SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

               Quarterly Report Pursuant to Section 13 or 15(d) of
                       the Securities Exchange Act of 1934

                  For the quarterly period ended March 31, 2002

                           Commission File No. 0-21527


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


DELAWARE                                                         06-1276882
------------------------                                    -------------------
(State of Incorporation)                                      (I.R.S. Employer
                                                           Identification No.)

9 West Broad Street;
Stamford, Connecticut                                                06902
---------------------------------------                           -----------
(Address of principal executive offices)                           (Zip Code)

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


Indicate by checkmark 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, and (2) has been subject to such filing requirements
for the past 90 days.
Yes   X      No
    -----       -----

The number of shares outstanding of the Registrant's capital stock: 13,816,142
shares of Common Stock, $0.01 par value as of April 29, 2002.
<PAGE>

                            MEMBERWORKS INCORPORATED
                               INDEX TO FORM 10-Q


PART I.    FINANCIAL INFORMATION                                           PAGE

Item 1.    Financial Statements (Unaudited)

           Condensed Consolidated Balance Sheets as of March 31, 2002
           and June 30, 2001                                                2

           Condensed Consolidated Statements of Operations for the three
           and nine months ended March 31, 2002 and 2001                    3

           Condensed Consolidated Statements of Cash Flows for the nine
           months ended March 31, 2002 and 2001                             4

           Notes to Condensed Consolidated Financial Statements             5


Item 2.    Management's Discussion and Analysis of Financial
           Condition and Results of Operations                             12

           Forward Looking Statements                                      19

Item 3.    Quantitative & Qualitative Disclosures about Market Risk        20

PART II.   OTHER INFORMATION

Item  1.   Legal Proceedings                                               21

Item 6.    Exhibits and Reports on Form 8-K                                22

Signatures                                                                 23

<PAGE>

<TABLE>
<CAPTION>

                            MEMBERWORKS INCORPORATED

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                      (In thousands, except per share data)

                                                                                       March 31,           June 30,
                                                                                           2002               2001
                                                                                      ---------------    --------------
                                Assets                                                 (unaudited)
Current assets:
<S>                                                                                   <C>                <C>
    Cash and cash equivalents                                                         $     47,994       $    22,736
    Marketable securities                                                                    3,201                 -
    Accounts receivable                                                                      9,005            20,446
    Prepaid membership materials                                                             3,337             3,903
    Prepaid expenses                                                                         3,225             5,857
    Membership solicitation and other deferred costs                                       140,131           154,059
                                                                                      ---------------    --------------
             Total current assets                                                          206,893           207,001
Fixed assets, net                                                                           33,212            39,687
Goodwill, net                                                                               42,039            84,814
Intangible assets, net                                                                       8,444            14,283
Other assets                                                                                 1,593             2,676
                                                                                      ---------------    --------------
             Total assets                                                             $    292,181       $   348,461
                                                                                      ===============    ==============

                Liabilities and Shareholders' Deficit
Current liabilities:
    Current maturities of long-term obligations                                       $        647       $       516
    Accounts payable                                                                        31,805            49,505
    Accrued liabilities                                                                     59,410            64,634
    Due to related parties                                                                       -             2,028
    Deferred membership fees                                                               210,993           243,024
                                                                                      ---------------    --------------
             Total current liabilities                                                     302,855           359,707
Long-term liabilities                                                                        4,358             3,057
                                                                                      ---------------    --------------
             Total liabilities                                                             307,213           362,764

Minority interest                                                                                -             6,505
Mandatorily redeemable convertible preferred securities of subsidiary                            -             5,157

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;
      17,480 shares issued (17,308 shares at June 30, 2001)                                    175               173
    Capital in excess of par value                                                         109,045           107,835
    Accumulated deficit                                                                    (44,417)          (80,196)
    Accumulated other comprehensive loss                                                      (622)             (370)
    Treasury stock, 3,666 shares at cost (1,920 shares at June 30,                         (79,213)          (53,407)
2001)
                                                                                      ---------------    --------------
             Total shareholders' deficit                                                   (15,032)          (25,965)
                                                                                      ---------------    --------------
             Total liabilities and shareholders' deficit                              $    292,181       $   348,461
                                                                                      ===============    ==============

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

                                       2
<PAGE>

<TABLE>
<CAPTION>

                            MEMBERWORKS INCORPORATED

           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
                      (In thousands, except per share data)


                                                                         Three months ended         Nine months ended
                                                                             March 31,                  March 31,
                                                                      -------------------------  ------------------------
                                                                         2002          2001         2002          2001
                                                                      ------------  -----------  -----------   ----------

<S>                                                                 <C>           <C>          <C>           <C>
Revenues                                                            $    100,800  $    133,877 $    322,448  $   349,292

Expenses:
    Operating                                                             19,069        24,107       59,645       66,057
    Marketing                                                             52,099        85,422      186,333      223,313
    General and administrative                                            18,385        27,023       59,964       74,650
    Restructuring and other charges (Note 4)                                   -             -        6,893            -
    Non-recurring charge (Note 5)                                              -         3,000            -        3,000
    Amortization of intangible assets                                        431         2,939        1,546        8,022
                                                                      ------------  -----------  -----------   ----------

Operating income (loss)                                                   10,816        (8,614)       8,067      (25,750)
Gain on sale of subsidiary (Note 6)                                            -             -       65,608            -
Net loss on investment (Note 6)                                                -             -      (31,339)      (2,172)
Other expense, net                                                          (321)         (163)        (357)        (313)
                                                                      ------------  -----------  -----------   ----------

Income (loss) before equity in affiliate and minority interest            10,495        (8,777)      41,979      (28,235)
Equity in income of affiliate                                                  -             -            -           83
Minority interest (Note 7)                                                     -         2,361          450        7,311
                                                                      ------------  -----------  -----------   ----------

Income (loss) before income taxes                                         10,495        (6,416)      42,429      (20,841)
Provision for income taxes                                                     -             -          743            -
                                                                      ------------  -----------  -----------   ----------

Income (loss) before cumulative effect of accounting change               10,495        (6,416)      41,686      (20,841)
Cumulative effect of accounting change (Note 2)                                -             -       (5,907)     (25,730)
                                                                      ------------  -----------  -----------   ----------
Net income (loss)                                                   $     10,495  $     (6,416)$     35,779  $   (46,571)
                                                                      ============  ===========  ===========   ==========

Basic earnings (loss) per share:
     Income (loss) before cumulative effect of accounting change    $       0.74  $      (0.42)$      2.82   $     (1.37)
     Cumulative effect of accounting change                                    -             -       (0.40)        (1.69)
                                                                      -----------   ----------   ------------  -----------
     Basic earnings (loss) per share                                $       0.74  $      (0.42)$      2.42   $     (3.06)
                                                                      ============  ===========  ===========   ==========

