissions from vendors of the benefits and affinity programs or contributed to
the Association by us may be used to make open-market purchases of our stock for
use in stock bonus awards to Association  members based on criteria  established
from time to time by the Board of Directors of the PPLBA.  Since  inception  and
through  December 31, 2007,  approximately  44,000 shares were  purchased by the
PPLBA for awards to its members.  The PPLBA awarded  approximately  2,075, 3,000
and 3,300 shares of stock to Association members representing the 2007, 2006 and
2005 stock bonus awards, respectively.

     Cooperative Marketing
     We have in the past, and may in the future,  develop  marketing  strategies
pursuant to which we seek arrangements with insurance and service companies that
have  established  sales forces.  Under such  arrangements,  the agents or sales
force of the cooperative marketing partner market our Memberships along with the
products  already  marketed  by  the  partner's  agents  or  sales  force.  Such
arrangements  allow the  cooperative  marketing  partner to enhance its existing
customer  relationships  and distribution  channels by adding our product to the
marketing  partner's existing range of products and services,  while we are able
to gain  broader  Membership  distribution  and access to  established  customer
bases.

     We have a cooperative  marketing  agreement  with  Atlanta-based  Primerica
Financial  Services ("PFS"),  a subsidiary of Citigroup,  Inc. PFS is one of the
largest financial  services  marketing  organizations in North America with more
than 100,000  personal  financial  analysts across the U.S. and Canada.  The PFS
cooperative  marketing agreement resulted in approximately 25,000 new Membership
sales during 2007 compared to 26,000 and 23,000, respectively for 2006 and 2005.

     We have had limited success with cooperative marketing  arrangements in the
past and are unable to predict with certainty  what success we will achieve,  if
any, under our existing or future cooperative marketing arrangements.

Operations

     Our  corporate  operations  involve  Membership   application   processing,
member-related customer service,  various  associate-related  services including
commission  payments,   receipt  of  Membership  fees,  related  general  ledger
accounting,  human  resources,  internal  audit and managing and  monitoring the
provider law firm relationships.

     We utilize a management  information system to control operations costs and
monitor benefit utilization. Among other functions, the system evaluates benefit
claims,  monitors member use of benefits and monitors  marketing/sales  data and
financial  reporting  records.  Our  dominant  concerns in the  architecture  of
private  networks and web systems  include  security,  scalability,  capacity to
accommodate peak traffic and business continuity in the event of a disaster.  We
believe  our  management   information   system  has  substantial   capacity  to
accommodate  increases  in business  data before  substantial  upgrades  will be
required.  We believe  this  excess  capacity  will  enable us to  experience  a
significant  increase  in the  number  of  members  serviced  with  less  than a
commensurate increase of administrative costs.

     We have  built a  strong  Internet  presence  to  strengthen  the  services
provided   to   both   members   and   associates.   Our   Internet   site,   at
www.prepaidlegal.com,  welcomes the  multifaceted  needs of our  members,  sales
force,  investors  and  prospects.  It has also reduced  costs  associated  with
communicating critical information to the associate sales force.

     Our  operations  also  include  departments  specifically  responsible  for
marketing support and regulatory and licensing  compliance.  We have an internal
production  staff that is responsible for the development of new audio and video
sales materials.

Quality Control

     In addition to our quality control efforts for provider law firms described
above,  we also closely  monitor the  performance of our home office  personnel,
especially those who have telephone contact with members or sales associates. We
record  home  office  employee  telephone  calls  with  our  members  and  sales
associates  to assure that our  policies  are being  followed and to gather data
about recurring problems that may be avoided through  modifications in policies.
We also use such recorded calls for training and recognition purposes.

Competition

     We  compete  in a variety  of market  segments  in the legal  service  plan
industry, including, among others, individual enrollment plans, employee benefit
plans and certain specialty segments.  Our principal competitors are Hyatt Legal
Plans (a MetLife company),  ARAG(R) North America, National Legal Plan and Legal
Services Plan of America (a GE Financial company, formerly the Signature Group).
Most of these  concentrate  their  marketing to larger employer groups and offer
open panel plans.

     If a greater  number of  companies  seek to enter  the legal  service  plan
market,  we  will  experience  increased  competition  in the  marketing  of our
Memberships.  However,  we believe our  competitive  position is enhanced by our
actuarial database,  our existing network of provider attorney law firms and our
ability to tailor  products to suit various  types of  distribution  channels or
target markets.  We believe that no other  competitor has the ability to monitor
the customer service aspect of the delivery of legal services to the same extent
we do. Finally, we have intentionally  concentrated our group marketing to small
employer  groups.  Serious  competition  is  most  likely  from  companies  with
significant financial resources and advanced marketing techniques.

Regulation

     We are  regulated  by or required to file with or obtain  approval of State
Insurance  Departments,  Secretaries of State,  State Bar Associations and State
Attorney  General offices  depending on individual  state opinions of regulatory
responsibility  for  legal  expense  plans.  We are also  required  to file with
similar government  agencies in Canada.  While some states or provinces regulate
legal expense plans as insurance or specialized legal expense  products,  others
regulate them as services.

     As of December 31, 2007, we or one of our  subsidiaries  were marketing new
Memberships  in  37  jurisdictions  that  require  no  special  licensing.   Our
subsidiaries  serve as operating  companies in 17  jurisdictions  that  regulate
Memberships  as  insurance  or  specialized  legal  expense  products.  The most
significant of these wholly owned subsidiaries are Pre-Paid Legal Casualty, Inc.
("PPLCI"), Pre-Paid Legal Services, Inc. of Florida ("PPLSIF") and Legal Service
Plans of  Virginia,  Inc.  ("LSPV").  Of our  total  Memberships  in force as of
December 31, 2007, 37% were written in  jurisdictions  that subject us or one of
our subsidiaries to insurance or specialized  legal expense plan regulation (26%
written through our  subsidiaries).  We are actively  working with regulators in
the various  states in which our  subsidiaries  are  regulated  as  insurance to
explore other  regulatory  alternatives to eliminate some of the agent licensing
or  financial  and  marketing  regulation  that is  prevalent  in the  insurance
industry.

     We began  selling  Memberships  in the  Canadian  provinces  of Ontario and
British  Columbia during 1999,  Alberta during February 2001 and Manitoba during
August  2001.  The  Memberships  we  currently  market in such  provinces do not
constitute  an  insurance  product  and  therefore  are  exempt  from  insurance
regulation.

     In states with no special licensing or regulatory requirements, we commence
operations  only when  advised  by the  appropriate  regulatory  authority  that
proposed  operations  do not  constitute  conduct of the business of  insurance.
There is no assurance that Memberships will be exempt from insurance  regulation
even in states or provinces with no specific  regulations.  In these situations,
we or one of our  subsidiaries  would be  required  to qualify  as an  insurance
company in order to conduct business.

     PPLCI serves as the operating  company in most states where Memberships are
determined  to be  an  insurance  product.  PPLCI  is  organized  as a  casualty
insurance  company under  Oklahoma law and as such is subject to regulation  and
oversight by various state insurance agencies where it conducts business.  These
agencies regulate PPLCI's forms, rates, trade practices,  allowable  investments
and licensing of agents and sales  associates.  These  agencies  also  prescribe
various reports, require regular evaluations by regulatory authorities,  and set
forth-minimum capital and reserve requirements.  Our insurance  subsidiaries are
routinely evaluated and examined by representatives  from the various regulatory
authorities in the normal course of business. Such examinations have not and are
not expected to adversely  impact our  operations or financial  condition in any
material way. We believe that all of our subsidiaries  meet any required capital
and reserve requirements.  Dividends paid by PPLCI are restricted under Oklahoma
law to available surplus funds derived from realized net profits.

     We are required to register  and file  reports with the Oklahoma  Insurance
Commissioner  as a  member  of a  holding  company  system  under  the  Oklahoma
Insurance Holding Company System Regulatory Act.  Transactions between PPLCI and
us or any other subsidiary must be at arm's-length  with  consideration  for the
adequacy of PPLCI's  surplus,  and may require  prior  approval of the  Oklahoma
Insurance  Commissioner.  Payment of any  extraordinary  dividend by PPLCI to us
requires  approval  of the  Oklahoma  Insurance  Commissioner.  The  payment  of
dividends by PPLCI is restricted under the Oklahoma  Insurance Code to available
surplus funds derived from realized net profits and requires the approval of the
Oklahoma  Insurance  Commissioner  for any dividend  representing  more than the
greater of 10% of such accumulated  available surplus or the previous years' net
profits.   During  2007,  PPLCI  declared  and  after  obtaining  all  necessary
regulatory  approvals,  paid  extraordinary  dividends  to  us of  $7.4  million
compared to the $13.4 million dividend paid to us during 2006. No dividends were
declared or paid by PPLCI  during 2005.  Any change in our  control,  defined as
acquisition  by any  method of more than 10% of our  outstanding  voting  stock,
including  rights to  acquire  such  stock by  conversion  of  preferred  stock,
exercise of warrants or otherwise,  requires approval of the Oklahoma  Insurance
Commissioner.  Holding  company  laws in some  states  in which  PPLCI  operates
provide for comparable registration and regulation of us.

     Certain states have enacted  special  licensing or regulatory  requirements
designed to apply only to  companies  offering  legal  service  products.  These
states  most  often  follow  regulations  similar to those  regulating  casualty
insurance providers.  Thus, the operating company may be expected to comply with
specific  minimum  capitalization  and  unimpaired  surplus  requirements;  seek
approval  of forms,  Memberships  and  marketing  materials;  adhere to required
levels  of  claims  reserves,  and seek  approval  of  premium  rates  and agent
licensing.  These laws may also  restrict the amount of dividends  paid to us by
such subsidiaries. PPLSIF is subject to restrictions of this type under the laws
of the State of  Florida,  including  restrictions  with  respect  to payment of
dividends  to us.  At  January  1,  2008,  neither  PPLCI nor  PPLSIF  had funds
available for payment of substantial dividends without the prior approval of the
insurance commissioner. LSPV declared and paid us a $1.6 million dividend during
2007 compared to $3.7 million  during 2006, and had  approximately  $1.6 million
available for payment of an ordinary dividend at January 1, 2008.

     As the legal plan industry continues to mature,  additional legislation may
be enacted that would affect us and our subsidiaries. We cannot predict with any
accuracy  if such  legislation  would  be  adopted  or its  ultimate  effect  on
operations,  but expect to continue to work closely with regulatory  authorities
to minimize any  undesirable  impact and, as noted above,  to reduce  regulatory
cost and burden where possible.

     Our operations are further  impacted by the American Bar Association  Model
Rules of  Professional  Conduct ("Model Rules") and the American Bar Association
Code of Professional  Responsibility  ("ABA Code") as adopted by various states.
Arrangements  for payments to a lawyer by an entity  providing legal services to
its members are permissible under both the Model Rules and the ABA Code, so long
as the  arrangement  prohibits  the entity from  regulating or  influencing  the
lawyer's professional  judgment.  The ABA Code prohibits lawyer participation in
closed panel legal service  programs in certain  circumstances.  Our  agreements
with  provider law firms  comply with both the Model Rules and the ABA Code.  We
rely on the lawyers serving as the designated  provider law firms for the closed
panel  benefits to  determine  whether  their  participation  would  violate any
ethical  guidelines  applicable  to them.  We and our  subsidiaries  comply with
filing  requirements of state bar  associations or other  applicable  regulatory
authorities.

     We are also  required  to comply with state,  provincial  and federal  laws
governing our multi-level  marketing  approach.  These laws generally  relate to
unfair or deceptive  trade  practices,  lotteries,  business  opportunities  and
securities.  The U.S. Federal Trade Commission has proposed business opportunity
regulations  which may have an effect upon our method of operating in the United
States,  but such  regulations  are in the early stages of development and it is
not possible to gauge the potential  impact or the effective  date at this time.
We  have  experienced  no  material  problems  with  marketing  compliance.   In
jurisdictions   that  require   associates  to  be  licensed,   we  receive  all
applications   for  licenses  from  the  associates  and  forward  them  to  the
appropriate  regulatory  authority.   We  maintain  records  of  all  associates
licensed, including effective and expiration dates of licenses and all states in
which  an  associate  is  licensed.   We  do  not  accept  new  Membership  sale
applications from any unlicensed associate in such jurisdictions.

Employees

     At December 31, 2007,  we employed 813  individuals  on a full-time  basis,
exclusive of independent agents and sales associates who are not employees,  and
excluding  RVPs  described  above.  None of our employees are  represented  by a
union. We consider our employee relations generally to be very good.

Foreign Operations

     We began  operations  in the  Canadian  provinces  of Ontario  and  British
Columbia  during  1999 and Alberta  and  Manitoba in 2001 and derived  aggregate
revenues,  including Membership fees and revenues from associate services,  from
Canada of $7.9 million in U.S.  dollars during 2007 compared to $7.1 million and
$6.0 million in 2006 and 2005,  respectively.  In addition, we incur expenses in
Canada in relation to these revenues.  As reflected in the attached Consolidated
Statements of Comprehensive  Income,  we have recorded positive foreign currency
translation  adjustments  of $1.2  million  during  2007 and  have a  cumulative
positive  foreign  currency  translation  adjustment  balance of $1.6 million at
December 31, 2007.  These amounts are subject to dramatic  change in conjunction
with the  relative  values of the  Canadian and U.S.  dollars.

Availability of Information

     We file  periodic  reports and proxy  statements  with the  Securities  and
Exchange Commission ("SEC").  The public may read and copy any materials we file
with  the SEC at the  SEC's  Public  Reference  Room  at 100 F  Street,  N.  E.,
Washington, D.C. 20549. The public may obtain information about the operation of
the Public  Reference  Room by calling  the SEC at  1-800-SEC-0330.  We file our
reports with the SEC  electronically.  The SEC  maintains an Internet  site that
contains  reports,  proxy and  information  statements,  and  other  information
regarding  issuers  that file  electronically  with the SEC. The address of this
site is http://www.sec.gov.

     Our  Internet  address is  www.prepaidlegal.com.  We make  available on our
website  free of charge  copies of our  annual  report on Form  10-K,  quarterly
reports  on Form  10-Q,  current  reports  on Form 8-K and  amendments  to those
reports filed or furnished pursuant to Section 13(a) of the Exchange Act as soon
as reasonably  possible  after we  electronically  file such  material  with, or
furnish it to, the SEC.


ITEM 1A.      RISK FACTORS
--------------------------

     Our financial position, results of operations and cash flows are subject to
various  risks,  many of which are not  exclusively  within our control that may
cause actual  performance  to differ  materially  from  historical  or projected
future  performance.  Information  contained  within  this Form  10-K  should be
carefully  considered by investors in light of the risk factors described below.
In addition to factors  discussed  elsewhere in this report,  the  following are
some of the  important  factors  that could  affect our  financial  condition or
results of operations:

     Our future results may be adversely  affected if Membership  persistency or
renewal rates are lower than our historical experience.
     We have  over 20 years of  actual  historical  experience  to  measure  the
expected  retention of new  members.  These  retention  rates could be adversely
affected  by the  quality of  services  delivered  by  provider  law firms,  the
existence  of  competitive   products  or  services,   our  ability  to  provide
administrative   services  to  members  or  other  factors.  If  our  Membership
persistency or renewal rates are less than we have historically experienced, our
cash flow, earnings and growth rates could be adversely affected.

     We may not be able to grow  Memberships and revenues at the same rate as we
have  historically  experienced  and have recently  experienced  declines in new
Membership sales and associate recruitment.
     Our year end active  Memberships  increased  2.4% from December 31, 2006 to
December 31, 2007,  remained  virtually  unchanged  during 2006 and increased 6%
during 2005.  Changes in net income for the same three years were (1%),  45% and
(12%),  respectively.  In years prior to 2004, we were able to grow  Memberships
more   significantly.   Our  ability  to  grow   Memberships   and  revenues  is
substantially  dependent upon our ability to expand or enhance the  productivity
of  our  sales  force,  develop  additional  legal  expense  products,   develop
alternative  marketing methods or expand  geographically.  There is no assurance
that we will be able to achieve  increases  in  Membership  and  revenue  growth
comparable to our historical growth rates.

     We are dependent upon the continued  active  participation of our principal
executive officer.
     Our success depends  substantially on the continued active participation of
our principal executive officer, Harland C. Stonecipher. Although our management
includes other individuals with significant experience in our business, the loss
of the services of Mr.  Stonecipher  could have a material adverse effect on our
financial condition and results of operations.

     There is litigation  pending that may have a material  adverse effect on us
if adversely determined.
     See "Item 3. Legal Proceedings."

     We are in a regulated industry and regulations could have an adverse effect
on our ability to conduct our business.
     We are  regulated  by or required to file with or obtain  approval of State
Insurance  Departments,  State Bar  Associations  and State  Attorney  General's
Offices,   depending  on  individual   state  positions   regarding   regulatory
responsibility  for  legal  service  plans.  Regulation  of  our  activities  is
inconsistent  among the various  states in which we do business with some states
regulating  legal  service  plans as  insurance  or  specialized  legal  service
products and others regulating such plans as services. Such disparate regulation
requires us to structure our Memberships  and operations  differently in certain
states in accordance with the applicable laws and  regulations.  Our multi-level
marketing strategy is also subject to U.S. federal, Canadian provincial and U.S.
state  regulation  under laws relating to consumer  protection,  pyramid  sales,
business  opportunity,  lotteries and multi-level  marketing.  The U.S.  Federal
Trade Commission has proposed business opportunity regulations which may have an
effect upon our method of operating in the United States,  but such  regulations
are in the  early  stages of  development  and it is not  possible  to gauge the
potential  impact or the effective date at this time.  Changes in the regulatory
environment  for our business could  increase the  compliance  costs we incur in
order to conduct our business or limit the jurisdictions in which we are able to
conduct business.

     The business in which we operate is competitive.
     There are a number of  existing  and  potential  competitors  that have the
ability to offer competing  products that could adversely  affect our ability to
grow. In addition,  we may face  competition  from a growing  number of Internet
based legal  sites with the  potential  to offer  legal and related  services at
competitive prices.  Increased  competition could have a material adverse effect
on our  financial  condition  and results of  operations.  See  "Description  of
Business - Competition."

     We are dependent upon the success of our marketing force.
     Our  principal  method  of  product  distribution  is  through  multi-level
marketing. The success of a multi-level marketing force is highly dependent upon
our  ability  to offer a  commission  and  organizational  structure  and  sales
training  and  incentive  program that enable  sales  associates  to recruit and
develop other sales associates to create an organization.  There are a number of
other  products and services that use  multi-level  marketing as a  distribution
method and we must compete  with these  organizations  to recruit,  maintain and
grow our multi-level  marketing  force. In order to do so, we may be required to
increase our marketing costs through increases in commissions,  sales incentives
or other features,  all of which could adversely affect our future earnings.  In
addition,  the level of  confidence  of the sales  associates  in our ability to
perform  is an  important  factor  in  maintaining  and  growing  a  multi-level
marketing  force.  Adverse  financial  developments   concerning  us,  including
negative  publicity or common stock price declines,  could adversely  affect our
ability to maintain the confidence of our sales force.

     Our stock price may be affected by short sellers of our stock.
     As of  January  31,  2008,  the  New  York  Stock  Exchange  reported  that
approximately  925,000  shares of our stock were sold short,  which  constitutes
approximately 7% of our outstanding  shares and 11% of our public float.  During
2007, the number of shares sold short was as high as 4.6 million and represented
one of the largest short  interest  percentages  of any New York Stock  Exchange
listed  company.  Short sellers expect to make a profit if our shares decline in
value.  We have been the subject of a negative  publicity  campaign from several
known sources of information  who support short  sellers.  The existence of this
short interest  position may contribute to volatility in our stock price and may
adversely affect the ability of our stock price to rise if market  conditions or
our performance would otherwise justify a price increase.

     We have  not  been  able  to  significantly  increase  our  employee  group
Membership sales.
     Our success in growing Membership sales is dependent in part on our ability
to  market  to  employee  groups.   At  December  31,  2007,  group  memberships
represented  25% of total  Memberships  compared to 24% at December 31, 2006 and
20% at December 31, 2005.  Adverse  publicity about us may affect our ability to
market successfully to employee groups,  particularly larger groups. There is no
assurance that we will be able to increase our group business.


ITEM 1B.      UNRESOLVED STAFF COMMENTS.
----------------------------------------

None.




ITEM 2.       PROPERTIES.
-------------------------

     Our executive and  administrative  offices and our subsidiaries are located
at One Pre-Paid Way, Ada,  Oklahoma.  The office complex,  owned by us, contains
approximately  170,000  square  feet of  office  space  and was  constructed  on
approximately  87 acres  contributed to us by the City of Ada in 2001 as part of
an economic development incentive package. Construction was completed in 2004 at
a cost  of  approximately  $34.1  million,  including  $706,000  in  capitalized
interest costs,  and was funded from existing  resources and proceeds from a $20
million line of credit.

     Our  headquarters  contains  two long bars of open office area  designed to
serve as podiums, which stretch east from the northern and southern edges of the
tower.  Two and three  stories  high  respectively,  the podiums  house the call
centers and Information  Technology  departments.  Only 60 feet across, they are
designed to ensure that  employees are never more than thirty feet from a source
of  daylight.  Shared  corporate  services --  including a 650-seat  auditorium,
dining hall,  exercise facility,  and a connecting corridor containing a company
history  gallery -- are located at the east end of the bars,  creating a central
courtyard.  The  courtyard  features  a  reflecting  pool and a  12-foot  bronze
sculpture of our logo, the Lady of Justice,  a universal symbol of justice.  The
building's main entrance welcomes its frequent visitors, celebrates our history,
and is designed to convey the tradition of civic judicial buildings. Although we
substantially  occupy our current  facility,  the building is designed to expand
over time without  negatively  impacting the site layout or the building concept
and  we  emphasized  the  use  of  modular   furnishings  to  provide   enhanced
flexibility. We placed importance on the goal of providing each employee with an
excellent work environment.

     Additionally,  we fully utilize another distribution facility located about
two miles from our new offices and containing  approximately  17,000 square feet
of office and  warehouse  and  shipping  space.  Our  previous  headquarters  of
approximately   40,000   square   feet  and  two  other   buildings   containing
approximately  18,600 combined square feet located  adjacent to the distribution
facility are now used as disaster recovery, or business continuity, sites.

     During 2005, in conjunction with economic development incentives, we leased
additional office space in Duncan, Oklahoma and during January 2006, we acquired
an  additional  40,000  square  foot  building  in  Duncan  for $1  million.  We
completely  refurbished  the  space  at an  additional  cost  of  $3.4  million,
resulting  in total  capitalized  cost of $4.4  million,  which was funded  from
existing resources.  We moved from the space previously leased to the completely
refurbished  and redesigned  space with redundant  infrastructure  components in
July 2006 and currently have approximately 110 customer service  representatives
in the facility but have the capacity to accommodate 350 employees.

     In  addition  to the  property  described  above that we own,  we opened an
additional  Customer  Care facility in Antlers,  Oklahoma  during March 2000, in
building  space provided by the City of Antlers at no cost to us. In conjunction
with a rural economic  development program coordinated by the City of Antlers, a
new facility was built at no cost to us that can accommodate  approximately  100
customer  service  representatives.  We leased the  facilities  from the City of
Antlers upon completion of the construction in November 2002.


ITEM 3.       LEGAL PROCEEDINGS.
--------------------------------

     Beginning  in the  second  quarter  of 2001  multiple  lawsuits  were filed
against us, certain officers,  employees,  sales associates and other defendants
in various  Mississippi state courts by current or former members seeking actual
and punitive  damages for alleged  breach of contract,  fraud and various  other
claims in connection with the sale of Memberships. At one time, we were aware of
11 separate lawsuits involving approximately 400 plaintiffs in multiple counties
in Mississippi. These cases seek varying amounts of actual and punitive damages.
We tried  three  separate  lawsuits in  Mississippi.  On  September  11, 2006 we
reached a settlement  agreement with counsel for the more than 400 plaintiffs in
numerous pending cases in Mississippi. For an amount significantly less than our
then accrued  reserves of $2.5  million,  all pending  litigation  against us is
being  resolved in  Mississippi,  including the Barbara Booth v. Pre-Paid  Legal
Services,  Inc.  case in which the $9.9  million  punitive  damage  verdict  was
entered.  Settlement  and  dismissal of almost all pending  litigation  has been
approved by the plaintiffs.

     On March  27,  2006 we  received  a  complaint  filed by a former  provider
attorney  law  firm in  Davidson  County,  Tennessee  seeking  compensatory  and
punitive  damages on the basis of allegations of breach of contract.  On May 15,
2006 the trial court dismissed plaintiff's complaint in its entirety.  Plaintiff
filed a notice of appeal on June 13,  2006,  and on August 24, 2007 the Court of
Appeals  reversed  the ruling of the trial  court and  remanded  the suit to the
trial court for further proceedings. We filed a Petition for Rehearing which was
denied on  September  26,  2007.  The  ultimate  outcome  of this  matter is not
determinable.

     On March 23, 2007 we received a Civil Investigative Demand from the Federal
Trade Commission  requesting  information  relating to our Identity Theft Shield
and ADRS Program.  We are working with the Federal  Trade  Commission to resolve
the matter. The ultimate outcome of the matter is not determinable.

     We are a defendant in various other legal  proceedings that are routine and
incidental  to our  business.  We will  vigorously  defend our  interests in all
proceedings  in which we are  named as a  defendant.  We also  receive  periodic
complaints or requests for information  from various state and federal  agencies
relating to our business or the activities of our marketing  force.  We promptly
respond to any such matters and provide any information requested.

     While the ultimate outcome of these proceedings is not determinable,  we do
not currently  anticipate that these  contingencies  will result in any material
adverse  effect to our financial  condition or results of  operation,  unless an
unexpected  result occurs in one of the cases. The costs of the defense of these
various matters are reflected as a part of general and  administrative  expense,
or Membership  benefits if fees relate to Membership issues, in the consolidated
statements of income. We have established an accrued liability,  we believe will
be  sufficient  to cover  estimated  damages in  connection  with various  cases
(exclusive of ongoing  defense  costs which are expensed as incurred),  which at
December 31, 2007 was $75,000.  We believe that we have meritorious  defenses in
all pending cases and will  vigorously  defend against the  plaintiffs'  claims.
However,  it is possible  that an adverse  outcome in certain cases or increased
litigation  costs  could have an adverse  effect upon our  financial  condition,
operating results or cash flows in particular quarterly or annual periods.

     Canadian taxing authorities are challenging  portions of our commission and
general  and  administrative  deductions  for tax years 1999 - 2002 and have tax
assessments  which  aggregate  $5.7  million.  The Canadian  taxing  authorities
contend  commission  deductions should be matched with the membership revenue as
received,  we contend these commissions are deductible when paid. Under Canadian
tax laws, our commission  payments are treated as a prepaid expense. We base our
deduction  of  commission  on the fact  that all the  services  (the sale of the
membership)  have  been  performed  by the sales  associate  at the time of sale
therefore  this prepaid  expense (the  commission  payments) is deductible  when
paid.  Also, the commission  payment is taxable to the sales associate when paid
and each year we issue a T4 (Canadian 1099  equivalent) to sales  associates for
the total  commission  payments  made during that year.  In  addition,  Canadian
taxing  authorities have challenged our allocation of general and administrative
expenses  to  Canadian  operations.  We contend  the  allocation  of general and
administrative  expenses,  based on the  percentage of Canadian new  memberships
written and the Canadian percentage memberships in force, is reasonable.  During
July 2007 we received a settlement  offer from the Canadian  taxing  authorities
regarding  the general  and  administrative  deductions  which would allow us to
claim a deduction on the  Canadian tax return for over 70% of these items.  This
settlement  offer would allow us to deduct the  remaining  30% of these items on
our US federal tax returns.  We accepted this offer during the fourth quarter of
2007 and filed  amended US federal tax returns.  Since the  commission  issue is
still  outstanding the Canadian taxing  authorities  would not permit us to file
the  amended  Canadian  tax  returns to reflect  the  changes in our general and
administrative expense. We have established an accrued liability we believe will
be sufficient to cover the  estimated  tax  assessment in connection  with these
items, which at December 31, 2007 was $477,000. As stated above, we believe that
we have reasonable basis for our tax position relative to these items,  however,
it is possible  that an adverse  outcome  could have an adverse  effect upon our
financial condition,  operating results or cash flows in particular quarterly or
annual periods.


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

None.




                                     PART II

ITEM 5.       MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
--------------------------------------------------------------------------------
              AND ISSUER PURCHASES OF EQUITY SECURITIES.
              ------------------------------------------

Market Price of and Dividends on the Common Stock

     At  February  15,  2008,  there  were 1,351  holders  of record  (including
brokerage firms and other nominees) of our common stock,  which is listed on the
New York Stock Exchange under the symbol "PPD." The following  table sets forth,
for the periods indicated, the range of high and low sales prices for the common
stock, as reported by the New York Stock Exchange.
                                                       High       Low
                                                       ----       ----
2008:
  1st Quarter (through February 15)...............    $ 57.48    $ 47.00
2007:
  4th Quarter.....................................    $ 62.39    $ 48.88
  3rd Quarter.....................................      71.49      39.50
  2nd Quarter.....................................      66.34      48.89
  1st Quarter.....................................      60.66      37.68
2006:
  4th Quarter.....................................    $ 45.10    $ 39.00
  3rd Quarter.....................................      40.00      33.70
  2nd Quarter.....................................      37.50      32.15
  1st Quarter.....................................      40.50      34.04

     On December 6, 2004, we declared our first cash dividend of $0.50 per share
on our outstanding  shares of common stock.  The following table sets forth, for
2005 and  2004,  the  declaration  date,  the per  share  dividend  amount,  the
aggregate  dividend  amount,  the  record  date  and  the  payable  date of cash
dividends that we have declared on our  outstanding  shares of common stock.  No
dividends were declared in 2007 or 2006.



