<PAGE>
 
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-Q
                                        



(Mark One)
 [X]        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
              OF THE SECURITIES EXCHANGE ACT OF 1934
              FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998

                                       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                     (IRS Employer
     incorporation or organization)                  Identification Number)

     443 SOUTH GULPH ROAD
     King of Prussia, Pennsylvania                             19406
     -----------------------------                             -----
     (Address of principal executive offices)               (ZIP Code)


                                 610-878-7400
                                 ------------
             (Registrant's telephone number, including area code)


Indicate by check mark whether the Registrant (1) has filed all reports to be
filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.

Yes    x      No
   ---------    -------

The number of outstanding shares of the Registrant's Common Stock, par value
$.01 per share, on May 14, 1998 was 25,441,038.
<PAGE>
 
                 TeleSpectrum Worldwide Inc. and Subsidiaries
                                        

                               Table of Contents
                               -----------------

<TABLE>
<CAPTION>

Item No.                                                                                                 Page
-----------                                                                                            ----------
             PART I -- FINANCIAL INFORMATION
<S>          <C>                                                                                    <C>
   1.        Financial Statements (unaudited):
              Condensed Consolidated Results of Operations
               For the Three Months Ended March 31, 1998 and
               For the Three Months Ended March 31, 1997                                                       3
             Condensed Consolidated Balance Sheets
               March 31, 1998 and December 31, 1997                                                            4
              Condensed Consolidated Statements of Cash Flows
               For the Three Months Ended March 31, 1998 and
               For the Three Months Ended March 31, 1997                                                       5
              Notes to Condensed Consolidated Financial Statements                                             6
 
   2.        Management's Discussion and Analysis of Results of Operations
              and Financial Condition                                                                         12
 
             PART II  OTHER INFORMATION                                                                       22
</TABLE>

                                       2
<PAGE>
 
                  TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
                  Condensed Consolidated Results of Operations
                                  (Unaudited)
               (Dollars in Thousands -- Except Per Share Amounts)


<TABLE>
<CAPTION>
 
                                                                           THREE MONTHS            THREE MONTHS
                                                                              ENDED                   ENDED
                                                                          MARCH 31, 1998          March 31, 1997
                                                                      ----------------------  ----------------------
 
<S>                                                                   <C>                     <C>
REVENUES                                                                           $ 39,634                 $44,260
                                                                                   --------                 -------
OPERATING EXPENSES:
    COST OF SERVICES                                                                 42,764                  36,165
    SELLING, GENERAL AND ADMINISTRATIVE                                               6,565                   2,976
    AMORTIZATION OF GOODWILL                                                            295                   1,778
                                                                                   --------                 -------
          TOTAL OPERATING EXPENSES                                                   49,624                  40,919
                                                                                   --------                 -------
          OPERATING INCOME (LOSS)                                                    (9,990)                  3,341
INTEREST INCOME (EXPENSE)                                                              (805)                    217
                                                                                   --------                 -------
Income (loss) from continuing operations before income taxes                        (10,795)                  3,558
INCOME TAX BENEFIT (EXPENSE)                                                            247                  (1,434)
                                                                                   --------                 -------
INCOME (LOSS) FROM CONTINUING OPERATIONS                                            (10,548)                  2,124
                                                                                   --------                 -------
                                                                                        479                     574
INCOME FROM DISCONTINUED OPERATIONS                                                --------                 -------
 
NET INCOME (LOSS)                                                                  $(10,069)                $ 2,698
                                                                                   ========                 =======
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE:
    CONTINUING OPERATIONS                                                          $  (0.42)                $  0.09
    DISCONTINUED OPERATIONS                                                            0.02                    0.02
                                                                                   --------                 -------
    NET INCOME (LOSS)                                                               $ (0.40)                $  0.11
                                                                                   ========                 =======
</TABLE>



           SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

                                       3
<PAGE>
 
                  TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                (DOLLARS IN THOUSANDS -- EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                   MARCH 31, 1998           DECEMBER 31, 1997
                                                                             --------------------------  ------------------------
                                                                                    (UNAUDITED)
                                  ASSETS
CURRENT ASSETS:
<S>                                                                          <C>                         <C>
 Cash and cash equivalents                                                                    $    855                 $     774
 Accounts receivable                                                                            34,906                    37,360
 Income tax refund receivable                                                                    1,434                     2,912
 Prepaid expenses and other                                                                      3,680                     1,539
 Net assets of discontinued operations                                                          23,093                    36,399
                                                                                              --------                 ---------
     Total current assets                                                                       63,968                    78,984
PROPERTY AND EQUIPMENT, NET                                                                     34,905                    36,731
GOODWILL                                                                                        27,669                    27,964
OTHER ASSETS                                                                                       930                     1,042
                                                                                              --------                 ---------
     TOTAL ASSETS                                                                             $127,472                 $ 144,721
                                                                                              ========                 =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
 Secured credit facility                                                                      $ 21,885                 $  29,000
 Current maturities of long-term debt                                                              969                     1,160
 Accounts payable                                                                                2,261                     4,718
 Accrued expenses                                                                                9,592                     9,125
 Accrued compensation                                                                            7,997                     7,638
 Notes payable to sellers of businesses                                                            915                       990
 Other current liabilities                                                                       7,104                     5,698
                                                                                              --------                 ---------
     Total current liabilities                                                                  50,723                    58,329
                                                                                              --------                 ---------
LONG-TERM DEBT                                                                                   3,585                     3,800
                                                                                              --------                 ---------
OTHER NONCURRENT LIABILITIES                                                                     1,988                     2,215
                                                                                              --------                 ---------
STOCKHOLDERS' EQUITY:
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,
   25,441,038 and 25,213,074 shares issued and outstanding, respectively                           254                       252
 Additional paid-in capital                                                                    238,680                   237,186
 Accumulated deficit                                                                          (166,894)                 (156,825)
 Deferred compensation                                                                            (651)                      ---
 Cumulative currency translation adjustment                                                       (213)                     (236)
                                                                                              --------                 ---------
     Total stockholders' equity                                                                 71,176                    80,377
                                                                                              --------                 ---------
     Total liabilities and stockholders' equity                                               $127,472                 $ 144,721
                                                                                              ========                 =========
</TABLE>
                                        
           See Notes to Condensed Consolidated Financial Statements.