Diluted earnings (loss) per share:
     Income (loss) before cumulative effect of accounting change    $       0.72  $      (0.42)$      2.74   $     (1.37)
     Cumulative effect of accounting change                                    -             -       (0.39)        (1.69)
                                                                      ------------  -----------  -----------   ----------
     Diluted earnings (loss) per share                              $       0.72  $      (0.42)$      2.36   $     (3.06)
                                                                      ============  ===========  ===========   ==========

Weighted average common shares used in earnings (loss) per share calculations:
     Basic                                                                14,127        15,368       14,765       15,205
                                                                      ============  ===========  ===========   ==========
     Diluted                                                              14,561        15,368       15,190       15,205
                                                                      ============  ===========  ===========   ==========

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

                                       3
<PAGE>


<TABLE>
<CAPTION>

                            MEMBERWORKS INCORPORATED

           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                                 (In thousands)


                                                                                     Nine months ended March 31,
                                                                                 ------------------------------------
                                                                                       2002                2001
                                                                                 ----------------    ----------------
Operating activities
<S>                                                                            <C>                 <C>
    Net income (loss)                                                          $        35,779     $       (46,571)
    Adjustments to reconcile net income (loss) to net cash provided by
     operating activities:
        Cumulative effect of accounting change                                           5,907              25,730
        Gain on sale of subsidiary                                                     (65,608)                  -
        Net loss on investment                                                          31,339               2,172
        Restructuring and other charges                                                  1,585                   -
        Minority interest                                                                 (450)             (7,311)
        Equity in income of affiliate                                                        -                 (83)
        Revenues before deferral                                                       310,244             363,654
        Revenues recognized                                                           (322,448)           (349,292)
        Marketing costs before deferral                                               (182,465)           (220,798)
        Marketing costs expensed                                                       186,333             223,313
        Depreciation and amortization                                                    9,870              14,833
        Other                                                                            1,887               1,610

    Change in assets and liabilities:
        Accounts receivable                                                             10,111              (1,113)
        Prepaid membership materials                                                      (961)             (1,094)
        Prepaid expenses                                                                (1,117)             (3,085)
        Other assets                                                                        64               1,512
        Related party payables                                                              12                 136
        Accounts payable                                                               (11,910)             (7,796)
        Accrued liabilities and other                                                      914               6,098
                                                                                 ----------------    ----------------
Net cash provided by operating activities                                                9,086               1,915
                                                                                 ----------------    ----------------

Investing activities
    Acquisition of fixed assets                                                         (4,419)            (11,749)
    Proceeds from sale of subsidiary, net of cash sold                                  45,997                   -
    Business combinations, net of cash acquired                                              -              (3,041)
                                                                                 ----------------    ----------------
Net cash provided by (used in) investing activities                                     41,578             (14,790)
                                                                                 ----------------    ----------------

Financing activities
    Net proceeds from issuance of stock and warrants                                     1,305               6,575
    Net borrowings from credit facility                                                      -               2,790
    Treasury stock purchases                                                           (25,962)             (7,042)
    Payments of long-term obligations                                                     (520)               (500)
                                                                                 ----------------    ----------------
Net cash (used in) provided by financing activities                                    (25,177)              1,823
                                                                                 ----------------    ----------------
Effect of exchange rate changes on cash and cash equivalents                              (229)               (182)
                                                                                 ----------------    ----------------
Net increase (decrease) in cash and cash equivalents                                    25,258             (11,234)
Cash and cash equivalents at beginning of period                                        22,736              30,169
                                                                                 ----------------    ----------------
Cash and cash equivalents at end of period                                     $        47,994     $        18,935
                                                                                 ================    ================

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

                                       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
accruals) 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 the Company 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 and nine months ended March 31, 2002
are not necessarily indicative of the results that may be expected for the
fiscal year ending June 30, 2002. 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, 2001.

Certain reclassifications have been made to prior period financial statements to
conform to the current presentation of the financial statements.

NOTE 2 - CUMULATIVE EFFECT OF ACCOUNTING CHANGE

Adoption of SFAS 142
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), which is effective
for fiscal years beginning after December 15, 2001. Early adoption is permitted
for entities with fiscal years beginning after March 15, 2001, provided that the
first interim financial statements have not been previously issued. The Company
adopted SFAS 142 effective July 1, 2001. SFAS 142 addresses how intangible
assets that are acquired individually or with a group of other assets should be
accounted for in the financial statements upon their acquisition and after they
have been initially recognized in the financial statements. SFAS 142 requires
that goodwill and intangible assets that have indefinite useful lives not be
amortized but rather tested at least annually for impairment, and intangible
assets that have finite useful lives be amortized over their useful lives.

With the adoption of SFAS 142, the Company reassessed the useful lives and
residual values of all acquired intangible assets to make any necessary
amortization period adjustments. Based on that assessment, only goodwill was
determined to have an indefinite useful life and no adjustments were made to the
amortization period or residual values of other intangible assets. The Company
determined that there was an impairment of goodwill in the amount of $5,907,000
at one of its reporting units due to the change in methodology of calculating
impairment under SFAS 142 and recent downward trends in the operations of the
reporting unit (see Note 9). This amount was recorded as a cumulative effect of
accounting change in the statement of operations in the fiscal quarter ended
September 30, 2001.

                                       5
<PAGE>

                            MEMBERWORKS INCORPORATED

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following pro forma net income and earnings per share have been prepared
assuming SFAS 142 was adopted as of July 1, 2000. Pro forma balances have been
adjusted to exclude goodwill amortization expense which is no longer recorded
under the provisions of SFAS 142 (in thousands, except per share data).

<TABLE>
<CAPTION>

                                                                Three Months Ended             Nine Months Ended
                                                                     March 31,                     March 31,
                                                             --------------------------    --------------------------
                                                                2002          2001            2002          2001
                                                             ------------  ------------    ------------  ------------
Net income (loss) from continuing operations:
<S>                                                          <C>           <C>             <C>           <C>
     Reported net income (loss) from continuing operations   $    10,495   $    (6,416)    $    41,686   $   (20,841)
     Indefinite lived intangible asset amortization                    -         2,067               -         5,716
                                                             ------------  ------------    ------------  ------------
     Adjusted net income (loss) from continuing operations   $    10,495   $    (4,349)    $    41,686   $   (15,125)
                                                             ============  ============    ============  ============

Basic earnings (loss) per share:
     Reported earnings (loss) per share                      $      0.74   $     (0.42)    $      2.82   $     (1.37)
     Indefinite lived intangible asset amortization                    -          0.13               -          0.38
                                                             ------------  ------------    ------------  ------------
     Adjusted earnings (loss) per share                      $      0.74   $     (0.28)    $      2.82   $     (0.99)
                                                             ============  ============    ============  ============

