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, 2002


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

                  For The Transition Period From _____ to _____

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


                         Commission File Number: 1-9293



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



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


     321 East Main Street, Ada, Oklahoma                        74821-0145
  (Address of principal executive offices)                      (Zip Code)


      (Registrants' telephone number, including area code): (580) 436-1234


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  [ ]

The  number of shares outstanding of the registrant's common stock as of October
18, 2002 was 19,009,090.



                          PRE-PAID LEGAL SERVICES, INC.

                                    FORM 10-Q

                    For the Quarter Ended September 30, 2002


                                    CONTENTS



     

Part I.  Financial Statements

         Item 1.      Financial Statements of Registrant:


a)    Consolidated Balance Sheets
        as of September 30, 2002 (Unaudited) and
        December 31, 2001

b)    Consolidated Statements of Income
        (Unaudited) for the three months and nine months ended
        September 30, 2002 and 2001

c)    Consolidated Statements of Comprehensive Income
        (Unaudited) for the three months and nine months ended
        September 30, 2002 and 2001

d)    Consolidated Statements of Cash Flows
        (Unaudited) for the nine months ended
        September 30, 2002 and 2001

e)    Notes to Consolidated Financial Statements (Unaudited)

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

         Item 3.      Quantitative and Qualitative Disclosures About Market Risk

         Item 4.      Controls and Procedures

Part II.  Other Information

         Item 1.      Legal Proceedings

         Item 4.      Submission Of Matters To A Vote Of Security Holders

         Item 6.      Exhibits and Reports on Form 8-K


Signatures

Certifications








ITEM 1.  FINANCIAL STATEMENTS OF REGISTRANT
         ----------------------------------




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



                                     ASSETS

                                                                                                   
                                                                                        September 30,     December 31,
                                                                                             2002             2001
                                                                                        ------------     ------------
Current assets:                                                                          (Unaudited)

  Cash and cash equivalents........................................................     $    13,077      $    14,290
  Available-for-sale investments, at fair value....................................           7,089            6,070
  Membership income receivable.....................................................           6,209            5,472
  Inventories......................................................................           1,210              922
  Income taxes receivable..........................................................             256                -
  Deferred member and associate service costs......................................          15,153           14,228
  Deferred income taxes............................................................           4,687            3,413
                                                                                        ------------     ------------
      Total current assets.........................................................          47,681           44,395
Available-for-sale investments, at fair value......................................          11,899           13,386
Investments pledged................................................................           4,159            4,315
Property and equipment, net........................................................          20,583           14,755
Deferred member and associate service costs........................................           3,230            2,907
Other assets.......................................................................           5,191            5,962
                                                                                        ------------     ------------
        Total assets...............................................................     $    92,743      $    85,720
                                                                                        ------------     ------------


                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Membership benefits..............................................................     $     8,584      $     7,664
  Deferred revenue and fees........................................................          24,042           20,893
  Income taxes payable.............................................................               -            1,087
  Accounts payable and accrued expenses............................................          16,310            9,678
  Current portion of notes payable.................................................           3,333                -
                                                                                        ------------     ------------
    Total current liabilities......................................................          52,269           39,322
  Deferred revenue and fees........................................................           4,625            4,158
  Deferred income taxes ...........................................................             886               16
  Notes payable....................................................................           5,100                -
                                                                                        ------------     ------------
      Total liabilities............................................................          62,880           43,496
                                                                                        ------------     ------------
Stockholders' equity:
  Common stock, $.01 par value; 100,000 shares authorized; 23,861 and
    24,806 issued at September 30, 2002 and December 31, 2001, respectively........             239              248
  Capital in excess of par value...................................................          47,702           66,223
  Retained earnings................................................................          80,594           54,240
  Accumulated other comprehensive income...........................................             356              186
  Treasury stock, at cost; 4,852 and 3,989 shares held at
    September 30, 2002 and December 31, 2001, respectively.........................         (99,028)         (78,673)
                                                                                        ------------     ------------
      Total stockholders' equity...................................................          29,863           42,224
                                                                                        ------------     ------------
        Total liabilities and stockholders' equity.................................     $    92,743      $    85,720
                                                                                        ------------     ------------

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




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



                                                                     Three Months Ended        Nine Months Ended
                                                                       September 30,             September 30,
                                                                  ----------- -----------  -----------  -----------
                                                                     2002         2001         2002         2001
                                                                  ----------- -----------  -----------  -----------
                                                                                            
Revenues:
  Membership fees..............................................   $   79,583  $   67,427   $  229,062   $  193,822
  Associate services...........................................        9,363       7,706       27,499       26,827
  Other........................................................        1,213       1,082        3,573        2,699
                                                                  ----------- -----------  -----------  -----------
                                                                      90,159      76,215      260,134      223,348
                                                                  ----------- -----------  -----------  -----------
Costs and expenses:
  Membership benefits..........................................       26,620      22,128       76,936       63,951
  Commissions..................................................       31,064      28,916       91,671       83,999
  Associate services and direct marketing......................        7,732       5,305       22,455       21,277
  General and administrative...................................        8,529       6,966       23,869       20,841
  Other, net...................................................        2,539       1,635        4,968        3,707
                                                                  ----------- -----------  -----------  -----------
                                                                      76,484      64,950      219,899      193,775
                                                                  ----------- -----------  -----------  -----------

Income from continuing operations before income taxes..........       13,675      11,265       40,235       29,573
Provision for income taxes.....................................        4,718       3,745       13,881        9,712
                                                                  ----------- -----------  -----------  -----------
Income from continuing operations..............................        8,957       7,520       26,354       19,861
Loss from operations of discontinued UFL segment,
  net of applicable income tax - Note 5........................            -        (562)           -         (506)
                                                                  ----------- -----------  -----------  -----------
Net income.....................................................   $    8,957  $    6,958   $   26,354   $   19,355
                                                                  ----------- -----------  -----------  -----------

Basic earnings per common share from continuing operations.....   $     .46   $     .35    $    1.32    $     .92
Basic loss per common share from
  discontinued operations......................................           -        (.03)           -         (.02)
                                                                  ----------- -----------  -----------  -----------
Basic earnings per common share................................   $     .46   $     .32    $    1.32    $     .90
                                                                  ----------- -----------  -----------  -----------

Diluted earnings per common share from continuing operations...   $     .46   $     .35    $    1.32    $     .92
Diluted loss per common share from
  discontinued operations......................................           -        (.03)           -         (.02)
                                                                  ----------- -----------  -----------  -----------
Diluted earnings per common share..............................   $     .46   $     .32    $    1.32    $     .90
                                                                  ----------- -----------  -----------  -----------

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





                          PRE-PAID LEGAL SERVICES, INC.
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                               (Amounts in 000's)
                                   (Unaudited)




                                                                     Three Months Ended        Nine Months Ended
                                                                       September 30,             September 30,
                                                                  ----------- -----------  -----------  -----------
                                                                     2002         2001         2002         2001
                                                                  ----------- -----------  -----------  -----------
                                                                                            
Net income.....................................................   $    8,957  $    6,958   $   26,354   $   19,355
                                                                  ----------- -----------  -----------  -----------

Other comprehensive income (loss), net of tax:
  Foreign currency translation adjustment......................          (30)        (36)          69          (11)
                                                                  ----------- -----------  -----------  -----------
  Unrealized gains (losses) on investments:
    Unrealized holding gains (losses) arising during period....          104         377          155          709
    Reclassification adjustment for realized losses (gains)
      included in net income...................................          (25)          -          (54)         (12)
                                                                  ----------- -----------  -----------  -----------
                                                                          79         377          101          697
                                                                  ----------- -----------  -----------  -----------
Other comprehensive income, net of income taxes of $43 and $183
 for the three months and $54 and $366 for the nine months ended
 September 30, 2002 and 2001, respectively.....................           49         341          170          686
                                                                  ----------- -----------  -----------  -----------

Comprehensive income...........................................   $    9,006  $    7,299   $   26,524   $   20,041
                                                                  ----------- -----------  -----------  -----------

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



                          PRE-PAID LEGAL SERVICES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                               (Amounts in 000's)
                                   (Unaudited)



                                                                                         Nine Months Ended
                                                                                           September 30,
                                                                                    -------------------------
                                                                                        2002          2001
                                                                                    -----------   -----------
Cash flows from operating activities:
                                                                                            
