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

                                    FORM 10-Q

   X     Quarterly  report  pursuant to Section 13 or 15(d) of the  Securities
-------  Exchange  Act of 1934 for the  quarterly  period  ended September 30,
         2003
         or
         Transition  report  pursuant to Section 13 or 15(d) of the  Securities
-------  Exchange  Act of 1934 for the  transition  period from ______ to _____.


                           Commission File No. 0-21527

                            MEMBERWORKS INCORPORATED
             (Exact name of registrant as specified in its charter)


DELAWARE                                                          06-1276882
------------------------                                      ----------------
(State of Incorporation)                                         (IRS Employer
                                                           Identification No.)


680 Washington Boulevard
Stamford, Connecticut                                                  06901
---------------------------------------                        ----------------
(Address of principal executive offices)                             (Zip Code)


                                 (203) 324-7635
                      -------------------------------------
                        (Registrant's telephone number,
                              including area code)


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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
[X] Yes   [   ] No

Indicate the number of shares outstanding of each of the registrant's class of
common stock as of the latest practicable date: 10,855,897 shares of Common
Stock, $0.01 par value as of October 30, 2003.


<PAGE>

                            MEMBERWORKS INCORPORATED
                               INDEX TO FORM 10-Q
<TABLE>
<CAPTION>

<S>        <C>                                                                             <C>
PART I.    FINANCIAL INFORMATION                                                           PAGE

Item 1.    Financial Statements (Unaudited)

           Condensed Consolidated Balance Sheets as of September 30, 2003
           and June 30, 2003                                                                  2

           Condensed Consolidated Statements of Operations for the three
           months ended September 30, 2003 and 2002                                           3

           Condensed Consolidated Statements of Cash Flows for the three
           months ended September 30, 2003 and 2002                                           4

           Notes to Condensed Consolidated Financial Statements                               5

Item 2.    Management's Discussion and Analysis of Financial
           Condition and Results of Operations                                               10

           Forward Looking Statements                                                        15

Item 3.    Quantitative and Qualitative Disclosures about Market Risk                        16

Item 4     Controls and Procedures                                                           16

PART II.   OTHER INFORMATION

Item 1.    Legal Proceedings                                                                 17

Item 2     Changes in Securities and Use of Proceeds                                         18

Item 6.    Exhibits and Reports on Form 8-K                                                  18

Signatures                                                                                   19

</TABLE>


                                       1
<PAGE>
<TABLE>
<CAPTION>
                            MEMBERWORKS INCORPORATED
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                    (In thousands, except per share amounts)


                                                                                       September 30,      June 30,
                                                                                            2003            2003
                                                                                      ----------------  --------------
                                Assets                                                  (Unaudited)
Current assets:
<S>                                                                                   <C>               <C>
    Cash and cash equivalents                                                         $    122,012      $    72,260
    Restricted cash                                                                          2,528            2,732
    Accounts receivable (net of allowance for doubtful accounts of $1,743 and
      $1,743, at September 30, 2003 and June 2003, respectively)                             9,071            8,713
    Prepaid membership materials                                                             1,668            2,196
    Prepaid expenses                                                                         5,522            7,571
    Membership solicitation and other deferred costs                                        68,657           77,883
                                                                                      ----------------  --------------
             Total current assets                                                          209,458          171,355
Fixed assets, net                                                                           23,409           24,969
Debt issuance costs (Note 6)                                                                 2,555                -
Goodwill (Note 4)                                                                           42,039           42,039
Intangible assets, net (Note 4)                                                              6,338            6,656
Other assets                                                                                 3,352            3,486
                                                                                      ----------------  --------------
             Total assets                                                             $    287,151      $   248,505
                                                                                      ================  ==============

                        Liabilities and Shareholders' Deficit
Current liabilities:
    Current maturities of long-term obligations                                       $        236      $       244
    Accounts payable                                                                        29,073           32,644
    Accrued liabilities                                                                     52,949           59,105
    Deferred membership fees                                                               153,970          167,643
    Deferred income taxes                                                                    1,678              879
                                                                                      ----------------  --------------
             Total current liabilities                                                     237,906          260,515
Deferred income taxes                                                                        5,181            5,145
Long-term liabilities                                                                        3,009            3,128
Convertible debt (Note 6)                                                                   90,000                -
                                                                                      ----------------  --------------
             Total liabilities                                                             336,096          268,788
                                                                                      ----------------  --------------

Commitments and contingencies (Note 11)                                                          -                -

Shareholders' deficit:
    Preferred stock, $0.01 par value -- 1,000 shares authorized; no shares issued                -                -
    Common stock, $0.01 par value -- 40,000 shares authorized;
       18,966 shares issued (17,847 shares at June 30, 2003)                                   190              178
    Capital in excess of par value                                                         146,206          122,425
    Accumulated deficit                                                                    (13,934)         (17,829)
    Accumulated other comprehensive loss                                                      (467)            (469)
    Treasury stock, 7,822 shares at cost (6,126 shares at June 30, 2003)                  (180,940)        (124,588)
                                                                                      ----------------  --------------
             Total shareholders' deficit                                                   (48,945)         (20,283)
                                                                                      ----------------  --------------
             Total liabilities and shareholders' deficit                              $    287,151      $    248,505
                                                                                      ================  ==============

</TABLE>
                 The accompanying notes are an integral part of
                    these consolidated financial statements.

                                       2
<PAGE>
<TABLE>
<CAPTION>
                            MEMBERWORKS INCORPORATED
           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
                      (In thousands, except per share data)

                                                                          Three months ended
                                                                             September 30,
                                                                       --------------------------
                                                                          2003          2002
                                                                       ------------  ------------
<S>                                                                    <C>           <C>
Revenues                                                               $  113,824    $  105,004

Expenses:
    Marketing                                                              66,656        65,549
    Operating                                                              21,463        18,074
    General and administrative                                             18,767        18,863
    Amortization of intangible assets                                         318           393
                                                                       ------------  ------------

Operating income                                                            6,620         2,125
Settlement of investment related litigation                                     -        19,148
Loss on sale of subsidiary                                                      -          (959)
Net loss on investment                                                          -          (206)
Other (expense) income, net                                                  (129)          119
                                                                       ------------  ------------

Income before income taxes                                                  6,491        20,227
Provision for income taxes                                                  2,596         8,091
                                                                       ------------  ------------
Net income                                                             $    3,895    $   12,136
                                                                       ============  ============

     Basic earnings  per share                                         $     0.33    $     0.92
                                                                       ============  ============
     Diluted earnings per share                                        $     0.30    $     0.89
                                                                       ============  ============

Weighted average common shares used in earnings per share calculations:
     Basic                                                                 11,627        13,164
                                                                       ============  ============
     Diluted                                                               13,011        13,669
                                                                       ============  ============
</TABLE>

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

                                       3
<PAGE>
<TABLE>
<CAPTION>
                            MEMBERWORKS INCORPORATED
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                                 (In thousands)

                                                                                      For the three months
                                                                                       ended September 30,
                                                                                    --------------------------
                                                                                        2003          2002
                                                                                    ------------  ------------
Operating activities
<S>                                                                                 <C>           <C>
  Net income                                                                        $     3,895   $    12,136
  Adjustments to reconcile net income to net cash (used in) provided
  by operating activities:
     Change in deferred membership fees                                                 (13,662)       (6,890)
     Change in membership solicitation and other deferred costs                           9,221        10,640
     Depreciation and amortization                                                        2,761         3,129
     Deferred income taxes                                                                  835         7,649
     Tax benefit from employee stock plans                                                1,515            26
     Gain on settlement of investment related litigation                                      -       (19,148)
     Loss on sale of subsidiary                                                               -           959
     Net loss on investment                                                                   -           206
     Other                                                                                  752           362