                                       4
<PAGE>
 
                  TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
                Condensed Consolidated Statements of Cash Flows
                                  (Unaudited)
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                                                    THREE MONTHS ENDED   THREE MONTHS ENDED
                                                                                      March 31, 1998       March 31, 1997
                                                                                    -------------------  -------------------
<S>                                                                                 <C>                  <C>
Cash Flows From Operating Activities:
 Net income (loss)                                                                            $(10,069)            $  2,698
 Adjustments to reconcile net income (loss) to net cash provided by (used in)
  operating activities:
     Depreciation and amortization                                                               1,981                1,363
     Amortization of goodwill                                                                      295                1,778
     Provision for bad debts                                                                        --                  (73)
     Deferred compensation                                                                         327                   --
     Other items, net                                                                               79                  376
     Changes in operating assets and liabilities-
       Accounts receivable                                                                       2,683               (6,922)
       Income tax receivable                                                                     1,180                   --
       Prepaid expenses and other                                                                  218                 (276)
       Accounts payable                                                                         (2,346)              (1,691)
       Accrued compensation                                                                       (183)                (308)
       Other accrued expenses                                                                     (485)               1,747
       Deferred revenue                                                                           (153)                 854
       Other liabilities                                                                         1,267                 (104)
       Net operating activities of discontinued operations                                        (775)               2,837
                                                                                              --------             --------
          Net cash provided by (used in) operating activities                                   (5,981)               2,279
                                                                                              --------             --------
Cash Flows From Investing Activities:
 Purchases of property and equipment                                                              (914)              (9,244)
 Proceeds from sale of business                                                                 15,000                   --
 Acquisition of Initial Operating Businesses, net of cash acquired                                  --              (27,076)
 Payments related to acquisition of Initial Operating Businesses                                  (228)                  --
 Acquisition of TeleSpectrum FX (IVR)                                                               --               (5,295)
 Net investing activities of discontinued operations                                              (275)                (582)
                                                                                              --------             --------
          Net cash provided by (used in) investing activities                                   13,583              (42,197)
                                                                                              --------             --------
Cash Flows From Financing Activities:
 Net borrowings (repayments) on secured credit facility                                         (7,115)              13,000
 Payments of long-term debt                                                                        (83)                (116)
 Payments of capital lease obligations                                                            (323)                (353)
                                                                                              --------             --------
          Net cash provided by (used in) financing activities                                   (7,521)              12,531
                                                                                              --------             --------
Net increase (decrease) in cash and cash equivalents                                                81              (27,387)
Cash and cash equivalents, beginning of period                                                     774               28,171
                                                                                              --------             --------
Cash and cash equivalents, end of period                                                      $    855             $    784
                                                                                              ========             ========
</TABLE>

                                        


           See Notes to Condensed Consolidated Financial Statements.

                                       5
<PAGE>
 
                  TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
              Notes to Condensed Consolidated Financial Statements
                                  (unaudited)
                                        
1. BASIS OF PRESENTATION

The accompanying financial statements are unaudited and have been prepared by
Telespectrum Worldwide Inc. and subsidiaries (the "Company") pursuant to the
rules and regulations of the Securities and Exchange Commission (SEC). The
December 31, 1997 balance sheet was derived from audited financial statements,
however, certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to SEC rules and regulations.
The Company believes that the financial statements include all adjustments of a
normal and recurring nature necessary to present fairly the results of
operations, financial position and cash flows for the periods presented. These
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's Form 10-K for the year ended
December 31, 1997.

The condensed consolidated financial statements include the accounts of
TeleSpectrum Worldwide Inc. and its subsidiaries.  All material intercompany
balances and transactions have been eliminated.  There have been no material
changes in accounting policies from those stated in the Company's Form 10-K for
the year ended December 31, 1997.  Certain reclassifications have been made to
the three months ended March 31, 1997 condensed consolidated results of
operations to conform to the presentation used in the current period.

2. Company Background

The Company was incorporated in Delaware on April 26, 1996 and provides services
to its customers through its Telemarketing and Customer Care Segments. On August
12, 1996, the Company completed its initial public offering and, concurrent with
the offering, the Company began material operations with the acquisition of the
assets of a number of businesses. The results of operations of the Market
Research Segment ad Direct Mail and Fulfillment Segment have been accounted for
as discontinued operations (see Note 5).

3. Recent Developments

Operating Results

The Company's operating results have deteriorated significantly since the first
quarter of 1997. The Company recorded operating losses in the second, third and
fourth quarters of 1997, and the first quarter of 1998. The Company attributes
these losses to the costs associated with expanding its telemarketing call
center capacity in the first and second quarters of 1997 to meet its growth
expectations and the costs associated with subsequently reducing its capacity in
the third and fourth quarters of 1997 and in 1998. The Company believes that a
significant decline in the growth of outsourcing of telemarketing has occurred,
which has reduced the Company's future growth expectations. In addition, for
1998 the Company expects to receive significantly lower revenues from its
largest customer. Beginning in the third quarter of 1997 and continuing in the
fourth quarter of 1997 and in the first quarter of 1998, the Company took
actions to restructure its Telemarketing Segment. In connection with the
restructuring, the Company closed or plans to close 15 of its 25 outbound call
centers and the Company's workforce was significantly reduced.

Goodwill Impairment Charge

In the fourth quarter of 1997, the Company performed an in-depth evaluation of
the carrying value of goodwill due to the Company's poor operating performance,
and the overall significant changes in the industry outlook and recorded a
goodwill impairment charge of $139,072,000, which represented the goodwill
associated with the Telemarketing Segment. As of March 31, 1998 the remaining
goodwill of $27,669,000 relates exclusively to the Customer Care Segment, which
the Company believes is realizable.

Whenever events or circumstances have occurred that indicate an impairment may
have occurred, the Company will estimate the future discounted cash flows of the
business segment to which goodwill relates. When such estimate of the future
discounted cash flows, net of the estimated fair value of the net tangible
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 an 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.

Call Center Closing Charges

In the third and fourth quarters of 1997, the Company recorded pre-tax charges
totaling $11,568,000 in connection with the Company's decision to close
seventeen call centers (fifteen in the Telemarketing Segment and two in the
Customer Care Segment). These 1997 charges include a non-cash write-down of
$8,336,000 related to certain call center property and equipment, a $1,939,000
provision for non-cancelable lease commitments at closed call centers and a
$1,293,000 provision relating to severance and termination benefits for certain
employees.

The Company has recorded an additional provision of $1,743,000 for severance and
termination benefits in the first quarter of 1998 related to the call center
closings. The Company has commenced activities necessary to implement the
closing of the call centers and expects that all significant activities under
the call center closing plan will be completed by no later than December 31,
1998, with a majority of these activities being completed by June 30, 1998.

                                       6
<PAGE>
 
                  TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
        Notes to Condensed Consolidated Financial Statements (continued)
                                  (unaudited)
                                        
4. EARNINGS PER SHARE

The Company has adopted SFAS No. 128 "Earnings per Share." SFAS No. 128 requires
a dual presentation of "basic" and "diluted" EPS on the face of the income
statement. 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.

There was no material difference between basic and diluted earnings (loss) per
share. The table below sets forth the reconciliation of the weighted average
number of shares outstanding used to compute basic and diluted earnings (loss)
per share (in thousands):

                                                Three Months Ended
                                                     March 31,
                                                ------------------
                                                  1998       1997
                                                -------    -------
Shares used in computing basic earnings
 (loss) per share............................    25,249     25,213
Dilutive effect of options...................       ---         95
                                                -------    -------
Shares used in computing diluted earnings
 (loss) per share............................    25,249     25,308
                                                =======    =======


5. DISCONTINUED OPERATIONS

In December 1997, the Company committed to a plan to dispose of its Market
Research Segment and Direct Mail and Fulfillment Segment. As required by 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," the Company has accounted for the results of
operations and net assets of the Market Research Segment and Direct Mail and
Fulfillment Segment as discontinued operations. The operating results for the
three months ended March 31, 1998 and March 31, 1997, and the net assets at
March 31, 1998 and December 31, 1997 have been restated to reflect discontinued
operations.