Diluted earnings (loss) per share:
     Reported earnings (loss) per share                      $      0.72   $     (0.42)    $      2.74   $     (1.37)
     Indefinite lived intangible asset amortization                    -          0.13               -          0.38
                                                             ------------  ------------    ------------  ------------
     Adjusted earnings (loss) per share                      $      0.72   $     (0.28)    $      2.74   $     (0.99)
                                                             ============  ============    ============  ============
</TABLE>

Adoption of SAB 101
The Company adopted Staff Accounting Bulletin 101, "Revenue Recognition in
Financial Statements" ("SAB 101") as of July 1, 2000. SAB 101 establishes the
Security and Exchange Commission's (the "Staff") preference that membership fees
should not be recognized in earnings prior to the expiration of refund
privileges. Effective July 1, 2000, the Company changed its method of accounting
for membership fee revenue to comply with the Staff's preferred method as
outlined in SAB 101. Membership fees, and the related direct costs associated
with acquiring the underlying memberships, are no longer recognized on a
pro-rata basis over the corresponding membership period, but instead are
recognized in earnings upon the expiration of membership refund privileges. The
cumulative effect of this change in accounting principle as of July 1, 2000 of
$25,730,000 was recorded in the fiscal quarter ended September 30, 2000. The
membership fees, net of estimated refunds and associated direct costs, which
were deferred as part of the cumulative effect adjustment at July 1, 2000 were
recognized in earnings during fiscal year 2001 as the underlying refund
privileges expired. During the three and nine months ended March 31, 2001, the
Company recognized $12,553,000 and $66,430,000, respectively, of revenue which
was included as a component of the cumulative effect of accounting change booked
July 1, 2000.

                                       6
<PAGE>

                            MEMBERWORKS INCORPORATED

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 3 - EARNINGS PER SHARE

Basic and diluted earnings (loss) per share amounts are determined in accordance
with the provisions of FASB Statement 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 (loss) per share (in thousands,
except per share data):
<TABLE>
<CAPTION>

                                                                       Three months ended       Nine months ended
                                                                           March 31,                March 31,
                                                                      ---------------------  ------------------------
                                                                        2002        2001        2002          2001
                                                                      ----------  ---------  -----------   ----------
Numerator for basic and diluted earnings (loss) per share:
<S>                                                                 <C>         <C>        <C>           <C>
Income (loss) before cumulative effect of accounting change         $    10,495 $  (6,416) $    41,686   $   (20,841)
Cumulative effect of accounting change                                        -          -      (5,907)      (25,730)
                                                                      ----------  ---------  -----------   ----------
Net income (loss)                                                   $    10,495 $  (6,416) $    35,779   $   (46,571)
                                                                      ==========  =========  ===========   ==========

Denominator for basic earnings (loss) per share:
Weighted average number of common shares outstanding- basic              14,127     15,368      14,765        15,205
Effect of dilutive securities:
   Options                                                                  434          -         425             -
                                                                      ----------  ---------  -----------   ----------
Weighted average number of common shares outstanding- diluted            14,561     15,368      15,190        15,205
                                                                      ==========  =========  ===========   ==========

Basic earnings (loss) per share                                     $      0.74 $   (0.42) $      2.42   $     (3.06)
                                                                      ==========  =========  ===========   ==========
Diluted earnings (loss) per share                                   $      0.72 $   (0.42) $      2.36   $     (3.06)
                                                                      ==========  =========  ===========   ==========
</TABLE>

The diluted earnings (loss) per common share calculation excludes the effect of
potentially dilutive shares when their effect is antidilutive. For the three and
nine months ended March 31, 2002, the Company had 3,311,000 and 2,951,000,
respectively, of potentially dilutive stock options outstanding that are not
included in the calculation as they are antidilutive. For the three and nine
months ended March 31, 2001, the Company had 3,077,000 and 2,949,000,
respectively, of potentially dilutive stock options outstanding that are not
included in the calculation as they are antidilutive.

NOTE 4 - RESTRUCTURING AND OTHER CHARGES

On October 11, 2001, the Company announced the implementation of several cost
saving initiatives due to a recent slowdown in consumer response rates and
increased economic uncertainty in both the U.S. and abroad. This restructuring
program includes 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 and other charges of $6,893,000 in October 2001.

The major components of the restructuring and other charges and the remaining
accrual balances as of March 31, 2002 are as follows (in thousands):
<TABLE>
<CAPTION>

                                                   Total           Non-cash         Cash Charges        Liability
                                                  Charges      Charges to date        to date            Balance
                                               --------------  -----------------   ---------------    --------------

<S>                                            <C>             <C>                 <C>                <C>
Workforce reduction                            $     2,214     $          -        $      1,636       $       578
Lease obligations                                    3,094                -                 377             2,717
Asset disposals                                      1,585            1,585                   -                 -
                                               --------------  -----------------   ---------------    --------------
  Total                                        $     6,893     $      1,585        $      2,013       $     3,295
                                               ==============  =================   ===============    ==============
</TABLE>

                                       7
<PAGE>

                            MEMBERWORKS INCORPORATED

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Workforce Reduction
As part of the restructuring plan, the Company reduced its workforce by
approximately 190 regular employees, consisting of membership service
representatives and other professional personnel. All 190 employees have been
terminated.

Lease Obligations and Asset Disposals
In connection with the closing of the United Kingdom offices and the downsizing
of the Company's infrastructure, the Company recorded $73,000 for lease
terminations, $3,021,000 for non-cancelable lease obligations and $1,585,000 for
asset disposals and write-downs related to the closing of our United Kingdom
operations.

NOTE 5 - NON-RECURRING CHARGE

In April 2001, the Company entered into a voluntary agreement with the State of
California and Ventura and Orange Counties to implement certain marketing
practices in the State of California. Pursuant to the agreement, the Company
paid investigation costs and civil penalties of $2,000,000 to be split between
the state and the counties. The Company also established a reserve of $1,000,000
to cover specific costs related to the agreement. As a result of the agreement,
the Company took a non-recurring charge of $3,000,000 during the quarter ended
March 31, 2001.

NOTE 6 - GAIN ON SALE OF SUBSIDIARY/LOSS ON INVESTMENT

In August 2001, the Company sold its investment in and advances to iPlace, Inc.
in exchange for $50,111,000 in cash, including $3,703,000 held in escrow, and
1,601,000 shares of Homestore.com common stock, including 451,000 shares held in
escrow. The fair value of the Homestore.com common stock as of the date of sale
was $34,540,000. The Homestore.com common stock received is unregistered. Once
the Homestore.com stock is registered, MemberWorks may only sell 1/12th of the
shares in any calendar month. In connection with this sale, the Company
recognized a gain of $65,608,000.