  Change in assets and liabilities:
     Restricted cash                                                                        204         3,404
     Accounts receivable                                                                   (358)        1,103
     Prepaid membership materials                                                            78          (354)
     Prepaid expenses                                                                     2,475           428
     Other assets                                                                            22          (425)
     Accounts payable                                                                    (3,607)         (280)
     Accrued liabilities                                                                 (6,149)       (1,544)
                                                                                    ------------  ------------
Net cash (used in) provided by operating activities                                      (2,018)       11,401
                                                                                    ------------  ------------

Investing activities
  Acquisition of fixed assets                                                              (921)       (1,321)
  Settlement of investment related litigation                                                 -        19,148
  Purchase price adjustments from sale of subsidiary                                          -          (750)
                                                                                    ------------  ------------
Net cash (used in) provided by investing activities                                        (921)       17,077
                                                                                    ------------  ------------

Financing activities
  Net proceeds from exercise of stock options                                            22,089            21
  Treasury stock purchases                                                              (56,352)       (8,869)
  Net proceeds from issuance of convertible debt                                         87,019             -
  Payments of long-term obligations                                                         (67)         (849)
                                                                                    ------------  ------------
Net cash provided by (used in) financing activities                                      52,689        (9,697)
                                                                                    ------------  ------------
Effect of exchange rate changes on cash and cash equivalents                                  2           (40)
                                                                                    ------------  ------------
Net increase in cash and cash equivalents                                                49,752        18,741
Cash and cash equivalents at beginning of year                                           72,260        45,502
                                                                                    ------------  ------------
Cash and cash equivalents at end of period                                          $   122,012   $    64,243
                                                                                    ============  ============
</TABLE>

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


                                       4
<PAGE>

                            MEMBERWORKS INCORPORATED
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance  with  accounting  principles  generally  accepted in the
United States of America for interim financial  information.  Accordingly,  such
statements  do not  include all of the  information  and  footnotes  required by
generally accepted accounting principles for complete financial  statements.  In
the opinion of  management,  all  adjustments  (consisting  of normal  recurring
adjustments)  considered  necessary for a fair  presentation have been included.
The preparation of these  consolidated  financial  statements in conformity with
generally  accepted  accounting  principles  requires  management of MemberWorks
Incorporated  ("the Company" or "MemberWorks") to make estimates and assumptions
that affect the amounts  reported in the financial  statements and  accompanying
notes.  Actual results could differ from those estimates.  Operating results for
the three months ended September 30, 2003 are not necessarily  indicative of the
results  that may be expected  for the fiscal year  ending  June 30,  2004.  For
further  information,  refer to the financial  statements and footnotes  thereto
included in the Company's  Annual Report on Form 10-K with respect to the fiscal
year ended June 30, 2003.

The  consolidated  financial  statements  have been prepared in accordance  with
accounting  principles  generally  accepted in the United  States of America and
include  the  accounts  of the Company  and its  subsidiaries.  All  significant
intercompany accounts and transactions have been eliminated.

NOTE 2 - RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current year
presentation.

NOTE 3 - STOCK-BASED COMPENSATION
In accordance with Accounting  Principles Board Opinion No. 25,  "Accounting for
Stock Issued to Employees"  ("APB 25"), the Company  applies the intrinsic value
method in  accounting  for  employee  stock  options.  Accordingly,  the Company
generally  does not recognize  compensation  expense with respect to stock-based
awards  to  employees.  If  compensation  cost  for  the  Company's  stock-based
compensation  plans had been determined based on the fair value (estimated using
the  Black-Scholes  option-pricing  model) at the grant  dates for awards  under
those plans consistent with the method of Financial  Accounting  Standards Board
Statement  ("SFAS") No. 123,  "Accounting for Stock-Based  Compensation"  ("SFAS
123"), and SFAS No. 148, "Accounting for Stock-Based Compensation Transition and
Disclosure"  ("SFAS  148"),  the Company's pro forma net income and earnings per
share would have been as follows:

<TABLE>
<CAPTION>
                                                                   Three months ended
                                                                      September 30,
                                                                --------------------------
                                                                    2003         2002
                                                                --------------------------
<S>                                                              <C>           <C>
Net income reported                                              $   3,895     $  12,136
Add: Stock-based employee compensation expense determined under
   the intrinsic value based method for all awards, net of
   related tax effects                                                   -             -
Deduct: Stock-based employee compensation expense determined
   under the fair value based method for all awards, net of
   related tax effects                                              (1,265)       (1,585)
                                                                  -----------   ----------
Pro forma net income                                             $   2,630     $  10,551
                                                                  ===========   ==========

Earnings per share:
   As reported:
     Basic                                                       $    0.33     $    0.92
     Diluted                                                     $    0.30     $    0.89
   Pro forma:
     Basic                                                       $    0.23     $    0.80
     Diluted                                                     $    0.20     $    0.77

</TABLE>


                                       5
<PAGE>

                            MEMBERWORKS INCORPORATED
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 4 - GOODWILL AND OTHER INTANGIBLE ASSETS
The gross  carrying  value and  accumulated  amortization  of goodwill and other
intangibles are as follows (in thousands):

<TABLE>
<CAPTION>
                                                  As of September 30, 2003               As of June 30, 2003
                                             -----------------------------------  -----------------------------------
                                              Gross Carrying     Accumulated       Gross Carrying      Accumulated
                                                  Amount         Amortization          Amount          Amortization
                                             ----------------- -----------------  -----------------   ---------------
Amortized intangible assets:
<S>                                          <C>               <C>                <C>                 <C>
   Membership and Client Relationships       $      13,195     $      (7,016)     $      13,195       $     (6,730)
   Other                                               950              (791)               950               (759)
                                             ----------------- -----------------  -----------------   ---------------
      Total amortized intangible assets      $      14,145     $      (7,807)     $      14,145       $     (7,489)
                                             ----------------- -----------------  -----------------   ---------------
      Intangible assets, net                 $       6,338                        $       6,656
                                             =================                    =================

Unamortized intangible assets:
   Goodwill                                  $      42,039                        $      42,039
                                             =================                    =================
</TABLE>

Acquired intangibles, except member relationships,  are recorded at cost and are
amortized on a  straight-line  basis over their  estimated  useful lives ranging
from 3 to 20 years.  The value of member  relationships  is  amortized  using an
accelerated  method based on estimated future cash flows. The future  intangible
amortization  expense for the next five years is  estimated to be as follows (in
thousands):

Fiscal Year:
     2004                                           1,045
     2005                                             840
     2006                                             695
     2007                                             554
     2008                                             485

As a result of increased  integration  of operations  and management at three of
its five reporting  units,  the Company  aggregated  these three reporting units
into a single  reporting unit,  resulting in a total of three reporting units in
the current year.  Goodwill was tested for  impairment  during the quarter ended
September 30, 2003 as required by SFAS 142. The Company  concluded  that none of
its goodwill was impaired.  Fair value was estimated using  discounted cash flow
methodologies. In addition, the Company reassessed the estimated useful lives of
its  indefinite-lived  intangible  assets  and  determined  that the lives  were
appropriate.  The Company will test the goodwill of each of its reporting  units
annually or more frequently if impairment indicators exist.

NOTE 5 - ALLOWANCE FOR MEMBERSHIP CANCELLATIONS
Accrued liabilities set forth in the accompanying condensed consolidated balance
sheets as of  September  30, 2003 and June 30,  2003  include an  allowance  for
membership cancellations of $17,192,000 and $20,934,000, respectively. Recording
an allowance for membership  cancellations has the effect of reducing the amount
of deferred membership fees recorded.