    Declared                Per Share       Aggregate Amount       Record Date             Payment Date
-----------------           ---------       ----------------    -----------------        -----------------
                                                                                
December 6, 2004             $  0.50         $  7.8 million     December 20, 2004        January 14, 2005
April 4, 2005                   0.30            4.6 million     April 25, 2005           May 16, 2005
December 19, 2005               0.30            4.6 million     December 30, 2005        January 13, 2006



     It is anticipated that earnings  generated from our operations will be used
to finance our growth,  to continue to purchase  shares of our stock,  to retire
existing debt and possibly pay cash  dividends.  Our ability to pay dividends is
dependent in part on our ability to derive dividends from our subsidiaries.  The
payment of dividends by PPLCI is restricted under the Oklahoma Insurance Code to
available  surplus  funds  derived  from  realized  net profits and requires the
approval of the Oklahoma  Insurance  Commissioner for any dividend  representing
more  than the  greater  of 10% of such  accumulated  available  surplus  or the
previous years' net profits.  PPLSIF and LSPV are similarly  restricted pursuant
to their  respective  insurance  laws. The following  table reflects  subsidiary
dividends during the last three years:


                                                             Dividends Paid
                                        ------------------------------------------------------   Expected Dividends
      Regulated Subsidiary                     2007              2006             2005                1/1/2008
-------------------------------         ------------------  -----------------  ----------------  ----------------
                                                                                    
Pre-Paid Legal Casualty, Inc.           $      7.4 million  $    13.4 million  $  4.1 million    $    7.4 million
Legal Service Plans of Virginia                1.6 million            -           3.7 million         1.6 million



     At December 31, 2007 the amount of  restricted  net assets of  consolidated
subsidiaries was $30.7 million,  representing amounts that may not be paid to us
as  dividends  either under the  applicable  regulations  or without  regulatory
approval.




Recent Sales of Unregistered Securities
     None.

Issuer Purchases of Equity Securities
     The following  table provides  information  about our purchases of stock in
the open market during the fourth quarter of 2007.



                                                                          Total Number of       Maximum Number of
                                                                        Shares Purchased as    Shares that May Yet
                                                                         Part of Publicly      Be Purchased Under
                            Total Number of      Average Price Paid     Announced Plans or        the Plans or
        Period             Shares Purchased           per Share              Programs             Programs (1)
-----------------------  ---------------------  ---------------------  ---------------------   --------------------
                                                                                       
October 2007...........            4,850               $  57.95                  4,850                749,671
November 2007..........          229,961                  51.55                229,961                519,710
December 2007..........          211,836                  50.81                211,836                307,874
Total..................  ---------------------  ---------------------  ---------------------
                                 446,647               $  51.27                446,647
                         ---------------------  ---------------------  ---------------------


(1)  We  announced  on  April  6,  1999,  a  treasury  stock  purchase   program
     authorizing management to acquire up to 500,000 shares of our common stock.
     The Board of Directors has  subsequently  from time to time  increased such
     authorization  from 500,000  shares to 13 million  shares.  The most recent
     authorization  was for 1,000,000  additional shares March 7, 2007 and there
     has been no time limit set for completion of the repurchase program.

Shareholder Return Performance Graph

     The following graph compares the cumulative  total  shareholder  returns of
our  Common  Stock  during  the five  years  ended  December  31,  2007 with the
cumulative total shareholder returns of the Russell 2000 Index and the Hemscott,
Inc. Personal  Services industry index. The comparison  assumes an investment of
$100 on January 1, 2003 in each of our Common Stock,  the Russell 2000 Index and
Hemscott's  Personal  Services  industry  index  and  that  any  dividends  were
reinvested.

     Comparison of Cumulative Total Return of Our Stock, Russell 2000 Index
                               and Industry Index

 ------------------------------------------------------------------------------
|                                    | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 |
 ------------------------------------------------------------------------------
|PRE-PAID LEGAL SERVICES             |100.00| 99.69|145.27|150.28|153.89|217.68|
 ------------------------------------------------------------------------------
| HEMSCOTT GROUP INDEX               |100.00|125.34|132.39|137.85|151.94|155.39|
 ------------------------------------------------------------------------------
|   RUSSELL 2000 INDEX               |100.00|145.37|170.81|176.48|206.61|196.40|
 ------------------------------------------------------------------------------


ITEM 6.       SELECTED FINANCIAL DATA.
--------------------------------------

     The following table sets forth selected  financial and statistical data for
us as of the  dates  and for the  periods  indicated.  This  information  is not
necessarily  indicative of our future  performance.  The  following  information
should be read in conjunction  with our  Consolidated  Financial  Statements and
Notes thereto and  Management's  Discussion and Analysis of Financial  Condition
and Results of Operation included elsewhere herein.



                                                                              Year Ended December 31,
                                                           ------------------------------------------------------------
                                                               2007        2006        2005         2004        2003
                                                           -----------  ----------  -----------  ----------  ----------
Income Statement Data:                                     (In thousands, except ratio, per share and Membership amounts)
  Revenues:
                                                                                               
    Membership fees......................................  $  427,428   $  412,200  $  389,255  $  355,461    $ 330,322
    Associate services...................................      25,112       26,857      28,963      24,901       25,704
    Other................................................       4,549        4,967       5,162       5,575        5,287
                                                           -----------  ----------  -----------  ----------  ----------
      Total revenues.....................................     457,089      444,024     423,380     385,937      361,313
                                                           -----------  ----------  -----------  ----------  ----------
  Costs and expenses:
    Membership benefits..................................     148,792      145,771     137,150     122,280      111,165
    Commissions..........................................     130,593      126,762     141,631     118,757      115,386
    Associate services and direct marketing..............      28,875       29,493      30,453      29,325       28,929
    General and administrative expenses..................      50,474       50,078      49,015      43,742       36,711
    Other, net...........................................      13,841       12,232      10,456       9,578        8,546
                                                           -----------  ----------  -----------  ----------  ----------
      Total costs and expenses...........................     372,575      364,336     368,705     323,682      300,737
                                                           -----------  ----------  -----------  ----------  ----------

Income before income taxes...............................      84,514       79,688      54,675      62,255       60,576
Provision for income taxes...............................      33,312       27,890      18,863      21,478       20,669
                                                           -----------  ----------  -----------  ----------  ----------
Net income...............................................  $   51,202    $  51,798   $  35,812   $  40,777    $  39,907
                                                           -----------  ----------  -----------  ----------  ----------

Basic earnings per common share..........................      $ 3.89       $ 3.54      $ 2.31      $ 2.50       $ 2.28
                                                           -----------  ----------  -----------  ----------  ----------

Diluted earnings per common share........................      $ 3.88       $ 3.51      $ 2.29      $ 2.48       $ 2.27
                                                           -----------  ----------  -----------  ----------  ----------

Dividends declared per common share......................   $     -      $     -     $     .60   $     .50    $     -

Weighted avg. number of common shares outstanding - basic      13,151       14,642      15,470      16,313       17,530
Weighted avg. number of common shares outstanding -
  diluted................................................      13,197       14,739      15,652      16,458       17,599

Membership Benefits Cost and Statistical Data:
  Membership benefits ratio (1)...........................       34.8%        35.4%       35.2%       34.4%        33.7%
  Commissions ratio (1)...................................       30.6%        30.8%       36.4%       33.4%        34.9%
  General and administrative expense ratio (1)............       11.8%        12.1%       12.6%       12.3%        11.1%
  Commission cost per new Membership sold.................   $     213    $     207   $     202   $     190    $     172
  New Memberships and stand-alone IDT plans sold..........     612,096      612,726     700,727     624,525      671,857
  Period end Memberships and stand-alone IDT plans in        1,575,802    1,538,740   1,542,789   1,451,700    1,418,997
force
  New add-on IDT memberships sold.........................     381,419      389,157     441,108     335,792       89,928
  Period end add-on IDT memberships in force..............     631,910      540,253     461,094     283,889       86,602
  Average annual Membership fee...........................   $     298    $     293   $     287   $     274    $     262
Cash Flow Data:
Net cash provided by operating activities.................      67,178       54,385      50,131      47,263       51,693
Net cash provided (used in) investing activities..........      30,064      (52,613)    (15,545)    (11,322)     (36,901)
Net cash used in financing  activities....................     (84,332)     (23,698)    (26,601)    (31,428)     (14,191)
Balance Sheet Data:
  Total assets............................................   $ 167,632    $ 188,547   $ 164,865   $ 146,064    $ 131,012
  Total liabilities.......................................     149,793      157,687     113,471     114,617      101,438
  Stockholders'equity.....................................      17,839       30,860      51,394      31,447       29,574
Income Statement Data:
  Depreciation expense....................................   $   8,532    $   8,260   $   7,489   $   7,709    $   7,082
  Interest expense........................................       6,678        5,726       2,682       1,990          123
-----------


(1)  The Membership  benefits ratio,  the commissions  ratio and the general and
     administrative  expense  ratio  represent  those costs as a  percentage  of
     Membership  fees. These ratios do not measure total  profitability  because
     they do not take into account all revenues and expenses.



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

Overview of the Our Financial Model

     We are in one line of business - the  marketing of legal  expense and other
complimentary   plans  primarily  through  a  multi-level   marketing  force  to
individuals.  Our principal  revenues are derived from Membership fees, and to a
much lesser extent,  revenues from marketing associates.  Our principal expenses
are commissions,  Membership  benefits,  associate services and direct marketing
costs and general and administrative  expense.  The following table reflects the
changes in these  categories  of revenues  and  expenses in the last three years
(dollar amounts in 000's):



                                                         %                             %                             %
                                                      Change                        Change                        Change
                                             % of      from                % of      from                % of      from
                                            Total      Prior               Total     Prior               Total     Prior
                                  2007     Revenue     Year     2006     Revenue     Year     2005      Revenue    Year
Revenues:                      ---------   --------   ------  --------   --------   ------ ---------   ---------  ------
                                                                                         
  Membership fees............  $ 427,428      93.5      3.7   $412,200      92.8      5.9   $389,255      91.9      9.5
  Associate services.........     25,112       5.5     (6.5)    26,857       6.1     (7.3)    28,963       6.9     16.3
  Other......................      4,549       1.0     (8.4)     4,967       1.1     (3.8)     5,162       1.2     (7.4)
                               ---------   --------   ------  --------   --------   ------ ---------   ---------  ------
                                 457,089     100.0      2.9    444,024     100.0      4.9    423,380     100.0      9.7
                               ---------   --------   ------  --------   --------   ------ ---------   ---------  ------
Costs and expenses:
  Membership benefits........    148,792      32.6      2.1    145,771      32.8      6.3    137,150      32.4     12.2
  Commissions................    130,593      28.6      3.0    126,762      28.6    (10.5)   141,631      33.5     19.3
  Associate services and
    direct marketing.........     28,875       6.3     (2.1)    29,493       6.6     (3.2)    30,453       7.2      3.9
  General and administrative.     50,474      11.0      0.8     50,078      11.3      2.2     49,015      11.6     12.1
  Other, net.................     13,841       3.0     13.2     12,232       2.8     17.0     10,456       2.5      9.2
                               ---------   --------   ------  --------   --------   ------ ---------   ---------  ------
                                 372,575      81.5      2.3    364,336      82.1     (1.2)   368,705      87.1     13.9
                               ---------   --------   ------  --------   --------   ------ ---------   ---------  ------
Provision for income taxes...     33,312       7.3     19.4     27,890       6.3     47.9     18,863       4.5    (12.2)
                               ---------- --------- -------- ---------- --------- -------- ---------- --------- --------
Net income...................  $  51,202      11.2     (1.2)  $ 51,798      11.7     44.6   $ 35,812       8.5    (12.2)
                               ---------   --------   ------  --------   --------   ------ ---------   ---------  ------



The following table reflects  certain data  concerning our Membership  sales and
associate recruiting:



                                                                   % Change                 % Change
                                                                     from                     from
New Memberships:                                          2007     Prior Year     2006      Prior Year     2005
----------------                                       ----------  ----------  -----------  ----------  -----------
                                                                                           
New legal service Membership sales.................      570,637       (2.4)     584,408       (12.3)     666,595
New "stand-alone" IDT Membership sales.............       41,459       46.4       28,318       (17.0)      34,132
                                                       ----------  ----------  -----------  ----------  -----------
         Total new Membership sales................      612,096       (0.1)     612,726       (12.6)     700,727
New "add-on" IDT Membership sales..................      381,419       (2.0)     389,157       (11.8)     441,108
Average Annual Membership fee......................      $321.18       (2.2)     $328.36         2.0      $322.04
Active Memberships:
-------------------
Active legal service memberships at end of period..    1,492,341        1.3    1,473,710        (1.1)   1,490,847
Active "stand-alone" IDT memberships at end of period     83,461       28.3       65,030        25.2       51,942
                                                       ----------  ----------  -----------  ----------  -----------
Total active memberships at end of period..........    1,575,802        2.4    1,538,740        (0.3)   1,542,789
Active "add-on" IDT memberships at end of period...      631,910       17.0      540,253        17.2      461,094
New Sales Associates:
---------------------
New sales associates recruited.....................      148,802      (14.0)     172,999       (28.6)     242,223
Average enrollment fee paid by new sales associates       $56.75       14.2       $49.69       (12.2)      $56.61
Average Membership fee in force:
--------------------------------
Average Annual Membership fee......................      $297.62        1.6      $293.00         2.2      $286.60





     The number of active  Memberships in force and the average monthly fee will
directly determine Membership fees and their impact on total revenues during any
period.  The two  most  important  variables  impacting  the  number  of  active
Memberships during a period are the number of new Memberships written during the
period  combined  with the  retention  characteristics  of both new and existing
Memberships.  See "Measures of Member  Retention"  below for a discussion of our
Membership  retention.  Associate services revenues are a function of the number
of new sales associates  enrolled and the price of entry during the period,  the
number of  associates  subscribing  to our  eService  offering and the amount of
sales tools purchased by the sales force.

     Membership benefits expense is primarily determined by the number of active
Memberships and the per capita  contractual  rate that exists between us and our
benefits  providers  and during the last five years has been and is  expected to
continue to be a relatively  consistent  percentage  of  Membership  revenues of
approximately 33%-35%. Commissions paid to associates are primarily dependent on
the number and price of new  Memberships  sold  during a period and any  special
incentives  that  may  be  in  place  during  the  period.  We  expense  advance
commissions ratably over the first month of the related Membership. The level of
commission  expense in relation to Membership  revenues varies  depending on the
level of new Memberships written and is expected to be higher when we experience
increases in new Membership  sales.  During the last five years this  percentage
has ranged  from  approximately  30% to 36% of  Membership  revenues.  Associate
services and direct  marketing  expenses are directly  impacted by the number of
new associates enrolled during a period due to the cost of materials provided to
such new  associates,  the  number of  associates  subscribing  to our  eService
offering,  the amount of sales tools purchased by the sales force as well as the
number of those associates who successfully  meet the CFT training and incentive
award program  qualifications.  General and administrative expenses are expected
to trend up in terms of dollars,  but remain relatively constant as a percent of
Membership fees. During the past five years, general and administrative expenses
have ranged from 11% to 13% of Membership fees.

     The primary  benchmarks  monitored  by us  throughout  the various  periods
include  the  number  of  active   Memberships   and  their  related   retention
characteristics,  the  number  of new  Memberships  written,  the  number of new
associates  enrolled and the percentage of new associates that successfully meet
the CFT qualification requirements.

     Although  we have grown our  Membership  fees in each of the past 15 years,
the rate of growth has not been one we find acceptable. We believe however, that
our current product design,  pricing parameters and business model are generally
appropriate and we have no immediate plans to change these fundamental  sectors.
Our  focus  during  2008  will  continue  to  be on  improved  training  of  our
associates,  enhancing  the quality of sales tools  provided to new and existing
associates,  providing  incentives for associates to write  consistent,  quality
business and continued emphasis on improving the basic retention characteristics
of our Memberships.


Critical Accounting Policies

     Our financial  statements and accompanying notes are prepared in accordance
with accounting  principles  generally accepted in the United States of America.
Preparing  financial  statements  requires  management  to  make  estimates  and
assumptions  that affect the reported amounts of assets,  liabilities,  revenues
and expenses.  These  estimates  and  assumptions  are affected by  management's
application  of  accounting  policies.  If these  estimates or  assumptions  are
incorrect,  there  could be a  material  change in our  financial  condition  or
operating results.  Many of these "critical  accounting  policies" are common in
the  insurance  and financial  services  industries;  others are specific to our
business and operations.  Our critical  accounting  policies  include  estimates
relating  to revenue  recognition  related to  Membership  and  associate  fees,
deferral of Membership and associate related costs,  expense recognition related
to commissions to associates, accrual of incentive awards payable and accounting
for legal contingencies.

     Revenue recognition - Membership and Associate Fees
     Our principal  revenues are derived from Membership fees, most of which are
collected on a monthly basis. Memberships are generally guaranteed renewable and
non-cancelable except for fraud,  non-payment of Membership fees or upon written
request.  Membership  fees are  recognized  in income  ratably  over the related
service period in accordance with Membership terms,  which generally require the
holder of the  Membership  to remit  fees on an annual,  semi-annual  or monthly
basis.  Approximately  95% of members remit their  Membership  fees on a monthly
basis.  Approximately  74% of our  Membership  fees  are  paid in  advance  and,
therefore,  are  deferred  and  recognized  over their  respective  periods.  At
December 31, 2007 the deferred  revenue  associated with the Membership fees was
$21.9 million which is classified as a current liability.

     We also charge new members,  who are not part of an employee  group,  a $10
enrollment  fee.  This  enrollment  fee  and  related   incremental  direct  and
origination  costs are deferred and recognized in income over the estimated life
of a  Membership  in  accordance  with SEC Staff  Accounting  Bulletin  No. 101,
"Revenue  Recognition  in Financial  Statements,"  ("SAB 101") as revised by SEC
Staff  Accounting  Bulletin No. 104. At December  31, 2007 the deferred  revenue
associated with the Membership  enrollment fees was $5.7 million,  of which $2.4
million  was  classified  as  a  current  liability.  We  compute  the  expected
Membership  life using more than 20 years of actuarial data as explained in more
detail in  "Measures  of  Membership  Retention"  below.  At December  31, 2007,
management  computed  the expected  Membership  life to be  approximately  three
years,  which is unchanged from year end 2006. If the expected  Membership  life
were to change  significantly,  which  management  does not  expect in the short
term,  the  deferred  Membership  enrollment  fee and  related  costs  would  be
recognized over a longer or shorter period.

     We derive  revenues  from services  provided to our  marketing  sales force
including a one-time non-refundable enrollment fee from each new sales associate
for  which we  provide  initial  sales and  marketing  supplies  and  enrollment
services to the associate.  Average enrollment fees paid by new sales associates
were $57, $50 and $57 for 2007, 2006 and 2005,  respectively.  Revenue from, and
costs of, the  initial  sales and  marketing  supplies  (approximately  $13) are
recognized  when the materials are  delivered to the  associates.  The remaining
revenues and related  incremental  direct and origination costs are deferred and
recognized over the estimated  average active service period of associates which
at December  31, 2007 is  estimated to be  approximately  five months,  which is
unchanged  from year end 2006.  At  December  31,  2007,  the  deferred  revenue
associated  with  sales  associate  enrollment  fees  was  $855,000,   which  is
classified  as a current  liability.  Management  estimates  the active  service
period of an  associate  periodically  based on the average  number of months an
associate produces new Memberships including those associates that fail to write
any   Memberships.   If  the  active  service   period  of  associates   changes
significantly,  which management does not expect in the short term, the deferred
revenue and related  costs would be  recognized  over the new  estimated  active
service period.

     Member and Associate Costs
     Deferred costs  represent the incremental  direct and origination  costs we
incur in  enrolling  new  Members  and new  associates  related to the  deferred
revenue discussed above, and that portion of payments made to provider law firms
($7.0  million  deferred at December 31, 2007 which is  classified  as a current
asset) and associates related to deferred Membership revenue. Deferred costs for
enrolling  new  members  include the cost of the  Membership  kit and salary and
benefit costs for employees who process  Membership  enrollments,  and were $5.7
million at December 31, 2007,  of which $2.4  million is  classified  in current
assets. Deferred costs for enrolling new associates include training and success
bonuses paid to individuals  involved in recruiting the associate and salary and
benefit costs of employees who process associate enrollments,  and were $648,000
at December 31, 2007,  and are  classified  as a current  asset.  Such costs are
deferred to the extent of the lesser of actual  costs  incurred or the amount of
the related  fee charged for such  services.  Deferred  costs are  amortized  to
expense over the same period as the related deferred revenue as discussed above.
Deferred costs that will be recognized within one year of the balance sheet date
are  classified  as current  and all  remaining  deferred  costs are  considered
noncurrent.  Associate  related  costs are  reflected as associate  services and
direct  marketing,  and are  expensed as incurred if not related to the deferred
revenue discussed above. These costs include providing materials and services to
associates,  associate  introduction kits,  associate incentive programs,  group
marketing and marketing services departments (including costs of related travel,
marketing events, leadership summits and international sales convention).

     Commissions to Associates
     Beginning with new Memberships  written after March 1, 1995, we implemented
a level commission  schedule  (approximately 27% per annum at December 31, 2001)
with up to a three-year advance commission payment.  Prior to March 1, 1995, our
commission  program  provided for advance  commission  payments to associates of
approximately  70% of first year  Membership  fees on new  Membership  sales and
commissions were earned by the associate at a rate of  approximately  16% in all
subsequent  years.  Effective  March 1, 2002,  and in order to offer  additional
incentives  for  increased   Membership   retention  rates,  we  returned  to  a
differential  commission structure with rates of approximately 80% of first year
Membership fees on new Memberships written and variable renewal commission rates
ranging  from  five to 25% per  annum  based on the  first  12 month  Membership
retention rate of the associate's  personal sales and those of his organization.
Beginning in August 2003, we allowed the  associate to choose  between the level
commission  structure  and  up  to  a  three  year  commission  advance  or  the
differential commission structure with a one year commission advance.

     Prior to January  1997 we advanced  commissions  at the time of sale of all
new Memberships.  In January 1997, we implemented a policy whereby the associate
receives only earned  commissions  on the first three sales unless the associate
has  successfully  completed the CFT training  program.  For all sales beginning
with the  fourth  Membership  or all  sales  made by an  associate  successfully
completing the CFT training program,  advance  commission  payments were made at
the  time of  sale of a new  Membership.  Beginning  April  1,  2007,  we  began
advancing commissions at the time of sale of all new Memberships.  The amount of
cash  potentially  advanced  upon  the  sale of a new  Membership,  prior to the
recoupment of any charge-backs (described below),  represents an amount equal to
up to one-year  commission  earnings.  Although the average  number of marketing
associates  receiving an advance commission payment on a new Membership is nine,
the  overall  initial  advance  may  be  paid  to   approximately  30  different
individuals,  each at a different level within the overall commission structure.
The commission  advance  immediately  increases an associate's  unearned advance
commission balance to us.

     Although  prior to March 1, 2002,  we advanced our sales  associates  up to
three years  commission  when a Membership  was sold and  subsequent to March 1,
2002,  up to one year  commission,  the average  commission  advance paid to our
sales  associates as a group is actually less than the maximum  amount  possible
because  some  associates  choose to receive less than a full advance and we pay
less than a full advance on some of our specialty products.  In addition, we may
from time to time place  associates  on a less than full advance  basis if there
are  problems  with  the  quality  of the  business  being  submitted  or  other
performance  problems  with  an  associate.  Additionally,  we  do  not  advance
commissions  on certain  categories of group  business  which have  historically
demonstrated  below  average  retention  characteristics.   Also,  any  residual
commissions due an associate (defined as commission on an individual  Membership
after the advance has been earned) are retained to reduce any remaining unearned
commission  advance  balances prior to being paid to that sales  associate.  For
those associates that have made at least 10 personal sales,  opened at least one
group and personally write 15% or more of their organizational  business, 15% of
their commissions are set aside in individual reserve balance accounts,  further
reducing the amount of advance commissions.  The average commission advance paid
as a  percentage  of the maximum  advance  possible  pursuant to our  commission
structures  was  approximately  82%,  78% and 75%  during  2007,  2006 and 2005,
respectively. The commission cost per new Membership sold has increased over the
prior year by 3%, 2% and 6% for 2007,  2006 and 2005,  respectively,  and varies
depending  on the  compensation  structure  that is in  place  at the time a new
Membership is sold, the monthly  Membership  fee of the Membership  sold and the
amount of any charge-backs (recoupment of previous commission advances) that are
deducted  from  amounts  that  would  otherwise  be  paid to the  various  sales
associates  that  are  compensated  for  the  Membership  sale.  Should  we  add
additional  products,  such as the Identity Theft Shield  described above or add
additional  commissions  to our  compensation  plan  or  reduce  the  amount  of
chargebacks  collected  from  our  associates,   the  commission  cost  per  new
Membership will increase accordingly.

     We expense advance  commissions ratably over the first month of the related
Membership. At December 31, 2007, advance commissions deferred were $5.6 million
and included as a current  asset.  As a result of this  accounting  policy,  our
commission  expenses are all recognized over the first month of a Membership and
there is no commission  expense  recognized for the same  Membership  during the
remainder  of the  advance  period.  We track our  unearned  advance  commission
balances  outstanding in order to ensure the advance  commissions  are recovered
before any renewal  commissions are paid and for internal  purposes of analyzing
our commission advance program. While not recorded as an asset, unearned advance
commission  balances from  associates for the following  years ended December 31
were:



                                                                        2007            2006            2005
                                                                    ------------    ------------    ------------
                                                                                 (Amounts in 000's)
                                                                    --------------------------------------------
                                                                                        
Beginning unearned advance commission balances (1)..................$   188,647     $   195,792     $   183,060
Advance commissions, net of chargebacks and other....................   126,880         121,737         142,535
Earned commissions applied...........................................  (126,836)       (124,983)       (127,084)
Advance commission write-offs........................................    (4,160)         (3,899)         (2,719)
                                                                    ------------    ------------    ------------
Ending unearned advance commission balances before estimated
  unrecoverable balances (1).........................................   184,531         188,647         195,792
Estimated unrecoverable advance commission balances (1)..............   (42,850)        (40,091)        (33,879)
                                                                    ------------    ------------    ------------
Ending unearned advance commission balances, net (1)............... $   141,681    $    148,556     $   161,913
                                                                   ------------    ------------     ------------


     (1) These  amounts do not  represent  fair value,  as they do not take into
consideration timing of estimated recoveries.

     The ending unearned advance  commission  balances,  net, above includes net
unearned advance  commission  balances of non-vested  associates of $56 million,
$49 million and $40 million at December 31, 2007,  2006 and 2005,  respectively.
As such,  at December 31, 2007 future  commissions  and related  expense will be
reduced as unearned  advance  commission  balances of $85 million are recovered.
Commissions  are earned by the  associate as  Membership  fees are earned by us,
usually on a monthly basis. We reduce unearned  advance  commission  balances or
remit payments to  associates,  as  appropriate,  when  commissions  are earned.
Should a  Membership  lapse  before the advances  have been  recovered  for each
commission  level,  we,  except  as  described  below,   generate  an  immediate
"charge-back"  to the applicable  sales  associate to recapture up to 50% of any
unearned advance on Memberships  written prior to March 1, 2002, and 100% on any
Memberships  written  thereafter.  Beginning  in August  2003,  we  allowed  the
associate to choose between the level commission  structure and up to three year
commission  advance and up to 50%  chargebacks  or the  differential  commission
structure with a one year commission  advance and up to 100%  chargebacks.  This
charge-back is deducted from any future advances that would otherwise be payable
to  the  associate  for  additional  new  Memberships.  In  order  to  encourage
additional  Membership  sales,  we waived  chargebacks  for associates  that met
certain  criteria in December 2002 and March 2003, which  effectively  increased
our commission expense. Any remaining unearned advance commission balance may be
recovered by withholding  future  residual  earned  commissions due to an active
associate on active Memberships.  Additionally, even though a commission advance
may  have  been  fully  recovered  on a  particular  Membership,  no  additional
commission  earnings  from any  Membership  are paid to an  associate  until all
previous  advances  on all  Memberships,  both  active  and  lapsed,  have  been
recovered.  We also have reduced chargebacks from 100% to 50% for certain senior
marketing  associates  who have  demonstrated  the ability to  maintain  certain
levels of sales over specified periods and maintain certain Membership retention
levels.  We may adjust  chargebacks  from time to time in the future in order to
encourage certain production incentives.