Subsequently, the investment in Homestore.com declined in value and management
determined that the decline was other than temporary. As a result, the Company
wrote down its investment in Homestore.com to its fair value and recognized a
loss of $22,296,000 in the first fiscal quarter of 2002 and a loss of $9,043,000
in the second fiscal quarter of 2002. The net gain recognized on the sale of
iPlace, Inc. during the nine months ended March 31, 2002 was $34,269,000. As of
March 31, 2002, the Company's investment in Homestore.com is valued at
$3,201,000.

NOTE 7 - MINORITY INTEREST

Prior to the sale of iPlace, Inc. in August 2001, the Company was the majority
shareholder of iPlace, Inc. with an approximate 58% ownership share. Minority
interest in the statement of operations for the nine months ended March 31, 2002
represents approximately 42% of iPlace's losses incurred from July 1, 2001
through the date of the sale.

                                       8
<PAGE>

                            MEMBERWORKS INCORPORATED

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 8 - COMPREHENSIVE INCOME

The components of comprehensive income (loss) are as follows (in thousands):
<TABLE>
<CAPTION>

                                                                    Three months ended         Nine months ended
                                                                         March 31,                 March 31,
                                                                  ------------------------  ------------------------
                                                                    2002          2001         2002         2001
                                                                  ----------   -----------  -----------  -----------
<S>                                                               <C>          <C>          <C>          <C>
Net income (loss)                                                 $  10,495    $   (6,416)  $   35,779   $  (46,571)
   Unrealized loss on marketable securities                               -             -            -         (532)
   Reclassification adjustment for losses included in net loss            -             -            -          532
   Foreign currency translation loss                                     (1)         (627)        (252)        (605)
                                                                  ----------   -----------  -----------  -----------
Comprehensive income (loss)                                       $  10,494    $   (7,043)  $   35,527   $  (47,176)
                                                                  ==========   ===========  ===========  ===========
</TABLE>

NOTE 9 - 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 March 31, 2002                  As of June 30, 2001
                                             -----------------------------------   -----------------------------------
                                              Gross Carrying     Accumulated        Gross Carrying      Accumulated
                                                  Amount         Amortization           Amount         Amortization
                                             ----------------- -----------------   ------------------ ----------------
Amortized intangible assets:
<S>                                          <C>               <C>                 <C>                <C>
   Membership and Client Relationships       $      13,194     $      (5,105)      $      17,465      $      (5,642)
   Non-Compete Agreements                              238              (236)              3,009               (999)
   Other                                               950              (597)                950               (500)
                                             ----------------- -----------------   ------------------ ----------------
      Total amortized intangible assets      $      14,382     $      (5,938)      $      21,424      $      (7,141)
                                             ================= =================   ================== ================

Unamortized intangible assets:
     Goodwill                                $      42,039                         $      84,814
</TABLE>

The gross carrying amount and accumulated amortization of amortized intangible
assets at March 31, 2002 decreased from June 30, 2001 due to the sale of iPlace,
Inc.

The total intangible amortization expense reflected in the statement of
operations for the three and nine months ended March 31, 2002 is $431,000 and
$1,546,000, respectively. The future intangible amortization expense for the
next five fiscal years is estimated to be as follows (in thousands):

Fiscal Year:
     2002                                                      $       1,940
     2003                                                              1,393
     2004                                                              1,045
     2005                                                                840
     2006                                                                695

The changes in the carrying amount of goodwill for the nine months ended March
31, 2002 are as follows (in thousands):

     Balance as of July 1, 2001                                $      84,814
     Goodwill disposed during the first quarter due to sale of
       subsidiary                                                    (36,868)
     Impairment losses recorded in first quarter                      (5,907)
                                                               ----------------
     Balance as of March 31, 2002                              $      42,039
                                                               ================

                                       9
<PAGE>

                            MEMBERWORKS INCORPORATED

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Goodwill was tested for impairment during the quarter ended September 30, 2001
in connection with the adoption of SFAS 142. Due to the slow down in the
business of one of the Company's reporting units, future cash flows for this
reporting unit are expected to decline over the next few years. During the
quarter ended September 30, 2001, an impairment loss of $5,907,000 was recorded
to write down the goodwill related to this reporting unit to fair value. The
impairment loss was calculated utilizing the methodology set forth in SFAS 142.
As prescribed by SFAS 142, this write down is reflected in the statement of
operations as a cumulative effect of accounting change. The fair value of this
subsidiary was estimated by conducting a discounted cash flow analysis of the
subsidiary's future cash flows.

NOTE 10 - ALLOWANCE FOR MEMBERSHIP CANCELLATIONS

Accrued liabilities set forth in the accompanying condensed consolidated balance
sheets as of March 31, 2002 and June 30, 2001 include an allowance for
membership cancellations of $22,978,000 and $30,004,000, respectively.

NOTE 11 - 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. 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 January 2001, an action was instituted by plaintiff Brandy L. Ritt against
the Company and other defendants in the Court of Common Pleas in Cuyahoga
County, Ohio. The suit, which seeks unspecified monetary damages, alleges that
the Company and the other defendants violated various provisions of Ohio's
consumer protection laws in connection with the marketing of certain membership
programs offered by the Company. The plaintiff's motion to have the suit
certified as a class action was denied on February 6, 2002. The decision has
been appealed. The Company believes that the claims asserted against it are
unfounded and the Company will continue to vigorously defend its interests
against this suit.

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 has not ruled on the motion. The Company
believes that the claims made against Coverdell are unfounded and Coverdell and
the Company will vigorously defend their interests against this suit.

In June 2001, actions were instituted by plaintiffs Judith Jeselskis and Marcia
Walters against the Company and other defendants in Circuit Court of the Tenth
Judicial District, Highlands County Civil Division, Florida, and Circuit Court
of the Sixth Judicial Circuit, Pinellas County Civil Division, Florida,
respectively. The suits, seeking unspecified monetary damages, alleged that the
Company and the other defendants violated the Florida Deceptive and Unfair Trade
Practices Act, in connection with the marketing of certain membership programs
offered by the Company. The Jeselskis action has been dismissed. While the
Walters complaint includes claims that the suit should be certified as a class
action, the plaintiff has not filed motion for class certification. The Company
believes that the allegations made in the lawsuit are unfounded and the Company
will vigorously defend its interests against the suit.

                                       10
<PAGE>

                            MEMBERWORKS INCORPORATED

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

In July 2001 and March 2002, actions were instituted by plaintiffs Alan Stone
and Patricia Sanford against the Company and other defendants in Superior Court
of the State of California, County of Orange and United States District Court,
Southern District of California, respectively. The suits, which seek unspecified
monetary damages, allege that the Company and the other defendants violated
certain business practices laws. While the respective complaints include claims
that the suits should be certified as class actions, the plaintiffs have not
filed motions for class certification. The Company believes that the allegations
made in the lawsuits are unfounded and the Company will vigorously defend its
interests against these suits.