NOTE 6 - CONVERTIBLE DEBT
On September 30, 2003, the Company issued $90,000,000 aggregate principal amount
of 5.5% convertible senior  subordinated notes ("Notes") due September 2010 in a
private  offering  pursuant  to rule  144A of the  Securities  Act of  1933,  as
amended.  The Notes  bear  interest  at the rate of 5.5% per year  which will be
payable in cash  semi-annually in arrears on April 1 and October 1 of each year,
with the first  payment  due on April 1, 2004.  Holders of the Notes may convert
their  Notes  into  shares  of  MemberWorks  common  stock at any time  prior to
maturity at an initial conversion price of approximately $40.37 per share, which
is equivalent to initial  conversion  rate of  approximately  24.7739 shares per
$1,000 principal  amount of the Notes. In accordance with Accounting  Principles
Board  Opinion No. 14,  "Accounting  for  Convertible  Debt and Debt Issued with
Stock Purchase Warrants," these Notes have been classified as a liability.

Debt  issuance  costs  associated  with this issuance  were  $2,981,000  for the
quarter  ended  September  30, 2003.  Debt issuance  costs are  capitalized  and
amortized  as interest  expense  over the term of the Notes using the  effective
interest method.


                                       6
<PAGE>

                            MEMBERWORKS INCORPORATED
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 7 - RESTRUCTURING CHARGES
During fiscal 2002,  the Company  announced the  implementation  of several cost
saving  initiatives  due to a slowdown in consumer  response rates and increased
economic  uncertainty in both the U.S. and abroad.  This  restructuring  program
included a workforce  reduction,  the closing of the  Company's  United  Kingdom
operations and the downsizing of the operational  infrastructure  throughout the
Company.  As a  result  of  the  restructuring  program,  the  Company  recorded
restructuring charges of $6,893,000 during the quarter ended December 31, 2001.

The following is a  rollforward  of the major  components  of the  restructuring
reserve (in thousands):

<TABLE>
<CAPTION>
                                                 Workforce          Lease
                                                 Reduction       Obligations           Total
                                               --------------  -----------------   --------------
<S>                     <C> <C>                <C>             <C>                 <C>
Reserve balance at June 30, 2002               $       391     $      2,546        $     2,937
Additions to the reserve                                 -                -                  -
Charges to the reserve                                 300              836              1,136
                                               --------------  -----------------   --------------
Reserve balance at June 30, 2003                        91            1,710              1,801
Additions to the reserve                                 -                -                  -
Charges to the reserve                                  30               20                 50
                                               --------------
                                                               -----------------   --------------
Reserve balance at September 30, 2003          $        61     $      1,690        $     1,751
                                               ==============  =================   ==============

</TABLE>

NOTE 8 - INCOME TAX EXPENSE
Income tax  expense  as a  percentage  of  pre-tax  income was 40% for the three
months ended September 30, 2003 and 2002. The effective tax rate was higher than
the U.S.  statutory rate for the three months ended  September 30, 2003 and 2002
primarily  due to state  taxes  and other  non-deductible  items.  Tax  benefits
resulting from the exercise of nonqualified  stock options and the disqualifying
dispositions of shares issued under the Company's stock based compensation plans
reduced taxes payable by $1,515,000  and $26,000 in the quarter ended  September
30, 2003 and 2002, respectively. Such benefits are credited to capital in excess
of par value.


                                       7
<PAGE>

                            MEMBERWORKS INCORPORATED
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 9 - EARNINGS PER SHARE
Basic and diluted  earnings per share amounts are determined in accordance  with
the provisions of SFAS No. 128,  "Earnings Per Share." The following  table sets
forth the  reconciliation  of the numerators and denominators in the computation
of basic and diluted earnings per share (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                        Three Months Ended
                                                                          September 30,
                                                                     -------------------------
                                                                        2003         2002
                                                                     ------------ ------------
<S>                                                                  <C>          <C>
Numerator:
Income available to common shareholders used in basic earnings per
   share                                                             $    3,895   $   12,136
Add back: Interest expense on convertible securities                          8            -
                                                                     ------------ ------------
Income available to common shareholders after assumed conversion of  $    3,903   $   12,136
   convertible debt for diluted earnings per share
                                                                     ============ ============

Denominator :
Weighted average number of common shares outstanding - basic             11,627       13,164
Effect of dilutive securities:
     Convertible securities                                                  25            -
     Options                                                              1,359          505
                                                                     ------------ ------------
Weighted average number of common shares outstanding - diluted           13,011       13,669
                                                                     ============ ============

Basic earnings per share                                             $     0.33   $     0.92
                                                                     ============ ============
Diluted earnings per share                                           $     0.30   $     0.89
                                                                     ============ ============
</TABLE>

The diluted  earnings per share  calculation  excludes the effect of potentially
dilutive  shares when their effect is  antidilutive.  For the three months ended
September  30,  2003  and  2002,  the  Company  had  0  and  3,331,000   shares,
respectively,  of  stock  options  outstanding  that  are  not  included  in the
calculation as they were antidilutive.

NOTE 10 - COMPREHENSIVE INCOME
The components of comprehensive income are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                  Three months ended
                                                                     September 30,
                                                               --------------------------
                                                                  2003          2002
                                                               ------------ -------------
<S>                                                            <C>          <C>
Net income                                                     $    3,895   $   12,136
Foreign currency translation gain (loss)                                2          (85)
                                                               ------------ -------------
Comprehensive income                                           $    3,897   $   12,051
                                                               ============ =============
</TABLE>

NOTE 11 - COMMITMENTS AND CONTINGENCIES
The  Company  operates  in leased  facilities.  Management  expects  that leases
currently  in effect will be renewed or  replaced  by other  leases of a similar
nature and term.

In fiscal 2003, the Company  entered into an  advertising  agreement with one of
its  clients to promote  products  and  services  to  prospective  new  members.
Pursuant to the agreement,  as of September 30, 2003, the Company has a purchase
commitment of $1,568,000, that is payable in fiscal 2004.

Except as set forth below,  in  management's  opinion,  there are no significant
legal  proceedings to which the Company or any of its subsidiaries is a party or
to which any of their  properties are subject.  The Company is involved in other
lawsuits and claims  generally  incidental  to its business  including,  but not
limited to, various suits, including previously disclosed suits, brought against
the Company by individual  consumers  seeking monetary and/or  injunctive relief
relating to the marketing of the Company's programs.  In addition,  from time to
time, and in the regular course of its business,  the Company receives inquiries
from various federal and/or state regulatory authorities.


                                       8
<PAGE>

                            MEMBERWORKS INCORPORATED
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

In March 2001, an action was  instituted  by plaintiff  Teresa  McClain  against
Coverdell & Company  ("Coverdell"),  a  wholly-owned  subsidiary of the Company,
Monumental  Life  Insurance  Company and other  defendants  in the United States
District  Court for the Eastern  District of Michigan,  Southern  Division.  The
suit, which seeks unspecified  monetary damages,  alleges that Coverdell and the
other  defendants  violated  the  Michigan  Consumer  Protection  Act and  other
applicable  Michigan  laws in connection  with the marketing of Monumental  Life
Insurance Company insurance  products.  The complaint  includes a claim that the
suit should be certified as a class action and the  plaintiff has filed a motion
for class  certification  to which all of the  defendants  have  filed  opposing
papers  regarding the same. The Court  certified a class of Michigan  residents.
Defendants  have filed a petition for leave to appeal the  certification  order.
The Company  believes  that the claims made against  Coverdell are unfounded and
Coverdell and the Company will vigorously  defend their  interests  against this
suit.