     We have the  contractual  right to  require  associates  to repay  unearned
advance commission balances from sources other than earned commissions including
cash (a) from all  associates  either  (i)  upon  termination  of the  associate
relationship,  which  includes but is not limited to when an  associate  becomes
non-vested  or  (ii)  when  it  is  ascertained  that  earned   commissions  are
insufficient  to repay the  unearned  advance  commission  payments and (b) upon
demand, from agencies or associates who are parties to the associate  agreements
signed  between  October  1989  and  July  1992 or July  1992  to  August  1998,
respectively.  The sources, other than earned commissions, that may be available
to recover  associate  unearned  advance  commission  balances  are  potentially
subject to  limitation  based on  applicable  state laws  relating to creditors'
rights generally.  Historically, we have not demanded repayments of the unearned
advance commission balances from associates,  including  terminated  associates,
because collection efforts would likely increase costs and have the potential to
disrupt our relationships  with our sales associates.  This business decision by
us has a significant  effect on our cash flow by electing to defer collection of
advance  payments of which  approximately  $43.4 million were not expected to be
collected from future  commissions at December 31, 2007.  However,  we regularly
review the unearned  advance  commission  balance  status of associates and will
exercise  our right to require  associates  to repay  advances  when  management
believes that such action is appropriate.

     Non-vested  associates are those that are no longer  "vested"  because they
fail to meet our established vesting  requirements by selling at least three new
Memberships  per  quarter  or  retaining  a  personal   Membership.   Non-vested
associates  lose their right to any further  commissions  earned on  Memberships
previously  sold at the time  they  become  non-vested.  As a result  we have no
continuing  obligation to individually  account to these  associates as we do to
active associates and are entitled to retain all commission  earnings that would
be otherwise  payable to these terminated  associates.  We do continue to reduce
the  unearned  advance  commission  balances  for  commissions  earned on active
Memberships  previously sold by those  associates.  Substantially all individual
non-vested  associate unearned advance commission balances were less than $1,000
and the average balance was $411 at December 31, 2007.

     Although the advance  commissions are expensed ratably over the first month
of the  related  Membership,  we  assess,  at the  end of  each  quarter,  on an
associate-by-associate  basis, the  recoverability of each associate's  unearned
advanced  commission balance by estimating the associate's future commissions to
be earned on active  Memberships.  Each active Membership is assumed to lapse in
accordance  with our estimated  future lapse rate,  which is based on our actual
historical   Membership   retention   experience   as  applied  to  each  active
Membership's  year of origin.  The lapse rate is based on our more than  20-year
history of Membership  retention  rates,  which is updated  quarterly to reflect
actual experience. We also closely review current data for any trends that would
affect the historical lapse rate. The sum of all expected future  commissions to
be earned for each  associate  is then  compared  to that  associate's  unearned
advance  commission  balance.  We  estimate   unrecoverable  advance  commission
balances when expected  future  commissions  to be earned on active  Memberships
(aggregated  on an  associate-by-associate  basis)  are less  than the  unearned
advance commission balance. If an associate with an outstanding unearned advance
commission  balance has no active  Memberships,  the unearned advance commission
balance  is  written  off but  has no  financial  statement  impact  as  advance
commissions   are  expensed   ratably  over  the  first  month  of  the  related
Memberships.  Refer to "Measures of Member Retention - Expected Membership Life,
Expected  Remaining  Membership Life" for a description of the method used by us
to estimate future commission earnings.

     Further,  our analysis of the recoverability of unearned advance commission
balances is also based on the  assumption  that the associate does not write any
new  Memberships.   We  believe  that  this  assessment  methodology  is  highly
conservative  since our actual experience is that many associates do continue to
sell new Memberships and we, through our chargeback  rights,  gain an additional
source to recover unearned advance commission balances.

     Changes  in our  estimates  with  respect  to  recoverability  of  unearned
commissions could occur if the underlying  Membership  persistency  changes from
historical  levels.  Should  Membership   persistency  decrease,   the  unearned
commissions would be recovered over a longer period and the amount not recovered
would most likely  increase,  although  any increase in  uncollectible  unearned
commissions  would not have any immediate  expense  impact since the  commission
advances are expensed in the month they are incurred.  Holding all other factors
constant,  the decline in persistency  would also lead to lower Membership fees,
less  net  income  and  less  cash  flow  from  operations.  Conversely,  should
persistency increase,  the unearned commissions would be recovered more quickly,
the amount  unrecovered  would decrease and, holding all other factors constant,
we would enjoy higher  Membership  fees, more net income and more cash flow from
operations.

     Incentive awards payable
     Associates can earn the right to attend an annual incentive trip by meeting
monthly qualification  requirements for the entire calendar year and maintaining
certain  personal  retention rates for the Memberships  sold during the calendar
year.  Associates can also earn the right to receive  additional monthly bonuses
by meeting the monthly qualification  requirements for twelve consecutive months
and maintaining certain personal retention rates for the Memberships sold during
that twelve month period.  The incentive awards payable at any date is estimated
based on an  evaluation  of the  existing  associates  that have met the monthly
qualifications,  any  changes to the  monthly  qualification  requirements,  the
estimated cost for each incentive  earned and the number of associates that have
historically met the personal retention rates. At December 31, 2007, the accrued
amount  payable  was $3.3  million.  Changes to any of these  assumptions  would
directly  affect the amount accrued but we do not expect any of the  significant
trends impacting this account to change significantly in the near term.

     Legal Contingencies
     We are subject to various  legal  proceedings  and claims,  the outcomes of
which   are   subject   to   significant   uncertainty.   Given   the   inherent
unpredictability  of  litigation,  it is  difficult  to  estimate  the impact of
litigation  on  our  financial  condition  or  results  of  operation.  SFAS  5,
Accounting  for  Contingencies,  requires  that an  estimated  loss  from a loss
contingency be accrued by a charge to income if it is probable that an asset has
been impaired or a liability has been incurred and the amount of the loss can be
reasonably  estimated.  Disclosure of a  contingency  is required if there is at
least a reasonable possibility that a loss has been incurred. We evaluate, among
other  factors,  the degree of  probability  of an  unfavorable  outcome and the
ability to make a reasonable estimate of the amount of loss. We have established
an accrued liability we believe will be sufficient to cover estimated damages in
connection  with various  cases,  which at December  31, 2007 was $75,000.  This
process  requires  subjective  judgment about the likely outcomes of litigation.
Liabilities related to most of our lawsuits are especially difficult to estimate
due to the nature of the claims,  limitation of available  data and  uncertainty
concerning  the  numerous  variables  used to determine  likely  outcomes or the
amounts  recorded.  Litigation  expenses  are recorded as incurred and we do not
accrue for future legal fees. It is possible that an adverse  outcome in certain
cases or  increased  litigation  costs  could  have an adverse  effect  upon our
financial condition,  operating results or cash flows in particular quarterly or
annual periods. See "Legal Proceedings."


Other General Matters

     Operating Ratios
     Three principal  operating measures monitored by us in addition to measures
of Membership retention are the Membership benefits ratio,  commission ratio and
the general and administrative expense ratio. The Membership benefits ratio, the
commissions  ratio and the general and  administrative  expense ratio  represent
those costs as a percentage  of  Membership  fees.  We strive to maintain  these
ratios as low as possible  while at the same time providing  adequate  incentive
compensation to our sales associates and provider law firms. These ratios do not
measure total  profitability  because they do not take into account all revenues
and expenses.

     Cash Flow Considerations Relating to Sales of Memberships
     We generally  advance  significant  commissions at the time a Membership is
sold.  Since  approximately  95% of  Membership  fees are collected on a monthly
basis,  a  significant  cash flow deficit is created at the time a Membership is
sold.  This  deficit is reduced as monthly  Membership  fees are remitted and no
additional  commissions are paid on the Membership  until all previous  unearned
advance commission  balances have been fully recovered.  Since the cash advanced
at the  time of sale of a new  Membership  may be  recovered  over a  multi-year
period,  cash flow from  operations may be adversely  affected  depending on the
number of new  Memberships  written in relation to the  existing  active base of
Memberships  and the composition of new or existing sales  associates  producing
such Memberships.

     Investment Policy
     Our  investment  policy is to some degree  controlled by certain  insurance
regulations, which, coupled with management's own investment philosophy, results
in a conservative investment portfolio that is not risk oriented. Our investment
purchases  consist  of common  stocks,  investment  grade  (rated Baa or higher)
preferred  stocks and investment  grade bonds primarily  issued by corporations,
the United States Treasury,  federal agencies,  federally sponsored agencies and
enterprises,  as well as  mortgage-backed  securities  and state  and  municipal
tax-exempt bonds, auction rate securities and EURO deposits.  We are required to
pledge  investments  to various state  insurance  departments  as a condition to
obtaining authority to do business in certain states.

     Recently Issued Accounting Pronouncements
     In September 2006, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 157, Fair Value  Measurements  ("SFAS 157"),  which defines fair value,
establishes  a  framework  for  measuring  fair  value  in  generally   accepted
accounting  principles,  and expands  disclosures about fair value measurements.
SFAS 157 does not require any new fair value measurements, but provides guidance
on how to  measure  fair  value by  providing  a fair  value  hierarchy  used to
classify the source of the  information.  SFAS 157 is effective for fiscal years
beginning  after  November 15,  2007.  However,  on December 14, 2007,  the FASB
issued  proposed FSP FAS 157-b which would delay the effective  date of SFAS 157
for all nonfinancial assets and nonfinancial liabilities,  except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). This proposed FSP partially defers the effective date
of Statement 157 to fiscal years  beginning after November 15, 2008, and interim
periods  within  those  fiscal  years  for items  within  the scope of this FSP.
Effective  for  2008,  we will  adopt  SFAS 157  except as it  applies  to those
nonfinancial  assets and  nonfinancial  liabilities as noted in proposed FSP FAS
157-b.  The partial  adoption of SFAS 157 will not have a material impact on our
consolidated financial position, results of operations or cash flows.

     In February  2007,  the FASB issued SFAS No. 159, The Fair Value Option for
Financial  Assets and  Financial  Liabilities-  including  an  Amendment of FASB
Statement  No. 115  ("SFAS  159"),  which  allows an entity to choose to measure
certain  financial  instruments  and  liabilities  at  fair  value.   Subsequent
measurements  for the financial  instruments and liabilities an entity elects to
fair value will be recognized in earnings.  SFAS 159 also establishes additional
disclosure requirements. SFAS 159 is effective for us beginning January 1, 2008.
The  adoption  of SFAS 159 will not have a material  impact on our  consolidated
financial position, results of operations or cash flows.

     In December  2007,  the FASB issued SFAS No. 141 (revised  2007),  Business
Combinations  ("SFAS 141R").  SFAS 141R establishes  principles and requirements
for how an acquirer  recognizes  and measures in its  financial  statements  the
identifiable  assets  acquired,  the  liabilities  assumed,  any  noncontrolling
interest in the acquiree and the goodwill  acquired.  SFAS 141R also establishes
disclosure  requirements  to enable the  evaluation  of the nature and financial
effects  of  the  business  combination.  This  statement  is  effective  for us
beginning January 1, 2009.

     In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial  Statements--an amendment of Accounting Research Bulletin
No. 51 ("SFAS 160"). SFAS 160 establishes accounting and reporting standards for
ownership  interests in subsidiaries held by parties other than the parent,  the
amount  of  consolidated  net  income  attributable  to  the  parent  and to the
noncontrolling  interest,  changes in a  parent's  ownership  interest,  and the
valuation of retained  noncontrolling  equity  investments  when a subsidiary is
deconsolidated.  SFAS 160 also establishes disclosure  requirements that clearly
identify and  distinguish  between the interests of the parent and the interests
of the  noncontrolling  owners.  This  statement is  effective  for us beginning
January  1,  2009.  We are  currently  evaluating  the  potential  impact of the
adoption  of  SFAS  160 on  our  consolidated  financial  position,  results  of
operations or cash flows.

     In September  2006,  the FASB ratified EITF Issue No. 06-4,  Accounting for
Deferred   Compensation  and  Postretirement   Benefit  Aspects  of  Endorsement
Split-Dollar Life Insurance Arrangements ("EITF 06-4"). EITF 06-4 indicates that
an employer  should  recognize a liability for future  post-employment  benefits
based on the  substantive  agreement  with the  employee,  and is effective  for
fiscal  years  beginning  after  December  15,  2007.  The Company is  currently
assessing  the impact of EITF 06-4 on its  consolidated  financial  position and
results of operation.

     In March 2007, the FASB ratified Emerging Issues Task Force Issue No. 06-10
"Accounting for Collateral  Assignment  Split-Dollar Life Insurance  Agreements"
(EITF 06-10).  EITF 06-10 provides  guidance for determining a liability for the
postretirement  benefit obligation as well as recognition and measurement of the
associated  asset  on the  basis  of the  terms  of  the  collateral  assignment
agreement. EITF 06-10 is effective for fiscal years beginning after December 15,
2007.  The  Company  is  currently  assessing  the  impact of EITF  06-10 on its
consolidated financial position and results of operations.

Measures of Member Retention

     One of the major factors  affecting our  profitability and cash flow is our
ability to retain a Membership,  and therefore continue to receive fees, once it
has been sold. We monitor our overall  Membership  persistency  rate, as well as
the retention  rates with respect to Memberships  sold by individual  associates
and agents and  retention  rates with respect to  Memberships  by year of issue,
geographic region, utilization characteristics and payment method, and other sub
groupings.


                                   Terminology

     The  following  terms  are  used in  describing  the  various  measures  of
retention:

o    Membership life is a period that commences on the day of initial enrollment
     of a member and  continues  until the  individual's  Membership  eventually
     terminates   or  lapses  (the  terms   terminate   or  lapse  may  be  used
     interchangeably here).

o    Membership age means the time since the Membership has been in effect.

o    Lapse rate means the  percentage  of  Memberships  of a specified  group of
     Memberships that lapse in a specified time period.

o    Retention  rate is the complement of a lapse rate, and means the percentage
     of  Memberships  of a specified  group that remain in force at the end of a
     specified time period.

o    Persistency  and  retention  are  used in a  general  context  to mean  the
     tendency  for  Memberships  to continue to remain in force,  while the term
     persistency rate is a specific measure that is defined below.

o    Lapse rates,  retention rates,  persistency rates, and expected  Membership
     life may be referred to as measures of Membership retention.

o    Expected Membership life means the average number of years a new Membership
     is expected to remain in force.

o    Blended  rate when used in  reference  to any  measure of member  retention
     means a rate computed  across a mix of  Memberships  of various  Membership
     ages.

o    Expected  remaining  Membership  life means the number of additional  years
     that an  existing  member is  expected to continue to renew from a specific
     point in time based on the Membership life.

     Variations  in  Membership  Retention  by  Sub-Groups,  Impact on Aggregate
Numbers  Companywide  measures of Membership  retention include data relating to
members who can potentially be further sorted by identifiable sub-groupings. For
example,  Memberships  may be subdivided  into those owned by members who are or
are not sales  associates,  to those who are or are not members of group  plans,
etc.

     Measures of  Membership  retention of different  sub-groups  may vary.  For
example,  our experience indicates that first year retention rate of Memberships
owned by members  who have  accessed  the  services  of the  provider  law firms
historically  have  higher  retention  rates than those who have not.  They also
likely  have a better  understanding  and  appreciation  of the  benefits of the
Membership,  which may have  contributed in fact to their decision to keep their
Membership active.

     All  aggregate  measures of  Membership  retention or expected  life may be
impacted by shifts in the  underlying  enrollment  mix of  sub-groups  that have
different  retention  rates.  A shift in mix alone  could,  over time,  cause an
increase in reported aggregate retention measures and expected member life, even
if the retention  rates within each sub-group do not change.  It is important to
note that all blended rates discussed here may reflect the impact of such shifts
in  enrollment  mixes.  At December  31, 2007,  390,762 of the active  1,575,802
Memberships were also vested  associates which represent 25% of the total active
Memberships  compared to 26% at December  31, 2006 and 27% at December 31, 2005.
The following  table shows total new  Memberships  sold during each year and the
number and percentage of Memberships sold to persons who are associates.



                Total New        Associate
   Year        Memberships      Memberships         Ratio
   ----        -----------      -----------         -----
   2003          671,857            86,406          12.9%
   2004          624,525            89,230          14.3%
   2005          700,727           220,290          31.4%
   2006          612,726           134,789          22.0%
   2007          612,096           114,024          18.6%


     Variations  in  Retention  over Life of a  Membership,  Impact on Aggregate
Measures
     Measures of member retention also vary significantly by the Membership age.
Historically,  we have  observed  that  Memberships  in their  first year have a
significantly  higher lapse rate than  Memberships  in their second year, and so
on.  The  following  chart  shows  the  historical   observed  lapse  rates  and
corresponding  yearly  retention  rates as a function  of  Membership  age.  For
example, 49.4% of all new Memberships lapse during the first year, leaving 50.6%
still in force at the end of the  first  year.  More  tenured  Memberships  have
significantly  lower lapse  rates.  For  example,  by year seven lapse rates are
under 10% and annual  retention  exceeds  90%. The  following  table shows as of
December 31, 2007 and 2006 our blended  retention  rate and lapse rates based on
our historical experience for the last 25 years.



                        Membership Retention versus Membership Age
----------------------------------------------------------------------------------------
       As of December 31, 2007                              As of December 31, 2006
-----------------------------------                   ----------------------------------
  Yearly                                               Yearly
  Lapse      Yearly     End of Year   Membership       Lapse      Yearly      End of Year
  Rate     Retention    Memberships       Year          Rate    Retention    Memberships
---------  ---------    -----------   --------------  --------  ---------    -----------
                                                                       
                           100.0             0                                  100.0
    49.4%     50.6%          50.6            1            49.4%    50.6%         50.6
    32.0%     68.0%          34.4            2            31.6%    68.4%         34.6
    23.0%     77.0%          26.5            3            23.4%    76.6%         26.5
    18.5%     81.5%          21.6            4            18.3%    81.7%         21.7
    14.8%     85.2%          18.4            5            13.0%    87.0%         18.8
    10.3%     89.7%          16.5            6            10.1%    89.9%         16.9
     7.9%     92.1%          15.2            7             7.9%    92.1%         15.6



     Membership Persistency
     ----------------------
     Our Membership persistency rate is a specific computation that measures the
number of Memberships in force at the end of a year as a percentage of the total
of (i)  Memberships  in force  at the  beginning  of such  year,  plus  (ii) new
Memberships sold during such year. From 1981 through the year ended December 31,
2007, our annual Membership  persistency rates, using the foregoing method, have
averaged approximately 71.9%.



                Beginning           New                             Ending
   Year        Memberships       Memberships        Total         Memberships     Persistency
   ----        -----------    ------------------  ------------   --------------   -----------
                                                                       
   2003         1,382,306           671,857        2,054,163       1,418,997          69.1%
   2004         1,418,997           624,525        2,043,522       1,451,700          71.0%
   2005         1,451,700           700,727        2,152,427       1,542,789          71.7%
   2006         1,542,789           612,726        2,155,515       1,538,740          71.4%
   2007         1,538,740           612,096        2,150,836       1,575,802          73.3%




     Our  overall  Membership  persistency  rate  varies  based on,  among other
factors,  the relative age of total  Memberships in force, and shifts in the mix
of members enrolled.  Our overall Membership persistency rate could become lower
when the Memberships in force include a higher proportion of newer  Memberships,
as will  happen  following  periods  of rapid  growth.  Our  overall  Membership
persistency  rate could also  become  lower when the new  enrollments  include a
higher proportion of non-associate members.

     Unless offset by other factors,  these factors could result in a decline in
our overall  Membership  persistency rate as determined by the formula described
above,  but does not necessarily  indicate that the new Memberships  written are
less persistent.

     Expected Membership Life
     Using  historical  data  through 2007 for all past  Members  enrolled,  the
expected  Membership life can be computed to be approximately  three years. This
number  represents  the average number of years a new Membership can be expected
to remain in force.  Although about half of all new Memberships may lapse in the
first year, the expected  Membership life is much longer due to the contribution
of higher annual retention rates in subsequent years.

     Since our  experience is that the retention  rate of a given  generation of
new Memberships  improves with Membership age, the expected remaining Membership
life of a Membership also increases with  Membership  age. For example,  while a
new Membership may have an expected Membership life of three years, the expected
remaining   Membership  life  of  a  Membership  that  reaches  its  first  year
anniversary is more than 5.0 years.

     Since  the  actual  population  of  Memberships  in  force at any time is a
distribution  of ages from zero to more than 20 years,  the  expected  remaining
Membership life of the entire population at large greatly exceeds four years per
Membership.  As of December 31, 2007,  based on the  historical  data  described
above, the current expected  remaining  Membership life of the actual population
is over 7.5 years per  Membership.  This  measure is used by us to estimate  the
future revenues expected from Memberships currently in place.

     Expected  Membership  life  measures  are  based  on more  than 25 years of
historical  Membership  retention data,  unlike the Membership  persistency rate
described  above  which is computed  from,  and  determined  by, the most recent
one-year  period  only.  Both  or  these  measures  however  include  data  from
Memberships  of all  Membership  ages and hence  are  referred  to as  "blended"
measures.

     Actions that May Impact Retention in the Future
     The  potential  impact  on our  future  profitability  and cash flow due to
future  changes  in  Membership  retention  can be  significant.  While  blended
retention rates have not changed  dramatically over the past five years, we have
implemented  several  initiatives  aimed at improving the retention rate of both
new and  existing  Memberships.  Such  initiatives  include an optional  revised
compensation  structure featuring variable renewal commission rates ranging from
five to 25% per annum  based on the 12 month  Membership  retention  rate of the
associate's personal sales and those of his organization and implementation of a
"non-taken"  administrative  fee to sales  associates of $35 for any  Membership
application that is processed but for which a payment is never received. We have
designed and implemented an enhanced member "life cycle"  communication  process
aimed at both  increasing  the overall  amount of  communication  from us to the
members as well as more specific target messaging to members based on the length
of their Membership as well as utilization characteristics.

     During 2006, we began providing an additional service focused on Membership
retention,  Member  Advantage  Services,  to our associates for a onetime fee of
$5.95 per Membership.  This service consists of several out-bound calls,  emails
and letters by our employees  during the first year of the Membership as well as
out-bound  calls to the member  any time the  Membership  moves into  pre-cancel
status  throughout the life of the Membership.  We verify the Membership data in
our files on the very first call and make any necessary  changes  immediately as
well as fully  explain the  Membership  benefits  and answer any  questions  the
member may have,  essentially reselling the Membership.  We provide Provider law
firm contact  information  and make sure the member  understands  how to contact
their  Provider.  We encourage our members to  immediately  begin the process of
having their will prepared and also help the member begin the credit  monitoring
process for  Identity  Theft  Shield  members.  We believe that such efforts may
ultimately  increase the  utilization  by members and  therefore  lead to higher
retention  rates.  We intend to continue  to develop  programs  and  initiatives
designed to improve retention.

Results of Operations

     Comparison of 2007 to 2006
     Net income for 2007  decreased 1% to $51.2  million from $51.8  million for
2006.  Diluted earnings per share for 2007 increased 11% to $3.88 per share from
$3.51  per share for the prior  year due to  decreased  net  income of 1% and an
approximate 10% decrease in the weighted  average number of outstanding  shares.
Membership  revenues for 2007 were up 2% to $427.4  million from $421.2  million
for  the  prior  year  marking  the  fifteenth  consecutive  year  of  increased
Membership revenue.

     Membership  fees and  their  impact on total  revenues  in any  period  are
determined directly by the number of active Memberships in force during any such
period  and the  average  annual  fee.  The  active  Memberships  in  force  are
determined  by both the number of new  Memberships  sold in any period  together
with the renewal rate of existing  Memberships.  New Membership  sales decreased
less than 1% during 2007 to 612,096  from 612,726  during 2006.  At December 31,
2007, there were 1,575,802 active  Memberships in force compared to 1,538,740 at
December 31, 2006, an increase of 2%.  Additionally,  the average annual fee per
Membership has increased from $293 for all  Memberships in force at December 31,
2006 to $298 for all  Memberships  in force at December 31, 2007, a 2% increase,
primarily  as a result of an  increase  in the  percentage  of members  with our
Identity  Theft Shield  Membership.  These changes  resulted in a 4% increase in
Membership fees for 2007 to $427.4 million from $412.2 million for 2006.

     Associate  services  revenue  decreased  7% from $26.9  million for 2006 to
$25.1 million during 2007 primarily as a result of fewer  associates  recruited.
The eService fees totaled  $12.4  million  during 2007 compared to $12.8 million
for 2006,  a  decrease  of 3%. We  recognized  revenue  from  associate  fees of
approximately  $9.8 million during 2007 compared to $10.6 million during 2006, a
decrease of 8%. New  associates  typically  pay a fee ranging  from $49 to $249,
depending on special promotions we implement from time to time. Although the new
enrollments  of sales  associates  decreased  14% during  2007 to  148,802  from
172,999 for 2006, the average associate fee paid during 2007 was $56.75 compared
to $49.69 for 2006,  an increase of 14% due to higher  average  enrollment  fees
charged to new associates.  Future revenues from associate  services will depend
primarily on the number of new  associates  enrolled,  the price charged for new
associates and the number who choose to participate in our eService program, but
we expect that such revenues  will  continue to be largely  offset by the direct
and indirect  cost to us of  training,  providing  associate  services and other
direct marketing expenses.

     Other revenue  decreased  10%, from $5.0 million to $4.5 million  primarily
due to the decrease in revenue recognized from Membership enrollment fees.

     Primarily as a result of the increase in Membership  fees,  total  revenues
increased  to $457.1  million  for 2007 from  $444.0  million  during  2006,  an
increase of 3%.

     Membership  benefits,  which primarily  represent  payments to provider law
firms and Kroll,  totaled $148.8 million for 2007 compared to $145.8 million for
2006 and  represented  35% of Membership  fees for both years.  This  Membership
benefit ratio (Membership benefits as a percentage of Membership fees) should be
slightly reduced going forward as substantially all active  Memberships  provide
for a capitated  cost and we have  reduced the  capitated  cost of the  Identity
Theft plan benefits effective April 1, 2007 with additional reductions effective
beginning January 1, 2008, 2009 and 2010.

     Commissions  to  associates  increased  3% from $126.8  million for 2006 to
$130.6 million for 2007, and  represented 31% of Membership fees for both years.
Commissions  to  associates  are  primarily  dependent  on  the  number  of  new
Memberships sold during a period and the average fee of those  Memberships.  New
Memberships  sold during 2007  totaled  612,096,  virtually  unchanged  from the
612,726 sold during 2006,  and the "add-on" IDT  Membership  sales which are not
included in these totals decreased 2% to 381,419 for 2007 from 389,157 for 2006.
Although  our new  Membership  fees  written  during 2007  decreased  2%, the 3%
increase in commissions to associates  resulted due to a change  effective April
1, 2007 when we began advancing commissions on the first Membership sale.

     Associate  services and direct  marketing  expenses  decreased  $600,000 to
$28.9 million for 2007 from $29.5  million for 2006. We had a $500,000  decrease
in direct marketing and marketing  services costs and a $1.1 million decrease in
training  fees and bonuses  partially  offset by a $900,000  increase in Players
Club costs.  Training  fees and bonuses are  affected by the number of new sales
associates that successfully meet the qualification  criteria established by us,
i.e.  more  training  bonuses  will be paid  when a higher  number  of new sales
associates  meet such criteria.  These  expenses  include the costs of providing
associate  services  and  marketing  expenses  as  discussed  under  Member  and
Associate Costs.

     General and administrative expenses during 2007 and 2006 were $50.5 million
and $50.1 million,  respectively, and represented 11.8% and 12.1%, respectively,
of  Membership  fees  for  such  years.   Decreases  in  the  2007  period  were
attributable primarily to reclassification of $3.8 million of state income taxes
to the provision for income  taxes.  For 2006 we recorded  state income taxes of
$2.7  million.  This $2.7 million  reduction  in state income taxes  recorded in
general and  administrative  expenses was offset by  increases  in  advertising,
consultant fees, employee expenses,  telecommunications and legal fees resulting
in a $400,000 increase in general and administrative expenses.

     Other  expenses,   net,  which  includes   depreciation  and  amortization,
litigation  accruals,  premium  taxes and interest  expense  reduced by interest
income,  increased  13% to $13.8  million for 2007 from $12.2  million for 2006.
Depreciation  and  amortization  increased  to $8.5  million  for 2007 from $8.3
million for 2006. Litigation expense was $15,000 for 2007 compared to a negative
$710,000 during 2006. Premium taxes increased from $1.8 million for 2006 to $1.9
million for 2007.  Interest expense  increased to $6.7 million for 2007 compared
to $5.7 million for the prior year.  Interest  income  increased to $3.3 million
for 2007 from $2.9 million for 2006.

     The  provision  for income  taxes  increased  during 2007 to $33.3  million
compared to $27.9 million for 2006, representing 39.4% and 35.0%,  respectively,
of income  before  income  taxes.  The 2007  provision  included a $2.0  million
charge,  representing  2.4% of income before  income  taxes,  relating to income
taxes for years 2006 and prior.  This  charge  resulted  from a clerical  error,
which we discovered and corrected,  in the amount of net operating loss reported
in a 2003 state income tax return which  resulted in  nonpayment of income taxes
in that state for several  years.  The 2007  provision  also  includes year 2007
state income taxes of $3.2 million,  net of federal benefits as discussed above,
representing 3.8% of income before income taxes.

     Comparison of 2006 to 2005
     Net income for 2006  increased  45% to $51.8 million from $35.8 million for
2005.  Diluted earnings per share for 2006 increased 53% to $3.51 per share from
$2.29 per share for the prior  year due to  increased  net  income of 45% and an
approximate 6% decrease in the weighted  average  number of outstanding  shares.
Membership  revenues for 2006 were up 6% to $412.2  million from $389.3  million
for the  prior  year  marking  the  fourteenth  consecutive  year  of  increased
Membership revenue.

