CROSS COUNTRY INC - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549
------------------------

FORM 10-K

/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 NUMBER 0-33169
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CROSS COUNTRY, INC.

(Exact name of registrant as specified in its charter)

DELAWARE 13-4066229
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

6551 PARK OF COMMERCE BOULEVARD, N.W.
SUITE 200
BOCA RATON, FLORIDA 33487
(Address of principal executive offices, zip code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (561) 998-2232
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

COMMON STOCK, $.0001 PAR VALUE PER SHARE

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

Indicate by check mark 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. / /

The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based on the closing price of Common Stock on March 27, 2002 of
$26.66 as reported on the Nasdaq National Market, was approximately
$529,940,175.16. This calculation does not reflect a determination that persons
are affiliated for any other purpose.

As of March 27, 2002, 32,244,663 shares of Common Stock, $.0001 par value
per share, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive proxy statement pursuant to
Regulation 14A, which statement will be filed not later than 120 days after the
end of the fiscal year covered by this Report, are incorporated by reference in
Part III hereof.

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TABLE OF CONTENTS

All references to "we, "us," "our," or "Cross Country" in this Report on
Form 10-K means Cross Country, Inc.

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FORWARD-LOOKING STATEMENTS

In addition to historical information, this Annual Report on Form 10-K
contains forward-looking statements. These forward-looking statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those reflected in these forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in the section entitled "Business-Risk Factors". Readers are
cautioned not to place undue reliance on these forward-looking statements, which
reflect management's opinions only as of the date hereof. The Company undertakes
no obligation to revise or publicly release the results of any revision to these
forward-looking statements. Readers should carefully review the risk factors
described in other documents the Company files from time to time with the
Securities and Exchange Commission, including the Quarterly Reports on
Form 10-Q to be filed by the Company in fiscal year 2002.

PART I

ITEM 1. BUSINESS

OVERVIEW OF OUR COMPANY

We are one of the largest providers of healthcare staffing services in the
United States. Approximately 80% of our revenue is derived from travel nurse
staffing services. Other staffing services include the placement of clinical
research professionals and allied healthcare professionals such as radiology
technicians, rehabilitation therapists and respiratory therapists. We also
provide other human capital management services, including search and
recruitment, consulting, education and training and resource management
services. Our active client base includes over 3,000 hospitals, pharmaceutical
companies and other healthcare providers across all 50 states. Our fees are paid
directly by our clients rather than by government or other third-party payors.
We are well positioned to take advantage of current industry dynamics, including
the growing shortage of nurses in the United States, the growing demand for
healthcare services and the trend among healthcare providers toward outsourcing
staffing services. For the year ended December 31, 2001 our revenue and EBITDA
were $500.5 million and $56.2 million, respectively.

OVERVIEW OF OUR INDUSTRY

The STAFFING INDUSTRY REPORT, an independent staffing industry publication,
estimated that the healthcare segment of the temporary staffing market generated
$7.2 billion in revenue in 2000 and that this segment would grow 18% to
$8.5 billion in 2001.

The most common temporary nurse staffing alternatives available to hospital
administrators are travel nurses and per diem nurses.

- Travel nurse staffing involves placement of registered nurses on a
contracted, fixed-term basis. Travel nurses provide a long-term solution
to a nurse shortage, present hospitals and other healthcare facilities
with a pool of potential full-time job candidates and enable healthcare
facilities to provide their patients with continuity of care. Assignments
may run several weeks to one year, but are typically 13 weeks long. The
healthcare professional temporarily relocates to the geographic area of
the assignment. The staffing company generally is responsible for
providing travel nurses with customary employment benefits and for
coordinating travel and housing arrangements.

- Per diem staffing comprises the majority of all temporary healthcare
staffing and involves placement of locally based healthcare professionals
on very short-term assignments, often for daily shift work. Per diem
staffing often involves little advance notice of assignments by the
client.

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INDUSTRY DYNAMICS

SHORTAGE OF NURSES. There is a pronounced shortage of registered nurses,
especially experienced, specialty nurses who staff operating rooms, emergency
rooms, intensive care units and pediatric wards. A recent study published in the
JOURNAL OF THE AMERICAN MEDICAL ASSOCIATION,estimates that by 2020, the
nationwide registered nurse workforce will be nearly 20% below projected
requirements.

Several factors have contributed to the decline in the supply of nurses:

- The nurse pool is getting older and retiring. The study in the JOURNAL OF
THE AMERICAN MEDICAL ASSOCIATION projects that within the next ten years,
the average age of registered nurses will increase 3.5 years to over 45.

- Many registered nurses are choosing to pursue careers outside of acute
care hospitals or in professions other than nursing. Similarly, the
numbers of candidates taking the NCLEX-RN-Registered Trademark-
examination for the first time, as reported by the National Council of
State Boards of Nursing, Inc., has declined at an average of 5.5% for each
of the past six years.

The shortage of nurses drives demand for our services because hospitals turn
to temporary nurses to make up for shortfalls in their permanent staff.

INCREASING UTILIZATION OF HEALTHCARE SERVICES. There are a number of
factors driving an increase in the utilization of healthcare services,
including:

- Increasing demand for healthcare services as a result of the aging of the
baby boomers; and

- Technological advances in healthcare treatment methods which attract a
greater number of patients with complex medical conditions requiring a
higher intensity of care.

The Centers for Medicare and Medicaid Services projected that total
healthcare expenditures would grow by 8.6% in 2001 and by 7.1% annually from
2001 through 2010. According to these projections, healthcare expenditures will
account for approximately $2.6 trillion or 15.9% of U.S. gross domestic product
by 2010.

INCREASED OUTSOURCING OF STAFFING SERVICES. Healthcare providers are
increasingly using temporary staffing to manage seasonal fluctuations in demand
for their services.

The following factors have created seasonal fluctuations in demand for
healthcare personnel:

- Seasonal population swings, in areas such as the sunbelt states of
Florida, Arizona and California in the winter months and the northeast in
the summer months.

- Seasonal changes in occupancy rates that tend to increase during the
winter months and decrease during the summer months.

The use of temporary personnel enables these providers to vary their staffing
levels to match these changes in demand and avoid the more costly alternative of
hiring permanent medical staff.

The healthcare staffing industry also includes the temporary staffing of
doctors and dentists, allied health personnel and professionals, and advanced
practice professionals, but excludes home healthcare services. Healthcare
staffing is also expanding, providing new specialties such as medical billing
and receptionists.

OUR COMPETITIVE STRENGTHS

Our competitive strengths include:

- LEADER IN THE RAPIDLY GROWING NURSE STAFFING INDUSTRY. We have operated in
the travel nurse staffing industry since the 1970s and have the leading
brand name based on revenue. Our Cross

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Country TravCorps brand is well recognized among leading healthcare
providers and professionals. We believe that through our relationships
with existing travel nurse staffing clients, we are positioned to
effectively market complementary services, including staffing of clinical
trials and allied health professionals, search and recruitment,
consulting, and education and training to our existing client base.

- STRONG AND DIVERSE CLIENT RELATIONSHIPS. We provide staffing solutions to
an active client base of over 3,000 hospitals, pharmaceutical companies
and other healthcare providers across all 50 states. We do not rely on any
geographic region or client for a significant portion of our revenue. No
single client accounted for more than 3% of our revenue in 2001. In 2001,
we worked with over 75% of the nation's top hospitals, as identified by
U.S. NEWS AND WORLD REPORT. We provide temporary staffing to our clients
through assignments that typically have terms of 13 weeks or longer. Our
fees are paid directly by our clients rather than by government or other
third-party payors.

- LEADER IN RECRUITING AND EMPLOYEE RETENTION. We are a leader in the
recruitment and the retention of highly qualified healthcare
professionals. We recruit healthcare professionals from all 50 states and
Canada. In 2001, we received approximately 24,400 requests for
applications from potential field employees and approximately 13,100
completed applications were added to our database. Employee referrals
generate a majority of our new candidates. We believe we offer appealing
assignments, competitive compensation packages, attractive housing options
and other valuable benefits. In 2001, more than 70% of our nurses accepted
new assignments with us within 35 days of completion of previous
assignments. In 1996, we established Cross Country University, the first
educational program in the travel nurse industry to be accredited by the
American Nurse Credentialing Center.

- SCALABLE AND EFFICIENT OPERATING STRUCTURE. We have an efficient
centralized operating structure that includes a database of more than
159,000 nurses and other healthcare professionals who have completed job
applications with us. Our size and centralized structure provide us with
operating efficiencies in key areas such as recruiting, advertising,
marketing, training, housing and insurance benefits. Our fully integrated
proprietary information system enables us to manage virtually all aspects
of our travel staffing operations. This system is designed to accommodate
significant future growth of our business.

- STRONG MANAGEMENT TEAM WITH EXTENSIVE HEALTHCARE STAFFING AND ACQUISITION
EXPERIENCE. Our management team has played a key role in the development
of the travel nurse staffing industry. Our management team, which averages
more than 10 years of experience in the healthcare industry, has
consistently demonstrated the ability to successfully identify and
integrate strategic acquisitions.

OUR BUSINESS

HEALTHCARE STAFFING SERVICES

TRAVEL STAFFING

OVERVIEW

We are a leading provider of travel nurse staffing services, in terms of
revenue generated. Under the Cross Country TravCorps brand, we provide nurses on
a fixed-term contract basis throughout the U.S. In addition, we have recently
acquired the NovaPro brand, which targets nurses seeking more customized
benefits packages. We fill the majority of our assignments in acute care
hospitals, including teaching institutions, trauma centers and community
hospitals. We also fill assignments in non-acute care settings, including
nursing homes, skilled nursing facilities and sports medicine clinics, and, to a
lesser degree, in non-clinical settings, such as schools. We staff both public
and private, for-profit and

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not-for-profit facilities. In addition to our core nurse staffing business, we
provide operating room technicians, therapists and other allied health and
advanced practice professionals, such as radiology technicians, rehabilitation
therapists and respiratory therapists, in a wide range of specialties.

We recruit credentialed nurses and other healthcare professionals and place
them on assignments away from their homes. We believe that these professionals
are attracted to us because we offer them high levels of customer service, as
well as a wide range of diverse assignments throughout the United States,
Canada, Bermuda and the United States Virgin Islands.

CONTRACTS WITH FIELD EMPLOYEES AND CLIENTS

Each of our field employees works for us under a contract. These contracts
typically last 13 weeks. Payroll contract employees are hourly employees whose
contract specifies the hourly rate they will be paid, including applicable
overtime, and any other benefits they are entitled to receive during the
contract period. For payroll contract employees, we bill clients at an hourly
rate and assume all employee costs, including payroll, withholding taxes,
benefits and professional liability insurance and OSHA requirements, as well as
any travel and housing arrangements. Mobile contract employees are hourly
employees of the hospital client and receive an agreement that specifies the
hourly rates they will be paid by the hospital employer, as well as any benefits
they are entitled to receive from us. For mobile contract employees, we provide
recruitment, housing in apartments leased by the Company and travel services.
The Company's contract with the healthcare professional obligates it to provide
these services to the healthcare professional. The Company is compensated for
the services it provides at a predetermined rate negotiated between the Company
and its hospital client, without regard to the Company's cost of providing these
services. Currently more than 98% of our employees work for us under payroll
contracts. Our fees are paid directly by our clients rather than by government
or other third-party payors. In 2001, we completed approximately 16,950
individual assignments, typically lasting 13 weeks.

RECRUITING AND RETENTION

In 2001, we received approximately 24,400 requests for applications from
potential field employees and approximately 13,100 completed applications were
added to our database. More than half of our field employees have been referred
by current or former employees, with the remainder attracted by advertisements
in trade publications and our internet website. Our internet site allows
potential applicants to review our business profile, apply on-line, view our
company-provided housing and participate in on-line forums. We offer appealing
assignments, attractive compensation packages, housing and other benefits, as
well as substantial training opportunities through Cross Country University.

Our recruiters are responsible for recruiting applicants, handling
placements, maintaining a regular dialogue with nurses on assignment, making
themselves available to address nurses' concerns regarding current assignments
and future opportunities, and other significant job support and guidance.
Recognizing that a nurse's relationship with the recruiter is the key to
retaining qualified applicants, our recruiters establish lasting partnerships
with the nurses. As part of the screening process, we conduct in-depth telephone
interviews with our applicants and verify references to determine
qualifications. Along with our hospital clients, we typically review our travel
nurses' performance after each assignment and use this information to maintain
the high quality of our staffing.

Our recruiters utilize our sophisticated database of positions, which is
kept up-to-date by our account managers, to match assignment opportunities with
the experience, skills and geographic preferences of their candidates. Once an
assignment is selected, the account manager reviews the candidate's resume
package before submitting it to the client for review.

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Our educational and training services give us a competitive advantage by
enhancing both the quality of our nurses and the effectiveness of our
recruitment efforts. We typically monitor the quality of our workforce in the
field through performance reviews after each assignment and further develop the
capabilities of our recruits through our Cross Country University brand. These
services offer substantial benefits, such as:

- improving the quality of our nurses by offering them substantial training
opportunities;

- enabling our nurses to easily complete state licensing requirements;

- providing professional development opportunities to our nurses; and

- enhancing our image within the industry.

We recently initiated Assignment America, a recruitment program for
foreign-trained nurses. Assignment America is designed to address the current
shortage of nurses in the United States. Through Assignment America, we plan to
recruit registered nurses from foreign English-speaking countries, assist them
in obtaining U.S. nursing licenses, sponsor them for U.S. permanent residency
visas and then place them in domestic acute care hospitals. We believe
Assignment America will help us meet a greater portion of the demand for our
services. Because the recruitment process for foreign nurses is more onerous
than for domestic nurses, Assignment America nurses commit to long-term
contracts which typically range from 18 to 24 months. We plan to initially
recruit nurses from the United Kingdom, South Africa, New Zealand and Australia.

OPERATIONS

We service all of the assignment needs of our field employees and client
facilities through two operations centers located in Boca Raton, FL and Malden,
MA. These centers perform key support activities such as coordinating assignment
accommodations, payroll processing, benefits administration, billing and
collections, contract processing, client care, and risk management.

Hours worked by field employees are recorded by our operations system which
then transmits the data directly to Automated Data Processing for payroll
processing. As a result, client billings can be generated automatically once the
payroll information is complete, enabling real time management reporting
capabilities as to hours worked, billings and payroll costs. Our payroll
department also provides customer support services for field employees who have
questions.

We have approximately 3,100 apartments on lease throughout the U.S. Our
client accommodations department secures leases, and arranges for furniture
rental and utilities for field employees at their assignment locations.
Typically, we provide for shared accommodations with lease terms which
correspond to the length of the assignment. We believe that our economies of
scale help us secure preferred pricing and favorable lease terms.

We have also developed expertise in insurance, benefits administration and
risk management. For workers compensation coverage, we provide an attractive
program that is partially self-insured. For medical coverage, we use a partially
self-insured preferred provider organization plan.

SALES AND MARKETING

Our sales and marketing activities are comprised of the following:

NEW ACCOUNT DEVELOPMENT. Our new account development efforts are driven
principally through inbound telemarketing activities managed by a two-person
team of new business executives. In addition to negotiating new contracts with
prospective clients, these account executives also actively seek out specific
job opportunities for candidates who are not able to match our existing database
of opportunities. These activities generate approximately 350 new clients each
year.

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MANAGEMENT OF EXISTING ACCOUNTS. We have a sales force composed of account
executives and managers of business development assigned to geographic markets
who manage approximately 75 to 90 client accounts each. This sales force
determines the appropriate billing rate and nurse pay rate for a given facility
utilizing a proprietary pricing model.

Day-to-day management of client accounts is handled by a team of
approximately 20 professionals. The account managers, who often have a nursing
background, are responsible for contacting active client facilities to obtain
open orders for staff. Once a candidate is submitted to the account manager for
submission to the facility, the account manager reviews the candidate's
credentials and confirms the appropriateness of the match. The account manager
then electronically submits appropriate materials to the facility.

BRAND MARKETING. Our brand marketing initiatives help develop Cross
Country's image in the markets we serve. Our brand is reinforced by our
professionally designed website, brochures and pamphlets, direct mail and
advertising materials. We believe that our branding initiatives coupled with our
high-quality client service differentiate us from our competitors and establish
us as a leader, in terms of brand recognition, in temporary nurse staffing.

TRADE AND ASSOCIATION RELATIONSHIP MANAGEMENT. We actively manage trade and
association relationships through attendance at numerous national, regional and
local conferences and meetings, including National Association of Health Care
Recruiters, Association of Critical Care Nurses, American Organization of Nurse
Executives, American Society for Healthcare Human Resource Administration,
American College of Healthcare Executives and Medical Group Management
Association.

CLINICAL RESEARCH AND TRIALS STAFFING

Through our ClinForce brand, we provide clinical research professionals for
both contract assignments and permanent placement to many of the world's leading
companies in the pharmaceutical, biotechnology, medical device and related
industries. We provide an array of professionals in such areas as clinical
research and clinical data sciences, medical review and writing, and
pharmaeconomics and regulatory affairs. Our understanding of the clinical
research process enables us to provide responsive service to our clients and to
offer greater opportunities to our research professionals.

PER DIEM STAFFING

We provide per diem nurse staffing services to healthcare facilities in
Atlanta, Georgia, Las Vegas, Nevada, Phoenix, Arizona, Chicago, Illinois and
Seattle, Washington. Per diem staffing typically involves the placement of local
nurses to fill the immediate needs of healthcare facilities on a shift-by-shift
or short-term basis. While per diem services accounted for less than 1% of our
revenue in 2001, we believe this market presents a significant growth
opportunity.

OTHER HUMAN CAPITAL MANAGEMENT SERVICES

We provide an array of healthcare-oriented human capital management
services, which complement our core travel nurse staffing business. These
services include:

- SEARCH AND RECRUITMENT. We provide both retained and contingency search
and recruitment services to healthcare organizations throughout the United
States, including hospitals, pharmaceutical companies, insurance companies
and physician groups. Our search services include the placement of
physicians, healthcare executives and nurses.