In February 1998, the Company sold substantially all of the assets and
liabilities of the Market Research Segment for approximately $15,000,000, which
resulted in a loss of approximately $907,000, which was recorded as of December
31, 1997. The proceeds from this sale were used to repay borrowings on the
secured credit facility. (see Note 6).

On March 31, 1998, the Company consummated the sale of substantially all of the
assets and liabilities of the Direct Mail and Fulfillment Segment for
approximately $23,000,000 in cash and up to $4,000,000 in contingent payments
based on future performance of the segment. The sale of this segment did not
result in a significant gain or loss. The Company received the net proceeds from
this sale on April 1, 1998 and applied the proceeds to fully pay off existing
borrowings on the secured credit facility. (see Note 6).

                                       7
<PAGE>
 
                  TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
        Notes to Condensed Consolidated Financial Statements (continued)
                                  (unaudited)
                                        


     The following table summarizes the operating results of the discontinued
operations (in thousands):

                                               FOR THE THREE     FOR THE THREE
                                               MONTHS ENDED      MONTHS ENDED
                                              MARCH 31, 1998    MARCH 31, 1997
                                             ----------------  ----------------
Revenues.....................................     $4,189              $4,894
Operating expenses...........................      3,463               4,044    
                                                   -----               -----    
Income before income taxes...................        726                 850    
Income tax provision.........................        247                 276    
                                                     ---                 ---    
Income from discontinued operations..........       $479                $574    
                                                    ====                ====
                                                                               
6. SECURED CREDIT FACILITY

At March 31, 1998, the Company had outstanding borrowings of $21,885,000 on its
secured credit facility ("Credit Facility").  On March 25, 1998, the Company was
notified by its primary lending institution, Mellon Bank N.A. (Mellon), that the
Company was in default of certain covenants of its credit facility. The Company
used the proceeds from the sale of its Market Research Segment to partially
repay borrowings under the credit facility.  On April 1, 1998, the Company used
the proceeds from the sale of its Direct Mail and Fulfillment Segment to repay
all outstanding borrowings under the credit facility.

On April 14, 1998, the Company entered into a new Loan and Security Agreement
with Mellon, which provides for an initial $10 million credit facility (the
"Credit Facility") to be repaid in April 2002. The Credit Facility may be
increased to $20 million based upon satisfactory completion of certain due
diligence procedures by Mellon. Under the terms of the Credit Facility, the
Company can initially borrow up to the lesser of $10 million or an amount that
is determined as 80% of the net accounts receivable aged 90 days or less. The
Company can draw on the Credit Facility in increments of $500,000 or more. The
Company can elect at the time of the draw to pay interest at prime plus 0.50% or
at a LIBOR rate plus 2.50% and will pay a commitment fee of 0.375% on the unused
borrowing capacity. The Credit Facility also makes available to the Company
letters of credit, which can be issued, on the outstanding undrawn amount of the
Credit Facility. The letters of credit shall not exceed $1.5 million and have a
fee equal to 1.00% per annum on the face amount of each letter of credit.
Borrowings under the Credit Facility are collateralized by substantially all of
the assets of the Company. The Credit Facility also contains various financial
and non-financial covenants.


                                       8
<PAGE>
 
                  TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
        Notes to Condensed Consolidated Financial Statements (continued)
                                  (unaudited)
                                        

7. SUPPLEMENTAL CASH FLOW INFORMATION

The Company paid $431,000 and $71,000 of interest expense for the three
months ended March 31, 1998 and March 31, 1997, respectively. The Company did
not pay any income taxes during the three months ended March 31, 1998 and March
31, 1997.

In  March 1997, the Company settled the earn-out agreement with the seller of
one of the Initial Operating Businesses under which the Company paid $25.0
million in March 1997 and agreed to pay $600,000 over a two year period in equal
installments of which, the Company has paid $275,000 through March 31, 1998.

In March 1997, the Company completed its acquisition of the interactive voice
response division of Voice FX Corporation for $5,327,000 in cash, including
transaction costs. The division, renamed TeleSpectrum FX (FX" (IVR)"), provides
interactive voice response solutions within the interactive promotion and direct
response marketplace. In connection with the acquisition of FX (IVR), the
Company's consolidated financial statements reflect acquired net assets of
approximately $71,000, consisting primarily of $321,000 of accounts receivable,
$176,000 of property and equipment and $6,000 of other assets and the assumption
of $432,000 of accounts payable and accrued expenses.  The $5,256,000 of
purchase price in excess of the estimated fair value of net assets acquired was
originally recorded as goodwill and subsequently included within the goodwill
impairment charge of $139,072,000 as recorded in the fourth quarter of 1997.

8. COMMITMENTS AND CONTINGENCIES

On March 18, 1998, the Company entered into an employment contract with its new
Chairman of the Board, CEO and President, which expires in March 2001. The
contract provides for annual compensation of $200,000 per year, plus bonuses.
The Company entered into a subscription agreement whereby this executive
acquired 227,964 shares of the Company's Common stock for $500,000 and was
granted options to purchase 2,000,000 shares of Common stock at $3.29 per share.
The options will vest over three to four years with accelerated vesting for
500,000 options based on the achievement of certain performance objectives, as
defined. The purchase price per share under the stock subscription agreement is
$2.19. In March 1998, the Company recorded compensation expense of $327,000,
which represents the difference between the stock purchase price and the fair
market value of the stock on the effective date of the stock subscription
agreement. In addition, the Company will record compensation expense of $670,000
over the options vesting period, relating to the options to purchase 2,000,000
shares of Common stock which represents the difference between the fair market
value of the stock on the grant date and the option exercise price of $3.29.

The Company is party to various claims and other matters arising in the ordinary
course of business. In the opinion of management, the outcome of these matters
will not have a material adverse effect on the Company's financial position or
results of operations.

                                       9
<PAGE>
 
                  TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
        Notes to Condensed Consolidated Financial Statements (continued)
                                  (unaudited)
                                        

9. CONCENTRATIONS OF RISK

The 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 are limited
due to the large number of customers comprising the Company's customer base, and
their dispersion across many different industries and geographies. The Company
does not require collateral or other securities to support customer accounts
receivable. The Company performs periodic reviews of its clients' condition to
reduce the collection risk.

The Company does not believe significant credit risk exists at March 31, 1998.
The Company had one client in the teleservices industry, which accounted for
approximately 10% of total revenues for the three months ended March 31, 1998
and 19% of total accounts receivable at March 31, 1998, and one client in the
financial services industry which accounted for approximately 25% of total
revenues for the three months ended March 31, 1997. No other client accounted
for more than 10% of the Company's revenues or accounts receivable.