     Membership  fees and  their  impact on total  revenues  in any  period  are
determined directly by the number of active Memberships in force during any such
period  and the  average  annual  fee.  The  active  Memberships  in  force  are
determined  by both the number of new  Memberships  sold in any period  together
with the renewal rate of existing  Memberships.  New Membership  sales decreased
13% during 2006 to 612,726 from 700,727 during 2005. At December 31, 2006, there
were 1,538,740 active Memberships in force compared to 1,542,789 at December 31,
2005,  a decrease  of less than 1%.  Additionally,  the  average  annual fee per
Membership has increased from $287 for all  Memberships in force at December 31,
2005 to $293 for all  Memberships  in force at December 31, 2006, a 2% increase,
primarily  as a result of an  increase  in the  percentage  of members  with our
Identity  Theft Shield  Membership.  These changes  resulted in a 6% increase in
Membership fees for 2006 to $412.2 million from $$389.3 million for 2005.

     Associate  services  revenue  decreased  7% from $29.0  million for 2005 to
$26.9 million during 2006 primarily as a result of fewer  associates  recruited.
The eService fees totaled  $12.8  million  during 2006 compared to $10.8 million
for 2005,  an increase of 18%. We  recognized  revenue  from  associate  fees of
approximately $10.6 million during 2006 compared to $13.9 million during 2005, a
decrease of 24%. New  associates  typically  pay a fee ranging from $49 to $249,
depending on special promotions we implement from time to time. Although the new
enrollments  of sales  associates  decreased  29% during  2006 to  172,999  from
242,223 for 2005, the average associate fee paid during 2006 was $49.69 compared
to $56.61 for 2005,  a decrease  of 12% due to higher  average  enrollment  fees
charged to new associates.

     Other revenue decreased 4%, from $5.2 million to $5.0 million primarily due
to the decrease in revenue recognized from Membership enrollment fees.

     Primarily as a result of the increase in Membership  fees,  total  revenues
increased  to $444.0  million  for 2006 from  $423.4  million  during  2005,  an
increase of 5%.

     Membership  benefits,  which primarily  represent  payments to provider law
firms and Kroll,  totaled $145.8 million for 2006 compared to $137.2 million for
2005 and represented 35% of Membership fees for both years.

     Commissions  to associates  decreased  10% from $141.6  million for 2005 to
$126.8 million for 2006, and represented 36% and 31% of Membership fees for such
years.  Commissions to associates  are primarily  dependent on the number of new
Memberships sold during a period and the average fee of those  Memberships.  New
Memberships  sold during 2006 totaled  612,726,  a 13% decrease from the 700,727
sold during 2005, and the "add-on" IDT  Membership  sales which are not included
in these totals  decreased  12% to 389,157 for 2006 from  441,108 for 2005.  Our
average  Annual  Membership fee written during 2006 increased 2% to $328.36 from
$322.04 for 2005. The decrease in the number of new Memberships sold during 2006
together with the increase in the average  Annual  Membership  fee resulted in a
13% decrease in new  Membership  Fees written,  the primary driver of commission
expense.

     Associate services and direct marketing expenses decreased to $29.5 million
for 2006 from $30.5 million for 2005.  Training  fees and bonuses  incurred were
approximately $4.2 million during 2006 compared to $4.8 million in 2005. We also
had a $1.2 million  decrease in Players Club costs,  a $770,000  decrease in new
associate fulfillment costs and a $1.5 million decrease in the cost of supplies.
These  decreases  were partially  offset by the $3.5 million  increase in direct
marketing and marketing  services costs.  Training fees and bonuses are affected
by the number of new sales associates that  successfully  meet the qualification
criteria  established  by us, i.e.  more  training  bonuses  will be paid when a
higher number of new sales associates meet such criteria. These expenses include
the costs of providing  associate  services and marketing  expenses as discussed
under Member and Associate Costs.

     General and administrative expenses during 2006 and 2005 were $50.1 million
and $49.0 million,  respectively, and represented 12.1% and 12.6%, respectively,
of  Membership  fees  for  such  years.   Increases  in  the  2006  period  were
attributable primarily to higher employee costs.

     Other  expenses,   net,  which  includes   depreciation  and  amortization,
litigation  accruals,  premium  taxes and interest  expense  reduced by interest
income,  increased  17% to $12.2  million for 2006 from $10.5  million for 2005.
Depreciation  and  amortization  increased  to $8.3  million  for 2006 from $7.5
million for 2005.  Litigation  accruals have been reduced  $710,000 and $303,000
during 2006 and 2005,  respectively.  Premium taxes  decreased from $2.1 million
for 2005 to $1.8  million  for 2006 due to  certain  premiums  no  longer  being
subject to premium taxes.  Interest  expense  increased to $5.7 million for 2006
compared to $2.7 million for the prior year.  Interest income  increased to $2.9
million for 2006 from $1.5 million for 2005.

     The  provision  for income  taxes  increased  during 2006 to $27.9  million
compared to $18.9 million for 2005, representing 35.0% and 34.5%,  respectively,
of income before income taxes.


Liquidity and Capital Resources

     The number of active  Memberships in force and the average monthly fee will
directly determine Membership fees collected and their contribution to cash flow
from  operations  during any period.  Cash receipts from associate  services are
directly  impacted by the number of new sales associates  enrolled and the price
of entry during the period, the number of associates subscribing to our eService
offering and the amount of sales tools purchased by the sales force.

     The cash outlay related to Membership  benefits is directly impacted by the
number of active Memberships and the contractual rate that exists between us and
our benefits  providers.  Commissions paid to associates are primarily dependent
on the number and price of new Memberships  sold during a period and any special
incentives that may be in place during the period. Cash requirements  related to
associate services and direct marketing  activities are directly impacted by the
number of new associates  enrolled  during a period due to the cost of materials
provided to such new  associates,  the number of associates  subscribing  to our
eService  offering,  the amount of sales tools  purchased  by the sales force as
well as the number of those  associates who  successfully  meet the CFT training
and incentive award program qualifications.

     Membership  revenues are more than sufficient to fund the cash requirements
for  membership  benefits (at  approximately  33%-35% of  Membership  revenues),
commissions  (ranging  from 30% to 36% of  Membership  revenues) and general and
administrative expense (at approximately 11% to 13% of Membership revenues).  We
have  generated  significant  cash flow from  operations  of  approximately  $67
million,  $54 million and $50 million in 2007, 2006 and 2005,  respectively.  As
discussed  below,  we  have  used a  significant  portion  of our  cash  flow to
repurchase  shares of our stock in the open  market.  Cash flow from  operations
could be reduced if we experienced  significant growth in new members because of
the  negative  cash flow  characteristics  of our  commission  advance  policies
discussed above.

     As a result of our ability to generate cash flow from operations, including
in periods of Membership growth, we have not historically been dependent on, and
do not expect to need in the future, external sources of financing from the sale
of securities or from bank  borrowings  to fund our basic  business  operations.
However,  as described below,  during the last three years, we incurred debt for
limited  and  specific  purposes  to  permit  us to  construct  a new  corporate
headquarters,  purchase  equipment and to accelerate our treasury stock purchase
program.

     General
     Consolidated  net cash provided by operating  activities was $67.2 million,
$54.4 million and $50.1 million for 2007, 2006 and 2005, respectively.  Net cash
provided by operating activities  increased  approximately $13 million primarily
due to a $16  million  increase  in cash  received  from our  members  which was
reduced  by  a $3  million  increase  in  payments  to  our  membership  benefit
providers,  a $3 million increase in commission payments to our associates and a
$1 million increase in income tax payments.

     Net cash  provided by (used in)  investing  activities  was $30.1  million,
$(52.6)  million and  $(15.5)  million  for 2007,  2006 and 2005,  respectively.
Capital  expenditures  were $5.9 million,  $9.0 million and $14.8 million during
2007, 2006 and 2005,  respectively.  Sales and maturities of  available-for-sale
investments  exceeded the purchases of such  investments by $35.9 million during
2007 while  purchases  exceeded the sales and maturities of such  investments by
$43.7 million and $767,000 in 2006 and 2005, respectively.

     Net cash used in financing activities was $84.3 million,  $23.7 million and
$26.6 million for 2007, 2006 and 2005,  respectively.  This $60.6 million change
during 2007 was primarily comprised of a $75.0 million decrease in proceeds from
issuance of debt and a $4.6 million  decrease in dividends paid partially offset
by the $6.9 million  decrease in purchases of treasury  stock and a $3.7 million
decrease in repayment of debt.

     We had a consolidated  working  capital deficit of $3.0 million at December
31, 2007, a decrease of $20.9 million compared to a consolidated working capital
surplus of $17.9 million at December 31, 2006. The decrease was primarily due to
the $29.1 million decrease in current available-for-sale  investments,  the $5.6
million increase in income taxes payable,  the $2.3 million increase in accounts
payable and accrued  expenses and the $1.3 million  increase in deferred revenue
and  fees  partially  offset  by the  $12.9  million  increase  in cash and cash
equivalents,  the $1.6 million  increase in refundable  income  taxes,  the $1.0
million increase in deferred income taxes and the $600,000  increase in deferred
member and associate  service costs. The $3.0 million working capital deficit at
December  31,  2007  would  have been $7.8  million  in excess  working  capital
excluding the $10.8 million of current  portion of deferred  revenue and fees in
excess of the current  portion of deferred  member and associate  service costs.
These amounts will be eliminated by the passage of time without the  utilization
of other current assets or us incurring other current liabilities. Additionally,
at the current rate of cash flow provided by operations  ($67.2  million  during
2007),  we do not expect any difficulty in meeting our financial  obligations in
the short term or the long term.

     We generally  advance  significant  commissions to associates at the time a
Membership is sold. We expense  these  advances  ratably over the first month of
the related  Membership.  During 2007, we paid advance commissions to associates
of $126.9 million on new  Membership  sales compared to $121.7 million for 2006.
Since  approximately  95% of Membership fees are collected on a monthly basis, a
significant cash flow deficit is created on a per Membership basis at the time a
Membership is sold. Since there are no further  commissions paid on a Membership
during the advance period,  we typically derive  significant  positive cash flow
from the Membership over its remaining life. See Commissions to Associates above
for additional information on advance commissions.

     We  announced  on  April  6,  1999,  a  treasury  stock  purchase   program
authorizing  management to acquire up to 500,000 shares of our common stock. The
Board of Directors has increased  such  authorization  from 500,000 shares to 13
million shares during  subsequent  board meetings.  At December 31, 2007, we had
purchased 12.7 million  treasury  shares under these  authorizations  for $362.4
million,  an  average  price of $28.56  per share,  including  $66.5  million of
purchases  in 2007.  Treasury  stock  purchases  will be made at prices that are
considered  attractive by management and at such times that management  believes
will not unduly impact our liquidity,  however, due to restrictions contained in
our  debt  agreements  with  lenders,  we  are  limited  in our  treasury  stock
purchases.  At December 31, 2007, we had approximately $14 million  availability
under  existing  bank  covenant  restrictions  to purchase  additional  treasury
shares. No time limit has been set for completion of the treasury stock purchase
program.  Given the  current  interest  rate  environment,  the  nature of other
investments  available  and our expected  cash flows,  management  believes that
purchasing treasury shares enhances shareholder value. We expect to continue our
treasury stock program.  From time to time, we evaluate  alternative  sources of
financing to continue or accelerate this program.

     We believe  that we have  significant  ability to finance  expected  future
growth  in  Membership  sales  based  on our  existing  amount  of cash and cash
equivalents and unpledged  investments at December 31, 2007 of $58.9 million. We
expect to  maintain  cash and cash  equivalents  and  investment  balances on an
on-going  basis of  approximately  $20  million to $30  million in order to meet
expected working capital needs and regulatory capital requirements.  Balances in
excess of this amount would be used for discretionary  purposes such as treasury
stock  purchases,  dividends,  and  advance  repayment  of debt  subject  to the
restrictions contained in our debt agreements.

     On June 23, 2006, we received $80 million of senior, secured financing (the
"Senior Loan") from Wells Fargo Foothill,  Inc. ("Wells Fargo")  consisting of a
$75 million five year term loan facility (the "Term  Facility") and a $5 million
five year revolving credit facility (the "Revolving Facility").  At December 31,
2007, we have the full Revolving  Facility  available to us. After payment of an
origination  fee of 1%, lender costs and retirement of $15.3 million of existing
bank indebtedness,  the net proceeds of the Term Facility we received were $58.8
million.  Since receiving the net proceeds, we used them to purchase 1.4 million
shares of treasury stock at an average price of $42.95 per share.

     The Term  Facility  was fully  funded on June 23, 2006 and  provides  for a
five-year  maturity  and  amortizes  in monthly  installments  of $1.25  million
commencing  August 1, 2006, with interest on the outstanding  balances under the
Term  Facility and the  Revolving  Facility  payable,  at our option,  at a rate
originally  equal to Wells Fargo base rate plus 150 basis points or at the LIBOR
plus 250 basis points. On September 10, 2007 we entered into an amendment to the
Senior Loan which  reduced the margin on LIBOR rate loans from 250 basis  points
to 150 basis points and fixed all LIBOR rate loans on 30 day  interest  periods;
reduced  the  margin on base rate  loans  from 150  basis  points to zero  basis
points;  and  increased the amounts of cash flow that we may use in each quarter
to pay dividends or  repurchase  shares of common stock by  accumulating  unused
amounts  available for such purposes for up to a 24 month period that will phase
in from June 30, 2007 to June 30, 2008. No other material  amendments  were made
to the Senior  Loan.  The interest  rate at December 31, 2007 was 6.73%.  We are
also obligated to make additional quarterly payments equal to 50% of our "excess
cash flow" (as defined in the Senior Loan  agreement)  if our Leverage  Ratio is
greater than or equal to 1 to 1 at the end of a quarter.  Our Leverage Ratio was
0.75 to 1 at December  31,  2007.  We expect to be able to repay the  facilities
with cash flow from operations. We have the right to prepay the Term Facility in
whole or in part,  subject to a prepayment premium of 1% in the first year, 0.5%
in  the  second  year  and  none  thereafter,  with  a  reduction  of 50% of the
prepayment  premium if the  prepayment  is from the  proceeds  of  another  loan
provided by Wells Fargo.

     The  Senior  Loan  is   guaranteed  by  our   non-regulated   wholly  owned
subsidiaries  and is  secured by all of our  tangible  and  intangible  personal
property  (other  than   aircraft),   including  stock  in  all  of  our  direct
subsidiaries,  and a mortgage  on a building  we  recently  acquired  in Duncan,
Oklahoma and  remodeled to relocate  and expand our  existing  customer  service
facility in Duncan.

     In  addition  to  customary  covenants  for  loans of a similar  type,  the
principal covenants for the Senior Loan are:

     *    a limitation on incurring any  indebtedness in excess of the remaining
          existing bank  indebtedness  outstanding and $2.3 million in permitted
          capitalized leases or purchase money debt;
     *    a limitation on our ability to pay dividends or make stock  purchases,
          other  than with the net  proceeds  of the Term  Loan,  unless we meet
          certain cash flow tests;
     *    a prohibition on prepayment of other debt;
     *    a  requirement  to  maintain   consolidated  EBITDA  (Earnings  before
          Interest,  Taxes,  Depreciation and Amortization) for the twelve month
          period  ending  December  31, 2006 and each quarter  thereafter  of at
          least  $80  million  ($75  million  for us and  our  top  tier  direct
          subsidiaries);
     *    a  requirement  to maintain a quarterly  fixed charge  coverage  ratio
          (EBITDA  (with  certain  adjustments)  divided by the sum of  interest
          expense,  income taxes and scheduled  principal  payments) of at least
          1.1 to 1;
     *    a requirement to maintain at least 1.3 million members;
     *    a requirement to maintain a Leverage Ratio (funded  indebtedness as of
          the end of each  quarter  divided  by EBITDA for the  trailing  twelve
          months) of no more than 1.5 to 1; and
     *    we must have availability  (unused portion of the Revolving  Facility)
          plus  Qualified  Cash  (the  amount  of  unrestricted  cash  and  cash
          equivalents) greater than or equal to $12,500,000.

     We were in compliance with these covenants at December 31, 2007.

     In addition to  customary  events of default,  it is an event of default if
Harland  Stonecipher ceases to be our Chairman and Chief Executive Officer for a
period of 120 days unless replaced with a person approved by Wells Fargo.

     Our $20 million  real  estate loan was fully  funded in 2002 to finance our
new  headquarters  building in Ada,  Oklahoma and has a final maturity of August
2011.  This loan,  with  interest  originally  at the 30 day LIBOR rate plus 225
basis points was modified on September  25, 2007 to reduce the interest  rate to
LIBOR plus 150 basis points effective September 1, 2007,  adjusted monthly,  and
is secured by a mortgage on our headquarters.  The interest rate at December 31,
2007 was 6.75% with monthly  principal  payments of $191,000  plus interest with
the  balance of  approximately  $2.3  million due at  maturity.  The real estate
loan's financial covenants conform to those of the Senior Loan.

     On September  28, 2007,  we entered into a term loan  agreement  with Wells
Fargo  Equipment  Finance,  Inc. to refinance our existing  indebtedness of $9.6
million  related to our aircraft.  The new loan has an interest rate of 89 basis
points  above the monthly  LIBOR rate  (compared  to LIBOR plus 175 basis points
under the previous loan) and will be repaid over 10 years in monthly payments of
principal of $80,000 (compared to $96,000 under the previous loan) plus interest
and is secured by the aircraft and  engines.  The interest  rate at December 31,
2007 was 6.13%.


     Parent Company Funding and Dividends
     Although  we  are  the  operating   entity  in  many   jurisdictions,   our
subsidiaries  serve as  operating  companies  in various  states  that  regulate
Memberships  as  insurance  or  specialized  legal  expense  products.  The most
significant of these wholly owned  subsidiaries are PPLCI,  PPLSIF and LSPV. The
ability of these  subsidiaries  to provide funds to us is subject to a number of
restrictions  under various  insurance laws in the  jurisdictions  in which they
conduct  business,   including  limitations  on  the  amount  of  dividends  and
management fees that may be paid and  requirements to maintain  specified levels
of capital  and  reserves.  In addition  PPLCI will be required to maintain  its
stockholders' equity at levels sufficient to satisfy various state or provincial
regulatory requirements,  the most restrictive of which is currently $3 million.
Additional  capital  requirements  of  PPLCI,  PPLSIF  or  LSPV,  or  any of our
regulated   subsidiaries,   will  be  funded  by  us  in  the  form  of  capital
contributions  or surplus  debentures.  At January  1, 2008,  neither  PPLCI nor
PPLSIF had funds  available  for payment of  substantial  dividends  without the
prior  approval  of the  insurance  commissioner.  At  January  1, 2008 LSPV had
approximately  $1.6 million  available for payment of an ordinary  dividend.  At
December  31,  2007  the  amount  of  restricted  net  assets  of   consolidated
subsidiaries was $30.7 million,  representing amounts that may not be paid to us
as  dividends  either under the  applicable  regulations  or without  regulatory
approval.

     Contractual Obligations
     The following table reflects our contractual obligations as of December 31,
2007.



                                                                   Payments Due by Period (In Thousands)
                                                        --------------------------------------------------------------
                                                                                                              More
                                                                     Less than                                than
               Contractual Obligations                    Total       1 year       1-3 years    3-5 years    5 years
--------------------------------------------------      -----------  -----------  -----------  -----------  ----------
                                                                                            
Long-term debt....................................      $   73,733   $  18,241    $  36,482    $  14,471    $    4,539
Purchase obligations (1)..........................          10,913       4,554        4,537        1,816             6
Capital leases....................................           1,811          81          162          162         1,406
Deferred compensation plan........................           6,544           -            -            -         6,544
Operating leases..................................             735         117          212          146           260
                                                        -----------  -----------  -----------  -----------  ----------
Total (2).........................................      $   93,736   $  22,993    $  41,393    $  16,595    $   12,755
                                                        -----------  -----------  -----------  -----------  ----------


(1)  Includes  contractual  commitments  pursuant  to  executory  contracts  for
     products  and  services  such as voice and data  services  and  contractual
     obligations  related to future  Company  events such as hotel room  blocks,
     meeting  space and food and  beverage  guarantees.  We  expect  to  receive
     proceeds from such future events and reimbursement  from provider law firms
     for  certain  voice and data  services  that will  partially  offset  these
     obligations.
(2)  Does not include  commitments for attorney provider payments,  commissions,
     etc.  which are expected to remain in existence for several years but as to
     which our obligations vary directly either based on Membership  revenues or
     new Memberships sold and are not readily estimable.


Forward-Looking Statements

     All  statements  in this report other than purely  historical  information,
including  but not  limited  to,  statements  relating  to our future  plans and
objectives,  expected  operating  results  and the  assumptions  on  which  such
forward-looking  statements are based, constitute  "Forward-Looking  Statements"
within the meaning of Section 27A of the  Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934 and are based on our historical operating
trends and  financial  condition as of December  31, 2007 and other  information
currently   available  to  management.   We  caution  that  the  Forward-Looking
Statements  are  subject  to all the risks  and  uncertainties  incident  to our
business,  including but not limited to risks described below.  Moreover, we may
make  acquisitions  or  dispositions  of assets or  businesses,  enter  into new
marketing arrangements or enter into financing  transactions.  None of these can
be predicted with certainty and,  accordingly,  are not taken into consideration
in any of the  Forward-Looking  Statements made herein. For all of the foregoing
reasons, actual results may vary materially from the Forward-Looking Statements.
We assume no  obligation  to update the  Forward-Looking  Statements  to reflect
events or circumstances occurring after the date of the statement.


ITEM 7A.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
-------------------------------------------------------------------------

     Disclosures About Market Risk
     Our  consolidated  balance  sheets  include a certain  amount of assets and
liabilities whose fair values are subject to market risk. Due to our significant
investment in  fixed-maturity  investments,  interest rate risk  represents  the
largest  market risk  factor  affecting  our  consolidated  financial  position.
Increases and decreases in prevailing  interest rates  generally  translate into
decreases and increases in fair values of those instruments.  Additionally, fair
values  of  interest  rate  sensitive   instruments   may  be  affected  by  the
creditworthiness  of  the  issuer,   prepayment  options,   relative  values  of
alternative  investments,  liquidity of the  instrument and other general market
conditions.

     As of December  31,  2007,  substantially  all of our  investments  were in
investment   grade  (rated  Baa  or  higher)   fixed-maturity   investments  and
interest-bearing  money market accounts including certificates of deposit. We do
not hold any  investments  classified  as trading  account  assets or derivative
financial instruments.

     The table below summarizes the estimated effects of hypothetical  increases
and decreases in interest rates on our fixed-maturity  investment portfolio.  It
is assumed that the changes  occur  immediately  and  uniformly,  with no effect
given to any steps that management might take to counteract that change.

     The  hypothetical  changes in market  interest  rates reflect what could be
deemed best and worst case  scenarios.  The fair values  shown in the  following
table are based on  contractual  maturities.  Significant  variations  in market
interest  rates  could  produce  changes  in the  timing  of  repayments  due to
prepayment  options  available.  The  fair  value of such  instruments  could be
affected and, therefore, actual results might differ from those reflected in the
following table:




                                                                         Hypothetical change in    Estimated fair value
                                                                            interest rate          after hypothetical
                                                            Fair value    (bp = basis points)    change in intereest rate
                                                            ----------   ----------------------  ------------------------
                                                                            (Dollars in thousands)
                                                                                             
Fixed-maturity investments at December 31, 2007 (1)....      $  33,692      100 bp increase           $  32,307
                                                                            200 bp increase              31,019
                                                                             50 bp decrease              34,310
                                                                            100 bp decrease              34,928

Fixed-maturity investments at December 31, 2006 (1)....      $  31,420      100 bp increase           $  30,170
                                                                            200 bp increase              28,975
                                                                             50 bp decrease              31,965
                                                                            100 bp decrease              32,568
--------------------


(1)  Excluding  short-term  investments in  certificates  of deposit with a fair
     value of $4.5  million at  December  31,  2007 and  short-term  investments
     (Certificates  of deposit,  auction rate  securities  and EURO deposits) of
     $42.4 million at December 31, 2006.

     The table above illustrates,  for example,  that an instantaneous 200 basis
     point  increase in market  interest rates at December 31, 2007 would reduce
     the estimated fair value of our fixed-maturity investments by approximately
     $2.7  million at that date.  At December  31,  2006,  and based on the fair
     value of fixed-maturity  investments of $31.4 million, an instantaneous 200
     basis  point  increase  in market  interest  rates  would have  reduced the
     estimated fair value of our  fixed-maturity  investments  by  approximately
     $2.4 million at that date. The definitive  extent of the interest rate risk
     is  not  quantifiable  or  predictable  due to the  variability  of  future
     interest rates, but we do not believe such risk is material.

     We  primarily  manage our  exposure  to  interest  rate risk by  purchasing
investments that can be readily  liquidated should the interest rate environment
begin to significantly change.

     Interest Rate Risk
     We are exposed to market risk related to changes in interest  rates.  As of
December 31, 2007, we had $73.7 million in notes payable outstanding at interest
rates  indexed to the 30 day LIBOR rate that exposes us to the risk of increased
interest  costs if interest  rates rise.  Assuming a 100 basis point increase in
interest  rates on the floating rate debt,  interest  expense would  increase by
approximately  $737,000.  We also have $7.0  million in variable  interest  rate
municipal  bonds  at  December  31,  2007  that  expose  us to the risk of lower
investment income if interest rates decline. As of December 31, 2007, we had not
entered into any interest rate swap agreements with respect to the term loans or
the variable rate municipal bonds.

     Foreign Currency Exchange Rate Risk
     Although we are exposed to foreign currency  exchange rate risk inherent in
revenues, net income and assets and liabilities denominated in Canadian dollars,
the potential  change in foreign  currency  exchange  rates is not a substantial
risk, as less than 2% of our revenues are derived  outside of the United States.
As reflected in the attached Consolidated Statements of Comprehensive Income, we
have recorded positive foreign currency translation  adjustments of $1.2 million
during  2007  and  have  a  cumulative  positive  foreign  currency  translation
adjustment  balance of $1.6  million at December  31,  2007.  These  amounts are
subject to change  dynamically  in conjunction  with the relative  values of the
Canadian and U.S. dollars.



ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
----------------------------------------------------------


       

                 PRE-PAID LEGAL SERVICES, INC. AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


Reports of Independent Registered Public Accounting Firm

Management's Annual Report on Internal Control over Financial Reporting

Consolidated Financial Statements
---------------------------------
Consolidated Balance Sheets - December 31, 2007 and 2006
Consolidated Statements of Income - For the years ended December 31, 2007, 2006 and 2005
Consolidated Statements of Cash Flows - For the years ended December 31, 2007, 2006 and 2005
Consolidated Statements of Changes In Stockholders' Equity - For the years ended
  December 31, 2007, 2006 and 2005
Notes to Consolidated Financial Statements

Financial Statement Schedules
-----------------------------
Schedule I - Condensed Financial Information of the Registrant

    (All other schedules have been omitted since the required information is
          not applicable or because the information is included in the
            consolidated financial statements or the notes thereon.)



             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Board of Directors and Stockholders
Pre-Paid Legal Services, Inc.

We have audited Pre-Paid Legal Services,  Inc.'s internal control over financial
reporting  as of December 31, 2007,  based on criteria  established  in Internal
Control--Integrated   Framework   issued   by  the   Committee   of   Sponsoring
Organizations of the Treadway Commission (COSO). Pre-Paid Legal Services, Inc.'s
management  is  responsible  for  maintaining  effective  internal  control over
financial  reporting  and for its  assessment of the  effectiveness  of internal
control over financial  reporting,  included in the  accompanying  "Management's
Annual Report on Internal Control Over Financial Reporting".  Our responsibility
is to express an opinion on Pre-Paid Legal  Services,  Inc.'s  internal  control
over financial reporting based on our audit.

We conducted  our audit in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain  reasonable  assurance  about whether  effective
internal  control  over  financial  reporting  was  maintained  in all  material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating  effectiveness of internal control based
on the assessed  risk,  and  performing  such other  procedures as we considered
necessary in the circumstances.  We believe that our audit provides a reasonable
basis for our opinion.

A company's  internal control over financial  reporting is a process designed to
provide reasonable  assurance  regarding the reliability of financial  reporting
and the preparation of financial  statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial  reporting  includes those policies and procedures that (1) pertain to
the  maintenance  of records that, in reasonable  detail,  accurately and fairly
reflect the  transactions  and  dispositions  of the assets of the company;  (2)
provide  reasonable  assurance  that  transactions  are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting  principles,  and that receipts and  expenditures  of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of  unauthorized  acquisition,  use, or  disposition  of the company's
assets that could have a material effect on the financial statements.

Because of its inherent  limitations,  internal control over financial reporting
may not prevent or detect misstatements.  Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate  because of changes in  conditions,  or that the degree of compliance
with the policies or procedures may deteriorate.

In our  opinion,  Pre-Paid  Legal  Services,  Inc.  maintained,  in all material
respects, effective internal control over financial reporting as of December 31,
2007, based on criteria  established in Internal  Control--Integrated  Framework
issued by COSO.