On January 24, 2003,  the Company filed a motion with the Superior Court for the
Judicial District of Hartford, Connecticut to vacate and oppose the confirmation
of an arbitration award issued in December 2002. The arbitration,  filed against
the Company by MedValUSA  Health  Programs,  Inc.  ("MedVal") in September 2000,
involved claims of breach of contract, breach of the duty of good faith and fair
dealing,  and violation of the Connecticut Unfair Trade Practices Act ("CUTPA").
Even though the arbitrators  found that MemberWorks was not liable to MedVal for
any  compensatory  damages,  they awarded  $5.5 million in punitive  damages and
costs against  MemberWorks  solely under CUTPA.  MemberWorks  believes that this
arbitration  award is unjustified and not based on any existing legal precedent.
Specifically,  the  Company  is  challenging  the award on a number of  grounds,
including  that it  violates a well  defined  public  policy  against  excessive
punitive  damage awards,  raises  constitutional  issues and disregards  certain
legal  requirements  for a valid award under CUTPA. The hearing on the Company's
motion was held on February 10,  2003.  On June 22,  2003,  the  Superior  Court
denied the Company's motion to vacate the award, and the Company filed an appeal
of that decision. No briefing schedule has yet been set in the appeal. While the
Company intends to take action to prevent the enforcement of the award by, among
other  things,  vigorously  pursuing an appeal,  there can be no assurance  that
MemberWorks will be successful in its efforts. The Company has made no provision
in its financial statements for this contingency because it believes that a loss
is not probable.  If the Company were  ultimately  unsuccessful on this or other
available  appeals,  and a  final  non-appealable  court  order  confirming  the
arbitration  award is  rendered,  the payment of the award could have a material
adverse effect on the Company's results of operations in the period in which the
final order is entered.

On October  21,  2003,  the  Florida  Attorney  General's  Office  filed a civil
complaint  against  the  Company  based  upon  concerns  that  some of its  past
marketing  practices  may have  violated  various  consumer  laws.  The  Company
believes that any  legitimate  concerns have  previously  been fully  addressed,
including our implementation of  industry-leading  Best Marketing  Practices and
voluntary  agreements  incorporating  those  practices,  such as the  nationwide
assurance  agreement that the Company entered into with the State of Nebraska in
2001. The Company  believes that the  allegations of the complaint are unfounded
and the Company intends to vigorously  defend its interests in this matter.  The
Company further believes that the potential liability represented by the lawsuit
and the final resolution of this matter will not be material to the Company.

NOTE 12 - NEW ACCOUNTING PRONOUNCEMENTS
In January  2003,  the FASB  issued  Interpretation  No. 46,  "Consolidation  of
Variable  Interest  Entities"  ("FIN 46").  FIN 46 clarifies the  application of
Accounting  Research  Bulletin  No. 51 and applies  immediately  to any variable
interest  entities  created  after  January 31,  2003 and to  variable  interest
entities in which an interest is obtained after that date. For variable interest
entities created or acquired prior to February 1, 2003, the provisions of FIN 46
must be applied for the first interim or annual period  beginning after December
15,  2003.  While it will  continue  to  evaluate  the  requirements  of FIN 46,
MemberWorks  does not believe  that the  adoption of FIN 46 will have a material
impact on the Company's financial statements.

In May 2003,  the  Financial  Accounting  Standards  Board  issued SFAS No. 150,
"Accounting  for Certain  Financial  Instruments  with  Characteristics  of both
Liabilities  and Equity " ("SFAS  150").  This  statement  requires that certain
financial  instruments that were accounted for as equity under previous guidance
be classified as  liabilities in statements of financial  position.  SFAS 150 is
effective for financial instruments entered into or modified after May 31, 2003,
and  otherwise  is  effective  at the  beginning  of the  first  interim  period
beginning  after June 15, 2003. The adoption of SFAS 150 did not have a material
impact on Company's financial statements.


                                       9
<PAGE>

                            MEMBERWORKS INCORPORATED
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

MemberWorks  designs and manages  innovative  membership  programs  and provides
organizations  with an  opportunity  to  leverage  the  expertise  of an outside
provider in offering these  membership  programs.  Membership  service  programs
offer selected products and services from a variety of vendors for an annual fee
or a monthly fee.  MemberWorks  derives its revenues  principally from renewable
membership  fees which are billed to the customer either on an annual or monthly
basis. In the case of annually billed membership fees, the Company receives full
payment at or near the beginning of the  membership  period,  but recognizes the
revenue as the  member's  refund  privilege  expires.  Membership  fees that are
billed  monthly  are  recognized  when  earned.  MemberWorks  has  traditionally
marketed its membership  programs which have an up-front annual  membership fee.
However,  during fiscal 2003,  the Company  expanded its marketing of membership
programs in which the membership fee is payable in monthly  installments.  It is
the Company's  intention to further increase the mix of monthly payment programs
during  fiscal  2004.   Profitability  and  cash  flow  generated  from  renewal
memberships  exceed that of new  memberships  due to the absence of solicitation
costs associated with new member procurement.

In accordance with Financial  Accounting Standards Board ("FASB") Statement 131,
"Disclosures   about  Segments  of  an  Enterprise  and  Related   Information,"
MemberWorks operates in one reportable operating segment.

CRITICAL ACCOUNTING POLICIES

Critical  accounting  policies  are those  policies  that are  important  to the
Company's  financial  condition and results of operations and involve subjective
or complex judgments on the part of management, often as a result of the need to
make  estimates.  The  following  areas all  require  the use of  judgments  and
estimates: membership cancellation rates, deferred marketing costs, valuation of
goodwill  and  intangible  assets,  estimation  of  remaining  useful  lives  of
intangible  assets and  valuation of deferred  tax assets.  Estimates in each of
these areas are based on  historical  experience  and various  assumptions  that
MemberWorks  believes  are  appropriate.  Actual  results  may differ from these
estimates.  MemberWorks believes the following represent the critical accounting
policies of the Company as contemplated by Financial  Reporting  Release No. 60,
"Cautionary Advice Regarding Disclosure about Critical Accounting Policies." For
a summary of all of the Company's significant accounting policies, see Note 2 of
the Notes to the consolidated financial statements located in the Company's 2003
Annual Report on Form 10-K.

Revenue recognition
Membership  fees are billed  through  clients of the Company  primarily  through
credit cards. In the case of annually billed membership  programs,  a member may
cancel his or her  membership in the program  generally for a prorata  refund of
the membership fee based on the remaining  portion of the membership  period. In
accordance with Staff Accounting Bulletin 101, "Revenue Recognition in Financial
Statements" ("SAB 101"), deferred membership fees are recorded, net of estimated
cancellations,  and are  amortized  as revenues  from  membership  fees upon the
expiration  of  membership  refund  privileges.   An  allowance  for  membership
cancellations  is  established  based on  management's  estimates and is updated
regularly.   In   determining   the   estimate  of  allowance   for   membership
cancellations,  management analyzes historical cancellation experience,  current
economic  trends and  changes in  customer  demand for the  Company's  products.
Actual membership cancellations are charged against the allowance for membership
cancellations  on a current  basis.  If  actual  cancellations  differ  from the
estimate, the revenues would be impacted.

Membership solicitation and other deferred costs
The Company's  marketing  expenses are comprised of telemarketing,  direct mail,
refundable  royalty payments,  non- refundable  royalty payments and advertising
costs. Telemarketing and direct mail costs are direct response advertising costs
which are  accounted  for in  accordance  with  American  Institute of Certified
Public Accountants  Statement of Position 93-7, "Reporting on Advertising Costs"
("SOP 93-7"). Under SOP 93-7, direct response advertising costs are deferred and
charged to operations  over the  membership  period as revenues from  membership
fees are recognized.  Refundable  royalty payments are also deferred and charged
to operations  over the membership  period in order to match the marketing costs
with the  associated  revenues  from  membership  fees.  Advertising  costs  and
non-refundable  royalty payments,  which include fee per pitch, fee per sale and
fee per impression marketing arrangements, are expensed when incurred.


                                       10
<PAGE>

                            MEMBERWORKS INCORPORATED
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
          OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Total  membership  solicitation  costs  incurred  to  obtain  a new  member  are
generally  less than the estimated  total  membership  fees.  However,  if total
membership solicitation costs were to exceed total estimated membership margins,
an adjustment  would be made to the membership  solicitation  and other deferred
costs balance and marketing expenses to the extent of any impairment.