Net income.......................................................................   $   26,354    $   19,355
Adjustments to reconcile net income to net cash provided
  by operating activities:
  Loss from discontinued operations..............................................            -           506
  Provision for deferred income taxes............................................         (294)          618
  Depreciation and amortization..................................................        3,844         2,953
  Tax benefit on exercise of stock options.......................................          817             -
  Compensation expense relating to contribution of stock to ESOP.................          207           162
  Increase in income taxes receivable............................................         (256)            -
  Increase in Membership income receivable.......................................         (737)       (1,005)
  (Increase) decrease in inventories.............................................         (288)          329
  Increase in deferred member and associate service costs........................       (1,248)       (1,817)
  Decrease in other assets.......................................................          771           817
  Increase in accrued Membership benefits........................................          920           579
  Increase in deferred revenue and fees..........................................        3,616         3,472
  Decrease in income taxes payable...............................................       (1,087)         (760)
  Increase in accounts payable, accrued expenses and other, net..................        6,426           576
                                                                                    -----------   -----------
    Net cash provided by operating activities of continuing operations...........       39,045        25,785
                                                                                    -----------   -----------
Cash flows from investing activities:
  Additions to property and equipment............................................       (9,672)       (6,620)
  Purchases of investments - available for sale..................................      (12,890)      (10,454)
  Maturities and sales of investments - available for sale.......................       13,199         9,305
                                                                                    -----------   -----------
        Net cash used in investing activities of continuing operations...........       (9,363)       (7,769)
                                                                                    -----------   -----------
Cash flows from financing activities:
  Proceeds from exercise of common stock options.................................        3,036            99
  Debt proceeds..................................................................        9,100             -
  Repayments of debt.............................................................         (667)            -
  Decrease in capital lease obligations..........................................            -          (194)
  Purchases of treasury stock....................................................      (42,364)      (15,820)
                                                                                    -----------   -----------
        Net cash used in financing activities of continuing operations...........      (30,895)      (15,915)
                                                                                    -----------   -----------

Net (decrease) increase in cash and cash equivalents.............................       (1,213)        2,101
Cash and cash equivalents at beginning of period.................................       14,290        10,866
                                                                                    -----------   -----------
Cash and cash equivalents at end of period.......................................   $   13,077    $   12,967
                                                                                    -----------   -----------
Supplemental disclosure of cash flow information:
  Net cash used in discontinued operations.......................................   $        -    $     (593)
                                                                                    -----------   -----------
  Cash paid for interest.........................................................   $       37    $        1
                                                                                    -----------   -----------
  Income taxes paid..............................................................   $   14,980    $    8,400
                                                                                    -----------   -----------

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



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


Note 1 - Basis of Presentation

     The accompanying  consolidated  financial statements and notes thereto have
been  prepared  pursuant  to the rules and  regulations  of the  Securities  and
Exchange  Commission.  Accordingly,  certain  disclosures  normally  included in
financial statements prepared in accordance with accounting principles generally
accepted  in the  United  States of  America  ("GAAP")  have been  omitted.  The
accompanying  consolidated financial statements and notes thereto should be read
in  conjunction  with the  consolidated  financial  statements and notes thereto
included in the Company's 2001 Annual Report on Form 10-K.

     The consolidated  financial  statements include the financial statements of
the Company and its wholly  owned  subsidiaries.  All  significant  intercompany
balances and transactions have been eliminated in consolidation.

     In  the  opinion  of  management,   the  accompanying  unaudited  financial
statements  as of September  30, 2002,  and for the three months and nine months
ended September 30, 2002 and 2001,  reflect  adjustments  (which were normal and
recurring)  which,  in the  opinion  of  management,  are  necessary  for a fair
statement of the  financial  position and results of  operations  of the interim
periods presented.  Results for the three months and nine months ended September
30, 2002 are not necessarily indicative of results expected for the full year.

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


Note 2 - Contingencies

     The  Company  and  various  of its  executive  officers  have been named as
defendants in a putative  securities class action originally filed in the United
States District Court for the Western District of Oklahoma in early 2001 seeking
unspecified  damages on the basis of  allegations  that the Company issued false
and  misleading  financial  information,  primarily  related  to the  method the
Company  used  to  account  for  commission   advance   receivables  from  sales
associates.  On March 5, 2002, the Court granted the Company's motion to dismiss
the  complaint,  with  prejudice,  and  entered  a  judgment  in  favor  of  the
defendants.  Plaintiffs thereafter filed a motion requesting  reconsideration of
the dismissal  which was denied.  The plaintiffs  have appealed the judgment and
the order denying  their motion to reconsider  the judgment to the Tenth Circuit
Court of Appeals,  and the Pre-Paid  defendants  will  respond  according to the
schedule set by the  appellate  court.  In August 2002,  the lead  institutional
plaintiff  withdrew  from the case,  leaving two  individual  plaintiffs as lead
plaintiffs on behalf of the putative class. The ultimate outcome of this case is
not determinable.

     On June 7, 2001 and August 3, 2001,  shareholder  derivative  actions  were
filed by alleged company shareholders,  Bruce A. Hansen and Donna L. Hansen, and
Roger  Strykowski,  respectively,  against all of the  directors  of the Company
seeking  unspecified  actual and punitive damages on behalf of the Company based
on allegations of breach of fiduciary duty, corporate waste and mismanagement by
the  defendant  directors.  On March 1, 2002,  plaintiffs  filed a  consolidated
amended derivative  complaint.  The amended complaint alleges that the defendant
directors caused the Company to violate generally accepted accounting principles
and federal  securities  laws by improperly  capitalizing  commission  expenses,
caused the Company to allegedly  pay  increased  salaries and bonuses based upon
financial  performance which was allegedly improperly  inflated,  and caused the
Company to expend  significant  dollars in  connection  with the  defense of its
accounting policy, including cost incurred in connection with the defense of the
securities  class action  described above, and in connection with the repurchase
of its own shares on the open market at allegedly  artificially inflated prices.
This  derivative  action is  related to the  putative  securities  class  action
described above,  which has been dismissed with prejudice.  After the defendants
moved to dismiss the consolidated amended derivative  complaint,  the plaintiffs
filed a voluntary  dismissal of the case in August 2002 without  prejudice.  The
Pre-Paid defendants have objected to the voluntary dismissal. The case is in the
preliminary stages and the ultimate outcome is not determinable.

     Beginning  in the second  quarter of 2001 and through  September  30, 2002,
multiple lawsuits were filed against the Company,  certain officers,  employees,
sales associates and other  defendants in various Alabama and Mississippi  state
courts by current or former  members  seeking  unspecified  actual and  punitive
damages for  alleged  breach of  contract,  fraud and  various  other  claims in
connection with the sale of  memberships.  As of September 30, 2002, the Company
was aware of 21 separate  lawsuits  involving  approximately 289 plaintiffs that
have been filed in multiple  counties in Alabama,  and eleven separate  lawsuits
involving  approximately  420  plaintiffs in multiple  counties in  Mississippi.
Certain of the Mississippi lawsuits also name the Company's provider attorney in
Mississippi  as a  defendant.  A  complaint  was  also  filed on  behalf  of the
Mississippi  plaintiffs  and others with the Attorney  General of Mississippi in
March 2002 and the  Company  responded  to a request  for  information  from the
Attorney  General in May 2002.  No other  action has been taken by the  Attorney
General  since  that  date.  Additional  suits of a  similar  nature  have  been
threatened.  In  January  2002,  one of the law  firms  representing  individual
plaintiffs  in some of those  Alabama  suits  filed a putative  class  action on
behalf of all  Alabama  residents  purchasing  memberships  seeking  damages and
injunctive  relief  based on  alleged  failures  to provide  coverage  under the
memberships.  The class action allegations of that suit have been dismissed with
prejudice  and the  claims of the two  individuals  are all that  remain in that
suit.  Two  Alabama  member  suits have been  dismissed  with  prejudice  by the
Pre-Paid  members  who brought the suits  without  any payment by  Pre-paid.  In
Mississippi,  the Company has filed lawsuits in the United States District Court
for the  Southern and Northern  Districts  of  Mississippi  in which the Company
seeks to compel arbitration of the various  Mississippi claims under the Federal
Arbitration  Act and the terms of the  Company's  membership  agreements.  These
cases  are  all in  various  stages  of  litigation,  including  trial  settings
beginning in Alabama in December 2002 and in  Mississippi  in February 2003, and
seek  varying  amounts  of actual  and  punitive  damages.  While the  amount of
membership fees paid by the plaintiffs in the  Mississippi  cases is $500,000 or
less, certain of the cases seek damages of $90 million.  The ultimate outcome of
any particular case is not determinable.

