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

                                    FORM 10-K

                        FOR ANNUAL AND TRANSITION REPORTS
                     PERSUANT TO SECTIONS 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

(Mark One)

[x]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 OR

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

                           COMMISSION FILE NO. 0-21107
                           TELESPECTRUM WORLDWIDE INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

               DELAWARE                             23-2845501
    (STATE OR OTHER JURISDICTION OF               (I.R.S. EMPLOYER
     INCORPORATION OR ORGANIZATION)            IDENTIFICATION NUMBER)

                 443 SOUTH GULPH ROAD, KING OF PRUSSIA, PA 19406
               (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

                                  610-878-7400
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

                                                NAME OF EACH EXCHANGE
           TITLE OF EACH CLASS                   ON WHICH REGISTERED
                 NONE                                   NONE

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                     COMMON STOCK, PAR VALUE $.01 PER SHARE
                                (TITLE OF CLASS)

         Indicate by check mark whether the registrant (1) has filed all reports
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 [ ] NO [X]

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

         As of April 16, 2002, the aggregate market value of the common stock
held by non-affiliates of the registrant was $430,188. Such aggregate market
value was computed by reference to the closing sale price of the common stock as
reported on the OTC Bulletin Board on such date. For purposes of making this
calculation only, the registrant has defined affiliates as including all
directors, executive officers and beneficial owners of more than five percent of
the common stock of the registrant.

         As of April 16, 2002, there were 32,737,815 shares of the registrant's
common stock outstanding.
<PAGE>
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                             PART I
<S>                   <C>                                                                                       <C>
        Item 1.       Business                                                                                   1
        Item 2.       Properties                                                                                 7
        Item 3.       Legal Proceedings                                                                          7
        Item 4.       Submission of Matters to a Vote of Security Holders                                        7

                                                             PART II
        Item 5.       Market for the Registrant's Common Equity and Related Stockholder Matters                  8
        Item 6.       Selected Financial Data                                                                    9
        Item 7.       Management's Discussion and Analysis of Financial Condition and Results of Operations     10
        Item 7A.      Quantitative and Qualitative Disclosures about Market Risk                                24
        Item 8.       Financial Statements and Supplementary Data                                               26
        Item 9.       Changes in and Disagreements with Accountants on Accounting and Financial Disclosure      56

                                                             PART III
        Item 10.      Directors and Executive Officers of the Registrant                                        57
        Item 11.      Executive Compensation                                                                    59
        Item 12.      Security Ownership of Certain Beneficial Owners and Management                            63
        Item 13.      Certain Relationships and Related Transactions                                            64

                                                             PART IV
        Item 14.      Exhibits, Financial Statement Schedule, and Report on Form 8-K                            65
</TABLE>

           CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

We have made forward-looking statements in this Form 10-K including the
information concerning possible or assumed future results of our operations, and
such statements include those preceded by, followed by or that include words
such as "anticipates," "believes," "expects," "intends" or similar expressions.
For those forward-looking statements, we claim the protection of the safe harbor
contained in the Private Securities Litigation Reform Act of 1995. You should
understand that the following important factors, in addition to those discussed
elsewhere in this document, particularly under "Risk Factors," could affect our
future results and could cause those results to differ materially from those
expressed in our forward-looking statements:

-        our overall financial condition, which has made it difficult for us to
         retain clients;

-        the effects of the change of control as a result of the
         recapitalization described herein;

-        our need to obtain additional financing to pursue our business
         objectives;

-        our results of operations being dependent on one or more significant
         clients;

-        adverse effects on results of operations if we do not maintain
         sufficient capacity utilization;

-        adverse effects on our Company if we do not obtain and implement new or
         enhanced technology;

-        adverse effects on our results of operations if we do not avoid high
         personnel turnover;

-        our reliance on telecommunications companies;

-        changes in laws regulating our industry;

-        fluctuations in quarterly operating results causing our stock price to
         change; and

-        events directly or indirectly relating to our Company causing our stock
         price to be volatile.
<PAGE>
                           TELESPECTRUM WORLDWIDE INC.

                                     PART I

ITEM 1.   BUSINESS

TeleSpectrum Worldwide Inc. was incorporated in Delaware in April 1996 and
provides inbound and outbound telemarketing, inbound customer service, and
interactive voice response to clients in certain targeted industries. As of
December 31, 2001, we operated 19 call centers located in 10 states and Ontario,
Canada and employed approximately 5,800 persons.

During 2001, we closed 14 call centers, announced the closure of two additional
call centers and reduced the number of employees by approximately 2,600. The
reduction in operations was made in response to a number of factors, including a
weakening economy and the effects of the September 11th tragedy, both of which
led to industry-wide declining revenues and excess capacity. During the fourth
quarter of 2001, we became in default of the terms of our Amended and Restated
Credit Agreement dated April 16, 2001. At such time, we entered into
negotiations with our bank group to restructure our existing debt.

On April 29, 2002, we entered into an agreement with our bank lenders that
resulted in a recapitalization of our balance sheet and a reduction of our debt.
As a result of the recapitalization, the amounts due under our existing credit
facilities totaling approximately $161 million at the time of the
recapitalization, which consisted of outstanding debt, accrued interest and
fees, were converted into (a) a three-year term facility of $25 million under an
amended and restated credit agreement, (b) $40 million of our Series A Preferred
Stock, and (c) shares of our Series B Convertible Preferred stock which will
convert into common stock representing 95% of our common outstanding after such
conversion. The three year term facility is secured by, among other things, our
assets and outstanding trade receivables, bears interest at a base rate as
defined in the agreement plus 400 basis points, and matures in May 2005. Under
the terms of the Agreement, we are required to meet certain financial covenants,
including a fixed charge coverage ratio and EBITDA targets. The Series A
Preferred Stock has a 10% annual dividend rate, which accrues and is payable
either in cash or in additional shares of Series A Preferred Stock. A portion of
the Series B Convertible Preferred Stock was converted into shares of our common
stock immediately after the closing of the recapitalization, and the remainder
will convert into shares of common stock as soon as we amend our Certificate of
Incorporation to increase the authorized number of shares of common stock. Such
amendment will require the approval of our shareholders.

After the recapitalization, our Board of Directors is comprised of five members,
including J. Peter Pierce, our Chairman and Chief Executive Officer, and
Christopher Williams, our Chief Operating Officer, who are continuing as
directors, and three designees of the bank group.

In addition to entering into the amended credit agreement and completing the
recapitalization with our bank lenders, on April 29, 2002 other debt balances
outstanding to unsecured creditors were restructured from $15.3 million to
approximately $0.7 million, with cash payments of $1.5 million. Certain
commercial liabilities, primarily accounts payable, which had a carrying value
of $3.7 million as of December 31, 2001, were also settled through cash payments
of $0.9 million and notes payable of $0.3 million. Additional settlements were
reached with certain of our landlords that will result in a reduction of $3.4
million of future lease commitments through cash payments of $0.4 million and
notes payable of $0.2 million. As part of our debt restructuring, we divested
ourself of our ownership interest in eSatisfy.com, Inc.

As a result of these transactions, we anticipate recording an extraordinary gain
on the restructuring of the above obligations. The amount of the gain, in part,
will be determined based on the fair value of the Series A and Series B
Preferred Stock issued to the lenders. The amount of the gain is subject to
change based on the results of an independent appraisal we expect to obtain
during 2002. We believe that the debt restructuring and recapitalization will
provide us with the ability to service our debt payments and meet our other
obligations while alleviating customer concerns regarding our ability to perform
at high levels.

The following table represents a proforma estimate of our December 31, 2001
balance sheet as if the recapitalization had occurred at that time:


                                       1
<PAGE>
                           CONSOLIDATED BALANCE SHEETS
                            RECAPITALIZATION ANALYSIS
                                DECEMBER 31, 2001

<TABLE>
<CAPTION>
                                                                                   (unaudited)
                                                                           EFFECT OF RECAPITALIZATION
                                                                           --------------------------
                                                             ACTUAL         ESTIMATED       PROFORMA
                                                            12/31/01          CHANGE        12/31/01
                                                            ---------       ---------       ---------
<S>                                                         <C>             <C>             <C>
ASSETS:

Cash                                                        $   6,391       $  (2,093)      $   4,298
Other current assets                                           35,400          (1,028)         34,372
                                                            ---------       ---------       ---------
Total current assets                                           41,791          (3,121)         38,670

Total non current assets                                       14,868            (560)         14,308
                                                            ---------       ---------       ---------

Total assets                                                $  56,659       $  (3,681)      $  52,978
                                                            =========       =========       =========

LIABILITIES:

Current liabilities                                            36,161         (13,066)         23,095

Senior debt                                                   159,064        (134,064)         25,000
Non current liabilities                                         8,139          (5,806)          2,333
                                                            ---------       ---------       ---------
Total non current liabilities                                 167,203        (139,870)         27,333

Total liabilities                                             203,364        (152,936)         50,428
                                                            ---------       ---------       ---------

Stockholder's equity/(deficit)                               (146,705)        149,255           2,550
                                                            ---------       ---------       ---------

Total liabilities and stockholders' equity/(deficit)        $  56,659       $ (3,681)       $  52,978
                                                            =========       =========       =========
</TABLE>

We began our operations when we completed our initial public offering in 1996
and on the same day acquired our six initial operating businesses, including the
consulting business Technical Assistance Research Programs, Inc. ("TARP").
Through acquisitions in 1996 and 1997 and our merger with International Data
Response Corporation ("IDRC") in 1999, we expanded our capabilities beyond
traditional telemarketing and outsourced call center services and significantly
increased our available capacity.

We sold our market research business in January 1998 and our direct mail and
fulfillment business in March 1998.

During the third quarter of 1999, we launched ChannelCare, our branded
multi-channel Customer Relationship Management (CRM) solutions for large
corporations and high growth technology companies. ChannelCare was able to
provide web-based sales and service, e-mail response, web telephony, video and
real-time chat, as well as traditional customer service solutions within a
multi-channel contact environment. While we successfully implemented several
installations in this arena, we were not able to achieve the necessary scale and
accordingly, we abandoned this technology in 2000.

During the first quarter of 2000, we placed all of the assets and liabilities
related to TARP into a new wholly owned corporation called eSatisfy.com
("eSatisfy"). eSatisfy then acquired Customer Insites, Inc. ("CI") by exchanging
27.6% of its common stock for all of the issued and outstanding capital stock of
CI. The original strategic plan was to capitalize on the potential offered by
the internet and provide customer satisfaction surveys for internet traffic.
eSatisfy quickly ramped up the infrastructure and technological investments
necessary to support the projected growth. eSatisfy was unsuccessful in
implementing that strategic plan and during the fourth quarter of 2000 scaled
back to the operational level in place prior to undertaking the internet
strategy. As part of our reduction of debt obligations to our unsecured
creditors as described above, we divested ourselves of our ownership interest in
eSatisfy.


                                       2
<PAGE>
INDUSTRY OVERVIEW

Telemarketing involves the direct communication of information to current or
prospective customers by telephone. Indirect marketing methods, such as radio,
television and print advertising, employ a "one-to-many" approach to convey
marketing information that can position products and services within a broad
market context. Direct market methods such as telemarketing employ a
"one-to-one" approach. This method delivers a marketing message directly to a
specific current or prospective customer and elicits an immediate customer
response. Many businesses have combined traditional indirect marketing methods,
such as advertising, with the direct marketing methods, such as telemarketing,
to obtain greater returns from their investments in marketing activities.

We believe that over-capacity currently exists within the industry, which has
resulted in pricing pressures on existing and new business. We anticipate that
these pressures will continue into the future.

A significant amount of telemarketing services, both inbound and outbound, are
performed by prospective clients' in-house operations. This provides a
significant outsourcing opportunity for third party providers.

Advances in computer and telecommunications technology have assisted
telemarketing and customer care companies to more accurately identify and
contact current and prospective customers, as well as provide more accurate,
timely and complete customer and product information to the customer service
representatives. Providers of telemarketing and customer care services can offer
clients economies of scale in sharing the cost of new technology among a larger
base of users than might be possible with in-house operations, while at the same
time better matching available capacity to fluctuating client demand.

SERVICES OVERVIEW

Our call centers continue to provide traditional forms of customer service to
our clients through our telservices segment. These services include responding
to customer calls via customer service representatives (CSRs), interactive voice
response services, call center management and consulting services. Responding to
customer calls involves the processing of customer inquiries by CSRs. The
customer will typically call a toll-free "800" or "888" number which is routed
to one of our centers. The incoming call is identified by the number dialed and
linked to a CSR that is trained and available to handle the call. At the same
time, through the latest computer telephony integration technology, relevant
customer and/or product information is delivered to the CSR's computer screen,
complete with prompts and response text necessary to handle the inquiry. When
the call is completed, information is stored and delivered to the client's
central data files. Our interactive voice response services involve responding
to incoming customer calls via automated systems. Where required, these calls
are transferred to CSRs. Our call center management services involve running
most aspects of a client's call center, including recruiting and staffing the
CSRs, managing the operations, and providing reports that analyze the
performance of the client's call center.

We also provide business-to-consumer and business-to-business outbound
telemarketing services through our teleservices segment. These services involve
the placing of telephone calls on behalf of our clients, normally as part of our
client's efforts to sell their products or to obtain new customers. Our clients
provide us with the list of customers or prospective customers to be called.
These lists consist of individuals or businesses that have characteristics that
would indicate that they are potential purchasers of a client's products or
services. Our telemarketing sales representatives (TSRs) use prepared scripts
when making the calls. These scripts are either prepared by our client or us and
contain written questions and answers that are designed to assist the TSR in
handling these calls. We use our computerized call management systems to make
these calls. These systems have predictive dialers that automatically dial
telephone numbers, determine if live connections have been made and present
connected calls to our TSRs.

COMPETITION

The telemarketing and CRM industries are intensely competitive. We compete with
numerous independent telemarketing and CRM firms as well as the in-house
operations of many of our existing or prospective clients. We compete for
telemarketing and CRM services based on quality, technological expertise,
customer service, price, value, range of service offerings, financial stability
and available capacity.


                                       3
<PAGE>
Most businesses that are significant consumers of telemarketing and CRM services
utilize more than one firm to outsource their business and often reallocate work
among various firms from time to time. Clients often request telemarketing and
CRM services to be provided on an individual project basis, and we frequently
are required to compete for individual projects as they are initiated.

SALES AND MARKETING

As of December 31, 2001, we employed 6 sales personnel. Sales personnel are
compensated by salary and commissions based on sales performance.

We generally operate under short-term cancelable contractual relationships with
our telemarketing clients. Our CRM client contracts are generally for one to
three years. Our prices often include an initial fee, a base service charge and
separate charges for ancillary services. Service charges for teleservices are
based upon hourly rates or minute rates. Charges for other services are normally
assessed on a fee-for-service basis.

TARGETED INDUSTRIES

We target our marketing efforts toward clients in the following principal
industries:

Telecommunications

We provide customer acquisition services for major telecommunications companies
for their long distance, cellular and cable products and services. We also
provide customer acquisitions services for regional telecommunications companies
for their advanced telephone features. We offer clients telemarketing services
for their consumer and business customers. In addition, we answer incoming
customer service calls and provide customer care consulting services for the
telecommunications industry.

The telecommunications industry provided 32%, 38%, and 40% of our total revenues
in the years ended December 31, 1999, 2000 and 2001, respectively.

Financial Services

We provide banks and other financial services clients with a wide range of
services, including:

-        acquiring new customers;

-        encouraging product use;

-        encouraging credit card balance transfers;

-        regaining customers; and

-        customer service

The financial services industry provided 28%, 27%, and 25% of our total revenues
in the years ended December 31, 1999, 2000, and 2001, respectively.
Insurance

We work with large consumer insurance companies and their agents, complementing
their sales efforts by telemarketing products such as life and accidental death
and dismemberment insurance. In addition, we answer incoming customer service
and sales calls. As of December 31, 2001, we employed 283 licensed insurance
agents collectively holding state insurance licenses from 48 states. These
agents provide customer acquisition services for our clients. The insurance
industry provided 10%, 9%, and 12% of our total revenues in the years ended
December 31, 1999, 2000, and 2001, respectively.

Pharmaceutical and Health Care

We offer pharmaceutical clients with product support and customer service for
their business and consumer customers. We also perform customer care consulting
for clients in the health care industry.


                                       4
<PAGE>
Utilities

We offer large public and private utilities with the following services:

         -        deregulation education for consumers;

         -        customer service;

         -        consumer affairs services

         -        collection efforts; and

         -        customer service surveys.

Consumer Products

We provide consumer products clients with customer service, order entry and
customer acquisition services.

Technology

We provide product support and customer service for clients in the computer
hardware and software industries. We also provide business-to-business
telemarketing such as product sales, lead generation and customer qualification.
We also provide call center management services for technology clients.

Government

We provide government agencies and quasi-government agencies with a wide range
of services either directly or through strategic alliances. These services
include customer service and transaction processing.

PERSONNEL AND TRAINING

As of December 31, 2001, we employed approximately 5,411 individuals on a
full-time basis and 371 individuals on a part-time basis. TSRs and CSRs account
for approximately 4,872 employees of our total workforce of 5,782. Our ability
to hire, train, and manage qualified employees is critical to our ability to
provide high quality services to our clients. One of our call centers is
unionized and relations are satisfactory.

GOVERNMENT REGULATION

Our sales practices are regulated at both the federal and state level. The
Federal Telephone Consumer Protection Act of 1991 (TCPA), enforced by the
Federal Communications Commission (FCC), imposes restrictions on unsolicited
automated telephone calls to residential subscribers. Under the TCPA it is
unlawful to initiate telephone solicitations to residential telephone
subscribers before 8:00 a.m. or after 9:00 p.m., local time at the subscriber's
location, or to use automated telephone dialing systems or artificial or
prerecorded voices to call certain subscribers. The FCC rules further require
telemarketers to have procedures in place to maintain a list of residential
customers who do not want to receive telephone solicitations.

The Federal Trade Commission (FTC) regulates both general sales practices and
telemarketing specifically. Under the Federal Trade Commission Act (FTC Act),
the FCC has broad authority to prohibit a variety of advertising or marketing
practices that may constitute "unfair or deceptive acts and practices."

The FTC also administers the Federal Telemarketing and Consumer Fraud and Abuse
Prevention Act of 1994 (TCFAPA). Under the TCFAPA, the FTC has issued
regulations prohibiting a variety of deceptive, unfair or abusive practices in
telemarketing sales. Generally, these rules prohibit misrepresentations of the
cost, quality, terms, restrictions, performance or characteristics of products
or services offered by telephone solicitation or of refund, cancellation or
exchange policies. The regulations also regulate the use of prize promotions in
telemarketing to prevent deception and require that a telemarketer identify
promptly and clearly the seller on whose behalf the telemarketer is calling, the
purpose of the call and the nature of the goods or services offered. The
regulations also require that telemarketers maintain records on various aspects
of their business.


                                       5
<PAGE>
Most states have enacted statues similar to the FTC Act prohibiting unfair or
deceptive acts and practices. A number of states have enacted legislation and
other states are considering enacting legislation to regulate telemarketing. For
example, telephone sales in certain states are not final until a written
contract is delivered to and signed by the buyer, and such a contract often may
be canceled within three business days. At least one state also prohibits
telemarketers from requiring credit card payment, and several other states
require certain telemarketers to obtain licenses, post bonds or submit sales
scripts to the state's attorney general.

Most states also have enacted legislation that requires telemarketers to
subscribe and adhere to state-run "do not call" lists. Extensive federal
legislation that would, among other things, establish a national do not call
list has been proposed.

We are also affected by laws applicable to our clients' businesses. For example,
"anti-slamming" legislation requires telecommunication carriers to provide
substantial verification from their customers that they have authorized a change
in the carrier of their telephone service. This legislation places penalties on
telecommunications carriers that do not obtain the required verification. In
addition, our employees who complete the sale of insurance products are required
to be licensed by various state insurance commissions and to participate in
regular education programs, which we currently provide.

Violation of the rules and regulations, applicable to telemarketing practices
may result in injunctions against certain operations, monetary penalties or
disgorgement of profits; moreover, such violations may give rise to private
actions for damages. We believe we are in compliance with applicable rules and
regulations.


                                       6
<PAGE>
ITEM 2.   PROPERTIES

Our corporate headquarters are located in 21,000 square feet of rented office
space in King of Prussia, Pennsylvania. As of December 31, 2001, we operated the
following material facilities:

<TABLE>
<CAPTION>
                                    NUMBER OF
                                   WORKSTATIONS
                                   ------------
<S>                                     <C>
TELESERVICES CENTERS
--------------------
      Beckley, WV                       270
      Charleston, WV                    240
      Endicott, NY                      240
      Huntington, WV                    240
      Salisbury, NC                     103
      Wheeling, WV                      240
      Aliquippa, PA                     240
      Duluth, MN                        182
      Bemidji, MN                       106
      North Bay, Ontario                190
      Toronto, Ontario                  175
      St. Catherine, Ontario            228
      Woodlawn, MD                      305
      Great Arrow (Buffalo, NY)         312
      San Diego, CA                     444
      Phoenix, AZ                       263
                                      -----
      Total TeleServices              3,778
                                      -----

TELESERVICES MANAGED CENTERS
----------------------------
      White Plains, NY                   50
      Littleton, MA                      25
      Colorado Springs, CO                5
                                      -----
      Total TeleServices Managed         80
                                      -----
      Total                           3,858
                                      =====
</TABLE>

The Teleservices Managed Centers are not owned or leased by us but are operated
by us as managed call centers for clients.

ITEM 3.   LEGAL PROCEEDINGS

We are from time to time involved in litigation incidental to our business. We
do not believe that the resolution of any existing litigation will result in a
material adverse effect on our business, results of operations, or financial
condition. See Note 11 to our consolidated financial statements.

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

We did not submit any matters to a vote of security holders during the fourth
quarter of 2001.


                                       7
<PAGE>
                           TELESPECTRUM WORLDWIDE INC.

                                     PART II


ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
         RELATED STOCKHOLDER MATTERS

Our common stock trades on the OTC Bulletin Board under the symbol TLSP. Prior
to October 30, 2000, our common stock was traded on the Nasdaq National Market.
However, our common stock failed to maintain a minimum bid price and,
accordingly, was delisted at the close of business on October 30, 2000. The
following table sets forth, for the periods indicated, the high and low sales
price for each share of our common stock as reported on the Nasdaq National
Market through October 30, 2000 and the high and low bid quotations for our
common stock as reported on the OTC Bulletin Board thereafter.