- HEALTHCARE CONSULTING SERVICES. We provide healthcare-oriented consulting
services, including consulting related to physician compensation,
strategy, operations, facilities planning, workforce management and merger
integration.

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- EDUCATION AND TRAINING SERVICES. Cross Country University provides
continuing education programs to the healthcare industry. Cross Country
University holds national conferences, as well as one-day seminars, on
topics relevant to nurses and healthcare professionals and provides
conference management services. To enhance Cross Country University, in
December 2000 we acquired Heritage, which produced over 3,300 seminars and
conferences that were attended by over 92,000 registrants in more than 200
cities across the U.S. in 2001. In addition, we extend these educational
services to our field employees on favorable terms as a recruitment and
retention tool.

- RESOURCE MANAGEMENT SERVICES. We provide software tools and services
designed to enhance clients' capabilities to manage their nursing staff
and their relationships with external staffing vendors. Our E-Staff tool
is an online communication, scheduling and training service for the
nursing industry.

SYSTEMS

Our placement and support operations are supported by sophisticated
information systems that facilitate smooth interaction between our recruitment
and support functions. Our fully integrated proprietary information system
enables us to manage virtually all aspects of our travel staffing operations.
The system is designed to accommodate significant future growth of our business.
In addition, its parallel process design allows for the addition of further
capacity to its existing hardware platform. We have proprietary software that
handles most facets of our business, including contract pricing and
profitability, contract processing, job posting, housing management,
billing/payroll and insurance. Our systems provide reliable support to our
facility clients and field employees and enable us to efficiently fulfill and
renew job assignments. Our systems also provide detailed information on the
status and skill set of each registered field employee.

Our financial and management reporting is managed on the PeopleSoft
Financial Suite. PeopleSoft is a leading enterprise resource planning software
suite that provides modules used to manage our accounts receivable, accounts
payable, general ledger and billing. This system is designed to accommodate
significant future growth of our business.

GROWTH STRATEGY

We intend to continue to grow our businesses by:

- ENHANCING OUR ABILITY TO FILL UNMET DEMAND FOR OUR TRAVEL STAFFING
SERVICES. There is substantial unmet demand for our travel staffing
services. We are striving to meet a greater portion of this demand by
recruiting additional healthcare personnel. Our recruitment strategy for
nurses and other healthcare professionals is focused on:

- increasing referrals from existing field employees by providing them with
superior service;

- expanding our advertising presence to reach more nursing professionals;

- using the internet to accelerate the recruitment-to-placement cycle;

- increasing the number of staff dedicated to the recruitment of new
nurses; and

- developing Assignment America, our recruitment program for
foreign-trained acute care nurses residing abroad.

- INCREASING OUR MARKET PRESENCE IN THE PER DIEM STAFFING MARKET. We intend
to use our existing brand recognition, client relationships and database
of nurses who have expressed an interest in temporary assignments to
expand our per diem services to the acute care hospital market. While

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we have not historically had a significant presence in per diem staffing
services, we believe that this market presents a substantial growth
opportunity.

- EXPANDING THE RANGE OF SERVICES WE OFFER OUR CLIENTS. We plan to utilize
our relationships with existing travel staffing clients to more
effectively market complementary services, including staffing of clinical
trials and allied health professionals, search and recruitment,
consulting, and education and training.

- ACQUIRING COMPLEMENTARY BUSINESSES. We continually evaluate opportunities
to acquire complementary businesses to strengthen and broaden our market
presence.

- INCREASING OPERATING EFFICIENCIES. We seek to increase our operating
margins by increasing the productivity of our administrative personnel,
using our purchasing power to achieve greater savings in key areas such as
housing and benefits and continuing to invest in our information systems.

COMPETITIVE ENVIRONMENT

The travel nurse staffing industry is highly competitive, with limited
barriers to entry. Our principal competitor in the travel nurse staffing
industry is AMN Healthcare Services Inc. We also compete with a number of
nationally and regionally focused temporary nurse staffing companies that have
the capabilities to relocate nurses geographically and, to a lesser extent, with
local temporary nurse agencies.

In addition, the markets for our clinical staffing, allied staffing and per
diem nurse staffing and for our healthcare-oriented human capital management
services are highly competitive and highly fragmented, with limited barriers to
entry.

The principal competitive factors in attracting qualified candidates for
temporary employment are salaries and benefits, quality of accommodations,
quality and breadth of assignments, speed of placements, quality of recruitment
teams and reputation. We believe that persons seeking temporary employment
through us are also pursuing employment through other means, including other
temporary staffing firms, and that multiple staffing companies have the
opportunity to place employees with many of our clients. Therefore, the ability
to respond to candidate inquiries and submit candidates to clients more quickly
than our competitors is an important factor in our ability to fill assignments.
In addition, because of the large overlap of assignments, we focus on retaining
field employees by providing long-term benefits such as 401(k) plans and cash
bonuses. Although we believe that the relative size of our database and
economies of scale derived from the size of our operations make us an attractive
employer for nurses seeking travel opportunities, we expect competition for
candidates to continue to increase.

The principal competitive factors in attracting and retaining temporary
healthcare staffing clients include the ability to fill client needs, price,
quality assurance and screening capabilities, compliance with regulatory
requirements, an understanding of the client's work environment, risk management
policies and coverages, and general industry reputation.

REGULATORY ISSUES

In order to service our client facilities and to comply with OSHA and Joint
Commission or Accreditation of Healthcare Organizations standards, we have
developed a risk management program. The program is designed to protect against
the risk of negligent hiring by requiring a detailed skills assessment from each
healthcare professional. We conduct extensive reference checks and credential
verifications for each of the nurses and other healthcare professionals that we
might staff. In addition, we have a claims-based professional liability
insurance policy with a limit of $1.0 million per claim and

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an aggregate limit of $3.0 million. We also have a fully insured umbrella
liability insurance policy with a limit of $10.0 million.

PROFESSIONAL LICENSURE AND CORPORATE PRACTICE. Nurses and other healthcare
professionals employed by us are required to be individually licensed or
certified under applicable state law. In addition, the healthcare professionals
that we staff frequently are required to have been certified to provide certain
medical care, such as CPR and anesthesiology, depending on the positions in
which they are placed. Our comprehensive compliance program is designed to
ensure that our employees possess all necessary licenses and certifications, and
we believe that our employees, including nurses and therapists, comply with all
applicable state laws.

BUSINESS LICENSES. A number of states require state licensure for
businesses that, for a fee, employ and assign personnel, including healthcare
personnel, to provide services on-site at hospitals and other healthcare
facilities to support or supplement the hospitals' or healthcare facilities'
work force. A number of states also require state licensure for businesses that
operate placement services for individuals attempting to secure employment.
Failure to obtain the necessary licenses can result in injunctions against
operating, cease and desist orders, and/or fines. We endeavor to maintain in
effect all required state licenses.

REGULATIONS AFFECTING OUR CLIENTS. Many of our clients are reimbursed under
the federal Medicare program and state Medicaid programs for the services they
provide. In recent years, federal and state governments have made significant
changes in these programs that have reduced reimbursement rates. In addition,
insurance companies and managed care organizations seek to control costs by
requiring that healthcare providers, such as hospitals, discount their services
in exchange for exclusive or preferred participation in their benefit plans.
Future federal and state legislation or evolving commercial reimbursement trends
may further reduce, or change conditions for, our clients' reimbursement. Such
limitations on reimbursement could reduce our clients' cash flows, hampering
their ability to pay us.

EMPLOYEES

As of February 20, 2002, we had approximately 775 corporate employees and
approximately 5,800 field employees, 98% of whom were working for us on a full
time basis. None of our employees is subject to a collective bargaining
agreement. We consider our relationship with our employees to be good.

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RISK FACTORS

In addition to the other information included in this Report on Form 10-K,
you should consider the following risk factors.

CURRENTLY WE ARE UNABLE TO RECRUIT ENOUGH NURSES TO MEET OUR CLIENTS' DEMANDS
FOR OUR NURSE STAFFING SERVICES, LIMITING THE POTENTIAL GROWTH OF OUR STAFFING
BUSINESS.

We rely significantly on our ability to attract, develop and retain nurses
and other healthcare personnel who possess the skills, experience and, as
required, licensure necessary to meet the specified requirements of our
healthcare staffing clients. We compete for healthcare staffing personnel with
other temporary healthcare staffing companies, as well as actual and potential
clients, some of which seek to fill positions with either regular or temporary
employees. Currently, there is a shortage of qualified nurses in most areas of
the United States and competition for nursing personnel is increasing. At this
time we do not have enough nurses to meet our clients' demands for our nurse
staffing services. This shortage of nurses limits our ability to grow our
staffing business. Furthermore, we believe that the aging of the existing nurse
population and declining enrollments in nursing schools will further exacerbate
the existing nurse shortage. In addition, in the aftermath of the terrorist
attacks on New York and Washington, we experienced a temporary interruption of
normal business activity. Similar events in the future could result in
additional temporary or longer-term interruptions of our normal business
activity.

THE COSTS OF ATTRACTING AND RETAINING QUALIFIED NURSES AND OTHER HEALTHCARE
PERSONNEL MAY RISE MORE THAN WE ANTICIPATE.

We compete with other healthcare staffing companies for qualified nurses and
other healthcare personnel. Because there is currently a shortage of qualified
healthcare personnel, competition for these employees is intense. To induce
healthcare personnel to sign on with them, our competitors may increase hourly
wages or other benefits. If we do not raise wages in response to such increases
by our competitors, we could face difficulties attracting and retaining
qualified healthcare personnel. In addition, if we raise wages in response to
our competitors' wage increases and are unable to pass such cost increases on to
our clients, our margins could decline.

OUR COSTS OF PROVIDING HOUSING FOR NURSES AND OTHER HEALTHCARE PERSONNEL MAY BE
HIGHER THAN WE ANTICIPATE AND, AS A RESULT, OUR MARGINS COULD DECLINE.

We currently have approximately 3,100 apartments on lease throughout the
U.S. If the costs of renting apartments and furniture for our nurses and other
healthcare personnel increase more than we anticipate and we are unable to pass
such increases on to our clients, our margins may decline. To the extent the
length of a nurse's housing lease exceeds the term of the nurse's staffing
contract, we bear the risk that we will be obligated to pay rent for housing we
do not use. To limit the costs of unutilized housing, we try to secure leases
with term lengths that match the term lengths of our staffing contracts,
typically 13 weeks. In some housing markets we have had, and believe we will
continue to have, difficulty identifying short-term leases. If we cannot
identify a sufficient number of appropriate short-term leases in regional
markets, or, if for any reason, we are unable to efficiently utilize the
apartments we do lease, we may be required to pay rent for unutilized housing
or, to avoid such risk, we may forego otherwise profitable opportunities.

DECREASES IN PATIENT OCCUPANCY AT OUR CLIENTS' FACILITIES MAY ADVERSELY AFFECT
THE PROFITABILITY OF OUR BUSINESS.

Demand for our temporary healthcare staffing services is significantly
affected by the general level of patient occupancy at our clients' facilities.
When a hospital's occupancy increases, temporary

10

employees are often added before full-time employees are hired. As occupancy
decreases, clients may reduce their use of temporary employees before
undertaking layoffs of their regular employees. We also may experience more
competitive pricing pressure during periods of occupancy downturn. In addition,
if a trend emerges toward providing healthcare in alternative settings, as
opposed to acute care hospitals, occupancy at our clients' facilities could
decline. This reduction in occupancy could adversely affect the demand for our
services and our profitability.

WE ARE DEPENDENT ON THE PROPER FUNCTIONING OF OUR INFORMATION SYSTEMS.

Our company is dependent on the proper functioning of our information
systems in operating our business. Critical information systems used in daily
operations identify and match staffing resources and client assignments and
perform billing and accounts receivable functions. Our information systems are
protected through physical and software safeguards and we have backup remote
processing capabilities. However, they are still vulnerable to fire, storm,
flood, power loss, telecommunications failures, physical or software break-ins
and similar events. In the event that critical information systems fail or are
otherwise unavailable, these functions would have to be accomplished manually,
which could temporarily impact our ability to identify business opportunities
quickly, to maintain billing and clinical records reliably and to bill for
services efficiently.

WE MAY EXPERIENCE DIFFICULTIES WITH OUR RECENTLY IMPLEMENTED FINANCIAL PLANNING
AND REPORTING SYSTEM.

In March 2001, we implemented a new financial planning and reporting system.
We may face difficulties or incur additional costs integrating data, including
data from companies acquired by us, to make it compatible with the new system.
In addition, we are in the process of upgrading this system. If we experience
difficulties with our system, or delays relating to the upgrade of the system,
our ability to generate timely and accurate financial reports could be adversely
affected.

IF REGULATIONS THAT APPLY TO US CHANGE, WE MAY FACE INCREASED COSTS THAT REDUCE
OUR REVENUE AND PROFITABILITY.

The temporary healthcare staffing industry is regulated in many states. In
some states, firms such as our company must be registered to establish and
advertise as a nurse staffing agency or must qualify for an exemption from
registration in those states. If we were to lose any required state licenses, we
could be required to cease operating in those states. The introduction of new
regulatory provisions could substantially raise the costs associated with hiring
temporary employees. For example, some states could impose sales taxes or
increase sales tax rates on temporary healthcare staffing services. These
increased costs may not be able to be passed on to clients without a decrease in
demand for temporary employees. In addition, if government regulations were
implemented that limited the amounts we could charge for our services, our
profitability could be adversely affected.

FUTURE CHANGES IN REIMBURSEMENT TRENDS COULD HAMPER OUR CLIENTS' ABILITY TO PAY
US.

Many of our clients are reimbursed under the federal Medicare program and
state Medicaid programs for the services they provide. In recent years, federal
and state governments have made significant changes in these programs that have
reduced reimbursement rates. In addition, insurance companies and managed care
organizations seek to control costs by requiring that healthcare providers, such
as hospitals, discount their services in exchange for exclusive or preferred
participation in their benefit plans. Future federal and state legislation or
evolving commercial reimbursement trends may further reduce, or change
conditions for, our clients' reimbursement. Limitations on reimbursement could
reduce our clients' cash flows, hampering their ability to pay us.

11

COMPETITION FOR ACQUISITION OPPORTUNITIES MAY RESTRICT OUR FUTURE GROWTH BY
LIMITING OUR ABILITY TO MAKE ACQUISITIONS AT REASONABLE VALUATIONS.

Our business strategy includes increasing our market share and presence in
the temporary healthcare staffing industry through strategic acquisitions of
companies that complement or enhance our business. We have historically faced
competition for acquisitions. In the future, this could limit our ability to
grow by acquisitions or could raise the prices of acquisitions and make them
less accretive to us. In addition, restrictive covenants in our credit facility,
including a covenant that requires us to obtain bank approval for any
acquisition over $25.0 million, may limit our ability to complete desirable
acquisitions. If we are unable to secure necessary financing under our credit
facility or otherwise, we may be unable to complete desirable acquisitions.

WE MAY FACE DIFFICULTIES INTEGRATING OUR ACQUISITIONS INTO OUR OPERATIONS AND
OUR ACQUISITIONS MAY BE UNSUCCESSFUL, INVOLVE SIGNIFICANT CASH EXPENDITURES OR
EXPOSE US TO UNFORESEEN LIABILITIES.

We continually evaluate opportunities to acquire healthcare staffing
companies and other human capital management services companies that complement
or enhance our business and frequently have preliminary acquisition discussions
with some of these companies.

These acquisitions involve numerous risks, including:

- potential loss of key employees or clients of acquired companies;

- difficulties integrating acquired personnel and distinct cultures into our
business;

- difficulties integrating acquired companies into our operating, financial
planning and financial reporting systems;

- diversion of management attention from existing operations; and

- assumption of liabilities and exposure to unforeseen liabilities of
acquired companies, including liabilities for their failure to comply with
healthcare regulations.

These acquisitions may also involve significant cash expenditures, debt
incurrence and integration expenses that could have a material adverse effect on
our financial condition and results of operations. Any acquisition may
ultimately have a negative impact on our business and financial condition.

SIGNIFICANT LEGAL ACTIONS COULD SUBJECT US TO SUBSTANTIAL UNINSURED LIABILITIES.

In recent years, healthcare providers have become subject to an increasing
number of legal actions alleging malpractice, product liability or related legal
theories. Many of these actions involve large claims and significant defense
costs. In addition, we may be subject to claims related to torts or crimes
committed by our employees or temporary staffing personnel. In some instances,
we are required to indemnify clients against some or all of these risks. A
failure of any of our employees or personnel to observe our policies and
guidelines intended to reduce these risks, relevant client policies and
guidelines or applicable federal, state or local laws, rules and regulations
could result in negative publicity, payment of fines or other damages. To
protect ourselves from the cost of these claims, we maintain professional
malpractice liability insurance and general liability insurance coverage in
amounts and with deductibles that we believe are appropriate for our operations.
However, our insurance coverage may not cover all claims against us or continue
to be available to us at a reasonable cost. If we are unable to maintain
adequate insurance coverage, we may be exposed to substantial liabilities.

12

IF OUR INSURANCE COSTS INCREASE SIGNIFICANTLY, THESE INCREMENTAL COSTS COULD
NEGATIVELY AFFECT OUR FINANCIAL RESULTS.

The costs related to obtaining and maintaining professional and general
liability insurance and health insurance for healthcare providers has been
increasing. The cost of our professional and general liability insurance per FTE
increased by approximately 124% in 2001. The cost of our healthcare insurance
per FTE increased by approximately 50% in 2001. If the cost of carrying this
insurance continues to increase significantly, we will recognize an associated
increase in costs which may negatively affect our margins. This could have an
adverse impact on our financial condition and the price of our common stock.

IF WE BECOME SUBJECT TO MATERIAL LIABILITIES UNDER OUR SELF-INSURED PROGRAMS,
OUR FINANCIAL RESULTS MAY BE ADVERSELY AFFECTED.