     On April 19, 2002, counsel in certain of the above-referenced Alabama suits
also filed a similar suit against the Company and certain of its officers in the
District  Court of Creek  County,  Oklahoma  on behalf  of Jeff and Jana  Weller
individually  and doing  business  as Hi-Tech  Auto making  similar  allegations
relating to the Company's  memberships and seeking unspecified damages on behalf
of a "nationwide"  class.  The Company's  preliminary  motions in this case have
been denied.  The case is in the preliminary  stages and the ultimate outcome is
not determinable.

     On June 29, 2001,  an action was filed  against the Company in the District
Court of Canadian  County,  Oklahoma.  In 2002,  the petition was amended to add
five additional named plaintiffs and to add and drop certain claims. This action
is a putative class action brought by Gina Kotwitz,  George Kotwitz, Rick Coker,
Richard  Starke,  Jeff  Turnipseed  and  Aaron  Bouren  on  behalf  of all sales
associates of the Company. The amended petition seeks injunctive and declaratory
relief,  with such other  damages as the court  deems  appropriate,  for alleged
violations of the Oklahoma  Uniform  Consumer Credit Code in connection with the
Company's  commission  advances,  and seeks  injunctive and  declaratory  relief
regarding the enforcement of certain contract  provisions with sales associates.
The  damages  alleged on the  Consumer  Credit  Code claim are in excess of $315
million.  The plaintiffs'  request for class certification is set for hearing on
March 28, 2003. The case is in the preliminary  stages and the ultimate  outcome
is not determinable.

     On March 1, 2002, an action was filed in the United States  District  Court
for the Western District of Oklahoma by Caroline Sandler, Robert Schweikert, Sal
Corrente,  Richard Jarvis and Vincent  Jefferson against the Company and certain
executive  officers.  This action is putative class action  seeking  unspecified
damages filed on behalf of all sales  associates of the Company and alleges that
the  marketing  plan  offered by the Company  constitutes  a security  under the
Securities  Act of 1933 and seeks remedies for failure to register the marketing
plan as a  security  and for  violations  of the  anti-fraud  provisions  of the
Securities  Act of 1933 and the  Securities  Exchange Act of 1934 in  connection
with representations  alleged to have been made in connection with the marketing
plan. The complaint also alleges violations of the Oklahoma  Securities Act, the
Oklahoma Business Opportunities Sales Act, breach of contract, breach of duty of
good faith and fair dealing and unjust  enrichment and violation of the Oklahoma
Consumer Protection Act and negligent  supervision.  This case is subject to the
Private  Litigation  Securities  Reform Act.  Pursuant to the Act, the Court has
approved the named plaintiffs and counsel and an amended  complaint was filed in
August 2002.  The Company  filed  motions to dismiss the complaint and to strike
the class action  allegations on September 19, 2002. All discovery in the action
is stayed pending a ruling on the motion to dismiss,  which the Company  expects
will occur no earlier than January 2003. The case is in the  preliminary  stages
and the ultimate outcome is not determinable.

     The Company is a defendant  in various  other  legal  proceedings  that are
routine and incidental to its business.  The Company will vigorously  defend its
interests in all  proceedings  in which it is named as a defendant.  The Company
also receives periodic complaints or requests for information from various state
and federal agencies relating to its business or the activities of its marketing
force.  The Company  promptly  responds to any such  matters  and  provides  any
information requested.

     While the ultimate outcome of these  proceedings is not  determinable,  the
Company does not currently  anticipate that these  contingencies  will result in
any material adverse effect to its financial  condition or results of operation,
unless  an  unexpected  result  occurs  in one of the  cases.  The  Company  has
established  an  accrued  liability  it  believes  will be  sufficient  to cover
estimated damages in connection with various cases,  which at September 30, 2002
was $3.3 million.  If an  unexpected  result were to occur in one or more of the
pending cases,  the amount of damages  awarded could differ  significantly  from
management's estimates.  The Company believes it has meritorious defenses in all
pending cases and will vigorously defend against the plaintiffs' claims.

     The  Company  is  constructing  a new  corporate  office  complex  with  an
estimated  completion  during the third quarter of 2003 at an estimated  cost of
approximately  $30  million.  Costs  incurred  through  September  30,  2002  of
approximately  $8.2 million have been paid from existing  resources and the real
estate line of credit.  The Company expects to incur additional  indebtedness in
order to finance the remaining costs of its new corporate  headquarters in order
to allow cash flow from  operations to continue to be used to purchase  treasury
stock.  The Company has entered  into  construction  contracts  in the amount of
$28.2 million with the general contractor  pertaining to the new office complex.
Total  remaining  costs of  construction  from October 1, 2002 are  estimated at
approximately $21.8 million.


Note 3 - Treasury Stock Purchases

     The Company  announced on April 6, 1999, a treasury stock purchase  program
authorizing  management to acquire up to 500,000 shares of the Company's  common
stock.  The Board of Directors has  increased  such  authorization  from 500,000
shares to 6.0 million shares during subsequent board meetings.  At September 30,
2002,  the Company had purchased 5.2 million  shares under these  authorizations
for a total  consideration  of $117.3  million,  an average  price of $22.50 per
share. As of September 30, 2002, 1.1 million shares with a cost of $22.0 million
were  formally  retired and  removed  from the shares  outstanding  and from the
shares of treasury stock.  This transaction  reduced common stock by $11,601 and
reduced capital in excess of par value by $22.0 million.

     Treasury  stock  purchases  will be  made at  prices  that  are  considered
attractive by  management  and at such times that  management  believes will not
unduly impact the Company's liquidity. No time limit has been set for completion
of the purchase  program.  The Company has obtained a $10 million line of credit
facility to be used for additional  stock  purchases.  As of September 30, 2002,
the  Company  had drawn $4  million  on this  available  credit  line and repaid
$667,000  resulting  in  availability  of $6.7  million.  The  Company  may make
additional draws in the future.


Note 4 - Earnings Per Share

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

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






                                                                             Three Months           Nine Months
                                                                         Ended September 30,    Ended September 30,
                                                                        ---------------------  ---------------------
Basic Earnings Per Share:                                                  2002       2001        2002       2001
                                                                        ---------- ----------  ---------- ----------
Earnings:
                                                                                              
Income from continuing operations applicable to common shares........   $   8,957  $   7,520   $  26,354  $  19,861
                                                                        ---------- ----------  ---------- ----------
Shares:
Weighted average shares outstanding..................................      19,312     21,351      19,909     21,586
                                                                        ---------- ----------  ---------- ----------

Diluted Earnings Per Share:
Earnings:
Income from continuing operations available to common
  stockholders after assumed conversions.............................    $  8,957   $  7,520    $ 26,354   $ 19,861
                                                                        ---------- ----------  ---------- ----------
Shares:
Weighted average shares outstanding..................................      19,312     21,351      19,909     21,585
Assumed exercise of options..........................................          37         63         119         39
                                                                        ---------- ----------  ---------- ----------
Weighted average number of shares, as adjusted.......................      19,349     21,414      20,028     21,624
                                                                        ---------- ----------  ---------- ----------



Note 5 - Discontinued Operations

     On December  31, 2001 the Company  completed  the sale of its wholly  owned
subsidiary  Universal  Fidelity  Life  Insurance  Company  ("UFL").  The Company
received a $2.8  million  dividend and $1.2 million from the sale of 100% of UFL
stock.  The results of  operations of the UFL segment have been  segregated  and
reported as discontinued operations in the Consolidated Statements of Income for
the three months and nine months ended  September 30, 2001. Cash flow impacts of
discontinued  operations have been segregated in the Consolidated  Statements of
Cash Flows for the nine months ended September 30, 2001.  Details of income from
discontinued operations are as follows:




                                                                             Three Months
                                                                                 Ended
                                                                             September 30,     Nine Months Ended
                                                                                 2001          September 30, 2001
                                                                             -------------     ------------------
                                                                                               
Revenues................................................................        $  309               $  861
                                                                             -------------     ------------------
Loss from discontinued operations, net of tax expense of $0.............        $ (562)              $ (506)
                                                                             -------------     ------------------


Note 6 - Recent Issued Accounting Pronouncements

     In  July  2001,  the  Financial   Accounting  Standards  Board  issued  new
pronouncements:  SFAS 142, "Goodwill and Other Intangible Assets"; and SFAS 143,
"Accounting for Asset Retirement  Obligations."  SFAS 142 requires that goodwill
as well as other  intangible  assets  be  tested  annually  for  impairment.  In
addition, the Statement eliminates the previous requirement to amortize goodwill
or intangible  assets with indefinite  lives,  and is effective for fiscal years
beginning  after December 15, 2001.  SFAS 142 was adopted  effective  January 1,
2002 and did not have a material impact on the Company's  financial  position or
results of operations.  SFAS 143 requires entities to record the fair value of a
liability  for an  asset  retirement  obligation  in the  period  in which it is
incurred  and a  corresponding  increase in the  carrying  amount of the related
long-lived  asset.  SFAS 143 is effective for fiscal years  beginning after June
15, 2002. The Company does not expect SFAS 143 to materially impact its reported
results.