<TABLE>
<CAPTION>
                                 High            Low
                                 ----            ---
<S>                   <C>            <C>
2001
        First Quarter       $    1.07      $    0.30
        Second Quarter           0.66           0.50
        Third Quarter            0.50           0.08
        Fourth Quarter           0.11           0.01

2000
        First Quarter           9.813          6.063
        Second Quarter          7.250          3.063
        Third Quarter           4.500          0.625
        Fourth Quarter          0.875          0.234
</TABLE>

On March 31, 2002 there were 280 holders of record of the shares of our
outstanding common stock and the closing price for a share of common stock as
reported by the OTC Bulletin Board was $0.01. We have not paid any dividends
since our inception. The declaration and payment of dividends in the future will
be determined by the board of directors in light of conditions then existing,
including our earnings, financial condition, bank covenants and capital
requirements. Our current lending agreements prohibit the payment of dividends.


                                       8
<PAGE>
ITEM 6.   SELECTED FINANCIAL DATA

You should read the data set forth below together with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and our
consolidated financial statements and related notes thereto included elsewhere
herein.

<TABLE>
<CAPTION>
                                                                              YEAR ENDED DECEMBER 31
                                                    -------------------------------------------------------------------------
                                                      2001            2000     (1)     1999            1998            1997
                                                    ---------       ---------       ---------       ---------       ---------
<S>                                                 <C>             <C>        <C>  <C>             <C>             <C>
(In Thousands - except per share amounts)
Statement of Operations:
Revenues                                            $ 218,235       $ 303,568       $ 266,810       $ 167,428       $ 178,922
                                                    ---------       ---------       ---------       ---------       ---------
Operating Expenses:
   Cost of Services                                   172,956         237,171         195,573         130,406         154,846

   Selling, general and administrative                 51,550          70,220          53,898          41,785          41,793
   Impairment - long lived assets (3)                  26,078         171,151              --              --         139,072(2)
   Restructuring charge (4)                             7,474          10,254              --              --              --
   Goodwill amortization                                1,167           8,449           4,431           1,178           7,249
                                                    ---------       ---------       ---------       ---------       ---------
         Total operating expenses                     259,225         497,245         253,902         173,369         342,960
                                                    ---------       ---------       ---------       ---------       ---------
         Operating income (loss)                      (40,990)       (193,677)         12,908          (5,941)       (164,038)
   Interest (expense) income, net                     (21,886)        (17,279)         (7,026)         (1,246)         (1,876)
   Investment gain                                         --              --              --              --           1,760
                                                    ---------       ---------       ---------       ---------       ---------
         Income (loss) before taxes, minority
         interest and extraordinary item:             (62,876)       (210,956)          5,882          (7,187)       (164,154)
   Income tax benefit                                      --              --              --             247           2,310
   Minority interest                                       --           7,836              --              --              --
                                                    ---------       ---------       ---------       ---------       ---------
   Income (loss) before extraordinary item            (62,876)       (203,120)          5,882          (6,940)       (161,844)
   Extraordinary loss on early
   extinguishment of debt                             (20,286)             --              --              --              --
                                                    ---------       ---------       ---------       ---------       ---------

         Net Income (loss)                          $ (83,162)      $(203,120)      $   5,882       $  (6,940)      $(161,844)
                                                    =========       =========       =========       =========       =========
   Basic earnings (loss) per share
   Income (loss) before extraordinary               $   (1.91)      $   (6.42)      $    0.21       $   (0.27)      $   (6.42)
   Extraordinary item                                   (0.62)             --              --              --              --
                                                    ---------       ---------       ---------       ---------       ---------
   Net Income (loss)                                $   (2.53)      $   (6.42)      $    0.21       $   (0.27)      $   (6.42)
                                                    =========       =========       =========       =========       =========

   Diluted earnings (loss) per share
   Income (loss) before extraordinary               $   (1.91)      $   (6.42)      $    0.18       $   (0.27)      $   (6.42)
   Extraordinary item                                   (0.62)             --              --              --              --
                                                    ---------       ---------       ---------       ---------       ---------
   Net Income (loss)                                $   (2.53)      $   (6.42)      $    0.18       $   (0.27)      $   (6.42)
                                                    =========       =========       =========       =========       =========

                                                                                  DECEMBER 31,
                                                    -------------------------------------------------------------------------
                                                      2001            2000            1999            1998            1997
                                                    ---------       ---------       ---------       ---------       ---------
   Balance Sheet Data:
   Cash and cash equivalents                        $   6,391       $   5,258       $      --       $     794       $     774
   Working capital                                      5,630           9,879          13,912          16,702          20,655
   Total Assets                                        56,659         124,867         318,407         103,689         144,721
   Current maturities                                   3,608           3,844          16,411             820          30,160
   Long-term debt, net of current maturities          166,588         132,413         113,846           2,876           3,800
   Stockholders equity (deficit)                     (146,705)        (64,273)        139,433          76,568          80,377
</TABLE>

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

(1)      Results include the merger with IDRC from June 30, 1999.

(2)      This impairment charge for goodwill was recorded in the fourth quarter
         of 1997.

(3)      The impairment charge for goodwill was recorded in the fourth quarters
         of 2001 and 2000. See Note 6 to Consolidated Financial Statements.

(4)      Restructuring charge recorded in connection with closed facilities. See
         Note 3 to our Consolidated Financial Statements

(5)      Minority interest represents the portion of e-Satisfy.com not owned by
         the Company (27.6%)


                                       9
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS

RESTRUCTURING/RECAPITALIZATION

On April 29, 2002, the Company completed the restructuring of its existing bank
debt and certain other commercial liabilities, primarily accounts payable and
lease obligations. As a result of the restructuring, on a proforma basis the
Company's restructured debt and other current liabilities were reduced from
$166.7 million and $7.6 million, respectively, to $25.2 million and $0.5
million, respectively. We believe that the debt restructuring and
recapitalization will provide the Company the ability to service its debt
payments and meet its obligations while alleviating customer concerns regarding
the Company's ability to perform. The restructuring may further enable the
Company to obtain new business and retain existing business previously at risk
of loss due to the financial situation of the Company.

In connection with the debt restructuring, the Company entered into agreements
with its bank lenders pursuant to which an amount totaling approximately $161
million at the time of the restructuring due under the Company's existing credit
facilities was converted into: (a) a three-year term facility of $25 million;
(b) $40 million of the Company's Series A Preferred Stock; and (c) approximately
$96 million of the Company's Series B Convertible Preferred Stock.

RESULTS OF OPERATIONS

Background

During 2001, we provided services to our customers through our Teleservices and
eSatisfy segments.

The Teleservices segment provides both business-to-consumer and
business-to-business acquisition services, primarily direct sales initiated by
us on behalf of our clients. In addition, this segment provides customer service
expertise to our clients. Our customer service expertise includes the more
traditional inbound services of customer care support, typically through
toll-free telephone numbers, for activities such as responses to clients'
customer service inquiries, catalogue sales and electronic order processing and
consulting services to a wide range of clients.

The eSatisfy.com segment, a customer satisfaction research company, measures,
monitors and improves the customer service experience. eSatisfy incurred
significant losses during 2001 and 2000 resulting in a deficiency of net assets
in its balance sheet. Since the Company funded 100% if its operations, we are
recognizing 100% of eSatisfy's operating loss in the consolidated statement of
operations. As discussed below, the remainder of the goodwill arising from
eSatisfy and its predecessor TARP was written off during the fourth quarter of
2001. As part of the recapitalization described above, the Company divested
itself of its ownership interest in eSatisfy.

Earnings before interest, taxes, depreciation and amortization ("EBITDA")

EBITDA represents net income (loss) before income taxes, interest income and
expense, depreciation, amortization and charges for nonrecurring items. EBITDA
should not be considered in isolation or as a substitute for earnings from
continuing operations, cash flows or other data prepared in accordance with
generally accepted accounting principles or as a measure of profitability or
liquidity. EBITDA is being presented because we believe that it provides useful
information regarding our ability to incur and service debt. The unadjusted
EBITDA for the year ended December 31, 2001 derived from our consolidated
results of operations was negative $46.0 million. EBITDA during the same period
was $8.7 million after excluding the effects of items which were non-recurring
in nature such as: the impairment of long-lived assets ($26.1 million);
restructuring charges ($7.5 million); the write-off of shareholder loans ($1.0
million); and the early extinguishment of debt ($20.3 million). The unadjusted
EBITDA for the year ended December 31, 2000 derived from our consolidated
results of operations was ($160.7) million. EBITDA during the same period was
$23.1 million after excluding the effects of eSatisfy.com, and items which were
non-recurring in nature. The gross impact of these non-recurring items were
comprised primarily of impairment of long-lived assets ($171.1 million),
restructuring charges ($10.3 million), bad debts and other software write-downs
(totaling $5.7 million) offset by the effect of eSatisfy.com.


                                       10
<PAGE>
The following discussions should be read in conjunction with "Selected Financial
Data" and the consolidated financial statements contained elsewhere herein.

Comparison of the Results of Operations for 2001 to 2000

                              RESULTS OF OPERATIONS
                              (dollars in millions)

<TABLE>
<CAPTION>
                                       YEAR ENDED       AS A        YEAR ENDED        AS A
                                      DECEMBER 31,  PERCENTAGE OF   DECEMBER 31,  PERCENTAGE OF
                                          2001        REVENUES         2000          REVENUES
                                          ----        --------         ----          --------
<S>                                   <C>           <C>             <C>           <C>
Revenues:
   Teleservices                          $213.4           98%        $ 297.2            98%
   eSatisfy                                 4.8            2             6.4             2
                                         ------          ---         -------           ---
     Total Revenue                        218.2          100           303.6           100

Cost of services:
    Teleservices                          171.1           78           232.3            78
    eSatisfy                                1.9            1             4.9            77
                                         ------          ---         -------           ---
     Total cost of services               173.0           79           237.2            78

Selling, general and administrative        51.5           24            70.2            23
Impairment - long-lived assets             26.1           12           171.1            56
Restructure charge                          7.5            3            10.3             4
Amortization of goodwill                    1.2            1             8.4             3
                                         ------          ---         -------           ---
     Total operating expenses             259.3          119           497.2           164

Operating loss                            (41.1)         (19)         (193.6)          (64)

Interest expense, net                     (21.8)         (10)          (17.3)           (6)
                                         ------          ---         -------           ---
Loss before taxes                         (62.9)         (29)         (210.9)          (70)

Income tax benefit                           --           --              --            --

Minority interest                            --           --             7.8             3

Extraordinary loss on early
Extinguishment of debt                    (20.3)          (9)             --            --
                                         ------          ---         -------           ---

Loss from continuing operations          $(83.2)         (38%)       $(203.1)         (67%)
                                         ======          ===         =======           ===
</TABLE>

REVENUES

Our total revenues for the twelve months ended December 31, 2001 were $218.2
million, representing a decrease of $85.4 million or 28% from the 2000 total of
$303.6 million. The decrease resulted from the economic environment in 2001, the
effect of September 11, and the financial condition of the Company that resulted
in the loss of business and customer attrition.

TeleServices Segment

Our TeleServices segment revenues were $213.4 million for the twelve months
ended December 31, 2001. These revenues accounted for 98% of our total revenue
and represented a decrease of $83.8 million or 28% of 2000 revenues of $297.2
million. The decrease resulted from the factors listed above.


                                       11
<PAGE>
eSatisfy.com Segment

Our eSatisfy.com segment revenues were $4.8 million for the twelve months ended
December 31, 2001. These revenues accounted for 2% of total revenue and
decreased by $1.6 million or 25% from the twelve months ended December 31, 2000
due to the factors discussed above.

COST OF SERVICES

Our cost of services was $173.0 million for the twelve months ended December 31,
2001, a decrease of $64.2 million or 27% from cost of services of $237.2 million
for the twelve months ended December 31, 2000. As a percentage of total
revenues, cost of services were 79% and 78% for the twelve months ended December
31, 2001 and 2000, respectively. The increase in cost of services as a
percentage of revenue can be attributed to lower revenue per hour due to
competitive pricing pressures and lower utilization of call center capacity.

Teleservices Segment

Our Teleservices segment cost of services for the twelve months ended December
31, 2001 was 80% of teleservices revenues and decreased by $61.2 million or 26%
from the twelve months ended December 31, 2000. Costs of services for the twelve
months ended December 31, 2000 were 78% of Teleservices revenues. The increase
in cost of services as a percentage of revenue can be attributed to lower
revenue per hour due to competitive pricing pressures and lower utilization of
call center capacity.

eSatisfy.com Segment

Our eSatisfy.com segment cost of services accounted for 40% of our eSatisfy.com
revenues for the twelve months ended December 31, 2001 and decreased by $3.0
million or 61% from the twelve months ended December 31, 2000. Cost of services
for the twelve months ended December 31, 2000 was 77% of eSatisfy.com revenues.
This decrease in cost of services as a percentage of revenue is a result of
salary reductions related to the restructuring of this segment initiated during
the fourth quarter of 2000.

SELLING, GENERAL AND ADMINISTRATIVE

Our SG&A expenses were $51.5 million for the twelve months ended December 31,
2001, a decrease of $18.7 million or 27% from the twelve months ended December
31, 2000. While a portion of the dollar decline is attributed to the drop in
sales volumes, resulting in lower commission expense, the majority of the
reduction reflects the effects of the Company's cost reduction plan. Despite the
cost reduction efforts, SG&A as a percentage of revenue increased given the
decline in revenue in 2001. As a percentage of total revenues, SG&A expenses
were 24% and 23% for the twelve months ended December 31, 2001 and 2000,
respectively.

IMPAIRMENT OF GOODWILL AND OTHER INTANGIBLE ASSETS

During the second quarter of 1999 the Company announced a strategic partnership
with two technology providers to deliver integrated eBusiness call center
solutions to leading-edge, Internet-enabled call center services utilizing a
Web-based front office software solution and an Internet interaction management
solution. The anticipated demand for this functionality was initially projected
at very high levels, and the Company purchased licenses and built an
infrastructure to accommodate those projections. While the Company did
successfully implement several installations, it did not reach the volumes
originally projected nor was it able to attain a sufficient level of revenues to
sustain the program. Consequently, the software licenses used in the eCRM
software platform have been deactivated and the related maintenance has been
discontinued. As required by SFAS No. 121, the Company computed the projected
undiscounted future cash flows associated with the continuing software
investment and compared it to the carrying value as of December 31, 2000. This
analysis indicated that a permanent impairment had occurred and the investment
was written down by $9.1 million at the end of 2000 to the estimated fair market
value. The Company re-evaluated this partnership during 2001 and noted a further
impairment and accordingly wrote off the remaining balance off of $0.8 million
during the fourth quarter of 2001 (See Note 6 to the Consolidated Financial
Statements).

In 2000, as a result of declining revenues and increased losses, the Company
performed a comprehensive review of the carrying value of goodwill and other
intangibles. The analysis indicated that the carrying value of goodwill was


                                       12
<PAGE>
permanently impaired resulting in a total impairment charge of $155.5 million. A
similar analysis was prepared during 2001 as a result of further declining
revenues and increased losses resulting in an additional impairment charge of
$11.5 million primarily related to customer relationships (See Note 6 to the
Consolidated Financial Statements).

In 2001, the Company also wrote down the carrying value of fixed assets by $14.5
million to fair market value as a result of the restructuring of business
operations and the closing of call centers (See Note 8 to the Consolidated
Financial Statements).

RESTRUCTURING CHARGE

During the fourth quarter of 2000, as part of its continuing analysis of the
Company's operational strategies, the Board of Directors of the Company approved
a restructuring plan designed to streamline operations, enhance results of
operations and improve cash flow, by closing underutilized customer contact
centers and reducing overhead costs. As a result, the Company recorded a pre-tax
charge of $10.3 million in 2000 for costs associated with exiting certain
facilities, terminating employees and recognizing related asset impairments.
During 2001, the Company's new management team expanded the restructuring plan
on three occasions to include the closure or consolidation of additional
facilities and identification of additional workforce reductions. As a result,
the Company recorded an additional pre-tax charge of $7.5 million during that
period (See Note 5 to the Consolidated Financial Statements.)

GOODWILL AMORTIZATION

Goodwill amortization was $1.2 million, representing 1% of total revenues for
the twelve months ended December 31, 2001, and decreased by $7.2 million from
the twelve months ended December 31, 2000. This decrease can be attributed to
the write-off of goodwill during 2000.

INTEREST EXPENSE, NET

We incurred net interest expense of $21.8 million for the twelve months ended
December 31, 2001, which represents an increase of $4.5 million or 26% from the
twelve months ended December 31, 2000. This increase is due primarily to the
increase in principal on the Company's debt, the accretion of the waiver fees
totaling $0.9 million and the accelerated amortization of deferred debt issuance
costs during the fourth quarter totaling $0.7 million.

MINORITY INTEREST

Minority interest represents the portion of eSatisfy.com not owned by the
Company (27.6%). For the twelve months ended December 31, 2001, minority
interest was zero as compared to the December 31, 2000 credit of $7.8 million.
The Company recorded 72.4% of e-Satisy.com's losses until the minority interest
accumulated balance in the net assets of eSatisfy.com reached zero, at which
time we reflected 100% of the subsidiary losses in the consolidated statement of
operations.

INCOME TAXES

There was no income tax provision for the years ended December 31, 2001 and
2000. As of December 31, 2001 and 2000, we had a net operating loss carryforward
of approximately $210.2 million and $128.1 million, respectively. Due to the
uncertainty surrounding the potential realization of the deferred tax assets,
the Company has provided a full valuation allowance at December 31, 2001 and
2000.

EXTRAORDINARY ITEM

On April 16, 2001, the Company signed an amended and restated credit agreement
(the "Credit Agreement") with its bank group whereby all amounts outstanding
under the former agreement's term notes (Notes A, B and C), $35 million of
working capital revolver, and accrued incremental interest and waiver fees were
converted into one term loan, totaling $120.6 million. The term loan accrued
interest at a base rate plus an applicable margin, as defined as 1.54% at
December 31, 2001, and was scheduled to mature on July 1, 2002.

The April 2001 Credit Agreement required that the Company pay certain fees
periodically through maturity or termination of the agreement. The unused
portion of the working capital revolver was also subject to an annual commitment
fee of 25 basis points payable quarterly. An agent's fee of 25 basis points of
the aggregate amount of the facilities was incurred upon


                                       13
<PAGE>
signing the Credit Agreement, and was incurred through the termination date of
the agreement. The Company was also charged a restructuring fee of 15% of the
aggregate amount of the facilities on April 16, 2001, payable at maturity or
termination of the agreement.

Because the Credit Agreement resulted in substantially different terms and cash
flows than the previous agreement, the amendment was accounted for and reported
in the same manner as a debt extinguishment. A $20.3 million extraordinary loss
on the early extinguishment of debt was recorded in April 2001, reflecting the
write-off of deferred issuance costs related to the previous agreement and the
recognition of restructuring and other fees charged by the bank group related to
the Credit Agreement, as described above. In addition, approximately $1.5
million in third party fees were paid relating to the Credit Agreement, which
were deferred and fully amortized at December 31, 2001.

The Credit Agreement required compliance with stipulated covenants based on the
Company's business plan for 2001. Due to downward revisions to that plan for the
second half of 2001, the Company amended the Credit Agreement effective on July
31, 2001. The amended Credit Agreement permitted the Company to defer 100% of
the total interest otherwise due during the third quarter of 2001 and 50% of the
interest otherwise due during the fourth quarter of 2001. The amended Credit
Agreement also waived future compliance with certain non-financial provisions of
the agreement, modified certain financial covenants, and required the Company to
deliver to the bank group a new cost reduction plan to be implemented by
September 30, 2001, which was delivered. In addition, the amended Credit
Agreement removed the provision that required an amount equal to the deferred
interest to be paid and applied against the working capital revolver and that
required that this portion of the revolver be used only to pay down specified
categories of trade payables.

The Company incurred a waiver fee of 25 basis points of the aggregate amount of
the facilities upon signing the amended Credit Agreement, payable at maturity or
termination of the amended Credit Agreement. This fee was charged to interest
expense during the three-month period ended September 30, 2001.

The Company failed to maintain compliance with the terms of the amended Credit
Agreement by not meeting the EBITDA financial covenant through December 31,
2001. The Company also did not make the interest payment due to the lenders
through December 31, 2001. As a result, the Company was in default at December
31, 2001 and the amounts then outstanding became due and payable upon demand.
The amended Credit Agreement was restructured on April 29, 2002. (See Note 1 to
the Consolidated Financial Statements)


                                       14
<PAGE>
Comparison of the Results of Operations for 2000 and 1999

<TABLE>
<CAPTION>
                                                        RESULTS OF OPERATIONS
                                                        (dollars in millions)

                                       YEAR ENDED       AS A          YEAR ENDED        AS A
                                      DECEMBER 31    PERCENTAGE OF   DECEMBER 31,   PERCENTAGE OF
                                          2000         REVENUES          1999         REVENUES
                                          ----         --------          ----         --------
<S>                                   <C>            <C>             <C>            <C>
Revenues:
   Teleservices                         $ 297.2           98%           $256.8           96%
   eSatisfy.com                             6.4            2              10.0            4
                                        -------          ---            ------          ---
      Total revenues                      303.6          100             266.8          100

Cost of services:
   Teleservices                           232.3           78             191.7           75
   eSatisfy.com                             4.9           77               3.9           39
                                        -------          ---            ------          ---
      Total cost of services              237.2           78             195.6           73

Selling, general and administrative        70.2           23              53.9           20
Impairment - long-lived assets            171.1           56
Restructuring charge                       10.3            4
Amortization of goodwill                    8.4            3               4.4            2
                                        -------          ---            ------          ---
      Total operating expenses            497.2          164             253.9           95
                                        -------          ---            ------          ---

Operating income (loss)                  (193.6)         (64)             12.9            5

Interest expense, net                     (17.3)          (6)             (7.0)          (3)
                                        -------          ---            ------          ---
Income (loss) before taxes               (210.9)         (70)              5.9            2
Income tax benefit                           --           --                --           --
Minority interest                           7.8            3
                                        -------          ---            ------          ---

Income (loss) from continuing           $(203.1)        (67)%           $  5.9            2%
operations                              =======         ===             ======          ===
</TABLE>

REVENUES

Our total revenues for the twelve months ended December 31, 2000 were $303.6
million, representing an increase of $36.8 million or 14% from the 1999 total of
$266.8 million. This increase can be attributed to the addition of IDRC centers
for the first two quarters of 2000 resulting in increased revenues of $59.5
million offset by a decrease in fulfillment of $10.2 million and eSatisfy.com of
$3.6 million. During 1999, we had one client, from the telecommunications
industry, which made up over 10% of our revenue.