We provide workers compensation coverage through a program that is partially
self-insured. In addition, we provide medical coverage to our employees through
a partially self-insured preferred provider organization. If we become subject
to substantial uninsured workers compensation or medical coverage liabilities,
our financial results may be adversely affected.

OUR CLIENTS MAY TERMINATE OR NOT RENEW THEIR STAFFING CONTRACTS WITH US.

Our travel staffing arrangements with clients are generally terminable upon
30 or 90 days' notice. We may have fixed costs, including housing costs,
associated with terminated arrangements that we will be obligated to pay
post-termination.

Our clinical trials staffing business is conducted under long-term contracts
with individual clients that may conduct numerous clinical trials. Some of these
long-term contracts are terminable by the clients without cause upon 30 to
60 days notice.

OUR INDEMNITY FROM W. R. GRACE, IN CONNECTION WITH OUR ACQUISITION OF THE ASSETS
OF CROSS COUNTRY STAFFING, MAY BE MATERIALLY IMPAIRED BY GRACE'S FINANCIAL
CONDITION.

In connection with our acquisition from W. R. Grace & Co. of the assets of
Cross Country Staffing, our predecessor, Grace agreed to indemnify us against
damages arising out of the breach of certain representations or warranties of
Grace, as well as against any liabilities retained by Grace. In March 2001,
Grace filed a voluntary petition under Chapter 11 of the United States
Bankruptcy Code. This bankruptcy filing could materially impair Grace's
obligations to indemnify us.

BECAUSE OUR PRINCIPAL STOCKHOLDERS CONTROL US, THEY WILL BE ABLE TO DETERMINE
THE OUTCOME OF ALL MATTERS SUBMITTED TO OUR STOCKHOLDERS FOR APPROVAL,
REGARDLESS OF THE PREFERENCES OF OTHER STOCKHOLDERS.

Charterhouse Equity Partners III, or CEP III, and investment funds managed
by Morgan Stanley Private Equity together own approximately 37% of our
outstanding common stock. Accordingly, acting together, they will be able to
substantially influence:

- the election of directors;

- management and policies; and

- the outcome of any corporate transaction or other matter submitted to our
stockholders for approval, including mergers, consolidations and the sale
of all or substantially all of our assets.

Currently, our board of directors is comprised of ten members, two of whom are
designees of CEP III and two of whom are designees of investment funds managed
by Morgan Stanley Private Equity. Under our stockholders' agreement, CEP III and
the funds managed by Morgan Stanley Private Equity will

13

each have the right to designate two directors for nomination to our board of
directors. This number decreases if either CEP III or the funds managed by
Morgan Stanley Private Equity reduce their respective ownership by more than 50%
of their holdings prior to our initial public offering. Their interests may
conflict with the interests of the other holders of common stock.

AN AGGREGATE OF APPROXIMATELY 9,750,715 RESTRICTED SHARES WILL BECOME ELIGIBLE
FOR RESALE IN THE PUBLIC MARKET ON APRIL 25, 2002, 672,019 RESTRICTED SHARES
WILL BECOME ELIGIBLE FOR RESALE IN THE PUBLIC MARKET ON MAY 20, 2002 AND
12,471,773 SHARES WILL BECOME ELIGIBLE FOR RESALE IN THE PUBLIC MARKET ON
JUNE 20, 2002 AND FUTURE SALES OF THIS STOCK MAY CAUSE OUR STOCK PRICE TO
DECLINE.

Sales of substantial amounts of our common stock in the public market, or
the perception that these sales could occur, could adversely affect the market
price of our common stock and could materially impair our future ability to
raise capital through offerings of our common stock. We and our officers,
directors, CEP III, Morgan Stanley Private Equity, and CHEF Nominees Limited
have agreed not to sell or transfer any shares of our common stock until
June 20, 2002 without the consent of the underwriters' for our public offering
commenced March 20, 2002. DB Capital Investors, L.P. and the Northwestern Mutual
Life Insurance Company have agreed not to sell or transfer any shares of our
common stock until May 20, 2002 without the consent of the underwriters' for our
public offering commenced March 20, 2002. Substantially all of the other
individuals holding shares of our common stock prior to our initial public
offering, agreed not to sell or transfer any shares of our common stock until
April 25, 2002 without the consent of the underwriters for our initial public
offering. The underwriters may release these shares from the restrictions at any
time.

Furthermore, CEP III and investment funds managed by Morgan Stanley Private
Equity each have demand rights to cause us to file, at our expense, a
registration statement under the Securities Act covering resales of their
shares. These shares represent approximately 37% of our outstanding common
stock. These shares may also be sold under Rule 144 of the Securities Act,
depending on their holding period and subject to significant restrictions in the
case of shares held by persons deemed to be our affiliates.

In addition, we registered 4,398,001 shares of common stock for issuance
under our stock option plans. Options to purchase 3,479,296 shares of common
stock were issued and outstanding as of February 28, 2002, of which, as of
February 28, 2002, options to purchase 1,507,236 shares were vested. Common
stock issued upon exercise of stock options, except by our executive officers
and directors, under our benefit plans are eligible for resale in the public
market without restriction.

We cannot predict what effect, if any, market sales of shares held by any
stockholder or the availability of these shares for future sale will have on the
market price of our common stock.

IF PROVISIONS IN OUR CORPORATE DOCUMENTS AND DELAWARE LAW DELAY OR PREVENT A
CHANGE IN CONTROL OF OUR COMPANY, WE MAY BE UNABLE TO CONSUMMATE A TRANSACTION
THAT OUR STOCKHOLDERS CONSIDER FAVORABLE.

Our certificate of incorporation and by-laws may discourage, delay or
prevent a merger or acquisition involving us that our stockholders may consider
favorable. For example, our certificate of incorporation authorizes our board of
directors to issue up to 10,000,000 shares of "blank check" preferred stock.
Without stockholder approval, the board of directors has the authority to attach
special rights, including voting and dividend rights, to this preferred stock.
With these rights, preferred stockholders could make it more difficult for a
third party to acquire us. Delaware law may also discourage, delay or prevent
someone from acquiring or merging with us.

14

ITEM 2. PROPERTIES

We do not own any real property. Our principal leases are listed below.

ITEM 3. LEGAL PROCEEDINGS

We are not presently a party to any material legal proceedings.

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

There were no matters submitted to a vote of security holders during the
fourth quarter of 2001.

15

PART II

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

Our common stock commenced trading on the Nasdaq National Market under the
symbol "CCRN" on October 25, 2002. The following table sets forth, for the
periods indicated, the high and low closing sale prices per share of common
stock on the Nasdaq National Market. (Such prices reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not represent actual
transactions.)

On March 27, 2002, the last reported sale price for our common stock on the
Nasdaq National Market was $26.66 per share. As of March 27, 2002, there were
approximately 212 stockholders of record of our common stock. Because many of
such shares are held by brokers or other institutions on behalf of stockholders,
we are unable to estimate the total number of stockholders represented by these
record holders.

We have never paid or declared cash dividends on our common stock. We
currently intend to retain all future earnings for use in the operation and
expansion of our business and do not anticipate declaring or paying cash
dividends in the foreseeable future. In addition, covenants in our credit
facility limit our ability to declare and pay cash dividends on our common
stock.

During 2001 we granted options to purchase a total of 527,915 shares of
Common Stock to employees, including certain senior managers, at a weighted
average exercise price of approximately $18.19 per share. Such grants were
deemed exempt from registration under the Securities Act in reliance on either:
(1) Rule 701 promulgated under the Securities Act as offers and sales of
securities pursuant to certain compensatory benefit plans and contracts relating
to compensation in compliance with Rule 701; or (2) Section 4(2) of the
Securities Act, including Regulation D thereunder, as transactions by an issuer
not involving any public offering.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data as of December 31, 2000 and 2001
and for the five-month period July 30, 1999 to December 31, 1999 and for the
years ended December 31, 2000 and 2001 are derived from the audited consolidated
financial statements of Cross Country, Inc. included elsewhere in this report.
The selected financial data as of December 31, 1998 and July 29, 1999 and for
the year ended December 31, 1998 and for the seven-month period January 1, 1999
to July 29, 1999 have been derived from the audited financial statements of
Cross Country Staffing, included elsewhere in this report. The selected
financial data as of December 31, 1999 was derived from the financial statements
of Cross Country, Inc. that have been audited but not included in this report.
The selected financial data as of December 31, 1997 and for the year then ended
were derived from the financial statements of Cross Country Staffing that have
been audited but not included in this report.

The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and related notes of
Cross Country, Inc., and Cross Country Staffing, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and other financial
information included elsewhere in this report.

16

- ------------------------------
(a) On July 29, 1999, we acquired the assets of Cross Country Staffing which,
for accounting and reporting purposes, is our predecessor. Financial data
for the period prior to July 30, 1999 is that of Cross Country Staffing.

(b) Includes TravCorps results from December 16, 1999, the date of its
acquisition, through December 31, 1999.

(c) Includes expenses related to a discontinued management incentive
compensation plan of $2.1 million for the seven-month period
January 1-July 29, 1999. The management incentive compensation plan was
discontinued on July 30, 1999.

(d) Non-recurring indirect transaction costs consist of non capitalizable
transition bonuses and integration costs related to the TravCorps
acquisition and expenses related to this transaction.

(e) Prior to July 30, 1999, our predecessor, Cross Country Staffing, operated as
a partnership under the applicable provisions of the Internal Revenue Code,
and, accordingly, income related to the operations of Cross Country Staffing
was taxed directly to its partners.

(f) Reflects the operating results of HospitalHub, Inc., which began operations
in 1999. We completed the divestiture of HospitalHub, Inc. during the second
quarter of 2001.

(g) Extraordinary loss on early extinguishment of debt consists of a
$1.6 million prepayment penalty from the early redemption of the
subordinated pay-in-kind notes and the write-off of $6.4 million of debt
issuance costs related to the repayment of borrowings under our credit
facility, net of applicable taxes.

(h) The financial data contained herein for periods prior to July 30, 1999, is
that of our predecessor, Cross Country Staffing, a partnership, for which
share and per share amounts were not applicable.

(i) We define EBITDA as income before interest, income taxes, depreciation,
amortization and non-recurring indirect transaction costs. EBITDA should not
be considered a measure of financial performance under generally accepted
accounting principles. Items excluded from EBITDA are significant components
in understanding and assessing financial performance. EBITDA is a key
measure used by management to evaluate our operations and provide useful
information to investors. EBITDA should not be considered in isolation or as
an alternative to net income, cash flows generated by operations, investing
or financing activities, or other financial statement data presented in the
consolidated financial statements as indicators of financial performance or
liquidity. Because EBITDA is not a measurement determined in accordance with
generally accepted accounting principles and is thus susceptible to varying
calculations, EBITDA as presented may not be comparable to other similarly
titled measures of other companies.

(j) FTE's represent the average number of contract staffing personnel on a
full-time equivalent basis.

(k) Weeks worked is calculated by multiplying the FTE's by the number of weeks
during the respective period.

(l) Average healthcare staffing revenue per FTE per week is calculated by
dividing the healthcare staffing revenue by the number of weeks worked in
the respective periods. Healthcare staffing revenue includes revenue from
permanent placement of nurses.

(m) Consists of partners' capital for periods prior to July 30, 1999, since our
predecessor, Cross Country Staffing, was a partnership.

18

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION AND RESULTS
OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH SELECTED CONSOLIDATED FINANCIAL
AND OTHER DATA AND OUR CONSOLIDATED FINANCIAL STATEMENTS AND THE ACCOMPANYING
NOTES THAT APPEAR ELSEWHERE IN THIS ANNUAL REPORT ON FORM 10-K.

OVERVIEW

We are one of the largest providers of healthcare staffing services in the
United States. Approximately 80% of our revenue is derived from travel nurse
staffing services. We also provide staffing of clinical research professionals
and allied healthcare professionals such as radiology technicians,
rehabilitation therapists and respiratory therapists. Our staffing operations
are complemented by other human capital management services, including search
and recruitment, consulting, education and training and resource management
services. For the year ended December 31, 2001, our revenue and EBITDA were
$500.5 million and $56.2 million, respectively.

HISTORY

In July 1999, an affiliate of Charterhouse Group International, Inc. and
certain members of management acquired the assets of Cross Country Staffing, our
predecessor, from W. R. Grace & Co. Upon the closing of this transaction, we
changed from a partnership to a C corporation form of ownership. In
December 1999, we acquired TravCorps Corporation, which was owned by investment
funds managed by Morgan Stanley Private Equity and certain members of TravCorps'
management and subsequently changed our name to Cross Country TravCorps, Inc. In
May 2001, we changed our name to Cross Country, Inc.

REVENUE

Travel nurse staffing revenue is received primarily from acute care
hospitals. Our clinical trials staffing revenue is received primarily from
pharmaceutical and biotechnology companies, as well as medical device
manufacturers. Revenue from allied health staffing services is received from
numerous sources, including providers of radiation, rehabilitation and
respiratory services at hospitals, nursing homes, sports medicine clinics and
schools. Revenue from our search and recruitment, consulting and education and
training services is received from numerous sources, including hospitals,
physician group practices, insurance companies and individual healthcare
professionals. Our fees are paid directly by our clients rather than by
government or other third-party payors.

Revenue is recognized when services are rendered. Accordingly, accounts
receivable includes an accrual for employees' time worked but not yet invoiced.
Similarly, accrued compensation includes an accrual for employees time worked
but not yet paid. Each of our field employees on travel assignment works for us
under a contract. These contracts typically last 13 weeks. Payroll contract
employees are hourly employees whose contract specifies the hourly rate they
will be paid, including applicable overtime, and any other benefits they are
entitled to receive during the contract period. For payroll contract employees,
we bill clients at an hourly rate and assume all employee costs, including
payroll, withholding taxes, benefits and professional liability insurance and
Occupational Safety and Health Administration, or OSHA, requirements, as well as
any travel and housing arrangements. Mobile contract employees are hourly
employees of the hospital client and receive an agreement that specifies the
hourly rates they will be paid by the hospital employer, as well as any benefits
they are entitled to receive from us. For mobile contract employees, we provide
recruitment, housing in apartments leased by the Company and travel
reimbursement. The Company's contract with the healthcare professional obligates
it to provide these services to the healthcare professional. The Company is
compensated for the services it provides at a predetermined rate negotiated
between the Company and its hospital

19

client, without regard to the Company's cost of providing these services.
Currently, more than 98% of our employees work under payroll contracts.

Our healthcare staffing revenue and earnings are impacted by the relative
supply of and demand for nurses at healthcare facilities. We rely significantly
on our ability to recruit and retain nurses and other healthcare personnel who
possess the skills, experience and, as required, licensure necessary to meet the
specified requirements of our clients. Shortages of qualified nurses and other
healthcare personnel could limit our ability to fill open assignments and grow
our revenue and EBITDA.

Fluctuations in patient occupancy at our clients' facilities may also affect
the profitability of our business. As occupancy increases, temporary employees
are often added before full-time employees are hired. As occupancy decreases,
clients tend to reduce their use of temporary employees before undertaking
layoffs of their regular employees. In addition, we may experience more
competitive pricing pressure during periods of occupancy downturn.

ACQUISITIONS

In March 2002, we acquired the stock of Jennings Ryan & Kolb, Inc., a
healthcare management consulting company, for $1.8 million in cash, the
assumption of $0.3 million in debt and potential earnout payments of
$1.8 million.

In January 2002, we acquired the assets of the NovaPro healthcare staffing
division of HR Logic Holdings, Inc. for $7.1 million in cash. NovaPro targets
nurses seeking more customized benefits packages.

In May 2001, we acquired Gill/Balsano, a healthcare management consulting
firm, for $1.8 million in cash and potential earnout payments of $2.0 million.

In March 2001, we acquired ClinForce for $31.4 million in cash. In
July 2001 a post-closing purchase price adjustment increased the purchase price
and goodwill by $1.4 million each. ClinForce supplies supplemental staffing
services for clinical trials.

In December 2000, we completed the acquisition of Heritage Professional
Education, LLC (Heritage), a provider of continuing education programs to the
healthcare community, for a purchase price of approximately $6.5 million in cash
and potential earnout payments of approximately $6.5 million of which
$1.5 million has been earned relative to 2001, but will be paid in 2002.

In July 2000, we acquired E-Staff, an application service provider that has
developed an internet subscription-based communication, scheduling,
credentialing and training service business for healthcare providers, for
$1.5 million in cash and potential earnout payments of $3.8 million.

In December 1999, we acquired all outstanding shares of TravCorps' common
stock in exchange for shares of our common stock then valued at approximately
$32.1 million and we assumed TravCorps' debt of $45.0 million.

DISCONTINUED OPERATIONS

In December 2000, we committed to a formal plan to divest
HospitalHub, Inc., or HospitalHub, our electronic job board business, which
began operations in 1999. The operating results of HospitalHub have been
accounted for as discontinued operations in our consolidated financial
statements and notes thereto and in the other financial information included
herein. We completed the divestiture of HospitalHub in the second quarter of
2001.

20

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and other intangible assets from the acquisition of the assets of
Cross Country Staffing, our predecessor, and from subsequent acquisitions were
$147.1 million and $97.0 million, respectively, at December 31, 2001. Goodwill
and other intangible assets are being amortized using the straight-line method
over their estimated useful lives ranging from 4.5 to 25 years. Goodwill and
other intangible assets represented 91% of our stockholders' equity as of
December 31, 2001. The amount of goodwill and other intangible assets amortized
equaled 39.4% of our income from operations for the year ended December 31,
2001.

In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (FASB) No. 141, BUSINESS COMBINATIONS and FASB
Statement No. 142, INTANGIBLE ASSETS. FASB Statement No. 141 eliminates the
pooling-of-interests method of accounting for business combinations. FASB
Statement No. 142 clarifies the criteria to recognize intangible assets
separately from goodwill and promulgates that goodwill and intangible assets
deemed to have indefinite lives not be amortized. Instead, these assets will be
reviewed for impairment annually with any related losses recognized in earnings
when incurred. Other intangible assets will continue to be amortized over their
useful lives.