     SFAS No. 144,  "Accounting  for the  Impairment  or Disposal of  Long-Lived
Assets",  (SFAS 144") is effective for the Company for the fiscal year beginning
January 1, 2002,  and addresses  accounting  and reporting for the impairment or
disposal of long-lived assets. SFAS 144 supersedes SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
and APB Opinion No. 30,  "Reporting  the Results of  Operations - Reporting  the
Effects  of  Disposal  of a  Segment  of  a  Business."  SFAS  144  retains  the
fundamental provisions of SFAS No. 121 and expands the reporting of discontinued
operations to include all  components of an entity with  operations  that can be
distinguished  from the rest of the entity and that will be eliminated  from the
ongoing operations of the entity in a disposal transaction.  The Company adopted
SFAS 144  effective  January 1, 2002.  The new  standard did not have a material
impact on the Company's financial statements.

     In July  2002,  the  FASB  issued  SFAS  No.  146,  "Accounting  for  Costs
Associated  with  Exit or  Disposal  Activities",  (SFAS  146").  SFAS  No.  146
addresses  financial  accounting and reporting for costs associated with exit or
disposal  activities and nullifies EITF Issue No. 94-3,  "Liability  Recognition
for Certain  Employee  Termination  Benefits and Other Costs to Exit an Activity
(Including  Certain Costs Incurred in a  Restructuring)."  SFAS No. 146 requires
that a liability  for a cost  associated  with an exit or  disposal  activity be
recognized  when  the  liability  is  incurred,  rather  than at the date of the
entity's  commitment to an exit plan.  This  statement is effective for exit and
disposal  activities that are initiated after December 31, 2002.  Since adoption
of  this  SFAS  is   prospective,   the  Company   does  not  believe  that  the
implementation  of this  SFAS  will  have a  material  impact  on its  financial
statements.


Note 7 - Notes Payable

     On June 11, 2002,  the Company  entered into two line of credit  agreements
totaling $30 million with  commercial  lenders  providing  for a treasury  stock
purchase  line and a real estate line for funding of the Company's new corporate
office  complex.  These lines of credit provide for funding of up to $10 million
to finance  treasury  stock  purchases  through  March 31,  2003 with  scheduled
monthly repayments  beginning after the initial advance and ending no later than
March 31, 2004 with interest at the 30 day LIBOR Rate plus two percent, adjusted
monthly. The real estate line of up to $20 million may be funded over the period
ending  December  31,  2003 with  interest  at the 30 day LIBOR Rate plus 2.25%,
adjusted  monthly,  and will be repayable  beginning after the advance period in
105 equal monthly  principal  payments  plus interest with a balloon  payment on
September 30, 2008.

     As of September 30, 2002,  the Company had accessed $3.3 million of the $10
million  treasury stock  purchase line, net of repayments of $667,000,  and $5.1
million of the $20 million real estate line.  The interest rates as of September
30,  2002 are 3.82% and 4.07% for the  treasury  stock loan and the real  estate
loan,  respectively.  The  $3.3  million  used to  purchase  treasury  stock  is
scheduled to be paid off by July 30, 2003 and therefore  has been  classified as
short term. Monthly principal payments are $333,333. The Company is scheduled to
begin payments on the real estate line on December 31, 2003. As of September 30,
2002,  interest  capitalized  pursuant to the real estate  line was  $42,000.  A
schedule of outstanding  balances and future maturities as of September 30, 2002
follows:

Real estate line of credit.................    $       5,100
Stock purchase line of credit..............            3,333
                                               --------------
Total notes payable........................            8,433
Less: Current portion of notes payable.....           (3,333)
                                               --------------
Long term portion..........................    $       5,100
                                               --------------

Repayment Schedule commencing October 2002:
Year 1.....................................    $       3,333
Year 2.....................................              486
Year 3.....................................              583
Year 4.....................................              583
Year 5.....................................              583
Thereafter.................................            2,865
                                               --------------
Total notes payable........................    $       8,433
                                               --------------


ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           ---------------------------------------------------------------
           RESULTS OF OPERATIONS
           ---------------------

Results of Operations
---------------------

     First Nine Months of 2002 Compared to First Nine Months of 2001
     ---------------------------------------------------------------

     The  Company  reported  net income of $26.4  million,  or $1.32 per diluted
common  share,  for the nine months ended  September  30, 2002,  up 36% from net
income of $19.4 million,  or $.90 per diluted  common share,  for the comparable
period of the prior year. Diluted earnings per share increased 47 percent due to
increased net income of 36 percent and an approximate  seven percent decrease in
the weighted average number of outstanding shares.

     Membership  fees  totaled  $229.1  million  during 2002  compared to $193.8
million for 2001, an increase of 18%.  Membership fees and their impact on total
revenues  in any  period  are  determined  directly  by  the  number  of  active
Memberships in force during any such period. The active Memberships in force are
determined  by both the number of new  Memberships  sold in any period  together
with the renewal rate of existing  Memberships.  New Membership  sales increased
10% during the nine months  ended  September  30, 2002 to 604,417  from  548,967
during  the  comparable  period of 2001.  At  September  30,  2002,  there  were
1,389,467  active  Memberships  in force  compared to 1,216,889 at September 30,
2001, an increase of 14%.  Additionally,  the average  annual fee per Membership
has increased  from $251 for all  Memberships  in force at September 30, 2001 to
$256 for all  Memberships  in force at September  30, 2002, a 2% increase.  This
increase  is a result  of a higher  portion  of  active  Memberships  containing
additional benefits at an additional cost.

     Associate  services  revenue  increased 3% from $26.8 million for the first
nine months of 2001 to $27.5 million during the same period of 2002 primarily as
a result of increased associate recruiting offset by the reduced associate entry
fee during the months of March through  September of 2002.  The associate  entry
fee  ranged  from  $99 to $199  during  these  months  compared  to the  typical
associate fee of $249. The associate entry fee has been reduced  periodically in
the past and may  continue  to be reduced at  certain  times in future  periods.
Although the reduction in price may lead to lower  associate  services  revenues
overall, the reduced price typically increases the number of new associates that
join and to a great extent offsets the overall reduction in revenue. As a result
of this lower fee for part of the 2002 period,  the Fast Start program generated
training fees of approximately $8.2 million during the first nine months of 2002
compared   to  $14.6   million   for  the   comparable   period  of  2001.   The
classroom-training program, titled Fast Start to Success ("Fast Start") is aimed
at  increasing  the level of new  Membership  sales per  associate.  Fast  Start
typically requires a training fee of $184 per new associate,  except for special
promotions  the  Company  implements  from  time to time,  and  upon  successful
completion  of the  program,  which  includes a specified  number of  Membership
sales,  provides for the payment of certain training  bonuses.  The $8.2 million
and $14.6 million for the nine month periods ending September 30, 2002 and 2001,
respectively,  in training fees was  collected  from  approximately  120,896 new
sales  associates who elected to participate in Fast Start during the first nine
months of 2002 compared to 79,584 that participated during the comparable period
of 2001. Total new associates enrolled during the first nine months of 2002 were
126,108 compared to 83,193 for the same period of 2001, an increase of 52%.