Teleservices Segment

Our Teleservices segment revenues were $297.2 million for the twelve months
ended December 31, 2000. These revenues accounted for 98% of our total revenues
and represented an increase of $40.4 million or 16% of 1999 revenues of $256.8
million. The increase can be attributed to the addition of IDRC centers for the
entire year ended December 31, 2000 resulting in increased revenue of $59.4
million offset by the decline in fulfillment revenue of $10.2 million and
overall reductions in business volumes.

eSatisfy.com Segment

Our eSatisfy.com segment revenues were $6.4 million for the twelve months ended
December 31, 2000. These revenues accounted for 2% of total revenue and
decreased by $3.6 million or 36% from the twelve months ended December 31, 1999.
During 2000, eSatisfy.com focused on developing its business-to-business
internet strategy after the acquisition of CI in February 2000. During the same
period of 1999, the focus was on the traditional TARP business before the CI
acquisition.


                                       15
<PAGE>
COST OF SERVICES

Our cost of services was $237.2 million for the twelve months ended December 31,
2000, an increase of $41.6 million or 21% from cost of services of $195.6
million for the twelve months ended December 31, 1999. As a percentage of total
revenues, cost of services was 78% and 73% for each of the twelve months ended
December 31, 2000 and 1999, respectively.

Teleservices Segment

Our Teleservices segment cost of services for the twelve months ended December
31, 2000 was 78% of teleservices revenues an increase of $40.6 million or 21%
from the twelve months ended December 31, 1999. Costs of services for the twelve
months ended December 31, 1999 were 75% of Teleservices revenues. The increase
in cost of services as a percentage of revenue can be attributed to lower
revenue per hour due to competitive pricing pressure, lower utilization of call
center capacity, change in the client mix and an increase in infrastructure to
support anticipated higher volumes.

eSatisfy.com Segment

Our eSatisfy.com segment cost of services accounted for 77% of our eSatisfy.com
revenues for the twelve months ended December 31, 2000 and increased by $1.0
million or 26% from the twelve months ended December 31, 1999. Cost of services
for the twelve months ended December 31, 1999 were 39% of eSatisfy.com revenues.
The increase in cost of services as a percentage of revenue is a result of a
charge to write-off software associated with the traditional business platform
which will not be used in the future and the change in the traditional business
strategy.

SELLING, GENERAL AND ADMINISTRATIVE

Our SG&A expenses were $70.2 million for the twelve months ended December 31,
2000, an increase of $16.3 million or 30% from the twelve months ended December
31, 1999. As a percentage of revenue, SG&A expenses were 23% and 20% for the
twelve months ended December 31, 2000 and 1999, respectively. Of the $70.2
million, $11.0 million relates directly to eSatisfy.com, an increase of $6.1
million from 1999. The $6.1 million increase is due to a charge to write-off
software associated with the traditional TARP business of $1.5 million and
increases in salaries and infrastructure associated with the changes in
eSatisfy.com business strategies. Overall software maintenance fees and
depreciation and amortization increased $7.5 million for the twelve months ended
December 31, 2000 over the same period in the preceding year due to the IDRC
acquisition and increases in technology spending. Bad debt expense decreased by
$4.0 million from $6.8 million to $2.8 million for the twelve months ended
December 31, 1999 and 2000, respectively. The remaining increase in SG&A can be
attributed to the IDRC merger.

IMPAIRMENT OF GOODWILL AND OTHER INTANGIBLE ASSETS

During the second quarter of 1999, the Company announced a strategic partnership
with two technology providers to deliver integrated eBusiness call center
solutions to leading-edge, Internet-enabled call center services utilizing a
Web-based front office software solution and an Internet interaction management
solution. The anticipated demand for this functionality was initially projected
at very high levels and the Company purchased licenses and built an
infrastructure to accommodate those projections. While the Company did
successfully implement several installations in this arena it did not reach the
volumes originally projected nor was it able to attain a sufficient level of
revenues to sustain the program. Consequently, the software licenses used in the
eCRM software platform have been deactivated and the related maintenance has
been discontinued. As required by SFAS No. 121, the Company computed the
projected undiscounted future cash flows associated with the continuing software
investment and compared it to the carrying value as of December 31, 2000. This
analysis indicated that a permanent impairment had occurred and the investment
was written down to the estimated fair market value.

In 2000, as a result of declining revenues and increased losses, the Company
performed a comprehensive review of the carrying value of goodwill and other
intangibles. The analysis indicated that the carrying value of goodwill was
permanently impaired resulting in a total impairment charge of $155.5 million.

GOODWILL AMORTIZATION

Our goodwill amortization was $8.4 million, representing 3% of total revenues
for the twelve months ended December 31,


                                       16
<PAGE>
2000, and increased by $4.0 million from the twelve months ended December 31,
1999. This increase can be attributed to the IDRC merger and the CI acquisition.
As discussed above, the majority of goodwill was written off at December 31,
2000 which will significantly decrease goodwill amortization in the future.

INTEREST EXPENSE, NET

We incurred net interest expense of $17.3 million for the twelve months ended
December 31, 2000 which represents an increase of $10.3 million from the twelve
months ended December 31, 1999. This increase in interest expense can be
attributed to increased debt levels from the IDRC merger, amortization of debt
issuance costs, an increase in the average interest rate of approximately 100
basis points, nonrecurring fees of $0.6 million payable to the lenders under our
credit facility and $0.9 million for charges related to our covenant waivers
received in the fourth quarter of 2000.

MINORITY INTEREST

Minority interest represents the portion of eSatisfy.com not owned by the
Company (27.6%). For the twelve months ended December 31, 2000 minority interest
was $7.8 million. There was no minority interest for the twelve months ended
December 31, 1999. The Company recorded 72.4% of eSatisy.com's losses until the
minority interest accumulated balance in the net assets of eSatisfy.com reached
zero, at which time we reflected 100% of the affiliates losses.

INCOME TAXES

There was no income tax provision for the years ended December 31, 2000 and
1999. As of December 31, 2000 and 1999, we had a net operating loss carryforward
of approximately $128.1 million and $94.5 million, respectively. Due to the
uncertainty surrounding the potential realization of the deferred tax assets,
the Company has provided a full valuation allowance at December 31, 2000 and
1999.


                                       17


<PAGE>


LIQUIDITY AND CAPITAL RESOURCES
(dollars in millions)

CASH FLOWS PROVIDED BY (USED IN):

<TABLE>
<CAPTION>
                                                 YEAR ENDED DECEMBER 31,
                                           ------------------------------------
                                             2001          2000          1999
                                           --------      --------      --------
<S>                                        <C>           <C>           <C>
            Operating Activities           $   (1.3)     $   25.5      $    2.4
            Investing Activities               (1.5)        (21.6)        (25.6)
            Financing Activities                3.9           1.3          22.5
</TABLE>

Year Ended December 31, 2001

The $1.3 million of cash used by operating activities consisted primarily of the
net loss of $83.2 million which includes a number of significant non-cash
charges, including depreciation and amortization of $15.0 million, impairment of
long-lived assets of $26.1 million, extraordinary loss on early extinguishment
of debt of $20.3 million, and changes in working capital accounts based on lower
levels of business activity of $ 4.3 million.

The $1.5 million of cash used in investing activities primarily consisted of
property and equipment purchases attributed to maintaining and enhancing our
technology platforms and costs related to call centers.

The $3.9 million of net cash provided by financing activities primarily
consisted of the increase in our debt at April 2001 and costs incurred in
connection with the amendment to our credit agreement, offset by payments of
capital lease obligations.

Year Ended December 31, 2000

The $25.5 million of cash provided by operating activities consisted primarily
of the net loss of $203.1 million and non cash items including depreciation and
amortization of $27.3 million, impairment of long-lived assets of $171.1
million, a loss on disposal of fixed assets of $3.8 million and restructuring
charges of $10.3 million, offset by working capital requirements, including an
increase in accounts payable of $6.2 million, a decrease in accounts receivable
of $15.3 million, total accrued expenses of $8.4 million and other liabilities
of $2.1 million.

The $21.6 million of cash used in investing activities primarily consisted of
property and equipment purchases attributed to maintaining and enhancing our
technology platforms and costs related to new call centers. Certain of these
assets were impaired in 2000.

The $1.3 million of net cash provided by financing activities primarily
consisted of borrowings related to long-term debt.

Year Ended December 31, 1999

The $2.4 million of cash provided by operating activities consisted of $5.9
million of net income, plus non-cash items including depreciation and
amortization of $16.7 million and $6.8 million for bad debts, offset by working
capital requirements, including an increase in accounts receivable of $8.4
million, prepaid expenses and other of $9.8 million, and a decrease in accounts
payable of $5.5 million and other liabilities of $1.2 million.

The $25.6 million of cash used in investing activities primarily consisted of
property and equipment purchases attributed to maintaining and enhancing our
technology platforms and costs related to new call centers.

The $22.5 million of net cash provided by financing activities primarily
consisted of borrowings related to long-term debt. See Financing Matters below
for additional information regarding the finances of the Company.

Financing Matters

On April 29, 2002, the Company entered into an agreement with its bank lenders
that resulted in a recapitalization of its balance sheet and a reduction of its
debt. As a result of the recapitalization, the amounts due under its existing
credit facilities totaling approximately $161 million at the time of the
recapitalization, which consisted of outstanding debt, accrued interest and
fees, were


                                       18
<PAGE>
converted into (a) a three-year term facility of $25 million under an amended
and restated credit agreement, (b) $40 million of the Company's Series A
Preferred Stock, and (c) shares of the Company's Series B Convertible Preferred
stock which will convert into common stock representing 95% of the Company's
common outstanding after such conversion. The three year term facility is
secured by, among other things, our assets and outstanding trade receivables,
bears interest at a base rate as defined in the agreement plus 400 basis points,
and matures in May 2005. Under the terms of the Agreement, the Company is
required to meet certain financial covenants, including a fixed charge coverage
ratio and EBITDA targets. The Series A Preferred Stock has a 10% annual dividend
rate, which accrues and is payable either in cash or in additional shares of
Series A Preferred Stock. A portion of the Series B Convertible Preferred Stock
was converted into shares of the Company's common stock immediately after the
closing of the recapitalization, and the remainder will convert into shares of
common stock as soon as the Company amends its Certificate of Incorporation to
increase the authorized number of shares of common stock. Such amendment will
require the approval of the Company's shareholders.

After the recapitalization, the Company's Board of Directors is comprised of
five members, including J. Peter Pierce, the Company's Chairman and Chief
Executive Officer, and Christopher Williams, the Company's Chief Operating
Officer, who are continuing as directors, and three designees of the bank group.

In addition to entering into the amended credit agreement and completing the
recapitalization with it bank lenders, on April 29, 2002 other debt balances
outstanding to unsecured creditors were restructured from $15.3 million to
approximately $0.7 million, with cash payments of $1.5 million. Certain
commercial liabilities, primarily accounts payable, which had a carrying value
of $3.7 million as of December 31, 2001, were also settled through cash
payments of $0.9 million and notes payable of $0.3 million. Additional
settlements were reached with certain of the Company's landlords that will
result in a reduction of $3.4 million of future lease commitments through cash
payments of $0.4 million and notes payable of $0.2 million. As part of
the debt restructuring, the Company divested itself of its ownership interest in
eSatisfy.com.

In addition to completing the restructuring and recapitalization transactions
described above, management has also developed and has begun to implement a plan
to improve the Company's operating margins, cash flows from operations and
liquidity position. Management's plan includes the following steps, among
others:

      -     Develop account management and business development initiatives in
            order to improve retention rates for existing customers and generate
            new revenue sources;

      -     Develop incentive compensation plans to provide incentives to key
            employees;

      -     Increase emphasis on winning and retaining higher-margin inbound
            contracts;

      -     Reduce the number of the Company's call centers; and

      -     Reduce expenses through employee attrition, planned headcount
            reductions and other non-salary cost reduction programs.

The Company believes that all of the above changes, together with existing
working capital and projected results for 2002, should enable it to generate
sufficient cash flow to meet its operating cash needs, fund required capital
expenditures and satisfy its debt service and other financing requirements.
However, the Company does not have a line of credit or other short-term
borrowing facility available. In addition, covenants in its amended credit
agreement restrict its ability to pledge assets as collateral for other
borrowings. The Company's 2002 operating plan assumes a stabilization of its
revenue base and an improvement in operating profit margins from historical
levels. The Company's ability to meet its obligations in the ordinary course of
business is dependent upon successful implementation of its operating plan and
stabilization of its operations. Uncertainties exist with respect to
management's plans because events and circumstances frequently do not occur as
expected, and those differences may be material. These uncertainties raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.

On April 16, 2001, the Company signed an amended and restated credit agreement
(the "Credit Agreement") with its bank group whereby all amounts outstanding
under the former agreement's term notes (Notes A, B and C), $35.0 million of the
working capital revolver, and accrued incremental interest and waiver fees were
converted into one term loan, totaling $120.6 million. The term loan accrued
interest at a base rate plus an applicable margin, as defined 1.54% at December
31, 2001, and was scheduled to mature on July 1, 2002.

The Credit Agreement required compliance with stipulated covenants based on the
Company's business plan for 2001. Due to downward revisions to that plan for the
second half of 2001, the Company amended the Credit Agreement effective on July
31, 2001. The amended Credit Agreement permitted the Company to defer 100% of
the total interest otherwise due


                                       19
<PAGE>
during the third quarter of 2001 and 50% of the interest otherwise due during
the fourth quarter of 2001. The amended Credit Agreement also waived future
compliance with certain non-financial provisions of the agreement, modified
certain financial covenants, and required the Company to deliver to the bank
group a new cost reduction plan to be implemented by September 30, 2001, which
was delivered. In addition, the amended Credit Agreement removed the provision
that required an amount equal to the deferred interest to be paid and applied
against the working capital revolver and that required that this portion of the
revolver be used only to pay down specified categories of trade payables.

The Company incurred a waiver fee of 25 basis points of the aggregate amount of
the facilities upon signing the amended Credit Agreement, payable at maturity or
termination of the amended Credit Agreement. This fee was charged to interest
expense during the three month period ended September 30, 2001.

The Company failed to maintain compliance with the terms of the amended Credit
Agreement by not meeting the EBITDA financial covenant beginning in September
2001. The Company also did not make the interest payments due to the lenders
beginning in October 2001. As a result, the Company was in default of the
amended Credit Agreement and the amounts then outstanding became due and payable
upon demand. During the fourth quarter of 2001, the Company began negotiations
with its bank group to restructure its existing debt, which restructuring was
consummated in April 2002.

Note Payable to Stockholder

On April 16, 2001, the Company amended its $4,873,000 million term note payable
to the former majority stockholders of an acquired business pursuant to which
all unpaid interest was added to the unpaid principal balance establishing a
restructured note of $5,761,000. The amended note was scheduled to mature on
June 30, 2004, bore interest at 10% for the year ending December 31, 2001 and
15% through April 15, 2002, when it was restructured. The Company exchanged its
interest in eSatisfy for forgiveness of this Note.

eSatisfy Debt

On April 9, 2001, the Company amended its $2.2 million non-interest bearing note
payable to the former principals of eSatisfy. The amended notes bear interest at
10% from June 30, 2000 and require principal payments of $50,000 per month
through March 2002 and $40,000 per month through August 2002, at which time the
remaining balance of $1.5 million is payable in full. The Company restructured a
portion of this note which reduced the note payable by $0.8 million.

During May 2000, a shareholder of TeleSpectrum advanced $500,000 to eSatisfy.com
in return for convertible promissory notes and 200,000 warrants to purchase
eSatisfy.com Common Stock. The notes bear interest at 8% and were due August 31,
2000 if additional equity totaling $3,000,000 (a "Subsequent Financing") was not
obtained by June 15, 2000. Upon the consummation of a Subsequent Financing, the
notes automatically convert to 285,715 shares of Series A Common Stock. A
Subsequent Financing was not obtained and on September 13, 2000 a forbearance
agreement was entered into which deferred principal and interest. The warrants
expire in seven years and were exercisable at $.01 per warrant.

During June 2000, the same TeleSpectrum shareholder advanced an additional
$500,000 to eSatisfy.com in return for convertible promissory notes and 250,000
warrants to purchase eSatisfy.com Common Stock. The notes bear interest at 8%
and were due October 15, 2000 if additional equity totaling $5,000,000 (a
"Subsequent Financing") was not obtained by July 31, 2000. Upon consummation of
a Subsequent Financing, the notes automatically convert to 357,143 shares of
Series A Common Stock. A Subsequent Financing was not obtained putting
eSatisfy.com into technical default on these notes. eSatisfy.com is currently
negotiating with the lender to obtain a forbearance agreement. The warrants
expire in seven years and were exercisable $.01 per warrant.

In November 2000, eSatisfy received $200,000 in cash from a member of senior
management to enhance the Company's ability to obtain additional financing. In
exchange for cash, the Company promised to pay $200,000 and 12% interest upon
the consummation of a subsequent financing or upon the merger or consolidation
of the Company or any similar transaction or series of related transactions.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. The Company believes its estimates and
assumptions are reasonable; however, actual results and


                                       20
<PAGE>
the timing of the recognition of such amounts could differ from those estimates.
The Company has identified the following critical accounting policies and
estimates utilized by management in the preparation of the Company's financial
statements: revenue recognition, accounting for long-lived assets, allowance for
doubtful accounts, and accounting for income taxes. Any deviation from these
policies or estimates could have a material impact on the financial statements
of the Company.

Revenue recognition

The Company recognizes revenues on Outbound Teleservices programs as services
are performed, generally based on hours incurred. For certain of these programs,
revenues are reduced for estimated customer cancellations. Inbound Teleservices
revenue is recognized on a per hour basis or at the time calls are answered on a
per minute basis.

The Company defers certain up-front fees that are received from its customers
and related costs and recognizes the up-front fees, net of costs, over the term
of the applicable contract. Net Deferred Revenue was $1,486,000 and $2,990,000
at December 31, 2001 and 2000, respectively.

Accounting for long-lived assets

The Company had approximately $13.8 million of long-lived assets as of December
30, 2001. These assets are comprised primarily of property and equipment,
capitalized software and intangible assets. In addition to the original cost of
these assets, their recorded value is impacted by a number of policy elections
made by the Company, including estimated useful lives, salvage values and
impairment charges. In addition, any decision by the Company to reduce capacity
by closing Customer Call Centers or to abandon software would result in a
write-off of the net book value of these affected assets. In accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
(SFAS No. 121), the Company records impairment charges on long-lived assets used
in operations when events and circumstances indicate that the assets may be
impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the carrying amount of those assets. In this circumstance,
the impairment charge is determined based upon the amount the net book value of
the assets exceeds their fair market value. In making these determinations, the
Company utilizes certain assumptions, including, but not limited to estimated
fair market value of the assets, which are based on additional assumptions such
as asset utilization, length of service the asset will be used in the Company's
operations and estimated salvage values. During 2001, the Company recorded an
asset impairment charge of $26.1 million related to the write-off of fixed
assets, goodwill, and other intangible assets under SFAS No. 121. The Company
has adopted the Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets" in January 2002. See discussion below regarding the
effect of this adoption.

Allowance for doubtful accounts

The Company records an allowance for doubtful accounts based on a monthly
assessment of the probable estimated losses in trade accounts receivable.
Management specifically analyzes accounts receivable and analyzes historical bad
debts, customer concentrations, current economic trends, and changes in customer
payment terms when evaluating the adequacy of the allowance for doubtful
accounts. The estimated losses in trade accounts receivable are based on
specific allowances for identified problem receivables and an additional
valuation for all other receivables based on their age and collection history.
Our accounts receivable balance was $33.3 million, net of allowance for doubtful
accounts of $1.6 million as of December 31, 2001.

Accounting for Income Taxes

As part of the process of preparing our consolidated financial statements we are
required to estimate our income taxes in each of the jurisdictions in which we
operate. This process involves us estimating our actual current tax exposure
together with assessing temporary differences resulting from differing treatment
of items, such as depreciation, for tax and accounting purposes. These
differences result in deferred tax assets and liabilities, which are included
within our consolidated balance sheet. We must then assess the likelihood that
our deferred tax assets will be recovered from future taxable income and to the
extent we believe that recovery is not likely, we must establish a valuation
allowance.

At December 31, 2001 the Company had $139.1 million of net deferred tax assets
which included net operating loss carry-forwards of $210.2 million. We have
recorded a full valuation allowance of $139.1 million against our net deferred
tax assets, due to uncertainties surrounding our ability to utilize our deferred
tax assets before they expire.


                                       21
<PAGE>
RECENTLY ISSUED ACCOUNTING STANDARDS

Effective January 1, 2001, the Company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS No. 133), as amended, which requires that all derivative
instruments be reported on the balance sheet at fair value and establishes
criteria for designation and effectiveness of hedging relationships. The effect
of adopting SFAS No. 133 as of January 1, 2001 was not material to the Company's
financial statements.

In June 2001, Statement of Financial Accounting Standards No. 141, "Business
Combinations," (SFAS No. 141) and Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets," (SFAS No. 142) were issued.
These standards change the accounting principles governing business
combinations, goodwill and other intangible assets by, among other things,
requiring the use of the purchase method in accounting for business combinations
and eliminating the requirement to amortize goodwill. Instead, SFAS No. 142
establishes a method to test for impairment of goodwill on at least an annual
basis. These standards became effective for the Company beginning in the first
quarter of 2002. The Company anticipates that the effect of adopting SFAS 142
will not be material.