In March 2002, an action was instituted by Matthew Gowdy against the Company and
other defendants in the Sixth Judicial Circuit, Pinellas County Civil Division,
Florida. The suit, which seeks unspecified monetary damages, alleges that the
Company and the other defendants violated certain provisions of Florida consumer
law. The Company believes that the allegations made in this lawsuit are
unfounded and the Company will vigorously defend its interests against this
suit.

In March 2002, the Company and other plaintiffs filed suit against
Homestore.com, Inc. in United States District Court for the District of
Connecticut. The action has been transferred to the United States District court
for the Central District of California. The suit, seeking injunctive and other
relief, alleges securities fraud, negligent misrepresentation, breach of
contract and other grounds in connection with the Company's sale of its interest
in iPlace, Inc. In response to plaintiffs' preliminary motions, the court
ordered Homestore to place $58,000,000 in a constructive trust pending
resolution of the lawsuit or further order of the court.

NOTE 12 - RECENT ACCOUNTING PRONOUNCEMENTS

In August 2001, the FASB issued Statement No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS 143"), which is effective for fiscal years
beginning after June 15, 2002. SFAS 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. The adoption of SFAS 143 will
not have a material impact on the Company's financial statements.

In October 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), which is effective
for fiscal years beginning after December 15, 2001. SFAS 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets and
supersedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets to be Disposed of." The adoption of SFAS 144 will not have a material
impact on Company's financial statements.

                                       11

<PAGE>

                            MEMBERWORKS INCORPORATED

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

OVERVIEW

MemberWorks addresses the needs of organizations seeking to leverage the
expertise of an outside provider in offering membership service programs.
Membership service programs offer selected products and services from a variety
of vendors intended to enhance existing relationships between businesses and
consumers. MemberWorks derives its revenues principally from annually renewable
membership fees. The Company receives full payment of annual fees at or near the
beginning of the membership period, but recognizes revenue as the member's
refund privilege expires. Similarly, the costs associated with soliciting each
new member, as well as the cost of royalties, are recognized as the related
revenue is recognized. 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.

CRITICAL ACCOUNTING POLICIES

On December 12, 2001, the Securities and Exchange Commission issued Financial
Reporting Release No. 60, "Cautionary Advice Regarding Disclosure About Critical
Accounting Policies" ("FRR 60"), suggesting that companies provide additional
disclosure on those accounting policies considered most critical. Critical
accounting policies are those that are important to the Company's financial
condition and results 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, intangible assets, income taxes and contingencies and
litigation. 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 FRR
60. 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 2001
Annual Report on Form 10-K.

Revenue recognition
Membership fees are billed through clients of the Company primarily through
credit cards. During an initial annual membership term or renewal term, a member
may cancel his or her membership in the program, either for a complete refund of
the membership fee for that period or a prorata refund based on the remaining
portion of the membership period depending upon the terms of the membership
program. Deferred membership fees are recorded, net of estimated cancellations,
after the trial period has expired, and are amortized as revenues from
membership fees upon the expiration of membership refund privileges. An
allowance for cancellations is established based on management's estimates and
is updated regularly. In determining the estimate of allowance for
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
cancellations on a current basis.

Membership solicitation and other deferred costs
Membership solicitation costs include marketing and direct mail costs related
directly to membership solicitation (i.e., direct response advertising costs).
In accordance with Statement of Position 93-7, "Reporting on Advertising Costs,"
direct response advertising costs are deferred and charged to operations as
revenues from membership fees are recognized. Other deferred costs consist of
royalties paid to clients, which relate to the same revenue streams as the
direct response advertising costs and are also charged to income over the
membership period. Membership solicitation costs incurred to obtain a new member
generally are less than the estimated total membership fee. However, if
membership solicitation costs were to exceed total estimated membership fees, an
adjustment would be made to the extent of any impairment.

                                       12
<PAGE>

                            MEMBERWORKS INCORPORATED

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

Goodwill and other intangibles
MemberWorks reviewed the carrying value of its goodwill and other intangible
assets in connection with the implementation of Financial Accounting Standards
Board ("FASB") Statement No. 142, "Goodwill and Other Intangible Assets" ("SFAS
142") by comparing such amounts to their fair values. The Company determined
that there was an impairment of goodwill of $5.9 million at one of its reporting
units due to the change in methodology of calculating impairment under SFAS 142
and recent downward trends in the operations of the reporting unit (see Note 9
to the Condensed Consolidated Financial Statements). This amount was recorded as
a cumulative effect of accounting change in the statement of operations in the
fiscal quarter ended September 30, 2001. 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 will 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 impact earnings.

THREE MONTHS ENDED MARCH 31, 2002 VS. THREE MONTHS ENDED MARCH 31, 2001

REVENUES. Revenues decreased 25% to $100.8 million for the quarter ended
March 31, 2002 from $133.9  million for the quarter  ended March 31, 2001 due to
the effect of the slow down in new member  marketing  experienced  over the last
several quarters and the effect of the sale of iPlace,  Inc.  Excluding  iPlace,
Inc.  revenues from the prior year,  revenues would have decreased 18%. Revenues
before deferral  decreased 20% to $103.5 million for the quarter ended March 31,
2002 from  $129.8  million  for the  quarter  ended  March  31,  2001 due to the
slow down in new member marketing, the sale of iPlace,  Inc., and the closing of
the United Kingdom  operations.  Excluding iPlace,  Inc. revenues from the prior
year, revenues before deferral would have decreased 9%. The Company's membership
base decreased to  approximately  6.6 million members at March 31, 2002 from 7.9
million  members at March 31, 2001  primarily due to the slow down in new member
marketing  experienced over the last several quarters,  the sale of iPlace, Inc.
and the  closing of the United  Kingdom  operations.  As a  percentage  of total
revenues,  annual  renewal  revenues  were  48% in 2002  and 40% in  2001.  As a
percentage of total revenues before  deferral,  annual renewal revenues were 54%
in 2002 and 45% in 2001.  The increase in renewal  revenues as a  percentage  of
total revenues is due to the slow down in new member marketing  experienced over
the last several quarters.

OPERATING EXPENSES. Operating expenses consist of customer service call center
costs, membership benefit costs and membership kit costs. Operating expenses
decreased 21% to $19.1 million in 2002 from $24.1 million in 2001 primarily due
to the sale of iPlace, Inc., the closing of the United Kingdom operations and
lower revenues during the quarter.  As a percentage of revenues before deferral,
operating expenses decreased to 18.4% in 2002 from 18.6% in 2001.