Valuation of goodwill and other intangibles
MemberWorks  reviews the carrying  value of its  goodwill  and other  intangible
assets and  assesses the  remaining  estimated  useful  lives of its  intangible
assets in accordance with FASB Statement No. 142, "Goodwill and Other Intangible
Assets."  The  Company  reviews the  carrying  value of its  goodwill  and other
intangible assets for impairment by comparing such amounts to their fair values.
MemberWorks  is required to perform this  comparison  at least  annually or more
frequently if circumstances indicate possible impairment.  When determining fair
value, the Company utilizes various assumptions, including projections of future
cash flows. A change in these underlying assumptions would cause a change in the
results of the tests and,  as such,  could  cause fair value to be less than the
carrying amounts. In such an event, MemberWorks would then be required to record
a corresponding charge which would negatively impact earnings.  Goodwill at July
1, 2003 and 2002, was tested for impairment  during the quarters ended September
30, 2003 and 2002, respectively. The Company concluded that none of its goodwill
was impaired as of July 1, 2003 nor 2002.

Income Taxes
The Company accounts for income taxes under the provisions of FASB Statement No.
109,  "Accounting  for Income Taxes."  Deferred tax assets and  liabilities  are
recognized for future tax consequences  attributable to differences  between the
financial  statement  carrying  amounts of existing  assets and  liabilities and
their  respective  tax bases.  MemberWorks  estimates  current tax provisions or
benefits based on a projected  effective tax rate for the fiscal year ended June
30, 2004 using the most  currently  available  information  and  forecasts.  The
projected  effective tax rate is updated for actual  results and estimates  when
they become known. In addition, MemberWorks assesses the realization of deferred
tax  assets  considering  various  assumptions,  including  estimates  of future
taxable  income  and  ongoing  tax  strategies.  A change  in  these  underlying
assumptions would impact the results of operations.

THREE MONTHS ENDED SEPTEMBER 30, 2003 VS. THREE MONTHS ENDED SEPTEMBER 30, 2002

REVENUES.  Revenues  increased  8% to  $113.8  million  for  the  quarter  ended
September 30, 2003 from $105.0 million for the quarter ended September 30, 2002.
The increase in revenues is partially due to an increase in program price points
as well as the  effect  of the  Company's  strategic  initiative  to  shift  new
marketing towards members on a monthly payment program. Revenue from members who
are charged on a monthly  payment  program  increased  to $26.3  million for the
quarter  ended  September  30, 2003 from $16.3  million  for the  quarter  ended
September 30, 2002 due to an increase in members  enrolled in a monthly  payment
plan. As a percentage of total  revenues,  renewal  revenues from annual payment
programs were 41% in 2003 and 46% in 2002.

OPERATING  EXPENSES.  Operating  expenses  consist of member service call center
costs,  membership  benefit  costs and  membership  program  fulfillment  costs.
Operating  expenses  increased  19% to  $21.5  million  for  the  quarter  ended
September 30, 2003 from $18.1 million for the quarter ended  September 30, 2002.
As a  percentage  of  revenues,  operating  expenses  increased to 18.9% for the
quarter ended  September 30, 2003 from 17.2% for the quarter ended September 30,
2002.  These  increases  were due to increased  investment in the member service
call centers.

MARKETING  EXPENSES.  Marketing expenses consist of costs incurred to obtain new
members and royalties paid to clients.  Those costs that are  considered  direct
response advertising costs and royalties paid to clients are generally amortized
in the same manner as the  related  revenue as required by SOP 93-7 and SAB 101.
Marketing expenses increased 2% to $66.7 million for the quarter ended September
30, 2003 from $65.5 million for the quarter  ended  September 30, 2002 and, as a
percentage of revenue,  marketing expenses decreased to 58.6% in 2003 from 62.4%
in 2002. The  improvement  in the monthly  expense ratio is primarily due to the
increase in the mix of marketing in the Company's more profitable MemberLink and
online channels.


                                       11
<PAGE>

                            MEMBERWORKS INCORPORATED
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
          OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

GENERAL  AND  ADMINISTRATIVE  EXPENSES.   General  and  administrative  expenses
primarily include  personnel-related  costs,  occupancy costs and other overhead
costs.  General and  administrative  expenses were $18.8 million for the quarter
ended  September 30, 2003 versus $18.9  million for the quarter ended  September
30, 2002.  As a  percentage  of revenues,  general and  administrative  expenses
decreased to 16.5% in 2003 from 18.0% in 2002  primarily due to  leveraging  the
increase in our reported revenues.

AMORTIZATION OF OTHER  INTANGIBLES.  Intangible  amortization  decreased to $0.3
million  during the quarter  ended  September 30, 2003 from $0.4 million for the
quarter ended September 30, 2002.

OTHER INCOME,  NET. Other income,  net is primarily  composed of interest income
from cash and cash  equivalents  and  interest  expense,  bank fees and issuance
costs  related  to  the  Company's  line  of  credit  and   convertible   senior
subordinated  notes.  The Company incurred a net expense of $0.1 million for the
quarter  ended  September  30,  2003  versus net income of $0.1  million for the
quarter ended September 30, 2002 due to increased  amortization of debt issuance
costs and a charge for losses incurred on an investment.

PROVISION  FOR INCOME  TAXES.  During the quarter  ended  September 30, 2003 the
Company  recorded a tax provision of $2.6 million based on an effective tax rate
of  approximately  40%. The effective tax rate was higher than the U.S.  federal
statutory  rate for the quarter ended  September 30, 2003 primarily due to state
taxes and other  non-deductible  items.  During the quarter ended  September 30,
2002, the Company recorded a tax provision of $8.1 million based on an effective
tax rate of approximately 40%.

LIQUIDITY AND CAPITAL RESOURCES

Net cash used in operating  activities  was $2.0  million for the quarter  ended
September  30, 2003 versus net cash  provided by operating  activities  of $11.4
million for the quarter ended September 30, 2002. The decrease in operating cash
flow in the quarter ended September 30, 2003 versus the prior year was primarily
due to the impact of changes in assets and  liabilities  which  reduced  cash by
$7.3 million in the September 2003 quarter and increased cash by $2.3 million in
the September  2002  quarter.  $3.7 million of the decrease in changes in assets
and liabilities in the September 2003 quarter can be attributed to a decrease in
the  cancellation  liability which was caused by the shift in the revenue mix to
monthly payment plans versus annual payment plans. The remainder of the decrease
in the September 2003 quarter is due to the timing of accounts payable payments.
Also  contributing  to the decrease in operating cash flow in the September 2003
quarter  is an  increase  in  spending  on our call  center  operations  and the
decrease in the deferred  membership  fees.  Deferred  membership fees decreased
during the  quarter  ended  September  30, 2003 due to the  Company's  strategic
initiative to shift new marketing  towards members on a monthly payment program.
Marketing  costs before  deferral as a percentage  of revenues  before  deferral
increased to 57.3% for the quarter  ended  September 30, 2003 from 56.0% for the
quarter ended September 30, 2002.

The Company's  management  believes that revenues  before deferral and marketing
costs before  deferral are  important  measures of  liquidity.  Revenues  before
deferral are revenues before the application of SAB 101 and represent the actual
membership fees billed during the current reporting period less an allowance for
membership  cancellations.  Marketing  costs before deferral are marketing costs
before  the  application  of SAB 101 and SOP 93-7 and  represent  the  Company's
obligation  for  marketing  efforts that occurred  during the current  reporting
period.