We also have  audited,  in accordance  with the standards of the Public  Company
Accounting  Oversight Board (United States),  the consolidated balance sheets as
of December 31, 2007 and 2006, and the related statements of income,  cash flows
and  changes in  stockholders'  equity for each of the three years in the period
ended  December  31, 2007 and our report dated  February  29, 2008  expressed an
unqualified opinion.



/s/ GRANT THORNTON LLP



Oklahoma City, Oklahoma
February 29, 2008



             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



Board of Directors and Stockholders
Pre-Paid Legal Services, Inc.

We have audited the accompanying  consolidated  balance sheets of Pre-Paid Legal
Services,  Inc. and  subsidiaries  (the  "Company")  as of December 31, 2007 and
2006, and the related consolidated  statements of income, cash flows and changes
in stockholders' equity for each of the three years in the period ended December
31, 2007. Our audits of the basic financial statements included Schedule I as of
December  31, 2007 and 2006 and for each of the three years in the period  ended
December 31, 2007. These financial  statements and financial  statement schedule
are the  responsibility of the Company's  management.  Our  responsibility is to
express  an  opinion  on these  financial  statements  and  financial  statement
schedule based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the  financial  position of Pre-Paid  Legal
Services,  Inc.  and  subsidiaries  as of December  31,  2007 and 2006,  and the
results of their  operations and their cash flows for each of the three years in
the period ended  December 31, 2007 in  conformity  with  accounting  principles
generally  accepted in the United  States of America.  Also in our opinion,  the
related financial statement  schedule,  when considered in relation to the basic
financial  statements  taken  as a  whole,  presents  fairly,  in  all  material
respects, the information therein.

We have also  audited,  in accordance  with the standards of the Public  Company
Accounting  Oversight Board (United States), the Company's internal control over
financial  reporting as of December 31, 2007, based on the criteria  established
in Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway  Commission and our report dated February 29, 2008
expressed an unqualified  opinion on the effectiveness of the Company's internal
control over financial reporting.



/s/ GRANT THORNTON LLP


Oklahoma City, Oklahoma
February 29, 2008



     MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

     Our management is responsible for  establishing  and  maintaining  adequate
internal   control  over   financial   reporting.   In  order  to  evaluate  the
effectiveness  of internal  control  over  financial  reporting,  as required by
Section  404  of  the  Sarbanes-Oxley  Act,  our  management  has  conducted  an
assessment, including testing, using the criteria in Internal Control-Integrated
Framework,  issued by the Committee of Sponsoring  Organizations of the Treadway
Commission ("COSO").  Our system of internal control over financial reporting is
designed to provide reasonable  assurance regarding the reliability of financial
reporting and the preparation of financial  statements for external  purposes in
accordance with generally accepted accounting  principles.  Our internal control
over financial reporting includes those policies and procedures that (i) pertain
to the maintenance of records that, in reasonable detail,  accurately and fairly
reflect the transactions and dispositions of our assets; (ii) provide reasonable
assurance that  transactions are recorded as necessary to permit  preparation of
financial   statements  in  accordance   with  generally   accepted   accounting
principles,  and that our  receipts  and  expenditures  are  being  made only in
accordance  with  authorizations  of our  management  and  directors;  and (iii)
provide  reasonable  assurance  regarding  prevention  or  timely  detection  of
unauthorized  acquisition,  use, or  disposition of our assets that could have a
material effect on the financial statements.

     Because  of its  inherent  limitations,  internal  control  over  financial
reporting  may not prevent or detect  misstatements.  Also,  projections  of any
evaluation  of  effectiveness  to future  periods  are  subject to the risk that
controls may become  inadequate  because of changes in  conditions,  or that the
degree of compliance with the policies or procedures may deteriorate.

     Based on the  assessment,  our  management has concluded that we maintained
effective  internal  control over  financial  reporting as of December 31, 2007,
based on criteria in Internal  Control-Integrated  Framework issued by COSO. The
effectiveness  of our internal  control over financial  reporting as of December
31, 2007,  has been audited by Grant  Thornton  LLP, an  independent  registered
public accounting firm, as stated in their report which is included herein.

     Our management,  including our Chief Executive  Officer and Chief Financial
Officer,  does not expect that our  disclosure  controls and  procedures  or our
internal  controls will prevent all error and all fraud.  A control  system,  no
matter how well  conceived  and  operated,  can  provide  only  reasonable,  not
absolute,  assurance that the objectives of the control system are met. Further,
the design of a control  system must  reflect  the fact that there are  resource
constraints,  and the benefits of controls must be considered  relative to their
costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within the Company have been detected.





                        PRE-PAID LEGAL SERVICES, INC.
                           CONSOLIDATED BALANCE SHEETS
                (Amounts and shares in 000's, except par values)

                                     ASSETS
                                                                                                December 31,
                                                                                          --------------------------
                                                                                             2007          2006
                                                                                          ------------  ------------
Current assets:
                                                                                                  
  Cash and cash equivalents............................................................   $    24,941   $    12,031
  Available-for-sale investments, at fair value........................................        13,177        42,275
  Membership fees receivable...........................................................         5,831         5,518
  Inventories..........................................................................         1,511         1,337
  Refundable income taxes..............................................................         2,253           653
  Deferred member and associate service costs..........................................        16,510        15,879
  Deferred income taxes................................................................         5,163         4,235
  Other assets.........................................................................         6,793         6,404
                                                                                          ------------  ------------
      Total current assets.............................................................        76,179        88,332
Available-for-sale investments, at fair value..........................................        20,766        27,461
Investments pledged....................................................................         4,341         4,145
Property and equipment, net............................................................        56,963        59,643
Deferred member and associate service costs............................................         2,380         2,636
Other assets...........................................................................         7,003         6,330
                                                                                          ------------  ------------
        Total assets...................................................................   $   167,632   $   188,547
                                                                                          ------------  ------------



                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Membership benefits payable..........................................................   $    12,155   $    11,995
  Deferred revenue and fees............................................................        27,271        26,040
  Current portion of capital leases payable............................................            22           340
  Current portion of notes payable.....................................................        18,241        18,437
  Income taxes payable.................................................................         5,590             -
  Accounts payable and accrued expenses................................................        15,891        13,645
                                                                                          ------------  ------------
    Total current liabilities..........................................................        79,170        70,457
  Capital leases payable...............................................................           934           957
  Notes payable........................................................................        55,492        73,533
  Deferred revenue and fees............................................................         2,380         2,636
  Deferred income taxes................................................................         5,273         4,897
  Other non-current liabilities........................................................         6,544         5,207
                                                                                          ------------  ------------
      Total liabilities................................................................       149,793       157,687
                                                                                          ------------  ------------
Stockholders' equity:
  Common stock, $.01 par value; 100,000 shares authorized; 17,291 and
    18,488 issued at December 31, 2007 and 2006, respectively..........................           173           185
  Retained earnings....................................................................       114,873       129,413
  Accumulated other comprehensive income...............................................         1,821           290
  Treasury stock, at cost; 4,852 shares held at December 31, 2007
    and 2006, respectively.............................................................       (99,028)      (99,028)
                                                                                          ------------  ------------
      Total stockholders' equity.......................................................        17,839        30,860
                                                                                          ------------  ------------
        Total liabilities and stockholders' equity.....................................   $   167,632   $   188,547
                                                                                          ------------  ------------

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







                          PRE-PAID LEGAL SERVICES, INC.
                        CONSOLIDATED STATEMENTS OF INCOME
                  (Amounts in 000's, except per share amounts)

                                                                                  Year Ended December 31,
                                                                         -----------------------------------------
                                                                              2007          2006          2005
                                                                         ------------   ------------  ------------
Revenues:
                                                                                             
  Membership fees......................................................  $    427,428   $    412,200  $    389,255
  Associate services...................................................        25,112         26,857        28,963
  Other................................................................         4,549          4,967         5,162
                                                                         ------------   ------------  ------------
                                                                              457,089        444,024       423,380
                                                                         ------------   ------------  ------------
Costs and expenses:
  Membership benefits..................................................       148,792        145,771       137,150
  Commissions..........................................................       130,593        126,762       141,631
  Associate services and direct marketing..............................        28,875         29,493        30,453
  General and administrative...........................................        50,474         50,078        49,015
  Other, net...........................................................        13,841         12,232        10,456
                                                                         ------------   ------------  ------------
                                                                              372,575        364,336       368,705
                                                                         ------------   ------------  ------------

Income before income taxes.............................................        84,514         79,688        54,675
Provision for income taxes.............................................        33,312         27,890        18,863
                                                                         ------------   ------------  ------------
Net income.............................................................  $     51,202   $     51,798  $     35,812
                                                                         ------------   ------------  ------------

Basic earnings per common share........................................  $      3.89    $      3.54   $      2.31
                                                                         ------------   ------------  ------------

Diluted earnings per common share......................................  $      3.88    $      3.51   $      2.29
                                                                         ------------   ------------  ------------

Dividends declared per common share....................................  $       -      $       -     $       .60
                                                                         ------------   ------------  ------------


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





                          PRE-PAID LEGAL SERVICES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                               (Amounts in 000's)
                                                                                          Year Ended December 31,
                                                                                     ------------------------------------
                                                                                       2007         2006        2005
                                                                                     ----------  ----------  ------------
Cash flows from operating activities:
                                                                                                     
Net income.......................................................................    $  51,202   $  51,798    $  35,812
Adjustments to reconcile net income to net cash provided by operating activities:
  Provision for deferred income taxes............................................         (552)        774          912
  Depreciation and amortization..................................................        8,532       8,260        7,489
  Tax benefit on exercise of stock options.......................................            -           -        1,221
  Increase in accrued Membership fees receivable.................................         (313)       (123)        (434)
  (Increase) decrease in inventories.............................................         (174)        380          (94)
  (Increase) decrease in refundable income taxes.................................       (1,600)       (653)       1,241
  (Increase) decrease in deferred member and associate service costs.............         (375)        698       (1,213)
  Increase in other assets.......................................................       (1,062)     (2,254)      (2,914)
  Increase in Membership benefits payable........................................          160         357        1,298
  Increase (decrease) in deferred revenue and fees...............................          975        (618)       2,348
  Increase in other non-current liabilities......................................        1,337       1,275        1,138
  Increase (decrease) in income taxes payable....................................        5,590      (1,738)           -
  Increase (decrease) in accounts payable and accrued expenses...................        3,458      (3,771)       3,327
                                                                                     ----------- ------------ -----------
    Net cash provided by operating activities....................................       67,178      54,385       50,131
                                                                                     ----------  ----------  ------------
Cash flows from investing activities:
  Additions to property and equipment............................................       (5,858)     (8,956)     (14,778)
  Purchases of investments - available-for-sale..................................     (270,435)   (179,799)     (18,312)
  Maturities and sales of investments - available-for-sale.......................      306,357     136,142       17,545
                                                                                     ----------  ----------  ------------
    Net cash provided by (used in) investing activities..........................       30,064     (52,613)     (15,545)
                                                                                     ----------  ----------  ------------
Cash flows from financing activities:
  Proceeds from issuance of debt.................................................        9,556      85,000       13,829
  Repayments of debt.............................................................      (27,793)    (31,500)     (20,445)
  Proceeds from exercise of stock options........................................          (84)        485        4,439
  Tax benefit on exercise of stock options.......................................          790         703            -
  Purchases of treasury stock....................................................      (66,460)    (73,423)     (11,673)
  Repayment of capital lease obligations.........................................         (341)       (320)        (339)
  Dividends paid.................................................................            -      (4,643)     (12,412)
                                                                                     ----------  ----------  ------------
    Net cash used in financing activities........................................      (84,332)    (23,698)     (26,601)
                                                                                     ----------  ----------  ------------
Net increase (decrease) in cash and cash equivalents.............................       12,910     (21,926)       7,985
Cash and cash equivalents at beginning of year...................................       12,031      33,957       25,972
                                                                                     ----------  ----------  ------------
Cash and cash equivalents at end of year.........................................    $  24,941   $  12,031   $   33,957
                                                                                     ----------  ----------  ------------
Supplemental disclosure of cash flow information:
  Cash paid for interest, net of amount capitalized..............................    $   6,541   $   5,540    $   2,432
                                                                                     ----------  ----------  ------------
  Cash paid for income taxes.....................................................    $  30,937   $  28,780    $  13,350
                                                                                     ----------  ----------  ------------
  Non-cash activities - cash dividends declared but not paid.....................    $       -   $       -    $   4,643
                                                                                     ----------  ----------  ------------
  Non-cash activities - asset additions due to trade-in allowance................    $       -   $       -    $     426
                                                                                     ----------  ----------  ------------

  Purchases of treasury stock pursuant to tender offer...........................    $       -   $   6,584    $       -
                                                                                     ----------  ----------  ------------






    The accompanying notes are an integral part ofthese financial statements.




                          PRE-PAID LEGAL SERVICES, INC.
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
       (Amounts and shares in 000's, except dividend rates and par values)



                                                Common Stock                              Treasury Stock
                                             -----------------    Retained   Accum.   --------------------
                                              Shares    Amount    Earnings   OCI (1)    Shares     Amount     Total
                                             --------- --------- ----------- -------- --------- ----------- ---------
                                                                                     
January 1, 2005............................    20,465   $   205   $ 129,290   $  980     4,852   $(99,028)   $31,447
  Exercise of stock options and other......       197         1       4,438        -         -          -      4,439
  Income tax benefit related to exercise
    of stock options.......................         -         -       1,221        -         -          -      1,221
  Net income...............................         -         -      35,812        -         -          -     35,812
  Other comprehensive income((1))..........         -         -           -     (593)        -          -       (593)
  Treasury shares purchased................         -         -           -        -       336    (11,673)   (11,673)
  Treasury shares retired..................      (336)       (3)    (11,670)       -      (336)    11,673          -
  Common stock dividends incurred..........         -         -      (9,259)       -         -          -     (9,259)
                                             --------- --------- ----------- -------- --------- ----------- ---------
December 31, 2005..........................    20,326       203     149,832      387     4,852    (99,028)    51,394
  Exercise of stock options and other......       121         1         484        -         -          -        485
  Income tax benefit related to exercise
    of stock options.......................         -         -         703        -         -          -        703
  Net income...............................         -         -      51,798        -         -          -     51,798
  Other comprehensive income((1))..........         -         -           -      (97)        -          -        (97)
  Treasury shares purchased................         -         -           -        -     1,959    (73,423)   (73,423)
  Treasury shares retired..................    (1,959)      (19)    (73,404)       -    (1,959)    73,423          -
                                             --------- --------- ----------- -------- --------- ----------- ---------
December 31, 2006..........................    18,488       185     129,413      290     4,852    (99,028)    30,860
  Exercise of stock options and other......       122         1         (85)       -         -          -        (84)
  Income tax benefit related to exercise
    of stock options.......................         -         -         790        -         -          -        790
  Net income...............................         -         -      51,202        -         -          -     51,202
  Other comprehensive income((1))..........         -         -           -    1,531         -          -      1,531
  Treasury shares purchased................         -         -           -        -     1,319    (66,460)   (66,460)
  Treasury shares retired..................    (1,319)      (13)    (66,447)       -    (1,319)    66,460          -
                                             --------- --------- ----------- -------- --------- ----------- ---------
December 31, 2007..........................    17,291   $   173   $ 114,873   $1,821     4,852   $(99,028)   $17,839
                                             --------- --------- ----------- -------- --------- ----------- ---------






                         (1) Other Comprehensive Income                             Year Ended December 31,
                                                                                  ------------------------------
                                                                                   2007       2006      2005
                                                                                  --------  ---------  ---------
                                                                                              
Net income....................................................................    $51,202   $51,798    $35,812

Other comprehensive income, net of tax:
  Foreign currency translation adjustment.....................................      1,206       (59)       100
                                                                                  --------  ---------  ---------
  Unrealized gains (losses) on investments:
    Unrealized holding gains (losses) arising during period...................        182       (14)      (871)
      Less: reclassification adjustment for losses (gains) included in net
              income..........................................................        143       (24)       178
                                                                                  --------  ---------  ---------
                                                                                      325       (38)      (693)
                                                                                  --------  ---------  ---------
Other comprehensive income, net of income taxes of $207, $(24) and $(443) in
  2007, 2006 and 2005, respectively...........................................      1,531       (97)      (593)
                                                                                  --------  ---------  ---------
Comprehensive income..........................................................    $52,733   $51,701    $35,219
                                                                                  --------  ---------  ---------

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

                          PRE-PAID LEGAL SERVICES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (Except for per share amounts, dollar amounts in tables are in thousands
                          unless otherwise indicated)

Note 1 - Nature of Operations and Summary of Significant Accounting Policies

     Nature of Operations
     Pre-Paid   Legal   Services,   Inc.   (the   "Parent")   and   subsidiaries
(collectively, the "Company") develops and markets legal service plans (referred
to as  "Memberships").  The Memberships sold by us allow members to access legal
services through a network of independent law firms ("provider law firms") under
contract  with us.  During the third  quarter  of 2003,  we began  offering  our
Identity Theft Shield to new and existing members at $9.95 per month if added to
a legal  service  Membership  or it may be purchased  separately  for $12.95 per
month.  The nationwide  provider of the Identity  Theft Shield  benefits and the
Provider law firms are paid a fixed fee on a capitated  basis to render services
to plan members  residing within the state or province in which the provider law
firm is licensed to  practice.  Because the fixed fee  payments by us to benefit
providers  do not vary based on the type and amount of benefits  utilized by the
member,  this capitated  arrangement  provides  significant  advantages to us in
managing claims risk. At December 31, 2007, Memberships subject to the capitated
benefit  provider  arrangement   comprised   approximately  99%  of  our  active
Memberships.  The remaining  Memberships,  approximately 1%, were primarily sold
prior to 1987 and allow  members to locate  their own  lawyer to  provide  legal
services   available  under  the  Membership  with  the  member's  lawyer  being
reimbursed for services rendered based on usual,  reasonable and customary fees.
Memberships  are  generally   guaranteed   renewable  and  Membership  fees  are
principally collected on a monthly basis,  although  approximately 5% of Members
have elected to pay their fees in advance on an annual or semi-annual  basis. At
December 31, 2007, we had 1,575,802  Memberships in force with members in all 50
states, the District of Columbia and the Canadian provinces of Ontario,  British
Columbia, Alberta and Manitoba.  Approximately 90% of the Memberships were in 29
states and provinces. The Memberships are marketed by an independent sales force
referred to as "associates."

     Basis of Presentation
     The consolidated financial statements have been prepared in accordance with
accounting  principles  generally  accepted  in the  United  States  of  America
("generally  accepted  accounting  principles") which vary in some respects from
statutory   accounting   principles  used  when  reporting  to  state  insurance
regulatory authorities.

     Principles of Consolidation
     The consolidated  financial  statements include our accounts and our wholly
owned subsidiaries.  Our primary  subsidiaries  include Pre-Paid Legal Casualty,
Inc.  ("PPLCI"),  Legal  Service Plans of Virginia  ("LSPV") and Pre-Paid  Legal
Services, Inc. of Florida ("PPLSIF").  All significant intercompany accounts and
transactions have been eliminated.

     Foreign Currency Translation
     The  financial  results of our  Canadian  operations  are measured in local
currency and then translated into U.S. dollars.  All balance sheet accounts have
been  translated  using the current rate of exchange at the balance  sheet date.
Results of operations  have been translated  using the average rates  prevailing
throughout the year.

     Estimates
     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

     Fair Value of Financial Instruments
     Our  financial  instruments  consist  primarily  of cash,  certificates  of
deposit,  short-term  investments,  debt and equity securities,  Membership fees
receivable,  Membership benefits payable, notes payable and accounts payable and
accrued  expenses.  Fair  value  estimates  have been  determined  by us,  using
available market information and appropriate valuation methodologies. Fair value
of actively traded debt securities are based on quoted market prices. Fair value
of  inactively  traded  debt  securities  are based on quoted  market  prices of
identical or similar  securities  or based on  observable  inputs like  interest
rates.  The carrying value of cash,  certificates  of deposit,  Membership  fees
receivable,  Membership  benefits  payable  and  accounts  payable  and  accrued
expenses are considered to be representative of their respective fair value, due
to the short  term  nature of these  instruments.  The  carrying  value of notes
payable is considered to be  representative  of their respective fair value, due
to the variable  interest rate feature of such notes. The fair value disclosures
relating to debt and equity securities are presented in Note 2.

     Cash and Cash Equivalents
     We consider all highly  liquid  unpledged  investments  with  maturities of
three months or less at time of acquisition to be cash equivalents. We place our
temporary cash investments with high credit quality financial  institutions.  At
times  such  investments  may be in  excess  of the  Federal  Deposit  Insurance
Corporation  (FDIC)  insurance limit. We have not experienced any losses in such
accounts and believe we are not exposed to any  significant  credit risk on cash
and cash equivalents.

     Investments
     We classify our investments held as available-for-sale and account for them
at fair value with  unrealized  gains and losses,  net of taxes,  excluded  from
earnings   and   reported   as   other   comprehensive   income.   We   classify
available-for-sale  securities  as current  if we expect to sell the  securities
within  one  year,  or if we  intend  to  utilize  the  securities  for  current
operations.   All  other   available-for-sale   securities   are  classified  as
non-current.

     All  investment  securities are adjusted for  amortization  of premiums and
accretion of discounts.  Amortization of premiums and accretion of discounts are
recorded  to income  over the  contractual  maturity  or  estimated  life of the
individual  investment  on the  level  yield  method.  Gain  or  loss on sale of
investments is based upon the specific  identification  method. Income earned on
our investments in certain state and political  subdivision  debt instruments is
not generally taxable for federal income tax purposes.

     Membership fees receivable
     Our  Membership  fees  receivable  consists of amounts due from members for
services  provided  pursuant to their Membership  contract.  Membership fees are
principally collected on a monthly basis. Membership fees receivable is a result
of a portion of members,  mostly group members, who pay their Membership fees in
arrears  and are  recorded  at  amounts  due under  the terms of the  Membership
agreement.  An allowance for doubtful  accounts is not necessary as the recorded
amount is adjusted to net realizable value at period-end based on our historical
experience  and the short period of time after  period-end in which the accounts
will be collected.

     Inventories
     Inventories  include the cost of materials  and packaging and are stated at
the lower of cost or market.

     Property and Equipment
     Property and equipment is stated at cost less accumulated  depreciation and
amortization.  Depreciation  of property  and  equipment  is computed  using the
straight-line  method over the estimated  useful lives of the assets.  Leasehold
improvements are amortized over the estimated useful lives of the related assets
or the period of the lease,  whichever is shorter.  Maintenance  and repairs are
expensed as incurred and renewals and betterments are capitalized. Interest cost
incurred during the construction period of major facilities is capitalized.  The
capitalized  interest is recognized as part of the asset to which it relates and
is amortized over the asset's estimated useful life.

     Revenue recognition - Membership and Associate Fees
     Our principal  revenues are derived from Membership fees, most of which are
collected on a monthly basis. Memberships are generally guaranteed renewable and
non-cancelable except for fraud,  non-payment of Membership fees or upon written
request.  Membership  fees are  recognized  in income  ratably  over the related
service period in accordance with Membership terms,  which generally require the
holder of the  Membership  to remit  fees on an annual,  semi-annual  or monthly
basis.  Approximately  95% of members remit their  Membership  fees on a monthly
basis.  Approximately  74% of our  Membership  fees  are  paid in  advance  and,
therefore, are deferred and recognized over their respective periods.

     We also charge new members,  who are not part of an employee  group,  a $10
enrollment  fee.  This  enrollment  fee  and  related   incremental  direct  and
origination costs of $10 for 2007 are deferred and recognized in income over the
estimated life of a Membership in accordance with SEC Staff Accounting  Bulletin
No. 101, "Revenue Recognition in Financial  Statements," ("SAB 101"). We compute
the  expected  Membership  life using more than 20 years of actuarial  data.  At
December 31, 2007, we computed the expected  Membership life to be approximately
three years. If the expected Membership life were to change significantly, which
management does not expect in the short term, the deferred Membership enrollment
fee and related costs would be recognized over a longer or shorter period.

     We derive  revenues  from services  provided to our  marketing  sales force
primarily  from a  one-time  non-refundable  enrollment  fee from each new sales
associate  for  which we  provide  initial  sales  and  marketing  supplies  and
enrollment services to the associate.  Average enrollment fees paid by new sales
associates were $57, $50 and $57 for 2007, 2006 and 2005, respectively.  Revenue
from, and costs of, the initial sales and marketing supplies (approximately $13)
are recognized when the materials are delivered to the associates. The remaining
revenues and related  incremental  direct and origination costs are deferred and
recognized over the estimated  average active service period of associates which
at December  31, 2007 is estimated to be  approximately  five months,  unchanged
from  year end  2006.  Management  estimates  the  active  service  period of an
associate  periodically  based on the  average  number of  months  an  associate
produces  new  Memberships  including  those  associates  that fail to write any
Memberships.  If the active service period of associates changes  significantly,
which  management  does not expect in the short term,  the deferred  revenue and
related costs would be recognized over the new estimated active service period.

     We also encourage  participation  in a field training  program  ("Certified
Field Trainer",  or "CFT") that allows an associate who  successfully  completes
the program to advance through the various  commission  levels at a faster rate.
Associate  services  revenue also  includes  revenue  recognized  on the sale of
marketing  supplies and  promotional  material to  associates  and includes fees
related to our eService  program for associates.  The eService  program provides
subscribers  Internet  based  back  office  support  such  as  reports,  on-line
documents,  tools, a personal e-mail account and multiple personalized web sites
with "flash" movie presentations.

     Member and Associate Costs
     Deferred costs  represent the incremental  direct and origination  costs we
incur in enrolling new Members and new  associates  and that portion of payments
made to provider  law firms and  associate  commissions  related to the deferred
revenue  discussed  above.  Deferred costs for enrolling new members include the
cost of the  Membership  kit and  salary and  benefit  costs for  employees  who
process  Membership  enrollments.  Deferred  costs for enrolling new  associates
include training and success bonuses paid to individuals  involved in recruiting
the associate  and salary and benefit  costs of employees who process  associate
enrollments. Such costs are deferred to the extent of the lesser of actual costs
incurred or the amount of the related  fee charged for such  services.  Deferred
costs are  amortized  to expense  over the same period as the  related  deferred
revenue.  Deferred costs that will be recognized  within one year of the balance
sheet  date are  classified  as current  and all  remaining  deferred  costs are
considered  noncurrent.  Associate  related  costs are  reflected  as  associate
services  and direct  marketing,  and are expensed as incurred if not related to
the deferred revenue discussed above.  These costs include  providing  materials
and  services to  associates,  CFT bonuses,  associate  introduction  kits,  the
associate incentive program,  group marketing and marketing services departments
(including costs of related travel,  marketing  events,  leadership  summits and
international sales convention).  Shipping and handling costs of $1.9 million in
2007 and $2.2 million in 2006 are primarily  included in Associate  services and
direct marketing costs.

     Membership Benefits Liability
     The  Membership  benefits  liability  represents per capita amounts due the
provider  of  Identity   Theft  Shield   benefits  and  provider  law  firms  on
approximately  99% of the  Memberships  and  claims  reported  but not  paid and
actuarially  estimated  claims  incurred  but  not  reported  on  the  remaining
non-provider  Memberships  which  represent  approximately  1%. We calculate the
benefit liability on the non-provider  Memberships  based on completion  factors
that consider  historical  claims  experience based on the dates that claims are
incurred,  reported to us and  subsequently  paid.  Processing  costs related to
these  claims are accrued  based on an  estimate  of  expenses  to process  such
claims.

     Income Taxes
     We account for income  taxes using the asset and  liability  approach  that
requires the recognition of deferred tax assets and liabilities for the expected
future tax  consequences  of events that are recognized in different  periods in
our financial statements and tax returns. In estimating future tax consequences,
we generally consider all future events other than future changes in the tax law
or rates that have not been enacted.

     Deferred  income taxes are determined  based on the difference  between the
financial  statement and tax bases of assets and  liabilities  using enacted tax
rates in effect in the years in which the  differences  are expected to reverse.
We record  deferred tax assets related to the recognition of future tax benefits
of temporary differences and net operating loss and tax credit carryforwards. To
the extent that  realization of such benefits is not considered more likely than
not, we establish a valuation  allowance to reduce such assets to the  estimated
realizable amount.

     We and our subsidiaries  are subject to U.S.  federal income tax,  Canadian
income tax, as well as income tax of multiple state and local jurisdictions. Our
2003 - 2006 U.S.  federal  income tax returns  remain open to examination by the
Internal Revenue Service (IRS). Our state and local income tax returns for years
1999  through  2006 remain  open to  examination  by the state and local  taxing
authorities.  Canadian  income tax returns for 1999 through  2002 are  currently
under  examination  and  years  1999 - 2006  are  open to  examination.  The IRS
examined our U.S. federal income tax return for 2004 resulting in no recommended
adjustments to the tax return.

     We are  continuing our practice of recognizing  interest  and/or  penalties
related to income tax matters in general and administrative expenses.

     Commissions to Associates
     Prior to March 1, 2002, we had a level  Membership  commission  schedule of
approximately  27% of Membership fees and advanced the equivalent of up to three
years of commissions on new Membership  sales.  Effective  March 1, 2002, and in
order to offer additional  incentives for increased  Membership retention rates,
we returned to a differential  commission  structure with rates of approximately
80% of first  year  Membership  fees on new  Memberships  written  and  variable
renewal  commission  rates  ranging  from five to 25% per annum  based on the 12
month Membership retention rate of the associate's sales organization. Beginning
in August 2003, we allowed the associate to choose between the level  commission
structure and up to three year commission advance or the differential commission
structure with a one year commission advance.