MARKETING EXPENSES. Marketing expenses consist primarily of direct
solicitation costs incurred to obtain new members and royalties paid to clients,
which are generally amortized in the same manner as the related revenue.
Marketing expenses decreased 39% to $52.1 million in 2002 from $85.4 million in
2001 primarily due to the effect of the slow down in new member marketing
experienced over the last several quarters, the effect of the sale of iPlace,
Inc. and the closing of the United Kingdom operations. As a percentage of
revenue, marketing expenses decreased to 51.7% in 2002 from 63.8% in 2001
primarily due to the slow down in new member marketing experienced over the last
several quarters. The lower level of new member marketing resulted in an
increase in the ratio of renewal member revenues to total revenues. Marketing
expenses related to renewal revenues are typically significantly lower than
expenses related to new member revenues. Expenses related to new member
marketing, as a percent of new member revenues, increased in 2002 compared to
2001 primarily due a decrease in consumer response rates. Marketing expenses
before deferral decreased 23% to $57.0 million in 2002 from $74.4 million in
2001 and, as a percentage of revenues before deferral, decreased to 55.1% in
2002 from 57.3% in 2001. These decreases were due to the effect of a lower level
of new member marketing.

                                       13
<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 decreased 32% to $18.4 million in
2002 from $27.0 million in 2001, and as a percentage of revenues before
deferral, decreased to 17.8% in 2002 from 20.8% in 2001. These decreases were
primarily due to the effect of cost saving initiatives related to the
restructuring and the sale of iPlace, Inc.

AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Intangible amortization
decreased to $0.4 million in 2002 from $2.9 million in 2001 due to the adoption
of SFAS 142, which no longer requires the amortization of indefinite lived
intangible assets. Excluding the amortization of indefinite lived intangible
assets in 2001, amortization of goodwill and other intangibles would have been
$0.9 million.

OTHER EXPENSE, NET. Other expense, net is primarily composed of interest income
from cash and cash equivalents and interest expense on the Company's borrowings
under its line of credit. Other expense was $0.3 million in 2002 compared to
$0.2 million in 2001. The Company had no borrowings outstanding under its line
of credit during the quarter ended March 31, 2002.

PROVISION FOR INCOME TAXES. The Company was not required to record a provision
for income taxes for the three months ended March 31, 2002 and 2001 due to tax
losses realized.


NINE MONTHS ENDED MARCH 31, 2002 VS. NINE MONTHS ENDED MARCH 31, 2001

REVENUES. Revenues decreased 8% to $322.4 million for the nine months ended
March 31, 2002 from $349.3 million for the nine months ended March 31, 2001
primarily due to the effect of the sale of iPlace, Inc. and a decrease in the
Company's membership base. Excluding iPlace, Inc. revenues from the prior year,
revenues would have decreased 2%. Revenues before deferral decreased 15% to
$310.2 million for the nine months ended March 31, 2002 from $363.7 million for
the nine months ended March 31, 2001 due to the slow down in new member
marketing, the sale of iPlace, Inc. and the closing of the United Kingdom
operations. Excluding iPlace, Inc. revenues from the prior year, revenues before
deferral would have decreased 8%. The Company's membership base decreased to
approximately 6.6 million members at March 31, 2002 from 7.9 million members at
March 31, 2001 due to the slow down in new member marketing experienced over the
last several quarters, the sale of iPlace, Inc. and the closing of the United
Kingdom operations. As a percentage of total revenues, annual renewal revenues
were 49% in 2002 and 41% in 2001. As a percentage of total revenues before
deferral, annual renewal revenues were 52% in 2002 and 42% in 2001. The increase
in renewal revenues as a percentage of total revenues is due to the slow down in
new member marketing experienced over the last several quarters.

OPERATING EXPENSES. Operating expenses consist of customer service call center
costs, membership benefit costs and membership kit costs. Operating expenses
decreased 10% to $59.6 million in 2002 from $66.1 million in 2001 primarily due
to the sale of iPlace, Inc., the closing of the United Kingdom operations and
lower revenues during the quarter.  As a percentage of revenues before deferral,
operating expenses increased to 19.2% in 2002 from 18.2% in 2001 primarily due
to the effect of lower revenues reported in 2002.

MARKETING EXPENSES. Marketing expenses consist primarily of direct
solicitation costs incurred to obtain new members and royalties paid to clients,
which are generally amortized in the same manner as the related revenue.
Marketing expenses decreased 17% to $186.3 million in 2002 from $223.3 million
in 2001 primarily due to the effect of the slow down in new member marketing
experienced over the last several quarters and the effect of the sale of iPlace,
Inc. As a percentage of revenue, marketing expenses decreased to 57.8% in 2002
from 63.9% in 2001 primarily due to the slow down in new member marketing
experienced over the last several quarters. The lower level of new member
marketing resulted in an increase in the ratio of renewal member revenues to
total revenues. Marketing expenses related to renewal revenues are typically
significantly lower than expenses related to new member revenues. Expenses
related to new member marketing, as a percent of new member revenues, increased
in 2002 compared to 2001 primarily due to a decrease in consumer response rates.
Marketing expenses before deferral decreased 17% to $182.5 million in 2002

                                       14
<PAGE>

                            MEMBERWORKS INCORPORATED

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

from $220.8 million in 2001 and, as a percent of revenues before deferral,
decreased to 58.8% in 2002 from 60.7% in 2001. These decreases were due to the
effect of a lower level of new member marketing.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
primarily include personnel-related costs, occupancy costs and other overhead
costs. General and administrative expenses decreased 20% to $60.0 million in
2002 from $74.7 million in 2001, and as a percentage of revenues before
deferral, decreased to 19.3% in 2002 and 20.5% in 2001. These decreases were
primarily due to the effect of cost saving initiatives related to the
restructuring and the sale of iPlace, Inc.

RESTRUCTURING AND OTHER CHARGES. In October 2001, the Company implemented
certain cost saving initiatives due to a recent slowdown in consumer response
rates and increased economic uncertainty in both the U.S. and abroad. This
restructuring program included a workforce reduction of approximately 190
employees, the closing of the Company's United Kingdom operations and the
downsizing of the operational infrastructure throughout the Company. As a result
of this restructuring program, the Company recorded restructuring and other
charges of $6.9 million during the second quarter ended December 31, 2001.

AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Intangible amortization
decreased to $1.5 million in 2002 from $8.0 million in 2001 due to the adoption
of SFAS 142, which no longer requires the amortization of indefinite lived
intangible assets, and the sale of iPlace, Inc. Excluding the amortization of
indefinite lived intangible assets in 2001, amortization of goodwill and other
intangibles would have been $2.3 million.