     Other  income  increased  32%, to $3.6  million  for the nine months  ended
September 30, 2002 from $2.7 million for the comparable period of 2001 primarily
due to an increase in Membership enrollment fees of $800,000.

     Primarily as a result of the increase in Membership  fees,  total  revenues
increased to $260.1  million for the nine months ended  September  30, 2002 from
$223.3 million during the comparable period of 2001, an increase of 16%.

     Membership  benefits  totaled  $76.9  million  for the  nine  months  ended
September 30, 2002 compared to $64.0 million for the comparable  period of 2001,
and  represented  34% and 33%,  respectively of Membership fees for the 2002 and
2001 periods. This Membership benefit ratio (Membership benefits as a percentage
of  Membership  fees) should  remain near current  levels as  substantially  all
active Memberships provide for a capitated cost.

     Commissions to associates increased 9% to $91.7 million for the nine months
ended September 30, 2002 compared to $84.0 million for the comparable  period of
2001, and  represented  40% and 43% of Membership  fees for such periods.  These
amounts were reduced by $635,000 and $1.8  million,  respectively,  representing
Membership  lapse fees.  Prior to March 1, 2002,  these fees were  determined by
applying the prime interest rate to the advance commission balance pertaining to
lapsed  Memberships.  The Company realizes and recognizes this fee only when the
amount of the calculated fee is collected by withholding  from cash  commissions
payments due the  associate,  because the  Company's  ability to recover fees in
excess of current payments is primarily  dependent on the associate  selling new
Memberships which qualify for advance commissions.  The Company eliminated these
fees for Memberships  sold after March 1, 2002 in conjunction with the change in
the  commission  structure as discussed in  "Liquidity  and Capital  Resources".
Commissions  to  associates  are  primarily  dependent  on  the  number  of  new
memberships  sold during a period.  New memberships  sold during the nine months
ended September 30, 2002 totaled  604,417,  a 10% increase from the 548,967 sold
during  the  comparable  period  of  2001.  Commissions  to  associates  per new
membership sold were $152 per membership for the nine months ended September 30,
2002 compared to $153 for the comparable period of 2001. The average  commission
per new membership sold varies depending on the  compensation  structure that is
in place at the time a new membership is sold and the amount of any charge-backs
(recoupment of previous commission advances) that are deducted from amounts that
would otherwise be paid to the various sales associates that are compensated for
the membership sale.

     Associate services and direct marketing expenses increased to $22.5 million
for the nine  months  ended  September  30,  2002  from  $21.3  million  for the
comparable period of 2001. Fast Start bonuses incurred were  approximately  $4.3
million  during the first nine months of 2002  compared  to $7.0  million in the
same period of 2001.  Fast Start  bonuses are  typically  eliminated  or reduced
during those times the Company  reduces the sales  associate entry fee as it did
from March to  September  of 2002.  These Fast Start  training  bonuses are also
affected  by the  number  of new sales  associates  that  successfully  meet the
qualification  criteria  established by the Company,  i.e. more training bonuses
will be paid when a higher number of new sales  associates  meet such  criteria.
These expenses also include marketing costs,  other than  commissions,  that are
directly associated with Membership sales.

     General and administrative  expenses during the nine months ended September
30,  2002 and 2001 were  $23.9  million  and $20.8  million,  respectively,  and
represented  10% and 11%,  respectively,  of  Membership  fees for each  period.
Management  expects  general  and  administrative  expenses as a  percentage  of
Membership  fees to remain near current levels in the near term but to gradually
decrease as a percentage of Membership fees as a result of certain  economies of
scale.

     Other  expenses,   net,  which  include   depreciation  and   amortization,
litigation   accruals  and  premium  taxes  reduced  by  interest  income,  were
approximately  $5.0 million and $3.7 million,  respectively  for the nine months
ended September 30, 2002 and September  30,2001.  Depreciation  and amortization
increased  to $3.8  million for the first nine months of 2002 from $3.0  million
for the  comparable  period of 2001 but premium taxes  decreased to $1.5 million
from $1.7 million for the nine months ended  September  30, 2001 due to a change
in the tax  structure  of one of the states in which the  Company  pays  premium
taxes.  During the nine months ended  September 30, 2002, the Company  increased
its litigation  accrual by $1.3 million  compared to $250,000 for the comparable
period of 2001. The litigation  accrual covers estimated  potential damages from
pending litigation and was $3.3 million at September 30, 2002. Defense costs are
expensed as incurred  and  included  in general and  administrative  expenses or
membership benefits. Interest income increased by approximately $300,000 for the
first nine months of 2002 to $1.7 million from $1.4 million for the 2001 period.

     The Company  has  recorded a provision  for income  taxes of $13.9  million
(34.5% of pretax  income)  for the first nine  months of 2002  compared  to $9.7
million  (32.8%  of  pretax  income)  for the same  period  of 2001.  The  lower
effective  tax  rate for the  2001  period  was  primarily  attributable  to the
utilization of net operating loss carryforwards and tax credits.

     The results of  operations  of the UFL  segment  have been  segregated  and
reported as discontinued  operations in the  Consolidated  Statements of Income.
Loss from discontinued operations, net of income tax of $0, was $506,000 for the
nine months ended September 30, 2001. UFL was sold on December 31, 2001.

     Third Quarter of 2002 compared to the Third Quarter of 2001
     -----------------------------------------------------------

     The results of  operations  in the third  quarter of 2002,  compared to the
third quarter of 2001, reflect increases in revenues and expenses primarily as a
result of the same factors  discussed in the comparison of the first nine months
of 2002 to the first nine months of 2001.

     Total  revenues  increased  18% or  approximately  $14.0  million  to $90.2
million in the third  quarter  of 2002  compared  to $76.2  million in the third
quarter of 2001, primarily as a result of increases in membership premiums.  The
membership  premium  increase of 18% primarily  resulted from an increase in the
number of average active  memberships  during the third quarter of 2002 compared
to the similar period in 2001.

     Membership  benefits  totaled  $26.6  million  in  the  2002-third  quarter
compared to $22.1 million in the 2001-third quarter and resulted in a loss ratio
of 33% for both periods.

     Associate  services  revenue  increased 22% from $7.7 million for the third
quarter of 2001 to $9.4  million  during the same period of 2002  primarily as a
result of more new  associates  enrolled  during  the third  quarter  of 2002 of
46,653  compared  to  22,002  enrolled  during  the  comparable  period of 2001,
partially  offset by a reduced  associate  entry fee of $99 and $149  during the
third  quarter 2002  compared to the typical  associate fee of $249 which was in
effect  during  the 2001  period.  The  associate  entry  fee has  been  reduced
periodically  in the past and may  continue  to be reduced  at certain  times in
future periods. As a result of this lower fee for part of the 2002 quarter,  the
Fast Start program generated  training fees of approximately $2.1 million during
the third quarter of 2002 compared to $3.5 million for the comparable  period of
2001.  The  classroom-training  program,  titled  Fast Start to  Success  ("Fast
Start") is aimed at increasing the level of new Membership  sales per associate.
Fast Start typically  requires a training fee of $184 per new associate,  except
for  special  promotions  the  Company  implements  from time to time,  and upon
successful  completion  of the  program  provides  for the  payment  of  certain
training  bonuses.  The $2.1 million and $3.5 million for the third quarter 2002
and 2001, respectively, in training fees was collected from approximately 46,474
new sales  associates  who  elected  to  participate  in Fast  Start  during the
2002-third  quarter compared to 21,221 that  participated  during the comparable
quarter of 2001. Total new associates  enrolled during the third quarter of 2002
were 46,653 compared to 22,002 for the same period of 2001, an increase of 112%.
The number of new associates  recruited in the third quarter of 2002  represents
the highest recruiting quarter in the Company's history.

     Other  income  increased  12%, to $1.2  million for the three  months ended
September 30, 2002 from $1.1 million for the comparable period of 2001 primarily
due to an increase in enrollment fees of $100,000.

     Commissions  to  associates  increased  8% to $31.1  million  for the three
months ended  September 30, 2002  compared to $28.9  million for the  comparable
period of 2001, and represented 39% and 43% of Membership fees for such periods.
These amounts were reduced by $85,000 and $576,000,  respectively,  representing
Membership  lapse fees.  Commissions to associates per new membership  sold were
$157 per  membership  for the three months ended  September 30, 2002 compared to
$163 for the comparable period of 2001.