The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Application of the
nonamortization provisions of the Statement is expected to result in an increase
in net income of $7.6 million ($0.22 per share) per year. During the first
six months of 2002, the Company will perform the required initial impairment
tests of goodwill and indefinite lived intangible assets as of January 1, 2002.
The Company believes that the results of this test will not have a material
impact on the financial position or results of operations of the Company.

In August 2001, the FASB issued Statement No. 144, ACCOUNTING FOR THE
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS. FASB Statement No. 144 is effective
for fiscal years beginning after December 15, 2001, and interim periods within
those fiscal years. The Company will adopt this statement beginning in the first
quarter of 2002. This statement addresses financial accounting and reporting for
the impairment or disposal of long-lived assets. It supersedes FASB Statement
No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF. The Company believes the adoption of FASB Statement
No. 144 will not have a material impact on its consolidated financial
statements.

21

RESULTS OF OPERATIONS

The following table summarizes, for the periods indicated, selected
statement of operations data expressed as a percentage of revenue:

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

(a) We define EBITDA as income before interest, income taxes, depreciation,
amortization and non-recurring indirect transaction costs. EBITDA should not
be considered a measure of financial performance under generally accepted
accounting principles. Items excluded from EBITDA are significant components
in understanding and assessing financial performance. EBITDA is a key
measure used by management to evaluate our operations and provide useful
information to investors. EBITDA should not be considered in isolation or as
an alternative to net income, cash flows generated by operations, investing
or financing activities, or other financial statement data presented in the
consolidated financial statements as indicators of financial performance or
liquidity. Because EBITDA is not a measurement determined in accordance with
generally accepted accounting principles and is thus susceptible to varying
calculations, EBITDA as presented may not be comparable to other similarly
titled measures of other companies.

(b) Prior to July 30, 1999, we were a partnership for which income tax expense
was determined at the individual partner level.

22

SEGMENT INFORMATION

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

(a) We define contribution income as earnings before interest, taxes,
depreciation, amortization and corporate expenses not specifically
identified to a reporting segment.

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

Revenue for the year ended December 31, 2001 totaled $500.5 million as
compared to $367.7 million for the year ended December 31, 2000. Revenue
included from Heritage and ClinForce, which were acquired on December 26, 2000
and March 16, 2001, respectively, totaled $43.2 million for the year ended
December 31, 2001. Excluding the effects of these acquisitions, revenue
increased 24.4%, as compared with the year ended December 31, 2000.

Revenue from our healthcare staffing segment for the year ended
December 31, 2001 totaled $464.3 million as compared to $350.9 million for the
year ended December 31, 2000. Revenue included from ClinForce, which was
acquired on March 16, 2001 totaled $28.3 million for the year ended
December 31, 2001. Excluding the effect of this acquisition, revenue increased
$85.1 million or 24.3%, as compared with 2000 revenue. The increase was
attributable to a higher average hourly bill rate in all businesses and
increased numbers of field employees in both the travel nursing and allied
health staffing businesses, offset in part by a modest reduction in the hours
billed per FTE per week. The average number of hours worked per week per FTE
decreased primarily as a result of an increase in the number of nurses working
three 12-hour shifts rather than five 8-hour shifts. For the year ended
December 31, 2001, 86.5% of our healthcare staffing revenue was generated by
nurse staffing operations and 13.5% was generated by other operations. For the
year ended December 31, 2000, 92.8% of our healthcare staffing revenue was
generated by nurse staffing operations and 7.2% was generated by other
operations. This shift is primarily a result of our expansion of healthcare
staffing services into the clinical trials sector through our acquisition of
ClinForce.

Revenue from our other human capital management services segment for the
year ended December 31, 2001 totaled $36.2 million as compared to $16.8 million
for the year ended December 31, 2000. Revenue included from Heritage, which was
acquired on December 26, 2000, totaled $14.9 million for the year ended
December 31, 2001. Excluding the effect of this acquisition, revenue increased
$4.5 million, or 26.2%, as compared with the year ended December 31, 2000. This
increase is primarily due to more favorable pricing in our physician search and
existing consulting businesses, as well as our acquisition of Gill/Balsano.

Direct operating expenses are comprised primarily of field employee
compensation expenses, housing expenses, travel expenses and field insurance
expenses. Direct operating expenses totaled $374.7 million for the year ended
December 31, 2001 as compared to $273.1 million for the year ended December 31,
2000. As a percentage of revenue, direct operating expenses represented 74.9% of

23

revenue for the year ended December 31, 2001 compared with 74.3% for the year
ended December 31, 2000. The increase in direct operating expenses as a percent
of revenue was mostly attributable to an increase in field salaries, housing
costs, and health and professional liability insurance, along with an increase
in the percentage of nurses working under staffing rather than mobile contracts.
These increases were partly offset by the relatively lower direct operating
expenses as a percent of revenue for each of Heritage and ClinForce.

Selling, general and administrative expenses for the year ended
December 31, 2001 totaled $68.4 million as compared to $49.0 million for the
year ended December 31, 2000. As a percentage of revenue, selling, general and
administrative expenses represented 13.7% of revenue for the year ended
December 31, 2001 compared with 13.3% for the year ended December 31, 2000. The
increase is a result of the acquisitions of Heritage, ClinForce, and
Gill/Balsano, which have historically higher selling, general and administrative
expenses than the travel nurse staffing business.

Bad debt expense for the year ended December 31, 2001 totaled $1.3 million
as compared to $0.4 million for the year ended December 31, 2000. As a
percentage of revenue, bad debt expense represented 0.2% of revenue for 2001
compared with 0.1% for 2000. This increase is primarily due to an increase in
the percentage of accounts receivable greater than 90 days.

EBITDA, as a result of the above, totaled $56.2 million for the year ended
December 31, 2001 as compared to $45.1 million for the year ended 2000. As a
percentage of revenue, EBITDA represented 11.2% of revenue for the year ended
December 31, 2001 compared with 12.3% for the year ended December 31, 2000.

Depreciation and amortization expense for the year ended December 31, 2001
totaled $17.7 million as compared to $15.0 million for the year ended
December 31, 2000. The increase in depreciation and amortization expense in 2001
was due primarily to increased amortization of goodwill and other intangibles
resulting from the Heritage and ClinForce acquisitions. As a percentage of
revenue, depreciation and amortization expense represented 3.5% of revenue for
2001 compared with 4.1% for the year ended December 31, 2000.

Non-recurring indirect transaction costs totaled $1.3 million for the year
ended December 31, 2000, which consisted primarily of transition bonuses related
to the TravCorps acquisition.

Income from operations for the year ended December 31, 2001 totaled
$38.4 million as compared to $28.8 million for the year ended December 31, 2000.
As a percentage of revenue, income from operations represented 7.7% of revenue
for the year ended December 31, 2001 compared with 7.8% for the year ended
December 31, 2000.

Net interest expense for the year ended December 31, 2001 totaled
$14.4 million as compared to $15.4 million for the year ended December 31, 2000.
The decrease in 2001 was primarily due to the repayment of approximately
$134.5 million debt with the proceeds received from our initial public offering
of common stock in October 2001 and a decrease in interest rates.

Income from continuing operations before income taxes for the year ended
December 31, 2001 totaled $24.0 million as compared to $13.4 million for the
year ended December 31, 2000.

Income tax expense for the year ended December 31, 2001 was $10.4 million as
compared to $6.7 million for the year ended December 31, 2000. The Company's
effective tax rate was 43.1% for the year ended December 31, 2001 and 50.3% for
the year ended December 31, 2000. This decline in our effective tax rate was
primarily a result of non-deductible amortization expenses representing a
smaller proportion of our income from continuing operations before income taxes.
For the year ended December 31, 2001 and 2000, amortization of non-deductible
intangibles resulting from the TravCorps acquisition was $2.0 million and
$2.8 million, respectively.

24

As a result of the above, income before discontinued operations and
extraordinary item totaled $13.7 million for the year ended December 31, 2001 as
compared to $6.7 million for the year ended December 31, 2000.

Losses from discontinued operations, net of income tax benefits, for the
years ended December 31, 2001 and December 31, 2000, were $0.2 million and
$2.1 million, respectively, in connection with HospitalHub, which began
operations in 1999. The divestiture of HospitalHub was completed in the second
quarter of 2001.

Extraordinary loss on the early extinguishment of debt totaled
$4.8 million, after tax, for the year ended December 31, 2001. This amount
represents the write off of $6.4 million in loan fees due to the repayment of
$134.5 million of debt and a prepayment penalty of $1.6 million on the early
termination of $39 million of subordinated debt, less applicable taxes. The debt
was repaid with proceeds from the Company's initial public offering of common
stock in October 2001.

Net income for the year ended December 31, 2001 totaled $8.7 million as
compared to $4.6 million for the year ended December 31, 2000.

YEAR ENDED DECEMBER 31, 2000 COMPARED TO FIVE-MONTH PERIOD
JULY 30-DECEMBER 31, 1999 AND THE
SEVEN-MONTH PERIOD JANUARY 1-JULY 29, 1999

Revenue for the year ended December 31, 2000 totaled $367.7 million as
compared to $193.8 million for the two periods that comprise 1999. Revenue for
the two periods that comprise 1999 includes the results of TravCorps from its
date of acquisition on December 16, 1999. Had the results of TravCorps'
operations for the full year of 1999 been included with the combined revenue for
the two periods in 1999, revenue would have increased by 19.9% to
$367.7 million in 2000 from $306.6 million in 1999.

Revenue from our healthcare staffing segment for the year ended
December 31, 2000 totaled $350.9 million as compared to $187.0 million for the
two periods that comprise 1999. Revenue for the two periods that comprise 1999
includes the results of TravCorps from its date of acquisition on December 16,
1999. Had the results of TravCorps' operations for the full year of 1999 been
included with the combined revenue for the two periods in 1999, revenue from our
healthcare staffing segment would have increased by 22.7% to $350.9 million in
2000 from $285.9 million in 1999. The increase was attributable to an increase
in the average number of traveling nurses, a higher average hourly bill rate and
increased allied health staffing revenue. For the year ended December 31, 2000,
92.8% of healthcare staffing revenue was generated by nurse staffing operations
and 7.2% was generated by other operations. For the two periods that comprise
1999, 91.9% of healthcare staffing revenue was generated by nurse staffing
operations and 8.1% was generated by other operations.

Revenue from our other human capital management services segment for the
year ended December 31, 2000 totaled $16.8 million as compared to $6.8 million
for the two periods that comprise 1999. Revenue for the two periods that
comprise 1999 includes the results of TravCorps from its date of acquisition on
December 16, 1999. Had the results of TravCorps' operations for the full year of
1999 been included with the combined revenue for the two periods in 1999,
revenue from our other human capital management services segment would have
decreased by 18.4% to $16.8 million in 2000 from $20.6 million in 1999. This
decrease was due to a decrease in year 2000-related bioengineering consulting
services offset, in part, by an increase in our physician search, recruitment
and consulting business.

Direct operating expenses for the year ended December 31, 2000 totaled
$273.1 million as compared to $68.0 million for the five-month period
July 30-December 31, 1999 and $80.2 million for the seven-month period
January 1-July 29, 1999. As a percentage of revenue, direct operating expenses
represented 74.3% of revenue for the year ended December 31, 2000 compared with
77.6% for the

25

five-month period July 30-December 31, 1999 and 75.6% for the seven-month period
January 1-July 29, 1999. The relative improvement was largely a result of the
inclusion of revenue from our search, recruitment and consulting subsidiaries,
for which all salaries and related expenses are classified as selling, general
and administrative expenses. We acquired these subsidiaries in December 1999 in
connection with our acquisition of the assets of TravCorps. In addition, for
1999, a change was made in the manner by which we compensated travel nurses and
allied health professionals which resulted in greater direct operating expenses,
as a percentage of revenue for the five-month period July 30-December 31, 1999.

Selling, general and administrative expenses for the year ended
December 31, 2000 totaled $49.0 million as compared to $9.3 million for the
five-month period July 30-December 31, 1999 and $12.7 million for the
seven-month period January 1-July 29, 1999. As a percentage of revenue, selling,
general and administrative expenses represented 13.3% of revenue for the year
ended December 31, 2000 compared with 10.5% for the five-month period
July 30-December 31, 1999 and 12.0% for the seven-month period
January 1-July 29, 1999. The relative increase in 2000 resulted from inclusion
of the TravCorps operations, which historically have had greater selling,
general and administrative expenses on a percentage of revenue basis. The
decrease in selling, general and administrative expenses during the period
July 30-December 31, 1999 as compared with the period January 1-July 30, 1999
was due to the modification of a management incentive program in July 1999.

Bad debt expense for the year ended December 31, 2000 totaled $0.4 million
as compared to $0.5 million for the five-month period July 30-December 31, 1999
and $0.2 million for the seven-month period January 1-July 29, 1999. As a
percentage of revenue, bad debt expense represented 0.1% of revenue for 2000
compared with 0.6% for the five-month period July 30-December 31, 1999 and 0.1%
for the seven-month period January 1-July 29, 1999. The increase in bad debt
expense during the five-month period July 30-December 31, 1999 was due to the
increase in the aging of accounts relating to one hospital client.

EBITDA, as a result of the above, totaled $45.1 million for the year ended
December 31, 2000 as compared to $9.9 million for the five-month period
July 30-December 31, 1999 and $13.0 million for the seven-month period
January 1-July 29, 1999. As a percentage of revenue, EBITDA represented 12.3% of
revenue for the year ended December 31, 2000 compared with 11.3% for the
five-month period July 30-December 31, 1999 and 12.3% for the seven-month period
January 1-July 29, 1999.

Depreciation and amortization expense for the year ended December 31, 2000
totaled $15.0 million as compared to $4.6 million for the five-month period
July 30-December 31, 1999 and $0.7 million for the seven-month period
January 1-July 29, 1999. The increase in depreciation and amortization expense
in 2000 was due to amortization of goodwill resulting from the acquisition of
the assets of Cross Country Staffing and the TravCorps acquisition. As a
percentage of revenue, depreciation and amortization expense represented 4.1% of
revenue for 2000 compared with 5.2% for the five-month period
July 30-December 31, 1999 and 0.7% for the seven-month period
January 1-July 29, 1999.

Non-recurring indirect transaction costs totaled $1.3 million for the year
ended December 31, 2000, which consisted primarily of transition bonuses related
to the TravCorps acquisition.

Income from operations for the year ended December 31, 2000 totaled
$28.8 million as compared to $5.3 million for the five-month period
July 30-December 31, 1999 and $12.3 million for the seven-month period
January 1-July 29, 1999. As a percentage of revenue, income from operations
represented 7.8% of revenue for the year ended December 31, 2000 compared with
6.1% for the five-month period July 30-December 31, 1999 and 11.6% for the
seven-month period January 1-July 29, 1999.

Net interest expense for the year ended December 31, 2000 totaled
$15.4 million as compared to $4.8 million for the five-month period
July 30-December 31, 1999 and $0.2 million for the seven-month

26

period January 1-July 29, 1999. The increase in 2000, and for the five-month
period July 30-December 31, 1999, was due to debt incurred in connection with
our acquisition of the assets of Cross Country Staffing in July 1999 and a
higher weighted average effective borrowing rate.

Income before income taxes and discontinued operations for the year ended
December 31, 2000 totaled $13.4 million as compared to $0.5 million for the
five-month period July 30-December 31, 1999 and $11.9 million for the
seven-month period January 1-July 29, 1999.

Income tax expense for the year ended December 31, 2000 was $6.7 million as
compared to $0.7 million for the five-month period July 30-December 31, 1999.
Our effective tax rate was 50.3% for the year ended December 31, 2000 and 128.0%
for the period July 30-December 31, 1999 largely as a result of non-deductible
expenses. Excluding the effects of non-deductible items and the tax benefit of
our discontinued operations, our effective tax rates for the year ended
December 31, 2000 and for the period July 30-December 31, 1999 were 41.5% and
34.7%, respectively. Prior to July 30, 1999, we were a partnership for which
income tax expense was determined at the partner level. Pro forma adjustments
have been made in the Cross Country Staffing financial statements included
elsewhere in this prospectus as if we were subject to federal income taxes for
the seven-month period January 1-July 29, 1999 using a 49.0% effective tax rate.
On a pro forma basis, income tax expense was $5.8 million for the seven-month
period January 1-July 29, 1999.

Income before discontinued operations totaled $6.7 million for the year
ended December 31, 2000 as compared to a loss of $0.1 million for the five-month
period July 30-December 31, 1999.

Losses from discontinued operations, net of income tax benefits, for the
year ended December 31, 2000, and the five-month period July 30-December 31,
1999, were $1.6 million and $0.2 million, respectively, in connection with
HospitalHub, which began operations in 1999. Also for the year ended
December 31, 2000, a $0.5 million loss was recognized on the planned disposal of
HospitalHub. The divestiture of HospitalHub was completed in the second quarter
of 2001.

Net income for the year ended December 31, 2000 totaled $4.6 million as
compared to a net loss of $0.3 million for the five-month period
July 30-December 31, 1999. Net income for the seven-month period
January 1-July 29, 1999 was $6.0 million, including a pro forma adjustment for
income tax expense as discussed above.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2001, we had a current ratio, the amount of current
assets divided by current liabilities, of 2.9 to 1.0. Working capital increased
by $34.8 million to $69.2 million as of December 31, 2001, compared to
$34.4 million as of December 31, 2000. The increase in working capital is
primarily due to the repayment of $22.2 million of the current portion of our
long-term debt and an increase in accounts receivable. Although accounts
receivable increased, days sales outstanding remained at 64 days at
December 31, 2001, the same as December 31, 2000.

Our operating cash flows constitute our primary source of liquidity and
historically have been sufficient to fund our working capital, capital
expenditures, internal business expansion and debt service. We believe that our
capital resources are sufficient to meet our working capital needs for the next
twelve months. We expect to meet our future working capital, capital
expenditures, internal business expansion, debt service and acquisition
requirements from a combination of operating cash flow and funds available under
our credit facility.