OTHER EXPENSE, NET. Other expense, net is primarily composed of interest income
from cash and cash equivalents and interest expense on the Company's borrowings
under its line of credit. Other expense increased to $0.4 million in 2002 from
$0.3 million in 2001. The Company had no borrowings outstanding under its line
of credit as of March 31, 2002.

PROVISION FOR INCOME TAXES. In connection with the gain on the sale of iPlace,
Inc., the Company recorded a provision for alternative minimum taxes of
approximately $0.7 million. The Company was not required to record a provision
for income taxes for the nine months ended March 31, 2001.


LIQUIDITY AND CAPITAL RESOURCES

Operating cash flow before changes in assets and liabilities was $12.0
million for the nine months ended March 31, 2002 compared to $7.3 million in
2001. The increase in operating cash flow before changes in assets and
liabilities was primarily due to decreased losses incurred related to iPlace,
Inc. and the United Kingdom operations and the cost saving initiatives related
to the restructuring. Revenues before deferral decreased 15% to $310.2 million
for the nine months ended March 31, 2002 from $363.7 million for the nine months
ended March 31, 2001. The Company's membership base decreased to approximately
6.6 million members at March 31, 2002 from 7.9 million members at March 31, 2001
due to a slow down in new member marketing experienced over the last several
quarters, the sale of iPlace, Inc. and the closing of the United Kingdom
operations. Marketing expenses before deferral decreased 17% to $182.5 million
in 2002 from $220.8 million in 2001 and, as a percent of revenues before
deferral, decreased to 58.8% in 2002 from 60.7% in 2001. These decreases were
due to the effect of a lower level of new member marketing which resulted in an
increase in the ratio of renewal member revenues to total revenues. Marketing
expenses related to renewal revenues are typically significantly lower than
expenses related to new member revenues. Expenses related to new member
marketing, as a percent of new member revenues, increased in 2002 compared to
2001 primarily due to a decrease in consumer response rates. Changes in assets
and liabilities decreased cash by $2.9 million for 2002 and $5.3 million in
2001. In total, cash provided by operations was $9.1 million for the nine months
ended March 31, 2002 compared to $1.9 million in 2001.

                                       15
<PAGE>

                            MEMBERWORKS INCORPORATED

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


Net cash provided by investing activities was $41.6 million in 2002 compared to
cash used in investing activities of $14.8 million in 2001. Net cash provided by
investing activities reflected the receipt of $46.0 million in net proceeds from
the sale of iPlace, Inc. Capital expenditures were $4.4 million in 2002 and
$11.7 million in 2001.

Net cash used in financing activities was $25.2 million in 2002 versus net cash
provided by financing activities of $1.8 million in 2001. The increase in cash
used in financing activities was due to an increase in the number of treasury
shares acquired under the Company's stock repurchase program. The Company
purchased 1,752,000 shares for $26.0 million during the nine months ended March
31, 2002 compared to 262,000 shares for $7.0 million during the nine months
ended March 31, 2001. The Company utilizes cash from operations to repurchase
shares, as the Company believes this enhances shareholder value. On January 24,
2002, the Board of Directors authorized an additional 1 million shares to be
purchased under the buyback program. As of March 31, 2002, the Company had
947,000 shares available for repurchase under its buyback program.

As of March 31, 2002, the Company had cash and cash equivalents of $48.0
million. In addition, the Company has an $18 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 March 31, 2002, the effective
interest rate for borrowings was 5.25%. There were no borrowings outstanding
under this bank credit facility as of March 31, 2002. The bank credit facility
has certain financial covenants, including a maximum debt coverage ratio, a
minimum fixed charge ratio, potential restrictions on additional borrowings and
potential restrictions on additional stock repurchases. 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.

In August 2001, the Company received 1.6 million shares of Homestore.com common
stock at a market value of $34.5 million, of which 0.5 million shares are
currently held in escrow to secure the Company's indemnification obligations
under the iPlace, Inc. merger agreement. The Homestore.com common stock received
is unregistered and it is unknown when the stock will be registered. MemberWorks
may only sell 1/12th of the shares in any calendar month. During the nine months
ended March 31, 2002, the Company wrote down its investment in Homestore.com to
its fair value and recognized a loss of $31.3 million. Accordingly, the net gain
on the sale of iPlace Inc. was $34.3 million.

The Company did not have any material commitments for capital expenditures as of
March 31, 2002. The Company intends to utilize cash generated from operations to
fulfill any capital expenditure requirements for the remainder of fiscal 2002.

                                       16
<PAGE>

                            MEMBERWORKS INCORPORATED

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

COMMITMENTS

On January 22, 2002, the Securities and Exchange Commission issued Financial
Reporting Release No. 61, "Commission Statement about Management's Discussion
and Analysis of Financial Condition and Results of Operations", suggesting that
companies provide additional disclosures related to liquidity and capital
resources, including off-balance sheet arrangements, certain trading activities
that include non-exchange traded contracts accounted for at fair value and the
effect of transactions with related and certain other parties. The Company is
not aware of factors that are reasonably likely to adversely affect liquidity
trends, other than the risk factors presented in other Company filings. 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 March 31, 2002 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                      $     29,690    $     6,661     $     10,765    $      6,136    $      6,128
Capital leases                                 114             94               20               -               -
Notes payable                                  867            316              551               -               -
Other long-term obligations                    574            235              339               -               -
                                      --------------  -------------   --------------  --------------  ---------------
Total payments due                    $     31,245    $     7,306     $     11,675    $      6,136    $      6,128
                                      ==============  =============   ==============  ==============  ===============
</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. See Note 8 of the Notes to the consolidated financial
statements of the Company's 2001 Annual Report filed on Form 10-K.

                                       17
<PAGE>


                            MEMBERWORKS INCORPORATED

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

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In July 2001, the FASB issued Statement No. 141, "Business Combinations" ("SFAS
141"), which is effective for business combinations initiated after June 30,
2001. SFAS 141 eliminates the pooling of interest method of accounting for
business combinations and requires that all business combinations occurring on
or after July 1, 2001 are accounted for under the purchase method. The Company
has evaluated the impact of SFAS 141 and believes that it will not have a
material impact on its financial statements.

In July 2001, the FASB issued Statement No. 142, "Goodwill and Other Intangible
Assets" ("SFAS 142"), which is effective for fiscal years beginning after
December 15, 2001. Early adoption is permitted for entities with fiscal years
beginning after March 15, 2001, provided that the first interim financial
statements have not been previously issued. The Company adopted SFAS 142
effective July 1, 2001. SFAS 142 addresses how intangible assets that are
acquired individually or with a group of other assets should be accounted for in
the financial statements upon their acquisition and after they have been
initially recognized in the financial statements. SFAS 142 requires that
goodwill and intangible assets that have indefinite useful lives not be
amortized but rather tested at least annually for impairment, and intangible
assets that have finite useful lives be amortized over their useful lives.