     Associate  services and direct marketing expenses increased to $7.7 million
for the  three  months  ended  September  30,  2002 from  $5.3  million  for the
comparable period of 2001. Fast Start bonuses incurred were  approximately  $1.7
million  during the third  quarter of 2002  compared to $1.3 million in the same
period of 2001.  Fast Start bonuses are typically  eliminated or reduced  during
those times the Company  reduces the sales  associate entry fee as it did in the
2002-third  quarter.  These Fast Start training bonuses are also affected by the
number of new sales associates that successfully meet the qualification criteria
established  by the  Company,  i.e.  more  training  bonuses will be paid when a
higher number of new sales  associates  meet such criteria.  These expenses also
include marketing costs,  other than commissions,  that are directly  associated
with Membership sales.

     General and administrative expenses during the three months ended September
30,  2002  and 2001  were  $8.5  million  and $7.0  million,  respectively,  and
represented  11% and 10% of  Membership  fees,  respectively,  for each  period.
Management  expects  general  and  administrative  expenses as a  percentage  of
Membership  fees to remain near current levels in the near term but to gradually
decrease as a percentage of Membership fees as a result of certain  economies of
scale.

     Other  expenses,   net,  which  include   depreciation  and   amortization,
litigation   accruals  and  premium  taxes  reduced  by  interest  income,  were
approximately  $2.5 million and $1.6 million for the  three-month  periods ended
September  30,  2002  and  2001,  respectively.  Depreciation  and  amortization
increased to $1.3 million for the three  months  ended  September  30, 2002 from
$1.0 million for the comparable  period of 2001 and premium taxes decreased from
$727,000  for the three  months  ended  September  30, 2001 to $625,000  for the
comparable period of 2002. During the three months ended September 30, 2002, the
Company  increased its litigation  accrual by $1.3 million  compared to $250,000
for the  comparable  period of 2001.  Interest  income  increased  for the three
months  ended  September  30,  2002 to  $724,000  from  $431,000  for  the  2001
comparable period.

     The above  factors  resulted  in a 2002  third  quarter  net income of $9.0
million,  or $.46 per share,  diluted,  compared  to $7.0  million,  or $.32 per
share, for the third quarter of 2001.

     The results of  operations  of the UFL  segment  have been  segregated  and
reported as discontinued  operations in the  Consolidated  Statements of Income.
Loss from discontinued  operations,  net of income tax of $0, was $(562,000) for
the three months ended September 30, 2001.


     Liquidity and Capital Resources
     -------------------------------

     General
     Consolidated  net cash  provided  by  operating  activities  of  continuing
operations was $39.0 million for the first nine months of 2002 compared to $25.8
million for the 2001 period.  The increase of $13.2 million  resulted  primarily
from the increase in net income of $7.0 million and a net increase in the change
in accounts payable and accrued expenses of $5.9 million.

     Consolidated net cash used in investing activities of continuing operations
was $9.4 million for the first nine months of 2002  compared to $7.8 million for
the  comparable  period of 2001.  This  $1.6  million  increase  in cash used in
investing  activities  resulted  primarily  from the  increase in  property  and
equipment  additions  of $3.1  million  and the  $2.4  million  increase  in the
purchases  of  investments  partially  offset by the $3.9  million  increase  in
maturities and sales of investments.

     Net cash used in financing  activities of continuing  operations during the
first nine months of 2002 was $30.9  million  compared to $15.9  million for the
comparable period of 2001. This $15.0 million change was primarily  comprised of
the $26.5 million  increase in treasury stock purchases offset by a $2.9 million
increase in proceeds from the exercise of stock options and net debt proceeds of
$8.4 million  during the 2002 period when compared to the  comparable  period of
2001.

     Primarily due to the large amount of treasury stock  purchases in the first
nine  months  of  2002  of  approximately  $42.4  million,  the  Company  had  a
consolidated  working  capital  deficit of $4.6 million at September 30, 2002, a
decrease of $9.6 million  compared to a consolidated  working capital surplus of
$5.1 million at December 31, 2001. The $4.6 million  working  capital deficit at
September  30,  2002  would have been a $4.3  million  working  capital  surplus
excluding  the  deferred  revenue  and fees in excess  of  deferred  member  and
associate service costs. These amounts will be eliminated by the passage of time
without the  utilization of other current assets or the Company  incurring other
current liabilities.  Additionally, at the current rate of cash flow provided by
continuing  operations ($39.0 million during the first nine months of 2002), the
Company's  ability to control  the timing of its  discretionary  treasury  stock
purchases and the availability pursuant to its lines of credit, the Company does
not expect any difficulty in meeting its financial obligations in the short term
or the long term.

     At September 30, 2002 the Company  reported  $32.1 million in cash and cash
equivalents and unpledged  investments (after utilizing more than $42 million to
purchase  approximately  2 million  shares of its common  stock  during the nine
months ended September 30, 2002) compared to $33.7 million at December 31, 2001.
The Company's investments consist of common stocks,  investment grade (rated Baa
or higher)  preferred  stocks and  investment  grade bonds  primarily  issued by
corporations,  the United States Treasury, federal agencies, federally sponsored
agencies and  enterprises  as well as  mortgage-backed  securities and state and
municipal tax-exempt bonds.

     The  Company  generally  advances  significant  commissions  at the  time a
Membership is sold. During the nine months ended September 30, 2002, the Company
advanced  commissions of $92.4 million on new Membership sales compared to $83.9
million  for the same  period of 2001.  Since  approximately  95% of  Membership
premiums are collected on a monthly  basis,  a significant  cash flow deficit is
created at the time a  Membership  is sold.  This  deficit is reduced as monthly
premiums are remitted and commissions  payable on those Memberships are withheld
to  recover  the  advance.  Effective  March  1,  2002,  and in  order  to offer
additional  incentives for increased  Membership  retention  rates,  the Company
returned  to  a  differential   commission   structure  with  advance  rates  of
approximately 80% of first year Membership  premiums on new Memberships  written
and variable  renewal  commission rates ranging from zero to 25% per annum based
on  the  first  year  Membership   retention  rate  of  the  associate's   sales
organization.   This   current   compensation   structure   replaces  the  prior
compensation  structure  utilized  by the Company  that  included up to a 3-year
commission  advance based on an average commission rate of approximately 27% for
all membership years.

     The Company  expenses advance  commissions  ratably over the first month of
the related  membership.  As a result of this accounting  policy,  the Company's
commission  expenses are all recognized over the first month of a Membership and
there is no commission  expense  recognized for the same  Membership  during the
remainder  of the  advance  period.  The  Company  tracks its  unearned  advance
commission  balances  outstanding in order to ensure the advance commissions are
recovered before any renewal  commissions are paid and for internal  purposes of
analyzing  its  commission  advance  program.  While not  recorded  as an asset,
unearned  advance  commission  balances from associates as of September 30, 2002
and for the nine months ended September 30, 2002 were:



                                                                                 (Amounts in 000's)
                                                                                 ------------------
                                                                               
Beginning unearned advance commission payments (1)...............................    $  211,609
Advance commission payments, net.................................................        92,406
Earned commissions applied.......................................................       (71,491)
Advance commission payment write-offs............................................        (1,708)
                                                                                     -----------
Ending unearned advance commission payments before
  estimated unrecoverable payments (1)...........................................       230,816
Estimated unrecoverable advance commission payments (1)..........................       (21,587)
Ending unearned advance commission payments, net (1).............................    -----------
                                                                                     $  209,229
                                                                                     -----------



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

     The ending unearned advance  commission  payments,  net, above includes net
unearned advance commission payments to non-vested  associates of $24.4 million.
As such, at September 30, 2002 future  commission  payments and related  expense
should be reduced as unearned  advance  commission  payments of $185 million are
recovered.  Commissions  are earned by the associate as Membership  premiums are
earned by the Company,  usually on a monthly basis.  For additional  information
concerning  these commission  advances,  see the Company's Annual Report on Form
10-K  under the  heading  Commissions  to  Associates  in Item 7 -  Management's
Discussion and Analysis of Financial Condition and Results of Operations.