In August 2001, Statement of Financial Accounting Standards No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets" (SFAS No. 144) was issued
effective for fiscal years beginning after December 15, 2001. This Statement
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. This Statement supersedes SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and
the accounting and reporting provisions of APB Opinion No. 30," Reporting the
Results of Operations, Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions, for the disposal of a segment of a business (as previously defined
in that Opinion). This Statement also amends ARB No. 51, "Consolidated Financial
Statements," to eliminate the exception to consolidation for a subsidiary for
which control is likely to be temporary. This Statement retains the requirements
of SFAS No. 121 to (a) recognize an impairment loss only if the carrying amount
of a long-lived asset is not recoverable from its undiscounted cash flows and
(b) measure an impairment loss as the difference between the carrying amount and
fair value of the asset. This Statement also removes goodwill from its scope
and, therefore, eliminates the requirement of SFAS No. 121 to allocate goodwill
to long-lived assets to be tested for impairment. This Statement retains the
basic provisions of APB Opinion 30 for the presentation of discontinued
operations in the income statement but broadens that presentation to include a
component of an entity (rather than a segment of a business). The Company
anticipates that the effect of adopting SFAS No. 142 will not be material.

OTHER INFORMATION - RISK FACTORS

You should consider the following risk factors that pertain to the Company. The
realization of any of these risks could result in significant harm to our
results of operations, financial condition, cash flows, business or the market
price of our common stock.

Keep these risk factors in mind when reading "forward-looking" statements
elsewhere in this Form 10-K (see also "Cautionary Statement Concerning
Forward-Looking Statements" elsewhere herein).

Control of our business will be in the hands of our lender group.

As a result of the April 2002 recapitalization, our bank lenders, in the
aggregate, beneficially own approximately 95% of our outstanding common stock.
These lenders are able to control all matters requiring approval by our
stockholders, including the election of directors and the approval of mergers or
other business combination transactions. Furthermore, in connection with the
recapitalization, each of the lenders entered into a stockholders agreement
pursuant to which all of the lenders' shares will be voted by the bank group's
administrative agent with respect to, among other things, the election of our
five directors, including three designees of the bank lenders. Consequently, the
administrative agent will be able to elect the directors and otherwise control
our business affairs.

Our financial condition has made it difficult for us to retain clients.

Prior to our April 2002 recapitalization, our clients were, and many may remain,
concerned about our precarious financial position. In particular, our clients
were wary of our highly leveraged position and that we were in default of
certain financial covenants and interest payment obligations under our credit
facilities. During 2001 and the first quarter of 2002,


                                       22
<PAGE>
we had difficulty reassuring many clients of our continued ability to meet their
teleservices needs, and, as a result, we have been unable to retain certain
clients. Among the clients that have reduced their volumes with us are our first
and second largest clients, based on revenue, during 2001. If we are unable to
convince our existing clients that, as a result of the recapitalization, we will
remain a leading teleservices provider and be able to service their teleservices
needs, we may continue to lose clients.

Our results of operations are sometimes dependent on one or more significant
clients.

Approximately 17% and 11% of our revenues for 2001 and 2000, respectively, were
generated from one client in the telecommunications industry and approximately
11% of our revenues for 2001 were generated by another client in the financial
services industry. As discussed above, these clients have significantly reduced
their work volumes with us, which will severely affect our results of
operations. We may develop future relationships with clients that represent a
large concentration of our revenues, and these types of relationships are often
cancelable by the client upon relatively short notice. Our business may be
harmed by any unexpected termination or non-renewal of such a relationship.

Our debt restricts our ability to obtain financing or pursue other business
objectives.

Our debt restricts our ability to obtain other financing and pursue other
business objectives. Accordingly, we may find it difficult to:

-     obtain additional financing to provide working capital;

-     enter into strategic relationships;

-     make capital expenditures;

-     respond to business opportunities;

-     address competitive pressures or adverse industry developments; and

-     withstand further economic downturns.

Government regulation of our industry could increase our costs and limit the
growth of our business.

Our industry is subject to an increasing amount of government regulation, both
in the United States and Canada. Such regulation has had the effect of limiting
our ability to conduct outbound operations by, among other things, prohibiting
us from contacting consumers who have signed on to "do not call" lists and
prohibiting the use of automated telephone dialing equipment to call certain
numbers. Most of the statutes and regulations in the United States allow a
private right of action for the recovery of damages or provide for enforcement
by the Federal Trade Commission, state attorneys general or state agencies,
permitting the recovery of significant civil or criminal penalties. The Canadian
Radio-Television and Telecommunications Commission enforces rules regarding
unsolicited communications using automatic dialing and announcing devices, live
voice and fax. We may not be able to maintain compliance with all applicable
regulations. Furthermore, new laws could more significantly limit our ability to
offer services, which would adversely affect our operations.

Our results of operations will be adversely affected if we do not avoid high
personnel turnover.

Our industry is very labor intensive and has experienced high personnel
turnover. In addition, as a result of our difficult financial position we have
experienced and may continue to experience high personnel attrition levels. Many
of our employees receive modest hourly wages. A higher turnover rate among our
employees would increase our recruiting and training costs and decrease our
productivity. Our insurance product sales and technology-based inbound customer
service require specifically trained employees. We may not be able to continue
to hire, train and retain a sufficient labor force of qualified employees.

Our results of operations will be adversely affected if we do not maintain
sufficient capacity utilization.

Our results of operations are substantially dependent upon our ability to use
our call center capacity at efficient levels. Capacity utilization is a term
that identifies how much of a call center's workstations are being used to
perform services. Low capacity utilization at a call center reduces
profitability. This occurs because costs are being incurred for employees and
other overhead costs at a time when revenue is not being produced by these
employees and workstations. We have in the past experienced periods of low
capacity utilization and have sometimes accepted less profitable client
engagements to


                                       23
<PAGE>
fill this capacity. We have also experienced, and may experience in the future,
at least short-term, excess capacity when we open a new call center or terminate
or complete a large client program.

Our business will be harmed if we do not obtain and implement new or enhanced
technology.

We are significantly dependent upon technology. We may not be successful in
anticipating continuing technological changes or in implementing new or enhanced
technology. In addition, we may not be able to afford such new or enhanced
technology.

We rely heavily on telecommunications companies and our business will be
adversely affected if our telecommunications costs increase or our service is
interrupted.

Our business is heavily dependent upon service provided by various local and
long distance telephone companies. Telecommunications costs are one of our most
significant expenses. Our results of operations will be materially adversely
affected by any significant increases in the cost of telephone services that are
not recoverable through an increase in the price of our services, or any
significant interruption in telephone services.

Our quarterly operating results will fluctuate and this will cause our stock
price to change.

We expect that our quarterly operating results will fluctuate due to many
factors, a number of which are beyond our control. We believe that
period-to-period comparisons of our historical results may not be meaningful.
You should not rely on these historical results as an indication of our future
results. Our results of operations in future periods may not meet the
expectations of analysts and investors, in which case the price of our common
stock would likely decrease. Factors that may also have an impact on our
operating results include:

-     our ability to retain existing clients and attract new clients;

-     the timing of our clients' marketing campaigns and customer service
      programs;

-     the timing of additional selling, general and administrative expenses
      incurred to acquire and support such new business;

-     changes in our revenue mix among our various service offerings;

-     the introduction of new or enhanced services and products;

-     price competition;

-     our ability to upgrade and develop our information technology systems;
      technical difficulties, system downtime or Internet brownouts;

-     government regulations;

-     general economic conditions and economic conditions specific to the
      teleservices industry; and

-     seasonality in our business, particularly during the months of August and
      December.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

As of December 31, 2001, the Company had approximately $159.1 million
outstanding under term and working capital advances with our senior bank group.
Interest on those facilities was based on a floating interest rate, either the
prime rate or LIBOR. Based on the outstanding balance under the facilities at
December 31, 2001, we would be required to pay an additional $1.6 million in
interest annually for every 1.0% increase in the average prime rate or LIBOR. To
reduce the risk associated with a large increase in interest rates, we have
placed two derivative financial instruments known as interest rate caps each
with notional amounts of $29.5 million as of December 31, 2001. Under the terms
of the interest rate cap agreements, we would receive quarterly cash payments
when the 3-month LIBOR rate at the end of any quarter exceeded 7.5%. The payment
would be determined by multiplying the difference between the actual LIBOR rate
and 7.5% by the notional amounts. Due to the current low interest rate
environment, the interest rate cap agreements currently have no recorded value.
The interest rate cap agreements are scheduled to expire on September 30, 2002.
The three-month LIBOR interest rate was approximately 1.833% at December 31,
2001


                                       24
<PAGE>
Foreign Currency Risk

We have subsidiaries in Canada and the United Kingdom, which are subject to
foreign currency fluctuations. As currency rates change, translation of income
statements of these subsidiaries from local currencies to US dollars affects
year-over-year comparability of our operating results. Gains and losses on
translation are recorded as a separate component of stockholders' equity.

Approximately $13.3 million has been loaned to our Canadian subsidiary. The loan
proceeds have been converted to Canadian dollars. Under the terms of our credit
agreement, large principal payments due in 2002 may require conversion of all or
a portion of our Canadian dollar loan to US dollars. An unfavorable change in
the Canadian dollar exchange rate at the time of the conversion could cause a
foreign currency exchange loss. At this time, we do not believe that such a
conversion would be required. The other foreign subsidiaries are limited in
their operations and the level of investment by the parent company so that risk
of foreign currency fluctuations is not expected to be material.


                                       25
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

                                TABLE OF CONTENTS

<TABLE>
<S>                                                                           <C>
        Report of Independent Public Accountants                              27
        Consolidated Balance Sheets as of December 31, 2001 and 2000:         28
         For the Years Ended December 31, 2001, 2000 and 1999:
              Consolidated Statements of Operations                           29
              Consolidated Statements of Stockholders' Equity (Deficit)       30
              Consolidated Statements of Cash Flows                           31
        Notes to Consolidated Financial Statements                            32

     FINANCIAL STATEMENT SCHEDULE:
        Report of Independent Public Accountants                              54
        Schedule II -- Valuation and Qualifying Accounts for the
           Years Ended December 31, 2001, 2000 and 1999                       55
</TABLE>


                                       26
<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To TeleSpectrum Worldwide Inc.:

We have audited the accompanying consolidated balance sheets of TeleSpectrum
Worldwide Inc. (a Delaware corporation) and subsidiaries as of December 31, 2001
and 2000, and the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for each of the three years in the period ended
December 31, 2001. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TeleSpectrum Worldwide Inc. and
subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters,
which include a restructuring of a significant portion of the Company's debt and
other liabilities, are also described in Note 1. The financial statements do not
include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities that
might result should the Company be unable to continue as a going concern.

                                                     /s/Arthur Andersen LLP

Philadelphia, Pa.,
April 29, 2002


                                       27
<PAGE>
                  TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                      (In thousands, except share amounts)

<TABLE>
<CAPTION>
                                                                                      DECEMBER 31,
                                                                               ------------------------
                                                                                  2001           2000
                                                                               ---------      ---------
<S>                                                                            <C>            <C>
                                     ASSETS
CURRENT ASSETS:
   Cash and cash equivalents                                                   $   6,391      $   5,258
   Accounts receivable, net of allowance for doubtful
      accounts of $1,609 and $3,457                                               33,333         54,745
   Prepaid expenses and other                                                      2,067          6,173
                                                                               ---------      ---------

                  Total current assets                                            41,791         66,176

PROPERTY, PLANT AND EQUIPMENT, net                                                11,478         39,967

GOODWILL AND OTHER INTANGIBLES                                                     2,347         15,003

OTHER ASSETS                                                                       1,043          3,721
                                                                               ---------      ---------

                  Total assets                                                 $  56,659      $ 124,867
                                                                               =========      =========

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:
   Current maturities of long-term debt                                        $   3,608      $   3,844
   Accounts payable                                                                5,435         15,457
   Accrued expenses                                                               15,459         14,530
   Accrued costs for closed call centers                                           6,511          7,454
   Accrued compensation                                                            4,244          8,903
   Interest payable                                                                  736          5,023
   Other current liabilities                                                         168          1,086
                                                                               ---------      ---------

                  Total current liabilities                                       36,161         56,297

LONG-TERM DEBT, net of current maturities                                        166,588        132,413

OTHER NONCURRENT LIABILITIES                                                         615            430

COMMITMENTS AND CONTINGENCIES (see Note 11)

STOCKHOLDERS' EQUITY (DEFICIT):
   Preferred stock, $.01 par value, 5,000,000 shares authorized, no
      shares issued or outstanding                                                    --             --
   Common stock, $.01 par value, 200,000,000 shares authorized, 40,022,656
      shares issued and 32,737,815 shares outstanding at December
      31, 2001, and 40,022,656 shares issued and 33,076,073 shares
      outstanding at
      December 31, 2000                                                              400            400
   Additional paid-in capital                                                    339,113        339,099
   Common stock purchase warrants                                                  7,840          7,840
   Due from stockholders                                                              --           (952)
   Accumulated deficit                                                          (443,686)      (360,524)
   Treasury stock, 7,284,841 shares at cost                                      (48,810)       (48,810)
   Cumulative currency translation adjustment                                     (1,562)        (1,326)
                                                                               ---------      ---------

                  Total stockholders' equity (deficit)                          (146,705)       (64,273)
                                                                               ---------      ---------

                  Total liabilities and stockholders' equity (deficit)         $  56,659      $ 124,867
                                                                               =========      =========
</TABLE>

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


                                       28
<PAGE>
                  TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31,
                                                    ---------------------------------------
                                                       2001           2000           1999
                                                    ---------      ---------      ---------
<S>                                                 <C>            <C>            <C>
REVENUES                                            $ 218,235      $ 303,568      $ 266,810
                                                    ---------      ---------      ---------
OPERATING EXPENSES:
      Cost of services                                172,956        237,171        195,573
      Selling, general and administrative              51,550         70,220         53,898
      Impairment - long-lived assets                   26,078        171,151             --
      Restructuring charge                              7,474         10,254             --
      Goodwill amortization                             1,167          8,449          4,431
                                                    ---------      ---------      ---------
                       Total operating expenses       259,225        497,245        253,902
                                                    ---------      ---------      ---------
                        Operating income (loss)       (40,990)      (193,677)        12,908

INTEREST INCOME                                           219            480            944

INTEREST EXPENSE                                      (22,105)       (17,759)        (7,970)
                                                    ---------      ---------      ---------
INCOME (LOSS) BEFORE INCOME TAXES, MINORITY           (62,876)      (210,956)         5,882
INTEREST AND EXTRAORDINARY ITEM:
INCOME TAX BENEFIT                                         --             --             --

MINORITY INTEREST                                          --          7,836             --
                                                    ---------      ---------      ---------

INCOME (LOSS) BEFORE EXTRAORDINARY ITEM               (62,876)      (203,120)         5,882

EXTRAORDINARY ITEM - LOSS ON EARLY
EXTINGUISHMENT OF DEBT                                (20,286)            --             --
                                                    ---------      ---------      ---------

NET INCOME (LOSS)                                   $ (83,162)     $(203,120)     $   5,882
                                                    =========      =========      =========

BASIC EARNINGS (LOSS) PER SHARE:
     Income (loss) before extraordinary item        $   (1.91)     $   (6.42)     $    0.21
      Extraordinary item                                 (.62)            --             --
                                                    ---------      ---------      ---------
NET INCOME (LOSS) PER BASIC SHARE                   $   (2.53)     $   (6.42)     $    0.21
                                                    =========      =========      =========

DILUTED EARNINGS (LOSS) PER SHARE:
      Income (loss) before extraordinary item       $   (1.91)     $   (6.42)     $    0.18
      Extraordinary item                                 (.62)            --             --
                                                    ---------      ---------      ---------
NET INCOME (LOSS) PER DILUTED SHARE                 $   (2.53)     $   (6.42)     $    0.18
                                                    =========      =========      =========
</TABLE>

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


                                       29
<PAGE>




                  TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                (Dollars in thousands, except per share amounts)





<TABLE>
<CAPTION>
                                                                                         COMMON
                                                                          ADDITIONAL      STOCK          DUE
                                                    COMMON STOCK            PAID-IN      PURCHASE        FROM        DEFERRED
                                           -----------------------------
                                               SHARES         AMOUNT        CAPITAL      WARRANTS    STOCKHOLDERS  COMPENSATION
                                           -------------- ------------- ------------- ------------- ---------------------------

<S>                                           <C>           <C>         <C>             <C>         <C>             <C>
Balance, December 31, 1998                    25,771,449    $   258     $   240,176     $     --    $         --     $(363)
   Exercise of common stock options              345,010          3           1,580           --              --       --
   CRW merger                                  5,173,186         52          48,567           --              --       --
   IDRC merger                                 8,269,101         83          46,911        7,840            (952)      --
   Partial release of escrowed shares                                         1,614           --              --       --
   Amortization of deferred compensation              --         --              --           --              --      200
   Comprehensive income                               --         --              --
      Net income                                      --         --              --           --              --       --
      Cumulative currency translation                 --         --              --           --              --       --
         adjustment
      Total comprehensive income                      --         --              --           --              --       --
                                            ------------    ------     ------------     --------     ------------  ----------

Balance, December 31, 1999                    39,558,746        396         338,848        7,840            (952)    (163)
   Exercise of common stock options              463,910          4             251           --              --       --
   Amortization of deferred compensation                                                      --              --      163
   Comprehensive income                               --         --              --           --              --       --
      Net loss                                        --         --              --           --              --       --
      Cumulative currency translation                 --         --              --           --              --       --
         adjustment                                                              --
      Total comprehensive income                      --         --              --           --              --       --
                                            ------------    -------    ------------     --------     ------------     ---------

Balance, December 31, 2000                    40,022,656        400         339,099        7,840            (952)      --
   Release of shares from escrow                      --         --              14           --              --       --
   Write-off of shareholder notes                     --         --              --           --             952       --
   Comprehensive income                               --         --              --           --              --       --
      Net loss                                        --         --              --           --              --       --
      Cumulative currency translation
         adjustment
      Total comprehensive income
                                                      --         --              --           --              --       --
                                            ------------    -------    ------------     --------    ------------     ----------
Balance, December 31, 2001                  $ 40,022,656    $   400    $    339,113     $  7,840              --       --
                                            ============    =======    ============     ========    ============     ==========


</TABLE>


<TABLE>
<CAPTION>
                                                                                CUMULATIVE
                                                 RETAINED                        CURRENCY           TOTAL
                                                 EARNINGS     TREASURY         TRANSLATION      STOCKHOLDER'S
                                                 (DEFICIT)   ADJUSTMENT        ADJUSTMENT      EQUITY(DEFICIT)
                                                 ---------   ----------       ----------      ---------------

<S>                                            <C>           <C>               <C>          <C>
Balance, December 31, 1998                     $ (163,286)    $     --             (217)    $     76,568
   Exercise of common stock options                    --           --               --            1,583
   CRW merger                                          --      (48,810)              --             (191)
   IDRC merger                                         --           --               --           53,882
   Partial release of escrowed shares                  --           --               --            1,614
   Amortization of deferred compensation               --           --               --              200
   Comprehensive income
      Net income                                    5,882           --               --               --
      Cumulative currency translation                  --           --             (105)              --
        adjustment                                     --           --               --            5,777
      Total comprehensive income               ------------     ------------     ------------     ------------

Balance, December 31, 1999                       (157,404)     (48,810)            (322)         139,433
   Exercise of common stock options                    --           --               --              255
   Amortization of deferred compensation               --           --               --              163
   Comprehensive income                                --           --               --               --
      Net loss                                   (203,120)          --               --               --
      Cumulative currency translation                  --           --           (1,004)              --
        adjustment                                     --                            --         (204,124)
      Total comprehensive income             ------------     ------------     ------------     ------------

Balance, December 31, 2000                       (360,524)     (48,810)          (1,326)         (64,273)
   Release of shares from escrow                       --           --               --               14
   Write-off of shareholder notes                      --           --               --              952
   Comprehensive income                                --           --               --               --
      Net loss                                    (83,162)          --               --               --
      Cumulative currency translation
        adjustment
      Total comprehensive income                       --           --             (236)
                                                       --           --               --           (83,398)
                                             ------------     ------------     ------------     ------------
Balance, December 31, 2001                   $   (443,686)    $ (48,810)       $ (1,562)        $(146,705)
                                             ============     ============     ============     ============
</TABLE>






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


                                       30
<PAGE>
                  TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                DECEMBER 31, 2001




<TABLE>
<CAPTION>
                                                                      YEAR ENDED DECEMBER 31,
                                                                 2001            2000            1999
                                                            --------------  --------------  ---------
OPERATING ACTIVITIES:
<S>                                                            <C>           <C>           <C>
   Net income (loss)                                           $ (83,162)    $(203,120)    $   5,882
   Adjustments to reconcile net income (loss) to net
   cash provided by (used in) operating
      Activities:
        Depreciation and amortization                             13,870        18,836        12,285
        Goodwill amortization                                      1,167         8,449         4,431
        Provision for bad debts                                    1,254         2,833         6,800
        Impairment - long-lived assets                            26,078       171,151            --
        Write-off of Shareholder Loans                               952
        Restructure charge and other                               7,474        10,254            --
        Loss on disposal of fixed assets                            (172)        3,826            --
        Extraordinary loss on debt extinguishment                 20,286            --            --
        Non-cash compensation                                         --           163           320
        Other items, net                                              --            --           500
        Changes in the following, net of acquisition:
           Accounts receivable                                    20,158        15,301        (8,421)
           Prepaid expenses and other                              5,782          (370)       (9,798)
           Accounts payable                                      (10,020)        6,152        (5,466)
           Accrued expenses                                          392       (14,256)       (5,132)
           Accrued costs for closed call centers                  (6,406)        7,338          (947)
           Accrued compensation                                   (4,659)       (1,478)          610
           Interest payable                                       (4,287)        2,493         2,530
           Other liabilities                                       9,960        (2,091)       (1,235)
                                                               ---------     ---------     ---------
                  Net cash (used in)provided by operating        (1,333)       25,481         2,359
                     activities                                ---------     ---------     ---------


INVESTING ACTIVITIES:

   Purchases of property and equipment                            (2,617)      (21,637)      (26,414)
   Business acquisition and mergers                                   --            --           965
   Net cash acquired in acquisition of Customer Insights              --            71            --
   Proceeds from disposal of assets                                1,120            --            --
   Payments of deferred transaction costs
                                                                                                (174)
                  Net cash (used in) investing activities         (1,497)      (21,566)      (25,623)
                                                               ---------     ---------     ---------
FINANCING ACTIVITIES:

   Proceeds from exercise of stock options                            --           255         1,463
   Cash overdraft                                                     --        (4,912)        3,254
   Borrowings under long-term debt                                 7,873        21,203       130,796
   Payments of debt                                               (1,887)      (15,078)     (112,118)
   Payments of capital lease obligations                            (506)         (125)         (734)
   Debt issuance costs                                            (1,517)           --            --
   Payment for treasury stock                                         --            --          (191)
                                                               ---------     ---------     ---------
                  Net cash provided by financing activities        3,963         1,343        22,470
                                                               ---------     ---------     ---------

NET INCREASE (DECREASE)  IN CASH AND CASH EQUIVALENTS
                                                                   1,133         5,258         (794)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                       5,258            --           794
                                                               ---------     ---------     ---------
CASH AND CASH EQUIVALENTS, END OF YEAR                         $   6,391     $   5,258     $      --
                                                               =========     =========     =========
</TABLE>

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


                                       31
<PAGE>
                  TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2001

1. BASIS OF PRESENTATION

The Consolidated Financial Statements of TeleSpectrum Worldwide Inc. and
subsidiaries ("TeleSpectrum" or the "Company") have been prepared on the basis
of accounting principles applicable to a going concern, which contemplate the
realization of assets and the satisfaction of liabilities in the normal course
of business.