Revenues  before deferral for the quarters ended September 30, 2003 and 2002 are
calculated as follows:

<TABLE>
<CAPTION>
                                                                                       September 30,
                                                                                    2003           2002
                                                                                -------------  -------------
<S>                                                                            <C>            <C>
Revenues reported in the Statements of Operations                              $   113,824    $   105,004
Change in deferred membership fees                                                 (13,662)        (6,890)
                                                                                -------------  -------------
Revenues before deferral                                                       $   100,162    $    98,114
                                                                                =============  =============
</TABLE>


                                       12
<PAGE>

                            MEMBERWORKS INCORPORATED
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
          OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Revenues  before  deferral  increased 2% to $100.2 million for the quarter ended
September 30, 2003 from $98.1 million for the quarter ended  September 30, 2002.
The increase in revenues is partially due to an increase in program price points
as well as the  effect  of the  Company's  strategic  initiative  to  shift  new
marketing towards members on a monthly payment program.  The average price point
of an annual member was $105 during the quarter ended September 30, 2003, versus
$96 during the quarter ended  September  30, 2002.  The average price point of a
monthly  member was $10.72 during the quarter ended  September 30, 2003,  versus
$9.44 during the quarter  ended  September  30, 2002.  Average  monthly  members
billed each month during the quarter  ended  September  30, 2003  increased  66%
compared to the quarter  ended  September  30, 2002.  As a  percentage  of total
revenues before deferral, renewal revenues from annual payment programs were 47%
in 2003 and 48% in 2002.  The decrease in renewal  revenues from annual  payment
programs  as a  percentage  of  total  revenues  before  deferral  is due to the
increase in revenue from monthly payment programs. This shift to monthly payment
programs has a near-term negative impact on operating cash flow.

Marketing  costs before  deferral for the quarters ended  September 30, 2003 and
2002 are calculated as follows:

<TABLE>
<CAPTION>
                                                                                     September 30,
                                                                                    2003           2002
                                                                                -------------  -------------
<S>                                                                            <C>            <C>
Marketing expenses reported in the Statements of Operations                    $    66,656    $     65,549
Change in membership solicitation and other deferred costs                          (9,221)        (10,640)
                                                                                -------------  -------------
Marketing costs before deferral                                                $    57,435    $     54,909
                                                                                =============  =============
</TABLE>

Marketing  costs before  deferral  increased 5% to $57.4 million for the quarter
ended  September 30, 2003 from $54.9 million for the quarter ended September 30,
2002.  As a percent of  revenues  before  deferral,  marketing  expenses  before
deferral were 57.3% in 2003 and 56.0% in 2002.  These  increases  were primarily
due to the increase in the mix of marketing of monthly  payment  programs versus
annual payment programs.

Net cash used in investing  activities was $0.9 million during the quarter ended
September  30, 2003 versus net cash  provided by investing  activities  of $17.1
million  during the quarter ended  September 30, 2002.  During the quarter ended
September  30,  2002,  MemberWorks,  along  with  certain  of the  other  former
shareholders of iPlace, Inc., settled their lawsuit against Homestore.com,  Inc.
The total  settlement  amount in favor of the  plaintiffs  was $23.0  million of
which MemberWorks received $19.1 million. In addition,  during the quarter ended
September  30, 2002,  the Company  settled with  Homestore.com,  Inc. all issues
pending  related  to amounts  held in escrow in  connection  with the sale.  The
Company  paid $0.8 million from the escrow  account  related to the  settlement.
Capital  expenditures  were $0.9 million during the quarter ended  September 30,
2003 and $1.3 million during the quarter ended September 30, 2002.

Net cash  provided by  financing  activities  was $52.7  million for the quarter
ended  September  30, 2003 versus net cash used in financing  activities of $9.7
million for the quarter ended  September 30, 2002. The increase in cash provided
by financing activities was primarily due to the issuance of $90,000,000 million
aggregate  principal amount convertible senior  subordinated notes ("Notes") due
September  2010. The Notes bear interest at the rate of 5.5% per year which will
be payable  in cash  semi-annually  in arrears on April 1 and  October 1 of each
year, with the first payment due on April 1, 2004. The net proceeds will be used
for  general  corporate   purposes,   including  mergers  and  acquisitions  and
additional  repurchases  of the  Company's  common stock under its stock buyback
program.  Upon the  occurrence of a change in control,  holders of the Notes may
require  the  Company  to  repurchase  all or part of the  Notes  for  cash.  In
addition,  the Company received $22.1 million from the exercise of stock options
during the quarter  ended  September  30,  2003.  These  increases  in financing
activities  were  offset  by  increased   spending  under  the  Company's  stock
repurchase program. The Company purchased 1,696,000 shares for $56.4 million, an
average price of $33.24, during the quarter ended September 30, 2003 compared to
537,000 shares for $8.9 million, an average price of $16.51,  during the quarter
ended  September 30, 2002.  The Company  utilized cash from  operations  and the
issuance of the Notes to repurchase  shares.  During the quarter ended September
30, 2003, the Board of Directors  authorized an additional 1.0 million shares to
be repurchased under the buyback program.  As of September 30, 2003, the Company
had 1,283,000 shares available for repurchase under its buyback program.


                                       13
<PAGE>

                            MEMBERWORKS INCORPORATED
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
          OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

As of September 30, 2003,  the Company had cash and cash  equivalents  of $122.0
million. In addition, the Company has a $28.0 million bank credit facility which
bears interest at the higher of the base commercial lending rate for the bank or
the  Federal  Funds Rate plus 0.5% per annum.  As of  September  30,  2003,  the
effective  interest  rate for  borrowings  was 4.0%.  As of September  30, 2003,
availability under the bank credit facility was reduced by an outstanding letter
of credit of $5.5  million.  The bank  credit  facility  has  certain  financial
covenants,  including a maximum debt  coverage  ratio,  a minimum  fixed charges
ratio,   potential   restrictions   on  additional   borrowings   and  potential
restrictions  on additional  stock  repurchases.  As of September 30, 2003,  the
Company was in compliance  with all such debt  covenants.  The Company  believes
that existing cash balances,  together with its available bank credit  facility,
will be sufficient to meet its funding requirements for at least the next twelve
months.

The Company did not have any material commitments for capital expenditures as of
September  30, 2003.  The Company  intends to utilize its existing cash balances
and  cash  generated  from   operations  to  fulfill  any  capital   expenditure
requirements for the remainder of fiscal 2004.

COMMITMENTS

The Company is not aware of any factors that are reasonably  likely to adversely
affect liquidity  trends,  other than the risk factors  presented in the Forward
Looking  Statements  in this  Form  10-Q  filing.  The  Company  does  not  have
off-balance  sheet  arrangements,  non-exchange  traded  contracts  or  material
related party transactions.

Future minimum payments of contractual  obligations as of September 30, 2003 are
as follows (amounts in thousands):

<TABLE>
<CAPTION>
                                                                  Payments Due by Period
                                      -------------------------------------------------------------------------------
                                                       Less than
                                          Total          1 year         1-3 years       4-5 years     After 5 years
                                      --------------  -------------   --------------  --------------  ---------------
<S>                                   <C>             <C>             <C>             <C>             <C>
Operating leases                      $     25,564    $     6,604     $     10,222    $      4,803    $      3,935
Capital leases                                   2              2                -               -               -
Convertible notes payable                   90,000              -                -               -          90,000
Purchase obligations                         1,568          1,568                -               -               -
Other long-term obligations                    239            234                5               -               -
                                      --------------  -------------   --------------  --------------  ---------------
Total payments due                    $    117,373    $     8,408     $     10,227    $      4,803    $     93,935
                                      ==============  =============   ==============  ==============  ===============
</TABLE>

The  Company  operates  in leased  facilities.  Management  expects  that leases
currently  in effect will be renewed or  replaced  by other  leases of a similar
nature and term.

NEW ACCOUNTING PRONOUNCEMENTS

In January  2003,  the FASB  issued  Interpretation  No. 46,  "Consolidation  of
Variable  Interest  Entities"  ("FIN 46").  FIN 46 clarifies the  application of
Accounting  Research  Bulletin  No. 51 and applies  immediately  to any variable
interest  entities  created  after  January 31,  2003 and to  variable  interest
entities in which an interest is obtained after that date. For variable interest
entities created or acquired prior to February 1, 2003, the provisions of FIN 46
must be applied for the first interim or annual period  beginning after December
15,  2003.  While it will  continue  to  evaluate  the  requirements  of FIN 46,
MemberWorks  does not believe  that the  adoption of FIN 46 will have a material
impact on the Company's financial statements.