On October 30, 2001, the Company completed its initial public offering of
7,812,500 shares of common stock at $17.00 share. Additionally, the underwriters
exercised the over-allotment option of 1,171,875 shares, bringing the total
number of shares issued to 8,984,375. Total proceeds received by the company,
net of expenses related to the initial public offering were $138.8 million. The
proceeds were used to repay $89.6 million of our outstanding balance under the
term loan portion of our senior

27

secured credit facility, $6.1 million of our outstanding balance under the
revolver portion of our senior secured credit facility, and $40.3 million to
redeem our outstanding senior subordinated pay-in-kind notes, including the
associated redemption premium. The remainder of the proceeds was used for
general corporate purposes.

On March 20, 2002, an aggregate of 9,000,000 shares of our Common Stock were
sold by existing shareholders pursuant to a registration statement filed by us
with the Securities and Exchange Commission. We will not receive any of the
proceeds from the sale of these shares and expect we will pay approximately
$1.0 million dollars of expenses of such registration in 2002.

CREDIT FACILITY

The credit facility is provided by a lending syndicate comprised of Citicorp
USA, GE Capital, Wachovia Bank, Deutsche Bank, Suntrust Bank, Fleet Bank,
Highland Capital Management, L.P., ING US Capital, Sovereign Bank, KZH Pamco
LLC, Bank of America and Provident Bank of Maryland. We amended our credit
facility in in February, 2002. The amended credit facility is comprised of
(i) a revolving credit facility of up to $30.0 million, including a swing-line
sub-facility of $7.0 million and a letter of credit sub-facility of
$10.0 million, and (ii) a $45.0 million term loan facility. The revolving
facility matures on July 29, 2005 and the term loan facility has staggered
maturities through 2005.

Borrowings under the amended credit facility bear interest at variable rates
based, at our option, on LIBOR or the prime rate plus various applicable margins
which are determined by the amended credit facility. As of December 31, 2001,
the weighted average effective interest rate under the amended credit facility
was 9.21%. We are required to pay a quarterly commitment fee at a rate of 0.50%
per annum on unused commitments under the revolving loan facility. As of
December 31, 2001, we had $2.5 million outstanding under our revolving credit
facility and $6.3 million of outstanding letters of credit, leaving availability
under our revolving credit facility of $21.2 million.

The terms of the credit facility include customary covenants and events of
default. Our investments covenant requires us to obtain the consent of our
lenders to complete any acquisition, the costs of which exceeds $25.0 million.
In the event of an event of default, our lenders may terminate their lending
commitments to us and declare our outstanding indebtedness under the credit
facility due and payable, together with accrued but unpaid interests and fees.
Borrowings under the amended credit facility are collateralized by substantially
all our assets and the assets of our subsidiaries.

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

Net cash provided by operating activities during 2001 increased
$9.3 million to $19.7 million compared to $10.4 million during 2000. Investing
activities totaled $42.3 million during 2001 compared to a use of $9.6 million
during 2000. Investing activities in 2001 included approximately $32.8 million
for the acquisition of ClinForce and $2.1 million for the acquisitions of
Heritage and Gill/Balsano. Investing activities during 2000 included
$6.2 million for the acquisition of Heritage and $1.5 million for the
acquisition of E-Staff. Net cash provided by financing activities during 2001
totaled $25.3 million compared to cash used in financing activities of
$5.6 million in 2000. The increase in cash provided by financing activities in
2001 was due to the Company's initial public offering and the proceeds from
issuance of debt for acquisitions; offset by repayments of debt using the
offering proceeds and funds generated by operations.

YEAR ENDED DECEMBER 31, 2000 COMPARED TO THE FIVE-MONTH PERIOD
JULY 30-DECEMBER 31, 1999 AND THE SEVEN-MONTH PERIOD JANUARY 1-JULY 29, 1999

Net cash provided by operating activities for 2000 increased $4.1 million to
a provision of $10.4 million as compared to a provision of $6.3 million for the
five-month period July 30-December 31, 1999 and a provision of $12.2 million for
the seven-month period

28

January 1-July 29, 1999. Excluding income tax expense, our cash flow from
operations was $17.1 million in 2000 compared with $7.0 million for the period
July 30-December 31, 1999 and $12.2 million for the period January 1-July 29,
1999. The use of cash from investing activities for 2000 increased
$11.0 million to a use of $9.6 million as compared to a provision of
$1.4 million for the five-month period from July 30-December 31, 1999 and a use
of $0.2 million for the seven-month period January 1-July 29, 1999. Investing
activities during 2000 included $6.2 million for the acquisition of Heritage and
$1.5 million for the acquisition of E-Staff as compared to net cash provided by
acquisitions for the five-month period July 30-December 31, 1999 of
$1.8 million from the acquisition of TravCorps. No acquisitions were completed
during the period from January 1-July 30, 1999. Net cash used by financing
activities for 2000 increased $2.5 million to a use of $5.6 million as compared
to a use of $3.1 million for the five-month period July 30-December 31, 1999 and
a use of $12.0 million for the seven-month period January 1-July 29, 1999.
Financing activities for 2000 consisted of borrowings and repayments under debt
agreements, including primarily $5.1 million of net repayments under our term
loan agreement, borrowing of $3.9 million of subordinated debt and net
repayments under our revolver and swing line agreements of $1.0 million.

INFLATION

During the last several years, the rate of inflation in healthcare related
services has exceeded that of the economy as a whole. This inflation has
increased our direct operating costs. We are also impacted by fluctuations in
housing costs and recently by increases in costs of professional and general and
healthcare insurance. Historically, we have been able to recoup the negative
impact of such fluctuations by increasing our billing rates. We may not be able
to continue increasing our billing rates and increases in our direct operating
costs may adversely affect us in the future. In addition, our clients are
impacted by payments of healthcare benefits by federal and state governments as
well as private insurers.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to interest rate changes, primarily as a result of our credit
facility which bears interest based on floating rates. We are party to an
interest rate swap agreement which fixes the interest rate paid on
$45.0 million of borrowings under our credit facility at 6.705% plus the
applicable margin. The swap matures in February 2003. Prior to January 2001, we
accounted for the swap agreement as a hedge, which means changes in the fair
value of the swap were not required to be recognized in earnings. Effective
January 1, 2001, we adopted FASB Statement No. 133 ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. Upon adopting FASB Statement No. 133, we
recorded a liability for the fair value of the swap, which reduced consolidated
stockholders' equity by $0.9 million. We will recognize changes in the fair
value of the swap in earnings to the extent such changes are greater or less
than the corresponding change in the fair value of the future variable interest
payments on the portion of the debt underlying the swap. During the year ended
December 31, 2001, other comprehensive income has been reduced by $1.2 million
as a result of this interest rate swap. The fair value of our interest rate swap
at December 31, 2001 was $2.5 million and is separately stated in our
consolidated balance sheets. Changes in interest rates, which result in a yield
curve that is different from those projected, may cause changes in the fair
value of the swap.

A 1% change in interest rates on variable rate debt would have resulted in
interest expense fluctuating approximately $0.4 million for 1999 and
$1.2 million for both 2000 and 2001.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Item 14 of Part IV of this Report.

29

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

Information with respect to directors and executive officers is included in
Cross Country's Proxy Statement (the "Proxy Statement") to be filed pursuant to
Regulation 14A with the Securities and Exchange Commission (SEC) and such
information is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

Information with respect to executive compensation is included in the Proxy
Statement to be filed with the SEC and such information is incorporated herein
by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information with respect to the Company's common stock is included in the
Proxy Statement to be filed with the SEC and such information is incorporated
herein by reference.

ITEM 13. RELATED PARTY TRANSACTIONS

Information with respect to the related party transactions is included in
the Proxy Statement to be filed with the SEC and such information is
incorporated herein by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) See Index to Financial Statements immediately following Exhibit Index.

(b) No reports on Form 8-K were filed during the fourth quarter of 2001.

(c) Exhibits

See Exhibit Index immediately following signature pages

30

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.

CROSS COUNTRY, INC.

By:
-----------------------------------------
Name: Joseph A. Boshart
Title: Chief Executive
Officer and President

Dated: March 26, 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities indicated and
on the dates indicated:

32

EXHIBIT INDEX

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

+ Previously filed as an exhibit to the Company's Registration Statement on
Form S-1, Commission File No. 333-74403, and incorporated by reference
herein.

* Previously filed as an exhibit to the Company's Registration Statement on
Form S-1, Commission File No. 333-83450, and incorporated by reference
herein.

34

INDEX TO FINANCIAL STATEMENTS

F-1

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Cross Country, Inc.

We have audited the accompanying consolidated balance sheets of Cross
Country, Inc. as of December 31, 2000 and 2001 and the related consolidated
statements of operations, stockholders' equity and cash flows for the period
from July 30, 1999 to December 31, 1999 and the years ended December 31, 2000
and 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 audit.

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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Cross Country, Inc. at December 31, 2000 and 2001, and the results of their
operations and their cash flows for the period from July 30, 1999 to
December 31, 1999 and the years ended December 31, 2000 and 2001, in conformity
with accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.

/s/ Ernst & Young LLP

West Palm Beach, Florida
February 7, 2002

F-2

CROSS COUNTRY, INC.

CONSOLIDATED BALANCE SHEETS

See accompanying notes.

F-3

CROSS COUNTRY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes.

F-4

CROSS COUNTRY, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

See accompanying notes.

F-5

CROSS COUNTRY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

F-6

CROSS COUNTRY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

See accompanying notes.

F-7

CROSS COUNTRY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2001

1. ORGANIZATION AND BASIS OF PRESENTATION

On July 29, 1999, Cross Country Staffing, Inc. (CCS), a Delaware
corporation, was established through an acquisition of certain assets and
liabilities of Cross Country Staffing (the Partnership), a Delaware general
partnership. The acquisition included certain identifiable intangible assets
primarily related to proprietary databases and contracts. The Partnership was
engaged in the business of providing nurses and other allied health personnel to
health care providers primarily on a contract basis. CCS recorded the assets and
certain assumed liabilities, as defined in the asset purchase agreement, at fair
market value. The purchase price of approximately $189,000,000 exceeded the fair
market value of the assets less the assumed liabilities by approximately
$167,537,000, of which $20,890,000 was allocated to certain identifiable
intangible assets ($8,900,000--trademark, $8,440,000--databases,
$1,040,000--workforce, and $2,510,000--hospital relations), and $250,000
relating to a covenant not to compete. The remaining $146,397,000 was allocated
to goodwill.

On December 16, 1999, CCS entered into a Plan of Merger with TravCorps
Corporation (TravCorps). TravCorps and its wholly-owned subsidiary, Cejka &
Company (Cejka) provide flexible staffing, search, consulting and related
outsourced services to health care providers throughout the United States.
Pursuant to the Plan of Merger on December 16, 1999, all outstanding shares of
TravCorps' common stock were exchanged for common stock in CCS and TravCorps
became a wholly-owned subsidiary of CCS. The fair value of the shares of common
stock issued to the stockholders of TravCorps, as determined by a valuation of
the common stock as of December 16, 1999, was $32,102,000. The purchase price
exceeded the fair value of the net tangible assets acquired by approximately
$66,575,000, of which $10,240,000 was allocated to certain identifiable
intangible assets ($5,800,000--trademark, $2,910,000--databases,
$630,000--workforce, and $900,000--hospital relations). The remaining
$56,335,000 was allocated to goodwill. The acquisition was accounted for as a
purchase and, accordingly, the accompanying consolidated financial statements
include the results of TravCorps from the acquisition date. There were
approximately $1,300,000 of non-capitalizable transaction costs for the year
ended December 31, 2000, which consisted primarily of transition bonuses related
to the TravCorps acquisition which are included in non-recurring transaction
costs in the consolidated statements of operations.

Effective October 1, 2000, TravCorps changed its name to TVCM, Inc. (TVCM).

Effective October 10, 2000, CCS changed its name to Cross Country
TravCorps, Inc. (CCT). Subsequent to December 31, 2000, CCT changed its name to
Cross Country, Inc. (the Company). The Company is primarily engaged in the
business of providing temporary health care staffing services to acute and
subacute care facilities nationwide.

The consolidated financial statements include the accounts of the Company
and its wholly-owned direct and indirect subsidiaries, TVCM (f/k/a TravCorps),
Cejka, CC Staffing, Inc., E-Staff, Inc. (E-Staff), HospitalHub, Inc. (f/k/a
Ashley One, Inc.)(HospitalHub), and Cross Country Seminars, Inc. (f/k/a
CCS/Heritage Acquisition Corp.) (Cross Country Seminars). All material
intercompany transactions and balances have been eliminated in consolidation.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

The preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that

F-8

CROSS COUNTRY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
affect the reported amounts in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.

CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to concentrations
of credit risk as defined by Financial Accounting Standards Board (FASB)
Statement No. 105, DISCLOSURE OF INFORMATION ABOUT FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET RISK AND FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT
RISK, consist principally of accounts receivable. The Company's customers are
health care providers and accounts receivable represent amounts due from these
providers. The Company performs ongoing credit evaluations of its customers'
financial conditions and, generally, does not require collateral. Overall, based
on the large number of customers in differing geographic areas throughout the
United States and its territories, the Company believes the concentration of
credit risk is limited. As of December 31, 2000, an aggregate of approximately
9% of the outstanding accounts receivable were due from four customers. As of
December 31, 2001, an aggregate of approximately 8% of the Company's outstanding
accounts receivable were due from four customers.

CASH AND CASH EQUIVALENTS

The Company considers all investments with original maturities of less than
three months to be cash and cash equivalents.

PREPAID RENT AND DEPOSITS

The Company leases a number of apartments for its employees under short-term
agreements (typically three to six months), which generally coincide with each
employee's staffing contract. As a condition of these agreements, the Company
places security deposits on the leased apartments. Prepaid rent and deposits
relate to these short-term agreements.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is determined on a straight-line basis over the estimated useful
lives of the assets, which generally range from three to seven years. Leasehold
improvements are depreciated over the lives of the related leases or the useful
life of an individual lease, whichever is shorter.

Certain software development costs are capitalized in accordance with the
provisions of Statement of Position 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER
SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE and FASB Statement No. 86,
ACCOUNTING FOR COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED, OR OTHERWISE
MARKETED. Such costs include charges for consulting services and costs for
personnel associated with programming, coding, and testing such software.
Amortization of capitalized software costs begins when the software is placed
into service and is included in depreciation expense in the accompanying
consolidated statements of operations. Software development costs are being
amortized using the straight-line method over five years or revenue to projected
revenue, if greater. Through December 31, 2001, the Company has not recognized
any revenue from the sale of software.

F-9

CROSS COUNTRY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESERVES FOR CLAIMS

Workers' compensation and health care benefits are provided under partially
self-insured plans. The Company records its estimate of the ultimate cost of,
and reserves for, workers' compensation and health care benefits based on
actuarial computations using the Company's loss history as well as industry
statistics. Furthermore, in determining its reserves, the Company includes
reserves for estimated claims incurred but not reported.

The ultimate cost of workers' compensation and health care benefits will
depend on actual costs incurred to settle the claims and may differ from the
amounts reserved by the Company for those claims.

In August 2001, the Company changed its professional liability coverage from
an occurrence to a claims made basis. The professional liability policy provides
for coverage in the amount of $1,000,000 per claim and $3,000,000 in the
aggregate as well as excess coverage in the amount of $10,000,000 per claim and
$10,000,000 in the aggregate. In addition, there is a $100,000 deductible per
occurrence.

Accruals for workers' compensation claims, health care benefits and
professional liability insurance are included in accrued employee compensation
and benefits in the consolidated balance sheets.

GOODWILL AND INTANGIBLE ASSETS

Goodwill represents the excess of purchase price over the fair value of net
assets acquired. Goodwill is being amortized using the straight-line method over
its estimated useful life ranging from 5 to 25 years. Other identifiable
intangible assets, net, consist of database (approximately $8,259,000 and
$5,967,000), workforce (approximately $1,315,000 and $3,271,000) and hospital
relations (approximately $3,110,000 and $1,786,000) at December 31, 2000 and
2001, respectively. Identifiable intangible assets are being amortized using the
straight-line method over their estimated useful lives ranging from 4.5 to
25 years. In accordance with FASB Statement No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF,
long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. The
Company periodically reviews goodwill to determine if any impairment exists
based upon projected, undiscounted net cash flows of the Company. Recoverability
of intangible assets is measured by comparison of the carrying amount of the
asset to net future cash flows expected to be generated from the asset.
Identifiable intangible assets not covered by FASB Statement No. 121 and
goodwill not identified with assets that are subject to an impairment loss are
evaluated in accordance with Accounting Principles Board (APB) Opinion No. 17,
INTANGIBLE ASSETS. At December 31, 2000 and 2001, the Company believes that no
impairment of goodwill or identifiable intangible assets exists.

DEBT ISSUANCE COSTS

Deferred costs related to the issuance of debt are being amortized on a
straight-line basis, which approximates the effective interest method, over the
six-year term of the debt. Debt issuance costs of approximately $11,222,000,
less accumulated amortization of approximately $2,617,000 at December 31, 2000
are included in the consolidated balance sheets. Subsequent to the Company's
initial public offering, the Company repaid $89,580,000 of its outstanding
balance under the term loan portion of its senior secured credit facility, and
paid $38,779,000 to redeem its outstanding senior subordinated

F-10

CROSS COUNTRY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
pay-in-kind notes. Related debt issuance costs of $6,433,000 net, were written
off and included in extraordinary loss on early extinguishment of debt in the
consolidated statement of operations. At December 31, 2001, debt issuance costs
of approximately $1,390,000, less accumulated amortization of approximately
$798,000 are included in the consolidated balance sheets.

REVENUE RECOGNITION

Revenue from services consists primarily of temporary staffing revenues.
Revenue is recognized when services are rendered. Accordingly, accounts
receivable includes an accrual for employees' time worked but not yet invoiced.
At December 31, 2000 and 2001, the amounts accrued are approximately
$14,970,000, and $15,051,000, respectively.