During the fourth quarter of 2001, we became in default of the terms of our
Amended and Restated Credit Agreement dated April 16, 2001. At such time, we
entered into negotiations with our bank group to restructure our existing debt.

On April 29, 2002, the Company entered into an agreement with its bank lenders
that resulted in a recapitalization of its balance sheet and a reduction of its
debt. As a result of the recapitalization, the amounts due under its existing
credit facilities totaling approximately $161 million at the time of
recapitalization, which consisted of outstanding debt, accrued interest and
fees, were converted into (a) a three-year term facility of $25 million under an
amended and restated credit agreement, (b) $40 million of the Company's Series A
Preferred Stock, and (c) shares of the Company's Series B Convertible Preferred
stock which will convert into common stock representing 95% of the Company's
common outstanding after such conversion. The three year term facility is
secured by, among other things, our assets and outstanding trade receivables,
bears interest at a base rate as defined in the agreement plus 400 basis points,
and matures in May 2005. Under the terms of the Agreement, the Company is
required to meet certain financial covenants, including a fixed charge coverage
ratio and EBITDA targets. The Series A Preferred Stock has a 10% annual dividend
rate, which accrues and is payable either in cash or in additional shares of
Series A Preferred Stock. A portion of the Series B Convertible Preferred Stock
was converted into shares of the Company's common stock immediately after the
closing of the recapitalization, and the remainder will convert into shares of
common stock as soon as the Company amends its Certificate of Incorporation to
increase the authorized number of shares of common stock. Such amendment will
require the approval of the Company's shareholders.

After the recapitalization, the Company's Board of Directors is comprised of
five members, including J. Peter Pierce, the Company's Chairman and Chief
Executive Officer, and Christopher Williams, the Company's Chief Operating
Officer, who are continuing as directors, and three designees of the bank group.

In addition to entering into the amended credit agreement and completing the
recapitalization with it bank lenders, on April 29, 2002 other debt balances
outstanding to unsecured creditors were restructured from $15.3 million to
approximately $0.7 million, with cash payments of $1.5 million. Certain
commercial liabilities, primarily accounts payable, which had a carrying value
of $3.7 million as of December 31, 2001, were also settled through cash payments
of $0.9 million and notes payable of $0.3 million. Additional settlements were
reached with certain of the Company's landlords that will result in a reduction
of $3.4 million of future lease commitments through cash payments of $0.4
million and notes payable of $0.2 million. As part of the debt restructuring,
the Company divested itself of its ownership interest in eSatisfy.com.


                                       32
<PAGE>
                  TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                DECEMBER 31, 2001


The following table represents a proforma estimate of our December 31, 2001
balance sheet if the recapitalization had occurred at that time:

                           CONSOLIDATED BALANCE SHEETS
                            RECAPITALIZATION ANALYSIS
                                DECEMBER 31, 2001


<TABLE>
<CAPTION>
                                                                                    (unaudited)

                                                                            Effect of Recapitalization
                                                                        ------------------------------------
                                                          Actual           Estimated           Proforma
                                                         12/31/01           Effect             12/31/01
                                                      ---------------   ----------------   -----------------
ASSETS:

<S>                                                      <C>               <C>                <C>
Cash                                                         $ 6,391           $ (2,093)            $ 4,298
Other current assets                                          35,400             (1,028)             34,372
                                                      ---------------   ----------------   -----------------
Total current assets                                          41,791             (3,121)             38,670

Total non current assets                                      14,868               (560)             14,308
                                                      ---------------   ----------------   -----------------

Total assets                                                $ 56,659           $ (3,681)           $ 52,978
                                                      ===============   ================   =================

LIABILITIES:


Current liabilities                                         $ 36,161          $ (13,066)           $ 23,095

Senior debt                                                  159,064           (134,064)             25,000
Total non current liabilities                                  8,139             (5,806)              2,333
                                                      ---------------   ----------------   -----------------
Total non current liabilities                                167,203           (139,870)             27,333

Total liabilities                                            203,364           (152,936)             50,428
                                                      ---------------   ----------------   -----------------

Stockholder's equity/(deficit)                              (146,705)           149,255               2,550
                                                      ---------------   ----------------   -----------------

Total liabilities and stockholders' equity/(deficit)        $ 56,659           $ (3,681)           $ 52,978
                                                      ===============   ================   =================
</TABLE>


At December 31, 2001, the Company had a stockholders' deficit of $146.7 million,
and incurred a net loss of approximately $83.2 million during 2001. Prior to
amending its credit agreement on April 16, 2001 (see Note 10), the Company was
unable to meet required debt service payments with its lenders, requiring a
number of amendments to its loan agreements, financial covenant waivers and
deferral of scheduled principal and interest payments. The amended agreement,
which was scheduled to mature on July 1, 2002, allowed partial interest
deferrals and required compliance with stipulated covenants, including revenue,
EBITDA (earnings before interest, income taxes, depreciation, amortization and
charges for nonrecurring items) and interest coverage targets based on the
Company's business plan for 2001. Due to downward revisions to that plan for the
second half of 2001, the Company amended the credit agreement effective July 31,
2001 to defer a greater percentage of the interest payable, waive future
compliance with certain non-financial provisions of the agreement, and modify
certain financial covenants. This amendment stipulated that if the Company
failed to maintain compliance with any such covenants, or otherwise experienced
an event of default, all amounts outstanding would become due and payable upon
demand.

The Company failed to maintain compliance with the terms of the amended credit
agreement by not meeting the EBITDA financial covenant beginning in September
2001. In addition, the Company failed to make interest payments on the debt
beginning in October 2001. As a result, the Company was in default and the
amounts


                                       33
<PAGE>
                  TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                DECEMBER 31, 2001


outstanding became due and payable upon demand. Accordingly, the Company
recorded a charge of $0.9 million to accrete to full value the waiver fees
currently owed to the bank group. At December 31, 2001 these fees approximated
$19.9 million and were reflected in other current liabilities. In addition, the
Company also recorded a charge of $0.7 million to write off the debt issuance
costs related to the debt. During the fourth quarter of 2001, the Company began
negotiations with its bank group to restructure its existing debt.

Management believes that the restructuring of its bank debt, and other
liabilities that occurred on April 29, 2002, together with existing working
capital and projected results for 2002, should enable the Company to generate
sufficient cash flow to meet its operating cash needs, fund required capital
expenditures and satisfy its debt service and other financing requirements.
However, the Company does not have a line of credit or other short-term
borrowing facility available. In addition, covenants in its amended credit
agreement restrict the Company's ability to pledge assets as collateral for
other borrowings.

The Company's 2002 operating plan assumes a stabilization of the Company's
revenue base and an improvement in operating profit margins from historical
levels. The Company's ability to meet its obligations in the ordinary course of
business is dependent upon successful implementation of its operating plan and
stabilization of its operations. Uncertainties exist with respect to
management's plans, because events and circumstances frequently do not occur as
expected, and those differences may be material. These uncertainties raise
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.

2. NATURE OF BUSINESS:

The Company was incorporated in Delaware on April 26, 1996 and provides
teleservices and customer satisfaction services to its customers through its
business segments.

The Company classifies its operations into two segments: Teleservices and
eSatisfy, a 72.4% owned affiliate. These two operating segments are managed
separately because each operating segment represents a strategic business unit
that offers different services.

The teleservices segment provides both business-to-consumer and
business-to-business telemarketing services, which are primarily direct sales
initiated by the Company on behalf of its clients, as well as customer service
expertise to its clients. The Company's customer service expertise includes the
more traditional inbound services of customer care support, typically through
toll-free telephone numbers, for activities such as responses to clients'
customer service inquiries, catalogue sales and electronic order processing and
consulting services to a wide range of clients.

The eSatisfy segment performs baseline and tracking customer satisfaction
surveys for both Internet and traditional companies.

3. SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation

The accompanying financial statements include the accounts of TeleSpectrum
Worldwide Inc., its wholly-owned subsidiaries and majority owned affiliate. All
material intercompany balances and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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.


                                       34
<PAGE>
                  TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                DECEMBER 31, 2001


Revenue Recognition

The Company recognizes revenues on Outbound Teleservices programs as services
are performed, generally based on hours incurred. For certain of these programs,
revenues are reduced for estimated customer cancellations. Inbound Teleservices
revenue is recognized on a per hour basis or at the time calls are answered on a
per minute basis. The Company defers revenue that has not been earned in
accordance with Staff Accounting Bulletin, No. 101. Deferred Revenue was
$1,486,000 and $2,990,000 at December 31, 2001 and 2000, respectively.

The Company has customers for which services have been performed and no billing
has been created ("Unbilled Receivables") due to timing difference between the
rendering of services and billing to customers. At December 31, 2001 and 2000,
Unbilled Receivables totaled $1,103,000 and $9,980,000, respectively, and are
included in accounts receivable in the consolidated balance sheets.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. At December 31, 2001,
cash equivalents consisted primarily of investments in money market accounts.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost. Property and equipment
capitalized under capital leases are recorded at the present value of the
minimum lease payments due over the term of the lease. Depreciation and
amortization are provided using the straight-line method over the estimated
useful lives or the shorter of estimated useful life or lease term for leased
property. In 2001, the Company wrote-down the carrying value of certain fixed
assets by $14.5 million of fixed assets as a result of the restructuring of
business operations and the closing of call centers. The amount is classified as
an impairment of long-lived assets on the consolidated statement of operations.

Expenditures for maintenance, repairs and betterments that do not prolong the
useful life of an asset have been charged to operations as incurred. Additions
and betterments that substantially extend the useful life of the asset are
capitalized.

Upon sale or other disposition of assets, the cost and related accumulated
depreciation and amortization are removed from the respective accounts, and the
resulting gain or loss, if any, is included in income.


Capitalized Software Development Costs

The Company capitalizes both acquired and internally developed or modified
software used as an integral part of the operations of the Company, in
accordance with Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." The Company
capitalizes certain internal and external costs directly associated with
developing or modifying the internal use software, which begins with the
application development stage and ends when the project is substantially
complete and ready for its intended use.

Income Taxes

The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under SFAS No. 109, deferred income tax assets
and liabilities are determined based on differences between the financial
reporting and income tax basis of assets and liabilities measured using enacted
income tax rates and laws that are expected to be in effect when the differences
reverse. The Company recognizes valuation allowances for a deferred tax asset if
the realizability of some portion or all of the deferred tax asset is uncertain.


                                       35
<PAGE>
                  TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                DECEMBER 31, 2001


Currency Translation

The accounts of the international subsidiaries are translated in accordance with
SFAS No. 52, "Foreign Currency Translation," which requires that assets and
liabilities of international operations be translated using the exchange rate in
effect at the balance sheet date. The results of operations are translated at
average exchange rates during the year. The effects of exchange rate
fluctuations in translating assets and liabilities of international operations
into U.S. dollars are accumulated and reflected as a cumulative currency
translation adjustment in the consolidated statements of stockholders' equity.
Foreign currency transaction gains or losses are included in results of
operations. There were no significant foreign currency transaction gains or
losses for the periods presented.

Fair Value of Financial Instruments

Cash, accounts receivable, accounts payable and accrued liabilities are
reflected in the accompanying financial statements at the fair value due to the
short-term nature of those instruments. The carrying amount of the long-term
debt and capitalized lease obligations approximates fair value at the balance
sheet dates. It was not practicable to estimate the fair value of the Credit
Facilities and other long-term debt due to the activities discussed in Note 1
relative to the restructuring of these instruments.

Goodwill Impairment

The Company measures goodwill impairment under SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
(SFAS No. 121). Whenever events or circumstances occur that indicate an
impairment of goodwill, the Company estimates the future discounted cash flow of
the business segment to which goodwill relates. When such estimate of the future
discounted cash flows, net of the carrying value of the net tangible and
identified intangible assets, is less than the carrying amount of goodwill, the
difference is charged to operations. For purposes of determining future
discounted cash flows of the business segments to which goodwill relates, the
Company, based upon historical results, current projections and internal
earnings targets, determines the projected operating cash flows, net of income
taxes, of the individual business segment. These projected future cash flows are
then discounted at a rate corresponding to the Company's estimated cost of
capital. The Company recognized an impairment charge during the fourth quarter
of 2001 and 2000 (see Note 6).

Impairment of Long-Lived Assets

The Company accounts for impairments of long-lived assets in accordance with
SFAS No. 121. SFAS No. 121 requires that long-lived assets to be held and used
by the Company be reviewed for possible impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If changes in circumstances indicate that the carrying amount of an
asset that an entity expects to hold and use may not be recoverable, future cash
flows expected to result from the use of the asset and its disposition must be
estimated. If the undiscounted value of the future cash flows is less than the
carrying amount of the asset, an impairment will be recognized. The impairment
is measured as the amount by which the carrying amount of the asset exceeds fair
market value. The fair market value of an asset is based on the amount at which
the asset could be bought or sold in a current transaction between willing
parties. The Company recognized an impairment charge during the fourth quarter
of 2001 and 2000 (see Note 8).

Derivative Instruments and hedging Activities

Effective January 1, 2001, the Company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS No. 133), as amended, which requires that all derivative
instruments be reported on the balance sheet at fair value and establishes
criteria for designation and effectiveness of hedging relationships.

The Company has interest-rate cap agreements with a notional amount of $29.5
million and an expiration date of September 30, 2002 to hedge against potential
increases in interest rates on the Company's outstanding borrowings. Because
these derivatives do not meet the hedge accounting provisions of SFAS No. 133
the Company recognizes


                                       36
<PAGE>
                  TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                DECEMBER 31, 2001

the fair value of the interest rate cap agreements on the balance sheet and
records changes in fair value of the derivative instruments currently in
earnings within interest expense.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current
year presentation.

Recently Issued Accounting Standards

Effective January 1, 2001, the Company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS No. 133), as amended, which requires that all derivative
instruments be reported on the balance sheet at fair value and establishes
criteria for designation and effectiveness of hedging relationships. The effect
of adopting SFAS No. 133 as of January 1, 2001 was not material to the Company's
financial statements.

In June 2001, Statement of Financial Accounting Standards No. 141, "Business
Combinations," (SFAS No. 141) and Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets," (SFAS No. 142) were issued.
These standards change the accounting principles governing business
combinations, goodwill and other intangible assets by, among other things,
requiring the use of the purchase method in accounting for business combinations
and eliminating the requirement to amortize goodwill. Instead, SFAS No. 142
establishes a method to test for impairment of goodwill on at least an annual
basis. These standards will become effective for the Company beginning in the
first quarter of 2002. During the year ended December 31, 2001 and 2000, the
Company recorded goodwill amortization expense of $1.2 million and 8.5 million,
respectively. The Company anticipates that the effect of adopting SFAS No. 142
will not be material.

In August 2001, Statement of Financial Accounting Standards No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets" (SFAS No. 144) was issued
effective for fiscal years beginning after December 15, 2001. This Statement
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. This Statement supersedes SFAS No. 121, and the accounting
and reporting provisions of APB Opinion No. 30, "Reporting the Results of
Operations, Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for
the disposal of a segment of a business (as previously defined in that Opinion).
This Statement also amends ARB No. 51, "Consolidated Financial Statements," to
eliminate the exception to consolidation for a subsidiary for which control is
likely to be temporary. This Statement retains the requirements of SFAS No. 121
to (a) recognize an impairment loss only if the carrying amount of a long-lived
asset is not recoverable from its undiscounted cash flows and (b) measure an
impairment loss as the difference between the carrying amount and fair value of
the asset. This Statement also removes goodwill from its scope and, therefore,
eliminates the requirement of SFAS No. 121 to allocate goodwill to long-lived
assets to be tested for impairment. This Statement retains the basic provisions
of Opinion 30 for the presentation of discontinued operations in the income
statement but broadens that presentation to include a component of an entity
(rather than a segment of a business). The Company anticipates that the effect
of adopting SFAS No. 142 will not be material.

4.  EARNINGS PER SHARE ("EPS"):

The Company reports EPS in accordance with SFAS No. 128, "Earnings per Share."
SFAS No. 128 requires a dual presentation of "basic" and "diluted" EPS on the
face of the statements of operations. Basic EPS is computed by dividing net
income (loss) by the weighted average number of shares of common stock
outstanding for the period. Diluted EPS includes the effect, if any, from the
potential exercise or conversion of securities, such as stock options, which
would result in the issuance of shares of common stock.


                                       37
<PAGE>
                  TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                DECEMBER 31, 2001


The table below sets forth the reconciliation of the income (loss) available to
common stockholders and the weighted average number of shares outstanding used
to compute basic and diluted earnings (loss) per share (in thousands):

<TABLE>
<CAPTION>
                                             2001             2000           1999
<S>                                         <C>           <C>           <C>
 (Loss) Income before extraordinary
  items available to common
  stockholders before adjustments
  used in computing
  basic earning per share                   $ (62,876)    $      --     $      --
  Extraordinary Item                          (20,286)           --            --
 (Loss) Income after extraordinary
  items available to common stockholders
  before adjustments used
  in computing basic earnings per share     $ (83,162)    $(203,120)    $   5,882
Additional goodwill amortization from
 contingent shares
                                                   --            --          (210)
                                            -----------  ----------    -----------
 Net (Loss) Income available to common
  stockholders used in computing
  diluted earnings per share                $ (83,162)    $(203,120)    $   5,672
                                            ===========  ==========    ===========

Shares used in computing basic
earnings per share                             32,931        31,636        28,587
Dilutive effect of options and warrants            --            --         3,176
                                            -----------  ----------    -----------
Shares used in computing diluted
  earnings per share                           32,931      31,636         31,763
                                            ===========  ==========    ===========
</TABLE>


In connection with the Company's merger with IDRC on June 30, 1999, certain
shares of TeleSpectrum common stock issuable to the holders of IDRC common stock
and options were placed into escrow. These shares represent "contingent
consideration" and accordingly, would only be considered in the computation of
diluted earnings per share at December 31, 1999 and 2000. These shares were
released from escrow in July of 2001 and are included in basic and diluted
earnings per share at December 31, 2001.

5. RESTRUCTURING CHARGE:

During the fourth quarter of 2000, as part of its continuing analysis of the
Company's operational strategies, the Board of Directors of the Company approved
a restructuring plan designed to streamline operations, enhance results of
operations and improve cash flow by closing underutilized customer contact
centers and reducing overhead costs. As a result, the Company recorded an
additional pre-tax charge of $10.3 million in 2000 for costs associated with
exiting certain facilities, terminating employees and recognizing related asset
impairments. During 2001, the Company's new management team expanded the
restructuring on three occasions to include the closure or consolidation of
additional facilities and identification of additional workforce reductions. As
a result, the Company recorded a pre-tax charge of $7.5 million during that
period. The following summarizes the costs and liabilities associated with the
Company's restructuring plan through December 31, 2001 (in thousands):


                                       38
<PAGE>
                  TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                DECEMBER 31, 2001


<TABLE>
<CAPTION>
                                     Balance as of                               Balance as of
                                      December 31,   Additional                  December 31,
                                       1999            Charge       Payments        2000
                                    ------------     ------------  -----------   ----------
<S>                                  <C>            <C>            <C>           <C>
Obligations assumed on
   closed leased facilities, net       $ 2,703       $ 5,735       $ 2,779        $ 5,659

Severance and employee
   related costs                         1,919         1,231         1,480          1,670

Other                                       --           125                          125
                                       -------       -------        -------       -------

Total Restructuring Accrual            $ 4,622       $ 7,091(1)     $ 4,259       $ 7,454
                                       =======       =======        =======       =======
</TABLE>



<TABLE>
<CAPTION>
                                     Balance as of                                    Balance as of
                                      December 31,   Additional                       December 31,
                                       2000            Charge          Payments          2001
                                    ------------     ------------    -------------    ------------
<S>                                  <C>             <C>               <C>             <C>
Obligations assumed on
   closed leased facilities, net        $ 5,659          $ 2,106          $ 2,251         $ 5,514

Severance and employee
   related costs                          1,670            2,626            3,817             479

Other                                       125              731              338             518
                                    ------------     ------------    -------------    ------------

Total Restructuring Accrual             $ 7,454          $ 5,463(1)       $ 6,406         $ 6,511
                                    ============     ============    =============    ============
</TABLE>


(1) Excludes a $2.01 and $3.16 million charge relating to the write-off of fixed
assets idled as a result of call center and overhead office closures, including
owned equipment, furniture, computer hardware and software and leasehold
improvements for 2001 and 2000, respectively. No cash payments will be made in
connection with this charge.

Accrued liabilities for closed facilities of $5.5 million as of December 31,
2001 relate to leased customer contact center locations that have been or will
be closed in connection with the Company's restructuring plan. The amount is
computed as the remaining contractual obligations in each closed center, net of
estimated income from subletting.

Employee separation costs relate to both administrative personnel at the closed
customer contact centers and corporate personnel, affecting all functional
areas. Approximately 517 employees have been separated as part of the Company's
restructuring plan through December 31, 2001. The accrual of $0.5 million as of
December 31, 2001 relates to ongoing severance payments in accordance with the
severance obligations for these employees.

The Company continued its restructuring during 2002 by announcing the closure of
four additional facilities.