In May  2003,  the FASB  issued  Statement  No.  150,  "Accounting  for  Certain
Financial  Instruments  with  Characteristics  of both  Liabilities and Equity "
("SFAS 150"). This statement  requires that certain  financial  instruments that
were  accounted  for  as  equity  under  previous   guidance  be  classified  as
liabilities  in  statements  of financial  position.  SFAS 150 is effective  for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period  beginning  after June
15,  2003.  The  adoption  of SFAS 150 did not  have a  material  impact  on the
Company's financial statements.


                                       14
<PAGE>

                            MEMBERWORKS INCORPORATED
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
          OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking  statements that are
based on current  expectations,  estimates,  forecasts and projections about the
industry in which MemberWorks  operates and the Company's  management's  beliefs
and assumptions. These forward-looking statements include statements that do not
relate solely to historical or current facts and can be identified by the use of
words  such  as  "believe,"  "expect,"  "estimate,"   "project,"  "continue"  or
"anticipate." These forward-looking  statements are made pursuant to safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.

Forward-looking  statements  are not  guarantees of future  performance  and are
based on a number of assumptions  and estimates  that are inherently  subject to
significant  risks and  uncertainties,  many of which are  beyond  our  control,
cannot be foreseen and reflect  future  business  decisions  that are subject to
change.  Therefore,  actual outcomes and results may differ materially from what
is expressed or forecasted in such  forward-looking  statements.  Among the many
factors  that  could  cause  actual  results  to  differ   materially  from  the
forward-looking statements are:

o    Higher  than  expected  membership  cancellations  or lower  than  expected
     membership renewal rates;
o    Changes in the marketing techniques of credit card issuers;
o    Increases in the level of commission rates and other compensation  required
     by marketing partners to actively market with MemberWorks;
o    Potential  reserve  requirements by business partners such as the Company's
     credit card processors;
o    Unanticipated termination of marketing agreements;
o    The extent to which  MemberWorks can continue to  successfully  develop and
     market new products and services;
o    Unanticipated changes in or termination of the Company's ability to process
     membership fees through third parties, including credit card processors and
     bank card associations;
o    The Company's ability to introduce new programs on a timely basis;
o    The Company's  ability to develop and implement  operational  and financial
     systems to manage growing operations;
o    The Company's  ability to recover from a complete or partial system failure
     or  impairment,   other  hardware  or  software  related   malfunctions  or
     programming errors;
o    The Company's  ability to obtain  financing on acceptable  terms to finance
     the Company's growth strategy and to operate within the limitations imposed
     by financing arrangements;
o    The Company's ability to integrate  acquired  businesses into the Company's
     management and operations and operate successfully;
o    Further  changes in the already  competitive  environment for the Company's
     products or competitors' responses to the Company's strategies;
o    Changes  in  the  growth  rate  of  the  overall  U.S.   economy,   or  the
     international  economy where  MemberWorks  does business,  such that credit
     availability,  interest rates,  consumer spending and related consumer debt
     are impacted;
o    Additional  government  regulations  and  changes  to  existing  government
     regulations  of  the  Company's  industry,   including  the  Federal  Trade
     Commission's 2003 Amendment to its Telemarketing Sales Rule which creates a
     national do-not-call list, and
o    New accounting pronouncements.

Many of these  factors are beyond  MemberWorks'  control,  and,  therefore,  its
business,  financial  condition,  results  of  operations  and cash flows may be
adversely affected by these factors.

MemberWorks   cautions  that  such  factors  are  not  exclusive.   All  of  the
forward-looking  statements  made in this  Quarterly  Report  on Form  10-Q  are
qualified by these cautionary  statements and readers are cautioned not to place
undue reliance on these forward-looking  statements,  which speak only as of the
date of  this  Quarterly  Report  on  Form  10-Q.  Except  as  required  by law,
MemberWorks  does not have any intention or  obligation  to publicly  update any
forward-looking  statements,  whether  as a result  of new  information,  future
events or otherwise.


                                       15
<PAGE>

                            MEMBERWORKS INCORPORATED


Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate
As of  September  30, 2003,  the Company has a $28 million bank credit  facility
which bears interest at the higher of the base  commercial  lending rate for the
bank or the  Federal  Funds Rate plus 0.5% per annum.  There were no  borrowings
outstanding  under this bank credit  facility as of September  30,  2003.  As of
September 30, 2003,  availability  under the bank credit facility was reduced by
an outstanding  letter of credit of $5.5 million.  In addition,  the Company has
$90.0 million aggregate principal amount of 5.5% convertible senior subordinated
notes due September  2010.  The Notes bear interest at the rate of 5.5% per year
which will be payable  semi-annually in arrears on April 1 and October 1 of each
year. Management believes that an increase in the commercial lending rate or the
Federal Funds rate would not be material to the Company's  financial position or
its  results of  operations.  If the  Company is not able to renew its  existing
credit facility agreement,  which matures on March 29, 2004, it is possible that
any replacement  lending facility  obtained by the Company may be more sensitive
to interest rate changes. The Company does not currently hedge interest rates.

Foreign Currency
The Company has international sales and facilities in Canada and, therefore,  is
subject to foreign currency rate exposure.  Canadian sales have been denominated
in the Canadian dollar and its functional currency is the local currency. Assets
and liabilities of the Canadian  subsidiary are translated into U.S.  dollars at
the  exchange  rate in effect as of the balance  sheet date.  Income and expense
items are  translated at the average  exchange rate for the period.  Accumulated
net  translation  adjustments  are  recorded in  shareholders'  equity.  Foreign
exchange  transaction gains and losses are included in the results of operations
and were not  material for all periods  presented.  As a result,  the  Company's
financial  results  could be  affected  by  factors  such as  changes in foreign
currency  exchange rates or weak economic  condition.  To the extent the Company
incurs expenses that are based on locally denominated sales volume paid in local
currency,  the  exposure to foreign  exchange  risk is reduced.  The Company has
determined  that the impact of a near-term 10%  appreciation  or depreciation of
the U.S. dollar would have an  insignificant  effect on its financial  position,
results  of  operations  and cash  flows.  The  Company  does not  maintain  any
derivative  instruments to mitigate the exposure to translation  and transaction
risk. However, this does not preclude the Company's adoption of specific hedging
strategies in the future.  MemberWorks will assess the need to utilize financial
instruments to hedge currency exposures on an ongoing basis.

Fair Value
The Company  does not have  material  exposure  to market  risk with  respect to
investments,  as the  Company  does  not hold any  marketable  securities  as of
September 30, 2003.  MemberWorks does not use derivative  financial  instruments
for  speculative  or  trading  purposes.  However,  this does not  preclude  the
Company's adoption of specific hedging strategies in the future.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures.
The Chief  Executive  Officer and Chief  Financial  Officer have  evaluated  the
effectiveness  of the Company's  disclosure  controls and procedures (as defined
under Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this
report and have concluded that the Company's  disclosure controls and procedures
were effective. The Company's disclosure controls and procedures are designed to
ensure that material  information  relating to MemberWorks and its  consolidated
subsidiaries  that is required to be disclosed in its reports under the Exchange
Act is accumulated and  communicated  to the chief  executive  officer and chief
financial officer.

Notwithstanding  the  foregoing,  although  there can be no  assurance  that the
Company's disclosure controls and procedures will detect or uncover all failures
of persons  within the Company  and its  consolidated  subsidiaries  to disclose
material  information  otherwise  required  to be set  forth  in  the  Company's
periodic reports,  the Chief Executive  Officer's and Chief Financial  Officer's
evaluation concluded that they are reasonably effective to do so.

Changes in internal control over financial reporting.
During the first quarter of fiscal 2004,  there were no changes in the Company's
internal control over financial  reporting that could have materially  affected,
or are  reasonably  likely  to  materially  affect  our  internal  control  over
financial reporting.