10. COMPREHENSIVE INCOME

The Company has adopted SFAS No. 130, "Reporting Comprehensive Income," which is
effective for financial statements issued for fiscal years beginning after 
December 15, 1997. The Company's comprehensive income includes net income (loss)
and unrealized gains and losses from foreign currency translation. Total 
comprehensive income (loss) for the three months ended March 31, 1998 and 1997 
was $(10,046,000) and $2,666,000, respectively.

                                       10
<PAGE>
 
                  TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
                                        
Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
         FINANCIAL CONDITION

RECENT DEVELOPMENTS


Executive Management Changes

On March 18, 1998, Keith E. Alessi executed an agreement to become the Chairman,
Chief Executive Officer and President of the Company. Concurrent with Mr.
Alessi's hiring, J. Brian O'Neill resigned as Chairman, Chief Executive Officer
and President. Mr. O'Neill has continued as a Director. Mr. Alessi also
purchased shares of the Company's Common Stock for an aggregate purchase price
of $500,000, or $2.19 per share. The Company also granted Mr. Alessi options
exercisable for an aggregate of 2,000,000 shares of Common Stock (500,000 of
which were granted under the Company's 1996 Equity Compensation Plan)
exercisable at a price of $3.29 per share (see Note 8 to the Condensed
Consolidated Financial Statements).

The Company's ability to execute its plan and return to profitability is largely
dependent on the efforts of its senior management team, including the efforts of
Mr. Alessi.

Operational Losses

The Company's operating results have deteriorated significantly since the first
quarter of 1997. The Company incurred a net loss of $160 million for the year
ended December 31, 1997. Included in the net loss was a $139 million goodwill
impairment charge and $11.6 million in charges related to call center closings.
Notwithstanding the foregoing charges, the Company incurred operating losses in
1997. The Company also incurred a loss of $10.1 million in the first quarter of
1998. The Company mainly attributes these losses to the costs associated with
expanding its telemarketing call center capacity in the first and second
quarters of 1997 to meet its growth expectations and the costs associated with
subsequently reducing in the third and fourth quarters of 1997 and first quarter
of 1998. The Company determined to reduce its capacity when the Company's
largest customer, MBNA, dramatically reduced its telemarketing programs with the
Company and the Company was not able to procure new clients to fill its excess
capacity. The Company also attributes these losses to decreased telemarketing
rates resulting from industry pricing pressures and its acceptance of lower-
margin business in an effort to fill some of its overcapacity. The Company
believes that there has been a significant decline in the growth in the
outsourcing of teleservices. This decline has resulted in overcapacity in the
telemarketing industry and greater price competition. The ability of the Company
to return to profitability will be dependent on its ability to implement its
call center closings and achieve additional operating efficiencies, while
maintaining or expanding its customer base. There can be no assurance that the
Company will accomplish these objectives.

Discontinued Operations

In February 1998, the Company consummated the sale of its Market Research
Segment to NCO Group, Inc. for $15 million cash. The results of operations
for The Market Research Segment have been reported separately as discontinued
operations for the three months ended March 31, 1998 and 1997. The Company used
the net proceeds from this sale to reduce existing borrowings under its Credit
Facility (see Note 6 to the Condensed Consolidated Financial Statements).

On March 31, 1998 the Company consummated the sale of its Direct Mail and
Fulfillment Segment for $23 million cash and a contingent payment based on the
future operating performance of this business. The results of operations for The
Direct Mail and Fulfillment Segment have been reported separately as
discontinued operations for the three months ended March 31, 1998 and 1997. The
Company received the net proceeds from this sale on April 1, 1998 and applied
the proceeds to fully pay off existing borrowings under its Credit Facility (see
Note 6 to the Condensed Consolidated Financial Statements).

                                       11
<PAGE>
 
Default Under Prior Credit Facility; New Credit Facility

On March 25, 1998, the Company was notified by its primary lending institution,
Mellon Bank N.A. (Mellon), that the Company was in default of certain loan
covenants under its Loan and Security Agreement dated January 24, 1997, as
amended. The Company repaid the entire outstanding balance under this facility
on April 1, 1998 with the proceeds from the sale of its Direct Marketing and
Fulfillment Segment. On April 14, 1998, the Company entered into a new Loan and
Security Agreement with Mellon, which provides for an initial $10 million credit
facility (the "Credit Facility") to be repaid in April 2002. The Credit Facility
may be increased to $20 million based upon satisfactory completion of certain
due diligence procedures by Mellon. Under the terms of the Credit Facility, the
Company can initially borrow up to the lesser of $10 million or an amount that
is determined as 80% of the net accounts receivable aged 90 days or less. The
Company can draw on the Credit Facility in increments of $500,000 or more. The
Company can elect at the time of the draw to pay interest at prime plus 0.50% or
at a LIBOR rate plus 2.50% and will pay a commitment fee of 0.375% of the unused
borrowing capacity. The Credit Facility also makes available to the Company
letters of credit, which can be issued on the outstanding undrawn amount of the
Credit Facility. The letters of credit shall not exceed $1.5 million and have a
fee equal to 1.00% per annum on the face amount of each letter of credit.
Borrowings under the Credit Facility are collateralized by substantially all of
the assets of the Company. The Credit Facility also contains various financial
and non-financial covenants.

Goodwill Impairment

In the fourth quarter of 1997, the Company performed an in-depth evaluation of
the carrying value of goodwill due to the Company's poor operating performance,
and the overall significant changes in the industry outlook and recorded a
goodwill impairment charge of $139,072,000, which represented the goodwill
associated with the Telemarketing Segment. As of March 31, 1998, the remaining
goodwill of $27,669,000 relates exclusively to the Customer Care Segment which 
the Company believes is realizable.

                                       12
<PAGE>
 
RESULTS OF OPERATIONS

Comparison of the Actual results of operations for the three months ended March
31, 1998 to the three months ended March 31, 1997.