     We expense advance  commissions ratably over the first month of the related
Membership.  As a result  of this  accounting  policy,  our  advance  commission
expenses  are  recorded  in the  first  month of a  Membership  and  there is no
commission  expense  recognized for the same Membership  during the remainder of
the advance period.  Associates must qualify for advance  commissions by writing
at least three Memberships.

     Long-Lived Assets
     We review  long-lived  assets to be held and used in operations when events
or changes in  circumstances  indicate  that the assets might be  impaired.  The
carrying value of long-lived assets is considered impaired when the identifiable
undiscounted  cash flows estimated to be generated by those assets are less than
their carrying amounts.  In that event, a loss is recognized based on the amount
by which the carrying value exceeds the fair value of the long-lived asset. Fair
value is determined  primarily using the anticipated  cash flows discounted at a
rate  commensurate  with the risk  involved.  Losses on long-lived  assets to be
disposed  of are  determined  in a similar  manner,  except that fair values are
reduced by disposal costs.

     Stock-Based Compensation
     In December 2004, the Financial  Accounting Standards Board issued SFAS No.
123R,  Share-Based Payment ("SFAS No. 123R" or the "Statement").  This Statement
is a revision of SFAS No. 123,  Accounting for Stock-Based  Compensation  ("SFAS
123"), and supersedes Accounting Principles Board Opinion No. 25, Accounting for
Stock  Issued  to  Employees  ("APB  No.  25")  and its  related  implementation
guidance.  On January 1, 2006, we adopted the  provisions of SFAS No. 123R using
the modified  prospective  method. SFAS No. 123R focuses primarily on accounting
for  transactions  in which an entity obtains  employee  services in share-based
payment transactions.  The Statement requires entities to recognize compensation
expense for awards of equity  instruments  to employees  based on the grant-date
fair  value of those  awards  (with  limited  exceptions).  SFAS No.  123R  also
requires the benefits of tax  deductions  in excess of  recognized  compensation
expense to be reported as financing cash flows, rather than as an operating cash
flow as prescribed under the prior accounting  rules.  This requirement  reduces
net operating cash flows and increases net financing cash flows in periods after
adoption.  Total cash flow remains  unchanged from what would have been reported
under prior accounting rules.

     Prior to the adoption of SFAS No. 123R,  we followed  the  intrinsic  value
method in accordance  with APB No. 25 to account for our equity  instruments  to
employees.  Accordingly,  no  compensation  expense was recognized in connection
with the  issuance of equity  instruments  to  employees  under any of our stock
option  plans for periods  ended prior to January 1, 2006.  The adoption of SFAS
No. 123R primarily  resulted in a change in our method of  recognizing  the fair
value of share-based compensation.  Our adoption of SFAS No. 123R did not result
in  our  recording   compensation  expense  for  equity  instruments  issued  to
employees,  since all options had vested, no modifications were made to existing
options and no new options were granted.

     We did not grant any additional  equity  instruments to employees or modify
any existing  options and therefore did not recognize any share-based  payments'
expense  from the issuance of equity  instruments  to employees in 2007 or 2006.
The options  outstanding  at December 31, 2005 did not affect 2006  consolidated
results of operations and financial position since all option-holders were fully
vested in such options at December 31, 2005.

     We used  the  modified  prospective  method  at the  date of  adoption  and
therefore results for 2005 have not been restated.  Had compensation expense for
employee  stock  options  granted  under our stock option plans been  determined
based on fair  value at the grant date  consistent  with SFAS No.  123,  our net
income  and  earnings  per share for the  periods  would have been the pro forma
amounts indicated below:



                                                                                    Year Ended
                                                                                    December 31,
                                                                                      20005
Net Income:                                                                        -------------
                                                                                
    As reported...........................................................         $   35,812
Deduct:
    Total share-based employee compensation expense determined under
fair value based method for all awards, net of related tax effects:
    Stock option plans....................................................                117
                                                                                   -------------
Pro forma net income......................................................         $   35,695
                                                                                   -------------
Basic Earnings Per Common Share:
    As reported...........................................................         $     2.31
                                                                                   -------------
    Pro forma.............................................................         $     2.31
                                                                                   -------------

Diluted Earnings Per Common Share:
    As reported...........................................................         $     2.29
                                                                                   -------------
    Pro forma.............................................................         $     2.28
                                                                                   -------------


     The pro forma amounts above were estimated  using the  Black-Sholes  option
pricing model with the following weighted average assumptions:

                                                      2005
                                                   ------------
Risk free interest rate....................         5.16%
Expected volatility........................        29.46
Dividend yield.............................         0.00
Weighted average expected life.............         5.92 years


     Incentive awards payable
     Associates can earn the right to attend an annual incentive trip by meeting
monthly qualification  requirements for the entire calendar year and maintaining
certain  personal  retention rates for the Memberships  sold during the calendar
year.  Associates can also earn the right to receive  additional monthly bonuses
by meeting the monthly qualification  requirements for twelve consecutive months
and maintaining certain personal retention rates for the Memberships sold during
that twelve month period.  The incentive awards payable at any date is estimated
based on an  evaluation  of the  existing  associates  that have met the monthly
qualifications,  any  changes to the  monthly  qualification  requirements,  the
estimated cost for each incentive  earned and the number of associates that have
historically  met  the  personal  retention  rates.  Changes  to  any  of  these
assumptions would directly affect the amount accrued but we do not expect any of
the significant  trends  impacting this account to change  significantly  in the
near term.

     Legal Contingencies
     We account for legal  contingencies  in accordance  with SFAS 5, Accounting
for Contingencies, which requires that a loss contingency should be accrued by a
charge  to  income  if it is  probable  that an  asset  has been  impaired  or a
liability  has been  incurred  and the  amount  of the  loss  can be  reasonably
estimated.  Disclosure  of a  contingency  is  required  if  there is at least a
reasonable  possibility that a loss has been incurred. We evaluate,  among other
factors,  the degree of probability of an unfavorable outcome and the ability to
make a  reasonable  estimate  of the  amount  of  loss.  This  process  requires
subjective judgment about the likely outcomes of litigation. Liabilities related
to most of our lawsuits are  especially  difficult to estimate due to the nature
of the claims,  limitation  of available  data and  uncertainty  concerning  the
numerous  variables used to determine  likely outcomes or the amounts  recorded.
Litigation  expenses  are  recorded as incurred  and we do not accrue for future
legal fees. It is possible that an adverse outcome in certain cases or increased
litigation  costs  could have an adverse  effect upon our  financial  condition,
operating results or cash flows in particular quarterly or annual periods.

     Treasury Stock
     We immediately retire all our treasury stock purchases at cost. We retired,
at cost,  1,318,721,  1,959,487 and 336,100  shares of common stock during 2007,
2006 and 2005, respectively.

     Segment Information
     Operating  segments are defined as components  of an  enterprise  for which
separate financial  information is available that is evaluated  regularly by the
chief operating  decision maker(s) in deciding how to allocate  resources and in
assessing  performance.  Disclosures  about products and services and geographic
areas are presented in Note 17.

     Recently Issued Accounting Pronouncements
     In September 2006, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 157, Fair Value  Measurements  ("SFAS 157"),  which defines fair value,
establishes  a  framework  for  measuring  fair  value  in  generally   accepted
accounting  principles,  and expands  disclosures about fair value measurements.
SFAS 157 does not require any new fair value measurements, but provides guidance
on how to  measure  fair  value by  providing  a fair  value  hierarchy  used to
classify the source of the  information.  SFAS 157 is effective for fiscal years
beginning  after  November 15,  2007.  However,  on December 14, 2007,  the FASB
issued  proposed FSP FAS 157-b which would delay the effective  date of SFAS 157
for all nonfinancial assets and nonfinancial liabilities,  except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). This proposed FSP partially defers the effective date
of Statement 157 to fiscal years  beginning after November 15, 2008, and interim
periods  within  those  fiscal  years  for items  within  the scope of this FSP.
Effective  for  2008,  we will  adopt  SFAS 157  except as it  applies  to those
nonfinancial  assets and  nonfinancial  liabilities as noted in proposed FSP FAS
157-b.  The partial  adoption of SFAS 157 will not have a material impact on our
consolidated financial position, results of operations or cash flows.

     In February  2007,  the FASB issued SFAS No. 159, The Fair Value Option for
Financial  Assets and  Financial  Liabilities-  including  an  Amendment of FASB
Statement  No. 115  ("SFAS  159"),  which  allows an entity to choose to measure
certain  financial  instruments  and  liabilities  at  fair  value.   Subsequent
measurements  for the financial  instruments and liabilities an entity elects to
fair value will be recognized in earnings.  SFAS 159 also establishes additional
disclosure requirements. SFAS 159 is effective for us beginning January 1, 2008.
The  adoption  of SFAS 159 will not have a material  impact on our  consolidated
financial position, results of operations or cash flows.

     In December  2007,  the FASB issued SFAS No. 141 (revised  2007),  Business
Combinations  ("SFAS 141R").  SFAS 141R establishes  principles and requirements
for how an acquirer  recognizes  and measures in its  financial  statements  the
identifiable  assets  acquired,  the  liabilities  assumed,  any  noncontrolling
interest in the acquiree and the goodwill  acquired.  SFAS 141R also establishes
disclosure  requirements  to enable the  evaluation  of the nature and financial
effects  of  the  business  combination.  This  statement  is  effective  for us
beginning January 1, 2009.

     In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial  Statements--an amendment of Accounting Research Bulletin
No. 51 ("SFAS 160"). SFAS 160 establishes accounting and reporting standards for
ownership  interests in subsidiaries held by parties other than the parent,  the
amount  of  consolidated  net  income  attributable  to  the  parent  and to the
noncontrolling  interest,  changes in a  parent's  ownership  interest,  and the
valuation of retained  noncontrolling  equity  investments  when a subsidiary is
deconsolidated.  SFAS 160 also establishes disclosure  requirements that clearly
identify and  distinguish  between the interests of the parent and the interests
of the  noncontrolling  owners.  This  statement is  effective  for us beginning
January  1,  2009.  We are  currently  evaluating  the  potential  impact of the
adoption  of  SFAS  160 on  our  consolidated  financial  position,  results  of
operations or cash flows.

     In September  2006,  the FASB ratified EITF Issue No. 06-4,  Accounting for
Deferred   Compensation  and  Postretirement   Benefit  Aspects  of  Endorsement
Split-Dollar Life Insurance Arrangements ("EITF 06-4"). EITF 06-4 indicates that
an employer  should  recognize a liability for future  post-employment  benefits
based on the  substantive  agreement  with the  employee,  and is effective  for
fiscal  years  beginning  after  December  15,  2007.  The Company is  currently
assessing  the impact of EITF 06-4 on its  consolidated  financial  position and
results of operation.

     In March 2007, the FASB ratified Emerging Issues Task Force Issue No. 06-10
"Accounting for Collateral  Assignment  Split-Dollar Life Insurance  Agreements"
(EITF 06-10).  EITF 06-10 provides  guidance for determining a liability for the
postretirement  benefit obligation as well as recognition and measurement of the
associated  asset  on the  basis  of the  terms  of  the  collateral  assignment
agreement. EITF 06-10 is effective for fiscal years beginning after December 15,
2007.  The  Company  is  currently  assessing  the  impact of EITF  06-10 on its
consolidated financial position and results of operations.

Note 2 - Investments

     A summary  of the  amortized  cost,  unrealized  gains and  losses and fair
values of our investments at December 31, 2007 and 2006 follows:



                                                                         December 31, 2007
                                                       -----------------------------------------------------
                                                        Amortized       Gross Unrealized           Fair
Available-for-Sale                                         Cost         Gains       Losses        Value
------------------                                     ------------  -----------  ----------  --------------
                                                                                    
U.S. Government obligations........................      $   1,513     $    22      $    (8)    $   1,527
Corporate obligations..............................            837           -          (53)          784
Obligations of state and political subdivisions....         31,007         389          (14)       31,382
Certificates of deposit............................          4,591           -            -         4,591
                                                       ------------  -----------  ----------  --------------
Total..............................................      $  37,948     $   411      $   (75)    $  38,284
                                                       ------------  -----------  ----------  --------------




                                                                         December 31, 2006
                                                       -----------------------------------------------------
                                                        Amortized        Gross Unrealized          Fair
Available-for-Sale                                         Cost         Gains       Losses        Value
------------------                                     ------------  -----------  ----------  --------------
                                                                                    
U.S. Government obligations........................      $   7,750     $     5      $  (131)    $   7,624
Corporate obligations..............................          1,991          11          (31)        1,971
Equity securities..................................            136           -          (40)           96
Obligations of state and political subdivisions....         59,265         150         (141)       59,274
Certificates of deposit............................          2,416           -            -         2,416
EURO...............................................          2,500           -            -         2,500
                                                       ------------  -----------  ----------  --------------
Total..............................................      $  74,058     $   166      $  (343)    $  73,881
                                                       ------------  -----------  ----------  --------------


     In  determining  whether  declines in the fair value of  available-for-sale
securities below their cost are other than temporary,  management  considers the
financial  condition of the issuer,  causes for the decline in fair value (i.e.,
interest rate  fluctuations  or declines in  creditworthiness)  and severity and
duration of the decline,  among other things. At December 31, 2007 we had 55 out
of 366 securities  (primarily  municipal  securities) with unrealized  losses in
four consecutive  quarters with combined market losses of $73,000.  These losses
were determined to be temporary since substantially all of these securities were
AAA rated and we have the ability to hold these to maturity.

     The contractual  maturities of our  available-for-sale  investments in debt
securities  and  certificates  of deposit at December 31, 2007 by maturity  date
follows:



                                                                        Amortized
                                                                           Cost       Fair Value
                                                                       ------------   ------------
                                                                                 
                 One year or less...................................     $   6,204     $   6,204
                 Two years through five years.......................         4,309         4,274
                 Six years through ten years........................        14,518        14,726
                 More than ten years................................        12,917        13,080
                                                                       ------------   ------------
                 Total..............................................     $  37,948     $  38,284
                                                                       ------------   ------------




     Our  investment  securities are included in the  accompanying  consolidated
balance sheets at December 31, 2007 and 2006 as follows:



                                                                              December 31,
                                                                       ---------------------------
                                                                           2007          2006
                                                                       ------------   ------------
                                                                                 
                 Available-for-sale investments (current)...........     $  13,177     $  42,275
                 Available-for-sale investments (non-current).......        20,766        27,461
                 Investments pledged................................         4,341         4,145
                                                                       ------------   ------------
                 Total..............................................     $  38,284     $  73,881
                                                                       ------------   ------------



     We  are  required  to  pledge   investments  to  various  state   insurance
departments  as a condition  to  obtaining  authority  to do business in certain
states. The fair value of investments pledged to state regulatory agencies is as
follows:



                                                                              December 31,
                                                                       ---------------------------
                                                                           2007          2006
                                                                       ------------   ------------
                                                                                 
                 Certificates of deposit............................     $   2,292     $   2,216
                 Obligations of state and political subdivisions....         1,203             -
                 U. S. Government obligations.......................           846         1,929
                                                                       ------------   ------------
                 Total..............................................     $   4,341     $   4,145
                                                                       ------------   ------------



     Proceeds from sales of  investments  during 2007,  2006 and 2005 were $14.2
million, $135.8 million and $13.2 million,  respectively,  and resulted in gross
realized  gains of $248,000,  $43,000 and $98,000 and gross  realized  losses of
$13,000, $82,000 and $108,000, respectively.



Note 3 - Property and Equipment
         Property and equipment is comprised of the following:

                                                                Estimated         December 31,
                                                               Useful Life     2007         2006
                                                               -----------   ----------  ----------
                                                                                
                 Equipment, furniture and fixtures..........   3-10 years    $  41,289   $  37,650
                 Computer software..........................     3 years        15,226      13,263
                 Building and improvements..................   20-40 years      39,367      39,326
                 Automotive and aviation equipment..........   3-10 years       14,152      14,134
                 Land.......................................       N/A             445         445
                                                                             ----------  ----------
                                                                               110,479     104,818
                 Accumulated depreciation.................................     (53,516)    (45,175)
                                                                             ----------  ----------
                 Property and equipment, net..............................   $  56,963   $  59,643
                                                                             ----------  ----------






     As of December  31,  2007 and 2006,  capitalized  interest of $706,000  was
included in the cost of the building.  No interest was capitalized  during 2007,
2006 or 2005.


Note 4 - Other Assets, Current portion

         Other Assets, current portion, are comprised of the following:



                                                                              December 31,
                                                                        ------------------------
                                                                           2007          2006
                                                                        ------------  ----------
                                                                                
                 Prepaid Canadian income taxes......................    $   4,293     $   3,617
                 Other prepaid expenses, current portion............        1,542         1,777
                 Other..............................................          958         1,010
                                                                        ------------  ----------
                 Total..............................................    $   6,793     $   6,404
                                                                        ------------  ----------



Note 5 - Accounts Payable and Accrued Expenses

     Accounts payable and accrued expenses are comprised of the following:



                                                                              December 31,
                                                                        ------------------------
                                                                           2007          2006
                                                                        ------------  ----------
                                                                                
                 Accounts payable...................................    $   5,679     $   5,077
                 Marketing bonuses payable..........................        2,392         1,455
                 Incentive awards payable...........................        3,337         2,922
                 Litigation accrual.................................           75           150
                 Other..............................................        4,408         4,041
                                                                        ------------  ----------
                 Total..............................................    $  15,891     $  13,645
                                                                        ------------  ----------



Note 6 - Notes Payable

     On June 23, 2006, we received $80 million of senior, secured financing (the
"Senior Loan") from Wells Fargo Foothill,  Inc. ("Wells Fargo")  consisting of a
$75 million five year term loan facility (the "Term  Facility") and a $5 million
five year revolving credit facility (the "Revolving Facility").  At December 31,
2007, we have the full Revolving  Facility  available to us. After payment of an
origination  fee of 1%, lender costs and retirement of $15.3 million of existing
bank indebtedness,  the net proceeds of the Term Facility we received were $58.8
million.  Since receiving the net proceeds, we used them to purchase 1.4 million
shares of treasury stock at an average price of $42.95 per share.

     The Term  Facility  was fully  funded on June 23, 2006 and  provides  for a
five-year  maturity  and  amortizes  in monthly  installments  of $1.25  million
commencing  August 1, 2006, with interest on the outstanding  balances under the
Term  Facility and the  Revolving  Facility  payable,  at our option,  at a rate
originally  equal to Wells Fargo base rate plus 150 basis points or at the LIBOR
plus 250 basis points. On September 10, 2007 we entered into an amendment to the
Senior Loan which  reduced the margin on LIBOR rate loans from 250 basis  points
to 150 basis points and fixed all LIBOR rate loans on 30 day  interest  periods;
reduced  the  margin on base rate  loans  from 150  basis  points to zero  basis
points;  and  increased the amounts of cash flow that we may use in each quarter
to pay dividends or  repurchase  shares of common stock by  accumulating  unused
amounts  available for such purposes for up to a 24 month period that will phase
in from June 30, 2007 to June 30, 2008. No other material  amendments  were made
to the Senior  Loan.  The interest  rate at December 31, 2007 was 6.73%.  We are
also obligated to make additional quarterly payments equal to 50% of our "excess
cash flow" (as defined in the Senior Loan  agreement)  if our Leverage  Ratio is
greater than or equal to 1 to 1 at the end of a quarter.  Our Leverage Ratio was
0.75 to 1 at December  31,  2007.  We expect to be able to repay the  facilities
with cash flow from operations. We have the right to prepay the Term Facility in
whole or in part,  subject to a prepayment premium of 1% in the first year, 0.5%
in  the  second  year  and  none  thereafter,  with  a  reduction  of 50% of the
prepayment  premium if the  prepayment  is from the  proceeds  of  another  loan
provided by Wells Fargo.

     The  Senior  Loan  is   guaranteed  by  our   non-regulated   wholly  owned
subsidiaries  and is  secured by all of our  tangible  and  intangible  personal
property  (other  than   aircraft),   including  stock  in  all  of  our  direct
subsidiaries,  and a mortgage  on a building  we  recently  acquired  in Duncan,
Oklahoma and  remodeled to relocate  and expand our  existing  customer  service
facility in Duncan.

     In  addition  to  customary  covenants  for  loans of a similar  type,  the
principal covenants for the Senior Loan are:

     *    a limitation on incurring any  indebtedness in excess of the remaining
          existing bank  indebtedness  outstanding and $2.3 million in permitted
          capitalized leases or purchase money debt;
     *    a limitation on our ability to pay dividends or make stock  purchases,
          other  than with the net  proceeds  of the Term  Loan,  unless we meet
          certain cash flow tests;
     *    a prohibition on prepayment of other debt;
     *    a  requirement  to  maintain   consolidated  EBITDA  (Earnings  before
          Interest,  Taxes,  Depreciation and Amortization) for the twelve month
          period  ending  December  31, 2006 and each quarter  thereafter  of at
          least  $80  million  ($75  million  for us and  our  top  tier  direct
          subsidiaries);
     *    a  requirement  to maintain a quarterly  fixed charge  coverage  ratio
          (EBITDA  (with  certain  adjustments)  divided by the sum of  interest
          expense,  income taxes and scheduled  principal  payments) of at least
          1.1 to 1;
     *    a requirement to maintain at least 1.3 million members;
     *    a requirement to maintain a Leverage Ratio (funded  indebtedness as of
          the end of each  quarter  divided  by EBITDA for the  trailing  twelve
          months) of no more than 1.5 to 1; and
     *    we must have availability  (unused portion of the Revolving  Facility)
          plus  Qualified  Cash  (the  amount  of  unrestricted  cash  and  cash
          equivalents) greater than or equal to $12,500,000.

     We were in compliance with these covenants at December 31, 2007.

     In addition to  customary  events of default,  it is an event of default if
Harland  Stonecipher ceases to be our Chairman and Chief Executive Officer for a
period of 120 days unless replaced with a person approved by Wells Fargo.

     Our $20 million  real  estate loan was fully  funded in 2002 to finance our
new  headquarters  building in Ada,  Oklahoma and has a final maturity of August
2011.  This loan,  with  interest  originally  at the 30 day LIBOR rate plus 225
basis points was modified on September  25, 2007 to reduce the interest  rate to
LIBOR plus 150 basis points effective September 1, 2007,  adjusted monthly,  and
is secured by a mortgage on our headquarters.  The interest rate at December 31,
2007 was 6.75% with monthly  principal  payments of $191,000  plus interest with
the  balance of  approximately  $2.3  million due at  maturity.  The real estate
loan's financial covenants conform to those of the Senior Loan.

     On September  28, 2007,  we entered into a term loan  agreement  with Wells
Fargo  Equipment  Finance,  Inc. to refinance our existing  indebtedness of $9.6
million  related to our aircraft.  The new loan has an interest rate of 89 basis
points  above the monthly  LIBOR rate  (compared  to LIBOR plus 175 basis points
under the previous loan) and will be repaid over 10 years in monthly payments of
principal of $80,000 (compared to $96,000 under the previous loan) plus interest
and is secured by the aircraft and  engines.  The interest  rate at December 31,
2007 was 6.13%.

         A schedule of outstanding balances as of December 31, 2007 is as
follows:

                      Senior loan................................   $  53,750
                      Real estate loan...........................      10,667
                      Aircraft loan..............................       9,316
                                                                    ----------
                      Total notes payable........................      73,733
                      Less: Current portion of notes payable.....     (18,241)
                                                                    ----------
                      Long term portion..........................   $  55,492
                                                                    ----------


         A schedule of future maturities as of December 31, 2007 is as follows:

                      Repayment Schedule commencing
                         January 2008:
                      -------------------------------------------
                      Year 1.....................................   $  18,241
                      Year 2.....................................      18,241
                      Year 3.....................................      18,241
                      Year 4.....................................      13,515
                      Year 5.....................................         956
                      Thereafter.................................       4,539
                                                                    ----------
                      Total notes payable........................   $  73,733
                                                                    ----------


Note 7 - Income Taxes

     The provision for income taxes consists of the following:



                                                                    Year Ended December 31,
                                                               ---------------------------------
                                                                 2007         2006        2005
                                                               ----------  ----------  ---------
                                                                               
                 Current....................................   $  33,864   $  27,116    $ 17,951
                 Deferred...................................        (552)        774         912
                                                               ----------  ----------  ---------
                   Total provision for income taxes.........   $  33,312   $  27,890    $ 18,863
                                                               ----------  ----------  ---------



     A reconciliation  of the statutory Federal income tax rate to the effective
income tax rate is as follows:



                                                                    Year Ended December 31,
                                                               ---------------------------------
                                                                 2007         2006        2005
                                                               ----------  ----------  ---------
                                                                                  
                 Statutory Federal income tax rate..........      35.0%       35.0%        35.0%
                 Tax exempt interest........................      (1.0)        (.7)         (.4)
                 Wage tax credits...........................       (.4)        (.3)         (.5)
                 Prior years, state income taxes, net.......       2.4           -            -
                 State income tax expense, net..............       3.8           -            -
                 Other......................................       (.4)        1.0           .4
                                                               ----------  ----------  ---------
                 Effective income tax rate..................      39.4%       35.0%        34.5%
                                                               ----------  ----------  ---------





The prior  years,  state income  taxes,  2.4% net,  reflected  above is due to a
fourth  quarter  charge.  During  the 2007  fourth  quarter  we  discovered  and
corrected a clerical  error in the amount of net  operating  loss  reported in a
2003 state income tax return  which  resulted in  nonpayment  of income taxes in
that state for several  years.  This 2.4%  represents  the $2.0  million  charge
pertaining to 2006 and prior years. See Note 16 - Selected  Quarterly  Financial
Data (Unaudited) for additional  information  related to this charge.  The state
income tax expense,  3.8% net,  represent state income taxes, net of federal tax
benefit for year 2007.  No state income taxes were recorded in the provision for
income  taxes for years 2006,  and 2005.  $2.7 million and $1.5 million of state
income tax expense was included in general and administrative expenses for years
2006 and 2005 respectively.

     Deferred  tax  liabilities  and assets at  December  31,  2007 and 2006 are
comprised of the following:



                                                                            December 31,
                                                                        ---------------------
                                                                          2007        2006
                                                                        ----------  ---------
                 Deferred tax liabilities relating to:
                                                                              
                   Deferred member and associate service costs......    $   7,367   $   7,221
                   Property and equipment...........................        7,829       7,232
                   Unrealized investment gains......................          131           -
                                                                        ----------  ---------
                      Total deferred tax liabilities................       15,327      14,453
                                                                        ----------  ---------
                 Deferred tax assets relating to:
                   Expenses not yet deducted for tax purposes.......        3,552       2,079
                   Deferred revenue and fees........................       11,564      11,184
                   Unrealized investment losses, net................            -          69
                   Other............................................          101         459
                                                                        ----------  ---------
                      Total deferred tax assets.....................       15,217      13,791
                                                                        ----------  ---------
                   Net deferred tax liability.......................    $    (110)  $    (662)
                                                                        ----------  ---------



     Our deferred tax assets and  liabilities  are included in the  accompanying
consolidated balance sheets at December 31, 2007 and 2006 as follows.



                                                                              December 31,
                                                                        ---------------------
                                                                           2007          2006
                                                                        ----------  ---------
                                                                                 
                 Deferred income taxes (current asset)..............     $  5,163   $   4,235
                 Deferred income taxes (non-current liability)......       (5,273)     (4,897)
                                                                        ----------  ---------
                 Net deferred tax liability.........................     $   (110)  $    (662)
                                                                        ----------  ---------



     A  significant  portion of the  deferred  tax assets  recognized  relate to
deferred  revenue and fees.  A valuation  allowance  was not  recorded  since we
believe that there is sufficient positive evidence to support our conclusion not
to record a valuation allowance. We believe that we will realize the tax benefit
of these  deferred  tax assets in the future  because of our  history of pre-tax
income.  However, there can be no assurance that we will generate taxable income
or that all of our deferred tax assets will be utilized.

Note 8 - Stockholders' Equity

     We  announced  on  April  6,  1999,  a  treasury  stock  purchase   program
authorizing  management to acquire up to 500,000 shares of our common stock. The
Board of Directors has increased  such  authorization  from 500,000 shares to 13
million shares during  subsequent  board meetings.  At December 31, 2007, we had
purchased 12.7 million  treasury shares under these  authorizations  for a total
consideration  of  $362.40  million,  an average  price of $28.56 per share.  We
purchased and formally retired  1,318,721 shares of our common stock during 2007
for $66.5 million, or an average price of $50.40 per share,  reducing our common
stock by $13,188 and our  retained  earnings by $66.4  million.  At December 31,
2007 and 2006, we had 12.4 million and 13.6 million  common shares  outstanding,
respectively,   net  of  treasury  shares.   Given  the  current  interest  rate
environment,  the nature of other  investments  available  and our expected cash
flows, we believe that purchasing treasury shares enhances shareholder value and
may seek alternative sources of financing to continue or accelerate the program.
Any additional  treasury stock purchases will be made at prices that we consider
attractive  and at such  times  that we  believe  will  not  unduly  impact  our
liquidity.