                                       39
<PAGE>
                  TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                DECEMBER 31, 2001


6.  IMPAIRMENTS:

Impairment of Long-Lived Assets

As discussed more fully in Note 1, the Company has experienced recurring losses,
declining revenues and declining cash flows. Accordingly, the Company has
undertaken a comprehensive review of the carrying value of its goodwill, other
intangibles and other long-lived assets in order to determine if a permanent
impairment has occurred. The following tables summarize the results of that
review for 2000 and 2001 (in millions):


<TABLE>
<CAPTION>
                                  DECEMBER 31, 2000
                         NET BOOK
                       VALUE BEFORE
                        IMPAIRMENT              NET BOOK
                           CHARGE   IMPAIRMENT   VALUE
       Description
<S>                       <C>        <C>        <C>
Goodwill                  $157.1     $(155.5)   $  1.6
Customer relationships      12.7         --       12.7
Assembled workforce          0.8         --        0.8
TESS software                6.5       (6.5)        --
ECRM software                9.9       (9.1)       0.8
                          ------     -------    ------
                          $187.0     $(171.1)   $ 15.9
                          ======     =======    ======
   Segment Impact
Teleservices              $163.4     (149.1)    $ 14.3
ESatisfy.com                23.6      (22.0)       1.6
                          ------     -------    ------
                          $187.0     $(171.1)   $ 15.9
                          ======     =======    ======
</TABLE>


<TABLE>
<CAPTION>
                                  DECEMBER 31, 2001
                            NET BOOK
                          VALUE BEFORE
                            IMPAIRMENT               NET BOOK
                             CHARGE    IMPAIRMENT    VALUE
       Description
<S>                       <C>          <C>         <C>
Goodwill                     $ 1.5     $(1.5)      $  --
Customer relationships
                              11.7      (9.4)        2.3
Assembled workforce            0.6      (0.6)         --
                            ------     -------     ------
                             $13.8     $(11.5)     $ 2.3
                            ======     =======     ======
   Segment Impact                                     --
TeleServices                 $12.3     $(10.0)     $ 2.3
ESatisfy.com                   1.5      (1.5)         --
                            ------     -------     ------
                             $13.8     $(11.5)     $ 2.3
                            ======     =======     ======
</TABLE>


                                       40
<PAGE>
                  TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                DECEMBER 31, 2001


Impairment of Goodwill and Other Intangible Assets

In 2000, as a result of declining revenues and increased losses, the Company
performed a comprehensive review of the carrying value of goodwill and other
intangibles. The analysis indicated that the carrying value of goodwill was
permanently impaired resulting in a total impairment charge of $155.5 million. A
similar analysis was prepared at December 31, 2001 based on a further decline in
revenue and increased losses resulting in a permanent impairment charge of $11.5
million. This charge and the fixed asset charge discussed in Note 8 are
reflected in the Impairment-Long Lived Assets on the Consolidated Statements of
Operations in 2001.

In 1999, the Company estimated the useful life of customer lists to be 15 years.
In connection with the impairment charge in 2001 the Company has revised the
estimated remaining useful life to be 3 years.

Software Impairment

During 1999, the Company began two significant technology initiatives. The first
initiative, referred to by the acronym "TESS," was intended to bring reporting
consistency, automation efficiencies, labor tracking, and workflow scheduling to
our Acquisition Services segment. The project was unsuccessful, all efforts to
complete it were halted during the fourth quarter of 2000, and the project has
been abandoned.

During the second quarter of 1999, the Company announced a strategic partnership
with two technology providers to deliver integrated eBusiness call center
solutions to leading-edge, Internet-enabled call center services utilizing a
Web-based front office software solution and an Internet interaction management
solution (noted in the above table as eCRM software). The anticipated demand for
this functionality was initially projected at very high levels and the Company
purchased licenses and built an infrastructure to accommodate those projections.
While the Company did successfully implement several installations it did not
reach the volumes originally projected nor was it able to attain a sufficient
level of revenues to sustain the program. Consequently, the software licenses
used in the eCRM software platform have been deactivated and the related
maintenance has been discontinued. As required by SFAS No. 121, the Company
computed the projected undiscounted future cash flows associated with the
continuing software investment and compared it to the carrying value as of
December 31, 2000. This analysis indicated that a permanent impairment had
occurred and the investment was written down to the estimated fair market value.
The Company re-evaluated this partnership during 2001 and noted a further
impairment and accordingly wrote the remaining balance off at December 31, 2001.

7. SUPPLEMENTAL CASH FLOW INFORMATION:

For the three years ended December 31, 2001, the Company paid cash interest and
income taxes as follows (in thousands):

<TABLE>
<CAPTION>
                             YEAR ENDED DECEMBER 31,
                     ----------------------------------
                         2001         2000       1999
                     -----------  -----------  --------
<S>                    <C>        <C>        <C>
Interest paid          $ 5,144    $13,620    $ 4,569

Taxes paid             $    --    $    --    $    --
</TABLE>


                                       41
<PAGE>
                  TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                DECEMBER 31, 2001


8. PROPERTY, PLANT AND EQUIPMENT:

A summary of property, plant and equipment at December 31, 2001 and 2000 follows
(in thousands):

<TABLE>
<CAPTION>
                                                                          DECEMBER 31,
                                                                      ---------------------
                                                        USEFUL LIVES    2001        2000
<S>                                                     <C>           <C>         <C>
Telemarketing and computer equipment                    3 - 7 years   $   3,423   $  47,579
Furniture and fixtures                                  5 - 7 years       1,340      13,717
Software                                                3 years           1,469       9,448
Building                                                40 years          3,042       2,888
Leasehold improvements                                  Various           3,694      10,269
Land                                                                        546         546
                                                                      ---------   ---------
                                                                         13,514      84,447
Less accumulated depreciation and amortization                           (2,036)    (44,480)
                                                                      ----------  ---------
                                                                     $   11,478   $  39,967
                                                                     ==========   =========
</TABLE>

The Company follows SFAS No. 121 and accordingly, an impairment review of
long-lived assets should be performed whenever circumstances indicate an assets
carrying value may not be recoverable. In 2001, the Company wrote down the
carrying value of fixed assets by $14.5 million as a result of restructuring its
business operations and the closing of call centers. This amount is classified
as an impairment of long-lived assets in the consolidated statement of
operations. This 2001 impairment charge impacted our Teleservices segment by
$8.8 million, with the balance affecting the Company's general corporate
operations.

In accordance with SFAS No. 121, the reduced carrying amount will be accounted
for as the new cost and the new cost will be depreciated over the assets'
remaining useful life.

9. INCOME TAXES:

The components of income (loss) from continuing operations before income taxes
are as follows (in thousands):

<TABLE>
<CAPTION>
                    Year Ended December 31,
             ------------------------------------
               2001          2000           1999

<S>         <C>           <C>           <C>
Domestic    $ (64,707)    $(205,515)    $   6,453
Foreign         1,831         2,395          (571)
            ---------     ---------     ---------
            $ (62,876)    $(203,120)    $   5,882
            =========     =========     =========
</TABLE>

The reconciliation of the statutory federal income tax rate to the Company's
effective income tax rate from continuing operations is as follows:

<TABLE>
<CAPTION>
                                                     Year Ended December 31,
                                                  ----------------------------
                                                    2001      2000     1999
                                                  --------  --------  --------
<S>                                                <C>       <C>       <C>
 Statutory federal income tax rate (benefit)       (34.0)%   (34.0)%   34.0%
 State income taxes, net of federal tax benefit      --        --       4.7
 Effect of foreign subsidiaries subject to
   higher tax rates                                  --        --        --
Change in Valuation Allowance                      33.3      12.8        --
 Utilization of net operating loss carryforward      --        --      (23.4)
 Nondeductible expenses                             0.7      21.2      (15.3)
                                                   ----      ----      ----
                                                     -%        -%        -%
                                                   ====      ====      ====
</TABLE>

Deferred taxes are determined based upon the estimated future tax effects of
differences between the financial statement and income tax basis of assets and
liabilities given the provisions of the enacted tax laws. The tax effect of



                                       42
<PAGE>
                  TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                DECEMBER 31, 2001


temporary differences that give rise to deferred taxes at December 31, 2001 and
2000 is as follows (in thousands):

<TABLE>
<CAPTION>
                                                          Year Ended December 31,
                                                            2001           2000
                                                         ----------      ---------
Deferred tax assets:
<S>                                                       <C>           <C>
  Net operating loss carryforward                         $  83,254     $  52,192
  Goodwill impairment                                        38,125        39,295
  Property, Plant and Equipment
                                                              7,161            --
  Accruals and reserves not currently deductible              7,921         2,866
  Other                                                       2,754         4,040
                                                          ---------     ---------
                                                            139,215        98,393
                                                          ---------     ---------
Deferred tax liabilities:
  Book/tax difference of property, plant and equipment           --          (986)
  Other                                                        (151)         (134)
                                                          ---------     ---------
                                                               (151)       (1,120)
                                                          ---------     ---------
                                                            139,064        97,273
  Less valuation allowance                                 (139,064)      (97,273)
                                                          ---------     ---------
Net deferred tax asset                                    $      --     $      --
                                                          =========     =========
</TABLE>

The Company had net operating loss carryforwards of approximately $210.2 million
and $128.1 million as of December 31, 2001 and 2000, respectively, which begin
to expire in 2012. Due to the uncertainty surrounding the potential realization
of the deferred tax assets, the Company has provided a full valuation allowance
at December 31, 2001 and 2000. Upon a change of control, the use of these net
operating loss carryforwards may be limited.


                                       43
<PAGE>
                  TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                DECEMBER 31, 2001


10.  LONG-TERM DEBT:

On April 29, 2002, the Company restructured a significant portion of its
outstanding debt. See Note 1 for a detail of the restructured balances.
Long-term debt at December 31, 2001 and 2000 consisted of the following (in
thousands):

<TABLE>
<CAPTION>
                                                                                                December 31,
                                                                                              2001         2000
<S>                                                                                        <C>              <C>
Credit Facility Borrowings, due July 1, 2002 when all remaining principal and
  interest is due and payable. At December 31, 2001, the weighted average
  interest rate was 9.36%                                                                  $ 159,064            --
Term A loan with bank at December 31, 2000, the weighted average interest rate was
   10.23%                                                                                         --        13,029
Term B loan with bank at December 31, 2000, the weighted average interest rate was
   10.69%                                                                                         --        19,595
Term C loan with bank at December 31, 2000, the weighted average interest rate was
   11.19%                                                                                         --        49,452
Working capital revolver with bank at December 31, 2000, the weighted average
   interest rate was 10.14%                                                                       --        42,596
 Note payable to an agency of the Canadian government, principal payable in monthly,
   Installments of $35,000, beginning in October 1999, no interest, through December
   2001, collateralized by certain equipment                                                      --           410
 Note payable to a County Economic Development Council, payable in monthly installments
   of $4,600, including interest at 4.375%, through January 2001, when all remaining
   Principal and interest is due and payable, collateralized by certain equipment                  4             4
 Note payable to stockholders, principal and interest payable in June 2000; bearing
   interest at 10%. This debt was restructured after December 31, 2001. See below              5,761         4,873
 Note payable to former principals of TARP, non-interest bearing, discounted to
   $2,900, principal and imputed interest of $1,466 in July 2001. This debt
   was restructured after December 31, 2001. See below                                         1,819         2,171
 Note payable in monthly principal and interest payments of $8,500 through March
   2008, bearing interest at 8.50%, secured by equipment                                         494           548
 Notes payable to stockholders principal and interest due August 31, 2000, bearing
   interest at 8% and 12%. See below                                                           1,200         1,200
  Capital lease obligations (see Note 11)                                                      1,854         2,379
                                                                                           ---------     ---------
                                                                                             170,196       136,257
  Less current maturities                                                                     (3,608)       (3,844)
                                                                                           ---------     ---------
                                                                                           $ 166,588     $ 132,413
                                                                                           =========     =========

</TABLE>

On April 16, 2001, the Company signed an amended and restated credit agreement
(the "Credit Agreement") with its bank group whereby all amounts outstanding
under the former agreement's term notes (Notes A, B and C), $35.0 million of the
working capital revolver, and accrued incremental interest and waiver fees were
converted into one term loan, totaling $120.6 million. The term loan bears
interest at a base rate plus an applicable margin, as defined as 1.54% at
December 31, 2001, and was scheduled to mature July 1, 2002. The remaining $10.0
million commitment under the former agreement's working capital revolver carried
forward to December 31, 2001. At December 31, 2001, there was no availability
under the revolver.

Borrowings under the Credit Agreement were collateralized by substantially all
of the assets of the Company. The Credit Agreement contained covenants that
require the maintenance of an interest coverage ratio, impose minimum revenue
and EBITDA targets, restrict future indebtedness, limit capital expenditures and
prohibit cash dividends.

The Credit Agreement allowed the Company to convert 50% of the $2.7 million in
accrued interest at April 16, 2001 into a deferred interest note, which bears
the same interest rate and maturity date as the term loan. Interest payments
under the Credit Agreement were due monthly; however, at the discretion of the
Company, 25% of the monthly interest payments through December 31, 2001 were
permitted to be deferred and converted into deferred interest


                                       44
<PAGE>
                  TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                DECEMBER 31, 2001


notes. To the extent interest was deferred, a like amount was to be paid and
applied against the working capital revolver, and this portion of the revolver
could only be used to pay down specified categories of trade payables.

Under certain circumstances, the Company was required to make mandatory
principal payments. In general, mandatory prepayments were required upon certain
triggering events, such as the sale of assets, issuance of debt or equity
securities, or the receipt of insurance proceeds or similar events. In addition,
when the Company generated excess cash flow, as defined, such amounts, exceeding
certain thresholds, would be required to be used to repay amounts outstanding
under the Credit Agreement.

The Credit Agreement required that the Company pay certain fees periodically
through maturity or termination of the agreement. The unused portion of the
working capital revolver was subject to an annual commitment fee of 25 basis
points payable quarterly. An agent's fee of 25 basis points of the aggregate
amount of the facilities was incurred upon signing the Credit Agreement, was
scheduled to be incurred annually thereafter, and was scheduled to be payable at
maturity or termination of the agreement. The Company was also charged a
restructuring fee of 15% of the aggregate amount of the facilities on April 16,
2001, payable at maturity or termination of the agreement.

The Credit Agreement resulted in substantially different terms and cash flows
than the previous agreement. As a result, the amendment was accounted for and
reported in the same manner as a debt extinguishment. A $20.3 million
extraordinary loss on the early extinguishment of debt was recorded in April
2001, reflecting the write-off of deferred issuance costs related to the
previous agreement and the recognition of restructuring and other fees charged
by the bank group related to the Credit Agreement, as described above. In
addition, approximately $1.5 million in third party fees were paid relating to
the Credit Agreement, which have been deferred and are being amortized using the
effective interest method through maturity. The costs were written-off
completely in 2001 as the Company was in default of this agreement.

The Credit Agreement required compliance with stipulated covenants based on the
Company's business plan for 2001. Due to downward revisions to that plan for the
second half of 2001, the Company amended the Credit Agreement effective on July
31, 2001. The amended Credit Agreement permitted the Company to defer 100% of
the total interest otherwise due during the third quarter of 2001 and 50% of the
interest otherwise due during the fourth quarter of 2001. Any amounts so
deferred will be converted to deferred interest notes. The amended Credit
Agreement also waived future compliance with certain non-financial provisions of
the agreement, modifies certain financial covenants, and required the Company to
deliver to the bank group a new cost reduction plan to be implemented by
September 30, 2001, which was delivered. In addition, the amended Credit
Agreement removed the provision that required an amount equal to the deferred
interest to be paid and applied against the working capital revolver and that
required that this portion of the revolver be used only to pay down specified
categories of trade payables.

The Company incurred a waiver fee of 25 basis points of the aggregate amount of
the facilities upon signing the amended Credit Agreement, payable at maturity or
termination of the amended Credit Agreement. This fee was charged to interest
expense during the three month period ended September 30, 2001.

The Company failed to maintain compliance with the terms of the amended Credit
Agreement by not meeting the EBITDA financial covenant through December 31,
2001. The Company also did not make the interest payment due to the lenders
through December 31, 2001. As a result, the Company became in default and the
amounts outstanding became due and payable upon demand. The amended Credit
Agreement was restructured on April 29, 2002. (See Note 1)

To reduce the risk associated with a large increase in interest rate for the
credit agreement, we have placed two derivative financial instruments known as
interest rate caps each with notional amounts of $29.5 million as of December
31, 2001. Under the terms of the interest rate cap agreements, we would receive
quarterly cash payments when the 3-month LIBOR rate at the end of any quarter
exceeded 7.5%. The payment would be determined by multiplying the difference
between the actual LIBOR rate and 7.5% by the notional amounts. Due to the
current low


                                       45
<PAGE>
                  TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                DECEMBER 31, 2001


interest rate environment, the interest rate cap agreements currently have no
recorded value and their fair value is immaterial. The interest rate cap
agreements are scheduled to expire on September 30, 2002.

Note Payable to Stockholder

On April 16, 2001, the Company amended its $4,873,000 term note payable to the
former majority stockholders of an acquired business and all unpaid interest was
added to the unpaid principal balance establishing a restructured note of
$5,761,000. The amended note matures June 30, 2004, bears interest at 10% for
the year ending December 31, 2001, 15% for the two years ending December 31,
2003 and 20% for the six months ending June 30, 2004. The agreement requires
prepayment in the event more than 90% of the Company's common stock is acquired
or substantially all of the assets are sold. Under certain circumstances, as
defined in the agreement, if prior to December 31, 2002, the Company issues debt
or equity securities of $10.0 million or more, the holders have the right to
purchase a pro-rata share, as defined, of the securities issued with up to one
half of the total amount due such holders under similar terms. The Company
restructured this note by exchanging its interest in eSatisfy for forgiveness of
the Note.

eSatisfy Debt

On April 9, 2001, the Company amended its $2.2 million non-interest bearing note
payable to the former principals of eSatisfy. The amended notes bear interest at
10% from June 30, 2000 and require principal payments of $50,000 per month
through March 2002 and $40,000 per month through August 2002, at which time the
remaining balance of $1.5 million is payable in full. The Company restructured a
portion of this note at April 15, 2002 which reduced the note payable by $0.8
million.

During May 2000, a shareholder of TeleSpectrum advanced $500,000 to eSatisfy.com
in return for convertible promissory notes and 200,000 warrants to purchase
eSatisfy.com Common Stock. The notes bear interest at 8% and were due August 31,
2000 if additional equity totaling $3,000,000 (a "Subsequent Financing") was not
obtained by June 15, 2000. Upon the consummation of a Subsequent Financing, the
notes automatically convert to 285,715 shares of Series A Common Stock. A
Subsequent Financing was not obtained and on September 13, 2000 a forbearance
agreement was entered into which deferred principal and interest. The warrants
expire in seven years and were exercisable at $.01 per warrant.

During June 2000, the same TeleSpectrum shareholder advanced an additional
$500,000 to eSatisfy.com in return for convertible promissory notes and 250,000
warrants to purchase eSatisfy.com Common Stock. The notes bear interest at 8%
and were due October 15, 2000 if additional equity totaling $5,000,000 (a
"Subsequent Financing") was not obtained by July 31, 2000. Upon consummation of
a Subsequent Financing, the notes automatically convert to 357,143 shares of
Series A Common Stock. A Subsequent Financing was not obtained putting
eSatisfy.com into technical default on these notes. eSatisfy.com is currently
negotiating with the lender to obtain a forbearance agreement. The warrants
expire in seven years and were exercisable $.01 per warrant.

In November 2000, eSatisfy received $200,000 in cash from a member of senior
management to enhance the Company's ability to obtain additional financing. In
exchange for cash, the Company promised to pay $200,000 and 12% interest upon
the consummation of a subsequent financing or upon the merger or consolidation
of the Company or any similar transaction or series of related transactions.


                                       46
<PAGE>
                  TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                DECEMBER 31, 2001


11.      COMMITMENTS AND CONTINGENCIES:

The Company leases facilities and equipment under capital and non-cancelable
operating leases through November 2007. Interest rates on the capital leases
range from 4% to 13%. Rent expense under operating leases for the years ended
December 31, 2001, 2000 and 1999 was $6,783,000, $8,631,000 and $6,652,000,
respectively. The Company expects to receive approximately $502,000, $272,000
and $66,000 for rent on sublet closed facilities for the years ending December
31, 2002, 2003 and 2004, respectively.

Future minimum lease payments as of December 31, 2001 are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                    CAPITAL         OPERATING
                                                                     LEASES            LEASES
<S>                                                                 <C>             <C>
            2002                                                      $ 611            $7,009
            2003                                                        509             5,607
            2004                                                        371             4,729
            2005                                                        371             3,415
            2006                                                        186             1,999
           Thereafter                                                    --             2,821
                                                                     ------           -------
            Total minimum lease payments                              2,048           $25,580
                                                                                      =======
            Less amount representing interest                         (194)
                                                                     ------
            Present value of future minimum lease payments            1,854
            Less current maturities                                   (525)
                                                                     ------
                                                                     $1,329
                                                                     ======
</TABLE>


$5.5 million of the operating lease commitments are accrued in the Company's
restructuring reserve (See Note 5).

The Company is involved in various other legal matters that have arisen in the
normal course of business. Accruals have been recorded when the outcome is
probable and can be reasonably estimated. While the ultimate results of claims
and litigation cannot be determined, the Company does not expect that the
resolution of any legal matters currently outstanding will have a material
adverse effect on their consolidated results of operations, financial position
or cash flow.


                                       47
<PAGE>
                  TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                DECEMBER 31, 2001


12. OPTIONS AND WARRANTS:

On May 17, 1996, the Company adopted its 1996 Equity Compensation Plan (the
"Plan"). The Plan was subsequently amended on May 28, 1997 and May 12, 1999 to
increase the number of shares available for grant. A committee of the Board of
Directors administers and awards grants under the Plan at its sole discretion.
The Plan reserves up to 10,000,000 shares of common stock for issuance in
connection with the exercise and/or grant of incentive stock options and
nonqualified stock options, restricted stock, stock appreciation rights and
performance units to key employees, officers, directors, independent contractors
and consultants, which generally vest over three years.