With the adoption of SFAS 142, the Company reassessed the useful lives and
residual values of all acquired intangible assets to make any necessary
amortization period adjustments. Based on that assessment, only goodwill was
determined to have an indefinite useful life and no adjustments were made to the
amortization period or residual values of other intangible assets. The Company
determined there was an impairment of goodwill of $5.9 million at one of its
reporting units due to the change in methodology of calculating impairment under
SFAS 142 and recent downward trends in the operations of the reporting unit.
This amount was recorded as a cumulative effect of accounting change in the
statement of operations in the fiscal quarter ended September 30, 2001.

In August 2001, the FASB issued Statement No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS 143"), which is effective for fiscal years
beginning after June 15, 2002. SFAS 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. The adoption of SFAS 143 will
not have a material impact on the Company's financial statements.

In October 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), which is effective
for fiscal years beginning after December 15, 2001. SFAS 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets and
supersedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets to be Disposed of." The adoption of SFAS 144 will not have a material
impact on Company's financial statements.

                                       18
<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 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:

--   The  Company's  ability to  integrate  into the  Company's  management  and
     operations and operate successfully acquired businesses;
--   Changes in the marketing techniques of credit card issuers;
--   Unanticipated  cancellation or termination of marketing  agreements and the
     extent to which we can continue successful development and marketing of new
     products and services;
--   The Company's  ability to develop and implement  operational  and financial
     systems to manage rapidly growing operations;
--   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;
--   Further  changes in the already  competitive  environment for the Company's
     products or competitors' responses to the Company's strategies;
--   Changes  in  the  growth  rate  of  the  overall  U.S.   economy,   or  the
     international economies where MemberWorks does business, such that consumer
     spending and related consumer debt are impacted;
--   Additional government regulation of the Company's industry; and
--   New accounting pronouncements

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 under the Federal
Exchange Commission, 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.

                                       19
<PAGE>

                            MEMBERWORKS INCORPORATED

           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Interest Rate
The Company has an $18.0 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. There were no borrowings outstanding under this bank
credit facility as of March 31, 2002. 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 April
1, 2003, 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 with respect to its outstanding debt.

Foreign Currency
The Company has international sales and facilities in the United Kingdom and
Canada and therefore, is subject to foreign currency rate exposure.
Historically, international sales have been denominated in British pounds
sterling and the Canadian dollar. The functional currencies of the Company's
foreign operations are the local currencies. Assets and liabilities of these
subsidiaries are translated into U.S. dollars at exchange rates in effect as of
the Balance Sheet date. Income and expense items are translated at average
exchange rates 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
In August 2001, MemberWorks acquired stock in Homestore.com valued at $34.5
million in exchange for its interest in iPlace, Inc. The carrying value of this
investment is affected by changes in the quoted market prices of Homestore.com
common stock. The investment in Homestore.com declined in value and management
determined that the decline was other than temporary. As a result, the Company
wrote down its investment in Homestore.com to its fair value and recognized a
loss of $31.3 million during the nine months ended March 31, 2002. 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.

                                       20
<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. 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 January 2001, an action was instituted by plaintiff Brandy L. Ritt against
the Company and other defendants in the Court of Common Pleas in Cuyahoga
County, Ohio. The suit, which seeks unspecified monetary damages, alleges that
the Company and the other defendants violated various provisions of Ohio's
consumer protection laws in connection with the marketing of certain membership
programs offered by the Company. The plaintiff's motion to have the suit
certified as a class action was denied on February 6, 2002. The decision has
been appealed. The Company believes that the claims asserted against it are
unfounded and the Company will continue to vigorously defend its interests
against this suit.

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 has not ruled on the motion. The Company
believes that the claims made against Coverdell are unfounded and Coverdell and
the Company will vigorously defend their interests against this suit.

In June 2001, actions were instituted by plaintiffs Judith Jeselskis and Marcia
Walters against the Company and other defendants in Circuit Court of the Tenth
Judicial District, Highlands County Civil Division, Florida, and Circuit Court
of the Sixth Judicial Circuit, Pinellas County Civil Division, Florida,
respectively. The suits, seeking unspecified monetary damages, alleged that the
Company and the other defendants violated the Florida Deceptive and Unfair Trade
Practices Act, in connection with the marketing of certain membership programs
offered by the Company. The Jeselskis action has been dismissed. While the
Walters complaint includes claims that the suit should be certified as a class
action, the plaintiff has not filed motion for class certification. The Company
believes that the allegations made in the lawsuit are unfounded and the Company
will vigorously defend its interests against the suit.

In July 2001 and March 2002, actions were instituted by plaintiffs Alan Stone
and Patricia Sanford against the Company and other defendants in Superior Court
of the State of California, County of Orange and United States District Court,
Southern District of California, respectively. The suits, which seek unspecified
monetary damages, allege that the Company and the other defendants violated
certain business practices laws. While the respective complaints include claims
that the suits should be certified as class actions, the plaintiffs have not
filed motions for class certification. The Company believes that the allegations
made in the lawsuits are unfounded and the Company will vigorously defend its
interests against these suits.

In March 2002, an action was instituted by Matthew Gowdy against the Company and
other defendants in the Sixth Judicial Circuit, Pinellas County Civil Division,
Florida. The suit, which seeks unspecified monetary damages, alleges that the
Company and the other defendants violated certain provisions of Florida consumer
law. The Company believes that the allegations made in this lawsuit are
unfounded and the Company will vigorously defend its interests against this
suit.

                                       21
<PAGE>

                            MEMBERWORKS INCORPORATED

                           PART II. OTHER INFORMATION


In March 2002, the Company and other plaintiffs filed suit against
Homestore.com, Inc. in United States District Court for the District of
Connecticut. The action has been transferred to the United States District Court
for the Central District of California. The suit, seeking injunctive and other
relief, alleges securities fraud, negligent misrepresentation, breach of
contract and other grounds in connection with the Company's sale of its interest
in iPlace, Inc. In response to plaintiffs' preliminary motions, the court
ordered Homestore to place $58.0 million in a constructive trust pending
resolution of the lawsuit or further order of the court.


Item 6.  Exhibits and Reports on Form 8-K

a)  Exhibits
    None

b)  Reports on Form 8-K
    None

                                       22
<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: May 14, 2002            By: /s/ Gary A. Johnson
                                  -------------------
                                  Gary A. Johnson, President, Chief
                                  Executive Officer and Director


      May 14, 2002            By: /s/ James B. Duffy
                                  ------------------------------
                                  James B. Duffy, Executive Vice President and
                                  Chief Financial Officer (Principal Financial
                                  and Accounting Officer)