     Our ability to pay  dividends is dependent in part on our ability to derive
dividends from our subsidiaries. The payment of dividends by PPLCI is restricted
under the  Oklahoma  Insurance  Code to  available  surplus  funds  derived from
realized  net profits  and  requires  the  approval  of the  Oklahoma  Insurance
Commissioner for any dividend  representing more than the greater of 10% of such
accumulated  available  surplus or the previous  years' net  profits.  PPLSIF is
similarly  restricted  pursuant to the insurance  laws of Florida.  During 2007,
PPLCI  declared and after  obtaining all necessary  regulatory  approvals,  paid
extraordinary  dividends  to us of $7.4  million  compared to the $13.4  million
dividend paid to us during 2006.  During 2007, LSPV paid us an ordinary dividend
of $1.6 million compared to none during 2006. At December 31, 2007 the amount of
restricted  net  assets  of   consolidated   subsidiaries   was  $30.7  million,
representing  amounts that may not be paid to us as  dividends  either under the
applicable regulations or without regulatory approval.


Note 9 - Other Expenses, net

     The components of other expenses, net are as follows:



                                                                    Year Ended December 31,
                                                               -----------------------------------
                                                                 2007         2006        2005
                                                               ----------  ----------   ----------
                                                                               
                 Depreciation...............................   $  8,532    $  8,260     $  7,489
                 Premium taxes..............................      1,956       1,840        2,059
                 Interest expense...........................      6,678       5,726        2,682
                 Litigation expense.........................         15        (710)        (303)
                 Interest income............................     (3,340)     (2,884)      (1,471)
                                                               ----------  ----------   ----------
                   Total Other expenses, net................   $ 13,841    $ 12,232     $ 10,456
                                                               ----------  ----------   ----------



Note 10 - Comprehensive Income

     Comprehensive  income is  comprised  of two  subsets - net income and other
comprehensive income.  Included in other comprehensive income for us are foreign
currency  translation  adjustments and unrealized  gains on  investments.  These
items are accumulated  within the Statements of Changes in Stockholders'  Equity
under the caption  "Accumulated Other Comprehensive  Income." As of December 31,
accumulated  other  comprehensive  income,  as  reflected  in  the  Consolidated
Statements of Changes in Stockholders' Equity, was comprised of the following:



                                                                            2007        2006
                                                                          ----------  --------
                                                                                
Foreign currency translation adjustments.............................     $ 1,603     $   397
Unrealized losses on investments, net of income taxes
  of $131 and $(70)..................................................         218        (107)
                                                                          ----------  --------
  Accumulated other comprehensive income............................      $ 1,821     $   290
                                                                          ----------  --------


Note 11 - Related Party Transactions

     John W. Hail, one of our directors, served as our Executive Vice President,
Director and Agency  Director from July 1986 through May 1988 and also served as
Chairman  of the  Board of  Directors  of TVC  Marketing,  Inc.,  which  was our
exclusive  marketing agent from April 1984 through  September 1985.  Pursuant to
agreements  between Mr. Hail and us entered  into during the period in which Mr.
Hail was one of our executive officers,  Mr. Hail receives override  commissions
from renewals of certain  Memberships  initially  sold by us during such period.
During  2007,  2006 and 2005,  such  override  commissions  on renewals  totaled
$68,000, $71,000 and $75,000, respectively. Mr. Hail also owns interests ranging
from 12% to 100% in corporations not currently affiliated with us, including TVC
Marketing,  Inc.,  but which were engaged in the  marketing of our legal service
Memberships and which earn renewal commissions from Memberships previously sold.
These  entities  earned renewal  commissions of $515,000,  $519,000 and $551,000
during  2007,  2006 and 2005,  respectively,  of which  $274,000,  $273,000  and
$314,000, respectively, was passed through as commissions to their sales agents.

Note 12 - Leases

     At December 31, 2007, we were committed under  noncancelable  operating and
capital  leases,  principally  for buildings  and  equipment.  Aggregate  rental
expense under all operating leases was $111,000,  $143,000 and $108,000 in 2007,
2006 and 2005, respectively.


     Future  commitments   commencing  January  2008  related  to  noncancelable
operating leases are as follows:
Year Ended December 31,
2008...............................................     $     117
2009...............................................           108
2010...............................................           104
2011...............................................            91
2012...............................................            55
Thereafter.........................................           260
                                                        ----------
Total operating lease commitments..................     $     735
                                                        ----------

     Future minimum lease payments commencing in January 2008 related to capital
leases are as follows:


Year Ended December 31,
2008...............................................     $      81
2009...............................................            81
2010...............................................            81
2011...............................................            81
2012...............................................            81
Thereafter.........................................         1,406
                                                        ----------
Total minimum lease payments.......................         1,811
Less: Imputed interest.............................          (855)
                                                        ----------
Present value of net minimum lease payments........           956
Less: Current portion..............................           (22)
                                                        ----------
Noncurrent portion of capital leases payable.......     $     934
                                                        ----------


     We entered  into two  capital  leases near the end of 2002 and one early in
2003 to acquire equipment and buildings.  These capital leases expire at various
dates  through  2032.  The capital  lease  assets are  included in property  and
equipment as follows at December 31, 2007 and December 31, 2006.

                                                               December 31,
                                                         -----------------------
                                                           2007          2006
                                                         -----------  ----------
Equipment, furniture and fixtures..................      $    729     $  1,670
Buildings and improvements.........................           314          314
                                                            1,043        1,984
Less: accumulated amortization.....................          (185)        (798)
                                                         -----------  ----------
Net capital lease assets...........................      $    858     $  1,186
                                                         -----------  ----------

Note 13 - Commitments and Contingencies

     Beginning  in the  second  quarter  of 2001  multiple  lawsuits  were filed
against us, certain officers,  employees,  sales associates and other defendants
in various  Mississippi state courts by current or former members seeking actual
and punitive  damages for alleged  breach of contract,  fraud and various  other
claims in connection with the sale of Memberships. At one time, we were aware of
11 separate lawsuits involving approximately 400 plaintiffs in multiple counties
in Mississippi. These cases seek varying amounts of actual and punitive damages.
We tried  three  separate  lawsuits in  Mississippi.  On  September  11, 2006 we
reached a settlement  agreement with counsel for the more than 400 plaintiffs in
numerous pending cases in Mississippi. For an amount significantly less than our
then accrued  reserves of $2.5  million,  all pending  litigation  against us is
being  resolved in  Mississippi,  including the Barbara Booth v. Pre-Paid  Legal
Services,  Inc.  case in which the $9.9  million  punitive  damage  verdict  was
entered.  Settlement  and  dismissal of almost all pending  litigation  has been
approved by the plaintiffs.

     On March  27,  2006 we  received  a  complaint  filed by a former  provider
attorney  law  firm in  Davidson  County,  Tennessee  seeking  compensatory  and
punitive  damages on the basis of allegations of breach of contract.  On May 15,
2006 the trial court dismissed plaintiff's complaint in its entirety.  Plaintiff
filed a notice of appeal on June 13,  2006,  and on August 24, 2007 the Court of
Appeals  reversed  the ruling of the trial  court and  remanded  the suit to the
trial court for further proceedings. We filed a Petition for Rehearing which was
denied on  September  26,  2007.  The  ultimate  outcome  of this  matter is not
determinable.

     On March 23, 2007 we received a Civil Investigative Demand from the Federal
Trade Commission  requesting  information  relating to our Identity Theft Shield
and ADRS Program.  We are working with the Federal  Trade  Commission to resolve
the matter. The ultimate outcome of the matter is not determinable.

     We are a defendant in various other legal  proceedings that are routine and
incidental  to our  business.  We will  vigorously  defend our  interests in all
proceedings  in which we are  named as a  defendant.  We also  receive  periodic
complaints or requests for information  from various state and federal  agencies
relating to our business or the activities of our marketing  force.  We promptly
respond to any such matters and provide any information requested.

     While the ultimate outcome of these proceedings is not determinable,  we do
not currently  anticipate that these  contingencies  will result in any material
adverse  effect to our financial  condition or results of  operation,  unless an
unexpected  result occurs in one of the cases. The costs of the defense of these
various matters are reflected as a part of general and  administrative  expense,
or Membership  benefits if fees relate to Membership issues, in the consolidated
statements of income. We have established an accrued liability,  we believe will
be  sufficient  to cover  estimated  damages in  connection  with various  cases
(exclusive of ongoing  defense  costs which are expensed as incurred),  which at
December 31, 2007 was $75,000.  We believe that we have meritorious  defenses in
all pending cases and will  vigorously  defend against the  plaintiffs'  claims.
However,  it is possible  that an adverse  outcome in certain cases or increased
litigation  costs  could have an adverse  effect upon our  financial  condition,
operating results or cash flows in particular quarterly or annual periods.

     Canadian taxing authorities are challenging  portions of our commission and
general  and  administrative  deductions  for tax years 1999 - 2002 and have tax
assessments  which  aggregate  $5.7  million.  The Canadian  taxing  authorities
contend  commission  deductions should be matched with the membership revenue as
received,  we contend these commissions are deductible when paid. Under Canadian
tax laws, our commission  payments are treated as a prepaid expense. We base our
deduction  of  commission  on the fact  that all the  services  (the sale of the
membership)  have  been  performed  by the sales  associate  at the time of sale
therefore  this prepaid  expense (the  commission  payments) is deductible  when
paid.  Also, the commission  payment is taxable to the sales associate when paid
and each year we issue a T4 (Canadian 1099  equivalent) to sales  associates for
the total  commission  payments  made during that year.  In  addition,  Canadian
taxing  authorities have challenged our allocation of general and administrative
expenses  to  Canadian  operations.  We contend  the  allocation  of general and
administrative  expenses,  based on the  percentage of Canadian new  memberships
written and the Canadian percentage memberships in force, is reasonable.  During
July 2007 we received a settlement  offer from the Canadian  taxing  authorities
regarding  the general  and  administrative  deductions  which would allow us to
claim a deduction on the  Canadian tax return for over 70% of these items.  This
settlement  offer would allow us to deduct the  remaining  30% of these items on
our US federal tax returns.  We accepted this offer during the fourth quarter of
2007 and filed  amended US federal tax returns.  Since the  commission  issue is
still  outstanding the Canadian taxing  authorities  would not permit us to file
the  amended  Canadian  tax  returns to reflect  the  changes in our general and
administrative expense. We have established an accrued liability we believe will
be sufficient to cover the  estimated  tax  assessment in connection  with these
items, which at December 31, 2007 was $477,000. As stated above, we believe that
we have reasonable basis for our tax position relative to these items,  however,
it is possible  that an adverse  outcome  could have an adverse  effect upon our
financial condition,  operating results or cash flows in particular quarterly or
annual periods.

Note 14 - Stock Options, Stock Ownership Plan and Benefit Plan

     We have a stock option plan (the "Plan") under which the Board of Directors
(the "Board") or our Stock Option Committee (the  "Committee") may grant options
to purchase shares of our common stock. The Plan permits the granting of options
to our  directors,  officers  and  employees to purchase our common stock at not
less than the fair value at the time the options are granted.  The Plan provides
for option grants to acquire up to 3,000,000  shares and permits the granting of
incentive  stock options as defined  under  Section 422 of the Internal  Revenue
Code at an  exercise  price for each  option  equal to the  market  price of our
common  stock on the date of the grant and a maximum  term of 10 years.  Options
not qualifying as incentive  stock options under the Plan have a maximum term of
15 years. The Board or Committee determines vesting of options granted under the
Plan. No options may be granted under the Plan after  December 12, 2012. We have
not granted options under the Plan since March 2004.

     The Plan  previously  provided  for  automatic  grants  of  options  to our
non-employee directors. Under the Plan, each incumbent non-employee director and
any new  non-employee  director  received  options to purchase  10,000 shares of
common  stock on March 1 of each  year.  The  options  granted  each  year  were
immediately  exercisable as to 2,500 shares and vested in additional  increments
of 2,500 shares on the following  June 1st,  September  1st, and December 1st in
the year of grant,  subject to continued  service by the  non-employee  director
during such periods.  Options granted to  non-employee  directors under the Plan
have an exercise  price equal to the  closing  price of the common  stock on the
date of grant. These automatic grants of options to non-employee  directors were
eliminated  effective  January  1, 2005,  and  therefore  no  further  grants to
non-employee directors have been made.

     Also included below are stock options that were issued to our Regional Vice
Presidents  ("RVPs") in order to  encourage  stock  ownership by our RVPs and to
increase the  proprietary  interest of such persons in our growth and  financial
success.  These  options  have been  granted  periodically  to RVPs since  1996.
Options  were  granted  at fair  market  value at the date of the grant and were
generally immediately  exercisable for a period of three years or within 90 days
of  termination,  whichever  occurs first.  There we no options  granted to RVPs
during 2007, 2006 or 2005

     A summary of the status of our total stock  option  activity as of December
31,  2007,  2006 and 2005,  and for the years ended on those dates is  presented
below:



                                                     2007                      2006                       2005
                                           ------------------------  ------------------------  -------------------------
                                                         Weighted                  Weighted                   Weighted
                                                         Average                    Average                   Average
                                                         Exercise                  Exercise                   Exercise
                                             Shares       Prcie        Shares        Price        Shares       Price
                                           -----------  -----------  -----------  -----------  ------------   ----------
                                                                                            
Outstanding at beginning of year.......       273,040    $   23.26      507,167    $   20.94       862,490    $   23.88
Granted................................             -         -               -         -                -         -
Exercised..............................      (208,943)       24.17     (226,719)       18.07      (345,642)       28.24
Terminated.............................        (5,597)       22.87       (7,408)       23.29        (9,681)       22.33
                                           -----------  -----------  -----------  -----------  ------------   ----------
Outstanding at end of year.............        58,500    $   20.08      273,040    $   23.26       507,167    $   20.94
                                           -----------  -----------  -----------  -----------  ------------   ----------
Options exercisable at year end........        58,500    $   20.08      273,040    $   23.26       507,167    $   20.94
                                           -----------  -----------  -----------  -----------  ------------   ----------
Aggregate intrinsic value of outstanding
options................................      $  2,063                  $  4,332                   $  8,757
                                           -----------               -----------               -----------
Intrinsic value of options exercised...      $  6,821                  $  3,357                   $  3,357
                                           -----------               -----------               -----------
Fair value of options vested during
period.................................      $      -                  $      -                   $    180
                                           -----------               -----------               -----------
Weighted average grant date fair value
per share..............................           N/A                       N/A                        N/A
                                           -----------               -----------               -----------



     The following table summarizes  information about stock options outstanding
and exercisable at December 31, 2007:


                                                         Weighted Average
         Range of                                             Remaining
    Exercise Prices           Number Outstanding         Contractual Life            Exercise Price
---------------------------  ------------------------  -------------------------  ------------------------
                                                                                 
      $17.03 - $19.20                  46,000                     2.78                    $   18.92
      $23.93 - $26.11                  12,500                     1.09                        24.36
                             ------------------------  -------------------------  ------------------------
                                       58,500                     2.42                    $   20.08
                             ------------------------  -------------------------  ------------------------


     During 1988, we adopted an employee stock ownership  plan.  Under the plan,
employees  may  elect  to  defer a  portion  of  their  compensation  by  making
contributions  to the plan.  Prior to  December  31,  2006,  up to  seventy-five
percent of the  contributions  made by employees  were used to purchase  Company
common  stock  with  the  remaining   twenty-five  percent  allocated  to  other
investment  options within the plan. For plan years beginning after December 31,
2006, the plan allows  participants to move any portion of their account that is
invested in our stock from that  investment into other  investment  alternatives
under the plan. At our option, we may make matching contributions to the plan in
cash, and recorded expense of $486,000, $459,000 and $445,000 for 2007, 2006 and
2005 respectively.

     In November 2002, we adopted a deferred  compensation  plan,  which permits
executive  officers  and key  employees  to defer  receipt of a portion of their
compensation. Deferred amounts accrue hypothetical returns based upon investment
options selected by the participant.  We have amended the deferred  compensation
plan,  effective  January 1, 2005, to comply with new provisions of Section 409A
of the Internal  Revenue  Code.  Deferred  amounts are paid in cash based on the
value of the investment option and are generally  payable following  termination
of employment in a lump sum or in  installments  as elected by the  participant,
but the plan provides for financial hardship distributions, distributions in the
event of total disability or death and  distributions  upon a change in control.
The plan also  provides for a death  benefit of $500,000  for each  participant.
Although the plan is unfunded and  represents an unsecured  liability of ours to
the participants, we have purchased variable life insurance policies owned by us
to insure the lives of the group of participants  and to finance our obligations
under the plan. As of December 31, 2007 and 2006,  we had an aggregate  deferred
compensation liability of $6.5 million and $5.2 million, respectively,  which is
included in other  non-current  liabilities.  At December 31, 2007 and 2006, the
cash value of the underlying insurance policies owned by us was $5.7 million and
$4.7 million, respectively, and was included in other assets.

Note 15 - Earnings Per Share

     Basic  earnings per common share are computed by dividing net income by the
weighted average number of shares of common stock outstanding during the year.

     Diluted  earnings  per common  share are computed by dividing net income by
the weighted  average  number of shares of common  stock and dilutive  potential
common shares outstanding during the year. The weighted average number of common
shares is also  increased  by the number of  dilutive  potential  common  shares
issuable on the exercise of options less the number of common shares  assumed to
have been purchased with the proceeds from the exercise of the options  pursuant
to the treasury stock method;  those  purchases are assumed to have been made at
the average price of the common stock during the respective period.



                                                                                  Year Ended December 31,
                                                                                ------------------------------
Basic Earnings Per Share:                                                        2007       2006      2005
                                                                                --------- ---------- ---------
Earnings:
---------
                                                                                            
Income........................................................................  $ 51,202  $ 51,798   $ 35,812
                                                                                --------- ---------- ---------
Shares:
-------
Weighted average shares outstanding...........................................    13,151    14,642     15,470
                                                                                --------- ---------- ---------







Diluted Earnings Per Share:
Earnings:
---------
                                                                                            
Income after assumed conversions..............................................  $ 51,202  $ 51,798   $ 35,812
                                                                                --------- ---------- ---------
Shares:
-------
Weighted average shares outstanding...........................................    13,151    14,642     15,470
Assumed exercise of options...................................................        46        97        182
                                                                                --------- ---------- ---------
Weighted average number of shares, as adjusted................................    13,197    14,739     15,652
                                                                                --------- ---------- ---------



     Options  to  purchase   shares  of  common  stock  are  excluded  from  the
calculation  of diluted  earnings per share when their  inclusion  would have an
anti-dilutive effect on the calculation. Options to purchase 218,000 shares with
an average  exercise  price of $32.05  were  excluded  from the  calculation  of
diluted earnings per share for the year ended December 31, 2005. No options were
excluded  from the diluted  earnings per share  calculation  for the years ended
December 31, 2007 and 2006.

Note 16 - Selected Quarterly Financial Data (Unaudited)

     Following is a summary of the unaudited  interim  results of operations for
the years ended December 31, 2007 and 2006.



                                    Selected Quarterly Financial Data
                                 (In thousands, except per share amounts)

                        2007                          1st Quarter   2nd Quarter   3rd Quarter  4th Quarter
---------------------------------------------------   -----------  -------------  -----------  ------------
                                                                                   
Revenues...........................................    $ 112,084    $ 114,060     $ 114,877    $ 116,068
Net income.........................................       14,728       13,179        11,573       11,722

Basic income per common share (1):
  Net Income.......................................    $    1.09    $     .99     $     .89    $     .92

Diluted income per common share (1):
  Net Income.......................................    $    1.08    $     .99     $     .88    $     .92



                        2006
Revenues...........................................    $ 109,960    $ 111,198     $ 111,194    $ 111,672
Net income.........................................       13,071       12,090        13,406       13,231

Basic income per common share (1):
  Net Income.......................................    $     .85    $     .81     $     .93    $     .95

Diluted income per common share (1):
  Net Income.......................................    $     .84    $     .81     $     .93    $     .94



(1)  The sum of EPS for the four  quarters may differ from the annual EPS due to
     rounding and the required  method of computing  weighted  average number of
     shares in the respective periods.

     In the fourth quarter,  we discovered and corrected a clerical error in the
amount of net  operating  loss  reported in a 2003 state income tax return which
resulted in nonpayment of income taxes in that state for several years. The $2.9
million charge was comprised of $2.0 million  pertaining to 2006 and prior years
and $900,000  pertaining to the first 3 quarters of 2007 approximately  $300,000
for each quarter.  This charge was not  individually  material to the 2007 prior
quarters or 2006 or prior years.

Note 17 - Segment Information

     We  operate a  consistent  business  model,  marketing  Memberships  to our
customers in the United States and four Canadian provinces. We maintain regional
geographic management to facilitate local execution of our marketing strategies.
However, the most significant  performance  evaluations and resource allocations
made by our chief operating decision makers are made on a global basis. As such,
we have  concluded  that we  maintain  one  operating  and  reportable  segment.
Substantially  all of our business is currently  conducted in the United States.
Revenues from our Canadian operations for 2007, 2006 and 2005 were $7.9 million,
$7.1 million and $6.0 million,  respectively.  We have no significant long-lived
assets located in Canada.


ITEM 9.       CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
-------------------------------------------------------------------------
              AND FINANCIAL DISCLOSURE.
              -------------------------
Not applicable.


ITEM 9A.      CONTROLS AND PROCEDURES.
--------------------------------------

Controls and Procedures

     Our principal  executive  officer  (Chairman,  Chief Executive  Officer and
President)  and  principal  financial  officer  (Chief  Financial  Officer) have
evaluated our  disclosure  controls and  procedures as of December 31, 2007, and
have  concluded  that these controls and procedures are effective to ensure that
information required to be disclosed by us in the reports that we file or submit
under  the  Securities  Exchange  Act of  1934  (15  U.S.C.  ss.  78a et seq) is
recorded, processed,  summarized, and reported within the time periods specified
in the Securities and Exchange  Commission's  rules and forms.  These disclosure
controls and procedures  include,  without  limitation,  controls and procedures
designed  to ensure  that  information  required  to be  disclosed  by us in the
reports that we file or submit is accumulated  and  communicated  to management,
including the principal  executive officer and the principal  financial officer,
as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

     During  the fourth  quarter of 2007,  no change  occurred  in our  internal
control over  financial  reporting  that  materially  affected,  or is likely to
materially affect, our internal control over financial reporting.

Management's Annual Report on Internal Control over Financial Reporting

     Our management is responsible for  establishing  and  maintaining  adequate
internal  control over financial  reporting.  Under the supervision and with the
participation of our management, including the Chief Executive Officer and Chief
Financial Officer, we evaluated the effectiveness of the design and operation of
our internal control over financial reporting based on the framework in Internal
Control  -  Integrated   Framework   issued  by  the   Committee  of  Sponsoring
Organizations of the Treadway  Commission.  Based on that evaluation,  our Chief
Executive  Officer  and Chief  Financial  Officer  concluded  that our  internal
control  over  financial  reporting  was  effective  as of December  31, 2007 as
reflected in our report included in Item 8 above.

     Grant Thornton LLP, our  independent  registered  public  accounting  firm,
audited the  effectiveness  of internal  control over  financial  reporting and,
based on that audit, issued the report set forth in Item 8 above.


Certifications

     Our Chief  Executive  and  Chief  Financial  Officers  have  completed  the
certifications  required to be filed as an Exhibit to this Report (See  Exhibits
31.1 and 31.2) relating to the design of our disclosure  controls and procedures
and the design of our internal control over financial reporting.


ITEM 9B.      OTHER INFORMATION.
--------------------------------

None.




                                    PART III

     In accordance with the provisions of General Instruction G (3), information
required  by  Items  10  through  14 of Form  10-K are  incorporated  herein  by
reference to our Proxy  Statement for the Annual Meeting of  Shareholders  to be
filed prior to April 30, 2008.


                                     PART IV

ITEM 15.      EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
------------------------------------------------------

(a) The following documents are filed as part of this report:

     (1)  Financial Statements:  See Index to Consolidated  Financial Statements
          and Consolidated  Financial Statement Schedule set forth on page 40 of
          this report.

     (2)  Exhibits:  For a list  of the  documents  filed  as  exhibits  to this
          report, see the Exhibit Index following the signatures to this report.



                                   SIGNATURES
                                   ----------

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

                             PRE-PAID LEGAL SERVICES, INC.

Date: February 29, 2008      By:    /s/ Randy Harp
                                   -------------------------------------------
                                   Randy Harp
                                   Chief Operating Officer

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.



                       Name                                         Position                        Date
                       ----                                         --------                        ----
                                                                                        

            /s/ Harland C. Stonecipher                 Chairman of the Board of Directors     February 29, 2008
----------------------------------------------------     (Principal Executive Officer)
              Harland C. Stonecipher


                  /s/ Randy Harp                            Chief Operating Officer           February 29, 2008
----------------------------------------------------
                    Randy Harp


                /s/ Steve Williamson                        Chief Financial Officer           February 29, 2008
----------------------------------------------------        (Principal Financial and
                 Steve Williamson                               Accounting Officer)

              /s/ Orland G. Aldridge                                Director                  February 29, 2008
----------------------------------------------------
                Orland G. Aldridge


               /s/ Martin H. Belsky                                 Director                  February 29, 2008
----------------------------------------------------
                 Martin H. Belsky


              /s/ Peter K. Grunebaum                                Director                  February 29, 2008
----------------------------------------------------
                Peter K. Grunebaum


                 /s/ John W. Hail                                   Director                  February 29, 2008
----------------------------------------------------
                   John W. Hail


                 /s/ Duke R. Ligon                                  Director                  February 29, 2008
----------------------------------------------------
                   Duke R. Ligon


                /s/ Thomas W. Smith                                 Director                  February 29, 2008
----------------------------------------------------
                  Thomas W. Smith




PRE-PAID LEGAL SERVICES, INC AND SUBSIDIARIES
Schedule I - Condensed Financial Information of the Registrant



                 PRE-PAID LEGAL SERVICES, INC. (Parent Company)
                CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
                                 BALANCE SHEETS
                               (Amounts in 000's)

                                     ASSETS

                                                                                               December 31,
                                                                                          ----------------------
                                                                                             2007        2006
                                                                                          ----------   ---------
Current assets:
                                                                                                 
  Cash and cash equivalents............................................................   $  19,710    $   9,245
  Available-for-sale investments, at fair value........................................       2,100       39,950
  Membership fees receivable...........................................................       4,392        4,156
  Inventories..........................................................................       1,511        1,337
  Refundable income taxes..............................................................       2,253          653
  Deferred member and associate service costs..........................................      15,072       14,491
  Other assets.........................................................................       2,093        2,634
                                                                                          ----------   ---------
      Total current assets.............................................................      47,131       72,466
                                                                                          ----------   ---------
Available-for-sale investments, at fair value..........................................       2,002          147
Investments pledged....................................................................         224          323
Property and equipment, net............................................................      56,417       59,108
Investments in and amounts due to/from subsidiaries, net...............................      57,462       48,679
Deferred member and associate service costs............................................       2,173        2,406
Other assets...........................................................................       7,522        6,847
                                                                                          ----------   ---------
        Total assets...................................................................   $ 172,951    $ 189,976
                                                                                          ----------   ---------



                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Membership benefits payable..........................................................   $  11,737    $  11,588
  Deferred revenue and fees............................................................      23,186       22,192
  Current portion of capital leases payable............................................          22          340
  Current portion of notes payable.....................................................      18,241       18,437
  Income taxes payable.................................................................       5,590            -
  Accounts payable and accrued expenses................................................      14,785       13,141
                                                                                          ----------   ---------
    Total current liabilities..........................................................      73,561       65,698
  Capital leases payable...............................................................         934          957
  Notes payable........................................................................      55,492       73,533
  Deferred revenue and fees............................................................       1,350        1,479
  Deferred income taxes................................................................      17,231       12,241
  Other non-current liabilities........................................................       6,544        5,208
                                                                                          ----------   ---------
      Total liabilities................................................................     155,112      159,116
                                                                                          ----------   ---------
Stockholders' equity:
  Common stock.........................................................................         173          185
  Retained earnings....................................................................     114,873      129,413
  Accumulated other comprehensive income...............................................       1,821          290
  Treasury stock, at cost..............................................................     (99,028)     (99,028)
                                                                                          ----------   ---------
      Total stockholders' equity.......................................................      17,839       30,860
                                                                                          ----------   ---------
        Total liabilities and stockholders' equity.....................................   $ 172,951    $ 189,976
                                                                                          ----------   ---------


           See accompanying notes to condensed financial statements.





                 PRE-PAID LEGAL SERVICES, INC. (Parent Company)
                CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
                              STATEMENTS OF INCOME
                               (Amounts in 000's)

                                                                                  Year Ended December 31,
                                                                          ----------------------------------------
                                                                              2007          2006          2005
                                                                          ------------   ------------  -----------
Revenues:
                                                                                              
  Membership fees......................................................   $   323,254    $   309,765   $   289,553
  Associate services...................................................        24,888         26,674        28,683
  Other................................................................         3,474          4,717         4,714
                                                                          ------------   ------------  -----------
                                                                              351,616        341,156       322,950
                                                                          ------------   ------------  -----------
Costs and expenses:
  Membership benefits..................................................       113,045        110,415       102,354
  Commissions..........................................................       101,700         98,249       111,129
  Associate services and direct marketing..............................        28,875         29,381        30,311
  General and administrative...........................................        39,770         31,362        30,127
  Other, net...........................................................        13,402          9,626         9,385
                                                                          ------------   ------------  -----------
                                                                              296,792        279,033       283,306
                                                                          ------------   ------------  -----------
Income before income taxes and equity in net income of subsidiaries....        54,824         62,123        39,644
Provision for income taxes.............................................        17,373         21,746        13,677
                                                                          ------------   ------------  -----------
Income before equity in net income of subsidiaries.....................        37,451         40,377        25,967
Equity in net income of subsidiaries...................................        13,751         11,421         9,845
                                                                          ------------   ------------  -----------
Net income.............................................................   $    51,202    $    51,798   $    35,812
                                                                          ------------   ------------  -----------


           See accompanying notes to condensed financial statements.