<TABLE> 
<CAPTION> 

                                                                                       ACTUAL
                                                                                RESULTS OF OPERATIONS
                                                                                (Dollars In Millions)
                                                                                ---------------------

                                                       THREE MONTHS           AS A          THREE MONTHS           AS A
                                                          ENDED           PERCENTAGE OF        ENDED          PERCENTAGE OF
                                                      March 31, 1998        REVENUES       March 31,1997        REVENUES
                                                      --------------      -------------    -------------      -------------
<S>                                                   <C>                 <C>              <C>                <C> 
 Revenues:
  Telemarketing................................             $28.8               73%            $36.4               82%
  Customer care................................              10.8               27%              7.9               18%
                                                      --------------      -------------    -------------      -------------
Total revenue..................................              39.6              100%             44.3              100%
Cost of services:
  Telemarketing................................              32.4               82%             29.1               66%
  Customer care................................              10.3               26%              7.1               16%
                                                      --------------      -------------    -------------      -------------
Total cost of services.........................              42.7              108%             36.2               82%
Total selling, general and administrative......               6.6               16%              3.0                7%
Amortization of goodwill.......................               0.3                1%              1.8                4%
                                                      --------------      -------------    -------------      -------------
Total operating expenses.......................              49.6               125%             41.0               93%
Operating income (loss)........................             (10.0)             (25)%              3.3                7%
Interest (expense) income, net.................              (0.8)              (2)%              0.2                1%
                                                      --------------      -------------    -------------      -------------
Income (loss) before taxes.....................             (10.8)             (27)%              3.5                8%
Income tax benefit (expense)...................               0.2               -- %             (1.4)             (3)%
                                                      --------------      -------------    -------------      -------------
Income (loss) from continuing operations.......             (10.6)             (27)%              2.1                5%
Income from discontinued operations                                                  
(net of tax)...................................               0.5                 1%              0.6                1%
                                                      --------------      -------------    -------------      -------------
Net income (loss)..............................            $(10.1)             (26)%             $2.7                6%
                                                      ==============      =============    =============      =============
                                                                                     
</TABLE>



<PAGE>
 
The Company's results of operations classify its Market Research Segment and
Direct Mail and Fulfillment Segment as discontinued operations (see Note 5 to 
the Condensed Consolidated Financial Statements).

REVENUE

Total revenue for the three months ended March 31, 1998 amounted to $39.6
million, a decrease of  $4.7 million or 11% from $44.3 million for the three
months ended March 31, 1997. This decrease in aggregate revenue was driven by
the reduction of calling hours within the Telemarketing Segment.

Telemarketing Segment

Telemarketing revenue of $28.8 million for the three months ended March 31, 1998
accounted for 73% of the Company's total revenue for the three months ended
March 31, 1998 and represents a decrease of $7.6 million or 21% from $36.4
million for the same prior year period.  The decrease in Telemarketing revenues
is principally attributable to decreased calling hours, resulting from the
reduction of Telemarketing call centers from 26 at March 31, 1997 to 15 at March
31, 1998. Of this decrease, $22.9 million was attributable to the loss of
clients of which one client, MBNA America ("MBNA"), represented $8.8 million of
the entire loss. The decrease of revenue from loss of clients was offset by an
increase of $10.8 million attributable to services initiated for new clients,
and an increase of $4.5 million attributable to services initiated for existing
clients.

Customer Care Segment

Customer Care revenue of $10.8 million for the three months ended March 31, 1998
accounted for 27% of total revenue for the three months ended March 31, 1998 and
represents an increase of $2.9 million or 37% from $7.9 million for the same
prior year period. Of this increase, $2.7 million was attributable to services
initiated for new clients, and $0.2 million was attributable to services
initiated for existing clients.

COST OF SERVICES

Cost of services amounted to $42.7 million for the three months ended March 31,
1998, an increase of $6.5 million or 18% from $36.2 million for the same prior
year period. As a percentage of total revenues, cost of services were 108% and
82% for the three months ended March 31, 1998 and 1997, respectively.

Telemarketing Segment

Cost of services for the three months ended March 31, 1998 accounted for 82% of
the Company's total cost of services from continuing operations for the three
months ended March 31, 1998 and represents an increase of $3.3 million or 11%
when compared to Telemarketing cost of services of $29.1 million for the same
prior year period. Cost of services for the three months ended March 31, 1998
includes $0.5 million related to employee severance and termination benefits
related to the closing of fifteen Telemarketing call centers. As a percentage of
Telemarketing revenue, Telemarketing cost of service expenses were 113% and 80%
for the three months ended March 31, 1998 and 1997, respectively. The Company
attributes this increase in cost of services as a percentage of revenue
primarily to the expansion of the Company's productive capacity in the first and
second quarter of 1997, which in turn resulted in the lower utilization of
telemarketing personnel and facilities. In addition, as a result of industry
pricing pressures and in an effort to fill some of its over capacity, the
Company accepted less profitable telemarketing contracts to utilize some of its
capacity. Due to lower calling volume activity, the Company is in the process of
renegotiating its long distance telecommunications contracts with its major
vendors. The Company does not believe that the renegotiating of these contracts
will have a material adverse effect on its results of operations.

                                       14
<PAGE>
 
Customer Care Segment

Cost of services for the three months ended March 31, 1998 accounted for 24% of
the Company's total cost of services from continuing operations for the three
months ended March 31, 1998 and represents an increase of $3.2 million or 45%
when compared to Customer Care cost of services of $7.1 million for the same
prior year period. Cost of Services for the three months ended March 31, 1998
includes $0.1 million related to the cost of service component for severance and
termination benefits related to the closing of two Customer Care call centers.
As a percentage of Customer Care revenue, Customer Care cost of service expenses
were 95% and 90% for the three months ended March 31, 1998 and 1997,
respectively. The increase in Customer Care cost of service expenses for the
three months ended March 31, 1998, as a percentage of revenue, as compared to
the same prior year period, resulted primarily from the expansion of the 
administrative infrastructure of the TARP business in anticipation of expected 
growth.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative ("SG&A") expenses amounted to $6.6 million,
an increase of $3.6 million or 120% when compared to SG&A expenses of $3.0
million for the same prior year period. As a percentage of total revenue, SG&A
expenses were 16% and 7% for the three months ended March 31, 1998 and 1997,
respectively.

Selling, general and administrative expenses for the three months ended March
31, 1998 include a $1.1 million charge related to corporate overhead reduction
related to employee severance agreements. SG&A expenses, without the charges of
$1.1 million, would have increased $2.5 million or 83% for the three months
ended March 31, 1998 when compared to the same prior year period. As a
percentage of revenue, SG&A expenses, without the charge of $1.1 million, would
have been 14%. The increase in SG&A expenses for the three months ended March
31, 1998, as a percentage of revenue, as compared to the same prior year period,
resulted primarily from the expansion of the Company's administrative
infrastructure in response to the Company's growth, and the expenses associated
with the consolidation of the Initial Operating Businesses. In addition for the
three months ended March 31, 1998, SG&A expenses, includes $0.3 million of
expense associated with a stock subscription agreement entered into with an
executive of the Company (see Note 8 to the Condensed Consolidated Financial
Statements).

AMORTIZATION OF GOODWILL

Amortization of Goodwill expense amounted to $0.3 million, a decrease of $1.5
million or 83% when compared to amortization of  goodwill expense of $1.8
million for the same prior year period. As a percentage of total revenue,
amortization of goodwill expense was 1% and 4% for the three months ended March
31, 1998 and 1997, respectively.  The decrease in amortization of goodwill
expense resulted from the Company recording a goodwill impairment charge of
$139.1 million in the fourth quarter of 1997, which represented the goodwill
associated with the Telemarketing Segment. As of March 31, 1998, the remaining
net goodwill of $27.7 million relates exclusively to the Customer Care Segment.