Revenues on permanent and temporary placements are recognized when services
provided are substantially completed. The Company does not, in the ordinary
course of business, give refunds. If a candidate leaves a permanent placement
within a short period of time (I.E., one month), it is customary for us to seek
a replacement at no additional cost. Allowances are established as considered
necessary to estimate significant losses due to placed candidates not remaining
employed for the Company's guarantee period. During 1999, 2000, and 2001, such
losses were not material and, accordingly, related allowances were not recorded.

Revenue from the Company's education and training services is recognized as
the instructor-led seminars are performed and the related learning materials are
delivered.

STOCK-BASED COMPENSATION

The Company, from time to time, grants stock options for a fixed number of
common shares to employees. The Company accounts for employee stock option
grants in accordance with APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES, and accordingly, recognizes no compensation expense for stock option
grants when the exercise price of the options equals, or is greater than, the
market value of the underlying stock on the close of business on the date
immediately preceding the date of grant. The Company did not recognize any
compensation cost in its consolidated statements of operations during the period
from July 30, 1999 to December 31, 1999, the year ended December 31, 2000, or
the year ended December 31, 2001 for stock-based employee compensation awards.

ADVERTISING

The Company's advertising expense consists primarily of print media, online
advertising and promotional material. Advertising costs that are not considered
direct response are expensed as incurred and were approximately $404,000 for the
period from July 30, 1999 to December 31, 1999, $2,450,000 for the year ended
December 31, 2000, and $3,139,000 for the year ended December 31, 2001.

Direct response advertising costs associated with the Company's education
and training services are capitalized and expensed when the related event takes
place. At December 31, 2001, approximately $1,142,600 of these costs are
included in other current assets in the consolidated balance sheets.

F-11

CROSS COUNTRY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SHIPPING AND HANDLING COSTS

Shipping and handling costs are included in cost of revenues.

DERIVATIVE FINANCIAL INSTRUMENTS

The Company is exposed to market risks arising from changes in interest
rates. To protect against such risks, the Company has one derivative financial
instrument, an interest rate swap agreement, which is more fully disclosed in
Note 13, INTEREST RATE SWAP.

COMPREHENSIVE INCOME

The Company has adopted FASB Statement No. 130, COMPREHENSIVE INCOME, which
requires that an enterprise: (a) classify items of other comprehensive income by
their nature in the financial statements; and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of the balance sheet. The items
of other comprehensive income that are typically required to be displayed are
foreign currency items, minimum pension liability adjustments and unrealized
gains and losses on certain investments in debt and equity securities. There are
no other components of comprehensive income or loss other than the Company's
consolidated net income for the years ended December 31, 2000 and 2001, and the
accumulated derivative loss for the year ended December 31, 2001.

During 1998, the FASB issued Statement No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES, which was effective beginning January 1,
2001. FASB Statement No. 133 requires companies to recognize all of its
derivative instruments as either assets or liabilities in the statement of
financial position at fair value. The accounting for changes in the fair value
(i.e., gains or losses) of a derivative instrument depends on whether it has
been designated and qualifies as part of a hedging relationship and further, on
the type of hedging relationship. For those derivative instruments that are
designated and qualify as hedging instruments, a company must designate the
hedging instrument, based upon the exposure being hedged, as either a fair value
hedge, cash flow hedge or a hedge of a net investment in a foreign operation. As
the Company's derivative instrument is designated and qualifies as a cash flow
hedge (i.e., hedging the exposure to variability in expected future cash flows
that is attributable to a particular risk), the effective portion of the gain or
loss on the derivative instrument is reported as a component of other
comprehensive income and reclassified into earnings in the same period or
periods during which the hedged transaction affects earnings. Any ineffective
portion of a derivative instrument's change in fair value is immediately
recognized in earnings.

The Company implemented the provisions of FASB Statement No. 133 on
January 1, 2001. The implementation of FASB Statement No. 133 resulted in a
reduction in consolidated stockholders' equity of approximately $910,000 as of
January 1, 2001. During the year ended December 31, 2001, the Company recorded
the following in accumulated other comprehensive income:

Accumulated derivative loss at January 1, 2001.............. $ (910,009)
Net change in hedging transaction (net of deferred tax
benefit of $1,008,568).................................... (246,727)
-----------
Accumulated derivative loss at December 31, 2001............ $(1,156,736)
===========

During 2001, the Company reclassified to interest expense approximately
$325,000 of the net amount recorded in other comprehensive loss.

F-12

CROSS COUNTRY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INCOME TAXES

The Company accounts for income taxes under FASB Statement No. 109,
ACCOUNTING FOR INCOME TAXES. Deferred income tax assets and liabilities are
determined based upon differences between the financial reporting and tax bases
of assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 1999, the Securities and Exchange Commission staff released
Staff Accounting Bulletin (SAB) No. 101, REVENUE RECOGNITION. SAB No. 101
provides interpretive guidance on the recognition, presentation, and disclosure
of revenue in financial statements. The Company believes that its current
revenue recognition policies comply with SAB No. 101.

In June 2001, the FASB issued Statements No. 141, BUSINESS COMBINATIONS, and
No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS, effective for fiscal years
beginning after December 15, 2001. Under the new rules, goodwill (and intangible
assets deemed to have indefinite lives) will no longer be amortized but will be
subject to an annual impairment test in accordance with Statement No. 142. Other
intangible assets will continue to be amortized over their useful lives.

The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Application of the
non-amortization provisions of the Statement is expected to result in an
increase in net income of approximately $7,600,000 ($0.22 per share) per year.
During the first six months of 2002, the Company will perform the required
initial impairment test of goodwill and indefinite lived intangible assets as of
January 1, 2002. The Company believes that the results of this test will not
have a material impact on the consolidated financial position or results of
operations of the Company.

In August 2001, the FASB issued Statement No. 144, ACCOUNTING FOR THE
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS. Statement No. 144 is effective for
fiscal years beginning after December 15, 2001, and interim periods within those
fiscal years. The Company will adopt this statement beginning in the first
quarter of 2002. This statement addresses financial accounting and reporting for
the impairment or disposal of long-lived assets. It supersedes FASB Statement
No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF. The Company believes the adoption of FASB Statement
No. 144 will not have a material impact on its consolidated financial
statements.

3. ACQUISITIONS

Effective July 31, 2000, the Company acquired substantially all of the
assets of E-Staff, a Pennsylvania corporation, for $1,500,000. E-Staff is a
development-stage company creating an Internet, subscription-based
communication, scheduling, credentialing and training service business. The
acquisition met the accounting criteria of a purchase and, accordingly, the
accompanying consolidated financial statements include the results of E-Staff
from the acquisition date. The consideration for this acquisition included
$1,500,000 in cash. The excess of the aggregate purchase price over the fair
market value of the assets acquired of approximately $927,000 was allocated to
goodwill and was being amortized over five years. In addition, the asset
purchase agreement provides for potential earnout payments of up to $3,750,000
to the seller based on a defined development milestone achieved and the

F-13

CROSS COUNTRY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001

3. ACQUISITIONS (CONTINUED)
profits of E-Staff over a three-year period ending July 31, 2003. This
contingent consideration is not related to the seller's employment. Upon
payment, the earnouts will be allocated to goodwill as additional purchase
price.

Effective December 26, 2000, Cross Country Seminars acquired substantially
all of the assets of Heritage Professional Education, LLC (Heritage), a
Tennessee limited liability company. Heritage provides continuing professional
education courses to medical and healthcare personnel through seminars and study
programs servicing the healthcare industry. The acquisition met the accounting
criteria of a purchase and, accordingly, the accompanying consolidated financial
statements include the results of Heritage from the acquisition date. The
consideration for this acquisition included $6,200,000 in cash and a
post-closing adjustment of approximately $422,000. The excess of the aggregate
purchase price over the fair market value of the assets acquired of
approximately $6,655,000 was allocated to goodwill and was being amortized over
25 years. In addition, the asset purchase agreement provides for potential
earnout payments of approximately $6,500,000 based on adjusted earnings before
interest, taxes, depreciation, and amortization (EBITDA) (as defined in the
asset purchase agreement) of Heritage over a three-year period ending
December 31, 2003. This contingent consideration is not related to the seller's
employment. Upon payment, the earnouts will be allocated to goodwill as
additional purchase price. The earnout relating to EBITDA for 2001 was
$1,500,000 and will be paid in 2002.

On December 15, 2000, the Company entered into a stock purchase agreement to
acquire substantially all of the outstanding stock of two subsidiaries that
comprise ClinForce Inc., a Delaware corporation that provides temporary staffing
and permanent placement of clinical trials support services personnel. The
acquisition was consummated on March 16, 2001 and met the accounting criteria of
a purchase. The transaction was primarily funded through the issuance of
additional debt. The purchase price of approximately $31,400,000 exceeded the
fair value of assets acquired less liabilities assumed by approximately
$28,000,000 of which $3,400,000 was allocated to certain identifiable intangible
assets ($2,100,000--trademark, $890,000--workforce, $410,000--hospital
relations). The remaining $24,600,000 was allocated to goodwill and was being
amortized over 25 years. The purchase price was subject to a post-closing
adjustment based on changes in the net working capital of the acquired companies
between October 31, 2000 and March 16, 2001. The post closing adjustment of
approximately $1,415,000 was calculated and allocated to goodwill as additional
purchase price.

In May 2001, Cejka acquired substantially all of the assets of Gill/Balsano
Consulting, L.L.C. (Gill/Balsano), a Delaware limited liability company.
Gill/Balsano provides management consulting services to the healthcare industry.
The acquisition met the accounting criteria of a purchase, and, accordingly, the
accompanying consolidated financial statements include the results of
Gill/Balsano from the acquisition date. The consideration for this acquisition
was $1,831,000 in cash. The excess of the aggregate purchase price over the fair
market value of the assets acquired of approximately $1,674,000 was allocated to
goodwill and was being amortized over 25 years. In addition, the asset purchase
agreement provides for potential earnout payments of approximately $1,995,000
based on adjusted EBITDA (as defined in the asset purchase agreement) of
Gill/Balsano over a three-year period ending March 31, 2004. This contingent
consideration is not related to the seller's employment. Upon payment, the
earnouts will be allocated to goodwill as additional purchase price.

F-14

CROSS COUNTRY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001

3. ACQUISITIONS (CONTINUED)
On January 3, 2002, the Company acquired substantially all of the assets of
the NovaPro healthcare staffing division of HRLogic Holdings, Inc., a
professional employer organization, for approximately $7,100,000. NovaPro
targets nurses seeking more customized benefits packages.

On March 6, 2002, the Company acquired all of the outstanding stock of
Jennings, Ryan & Kolb, Inc., a healthcare management consulting company, for
approximately $1,800,000 in cash, the assumption of $300,000 in debt and
potential earnouts of approximately $1,800,000.

The following unaudited pro forma summary presents the consolidated results
of operations as if the Company's acquisitions had occurred as of the beginning
of each period presented, after giving effect to certain adjustments, including
amortization of goodwill and other specifically identifiable intangibles,
interest expense incurred on additional borrowings and related income tax
effects. E-Staff and Gill/Balsano's results of operations have been excluded
from the pro forma financial information as amounts are considered immaterial to
the Company. The pro forma financial information does not purport to be
indicative of the results of operations that would have occurred had the
transactions taken place at the beginning of the periods presented or of future
results of operations.

4. PROPERTY AND EQUIPMENT

At December 31, 2000 and 2001, property and equipment consist of the
following:

At December 31, 2000 and 2001, computer software includes approximately
$1,481,000, and $3,172,000, respectively, of software development costs
capitalized in accordance with the provisions of FASB Statement No. 86. The
Company has not recorded any amortization related to these costs since the
software is not available for general release to customers.

F-15

CROSS COUNTRY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001

5. ACCRUED EMPLOYEE COMPENSATION AND BENEFITS

At December 31, 2000 and 2001, accrued employee compensation and benefits
consist of the following:

6. LONG-TERM DEBT AND NOTE PAYABLE

At December 31, 2000 and 2001, long-term debt consists of the following:

On July 29, 1999, the Company entered into a $105,000,000 senior secured
credit facility consisting of a $75,000,000 term loan and a $30,000,000
revolving loan facility. In March 2001, the senior credit facility was amended
to increase the term loan facility to $144,900,000. The Company is required to
pay a quarterly commitment fee at a rate of 0.50% per year on unused commitments
under the revolving loan facility. The term loan and the revolving loan facility
bear interest based on either an alternate base rate plus a margin of 1.75% at
December 31, 2000 and 2001 respectively, or LIBOR plus a margin of 2.75% at
December 31, 2000 and 2001, respectively, (each as defined in the senior secured
credit facility). During fiscal year 2000, the Company met certain covenants
that provided for the above reduction in interest rates. The Company has pledged
all of the assets of the Company as collateral for the senior credit facility.

F-16

CROSS COUNTRY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001

6. LONG-TERM DEBT AND NOTE PAYABLE (CONTINUED)
The senior credit facility allows for the issuance of letters of credit in
an aggregate face amount at any time outstanding not in excess of $10,000,000 at
December 31, 2001. Additionally, swingline loans, as defined in the senior
credit facility, not to exceed an aggregate principal amount at any time
outstanding of $7,000,000 are available under the senior credit facility. As of
December 31, 2001, approximately $6,275,000, was outstanding under the letter of
credit facility.

The senior credit facility requires that the Company meet certain covenants,
including the maintenance of certain debt and interest expense ratios, capital
expenditure limits, and the maintenance of a minimum level of EBITDA (as defined
in the senior credit facility). The senior credit facility also limits the
Company's ability to declare and pay cash dividends on its common stock.

On July 29, 1999, the Company issued $30,000,000 in senior subordinated
pay-in-kind notes to two financial institutions. The proceeds of the loan were
used by the Company solely to finance the CCS acquisition and to pay fees and
expenses incurred in connection therewith. The interest rate on the subordinated
notes was 12% per annum, compounded quarterly. The Company made no interest
payments on the pay-in-kind notes; rather accrued interest was converted into
additional pay-in-kind notes on a monthly basis. The maturity date was the
earlier of six months after the final maturity of the term and revolving debt
issuances (January 29, 2006) or change in control of the Company.

In connection with the issuance of the subordinated debt, the Company issued
504,468 shares of its common stock to the financial institutions. Debt issuance
costs of $6,920,000 relating to this transaction were recorded in 1999, which
represented the fair market value of the shares at the time of issuance.

On October 30, 2001, the Company completed its initial public offering of
7,812,500 shares of common stock at $17.00 per share. Additionally, the
underwriters exercised the over-allotment option of 1,171,875 shares, bringing
the total number of shares issued to 8,984,375. The proceeds were used to repay
$89,580,000 of the outstanding balance under the term loan portion of the
Company's senior secured credit facility, $6,100,000 under the revolver portion
of the Company's senior secured credit facility, and $38,779,000 to redeem the
Company's outstanding senior subordinated pay-in-kind notes. Prepayment of the
pay-in-kind notes resulted in a $1,567,000 redemption premium which, along with
the write-off of $6,433,000 of debt issuance costs discussed in Note 2, have
been recorded as an extraordinary loss on early extinguishment of debt in the
2001 consolidated statement of operations.

The senior credit facility matures on July 29, 2005. The aggregate scheduled
maturities of the term and the revolving portions of the loan facility are as
follows:

Year ending December 31:
2002...................................................... $ 2,424,594
2003...................................................... 14,288,936
2004...................................................... 18,297,352
2005...................................................... 12,489,118
2006...................................................... --
Thereafter.................................................. --
-----------
$47,500,000
===========

F-17

CROSS COUNTRY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001

6. LONG-TERM DEBT AND NOTE PAYABLE (CONTINUED)
On July 16, 2000 and August 30, 2001, the Company entered into notes payable
with a third party. The proceeds from the notes payable were used to pay the
Company's insurance premiums. Principal and interest on these notes are payable
over an 11-month period at an interest rate of 7.10% and 5.75%, respectively. At
December 31, 2000 and 2001 respectively, the outstanding balance on these notes
was $484,000 and $1,247,000.

7. EMPLOYEE BENEFIT PLANS

The Company maintains a voluntary defined contribution 401(k) profit-sharing
plan covering all eligible employees as defined in the plan documents. The plan
provides for a discretionary matching contribution, which is equal to a
percentage of each contributing participant's elective deferral, which the
Company, at its sole discretion, determines from year to year. Eligible
employees who elect to participate in the plan are generally vested in any
matching contribution after three years of service with the Company.
Contributions by the Company, net of forfeitures, under this plan amounted to
approximately $487,000 for the period from July 30, 1999 to December 31, 1999,
and $885,000 and $2,467,000 for the years ended December 31, 2000 and 2001,
respectively.

TVCM employees were covered under a separate benefit plan for both 2000 and
1999. TVCM had a 401(k) defined contribution plan for eligible employees.
Eligible employees made pretax savings contributions to the 401(k) Plan of up to
20% of their earnings to a certain statutory limit. TVCM matched employee
contributions from 1% to 3% of compensation based on years of service.
Contributions to the 401(k) Plan were approximately $630,000 for the year ended
December 31, 2000. Effective fiscal 2001, TVCM employees participated in the
Company's defined contribution 401(k) profit-sharing plan.

8. COMMITMENTS AND CONTINGENCIES

The Company has entered into non-cancelable operating lease agreements for
the rental of space. Future minimum lease payments associated with these
agreements with terms of one year or more are approximately as follows:

Year ending December 31:
2002...................................................... $ 1,933,000
2003...................................................... 1,965,000
2004...................................................... 1,959,000
2005...................................................... 1,563,000
2006...................................................... 1,280,000
Thereafter.................................................. 1,673,000
-----------
$10,373,000
===========

Rent expense related to office facilities was approximately $308,000 for the
period July 30, 1999 to December 31, 1999, and $1,527,000 and $2,455,000 for the
years ended December 31, 2000 and 2001, respectively.