The following table summarizes option activity under the Plan:

<TABLE>
<CAPTION>
                                                                               WEIGHTED
                                                             EXERCISE          AVERAGE
                                                               PRICE        EXERCISE PRICE
                                              SHARES         PER SHARE        PER SHARE
<S>                                        <C>             <C>              <C>
Balance outstanding, December 31, 1999      7,851,878       1.37-14.46            4.74
  Granted at fair market value              4,183,000       0.41- 4.56            2.57
  Exercised                                  (463,910)      1.45- 6.25            3.12
  Cancelled                                (3,434,701)      1.45-11.50            4.26
                                          -----------     ------------    ------------
Balance outstanding, December 31, 2000      8,136,267      $0.41-14.46    $       3.92
                                          ===========     ============    ============
  Granted at fair market value              4,752,500        0.40-0.71            0.59
  Exercised                                        --               --              --
  Cancelled                                        --               --              --
                                          -----------     ------------    ------------
Balance outstanding, December 31, 2001     12,888,767       $.40-14.46    $       3.72
                                          ===========     ============    ============
</TABLE>



Summary information about the Company's stock options outstanding at December
31, 2001 is as follows:

<TABLE>
<CAPTION>
                        BALANCE       WEIGHTED       WEIGHTED
                    OUTSTANDING AT    AVERAGE         AVERAGE       EXERCISABLE AT       WEIGHTED
   RANGE OF           DECEMBER 31,    EXERCISE      CONTRACTUAL      DECEMBER 31,        AVERAGE
EXERCISE PRICE           2001          PRICE       LIFE IN YEARS         2001         EXERCISE PRICE
--------------        ---------       -------      -------------    -------------   --------------
<S>                 <C>               <C>          <C>             <C>                <C>
  $.41 - .41             57,000       $ 0.40          9.1               2,333               0.41
  $.47 - .56          1,997,500         0.47          9.1                  --                 --
  $.60 - .94          3,307,500         0.68          9.2             200,833               0.78
 $1.37 - 1.37           319,050         1.37          7.5             319,050               1.37
 $1.45 - 1.69         1,924,212         1.52          8.4           1,132,128               1.52
 $2.74 - 2.74           319,050         2.74          7.5             319,050               2.74
 $3.31 - 4.81         2,793,023         4.21          7.4           1,765,971               4.12
 $5.25 - 7.75         1,915,343         6.48          5.3           1,912,624               6.46
$8.68 - 11.50           130,895         9.59          5.1             130,895               9.59
$14.10 - 14.10           69,128        14.10          7.5              69,128              14.10
$14.46 - 14.46           56,066        14.46          4.5              56,066              14.46
--------------       ----------       ------       ------          ----------             ------
 $.41 - 14.46        12,888,767       $ 3.92          7.3           5,908,078             $ 4.51
==============       ----------       ======       ------          ==========             ======
</TABLE>

During September 2000, the Company granted its former Chairman of the Board
options to purchase 500,000 shares of common stock issued at fair market value
of $1.50 per share, outside of the Plan. The options were scheduled to vest over
three years. These options were terminated in connection with the Company's
recapitalization.

During April 2000, the Company granted to its former CEO options to purchase
1,500,000 shares of common stock


                                       48
<PAGE>
                  TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                DECEMBER 31, 2001


issued at a fair market value of $4.38 per share, 1,000,000 of which were
granted outside of the Plan but pursuant to the terms of the Plan. The options
became 100% vested upon the former CEO's departure from the Company during
January 2001. The options were scheduled to expire in April 2010. These options
were terminated in connection with the Company's recapitalization.

During June 2001, the Company granted options to purchase 80,000 shares of
common stock issued at fair market value of $0.56 per share to members of the
Board of Directors. The options expire June 2011. These options were terminated
in connection with the Company's recapitalization.

The Company accounts for its stock-based compensation plans under Accounting
Principles Board Opinion No. 25, ("APB 25") which does not require a charge to
the statement of operations for the estimated fair value of stock options issued
with an exercise price equal to the fair value of the common stock on the date
of grant. Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"),
"Accounting for Stock-based Compensation" requires that companies, which do not
elect to account for stock-based compensation as prescribed by this statement,
disclose the pro forma effects on earnings and earnings per share as if SFAS No.
123 had been adopted. Additionally, certain other disclosures with respect to
stock compensation and the related assumptions are used to determine the pro
forma effects of SFAS No. 123.

Pro forma information regarding net income and earnings per share required by
SFAS No. 123 has been determined as if the Company had accounted for its
employee stock options under the fair value method of that statement. The
determination of the fair value of the options noted above was estimated at the
date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for the years ended December 31, 2001, 2000, and
1999: risk free interest rate of 4.8%, 6.2%, and 6.0%, respectively, dividend
yield of 0% for all years, volatility factor of the expected market price of the
Company's common stock of 208%, 180% and 75%, respectively and an expected life
of the options of six years.

The weighted average fair value of employee stock options granted during the
periods presented is as follows:

<TABLE>
<CAPTION>
                                                                       WEIGHTED AVERAGE FAIR VALUE
                                                                         YEAR ENDED DECEMBER 31,
                                                                      2001        2000         1999
                                                                  ----------- -----------  --------
<S>                                                                  <C>         <C>          <C>
                     Granted at fair market value                    $  .59      $ 2.57       $ 4.98
</TABLE>

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the option's vesting period. The Company's pro
forma information is as follows (in thousands - except for earnings per share):

<TABLE>
<CAPTION>
                                                                         WEIGHTED AVERAGE FAIR VALUE
                                                                           YEAR ENDED DECEMBER 31,
                                                                      2001            2000           1999
                                                                  ------------    ------------   --------
<S>                                                                 <C>             <C>             <C>
                      Pro forma net (loss) income                   $ (88,177)      $(207,238)      $  4,208
                      Pro forma basic (loss) earnings per share     $   (2.67)      $   (6.55)      $  0.15
                      Pro forma diluted (loss) earnings per share   $   (2.67)      $   (6.55)      $  0.13
</TABLE>

On June 30, 1999, the Company granted warrants to purchase 2,500,000 shares of
the Company's common stock at $6.50 per share in connection with the IDRC
merger. These warrants were valued at their estimated fair value of $7,840,000
at issuance and recorded as additional paid in capital. The warrants are
exercisable for ten years. No warrants were exercised as of December 31, 2001.

On June 30, 1999, the Company granted warrants to purchase 678,410 shares of the
Company's common stock at $1.50 per share in connection with the CRW merger.
These warrants were valued at their estimated fair value of $4,638,000 and were
included in the cost of treasury stock acquired in the CRW merger. The warrants
are exercisable for ten years. No warrants were exercised as of December 31,
2000.



                                       49


<PAGE>

                  TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2001

13.      EMPLOYEE RETIREMENT SAVINGS PLAN:

On January 1, 1997, the Company adopted a defined contribution 401(k) Savings
Plan (the "Savings Plan"). Employees who have met certain eligibility
requirements, as defined, may contribute up to 15% of their pre-tax gross wages,
subject to certain restrictions. The Savings Plan provides for Company matching
contributions of 25% of the first 6% of employee contributions to the Savings
Plan, which vest 25% per year over a four-year period. The expense for the years
ended December 31, 2001, 2000, and 1999 under the Savings Plan was $184,000,
$184,000 and $189,000, respectively.

14.      RELATED-PARTY TRANSACTIONS:

During 2001, we paid Hayden Real Estate, Inc. $153,370 in connection with real
estate services rendered to us by such firm. J. Anthony Hayden, a member of our
Board of Directors, is President and Chief Executive Officer of Hayden Real
Estate.

During 2001, we paid Strattech Partners, LLC $61,536 in connection with
financial and treasury consulting services rendered to us by such firm and
$150,000 in connection with services rendered relating to the amendment to our
credit agreement in April 2001. Britton Murdoch, a member of our Board of
Directors, is Managing Director of Strattech Partners.

15.      CONCENTRATIONS OF CREDIT RISK:

Financial instruments, which potentially subject the Company to concentrations
of credit risk, consist principally of accounts receivable. Concentrations of
credit risk with respect to accounts receivable exist at December 31, 2001 due
to a limited number of customers which account for a large percentage of the
Company's revenue base and their concentration in their primary industry groups.
The Company does not require collateral or other securities to support customer
receivables. The Company performs periodic reviews of its clients' financial
condition to reduce collection risk. The Company does not believe a significant
credit risk exists at December 31, 2001.

The following table summarizes those customers with revenue or accounts
receivable in excess of 10% of total revenue for the years ended December 31,
2001, 2000 and 1999, or total receivables as of December 31, 2001 and 2000,
respectively:

<TABLE>
<CAPTION>
                      REVENUES        ACCOUNTS RECEIVABLE
                      --------        -------------------
                     YEAR ENDED              AS OF
                    DECEMBER 31,          DECEMBER 31,
               ---------------------     -------------
               2001    2000     1999     2001     2000
               ----    ----     ----     ----     ----
<S>            <C>     <C>      <C>      <C>      <C>
Customer 1       -%      -%       11%      -%       -%
Customer 2       17%     11%      -%       26%      14%
Customer 3       -%      -%       -%       -%       13%
Customer 4       11%     -%       -%       -%       11%
</TABLE>


                                       50
<PAGE>
                  TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2001

The following table summarizes those industries with revenue in excess of 10% of
total revenue for the years ended December 31, 2001, 2000 and 1999:

<TABLE>
<CAPTION>
                                REVENUES
                                --------
                         YEAR ENDED DECEMBER 31,
                         -----------------------
                        2001      2000      1999
                        ----      ----      ----
<S>                     <C>       <C>       <C>
Telecommunications        40%       38%       32%

Financial Services        25%       27%       28%

Insurance                 12%        9%       10%
</TABLE>

16.      SEGMENTS:

The Company redefined its segments during the second quarter 2001, and restated
all prior periods to conform with the current presentation.

During 2001, the Company classified its operations into two segments:
Teleservices and eSatisfy. These two operating segments were managed separately
because each operating segment represented a strategic business unit that
offered different services. The business segments are described in further
detail below. Segment assets include amounts specifically with the Teleservices
and eSatisfy segments. Corporate assets consist primarily of property and
equipment and the goodwill and intangibles related to business combinations.

The Teleservices segment provides business-to-consumer and business-to-business
telemarketing services, which are primarily direct sales initiated by the
Company on behalf of its clients, as well as customer service expertise to
clients. The Company's customer service expertise includes the more traditional
inbound services of customer care support, typically through toll-free numbers,
for activities such as responses to clients' customer service inquires,
catalogue sales and electronic order processing and consulting services to a
wide range of clients.

The eSatisfy segment performs baseline and tracking customer satisfaction
surveys for both Internet and traditional companies.


                                       51
<PAGE>
                  TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2001

Corporate operations include the selling, general and administrative functions
of the Company.

Business segment information is as follows (in thousands):

<TABLE>
<CAPTION>
                                              YEAR ENDED DECEMBER 31,
                                              -----------------------
                                      2001              2000              1999
                                   ---------         ---------         ---------
<S>                                <C>               <C>               <C>
REVENUES:
   Teleservices                    $ 213,439         $ 297,222         $ 256,839
   eSatisfy.com                        4,796             6,346             9,971
                                   ---------         ---------         ---------
        Total                      $ 218,235         $ 303,568         $ 266,810
                                   =========         =========         =========
OPERATING INCOME (LOSS):
   Teleservices                    $  37,486         $ (99,951)        $  61,563
   eSatisfy.com                         (620)          (21,789)            5,244
   Corporate                         (77,856)(1)       (71,937)          (53,899)
                                   ---------         ---------         ---------
        Total                      $ (40,990)        $(193,677)(2)     $  12,908
                                   =========         =========         =========
TOTAL ASSETS:
   Teleservices                    $  45,545         $ 108,321         $ 135,685
   eSatisfy.com                        1,914             5,216            23,632
   Corporate                           9,200            11,330           159,090
                                   ---------         ---------         ---------
        Total                      $  56,659         $ 124,867         $ 318,407
                                   =========         =========         =========
DEPRECIATION AND AMORTIZATION:
   Teleservices                    $   8,793         $  20,304         $   8,541
   eSatisfy.com                          362             1,770               944
   Corporate                           5,882             5,211             7,231
                                   ---------         ---------         ---------
        Total                      $  15,037         $  27,285         $  16,716
                                   =========         =========         =========
CAPITAL EXPENDITURES:
   Teleservices                    $   1,763         $  16,990         $  23,364
   eSatisfy.com                           40             2,007             1,198
   Corporate                             814             2,640             1,852
                                   ---------         ---------         ---------
        Total                      $   2,617         $  21,637         $  26,414
                                   =========         =========         =========
</TABLE>

(1)  Includes $20.3 million extraordinary item for loss on extinguishment of
     debt and $26.1 million of impairment charges.

(2)  Includes charges for impairment of long-lived assets ($171.1 million) and
     restructuring charges ($10.3 million) offset by minority interest.


                                       52
<PAGE>
                  TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2001

17.      QUARTERLY FINANCIAL DATA (UNAUDITED):

         The Company believes that all adjustments necessary for a fair
         presentation, for interim periods, have been made.

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31, 2001
                                                              ----------------------------
                                                FIRST          SECOND              THIRD          FOURTH
                                               QUARTER         QUARTER            QUARTER         QUARTER
                                               -------         -------            -------         -------
                                                        (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                          <C>             <C>                <C>             <C>
Revenues                                     $   62,815      $   57,523         $   52,349      $   45,548
Gross profit                                     14,985          14,077              9,944           6,273
Operating loss                                   (3,613)            245             (4,533)        (33,089)
                                             ----------      ----------         ----------      ----------
Net loss                                     $  (10,086)     $  (24,675)(1)     $   (9,156)     $  (39,245)(2)
                                             ==========      ==========         ==========      ==========
Basic earnings (loss) per share:
Income (loss) before extraordinary items     $    (0.32)     $    (0.14)        $    (0.28)     $    (1.20)
Extraordinary item                                   --           (0.64)                --              --
Net Income (loss)                            $    (0.32)     $    (0.78)        $    (0.28)     $    (1.20)
                                             ==========      ==========         ==========      ==========
Diluted Earning (loss) per share:
Income (loss) before Extraordinary Item      $    (0.32)     $    (0.14)        $    (0.28)     $    (1.20)
Extraordinary item                                   --           (0.64)                --              --
                                             ----------      ----------         ----------      ----------
Net Income (Loss)                            $    (0.32)     $    (0.78)        $    (0.28)     $    (1.20)
                                             ==========      ==========         ==========      ==========
</TABLE>

<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER 31, 2000
                                                           ----------------------------
                                                FIRST          SECOND          THIRD           FOURTH
                                               QUARTER         QUARTER        QUARTER          QUARTER
                                               -------         -------        -------          -------
                                                       (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                          <C>             <C>             <C>             <C>
Revenues                                     $   78,680      $   79,259      $   73,119      $   72,511
Gross profit                                     17,140          19,210          15,579          14,468
Operating loss                                     (732)           (739)         (5,515)       (186,688)(3)
                                             ----------      ----------      ----------      ----------
Net loss                                     $   (3,909)     $   (3,935)     $   (8,692)     $ (186,584)
                                             ==========      ==========      ==========      ==========
Basic earnings (loss) per common
  share                                      $    (0.12)     $    (0.12)     $    (0.27)     $(5.87)
Diluted earnings (loss) per
  common share                               $    (0.12)     $    (0.12)     $    (0.27)     $(5.87)
</TABLE>

(1)  Includes $20.3 million extraordinary item for loss on extinguishment of
     debt.

(2)  Includes an impairment charge of $26.1 million.

(3)  Includes charges for impairment of long-lived assets ($171.1 million) and
     restructuring charges ($10.3 million) offset by minority interest.


                                       53
<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To TeleSpectrum Worldwide Inc.:

We have audited in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements of TeleSpectrum Worldwide
Inc. and subsidiaries included in this Form 10-K and have issued our report
thereon dated April 29, 2002. Our audit was made for the purpose of forming an
opinion on the basic financial statements taken as a whole. Our report on the
financial statements includes an explanatory paragraph with respect to the
ability of the Company to continue as a going concern as discussed in Note 1 to
the Consolidated Financial Statements. The accompanying financial statement
schedule is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.

                                             ARTHUR ANDERSEN LLP

Philadelphia, Pa.,
April 29, 2002


                                       54
<PAGE>
                                                                     Schedule II

                  TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
                        VALUATION AND QUALIFYING ACCOUNTS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
                                 (in thousands)


<TABLE>
<CAPTION>
                                      BALANCE AT      CHARGED TO      CHARGED TO                      BALANCE AT
           DESCRIPTION               DECEMBER 31,      COST AND         OTHER                        DECEMBER 31,
           -----------
                                        2000           EXPENSES        ACCOUNTS      DEDUCTIONS          2001
                                        ----           --------        --------      ----------          ----
<S>                                  <C>             <C>             <C>             <C>             <C>
Allowance for doubtful
   Accounts                          $     3,457     $     1,253     $        --     $(3,101)/1/     $     1,609
Closed call center minimum lease
   commitment reserve                $     5,659     $     2,106     $        --     $(2,251)/2/     $     5,514

Severance reserve                    $     1,670     $     2,626     $        --     $(3,817)/2/     $       479
</TABLE>

<TABLE>
<CAPTION>
                                      BALANCE AT      CHARGED TO      CHARGED TO                      BALANCE AT
           DESCRIPTION               DECEMBER 31,      COST AND         OTHER                        DECEMBER 31,
           -----------
                                        1999           EXPENSES        ACCOUNTS      DEDUCTIONS          2000
                                        ----           --------        --------      ----------          ----
<S>                                  <C>             <C>             <C>             <C>             <C>
Allowance for doubtful
   Accounts                          $     5,117     $     2,833     $        --     $(4,493)/1/     $     3,457
Closed call center minimum lease
   commitment reserve                $     2,703     $     5,735     $       400     $(3,179)/2/     $     5,659

Severance reserve                    $     1,919     $     1,231     $     1,459     $(2,939)/2/     $     1,670
</TABLE>

<TABLE>
<CAPTION>
                                      BALANCE AT      CHARGED TO      CHARGED TO                      BALANCE AT
           DESCRIPTION               DECEMBER 31,      COST AND         OTHER                        DECEMBER 31,
           -----------
                                        1998           EXPENSES        ACCOUNTS      DEDUCTIONS          1999
                                        ----           --------        --------      ----------          ----
<S>                                  <C>             <C>             <C>             <C>             <C>
Allowance for doubtful
   Accounts                          $     2,851     $     6,800     $    16,398     $(20,932)/1/    $     5,117
Closed call center minimum lease
   commitment reserve                $       809     $        --     $     3,014      (1,120)/2/     $     2,703

Closed call center severance
   Reserve                           $        --     $       401     $     2,400        (882)/2/     $     1,919
</TABLE>

/1/  Write-off of amounts previously reserved.

/2/  Cash payments related to minimum lease commitments and employee severance
     for closed call centers.


                                       55
<PAGE>
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE.

None


                                       56
<PAGE>
                           TELESPECTRUM WORLDWIDE INC.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

         Set forth below is certain information regarding our directors and
executive officers:

<TABLE>
<CAPTION>
NAME                                           AGE    POSITION
----                                           ---    --------
<S>                                            <C>    <C>
J. Peter Pierce..........................      56     Chairman of the Board and Chief Executive Officer
Kurt E. Dinkelacker......................      48     Chief Financial Officer
Christopher J. Williams..................      43     Director and Chief Operating Officer
Joseph A. Nezi...........................      55     Executive Vice President, Business Development
Joseph V. Del Raso.......................      49     Director (2)
J. Anthony Hayden........................      58     Director (2)
Britton H. Murdoch.......................      44     Director
J. Brian O'Neill.........................      42     Director (1)
Fenton R. Talbott........................      60     Director
Richard W. Virtue........................      57     Director (1)(2)
</TABLE>

--------------
(1)  Member of the Compensation Committee of the Board of Directors.
(2)  Member of the Audit Committee of the Board of Directors.


J. Peter Pierce has been our Chairman of the Board and Chief Executive Officer
since January 2001. From February 2000 until June 2000, Mr. Pierce was the
President of Iron Mountain Incorporated, a publicly held records storage and
management company. From 1995 until 2000, Mr. Pierce was the President and Chief
Executive Officer of Pierce Leahy Corp., which merged with Iron Mountain in
February 2000. Mr. Pierce is currently a member of the Board of Directors of
Iron Mountain. Mr. Pierce is also the founder and principal partner in Pioneer
Capital L.P., a venture capital company he founded in 2000.

Kurt E. Dinkelacker has been our Chief Financial Officer since October 2000.
Prior to joining us, from October 1995 through May 1999, Mr. Dinkelacker was an
Executive Vice President and Chief Financial Officer of IKON Office Solutions,
Inc., a publicly traded office equipment distributor and service provider.

Christopher J. Williams has been our Chief Operating Officer since January 2001
and a director since February 2001. Prior to joining us, Mr. Williams was
Executive Vice President, Central Area of Iron Mountain from February 2000 until
August 2000 and Senior Vice President, Operations--West of Pierce Leahy from
1995 until February 2000, when Pierce Leahy merged with Iron Mountain.

Joseph A. Nezi has been our Executive Vice President, Business Development since
January 2001. Prior to joining us, Mr. Nezi was Senior Vice President, Sales and
Marketing of Iron Mountain from February 2000 until June 2000 and of Pierce
Leahy from 1991 until February 2000, when Pierce Leahy merged with Iron
Mountain.

Joseph V. Del Raso has been a director since February 1997. Mr. Del Raso is
currently a partner at the law firm of Pepper Hamilton LLP, a position he has
held since January 1998. Prior thereto, Mr. Del Raso was a partner at the law
firm of Stradley Ronon Stevens & Young from 1992 through January 1998.

J. Anthony Hayden has been a director since August 2001. Since 1996, Mr. Hayden
has been the President and Chief Executive Officer of Hayden Real Estate, Inc.
Prior to founding Hayden Real Estate, Inc., from 1975 until 1996, Mr. Hayden
served in various capacities with Cushman and Wakefield Commercial Real Estate
Company, including Executive Vice President of the Mid-Atlantic/Mid-West Region.
Mr. Hayden also serves on the Board of Directors of Liberty Property Trust and
Founders' Bank, a subsidiary of Susquehanna Bancshares, Inc.