INTEREST (EXPENSE) INCOME

Net interest expense for the three months ended March 31, 1998 amounted to $0.8
million an increase of $1.0 million when compared to net interest income of $0.2
million from the same prior year period. The increase in net interest expense
arose from increased borrowings outstanding under the credit facility during the
three months ended March 31, 1998 as compared to the three months ended March
31, 1997.

INCOME TAX (EXPENSE) BENEFIT

Income tax (expense) benefit is a function of pretax income (loss) and the
combined effective tax rate of federal and state income taxes. This combined
rate was (1.9)% and 40.0% for the three months ended March 31, 1998 and 1997,
respectively. Income tax benefit for the three months ended March 31, 1998
amounted to $0.2 million a difference of $1.6 million when compared to income
tax expense of $1.4 million for the same prior year period. The 1998 income tax
benefit is a result of an offset recorded for the $0.2 million tax provision of
the discontinued operations. As of March 31, 1998, the Company has a net
operating loss carryforward of approximately $9.0 million. Also, as of March 31,
1998, the Company has approximately $125.0 million of future income tax
deductible amounts (to be amortized principally over 15 years) related to the
1997 goodwill impairment and call center charges. Due to the uncertain
realization of these deferred tax assets, the Company has recorded a full
valuation allowance as of March 31, 1998.


                                      15
<PAGE>
 

INCOME FROM DISCONTINUED OPERATIONS

In February 1998 the Company sold its Market Research Segment and in March 1998
the Company consummated the sale of its Direct Mail and Fulfillment Segment. For
the three months ended March 31, 1998 and 1997, the Company has accounted for
the results of operations of the Market Research Segment and Direct Mail and
Fulfillment Segment as discontinued operations. Income from discontinued
operations for the three months ended March 31, 1998 and 1997 amounted to $0.5
million and $0.6 million (net of tax), respectively. Revenues for the three
months ended March 31, 1998 amounted to $4.2 million a decrease of $0.7 million
or 14% when compared to revenues of $4.9 million for the same prior year period.
Operating expenses for the three months ended March 31, 1998 amounted to $3.5
million a decrease of $0.5 million or 13% when compared to operating expenses of
$4.0 million for the same prior year period.


LIQUIDITY AND CAPITAL RESOURCES


DOLLARS IN MILLIONS                       THREE MONTHS ENDED  THREE MONTHS ENDED
                                                            
CASH FLOWS PROVIDED BY (USED IN):           MARCH 31,1998       MARCH 31,1997
----------------------------------------  ------------------  ------------------
                                          
Operating Activities....................        $(6.0)                $2.3
Investing Activities....................         13.6               (42.2)
Financing Activities....................         (7.5)                12.5

For the three months ended March 31, 1997

At March 31, 1997 the Company had cash of $0.8 million. This cash was primarily
generated through financing activities, which generated $12.5 million. The
Company borrowed $13.0 million under its Credit Facility dated January 24, 1997,
as amended. During this period the Company used $0.5 million to repay other debt
and capital lease obligations.

During this period the Company used $42.2 million for investing activities. The
Company used $25.0 million in settlement of an earn-out obligation under the
terms of the purchase agreement of one of the Initial Operating Businesses, $1.2
million related to purchase price adjustments under terms of the Initial
Operating Businesses' purchase agreements, and $0.9 million related to accrued
separation costs for certain former owners of the Initial Operating Businesses.
The Company also used $5.3 million to purchase the net assets of TeleSpectrum
FX, and $9.2 million for the purchase of property and equipment associated with
the commencement of the Company's call center expansion and centralization
initiatives. In addition the Company used $0.6 million related to capital 
investments for discontinued operations.

During this period the Company generated $2.3 million from operating activities
consisting of $0.5 million used in continuing operations and $2.8 million
generated from discontinued operations.

For the three months ended March 31, 1998

At March 31, 1998, the Company had cash of $0.9 million. During the three months
ended March 31, 1998, the Company generated  $0.1 million in cash which
consisted of $6.0 million in net cash used in operating activities, $13.6
million net cash provided by investing activities and $7.5 million of net cash
used in financing activities.

                                      16
<PAGE>
 
The $6.0 million of cash used in operating activities consisted of $5.2 million
used in continuing operations and $0.8 million used in discontinued operations.
The $5.2 million of cash used in continuing operations was principally related
to the funding of working capital requirements.

The $13.6 million of cash provided from investing activities primarily consisted
of  $15.0 million of cash received  from the sale of the Market Research Segment
in February of 1998. During the three months ended March 31, 1998 purchases of
property and equipment were $1.2 million. The Company used $0.3 million related
to capital investments for discontinued operations. Other investing activities
included $0.2 million related to accrued separation costs for certain former
owners of the Initial Operating Businesses.

The net cash used in financing activities primarily consisted of $7.1 million of
net payments made against  the Company's Credit Facility dated January 24, 1997,
as amended. In addition, the Company made payments on debt and capital lease
obligations totaling approximately $0.4 million.

Throughout 1997, the Company amended the Credit Facility several times as a
result of non-compliance due to its 1997 operating performance. On March 25,
1998, the Company was notified by its primary lending institution, Mellon Bank
N.A. (Mellon), that the Company was in default of certain loan covenants of its
Credit Facility. The Company repaid this facility on April 1, 1998, with the
proceeds from the sale of its Direct Mail and Fulfillment Segment. On April 14,
1998, the Company entered into a new Credit Facility with Mellon which provides
for an initial $10 million Credit Facility that expires in April 2002. The
Credit Facility may be increased to $20 million based upon satisfactory
completion of certain due diligence procedures by Mellon. Under the terms of the
Credit Facility, the Company can initially borrow up to the lesser of $10
million or an amount that is determined as 80% of the net accounts receivable
aged 90 days or less. The Company can draw on the Credit Facility in increments
of $500,000 or more. The Company can elect at the time of the draw to pay
interest at prime plus 0.50% or at a LIBOR rate plus 2.50% and will pay a
commitment fee of 0.375% of the unused borrowing capacity. The Credit Facility
also makes available to the Company letters of credit, which may be issued on
the outstanding undrawn amount of the Credit Facility. The letters of credit
shall not exceed $1.5 million and have a fee equal to 1.00% per annum on the
face amount of each letter of credit. Borrowings under the Credit Facility are
collateralized by substantially all of the assets of the Company. The Credit
Facility also contains various financial and non-financial covenants.

In order to satisfy the financial covenants under this facility on a continuing
basis, the Company must successfully complete its current restructuring plans.
Though the Company believes it will remain in compliance with the 1998 credit
facility covenants, there is no assurance the Company will be able to satisfy
such covenants.

The Company believes that its existing cash balances, reflecting the sale of the
two discontinued operations, and borrowings available under its April 1998
Credit Facility will be sufficient to meet its operating and capital needs into
1999.