     The Company  believes that it has significant  ability to finance  expected
future growth in Membership  sales based on its existing amount of cash and cash
equivalents  and unpledged  investments  at September 30, 2002 of $32.1 million.
The Company expects to maintain cash and investment balances,  including pledged
investments,  on an on-going basis of approximately  $25 to $35 million in order
to meet expected working capital needs and regulatory capital requirements. Cash
balances in excess of this amount would be used for discretionary  purposes such
as treasury stock purchases.

     In June 2002, the Company entered into line of credit  agreements  totaling
$30 million with commercial lenders providing for a treasury stock purchase line
and a real  estate  line for  funding  of the  Company's  new  corporate  office
complex.  These arrangements provide for funding of up to $10 million to finance
treasury  stock  purchases  over the period ending March 31, 2003 with scheduled
monthly repayments  beginning after the initial advance and ending no later than
March 31, 2004 with interest at the 30 day LIBOR Rate plus two percent, adjusted
monthly.  The real estate  term loan  portion of up to $20 million may be funded
over the period ending  December 31, 2003, will be at the 30 day LIBOR Rate plus
2.25%,  adjusted  monthly,  and will be  repayable  beginning  after the advance
period based on a 10 year monthly  amortization  schedule with a balloon payment
on September 30, 2008. These agreements  contain normal reporting  covenants and
the loans will be secured by the Company's rights to receive  membership fees on
a portion of its  memberships  and a  mortgage  on the new  headquarters.  As of
September 30, the Company had accessed $3.3 million of the $10 million  treasury
stock purchase line, net of repayments of $667,000,  and $5.1 million of the $20
million real estate line and expects to access  additional  amounts  pursuant to
both lines in the future. A schedule of contractual  obligations as of September
30, 2002 follows:

Year 1.....................................    $       3,333
Year 2.....................................              486
Year 3.....................................              583
Year 4.....................................              583
Year 5.....................................              583
Thereafter.................................            2,865
                                               --------------
Total notes payable........................    $       8,433
                                               --------------

     The  Company  is  constructing  a new  corporate  office  complex  with  an
estimated  completion  during the third quarter of 2003 at an estimated  cost of
approximately  $30  million.  Costs  incurred  through  September  30,  2002  of
approximately  $8.2 million have been paid from existing  resources and the real
estate line of credit.  The Company expects to incur additional  indebtedness in
order to finance the remaining costs of its new corporate  headquarters in order
to allow cash flow from  operations to continue to be used to purchase  treasury
stock.  The Company has entered  into  construction  contracts  in the amount of
$28.2 million with the general contractor  pertaining to the new office complex.
Total  remaining  costs of  construction  from October 1, 2002 are  estimated at
approximately $21.8 million.

     Actions that May Impact Retention in the Future
     The potential  impact on the Company's future  profitability  and cash flow
due to future changes in Membership retention can be significant.  While blended
retention  rates have not changed  significantly  over the past five years,  the
Company  has  recently  taken  actions  that may impact  retention  rates in the
future.  Since  December  31,  2001,  the  Company has  implemented  several new
initiatives  aimed at  improving  the  retention  rate of both new and  existing
Memberships.   Such  initiatives  include  a  revised  compensation   structure,
effective March 1, 2002,  featuring  variable  renewal  commission rates ranging
from zero to 25% per annum based on the first year Membership  retention rate of
the   associate's   sales   organization;   implementation   of  a   "non-taken"
administrative  fee to sales  associates of $35 for any  Membership  application
that is processed by the Company after March 1, 2002, but for which a payment is
never received;  and, an increase in the amount of the commission  "charge-back"
for Memberships  written after March 1, 2002 which are  subsequently  terminated
from 50% of the unearned  Membership  commission  advance balance to 100% of the
unearned Membership commission advance balance.  During August 2002, the Company
implemented an enhanced  member "life cycle"  electronic  communication  process
aimed at both increasing the overall amount of communication from the Company to
the members as well as more  specific  target  messaging to members based on the
length  of their  Membership  as well as  utilization  characteristics.  Also in
August  2002,  the  Company  implemented  a new  letter to the  member  from the
member's  Provider law firm intended to provide direct contact  information  for
the Provider law firm and  encourage  the new member to have their will prepared
within the first 60 days of their  membership  and  offering a free spousal will
should the new  member  comply.  The  Company  believes  that such  efforts  may
increase  the  utilization  by members and  therefore  lead to higher  retention
rates. Since several of these initiatives were only put in place during the 2002
third quarter, not enough time has elapsed to draw any meaningful conclusions or
to effectively measure the possible effect of these efforts.

     Parent Company Funding and Dividends
     Although the Company is the  operating  entity in many  jurisdictions,  the
Company's  subsidiaries  serve as  operating  companies  in various  states that
regulate  Memberships as insurance or specialized  legal expense  products.  The
most significant of these wholly owned subsidiaries are Pre-Paid Legal Casualty,
Inc.  ("PPLCI") and Pre-Paid Legal  Services,  Inc. of Florida  ("PPLSIF").  The
ability  of PPLCI and  PPLSIF to  provide  funds to the  Company is subject to a
number of  restrictions  under various  insurance laws in the  jurisdictions  in
which PPLCI and PPLSIF conduct business,  including limitations on the amount of
dividends  and  management  fees that may be paid and  requirements  to maintain
specified levels of capital and reserves.  In addition PPLCI will be required to
maintain its stockholders'  equity at levels sufficient to satisfy various state
or  provincial  regulatory  requirements,  the  most  restrictive  of  which  is
currently $3 million. Additional capital requirements of PPLCI or PPLSIF will be
funded  by  the  Company  in  the  form  of  capital  contributions  or  surplus
debentures.  At September  30,  2002,  PPLSIF did not have funds  available  for
payment of  substantial  dividends  without the prior approval of the respective
insurance  commissioner.  PPLCI had  approximately  $6 million in surplus  funds
available for payment of an ordinary dividend.

     Forward-Looking Statements
     All statements in this report concerning Pre-Paid Legal Services, Inc. (the
"Company") other than purely historical  information,  including but not limited
to, statements  relating to the Company's future plans and objectives,  expected
operating results, and the assumptions on which such forward-looking  statements
are based, constitute "Forward-Looking Statements" within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934 and are based on the Company's historical operating trends and financial
condition as of September 30, 2002 and other information  currently available to
management. The Company cautions that the Forward-Looking Statements are subject
to all the risks and uncertainties  incident to its business,  including but not
limited to risks described below. Moreover, the Company may make acquisitions or
dispositions of assets or businesses,  enter into new marketing  arrangements or
enter into financing transactions. None of these can be predicted with certainty
and, accordingly, are not taken into consideration in any of the Forward-Looking
Statements  made herein.  For all of the foregoing  reasons,  actual results may
vary  materially  from the  Forward-Looking  Statements.  The Company assumes no
obligation  to  update  the  Forward-Looking  Statements  to  reflect  events or
circumstances occurring after the date of the statement.

     Risk Factors
     There  are a  number  of risk  factors  that  could  affect  our  financial
condition  or  results of  operations,  including  the risks that the  Company's
membership persistency or renewal rates may decline, that the Company may not be
able to  continue  to grow its  memberships  and  earnings,  that the Company is
dependent on the  continued  active  participation  of its  principal  executive
officer,  that  pending  litigation  may have a material  adverse  effect on the
Company if  resolved  unfavorably  to the  Company,  that the  Company  could be
adversely affected by regulatory developments,  that competition could adversely
affect the  Company  and that the  Company  is  substantially  dependent  on its
marketing  force.  See Note 2 -  Contingencies  and Item 1 - Legal  Proceedings.
Please refer to pages 33 and 34 of the Company's 2001 Annual Report on Form 10-K
for a complete description of these risk factors.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
         ----------------------------------------------------------

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

     As of September 30, 2002,  substantially  all of the Company's  investments
were in  investment  grade  (rated  Baa or higher)  fixed-maturity  investments,
interest-bearing   money  market  accounts  and  a   collateralized   repurchase
agreement.  The  Company  does not hold any  investments  classified  as trading
account assets or derivative financial instruments.