                                       57
<PAGE>
Britton H. Murdoch has been a director since July 2000. Mr. Murdoch is currently
the Managing Director of Strattech Partners, LLC, a business consulting and
venture capital firm. At various times during the past three years, Mr. Murdoch
served as acting Chief Financial Officer of V-Span, Inc. and Fiberlink, Inc.
Prior to founding Strattech Partners, from 1997 until 1998 Mr. Murdoch served as
Chief Financial Officer of Internet Capital Group, Inc. From 1990 until 1997 Mr.
Murdoch served as Chief Financial Officer, Vice President of Finance and
Treasurer of Airgas, Inc. Mr. Murdoch also serves on the Board of Directors of
Founders' Bank, a subsidiary of Susquehanna Bancshares, Inc., and FASTNET
Corporation.

J. Brian O'Neill has been a director since 1996. Mr. O'Neill was the Chairman of
the Board and our Chief Executive Officer from the time of our formation in
April 1996 until March 1998. Mr. O'Neill was also the Chairman of the Board of
Directors and Chief Executive Officer of CRW Financial, Inc. from May 1995 until
its merger with TeleSpectrum in June 1999. Mr. O'Neill is currently involved in
operating a privately-held real estate company.

Fenton R. (Pete) Talbott has been a director since May 2000, and from September
2000 until January 1, 2001, Mr. Talbott was Chairman of the Board. Since 1999,
Mr. Talbott has been an operating affiliate with McCown DeLeeuw & Co., a company
engaged in investment activities. Prior thereto, from 1995 to 1998, Mr. Talbott
was Executive Vice President of Comerica Bank. In addition, Mr. Talbott has held
various positions at American Express, The First Boston Corporation, Bank of
America and Citicorp.

Richard W. Virtue has served as a director since August 1996. Mr. Virtue is
currently a Town Council Member of Snowmass Village, Colorado and a principal of
Southern Investments, a warehouse developer he founded in 1977. Mr. Virtue
served as Chief Executive Officer of SOMAR, Inc., a predecessor of TeleSpectrum,
from 1982 until August 1996.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Pursuant to Section 16(a) of the Securities Exchange Act of 1934, our executive
officers and directors are required to file reports with the SEC relating to
their ownership of and transactions in our equity securities. Based on our
records and other information, we believe that all Section 16(a) filing
requirements were met for fiscal year 2001.


                                       58
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table sets forth the cash compensation as well as certain other
compensation paid or accrued during fiscal years 2001 and 2000 to our chief
executive officer during fiscal year 2001 and each other executive officer who
earned more than $100,000 during fiscal year 2001 (collectively, the "Named
Executives") for services rendered in such years. In January 2001, we hired a
new management team, and, except for Kurt E. Dinkelacker, none of such
management team was previously employed by us.

<TABLE>
<CAPTION>
                                                                                              LONG-TERM
                                                       ANNUAL COMPENSATION                   COMPENSATION
                                                       -------------------                   ------------
                                                                                                AWARDS
                                                                                                ------

                                                                          OTHER ANNUAL        SECURITIES
                                                                          COMPENSATION    UNDERLYING OPTIONS      ALL OTHER
  NAME AND PRINCIPAL POSITION           YEAR    SALARY($)    BONUS ($)         ($)               (#)           COMPENSATION ($)
  ---------------------------           ----    ---------    ---------    ------------    ------------------   ----------------
<S>                                     <C>     <C>          <C>          <C>             <C>                  <C>
J. Peter Pierce, Chief Executive        2001         --(1)         --              --         1,000,000              --
Officer

Christopher J. Williams, Chief          2001    200,000            --              --           400,000             204(2)
Operating Officer

Kurt Dinkelacker, Chief Financial       2001    200,000            --              --                --             204(2)
Officer                                 2000     46,153(3)         --              --           300,000

Joseph A. Nezi, Executive Vice          2001    200,000            --              --           300,000             204(2)
President-Business Development
</TABLE>

-------------
(1)  Mr. Pierce received no salary during 2001.

(2)  Consists of net premiums for a group term life insurance policy.

(3)  Mr. Dinkelacker was hired as our Chief Financial Officer in October 2000.


                                       59
<PAGE>
STOCK OPTION GRANTS

The following table contains information concerning grants of stock options to
the Named Executives during fiscal year 2001:

                          OPTION GRANTS IN FISCAL 2001

<TABLE>
<CAPTION>
                                                 Individual Grants
                                                 -----------------
                                                                                          Potential Realizable
                             Number of                                                   Value at Assumed Annual
                             Securities       % of Total                                     Rates of Stock
                             Underlying     Options Granted   Exercise                     Price Appreciation
                              Options       to Employees in     Price      Expiration      for Option Term(1)
                                                                                           ------------------
Name                         Granted(#)           2001          ($/Sh)        Date          5%            10%
----                         ----------           ----          ------        ----          --            ---
<S>                         <C>             <C>               <C>          <C>           <C>           <C>
J. Peter Pierce             1,000,000(2)          39.1%           .60        1/2/11       380,000       960,000

Christopher J. Williams       400,000(2)          15.7%           .60        1/2/11       152,000       384,000

Kurt Dinkelacker                   --               --             --            --            --            --

Joseph A. Nezi                300,000(2)          11.7%           .60        1/2/11       114,000       288,000
</TABLE>

-------------
(1)  Illustrates the value that might be received upon exercise of options
     immediately prior to the assumed expiration of their term at the specified
     compounded rates of appreciation based on the market price for the common
     stock when the options were granted. Assumed rates of appreciation are not
     necessarily indicative of future stock performance. As of December 31,
     2001, the price of common stock was $.01 per share. All options reflected
     above are being cancelled in connection with the recapitalization.


                                       60
<PAGE>
STOCK OPTION EXERCISES AND HOLDINGS

The following table sets forth the value of options held by each of the Named
Executives at December 31, 2001. None of the Named Executives exercised any
options during fiscal year 2001.

                       AGGREGATED OPTION EXERCISES IN 2001
                     AND OPTION VALUES AT DECEMBER 31, 2001

<TABLE>
<CAPTION>
                                                       NUMBER OF SECURITIES        VALUE OF UNEXERCISED
                                                       UNDERLYING UNEXERCISED      IN-THE-MONEY OPTIONS
                                                       OPTIONS AT DECEMBER 31,     AT DECEMBER 31, 2001
                                                        2001 (#)                   ($)(1)
                                                        ----------------------     --------------------
                             SHARES        VALUE
                           ACQUIRED ON     REALIZED
NAME                       EXERCISE (#)    ($)         EXERCISABLE  UNEXERCISABLE  EXERCISABLE  UNEXERCISABLE
----                       ------------    ---         -----------  -------------  -----------  -------------
<S>                        <C>             <C>         <C>          <C>            <C>          <C>
J. Peter Pierce                    --            --            --     1,000,000            --            --
Christopher J. Williams            --            --            --       400,000            --            --
Kurt Dinkelacker                   --            --        66,667       233,333            --            --
Joseph A. Nezi                     --            --            --       300,000            --            --
</TABLE>

(1)  None of the unexercised options held by the Named Executives were
     in-the-money based on the price of a share of our common stock as reported
     on the OTC Bulletin Board on December 31, 2001 ($.01). All options
     reflected above are being cancelled in connection with the
     recapitalization.



COMPENSATION OF DIRECTORS

Directors who are not currently receiving compensation as officers, employees or
consultants are entitled to receive a quarterly retainer fee of $2,000, as well
as $500 and reimbursement of expenses for each meeting of the Board of Directors
and each committee meeting that they attend in person.

Our non-employee directors are currently entitled to receive non-qualified stock
options under our 1996 Equity Compensation Plan. Each non-employee director is
granted a non-qualified stock option exercisable for 10,000 shares of common
stock on the date that such person is first elected to the Board. An additional
grant of an option exercisable for 2,500 shares of common stock is granted on
each date that a director is re-elected to the Board. All options granted to
non-employee directors under this policy vest in three equal annual installments
beginning on the first anniversary of the date of grant.

EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT

In January 2001, we entered into an employment agreement with J. Peter Pierce to
serve as our Chief Executive Officer until January 2, 2003. Such agreement was
amended on April 29, 2002 in connection with the recapitalization described
above. The agreement, as amended, provides that Mr. Pierce shall not be entitled
to receive a salary for his services. However, the agreement does entitle Mr.
Pierce to an annual bonus based on the financial performance of TeleSpectrum.
Under the agreement, upon the closing of the recapitalization, Mr. Pierce agreed
to the cancellation of all options that had been granted to him by TeleSpectrum.
In addition, upon the closing of the recapitalization, Mr. Pierce received
3,894,997 shares of our common stock, representing .5% of our common stock on a
fully diluted basis. The agreement further provides that Mr. Pierce is entitled
to participate in our Sale Makeup Payment Plan, pursuant to which he could be
eligible to receive certain cash payments upon a "change of control" (as defined
therein) of TeleSpectrum. Under the agreement, in the event that TeleSpectrum or
Mr. Pierce terminates the employment agreement during the one-year period
following the occurrence of a "change of control," TeleSpectrum will pay Mr.
Pierce an amount equal to the targeted bonus for the year in which the
termination occurs. The agreement also prohibits Mr. Pierce from competing with
us for one year after the end of his employment with us.


                                       61
<PAGE>
In January 2001, we entered into an employment agreement with each of
Christopher Williams and Joseph Nezi to serve as our Chief Operating Officer and
Executive Vice President, Business Development, respectively, until January 2,
2003. Such agreements were amended on April 29, 2002 in connection with the
recapitalization described above. Under the agreements, Messrs. Williams and
Nezi receive annual salaries of $200,000, and each is entitled to receive an
annual bonus based on the financial performance of TeleSpectrum. Under the
agreements, upon the closing of the recapitalization, Messrs. Williams and Nezi
agreed to the cancellation of all options that had been granted to them by
TeleSpectrum. The agreements also provide that Messrs. Williams and Nezi are
entitled to participate in our Sale Makeup Payment Plan. Under the agreement, in
the event that TeleSpectrum terminates Messrs. Williams' or Nezi's respective
employment agreements during the one-year period following the occurrence of a
change of control, TeleSpectrum will pay such terminated employee an amount
equal to the targeted bonus for the year in which the termination occurs. The
agreements also prohibit Messrs. Williams and Nezi from competing with us for
one year after the end of their employment with us.

In September 2000, we entered into an employment agreement with Kurt Dinkelacker
to serve as our Chief Financial Officer for a period of two years expiring in
September 2002, which term is automatically renewable at the end of the term for
successive one-year periods unless TeleSpectrum gives notice of nonrenewal. Such
agreement was amended on April 29, 2002 in connection with the recapitalization
described above. Under the agreement, Mr. Dinkelacker receives an annual salary
of $200,000 and a payment of $70,000 upon the closing of the recapitalization,
and is entitled to receive an annual bonus based on the financial performance of
TeleSpectrum. Under the agreement, upon the closing of the recapitalization, Mr.
Dinkelacker agreed to the cancellation of all options that had been granted to
him by TeleSpectrum. The agreement also provides that Mr. Dinkelacker is
entitled to participate in our Sale Makeup Payment Plan. Under the agreement, in
the event Mr. Dinkelacker is terminated during the employment term or determined
not to have his employment term continue for a successive one-year period,
TeleSpectrum will continue to pay Mr. Dinkelacker a salary of $250,000 and
provide certain healthcare benefits. In addition, if in the event of a change of
control Mr. Dinkelacker's position is eliminated or significantly diminished, he
will be entitled to the continued payment of salary described above. The
agreement also prohibits Mr. Dinkelacker from competing with us for one year
after the end of his employment with us.


                                       62
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The following table sets forth certain information with respect to the
beneficial ownership, as of March 31, 2002, of each person known to us to be the
beneficial owner of more than 5% of our common stock. Each of the stockholders
named below has sole voting and investment power with respect to such shares,
unless otherwise indicated.

<TABLE>
<CAPTION>
                                               COMMON STOCK
                                               ------------
NAME AND ADDRESS OF
BENEFICIAL OWNER                       NUMBER OF SHARES     PERCENT
----------------                       ----------------     -------
<S>                                    <C>                  <C>
McCown De Leeuw & Co. III, L.P.          6,186,844(1)        18.2%
J. Brian O'Neill                         4,111,070(2)        11.9
</TABLE>

(1)  Includes (i) 1,179,994 shares of our common stock obtainable upon the
     exercise of warrants owned by McCown De Leeuw & Co. III, L.P., an
     investment partnership whose general partner is MDC Management Company III,
     L.P. ("MDC III"), (ii) 83,630 shares of our common stock obtainable upon
     the exercise of warrants held by McCown De Leeuw & Co. Offshore (Europe)
     III, L.P., an investment partnership whose general partner is MDC
     Management Company IIIE, L.P. ("MDC IIIE"), (iii) 20,253 shares of our
     common stock obtainable upon the exercise of warrants held by McCown De
     Leeuw & Co. III (Asia), L.P., an investment partnership whose general
     partner is MDC Management Company IIIA, L.P. ("MDC IIIA"), and (iv) 22,869
     shares of Common Stock obtainable upon the exercise of warrants owned by
     The Gamma Fund LLC, a California limited liability company. Members of The
     Gamma Fund LLC include George E. McCown, David De Leeuw, David E. King,
     Robert B. Hellman, Jr. and Steven Zuckerman, who are also the only managing
     directors of MDC III, MDC IIIE and MDC IIIA. Voting and dispositive
     decisions regarding the common stock owned by MDC III, MDC IIIE and MDC
     IIIA are made by Mr. McCown and Mr. De Leeuw, as managing directors of each
     of such partnerships, who together have more than the required
     two-thirds-in-interest vote of the managing general partners necessary to
     effect such decisions on behalf of any such entity. Voting and dispositive
     decisions regarding the common stock owned by The Gamma Fund are made by a
     vote or consent of a majority in number of the members of The Gamma Fund.
     No managing director is able to individually direct the voting or
     disposition of common stock beneficially owned by MDC III, MDC IIIE and MDC
     IIIA. Messrs. McCown, De Leeuw, King, Hellman and Zuckerman have no direct
     ownership of any shares of common stock and disclaim beneficial ownership
     of any shares of our common stock except to the extent their proportionate
     partnership interest or membership interests, as the case may be. The
     address of all MDC entities and The Gamma Fund is c/o McCown De Leeuw &
     Co., 3000 Sand Hill Road, Building 3, Suite 290, Menlo Park, California
     94025.

(2)  Includes options to purchase 1,002,500 shares of our common stock and
     warrants to purchase 822,860 shares of our common stock. Mr. O'Neill's
     address is 700 South Henderson Road, Suite 202, King of Prussia,
     Pennsylvania 19406.


                                       63
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT

The following table sets forth certain information with respect to the
beneficial ownership, as of March 31, 2002, of (i) each director, (ii) each
Named Executive and (iii) all of our directors and executive officers as a
group. Each of the stockholders named below has sole voting and investment power
with respect to such shares.

<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER                             NUMBER OF SHARES(1)    PERCENT OF CLASS
------------------------                             -------------------    ----------------
<S>                                                  <C>                    <C>
J. Peter Pierce                                               333,334(2)            1.0%
Christopher J. Williams                                       163,334(3)              *
Kurt Dinkelacker                                               66,667(4)              *
Joseph A. Nezi                                                110,000(5)              *
Joseph V. Del Raso                                             17,000(6)              *
J. Anthony Hayden                                             737,000               2.3
Britton H. Murdoch                                            250,000(7)              *
J. Brian O'Neill                                            4,111,070(8)           11.9
Fenton R. Talbott                                             487,500(9)            1.5
Richard W. Virtue                                           1,056,226(10)           3.2
All executive officers and directors as a group             7,332,131(11)          20.4%
(10 persons)
</TABLE>

*    Less than 1 percent.

(1)  With respect to each stockholder, includes any shares issuable upon
     exercise of any options or warrants held by such stockholder that are or
     will become exercisable within sixty days of March 31, 2002.

(2)  Consists of options to purchase 333,334 shares of our common stock.

(3)  Includes options to purchase 133,334 shares of our common stock.

(4)  Consists of options to purchase 66,667 shares of our common stock.

(5)  Includes options to purchase 100,000 shares of our common stock.

(6)  Includes options to purchase 15,000 shares of our common stock.

(7)  Includes options to purchase 100,000 shares of our common stock.

(8)  Includes options to purchase 1,002,500 shares of our common stock and
     warrants to purchase 822,860 shares of our common stock.

(9)  Includes options to purchase 437,500 shares of our common stock.

(10) Includes options to purchase 8,334 shares of our common stock and warrants
     to purchase 254,000 shares of our common stock.

(11) Includes options to purchase 2,196,669 shares of our common stock and
     warrants to purchase 1,076,860 shares of our common stock.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

During 2001, we paid Hayden Real Estate, Inc. $153,370 in connection with real
estate services rendered to us by such firm. J. Anthony Hayden, a member of our
Board of Directors, is President and Chief Executive Officer of Hayden Real
Estate.

During 2001, we paid Strattech Partners, LLC $61,536 in connection with
financial and treasury consulting services rendered to us by such firm and
$150,000 in connection with services rendered relating to the amendment to our
credit agreement in April 2001. Britton Murdoch, a member of our Board of
Directors, is Managing Director of Strattech Partners.


                                       64
<PAGE>
                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORT ON FORM 8-K

(a)      Documents filed as part of this report:

         1.       Financial Statements.

                  The financial statements listed in the accompanying Table of
                  Contents to Financial Statements and Financial Statement
                  Schedules at page F-1 are filed as part of this Form 10-K.

         2.       Financial Statement Schedule.

                  The financial statement schedule listed in the accompanying
                  Table of Contents to Financial Statements and Financial
                  Statement Schedule at page F-1 is filed as part of this Form
                  10-K.

                  All other schedules have been omitted because they are not
                  applicable, or not required, or the information is disclosed
                  in the Financial Statements or notes thereto.

         3.       Exhibits. (See (c) below)

(b)      Report on Form 8-K

         There were no reports on Form 8-K filed by us during the fourth quarter
         of the fiscal year ended December 31, 2001.

(c)      Exhibits.

       The following is a list of exhibits filed as part of this annual report
       on Form 10-K. Where so indicated exhibits which were previously filed are
       incorporated by reference. For exhibits incorporated by reference, the
       location of the exhibit in the previous filing is indicated in
       parentheses.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                  DESCRIPTION
<S>               <C>
3.01              Restated Certificate of Incorporation of TeleSpectrum
                  Worldwide Inc. is incorporated by reference to exhibit 3.01 of
                  our Registration Statement on Form S-1 (File No., 333-04349).

3.02              Certificate of Designations of Series A Preferred Stock of
                  Telespectrum Worldwide Inc. *

3.03              Certificate of Designations of Series B Convertible Preferred
                  Stock of Telespectrum Worldwide Inc. *

3.04              Bylaws of TeleSpectrum Worldwide Inc. are incorporated by
                  reference to exhibit 3.02 of our Registration Statement on
                  Form S-1 (File No., 333-004349).

**10.01           TeleSpectrum Worldwide Inc. Amended and Restated 1996 Equity
                  Compensation Plan is incorporated by reference to exhibit
                  10.04 of our Annual Report on Form 10-K for the fiscal year
                  ended December 31, 1999.
</TABLE>


                                       65
<PAGE>
<TABLE>
<S>               <C>
10.02             Amended and Restated Credit Agreement dated as of April 29,
                  2002 among Telespectrum Worldwide Inc., the Lenders named
                  therein and BNP Paribas as agent. #

10.03             Preferred Stock Issuance and Restructuring Agreement dated as
                  of April 29, 2002 among Telespectrum Worldwide Inc., the
                  Lenders named therein and BNP Paribas. #

10.04             Stockholders Agreement dated as of April 29, 2002 among
                  Telespectrum Worldwide Inc., the stockholders signatory
                  thereto, the Management Agent and the Administrative Agent. #

**10.05           Sales Makeup Payment Plan dated as of April 29, 2002. #

**10.06           Employment Agreement dated as of April 29, 2002 between
                  TeleSpectrum Worldwide Inc. and J. Peter Pierce. #

**10.07           Employment Agreement dated as of April 29, 2002 between
                  TeleSpectrum Worldwide Inc. and Christopher Williams. #

**10.08           Employment Agreement dated as of April 29, 2002 between
                  TeleSpectrum Worldwide Inc. and Kurt Dinkelacker. #

**10.09           Employment Agreement dated as of April 29, 2002 between
                  TeleSpectrum Worldwide Inc. and Joseph Nezi. #

21.               Subsidiaries of the Registrant.*

23.               Consent of Arthur Andersen LLP.*

99.1              Letter regarding independent public accountants*
</TABLE>

----------
*    Filed herewith.

**   Constitutes a management contract or a compensatory plan or arrangement.

#    To be filed as part of a subsequent SEC filing.


                                       66
<PAGE>
                           TELESPECTRUM WORLDWIDE INC.
                                   SIGNATURES

         PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.

                                              TeleSpectrum Worldwide Inc.

Date: April 29, 2002                          By: /S/ KURT E. DINKELACKER
                                                   ----------------------------
                                              KURT E. DINKELACKER
                                              CHIEF FINANCIAL OFFICER

         PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.

<TABLE>
<CAPTION>
                  NAME                                 CAPACITY                      DATE
                  ----                                 --------                      ----
<S>                                             <C>                              <C>
         /S/ J. PETER PIERCE                    Chairman of the Board and        April 29, 2002
---------------------------------------
         J. PETER PIERCE                        Chief Executive Officer
                                                (Principal Executive Officer)


         /S/ KURT E. DINKELACKER                Chief Financial Officer          April 29, 2002
---------------------------------------
         KURT E. DINKELACKER                    (Principal Financial and
                                                Accounting Officer)

         /S/ FENTON R. (PETE) TALBOTT           Director                         April 29, 2002
---------------------------------------
         FENTON R. (PETE) TALBOTT

         /S/ CHRISTOPHER WILLIAMS               Director                         April 29, 2002
---------------------------------------
         CHRISTOPHER WILLIAMS

         /S/ JOSEPH V. DEL RASO                 Director                         April 29, 2002
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         JOSEPH V. DEL RASO

         /S/ J. ANTHONY HAYDEN                  Director                         April 29, 2002
---------------------------------------
         J. ANTHONY HAYDEN

         /S/ BRITTON H. MURDOCH                 Director                         April 29, 2002
---------------------------------------
         BRITTON H. MURDOCH

         /S/ J. BRIAN O'NEILL                   Director                         April 29, 2002
---------------------------------------
         J. BRIAN O'NEILL

         /S/ RICHARD W. VIRTUE                  Director                         April 29, 2002
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         RICHARD W. VIRTUE
</TABLE>


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