                                      17
<PAGE>
 
OTHER INFORMATION -- RISK FACTORS

Results of Operations

While the Company expects to be able to increase its capacity utilization,
obtain and maintain higher revenue per hour business, maintain its relationships
with existing clients, obtain new clients, manage its costs effectively,
continue to grow its revenues, and return to profitability, there can be no
assurance that it will be able to meet any or all of these objectives.

The Company's telemarketing agreements with its clients generally do not assure
that the Company will achieve a specific level of revenue and generally are
terminable by the clients on relatively short notice. Additionally, the amount
of revenue the Company generates from a particular client is dependent upon a
number of factors, including, the ability of the Company to achieve marketing
and sales results required by the client and the results achieved by the Company
as compared to both the clients' in-house operations and/or other competing out-
source service providers. In addition to these factors, numerous agreements with
its clients are also based on actual sales achieved. Accordingly, the ability of
the Company to achieve its desired results of operations is also contingent upon
its telephone sales representatives being able to effectively and efficiently
market the clients' products combined with the quality of the lists of
prospective customers provided by the Company's clients.

The Company is continuing its review of its costs, organizational structure and
information technology in an effort to identify opportunities for cost reduction
and efficiency.  While the Company expects to achieve further cost reductions,
there can be no assurance that it will be able to successfully achieve its
desired results.

Reliance on Major Clients

Although only one current customer of the Company represents more than 10% of
the Company's revenues, the Company may in the future develop relationships with
clients that represent a large concentration of revenues. Since most client
contracts can generally be canceled by the client upon relatively short notice,
the Company will be vulnerable to any unexpected termination or non-renewal of
such a relationship.

Difficulties of Managing Rapid Growth

The Company has experienced rapid growth over the past several years. Continued
future growth will depend on a number of factors, including the Company's
ability to (i) initiate, develop and maintain new client relationships and
expand its existing client programs; (ii) recruit, motivate and retain qualified
management and hourly personnel; (iii) rapidly identify, acquire or lease
suitable call center facilities on acceptable terms and complete build-outs of
such facilities in a timely and economic fashion; and (iv) maintain the high
quality of the services and products that it provides to its clients. There can
be no assurance that the Company will be able to maintain or accelerate its
growth rate, effectively manage its expanding operations or maintain its
profitability. If the Company is unable to maintain its historical growth rate
or effectively manage its growth, its business, results of operations or
financial condition could be materially adversely affected.

The Company's profitability is influenced significantly by its call center
capacity utilization. The Company attempts to maximize utilization; however,
because almost all of the Company's business is outbound, the Company has
significantly higher utilization during peak (weekday) periods than during off-
peak (night and weekend) periods. In addition, the Company has experienced, and
in the future may experience, at least short-term, excess peak period capacity
when it opens a new call center or terminates or completes a large client
program. There can be no assurance that the Company will be able to achieve or
maintain optimal call center capacity utilization.

                                      18
<PAGE>
 
Need for Additional Financing

The Company currently estimates that its existing cash after the sale of
discontinued operations together with proceeds available under the Company's
credit facility and cash generated from operations, will be sufficient to
finance its current operations. There can be no assurance, however, that these
sources will actually be sufficient to meet the Company's needs, particularly if
the Company does not achieve its planned cost reductions or generate expected
revenue levels. If these sources are not sufficient, the Company will be
required to seek additional debt or equity financing and there can be no
assurance given that any such financing will be available on terms acceptable to
the Company, if at all. If additional financing is raised by issuing equity
securities, existing shareholders may experience significant dilution.

Quarterly Results and Seasonality

The Company's results of operations in any single interim period should not be
viewed as an indication of future results of operations.  The Company has in the
past and may again in the future experience quarterly variations in revenue and
operating profitability as a result of the timing of its clients' marketing
campaigns and customer service programs, the timing of additional selling,
general and administrative expenses incurred to acquire and support such new
business, and changes in the Company's revenue mix among its various service
offerings. The Company's business volumes tend to decrease in the first and
third quarters of its fiscal year due to reduced levels of clients' marketing
programs which are typically slower in the post-holiday and summer months,
respectively. The Company is sensitive to seasonal downturns; however, there can
be no assurance that the Company will be able to predict or compensate for any
such seasonal downturns.

Reliance on Technology

The Company has made significant investments in technology and anticipates that
it will be necessary to continue making significant additional technology
investments to remain competitive.  No assurance can be given that the Company
will be successful in anticipating continuing technological changes or in
implementing new or enhanced technology, and the failure of the Company to so
anticipate or implement could have a material adverse effect on the Company's
business.

Dependence on Labor Force

The Company's industry is very labor intensive and has experienced high
personnel turnover. Many of the Company's employees receive modest hourly wages
and a significant number are employed on a part-time basis. A higher turnover
rate among the Company's employees would increase the Company's recruiting and
training costs and decrease operating efficiencies and productivity. Some of the
Company's operations, particularly insurance product sales and technology-based
inbound customer service, require specifically trained employees. Growth in the
Company's business will require it to recruit and train qualified personnel at
an accelerated rate from time to time. There can be no assurance that the
Company will be able to continue to hire, train and retain a sufficient labor
force of qualified employees. A significant portion of the Company's costs
consists of wages to hourly workers. An increase in hourly wages, costs of
employee benefits or employment taxes could materially adversely effect the
Company.

Dependence on Telephone Service

The Company's business is materially dependent on service provided by various
local and long distance telephone companies. A significant increase in the cost
of telephone services that is not recoverable through an increase in the price
of the Company's services, or any significant interruption in telephone
services, could have a materially adverse impact on the Company.

                                      19
<PAGE>
 
Control by Principal Stockholder

CRW Financial, Inc. ("CRW") beneficially owns approximately 28% of the
outstanding Common Stock of the Company. As a result, CRW is able to exercise
significant influence over the outcome of matters submitted to the Company's
stockholders. Such voting concentration may have the effect of discouraging,
delaying or preventing a change in control of the Company.

Risks Associated with the Year 2000

The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year.  In other words, date
sensitive software may recognize a date using "00" as the year 1900 rather than
the year 2000. This could result in system failures or miscalculations causing
disruptions of operations, including, among others, a temporary inability to
process transactions, send invoices, or engage in similar normal business
activities. The Company does not believe that it has material exposure to the
Year 2000 issue with respect to its own information systems since its existing
systems correctly define the year 2000. The Company is in the process of
conducting an analysis, which it expects to complete in 1998, to determine the
extent to which its customers' and suppliers' systems (insofar as they relate to
the Company's business) are subject to the Year 2000 issue. Accordingly, the
Company is currently unable to predict the extent to which the Year 2000 issue
will affect its customers or suppliers, or to the extent to which it would be
vulnerable to the failure of its customers or suppliers to remediate any Year
2000 issues on a timely basis.