                                       16
<PAGE>

                            MEMBERWORKS INCORPORATED
                           PART II. OTHER INFORMATION


Item 1.  Legal Proceedings

Except as set forth below,  in  management's  opinion,  there are no significant
legal  proceedings to which the Company or any of its subsidiaries is a party or
to which any of their  properties are subject.  The Company is involved in other
lawsuits and claims  generally  incidental  to its business  including,  but not
limited to, various suits, including previously disclosed suits, brought against
the Company by individual  consumers  seeking monetary and/or  injunctive relief
relating to the marketing of the Company's programs.  In addition,  from time to
time, and in the regular course of its business,  the Company receives inquiries
from various federal and/or state regulatory authorities.

In March 2001, an action was  instituted  by plaintiff  Teresa  McClain  against
Coverdell & Company  ("Coverdell"),  a  wholly-owned  subsidiary of the Company,
Monumental  Life  Insurance  Company and other  defendants  in the United States
District  Court for the Eastern  District of Michigan,  Southern  Division.  The
suit, which seeks unspecified  monetary damages,  alleges that Coverdell and the
other  defendants  violated  the  Michigan  Consumer  Protection  Act and  other
applicable  Michigan  laws in connection  with the marketing of Monumental  Life
Insurance Company insurance  products.  The complaint  includes a claim that the
suit should be certified as a class action and the  plaintiff has filed a motion
for class  certification  to which all of the  defendants  have  filed  opposing
papers  regarding the same. The Court  certified a class of Michigan  residents.
Defendants  have filed a petition for leave to appeal the  certification  order.
The Company  believes  that the claims made against  Coverdell are unfounded and
Coverdell and the Company will vigorously  defend their  interests  against this
suit.

On January 24, 2003,  the Company filed a motion with the Superior Court for the
Judicial District of Hartford, Connecticut to vacate and oppose the confirmation
of an arbitration award issued in December 2002. The arbitration,  filed against
the Company by MedValUSA  Health  Programs,  Inc.  ("MedVal") in September 2000,
involved claims of breach of contract, breach of the duty of good faith and fair
dealing,  and violation of the Connecticut Unfair Trade Practices Act ("CUTPA").
Even though the arbitrators  found that MemberWorks was not liable to MedVal for
any  compensatory  damages,  they awarded  $5.5 million in punitive  damages and
costs against  MemberWorks  solely under CUTPA.  MemberWorks  believes that this
arbitration  award is unjustified and not based on any existing legal precedent.
Specifically,  the  Company  is  challenging  the award on a number of  grounds,
including  that it  violates a well  defined  public  policy  against  excessive
punitive  damage awards,  raises  constitutional  issues and disregards  certain
legal  requirements  for a valid award under CUTPA. The hearing on the Company's
motion was held on February 10,  2003.  On June 22,  2003,  the  Superior  Court
denied the Company's motion to vacate the award, and the Company filed an appeal
of that decision. No briefing schedule has yet been set in the appeal. While the
Company intends to take action to prevent the enforcement of the award by, among
other  things,  vigorously  pursuing an appeal,  there can be no assurance  that
MemberWorks will be successful in its efforts. The Company has made no provision
in its financial statements for this contingency because it believes that a loss
is not probable.  If the Company were  ultimately  unsuccessful on this or other
available  appeals,  and a  final  non-appealable  court  order  confirming  the
arbitration  award is  rendered,  the payment of the award could have a material
adverse effect on the Company's results of operations in the period in which the
final order is entered.

On October  21,  2003,  the  Florida  Attorney  General's  Office  filed a civil
complaint  against  the  Company  based  upon  concerns  that  some of its  past
marketing  practices  may have  violated  various  consumer  laws.  The  Company
believes that any  legitimate  concerns have  previously  been fully  addressed,
including our implementation of  industry-leading  Best Marketing  Practices and
voluntary  agreements  incorporating  those  practices,  such as the  nationwide
assurance  agreement that the Company entered into with the State of Nebraska in
2001. The Company  believes that the  allegations of the complaint are unfounded
and the Company intends to vigorously  defend its interests in this matter.  The
Company further believes that the potential liability represented by the lawsuit
and the final resolution of this matter will not be material to the Company.


                                       17
<PAGE>

                            MEMBERWORKS INCORPORATED
                     PART II. OTHER INFORMATION (CONTINUED)

Item 2.  Changes in Securities and Use of Proceeds

On September 30, 2003, the Company completed the sale of $90.0 million aggregate
principal amount of 5.5%  convertible  senior  subordinated  notes due September
2010 to qualified  institutional  buyers pursuant to Rule 144A of the Securities
Act of 1933,  as amended.  Net proceeds  from this  offering are estimated to be
$86.3  million.  The net proceeds will be used for general  corporate  purposes,
including  mergers and acquisitions and additional  repurchases of the Company's
common stock under its stock buyback program.  The Notes bear interest at a rate
of 5.5% per year payable in cash semi-annually in arrears on April 1 and October
1 of each year, with the first payment due on April 1, 2004.

The Notes are  convertible  into shares of MemberWorks  common stock at any time
prior to maturity at an initial  conversion  price of  approximately  $40.37 per
share,  which is  equivalent  to an  initial  conversion  rate of  approximately
24.7739 shares per $1,000  principal amount of the Notes. The conversion rate is
subject to adjustment in certain circumstances.

The  Company  may  redeem all or portion of the Notes for cash at any time on or
after October 6, 2008, at 100% of their principal amount plus accrued and unpaid
interest to, but excluding, the redemption date.

MemberWorks  intends to file a  registration  statement  with the Securities and
Exchange  Commission for the Notes and the common stock issuable upon conversion
of the Notes within 90 days after the original issuance of the Notes.

Item 6.  Exhibits and Reports on Form 8-K

a)  Exhibits
     4.1  Indenture   dated  as  of  September  30,  2003  between   MemberWorks
          Incorporated and Deutsche Bank Trust Company Americas, or Trustee.
     4.2  Registration  Rights  Agreement dated as of September 30, 2003 between
          MemberWorks  Incorporated  and  Lehman  Brothers  Inc.  and CIBC World
          Markets Corp.
     31.1 Rule 13a-14(a) CEO Certification.
     31.2 Rule 13a-14(a) CFO Certification.
     32.1 CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
          2002.
     32.2 CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
          2002.

b) Reports on Form 8-K
On July 29,  2003,  the Company  furnished  on Form 8-K under Item 7  "Financial
Statements  and  Exhibits"  and Item 12 "Results  of  Operations  and  Financial
Condition" a press release announcing fiscal year 2003 fourth quarter and twelve
month results.

On September 22, 2003, the Company filed on form 8-K under Item 5 "Other Events"
and Item 7 "Financial  Statements  and Exhibits" a press release  announcing its
proposed  offering  of an  aggregate  of $75.0  million  of  convertible  senior
subordinated notes due 2010.

On September 25, 2003, the Company filed on Form 8-K under Item 5 "Other Events"
and Item 7 "Financial  Statements  and Exhibits" a press release  announcing the
pricing of its proposed offering of an aggregate of $75.0 million of convertible
senior subordinated notes due 2010.

On September 30, 2003, the Company filed on Form 8-K under Item 5 "Other Events"
and Item 7 "Financial  Statements  and Exhibits" a press release  announcing the
closing of its proposed offering of an aggregate of $90.0 million of convertible
senior subordinated noted due 2010.


                                       18
<PAGE>

                            MEMBERWORKS INCORPORATED
                                   SIGNATURES


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


                                    MEMBERWORKS INCORPORATED
                                   (Registrant)


Date: November 13, 2003    By:      /s/ Gary A. Johnson
                                    -------------------
                                    Gary A. Johnson, President, Chief
                                    Executive Officer and Director


      November 13, 2003    By:      /s/ James B. Duffy
                                    ------------------
                                    James B. Duffy, Executive Vice President and
                                    Chief Financial Officer (Principal Financial
                                    and Accounting Officer)


                                       19