                 PRE-PAID LEGAL SERVICES, INC. (Parent Company)
                CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
                            STATEMENTS OF CASH FLOWS
                               (Amounts in 000's)
                                                                                  Year Ended December 31,
                                                                          ----------------------------------------
                                                                              2007          2006          2005
                                                                          ------------   ------------  -----------
                                                                                               
Net cash provided by operating activities..............................    $   64,494     $   52,899    $   46,586
                                                                          ------------   ------------  -----------
Cash flows from investing activities:
  Additions to property and equipment..................................        (5,817)        (8,631)      (14,778)
  Purchases of investments - available-for-sale........................      (220,355)      (164,309)            -
  Maturities and sales of investments - available-for-sale.............       256,475        124,479           307
                                                                          ------------   ------------  -----------
    Net cash used in investing activities..............................        30,303        (48,461)      (14,471)
                                                                          ------------   ------------  -----------
Cash flows from financing activities:
  Proceeds from exercise of stock options..............................           (84)           485         4,439
  Tax benefit on exercise of stock options.............................           790            703             -
  Decrease in capital lease obligations................................          (341)          (320)         (339)
  Purchases of treasury stock..........................................       (66,460)       (73,423)      (11,673)
  Proceeds from issuance of debt.......................................         9,556         85,000        13,829
  Repayments of debt...................................................       (27,793)       (31,500)      (20,445)
  Dividends paid.......................................................             -         (4,643)      (12,412)
                                                                          ------------   ------------  -----------
    Net cash used in financing activities..............................       (84,332)       (23,698)      (26,601)
                                                                          ------------   ------------  -----------

Net increase in cash and cash equivalents..............................        10,465        (19,260)        5,514
Cash and cash equivalents at beginning of year.........................         9,245         28,505        22,991
                                                                          ------------   ------------  -----------
Cash and cash equivalents at end of year...............................    $   19,710     $    9,245    $   28,505
                                                                          ------------   ------------  -----------

Supplemental disclosure of cash flow information:
  Cash paid for interest, net of amount capitalized....................    $    6,536     $    5,536    $    2,432
                                                                          ------------   ------------  -----------

  Cash paid for income taxes...........................................    $   30,588     $   28,710    $   13,350
                                                                          ------------   ------------  -----------

  Non-cash activities - cash dividends declared but not paid...........    $        -     $        -    $    4,643
                                                                          ------------   ------------  -----------

  Non-cash activities - asset additions due to trade-in allowance......    $        -     $        -    $      426
                                                                          ------------   ------------  -----------

  Purchases of treasury stock pursuant to tender offer.................    $        -     $    6,584    $        -
                                                                          ------------   ------------  -----------


           See accompanying notes to condensed financial statements.


                 PRE-PAID LEGAL SERVICES, INC. (Parent Company)
                CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
                     Notes to Condensed Financial Statements

Basis of Presentation
In the parent-company-only financial statements, Pre-Paid Legal Services, Inc.'s
("Parent  Company")  investment in subsidiaries is stated at cost plus equity in
undistributed  earnings  of  subsidiaries  since  the date of  acquisition.  The
parent-company-only  financial statements should be read in conjunction with the
Parent Company's consolidated financial statements.

Notes  6 and 13 to the  consolidated  financial  statements  of  Pre-Paid  Legal
Services, Inc. relate to the Parent Company and therefore have not been repeated
in these notes to condensed financial statements.

Expense Advances and Reimbursements
Pursuant to management  agreements  with certain  subsidiaries,  which have been
approved by insurance  regulators,  commission advances are paid and expensed by
the Parent Company and the Parent  Company is  compensated  for a portion of its
general  and   administrative   expenses   determined  in  accordance  with  the
agreements.

Dividends from Subsidiaries
Dividends paid to the Parent Company from its  subsidiaries are accounted for by
the equity method. During 2007, PPLCI declared and after obtaining all necessary
regulatory  approvals,  paid  extraordinary  dividends  to  us of  $7.4  million
compared to the $13.4 million and $4.1 million  dividends paid to us during 2006
and 2005, respectively.




        


                                INDEX TO EXHIBITS

  Exhibit No.                        Description
-------------                        -----------
  3.1           Amended and Restated  Certificate  of  Incorporation  of the Company,  as amended  (Incorporated  by
                reference to Exhibit 3.1 of the Company's Report on Form 8-K dated June 27, 2005)

  3.2           Amended  and  Restated  Bylaws of the  Company  (Incorporated  by  reference  to Exhibit  3.1 of the
                Company's Report on Form 10-Q for the period ended June 30, 2003)

*10.1           Employment  Agreement  effective  January 1,  1993 between  the  Company  and Harland C. Stonecipher
                (Incorporated by reference to Exhibit 10.1 of  the  Company's  Annual Report on  Form 10-KSB for the
                year ended December 31, 1992)

*10.2           Agreements between Shirley Stonecipher, New York Life Insurance  Company  and  the Company regarding
                life insurance policy covering Harland C. Stonecipher (Incorporated by reference to Exhibit 10.21 of
                the Company's Annual Report on Form 10-K for the year ended December 31, 1985)

*10.3           Amendment dated January 1, 1993 to Split  Dollar  Agreement  between  Shirley  Stonecipher  and  the
                Company regarding life insurance policy covering Harland C. Stonecipher  (Incorporated  by reference
                to Exhibit 10.3 of the Company's Annual Report on Form 10-KSB for the year ended December 31, 1992)

*10.4           Form of New Business Generation Agreement Between the Company and Harland C. Stonecipher (Incorpora-
                ted by reference to Exhibit 10.22 of the Company's Annual Report on  Form  10-K  for  the year ended
                December 31, 1986)

*10.5           Amendment  to New  Business  Generation  Agreement  between the  Company and Harland C.  Stonecipher
                effective  January,  1990 (Incorporated by reference to Exhibit 10.12 of the Company's Annual Report
                on Form 10-KSB for the year ended December 31, 1992)

*10.6           Amendment No. 2 to New Business Generation  Agreement between the Company and Harland C. Stonecipher
                effective  January,  1990 (Incorporated by reference to Exhibit 10.13 of the Company's Annual Report
                on Form 10-K for the year ended December 31, 2002)

*10.7           Stock Option Plan, as amended  effective May 2003  (Incorporated by reference to Exhibit 10.7 of the
                Company's Annual Report on Form 10-K for the year ended December 31, 2004)

 10.8           Loan agreement dated June 11, 2002 between Bank of Oklahoma,  N.A. and the Company  (Incorporated by
                reference to Exhibit 10.1 of the Company's  Quarterly  Report on Form 10-Q for the six-months  ended
                June 30, 2002)

 10.9           Form of Mortgage  dated July 23, 2002 between Bank of Oklahoma,  N.A. and the Company  (Incorporated
                by  reference  to Exhibit  10.3 of the  Company's  Quarterly  Report on Form 10-Q for the six months
                ended June 30, 2002)

*10.10          Deferred  compensation plan effective  November 6, 2002  (Incorporated by reference to Exhibit 10.14
                of the Company's Annual Report on Form 10-K for the year ended December 31, 2002)

*10.11          Amended Deferred Compensation Plan effective January 1, 2005 (Incorporated  by reference  to Exhibit
                10.16 of the Company's Report on Form 10-K for the year ended December 31, 2004)

 10.12          Credit  Agreement  dated June 23, 2006 among Pre-Paid  Legal  Services,  Inc, the lenders  signatory
                thereto and Wells Fargo Foothill,  Inc. as Arranger and  Administrative  Agent and Bank of Oklahoma,
                N.A.  (Incorporated  by reference to Exhibit 10.1 of the Company's  Current Report on Form 8-K filed
                June 27, 2006)

 10.13          Security  Agreement  dated June 23, 2006 between  Pre-Paid  Legal  Services,  Inc and certain of its
                subsidiaries and Wells Fargo Foothill,  Inc., as Agent (Incorporated by reference to Exhibit 10.2 of
                the Company's Current Report on Form 8-K filed June 26, 2006)

 10.14          Guaranty  Agreement  dated June 23, 2006 between  certain  subsidiaries  of Pre-Paid Legal Services,
                Inc. and Wells Fargo  Foothill,  Inc.,  as Agent  (Incorporated  by reference to Exhibit 10.3 of the
                Company's Current Report on Form 8-K filed June 27, 2006)

 10.15          Mortgage,  Assignment of Rents and Leases and Security Agreement by Pre-Paid Legal Services, Inc. in
                favor of Wells Fargo  Foothill,  Inc as Agent  (Incorporated  by  reference  to Exhibit  10.4 of the
                Company's Current Report on Form 8-K filed June 26, 2006)

 10.16          First  Amendment to Loan Agreement  dated June 23, 2006 between  Pre-Paid Legal  Services,  Inc. and
                Bank of Oklahoma,  N.A. (Incorporated by reference to Exhibit 10.5 of the Company's of the Company's
                Current Report on Form 8-K filed June 26, 2006)

 10.17          First Amendment to Credit Agreement dated September 10, 2007 between  Pre-Paid Legal Services,  Inc.
                and  the  lenders  named  therein  and  Wells  Fargo   Foothill,   Inc.  as   administrative   agent
                (Incorporated by reference to Exhibit 10.1 of the Company's of the Company's  Current Report on Form
                8-K filed September 10, 2007)

 10.18          Term Loan Agreement dated September 28, 2007 between  Pre-Paid Legal Services,  Inc. and Wells Fargo
                Equipment Finance,  LLC (Incorporated by reference to Exhibit 10.1 of the Company's of the Company's
                Current Report on Form 8-K filed October 2, 2007)

 10.19          Form of Aircraft  Mortgage and Security  Agreement  between Pre-Paid Legal Services,  Inc. and Wells
                Fargo  Equipment  Finance,  LLC  (Incorporated  by reference to Exhibit 10.2 of the Company's of the
                Company's Current Report on Form 8-K filed October 2, 2007)

 10.20          Second Amendment to Credit  Agreement dated February 22, 2008 between Pre-Paid Legal Services,  Inc.
                and the lenders named therein and Wells Fargo Foothill, Inc. as administrative agent

 21.1           List of Subsidiaries of the Company  (Incorporated by reference to Exhibit 21.1 of our Annual Report
                on Form 10-K for the year ended December 31, 2005)

 23.1           Consent of Grant Thornton LLP

 31.1           Certification of Harland C. Stonecipher,  Chairman, Chief Executive Officer and President,  Pursuant
                to Rule 13a-14(a) under the Securities Exchange Act of 1934

 31.2           Certification of Steve Williamson,  Chief Financial  Officer,  Pursuant to Rule 13a-14(a)  under the
                Securities Exchange Act of 1934

 32.1           Certification of Harland C. Stonecipher,  Chairman, Chief Executive Officer and President,  Pursuant
                to 18 U.S.C. Section 1350

 32.2           Certification of Steve Williamson, Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350

--------------------
* Constitutes a management contract or compensatory plan or arrangement required
to be filed as an exhibit to this report.




                                  EXHIBIT 10.21

                      SECOND AMENDMENT TO CREDIT AGREEMENT


     This SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), is made as of
February 22, 2008,  by and among  PRE-PAID  LEGAL  SERVICES,  INC.,  an Oklahoma
corporation  ("Borrower"),  the lenders  signatories  hereto (the "Lenders") and
WELLS FARGO FOOTHILL,  INC., a California  corporation,  as administrative agent
for the Lenders (in such  capacity,  together with its successors and assigns in
such capacity, "Agent").

                              W I T N E S S E T H:
                              - - - - - - - - - -

     WHEREAS, Borrower, Agent and the Lenders are parties to that certain Credit
Agreement  dated as of June 23, 2006, as amended by that certain First Amendment
to Credit  Agreement dated as of September 10, 2007 (as may be further  amended,
restated,  supplemented  or otherwise  modified  from time to time,  the "Credit
Agreement";  unless otherwise defined herein, all capitalized terms used in this
Amendment  shall  have  the  meanings  ascribed  to  such  terms  in the  Credit
Agreement);

     WHEREAS, Borrower has requested that Agent and the Lenders agree to certain
amendments to the Credit Agreement; and

     WHEREAS,  Agent and the  Required  Lenders  have agreed to amend the Credit
Agreement on the terms and conditions provided herein.

     NOW, THEREFORE, in consideration of the premises set forth above, the terms
and conditions contained herein and other good and valuable  consideration,  the
receipt and sufficiency of which are hereby  acknowledged,  the parties agree as
follows:

     Amendment  to Section  6.10 of the Credit  Agreement.  Section  6.10 of the
Credit Agreement,  Distributions,  is hereby amended by deleting such section in
its entirety and substituting the following in lieu thereof:

          ""6.10  Distributions.  Make any  distribution  or  declare or pay any
     dividends  (in cash or other  property,  other  than  common  Stock) on, or
     purchase, acquire, redeem, or retire any of Borrower's Stock, of any class,
     whether  now or  hereafter  outstanding;  provided  that  so long as (a) no
     Default or Event of Default  exists at the time of such purchase or payment
     or would  result  therefrom,  and (b) the sum of Excess  Availability  plus
     Qualified  Cash is greater  than or equal to  $12,500,000  both  before and
     after giving effect to such purchase or payment,  Borrower may purchase its
     Stock or pay  dividends  on its  common  Stock,  in each case (i) using the
     proceeds  of  the  Term  Loan  in  an   aggregate   amount  not  to  exceed
     $58,758,466.40,  or (ii) during the fiscal  quarter  immediately  following
     either (A) a fiscal  quarter for which an Excess Cash Flow  Certificate  is
     delivered,  or (B) a fiscal year for which an Excess Cash Flow  Certificate
     is  delivered,  using cash from  operations  in an amount not to exceed the
     amount of the Excess Cash Flow Surplus for the applicable  Excess Cash Flow
     Test Period; provided,  further, that, with respect to any such purchase by
     Borrower  of its Stock (x)  Borrower  and its  agents  and  representatives
     comply  with all  laws,  rules,  regulations  and  requirements  applicable
     thereto,  including,  without limitation,  all federal and state securities
     laws and all rules and regulations  promulgated  thereunder,  the corporate
     laws of the  State  of  Oklahoma  and all  requirements  of all  regulatory
     agencies  and  authorities  having  jurisdiction  over the  Borrower and it
     agents and  representatives,  including the New York Stock Exchange and the
     National  Association of Securities Dealers, (y) such purchase does not and
     will not trigger any right of first  refusal,  preemptive  right or similar
     right of any  Person  or result in the  Borrower  or any of its  Affiliates
     having any  liability  thereunder,  and (z) such purchase does not and will
     not violate or result in any breach of any charter  document of Borrower or
     result in any  breach of,  constitute  a default  (or event  which with the
     giving of notice or lapse of time, or both,  would become a default) under,
     require  any  consent  under,  or give to others any right of  termination,
     amendment,  acceleration,  suspension,  revocation or cancellation  of, any
     material note, bond,  mortgage or indenture,  contract,  agreement,  lease,
     license,  permit  or other  material  instrument  or  arrangement  to which
     Borrower  or any of its  Affiliates  is a party or by which  any of them is
     bound."

     2. Amendment to Schedule 1.1 to the Credit  Agreement.  Schedule 1.1 to the
Credit Agreement,  Definitions,  is hereby amended by deleting the definition of
"Fixed  Charge  Coverage  Ratio" in its entirety and  inserting the following in
lieu thereof:

          ""Fixed Charge Coverage Ratio" means, with respect to Borrower for any
     period, the ratio of (a) EBITDA for such period minus the sum of (i) income
     taxes  paid (to the  extent  not  already  incurred  in a prior  period) or
     incurred during such period, (ii) Capital  Expenditures made (to the extent
     not already incurred in a prior period) or incurred during such period, and
     (iii)  dividends paid by Borrower on its common Stock during such period in
     accordance   with  Section  6.10  (but   excluding   dividends   paid  with
     identifiable  proceeds  of the Term  Loan),  to (b) Fixed  Charges for such
     period."

     3. Conditions of Effectiveness. This Amendment shall become effective as of
the date hereof when, and only when, Agent shall have received:

          (a) a counterpart  of this Amendment duly executed by Borrower and the
     Required Lenders; and

          (b) such other  information,  documents,  instruments  or approvals as
     Agent or Agent's counsel may require.

     4. Representations and Warranties.  Borrower hereby represents and warrants
as follows:

          (a) Borrower is a corporation, duly organized, validly existing and in
     good standing under the laws of the State of Oklahoma;

          (b) the  execution,  delivery  and  performance  by  Borrower  of this
     Amendment are within Borrower's corporate powers, have been duly authorized
     by all  necessary  corporate  action and do not (i)  contravene  Borrower's
     charter or by-laws,  or (ii)  violate the law or any  material  contractual
     restriction binding on or affecting Borrower;

          (c) no authorization, approval or other action by, and no notice to or
     filing with, any Governmental  Authority is required for the due execution,
     delivery and performance by Borrower of this Amendment;

          (d) each  representation  or  warranty  of  Borrower  set forth in the
     Credit  Agreement is hereby  restated and reaffirmed as true and correct in
     all material respects (except that such materiality  qualifier shall not be
     applicable to any representations and warranties that already are qualified
     or modified by  materiality  in the text  thereof) on and as of the date of
     this Amendment,  as if such  representation or warranty were made on and as
     of such  date  (except  to the  extent  that any such  representations  and
     warranties relate solely to an earlier date);

          (e) this Amendment constitutes the legal, valid and binding obligation
     of Borrower, enforceable against Borrower in accordance with its terms; and

          (f) after  giving  effect to this  Amendment,  no  Default or Event of
     Default is existing.

     5. Reference to and Effect on the Loan Documents.

          (a) Upon the  effectiveness  of this Amendment,  on and after the date
     hereof  each  reference  in  the  Credit  Agreement  to  "this  Agreement",
     "hereunder",  "hereof"  or words of like  import  referring  to the  Credit
     Agreement,  and each  reference in the other Loan  Documents to "the Credit
     Agreement",  "thereunder",  "thereof" or words of like import  referring to
     the Credit Agreement, shall mean and be a reference to the Credit Agreement
     as amended hereby.

          (b) Except as specifically amended above, the Credit Agreement and all
     other Loan Documents, are and shall continue to be in full force and effect
     and are hereby in all  respects  ratified  and  confirmed.  Borrower has no
     knowledge of any challenge to Agent's or any Lender's  claims arising under
     the Loan Documents or the effectiveness of the Loan Documents.

          (c) The execution,  delivery and effectiveness of this Amendment shall
     not, except as expressly provided herein, operate as a waiver of any right,
     power or remedy of Agent or any Lender under any of the Loan Documents, nor
     constitute  a waiver of any  provision of any of the Loan  Documents.  This
     Amendment shall not constitute a modification of the Credit  Agreement or a
     course of  dealing  with Agent or any  Lender at  variance  with the Credit
     Agreement  such as to  require  further  notice  by Agent or any  Lender to
     require strict  compliance  with the terms of the Credit  Agreement and the
     other Loan Documents in the future, except as expressly set forth herein.

     6. Costs and  Expenses.  Borrower  agrees to pay on demand  all  reasonable
costs and expenses in  connection  with the  preparation,  execution,  delivery,
administration,  modification  and  amendment  of this  Amendment  and the other
instruments  and  documents  to  be  delivered  hereunder,   including,  without
limitation,  the reasonable fees and out-of-pocket expenses of counsel for Agent
with  respect  thereto and with  respect to advising  Agent as to its rights and
responsibilities hereunder and thereunder.

     7.  Governing  Law.  This  Amendment  shall be governed by and construed in
accordance  with the laws of the State of New York without regard to conflict of
laws principles of such state.

     8. Loan Document.  This Amendment  shall be deemed to be Loan Documents for
all purposes.

     9.  Counterparts.  This  Amendment  may be  executed  by one or more of the
parties  hereto on any number of separate  counterparts,  each of which shall be
deemed  an  original  and all of  which,  taken  together,  shall be  deemed  to
constitute one and the same instrument.  Delivery of an executed  counterpart of
this Amendment by facsimile or by other electronic method of transmission  shall
be as effective as delivery of a manually executed counterpart hereof.




     IN WITNESS  WHEREOF,  the parties  hereto have caused this  Amendment to be
executed and delivered as of the date first above written.

BORROWER                     PRE-PAID LEGAL SERVICES, INC. an
                             Oklahoma corporation

                             By: /s/ Steve Williamson
                             Name: Steve Williamson
                             Title: Chief Financial Officer



AGENT AND THE LENDERS:       WELLS FARGO FOOTHILL, INC. as Agent and a Lender

                             By: /s/ Kristy S. Loucks
                             Name: Kristy S. Loucks
                             Title: Vice President

                             COMERICA BANK, as a Lender

                             By: /s/ Gary L. Emery
                             Name: Gary L. Emery
                             Title: Vice President

                             TEXAS CAPITAL BANK, N.A., as a Lender

                             By: /s/ Richard L. Rogers
                             Name: Richard L. Rogers
                             Title: Senior Vice President

                             AIB DEBT MANAGEMENT LIMITED, as a Lender

                             By: /s/ Jean Pierre Knight
                             Name: Jean Pierre Knight
                             Title: Vice President

                             By: /s/ Joanna McFadden
                             Name: Joanna McFadden
                             Title: Assistant Vice President

                             LASALLE BANK NATIONAL ASSOCIATION, as a Lender
                             By: /s/ Scott E. Rubenstein
                             Name: Scott E. Rubenstein
                             Title: Vice President





                                  EXHIBIT 23.1

            CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




We  have  issued  our  reports  dated  February  29,  2008,   accompanying   the
consolidated  financial  statements and schedule and management's  assessment of
the effectiveness of internal control over financial  reporting  included in the
Annual Report of Pre-Paid Legal  Services,  Inc. on Form 10-K for the year ended
December 31, 2007. We hereby consent to the  incorporation  by reference of said
reports in the Registration Statements of Pre-Paid Legal Services, Inc. on Forms
S-8 (File No.  333-120403,  effective  November  12,  2004,  File No.  33-82144,
effective July 28, 1994, File No. 33-62663,  effective  September 14, 1995, File
No. 333-53183,  effective May 20, 1998 and File No. 333-38386, effective June 1,
2000).


/s/ GRANT THORNTON LLP

Oklahoma City, Oklahoma
February 29, 2008





                                  EXHIBIT 31.1

                                  CERTIFICATION


I, Harland C. Stonecipher, certify that:

1.   I have reviewed this annual report on Form 10-K of Pre-Paid Legal Services,
     Inc.;

2.   Based on my knowledge, this report does not contain any untrue statement of
     a material  fact or omit to state a  material  fact  necessary  to make the
     statements made, in light of the circumstances  under which such statements
     were made,  not  misleading  with  respect  to the  period  covered by this
     report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in  this  report,  fairly  present  in all  material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this report;

4.   The  registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules  13a-15(e) and 15d-15(e))  and internal  control over
     financial  reporting  (as  defined  in  Exchange  Act Rules  13a-15(f)  and
     15d-15(f)) for the registrant and have:

     (a)  Designed  such  disclosure  controls  and  procedures,  or caused such
          disclosure   controls  and   procedures  to  be  designed   under  our
          supervision,  to ensure  that  material  information  relating  to the
          registrant,  including its consolidated subsidiaries, is made known to
          us by others within those entities,  particularly during the period in
          which this report is being prepared;

     (b)  Designed such internal  control over  financial  reporting,  or caused
          such internal  control over  financial  reporting to be designed under
          our  supervision,   to  provide  reasonable  assurance  regarding  the
          reliability  of financial  reporting and the  preparation of financial
          statements for external purposes in accordance with generally accepted
          accounting principles;

     (c)  Evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures and presented in this report our conclusions  about the
          effectiveness of the disclosure controls and procedures, as of the end
          of the period covered by this report based on such evaluation; and

     (d)  Disclosed  in this  report  any  change in the  registrant's  internal
          control over financial reporting that occurred during the registrant's
          most recent fiscal quarter (the registrant's  fourth fiscal quarter in
          the case of an annual  report)  that has  materially  affected,  or is
          reasonably  likely to materially  affect,  the  registrant's  internal
          control over financial reporting;

5.   The registrant's  other certifying  officer and I have disclosed,  based on
     our most recent evaluation of internal control over financial reporting, to
     the registrant's auditors and the audit committee of the registrant's board
     of directors (or persons performing the equivalent functions):

     (a)  All significant  deficiencies and material weaknesses in the design or
          operation  of internal  control  over  financial  reporting  which are
          reasonably  likely to  adversely  affect the  registrant's  ability to
          record, process, summarize and report financial information;

     (b)  Any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          control over financial reporting.

Dated: February 29, 2008           /s/ Harland C. Stonecipher
                                   --------------------------
                                   Harland C. Stonecipher
                                   Chief Executive Officer



                                  EXHIBIT 31.2

                                  CERTIFICATION


I, Steve Williamson, certify that:

1.   I have reviewed this annual report on Form 10-K of Pre-Paid Legal Services,
     Inc.;

2.   Based on my knowledge, this report does not contain any untrue statement of
     a material  fact or omit to state a  material  fact  necessary  to make the
     statements made, in light of the circumstances  under which such statements
     were made,  not  misleading  with  respect  to the  period  covered by this
     report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in  this  report,  fairly  present  in all  material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this report;

4.   The  registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules  13a-15(e) and 15d-15(e))  and internal  control over
     financial  reporting  (as  defined  in  Exchange  Act Rules  13a-15(f)  and
     15d-15(f)) for the registrant and have:

     (a)  Designed  such  disclosure  controls  and  procedures,  or caused such
          disclosure   controls  and   procedures  to  be  designed   under  our
          supervision,  to ensure  that  material  information  relating  to the
          registrant,  including its consolidated subsidiaries, is made known to
          us by others within those entities,  particularly during the period in
          which this report is being prepared;

     (b)  Designed such internal  control over  financial  reporting,  or caused
          such internal  control over  financial  reporting to be designed under
          our  supervision,   to  provide  reasonable  assurance  regarding  the
          reliability  of financial  reporting and the  preparation of financial
          statements for external purposes in accordance with generally accepted
          accounting principles;

     (c)  Evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures and presented in this report our conclusions  about the
          effectiveness of the disclosure controls and procedures, as of the end
          of the period covered by this report based on such evaluation; and

     (d)  Disclosed  in this  report  any  change in the  registrant's  internal
          control over financial reporting that occurred during the registrant's
          most recent fiscal quarter (the registrant's  fourth fiscal quarter in
          the case of an annual  report)  that has  materially  affected,  or is
          reasonably  likely to materially  affect,  the  registrant's  internal
          control over financial reporting;

5.   The registrant's  other certifying  officer and I have disclosed,  based on
     our most recent evaluation of internal control over financial reporting, to
     the registrant's auditors and the audit committee of the registrant's board
     of directors (or persons performing the equivalent functions):

     (a)  All significant  deficiencies and material weaknesses in the design or
          operation  of internal  control  over  financial  reporting  which are
          reasonably  likely to  adversely  affect the  registrant's  ability to
          record, process, summarize and report financial information;

     (b)  Any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          control over financial reporting.

Dated: February 29, 2008           /s/ Steve Williamson
                                   --------------------
                                   Steve Williamson
                                   Chief Financial Officer




                               Exhibit 32.1
                               ------------

                  CERTIFICATION PURSUANT TO 18 U.S.C. ss. 1350


     Pursuant to 18 U.S.C.  ss. 1350, the undersigned  officer of Pre-Paid Legal
Services,  Inc. (the  "Company"),  hereby  certifies  that the Company's  Annual
Report on Form 10-K for the year ended  December 31, 2007 (the  "Report")  fully
complies with the requirements of Section 13(a) or 15(d), as applicable,  of the
Securities Exchange Act of 1934 and that the information contained in the Report
fairly presents,  in all material respects,  the financial condition and results
of operations of the Company.

Date: February 29, 2008            /s/ Harland C. Stonecipher
                                   --------------------------
                                   Harland C. Stonecipher
                                   Chairman,   Chief  Executive  Officer
                                   and President





                                  Exhibit 32.2
                                  ------------

                  CERTIFICATION PURSUANT TO 18 U.S.C. ss. 1350


     Pursuant to 18 U.S.C.  ss. 1350, the undersigned  officer of Pre-Paid Legal
Services,  Inc. (the  "Company"),  hereby  certifies  that the Company's  Annual
Report on Form 10-K for the year ended  December 31, 2007 (the  "Report")  fully
complies with the requirements of Section 13(a) or 15(d), as applicable,  of the
Securities Exchange Act of 1934 and that the information contained in the Report
fairly presents,  in all material respects,  the financial condition and results
of operations of the Company.

Date: February 29, 2008            /s/ Steve Williamson
                                   --------------------
                                   Steve Williamson
                                   Chief Financial Officer