FORWARD-LOOKING STATEMENTS

Statements contained in Management's Discussion and Analysis of Financial
Results and Financial Condition and elsewhere in this Form 10-Q, regarding
capacity utilization rate, new clients, expected revenues, cost reductions,
efficiencies and growth are forward-looking statements that could involve
substantial risk and uncertainty.  For these statements the Company claims the
protection of the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995.  The following are factors
that could cause the Company's actual results to differ materially from those
expressed or implied by such forward-looking statements: agreements with its
existing clients generally do not assure a specific level or duration of
revenue, revenue assumptions may not be realized, cost reductions and
efficiencies may not be achieved growth and profitability assumptions assume the
addition of new clients not currently identified, and contracts may not be
realized and capacity utilization rate may be adversely affected due to
competitors' actions or clients' requirements.

                                      20
<PAGE>
 
PART II - OTHER INFORMATION

     Item 1.  Legal Proceedings

              None

     Item 2.  Changes in Securities

            On March 18, 1998, the Company sold 227,964 shares of Common Stock
     to Keith E. Alessi, the Company's Chairman, Chief Executive Officer and
     President. The Company believes that this transaction was exempt from
     registration under Section 4(2) of the Act because the subject securities
     were sold to an accredited investor who was purchasing for investment
     without a view for further distribution.

     Item 3.  Defaults upon Senior Securities

          On March 25, 1998, the Company was notified by its primary lending
     institution, Mellon Bank N.A. (Mellon), that the Company was in default of
     certain loan covenants under its Loan and Security Agreement (the "Credit
     Facility") dated January 24, 1997, as amended. The Company repaid the
     entire outstanding balance under this facility on April 1, 1998 with the
     proceeds from the sale of its Direct Marketing and Fulfillment Segment.

     Item 4.  Submission of Matters to a Vote of Security Holders

          None

     Item 5.  Other Information  

          On March 18, 1998, Keith E. Alessi executed an agreement to become the
     Chairman, Chief Executive Officer and President of the Company. Concurrent
     with Mr. Alessi's hiring, J. Brian O'Neill resigned as Chairman, Chief
     Executive Officer and President. Mr. O'Neill has continued as a Director.
     Mr. Alessi also purchased shares of the Company's Common Stock for an
     aggregate purchase price of $500,000, or $2.19 per share. The Company also
     granted Mr. Alessi options exercisable for an aggregate of 2,000,000 shares
     of Common Stock (500,000 of which were granted under the Company's 1996
     Equity Compensation Plan) exercisable at a price of $3.29 per share.

         On April 14, 1998, the Company entered into a new Loan and Security
     Agreement with Mellon, which provides for an initial $10 million credit
     facility (the "Credit Facility") to be repaid in April 2002. The Credit
     Facility may be increased to $20 million based upon satisfactory completion
     of certain due diligence procedures by Mellon. Under the terms of the
     Credit Facility, the Company can initially borrow up to the lesser of $10
     million or an amount that is determined as 80% of the net accounts
     receivable aged 90 days or less. The Company can draw on the Credit
     Facility in increments of $500,000 or more. The Company can elect at the
     time of the draw to pay interest at prime plus 0.50% or at a LIBOR rate
     plus 2.50% and will pay a commitment fee of 0.375% on the unused borrowing
     capacity. The Credit Facility also makes available to the Company letters
     of credit, which can be issued, on the outstanding undrawn amount of the
     Credit Facility. The letters of credit shall not exceed $1.5 million and
     have a fee equal to 1.00% per annum on the face amount of each letter of
     credit. Borrowings under the Credit Facility are collateralized by
     substantially all of the assets of the Company. The Credit Facility also
     contains various financial and non-financial covenants.


                                      21
<PAGE>
 

     ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)  Exhibits
 
              The following is a list of exhibits filed as part of this
         quarterly report on Form 10-Q. Where so indicated by footnote, 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.

         3.01  Restated Certificate of Incorporation of TeleSpectrum Worldwide
               Inc. is incorporated by reference to exhibit 3.01 of the
               Company's Registration Statement on Form S-1 (File No. 333-
               04349).

         3.02  Bylaws of TeleSpectrum Worldwide Inc. are incorporated by
               reference to exhibit 3.02 of the Company's Registration Statement
               on Form S-1 (File No. 333-04349).

        10.01  Employment agreement dated as of March 18, 1998, between        
               TeleSpectrum Worldwide Inc. and Keith E. Alessi is incorporated 
               by reference to Exhibit 10.08 of the Registrants Form 10-K for  
               the fiscal year ended December 31, 1997.                         

        10.02  Subscription agreement dated as of March 18, 1998, between      
               TeleSpectrum Worldwide Inc. and Keith E. Alessi is incorporated 
               by reference to Exhibit 10.09 of the Registrants Form 10-K for  
               the fiscal year ended December 31, 1997.                         
 
        10.03  Stock Option agreement dated as of March 18, 1998, between 
               TeleSpectrum Worldwide Inc. and Keith E. Alessi is incorporated
               by reference to Exhibit 10.10(a) of the Registrants Form 10-K for
               the fiscal year ended December 31, 1997.
 
        10.04  Stock Option agreement dated as of March 18, 1998, between       
               TeleSpectrum Worldwide Inc. and Keith E. Alessi is incorporated  
               by reference to Exhibit 10.10(b) of the Registrants Form 10-K
               for the fiscal year ended December 31, 1997. 
               
        10.05  Amended and Restated Employment agreement dated as of February
               25, 1998, between TeleSpectrum Worldwide Inc. and Brian J. 
               O'Neill is incorporated by reference to Exhibit 10.11 of the
               Registrants Form 10-K for the fiscal year ended December 31,
               1997.

        10.06  Asset Purchase Agreement dated as of March 6, 1998 by and among
               TeleSpectrum Worldwide Inc., First Service Corporation, DDS
               Dyment Distribution Service Ltd., DDS Harris Limited and DDS
               Harris Fulfillment Limited is incorporated by reference to
               Exhibit 10.17 of the Registrants Form 10-K for the fiscal year
               ended December 31, 1997.

        10.07  Asset Acquisition Agreement dated as of January 16, 1998 by and
               among TeleSpectrum Worldwide Inc., NCO Group, Inc. and NCO
               Teleservices, Inc. is incorporated by reference to Exhibit 10.18
               of the Registrants Form 10-K for the fiscal year ended December
               31, 1997.


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<PAGE>
 
        10.08  Loan and Security Agreement dated as of April 14, 1998 by and
               among TeleSpectrum Worldwide Inc., TeleSpectrum Trademarks, Inc.
               and TeleSpectrum Investments, Inc. and Mellon Bank, N.A.

        27.01  Financial Data Schedule.
 
 
  (b)   Form-8K

        The Company filed a Current Report on Form 8-K with the Commission on
        March 24, 1998.


SIGNATURES

     Pursuant to the requirements of the Securities and 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.
                            ---------------------------------------------------
                                                  (Registrant)
                         
                         
DATE: MAY 15, 1998            \s\ RICHARD C. SCHWENK, JR.
     -------------          ---------------------------------------------------
                                            Richard C. Schwenk, Jr.
                                          Telespectrum Worldwide Inc.
                                          Executive Vice President and
                                            Chief Financial Officer


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