The Company is subject to legal proceedings and claims that arise in the
ordinary course of its business. In the opinion of management, the outcome of
these matters will not have a significant effect on the Company's consolidated
financial position or results of operations.

F-18

CROSS COUNTRY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001

9. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts reported in the consolidated balance sheets for cash
and cash equivalents, accounts receivable, accounts payable and accrued expenses
approximate fair value because of their short maturity. The carrying amount of
the revolving credit note and term loan approximates fair value because the
interest rate is tied to a quoted variable index. The Company's interest rate
swap agreement is carried at fair value in accordance with FASB Statement
No. 133 as discussed in Note 13.

10. INCOME TAXES

The components of the Company's income tax expense (benefit) are as follows:

F-19

CROSS COUNTRY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001

10. INCOME TAXES (CONTINUED)

FASB Statement No. 109 requires a valuation allowance to reduce the deferred
tax assets reported if, based on the weight of the evidence, it is more likely
than not that some of or all of the deferred tax assets will not be realized.
After consideration of all the evidence, both positive and negative, management
has determined that a valuation allowance at December 31, 2000 and 2001 is not
necessary.

The reconciliation of income tax computed at the U. S. federal statutory
rate to income tax expense is as follows:

11. STOCKHOLDERS' EQUITY

Effective on December 10, 1999, the Company approved a 2.26066 for 1 stock
split of its common stock. All common stock data in these consolidated financial
statements have been adjusted to give retroactive effect to the stock split.

Effective April 27, 2001, the 760,284 issued and outstanding shares of the
Company's Class B common stock were converted to an equal number of shares of
Class A common stock of the Company. All common stock data in these consolidated
financial statements have been adjusted to give retroactive effect to the
conversion.

Effective August 23, 2001, the Company amended and restated its certificate
of incorporation to provide for, among other things; 1) the reclassification of
the common stock of the Company, whereby, the Class B common stock was converted
into 5.80135 shares of common stock, par value $.0001 per share;
2) authorization of 100,000,000 shares of common stock; and 3) authorization of
10,000,000 shares of preferred stock of the Company, par value $0.01 per share.

All common stock data in these consolidated financial statements have been
adjusted to give retroactive effect to the stock split.

STOCK OPTIONS

On December 16, 1999, the Company's Board of Directors approved the 1999
Stock Option Plan and Equity Participation Plan (collectively, the Plans), which
was amended and restated on October 25, 2001 and provides for the issuance of
incentive stock options (ISOs) and non-qualified stock options to

F-20

CROSS COUNTRY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001

11. STOCKHOLDERS' EQUITY (CONTINUED)
eligible employees and non-employee directors for the purchase of up to
4,398,001 shares of common stock. Non-qualified stock options may also be issued
to consultants. Under the Plans, the exercise price of options granted is
determined by the compensation committee of the Company's board of directors. In
the case of 10% or more stockholders, the exercise price of the ISOs granted may
not be less than 110% of such fair market. Options granted during 1999, 2000 and
2001 under the Amended and Restated 1999 Stock Option Plan generally vest
ratably over 4 years. Options granted during 1999, 2000 and 2001 under the
Amended and Restated 1999 Equity Participation Plan vest 25% on the first
anniversary of the date of grant and then vest 12.5% every 6 months thereafter.
All options expire on the tenth (or, in the case of a 10% shareholder, the
fifth) anniversary of the date of grant.

Information regarding the Company's stock option activity is summarized
below:

There were no exercisable options at December 31, 1999. There were 823,936
and 1,535,826 options exercisable at December 31, 2000 and 2001, respectively.
The weighted-average grant-date fair value per share of options granted during
the period from July 30, 1999 to December 31,1999 and during 2000 and 2001 was
$4.05, $5.56 and $8.82 per share, respectively.

F-21

CROSS COUNTRY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001

11. STOCKHOLDERS' EQUITY (CONTINUED)
The following table describes outstanding options as of December 31, 2001:

Had compensation cost for stock options granted during 1999, 2000, and 2001
been measured under the fair value based method prescribed by FASB Statement
No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, the Company's consolidated net
income would have changed to the pro forma amounts set forth below.

F-22

CROSS COUNTRY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001

11. STOCKHOLDERS' EQUITY (CONTINUED)
The fair value of options granted used to compute pro forma net income
(loss) disclosures were estimated on the date of grant using the Black-Scholes
option-pricing model based on the following assumptions:

The effect of applying FASB Statement No. 123 for providing pro forma
disclosures is not likely to be representative of the effect on reported net
income in future years.

12. EARNINGS PER SHARE

In accordance with the requirements of FASB Statement No. 128, EARNINGS PER
SHARE, basic earnings per share is computed by dividing net income or loss by
the weighted average number of shares outstanding and diluted earnings per share
reflects the dilutive effects of stock options (as calculated utilizing the
treasury stock method). Certain shares of common stock that are issuable upon
the exercise of options have been excluded from the 1999, 2000, and 2001 per
share calculations because their effect would have been anti-dilutive. Such
shares amounted to approximately 3,465,817; 3,121,252 and 268,565 at
December 31, 1999, 2000 and 2001, respectively. For the year ended December 31,
2001, 341,717 incremental shares of common stock were included in diluted
weighted average shares outstanding.

13. INTEREST RATE SWAP

The Company's senior credit facility required that the Company maintain an
interest rate protection agreement to manage the impact of interest rate changes
on the Company's variable rate obligations. Effective February 7, 2000, the
Company entered into an interest rate swap agreement (the Agreement) with a
financial institution. Interest rate swap agreements involve the exchange of
floating interest rate payments for fixed interest rate payments over the life
of the agreement without an exchange of the underlying notional amount. The
Company entered into the Agreement to reduce the exposure to adverse
fluctuations in floating interest rates on the underlying debt obligation as
required by the senior credit facility and not for trading purposes.

The interest rate swap matures on February 7, 2003 and has an underlying
notional amount of $45,000,000. The floating interest rate to be paid to the
Company is based on the three-month U.S. dollar London Interbank Offered Rate
(LIBOR), which is reset quarterly, while the fixed interest rate, through
December 31, 2000, to be paid by the Company is 6.625% if the three-month US
dollar LIBOR is less than 7.25%, the three-month U.S. dollar LIBOR if LIBOR is
greater than or equal to 7.25% but less than 8.5%, and 8.5% if the three-month
U.S. dollar LIBOR is greater than or equal to 8.5% over the term of the
Agreement. Effective January 1, 2001, the Agreement was amended to

F-23

CROSS COUNTRY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001

13. INTEREST RATE SWAP (CONTINUED)
change the fixed rate to be paid by the Company to 6.705%. In addition, the
maturity date of the Agreement was extended to February 28, 2003. Any
differences paid or received under the terms of the Agreement are recognized as
adjustments to interest expense over the life of the swap, thereby adjusting the
effective interest rate on the underlying debt obligation.

For the period from February 7, 2000 through December 31, 2000, the Company
paid a fixed interest rate of 6.625% based on an underlying notional amount of
$45,000,000. The floating interest rate paid by the financial institution to the
Company approximated 6.7503%. The carrying value of the interest rate swap at
December 31, 2000 was immaterial as to the net amount due from the financial
institution. The fair value of the interest rate swap approximated a $910,000
and $2,509,000 net payable based on quoted market prices for similar instruments
at December 31, 2000 and 2001, respectively. The estimated fair value of the
swap will fluctuate over time based on changes in floating interest rates;
however, these fair value amounts should not be viewed in isolation but rather
in relation to the overall reduction in the Company's exposure to adverse
fluctuations in floating interest rates. The fair value of the interest rate
swap transaction is not reflected in the consolidated financial statements at
December 31, 2000 as it properly qualified for hedge accounting treatment under
applicable accounting guidance. The Company recorded the fair value of the
interest rate swap transaction at January 1, 2001 which resulted in a reduction
in consolidated stockholders' equity of approximately $910,000. To test
effectiveness of the interest rate swap, the Company compares the present value
of the cumulative change in the fair value of the interest rate swap with the
present value of the cumulative change in the expected variable interest
payments. During the year ended December 31, 2001, the Company recognized a net
loss to interest expense of approximately $140,000 related to the ineffective
portion of the interest rate swap. The amount of net gain related to the portion
of the interest rate swap excluded from the assessment of effectiveness during
the year ended December 31, 2001 was not material.

The Company has no plans to terminate the Agreement earlier than the
maturity date. The Company is exposed to credit loss in the event of
nonperformance by the counterparty to the Agreement. The amount of such exposure
is limited to the unpaid portion of amounts due to the Company, if any, pursuant
to the Agreement. However, management believes that this exposure is mitigated
by provisions in the Agreement that allow for the legal right of offset of any
amounts due to the Company from the counter party with any amounts payable to
the counterparty by the Company. As a result, management considers the risk of
counter-party default to be minimal. At December 31, 2000 and 2001, the Company
expects to reclassify approximately $423,000 and $1,939,000, respectively, of
net losses on the interest rate swap from accumulated other comprehensive income
to earnings during the next twelve months.

14. RELATED PARTY TRANSACTIONS

In connection with the July 29, 1999 CCS acquisition, Charterhouse Equity
Partners III, L.P. (Charterhouse), a majority shareholder of the Company,
received approximately $2,835,000 in transaction fees. In connection with the
TravCorps merger on December 16, 1999, Charterhouse received approximately
$288,000 in transaction fees. These transaction fees were capitalized in
accordance with the purchase method of accounting.

F-24

CROSS COUNTRY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001

15. DISCONTINUED OPERATIONS

On December 20, 2000, the Company committed itself to a formal plan to
dispose of its wholly-owned subsidiary, HospitalHub, through a sale or
liquidation of this business segment. Pursuant to 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 consolidated financial statements of the Company have been
reclassified to reflect the discontinuance of HospitalHub. Accordingly, the
revenue, costs and expenses, assets and liabilities of HospitalHub have been
segregated and reported as discontinued operations in the accompanying
consolidated balance sheets and statements of operations. The divestiture was
completed in the second quarter of 2001.

16. SEGMENT INFORMATION

The Company has two reportable operating segments: healthcare staffing and
other human capital management services. The healthcare staffing operating
segment includes travel staffing, clinical research and trials staffing and per
diem staffing. This segment provides temporary staffing services of healthcare
professionals primarily to hospitals, laboratories, and pharmaceutical and
biotechnology companies. The other human capital management services segment
includes the combined results of our education and training, healthcare
consulting services, physician search and resource management services.

The Company's management evaluates performance of each segment primarily
based on revenues and contribution income (which is defined as earnings before
interest, taxes, depreciation, amortization and corporate expenses not
specifically identified to a reported segment (EBITDA)). The Company's
management does not evaluate, manage or measure performance of segments using
asset information, accordingly, asset information by segment is not prepared or
disclosed. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies (see Note 2). The
information in the following table is derived from the segments' internal
financial information as used for corporate management purposes. Certain
corporate expenses are not allocated to and/or among the operating segments.

F-25

CROSS COUNTRY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001

16. SEGMENT INFORMATION (CONTINUED)
Information on operating segments and a reconciliation of such information
to income before income taxes and discontinued operations for the periods
indicated are as follows:

Contribution income is computed by the Company as operating income, less
unallocated corporate overhead. Contribution income is not a measure of
financial performance under generally accepted accounting principles and is only
used by management when assessing segment performance. Certain amounts in the
2000 segment information have been reclassified to conform to the 2001
presentation.

F-26

CROSS COUNTRY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2001

17. QUARTERLY FINANCIAL DATA (UNAUDITED)

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

(a) On July 29, 1999, the Company acquired the assets of CCS (see Note 1). The
third quarter 1999 financial data reflects results of operations from
July 30, 1999 through September 30, 1999. The fourth quarter 1999 financial
data results include the TravCorps acquisition from December 16, 1999, the
date of its acquisition, through December 31, 1999.

18. SUBSEQUENT EVENT

On February 27, 2002, the Company filed a registration statement with the
Securities and Exchange Commission for the sale of 9,000,000 shares of common
stock by existing shareholders. The Company will not receive any of the proceeds
from the sale of these shares and expects associated costs of approximately
$1,000,000 to be incurred and expensed by the Company.

F-27

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Partners of
Cross Country Staffing (a Partnership):

In our opinion, the accompanying balance sheets and the related statements
of income and partners' capital and of cash flows present fairly, in all
material respects, the financial position of Cross Country Staffing (a
Partnership) at July 29, 1999 and December 31, 1998, and the results of its
operations and its cash flows for the periods then ended in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Partnership's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.

As discussed in Note 1 to the financial statments, Cross Country Staffing's
assets were sold on July 29, 1999. The amounts included in the financial
statements pursuant to the Management Incentive Compensation Plan give no effect
to the additional amount payable as determined by the change in control
transaction as further discussed in Note 5 to the financial statements.

/s/ PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
November 5, 1999, except for Note 8 as to which the date is December 16, 1999

F-28

CROSS COUNTRY STAFFING

BALANCE SHEETS

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

F-29

CROSS COUNTRY STAFFING

STATEMENTS OF INCOME AND PARTNERS' CAPITAL

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

F-30

CROSS COUNTRY STAFFING

STATEMENTS OF CASH FLOWS

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

F-31

CROSS COUNTRY STAFFING (A PARTNERSHIP)

NOTES TO FINANCIAL STATEMENTS

FOR THE PERIODS ENDED JULY 29, 1999 AND DECEMBER 31, 1998

1. ORGANIZATION AND BASIS OF PRESENTATION

On July 1, 1996, Cross Country Staffing (CCS or the Partnership), a Delaware
general partnership, was established through a Joint Venture Agreement
(Agreement) between CCHP, Inc. (CCHP) and MRA Staffing Systems, Inc. (MRA), with
ownership percentages of 64% and 36%, respectively. CCHP is a 94% owned
subsidiary of W. R. Grace & Co.-Conn., a Connecticut corporation (Grace). Prior
to the transaction on July 28, 1999 described below, MRA was a wholly owned
subsidiary of Nestor Healthcare Group plc (Nestor), a public company registered
in the U.K.

CCHP and MRA (the Partners) were each engaged in the business of providing
nurses and other allied health personnel primarily on a contract basis. The
Partnership recorded the assets and assumed the liabilities, as defined in the
Agreement, of its Partners. Assets and liabilities contributed by the Partners
to the joint venture were recorded at predecessor basis. In addition to the
recorded assets and liabilities, the Partners contributed the value of their
businesses, which included certain unrecorded intangible assets primarily
related to proprietary databases and contracts.

On July 28, 1999, Grace purchased Nestor's ownership interest in MRA. On
July 29, 1999, the assets of CCS were sold (the "Sale") to Cross Country
Staffing, Inc. (the "Buyer"), an unrelated entity and affiliate of Charterhouse
Group International, Inc. The amounts included in these Financial Statements
give no effect to the Sale, including the repayment of outstanding bank debt and
liquidation of the Management Incentive Compensation Plan liability. See Notes 4
and 5 for further detail.

CCS is engaged in the business of providing staffing and placement of
healthcare and other professionals throughout the United States and its
territories.

2. ACCOUNTING POLICIES

USE OF ESTIMATES

The preparation of the financial statements in conformity with generally
accepted accounting principles 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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.

FIXED ASSETS

Fixed assets include office furniture, business machines and leasehold
improvements which are stated at cost, less accumulated depreciation.
Depreciation is determined on a straight-line basis over the estimated useful
lives of the assets of five years.

RESERVES FOR CLAIMS

Workers' compensation and health care benefits are provided under partially
self-insured plans. CCS records its estimate of the ultimate cost of, and
reserves for, workers' compensation and health care benefits based on actuarial
computations using its loss history as well as industry statistics. Furthermore,
in determining its reserves, CCS includes reserves for estimated claims incurred
but not reported.

F-32

CROSS COUNTRY STAFFING (A PARTNERSHIP)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOR THE PERIODS ENDED JULY 29, 1999 AND DECEMBER 31, 1998

2. ACCOUNTING POLICIES (CONTINUED)
The ultimate cost of workers' compensation and health care benefits will
depend on actual costs incurred in settling the claims and may differ from the
amounts reserved by CCS for those claims. Accruals for workers' compensation
claims and health care benefits are included in accrued employee compensation
and benefits in the Balance Sheet.

GOODWILL

Goodwill contributed by one of the Partners at inception is amortized using
the straight-line method over its estimated useful life of 14 years
(approximately 11 years remaining at July 29, 1999). CCS assesses the
recoverability of goodwill whenever adverse events or changes in circumstance or
business climate indicate that expected future undiscounted cash flows are not
sufficient to support the carrying value. At July 29, 1999 and December 31, 1998
the Partnership believes that no impairment of goodwill exists.

DEFERRED DEBT ISSUE COSTS

Deferred costs related to the issuance of debt are amortized on a
straight-line basis over the five year term of the debt. At July 29, 1999 and
December 31, 1998 costs of $389,000 less accumulated amortization of $250,148
and $205,183, respectively, are recorded as other assets in the Balance Sheet.

FAIR VALUE OF FINANCIAL INSTRUMENTS

At July 29, 1999 and December 31, 1998 the recorded value of cash, trade
receivables and debt approximated their fair value, based on the maturities of
these instruments and the terms of the individual debt agreements.

REVENUE RECOGNITION

Revenue is recognized when the service is performed. Accordingly, accounts
receivable includes an accrual for employees' time worked but not yet invoiced.
At July 29, 1999 and December 31, 1998 the amounts accrued are $7,176,798 and
$4,835,971.

CONCENTRATIONS OF CREDIT RISK

CCS's clients are principally health care providers and accounts receivable
represent amounts due from these providers. CCS performs ongoing credit
evaluations of its clients' financial condition and does not require collateral.
Overall, based on the large number of clients in differing geographic areas
throughout the United States and its territories, CCS believes the concentration
of credit risk is limited.

INCOME TAXES

CCS is not subject to federal taxation at the Partnership level as income is
taxed directly to the Partners. Accordingly, a provision for income taxes has
not been included in the financial statements.