     The table below summarizes the estimated effects of hypothetical  increases
and  decreases  in interest  rates on the  Company's  fixed-maturity  investment
portfolio. It is assumed that the changes occur immediately and uniformly,  with
no effect  given to any steps  that  management  might take to  counteract  that
change. The hypothetical  changes in market interest rates reflect what could be
deemed best and worst case  scenarios.  The fair values  shown in the  following
table are based on  contractual  maturities.  Significant  variations  in market
interest  rates  could  produce  changes  in the  timing  of  repayments  due to
prepayment  options  available.  The  fair  value of such  instruments  could be
affected and, therefore, actual results might differ from those reflected in the
following table (dollars in 000's):


                                                                                                  Estimated fair value
                                                                          Hypothetical change      after hypothetical
                                                                            in interest rate       change in interest
                                                             Fair Value    (bp=basis points)            rate
                                                             ----------   -------------------     --------------------

                                                                                           
Fixed-maturity investments at September 30, 2002 (1)........ $   19,957   100 bp increase           $     17,751
                                                                          200 bp increase                 16,569
                                                                          50 bp decrease                  20,015
                                                                          100 bp decrease                 20,225

Fixed-maturity investments at December 31, 2001 (1)......... $   18,983   100 bp increase           $     17,635
                                                                          200 bp increase                 16,437
                                                                          50 bp decrease                  19,575
                                                                          100 bp decrease                 20,167
--------------------


(1)  Excluding short-term investments with a fair value of $2.9 million and $3.3
     million at September 30, 2002 and December 31, 2001, respectively.

     The table above illustrates,  for example,  that an instantaneous 200 basis
     point increase in market  interest rates at September 30, 2002 would reduce
     the estimated  fair value of the Company's  fixed-maturity  investments  by
     approximately  $3.4  million  at  that  date.  At  December  31,  2001,  an
     instantaneous  200 basis point increase in market interest rates would have
     reduced  the  estimated   fair  value  of  the   Company's   fixed-maturity
     investments  by  approximately  $2.5 million at that date.  The  definitive
     extent of the interest rate risk is not  quantifiable or predictable due to
     the variability of future interest rates,  but the Company does not believe
     such risk is material.

     The  Company  primarily  manages  its  exposure  to  interest  rate risk by
purchasing  investments that can be readily  liquidated should the interest rate
environment begin to significantly change.


ITEM 4. CONTROLS AND PROCEDURES
        -----------------------

          (a) Evaluation of disclosure  controls and  procedures.  The Company's
     Principal  Executive Officer and Principal  Financial Officer have reviewed
     and evaluated the  effectiveness of the Company's  disclosure  controls and
     procedures  (as defined in Exchange  Act Rule  240.13a-14(c))  as of a date
     within ninety days before the filing date of this quarterly  report.  Based
     on that  evaluation,  the  Principal  Executive  Officer and the  Principal
     Financial  Officer have  concluded  that the Company's  current  disclosure
     controls  and  procedures  are  effective,  providing  them  with  material
     information  relating to the Company as  required  to be  disclosed  in the
     reports the Company  files or submits  under the  Exchange  Act on a timely
     basis.

          (b) Changes in internal controls. There were no significant changes in
     the   Company's   internal   controls  or  in  other   factors  that  could
     significantly  affect  those  controls  subsequent  to the  date  of  their
     evaluation.



                           PART II. OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS.
        ------------------

     See Note 2 of the Notes to Consolidated  Financial  Statements  included in
Part I, Item 1 of this report for information with respect to legal proceedings.


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

     The 2002  Annual  Meeting  of  Shareholders  of the  Company  (the  "Annual
Meeting") was held on May 31, 2002.  The following  matters were  submitted to a
vote of the Company's shareholders at the Annual Meeting.

Election of Three Directors.
----------------------------

     The results of the election for each of the Company's three directors whose
terms expired as of the Annual Meeting were as follows:

                                                                Abstentions and
                                         Votes For               Votes Withheld
                                         ----------             ---------------
Harland C. Stonecipher                   17,363,671                 825,929
Wilburn L. Smith                         17,380,392                 809,208
Martin H. Belsky                         18,026,569                 163,031


     Although Wilburn L. Smith was re-elected for a three-year term, he resigned
from the Board  effective  August 1, 2002 together with three other inside Board
members that did not meet the new independent director definition expected to be
adopted in the future by the New York Stock Exchange.  The Board of Directors of
the Company now consists of six members and is divided into three  classes equal
in size,  with the term of office of one class expiring each year. The new terms
of service of Messrs.  Stonecipher  and Belsky will expire in 2005. The terms of
the other four  directors  of the Company did not expire at the Annual  Meeting.
The names of such other directors and the year of expiration of their respective
terms are as  follows:  John W. Hail - 2003;  John A.  Addison - 2003;  Peter K.
Grunebaum - 2004 and Randy Harp - 2004.


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
        ---------------------------------

(a)   Exhibits:

   Exhibit No.                          Description
   -----------                          -----------
       99.1         Certification of Chief Executive Officer pursuant to Section
                    906 of the Sarbanes-Oxley Act of 2002

       99.2         Certification of Chief Financial Officer pursuant to Section
                    906 of the Sarbanes-Oxley Act of 2002

(b)   Reports on Form 8-K: none




                                   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.

                                   PRE-PAID LEGAL SERVICES, INC.


Date: October 22, 2002             /s/ Harland C. Stonecipher
                                   ------------------------------------------
                                   Chairman and Chief Executive Officer
                                   (Principal Executive Officer)

Date: October 22, 2002             /s/ Randy Harp
                                   ------------------------------------------
                                   Randy Harp
                                   Chief Operating Officer
                                   (Duly Authorized Officer)

Date: October 22, 2002             /s/ Steve Williamson
                                   ------------------------------------------
                                   Steve Williamson
                                   Chief Financial Officer
                                   (Principal Accounting Officer)


                                 CERTIFICATIONS
                                 --------------

I, Harland C. Stonecipher, Chief Executive Officer, certify that:

(1)  I have  reviewed  this  quarterly  report  on Form 10-Q of  Pre-Paid  Legal
     Services, Inc.;

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

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

(4)  The  registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

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

     (b)  Evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this quarterly report (the "Evaluation Date"); and

     (c)  Presented  in  this  quarterly   report  our  conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

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

     (a)  All  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     (b)  Any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

(6)  The  registrant's  other  certifying  officer and I have  indicated in this
     quarterly report whether or not there were significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.


Date: October 22, 2002             /s/ Harland C. Stonecipher
                                   ------------------------------------------
                                   Harland C. Stonecipher
                                   Chairman and Chief Executive Officer





                            CERTIFICATIONS, continued
                            -------------------------

I, Steve Williamson, Chief Financial Officer, certify that:

(1)  I have  reviewed  this  quarterly  report  on Form 10-Q of  Pre-Paid  Legal
     Services, Inc.;

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

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

(4)  The  registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

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

     (b)  Evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this quarterly report (the "Evaluation Date"); and

     (c)  Presented  in  this  quarterly   report  our  conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

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

     (a)  All  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     (b)  Any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

(6)  The  registrant's  other  certifying  officer and I have  indicated in this
     quarterly report whether or not there were significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.


Date: October 22, 2002             /s/ Steve Williamson
                                   -----------------------------------------
                                   Steve Williamson
                                   Chief Financial Officer





                                  Exhibit 99.1

                                  CERTIFICATION


      Pursuant to 18 U.S.C. ss. 1350, the undersigned officer of Pre-Paid Legal
Services, Inc. (the "Company"), hereby certifies that the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 2002 (the "Report")
fully complies with the requirements of Section 13(a) or 15(d), as applicable,
of the Securities Exchange Act of 1934 and that the information contained in the
Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.

Date: October 22, 2002             /s/ Harland C. Stonecipher
                                   ----------------------------------------
                                   Harland C. Stonecipher
                                   Chairman and Chief Executive Officer

        The foregoing certification is being furnished solely pursuant to
                                18 U.S.C.ss.1350.





                                  Exhibit 99.2

                                  CERTIFICATION


      Pursuant to 18 U.S.C. ss. 1350, the undersigned officer of Pre-Paid Legal
Services, Inc. (the "Company"), hereby certifies that the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 2002 (the "Report")
fully complies with the requirements of Section 13(a) or 15(d), as applicable,
of the Securities Exchange Act of 1934 and that the information contained in the
Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.

Date: October 22, 2002             /s/ Steve Williamson
                                   ----------------------------------------
                                   Steve Williamson
                                   Chief Financial Officer

        The foregoing certification is being furnished solely pursuant to
                                18 U.S.C.ss.1350.