The General Partnership Agreement (Partnership Agreement) provides for
quarterly distributions to the Partners based on the Partnership's estimated
taxable income for the year. Generally, it has been the practice of the
Partnership to make such distributions based on actual tax liabilities of the

F-33

CROSS COUNTRY STAFFING (A PARTNERSHIP)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOR THE PERIODS ENDED JULY 29, 1999 AND DECEMBER 31, 1998

2. ACCOUNTING POLICIES (CONTINUED)
individual Partners. Currently, distributions are made at the request of the
Partners up to the quarterly distribution amount provided for in the Partnership
Agreement. A distribution payable was recorded to equalize the distributions
based on the respective Partners' ownership percentages.

RECLASSIFICATIONS

Certain amounts in prior year financial statements and related notes have
been reclassified to conform to current year's presentation.

3. OTHER BALANCE SHEET ITEMS

At July 29 and December 31, other current assets are composed of the
following:

CCS leases a number of apartments for its employees under short-term
agreements (typically three to six months) which generally coincide with each
employee's staffing contract. As a condition of those agreements, CCS places
security deposits on the leased apartments. Prepaid rent and deposits relate to
these short-term agreements.

At July 29 and December 31, accrued employee compensation and benefits is
composed of the following:

F-34

CROSS COUNTRY STAFFING (A PARTNERSHIP)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOR THE PERIODS ENDED JULY 29, 1999 AND DECEMBER 31, 1998

4. DEBT

On July 30, 1999, CCS repaid all of its long-term debt, which consists of
the Term Note and Revolving Loan Facility. Accordingly, they have been
classified as short-term at July 29, 1999. At July 29 and December 31,
short-term debt is composed of the following:

At July 29 and December 31, long-term debt is composed of the following:

Grace acts as guarantor of the Term Note and Revolving Loan Facility and, as
such, is paid a monthly fee based on the average outstanding balance. For the
periods ended July 29, 1999 and December 31, 1998 this fee was 0.025% per month.
For the periods ended July 29, 1999 and December 31, 1998 total fees in relation
to this guarantee were $13,398 and $47,663, respectively. Of these total fees,
which are recorded as interest expense, $9,229 and $18,243 were recorded as
accrued interest payable at July 29, 1999 and December 31, 1998, respectively.

5. MANAGEMENT INCENTIVE COMPENSATION PLAN

The CCS Management Incentive Compensation Plan (the Plan) is a
performance-based compensation plan for key personnel of the Partnership. The
Plan authorizes the award of percentage interests in an incentive pool based on
the achievement of certain performance objectives. The percentage interests vest
over a period of either three or five years or, in the case of a Liquidity Event
as defined in the Plan, vesting occurs immediately.

F-35

CROSS COUNTRY STAFFING (A PARTNERSHIP)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOR THE PERIODS ENDED JULY 29, 1999 AND DECEMBER 31, 1998

5. MANAGEMENT INCENTIVE COMPENSATION PLAN (CONTINUED)
The Plan also authorized an immediate percentage award to certain key
executives based on Partnership equity value at inception, as defined by the
Plan. Incremental increases in the amount of this award may occur based on
increases in the value of the Partnership equity. The amount charged to income
for the award and the incremental increase in equity value was $319,000 and
$409,000 for the periods ended July 29, 1999 and December 31, 1998,
respectively.

In accordance with the terms of the Plan, cash payments are made at the
earlier of occurrence of a Liquidity Event or July 1, 2001. The occurrence of a
Liquidity Event also provides for a revised award computation. The Sale of CCS
assets on July 29, 1999 constituted a Liquidity Event and as such, a liquidation
cash payment was triggered. Grace used a portion of the Sale proceeds for such
liquidation payment totaling approximately $20,200,000.

6. PARTNERS' CAPITAL (DEFICIT)

Partners' capital accounts are as follows:

At December 31, 1998, accrued distributions payable of $5,645,354 relate to
CCHP.

7. COMMITMENTS AND CONTINGENCIES

CCS is involved in a dispute with the Internal Revenue Service (IRS) with
respect to the IRS Examination of the 1993-1995 treatment of per diem plan
allowances for meals and incidental expenses paid to CCHP health care personnel
who were performing temporary services while away from home. Under the terms of
the Sale, Grace has assumed ongoing responsibility for any settlement or related
litigation liability.

In connection with the Partnership's partially self-insured workers'
compensation plan, the Partnership has outstanding at July 29, 1999 a $943,594
standby letter of credit in order to guarantee the payment of workers'
compensation claims to the Partnership's insurance carrier.

CCS entered into an agreement to lease office space for the next 10 years
beginning in February 1998. In accordance with the Sale, CCS assigned the office
lease agreement to the Buyer.

Rent expense related to office facilities for the periods ended July 29,
1999 and December 31, 1998 was approximately $250,000 and $269,000,
respectively.

F-36

CROSS COUNTRY STAFFING (A PARTNERSHIP)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOR THE PERIODS ENDED JULY 29, 1999 AND DECEMBER 31, 1998

7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
CCS is subject to legal proceedings and claims which arise in the ordinary
course of its business. In the opinion of management, the outcome of these
matters will not have a significant effect on the Partnership's financial
position or results of operations.

8. SUBSEQUENT EVENTS

As referred to in Note 1, the assets of CCS were sold to Cross Country
Staffing, Inc. on July 29, 1999.

On November 12, 1999 Cross Country Staffing, Inc. and TravCorps announced
their intention to merge operations. The combined company will be owned by an
affiliate of Charterhouse Group International, Inc., certain investment funds
managed by Morgan Stanley Private Equity and management. The transaction was
consummated on December 16, 1999.

F-37

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Cross Country, Inc.

We have audited the accompanying consolidated statement of assets acquired
and liabilities assumed of ClinForce, Inc. ("ClinForce") at March 16, 2001, and
the statement of operating revenues and expenses for the period from January 1,
2001 to March 16, 2001. These statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the statements based
on our audit.

We conducted our audit 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 audit provides a reasonable basis
for our opinion.

In our opinion, the statements referred to above present fairly, in all
material respects, the consolidated assets acquired and liabilities assumed at
March 16, 2001 of ClinForce and the consolidated results of its operations for
the period January 1, 2001 to March 16, 2001 in conformity with accounting
principles generally accepted in the United States.

/s/Ernst & Young

Raleigh, North Carolina
September 28, 2001

F-38

CLINFORCE, INC.
CONSOLIDATED STATEMENT OF ASSETS ACQUIRED AND LIABILITIES ASSUMED
MARCH 16, 2001

ASSETS ACQUIRED
Current assets:
Cash...................................................... $ 91,906
Accounts receivable, less allowance for doubtful accounts
of $52,499.............................................. 5,783,997
Prepaid expenses.......................................... 55,733
Current deferred tax asset................................ 61,653
Other current assets...................................... 8,545
-----------
Total current assets........................................ 6,001,834

Property and equipment, net of accumulated depreciation of
$878,007.................................................. 401,416
Goodwill, net of accumulated amortization of $1,551,175..... 11,643,259
Long-term deferred tax asset................................ 154,092
Other assets................................................ 32,260
-----------
Total assets acquired....................................... $18,232,861
===========

LIABILITIES ASSUMED
Current liabilities:
Cash overdraft............................................ $ 274,896
Accounts payable.......................................... 49,996
Income taxes payable...................................... 2,281,146
Accrued employee compensation and benefits................ 1,345,249
Other current liabilities................................. 4,837
-----------
Total current liabilities................................... 3,956,124
Long-term deferred tax liability............................ 382,391
-----------
Total liabilities assumed................................... $ 4,338,515
===========

See accompanying notes.

F-39

CLINFORCE, INC.
CONSOLIDATED STATEMENT OF OPERATING REVENUES AND EXPENSES
FOR THE PERIOD JANUARY 1, 2001 TO MARCH 16, 2001

Revenue from services....................................... $7,692,750
Operating expenses:
Cost of services.......................................... 5,349,769
Selling, general and administrative....................... 1,592,999
Bad debt expense.......................................... 12,854
Depreciation.............................................. 35,509
Amortization.............................................. 137,428
----------
Total operating expenses.................................... 7,128,559
----------
Income from operations...................................... 564,191
Income tax expense.......................................... 215,426
----------
Income from operations after tax............................ $ 348,765
==========

See accompanying notes.

F-40

CLINFORCE, INC.

NOTES TO CONSOLIDATED STATEMENTS

MARCH 16, 2001

1. ORGANIZATION AND BASIS OF PRESENTATION

ClinForce, Inc. ("ClinForce" or the "Company") is in the business of
recruiting and placing temporary and permanent clinical research professionals.
The Company was a subsidiary of Edgewater Technology, Inc. (f/k/a
Staffmark, Inc.), a publicly held company.

ClinForce, Inc. was founded in 1991 as Clinical Trial Support Services. In
1997, the Company acquired ClinForce in Morristown, New Jersey. In August 1996,
the Company merged with four other regional companies to form Staffmark, Inc.
(n/k/a Edgewater Technology, Inc.). In October 1996, Staffmark became a publicly
traded company. In March 1998, ClinForce acquired Temporary Tech in North
Carolina. On April 1, 1999, the Company changed its name to ClinForce, Inc.
During 2000, the Company opened facilities in Ft. Myers, Boston, Philadelphia,
and Cincinnati.

CFRC, Inc., a wholly-owned subsidiary of ClinForce, was established in
fiscal year 1997. CFRC, Inc. was established primarily as an intellectual
property company. The consolidated financial statements of ClinForce include the
results of operations of CFRC, Inc.

On December 15, 2000, the ClinForce entered into a stock purchase agreement
to be acquired by Cross Country TravCorps for approximately $31,000,000. The
transaction was consummated on March 16, 2001 and met the accounting criteria of
a purchase.

The consolidated statement of assets acquired and liabilities assumed and
the statement of operating revenues and expenses are not intended to be a
complete presentation of the assets, liabilities, revenues and expenses of the
Company because corporate allocated expenses charged to ClinForce were not
necessarily indicative of amounts that would have been incurred by the Company
had it operated at a stand-alone business, and were not presented (see Note 2).

USE OF ESTIMATES

The preparation of the statement in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts in the statements and
accompanying notes. Actual results could differ from those estimates.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This statement is not indicative of the financial condition of this business
going forward because of the change in the business and the omission of various
administrative expenses.

REVENUE RECOGNITION

Revenues consist primarily of billing for associates' time and permanent
placement fees. Revenue is recognized upon completion of services.

Revenues on permanent and temporary placements are recognized when services
provided are substantially completed. The Company does not, in the ordinary
course of business, make refunds. If a candidate leaves a permanent placement
within a short period of time (i.e., one month) it is customary for us to seek a
replacement at no additional cost. Allowances are established as considered
necessary to estimate significant losses due to placed candidates not remaining
employed for the Company's guarantee period. During 2000 and 1999, such
replacements and refunds were not material and, accordingly, related allowances
were not recorded.

F-41

CLINFORCE, INC.

NOTES TO CONSOLIDATED STATEMENTS (CONTINUED)

MARCH 16, 2001

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to concentrations
of credit risk as defined by Financial Accounting Standards Board (FASB)
Statement No. 105, DISCLOSURE OF INFORMATION ABOUT FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET RISK AND FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT
RISK, consist principally of accounts receivable. The Company's customers are
clinical research organizations ("CROs") and accounts receivable represent
amounts due from these CROs. The Company performs ongoing credit evaluations of
its customers' financial conditions and, generally, does not require collateral.
Overall, based on the large number of customers in differing geographic areas
throughout the United States and its territories, the Company believes the
concentration of credit risk is limited. As of March 16, 2001, approximately 19%
of the outstanding accounts receivable was due from one customer, and 36% of
revenue was generated by two customers.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is determined on a straight-line basis over the estimated useful
lives of the assets, which generally range from three to seven years. Leasehold
improvements are depreciated over the lives of the related leases or the useful
life of an individual lease, whichever is shorter.

CORPORATE ALLOCATIONS

Edgewater provided substantial services to the Company, including, but not
limited to, general administration, treasury, tax, financial reporting,
insurance and legal functions. Edgewater has traditionally charged the Company
for certain of these services through corporate allocations which were generally
based on a percent of sales. Edgewater also allocated interest expense to its
subsidiaries. The amount of corporate allocations was dependent upon the total
amount of anticipated allocable costs incurred by Edgewater, less amounts
charged as a specific cost or expense rather than by allocation. The amounts
allocated are not necessarily indicative of amounts that would have been
incurred by the Company had it operated on a stand-alone basis.

GOODWILL

Goodwill represents the excess of purchase price over the fair value of net
assets acquired. Goodwill associated with acquisitions in 1998 and 1997 is being
amortized using the straight-line method over its estimated useful life of
twenty years. In accordance with FASB Statement No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF,
long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable.
Recoverability of assets is measured by comparison of the carrying amount of the
asset to net future cash flows expected to be generated from the asset. At
March 16, 2001, the Company believes that no impairment of goodwill exists.

ADVERTISING

The Company's advertising expense consists primarily of print media, online
advertising and promotional material. Advertising costs are expensed as incurred
and were approximately $29,124 for the period from January 1, 2001 to March 16,
2001.

F-42

CLINFORCE, INC.

NOTES TO CONSOLIDATED STATEMENTS (CONTINUED)

MARCH 16, 2001

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES

The Company accounts for income taxes under FASB Statement No. 109,
ACCOUNTING FOR INCOME TAXES. Deferred income tax assets and liabilities are
determined based upon differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. ClinForce
has always been included in a consolidated return for United States federal tax
reporting purposes. The income tax provision included in the statement of
operating revenues and expenses was prepared as if the Company was a stand-alone
entity.

ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts reported in the consolidated statement of assets
acquired and liabilities assumed for cash, accounts receivable, accounts payable
and accrued expenses approximate fair value because of their short maturity.

COMPREHENSIVE INCOME

The Company has adopted FASB Statement No.130, COMPREHENSIVE INCOME, which
requires that an enterprise: (a) classify items of other comprehensive income by
their nature in the financial statements; and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of the balance sheet. The items
of other comprehensive income that are typically required to be displayed are
foreign currency items, minimum pension liability adjustments and unrealized
gains and losses on certain investments in debt and equity securities. There are
no other components of comprehensive income or loss other than the Company's
consolidated net income and net loss for the period ended March 16, 2001.

IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued SFAS No.133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No.133, as
amended, is required to be adopted in years beginning after June 15, 2000. The
Company plans to adopt the new statement effective January 1, 2001. Because of
the Company's minimal use of derivatives, management does not anticipate the
adoption of the new Statement will have a significant affect on earnings or the
consolidated financial position of the Company.

In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS,
effective for fiscal years beginning after December 15, 2001. Under the new
rules, goodwill and intangible assets deemed to have indefinite lives will no
longer be amortized but will be subject to annual impairment tests in accordance
with the Statement. Other intangible assets will continue to be amortized over
their useful lives.

The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. During 2002, the
Company will apply the non-amortization provisions and perform the first of the
required impairment tests of goodwill and indefinite-lived intangible assets as
of January 1, 2002. The Company has not yet determined what effect, if any, the
Statement will have on the financial statements of the Company.

F-43

CLINFORCE, INC.

NOTES TO CONSOLIDATED STATEMENTS (CONTINUED)

MARCH 16, 2001

3. PROPERTY AND EQUIPMENT

Property and equipment at March 16, 2001 consist of the following:

Computer equipment.......................................... $ 270,311
Computer software........................................... 173,103
Office equipment............................................ 123,152
Furniture and fixtures...................................... 567,782
Leasehold improvements...................................... 145,075
---------
1,279,423
Less accumulated depreciation............................... (878,007)
---------
$ 401,416
=========

4. ACCRUED EMPLOYEE COMPENSATION AND BENEFITS

Accrued employee compensation and benefits at March 16, 2001 consist of the
following:

Salaries.................................................... $ 480,821
Bonuses..................................................... 595,120
Accrual for payroll taxes................................... 144,689
Accrual for vacation........................................ 100,000
Accrual for benefits........................................ 24,619
----------
$1,345,249
==========

5. COMMITMENTS AND CONTINGENCIES

The Company has entered into non-cancelable operating lease agreements for
the rental of space and equipment. Future minimum lease payments associated with
these agreements are as follows:

YEAR ENDING DECEMBER 31:
- ------------------------------------------------------------
2001........................................................ $ 359,245
2002........................................................ 399,158
2003........................................................ 396,144
2004........................................................ 315,586
2005........................................................ 57,402
Thereafter.................................................. 23,712
----------
$1,551,247
==========

F-44

CLINFORCE, INC.

NOTES TO CONSOLIDATED STATEMENTS (CONTINUED)

5. COMMITMENTS AND CONTINGENCIES (CONTINUED)

Rent expense related to office facilities and equipment was approximately
$95,373 for the period January 1, 2001 to March 16, 2001.

The Company is subject to legal proceedings and claims that arise in the
ordinary course of its business. In the opinion of management, the outcome of
these matters will not have a significant effect on the Company's consolidated
financial position or results of operations.

6. INCOME TAXES

The Company has always been included in a consolidated return for United
States federal tax reporting purposes. The income tax expense and deferred
income taxes were calculated based on income from operations, and therefore are
not necessarily indicative of amounts that would have been incurred by the
Company had it operated as a stand-alone entity.

The components of the income tax expense (benefit) are as follows for the
period January 1 to March 16, 2001:

Current..................................................... $291,051
Deferred.................................................... (75,625)
--------
$215,426
========

Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows at March 16,
2001:

Deferred tax assets:
Accrued expenses.......................................... $ 154,092
Allowance for doubtful accounts........................... 61,653
---------
215,745
Deferred tax liabilities:
Goodwill amortization..................................... (249,337)
Depreciation.............................................. (133,054)
---------
Net deferred taxes.......................................... $(166,646)
=========

FASB Statement No. 109 requires a valuation allowance to reduce the deferred
tax assets reported if, based on the weight of the evidence, it is more likely
than not that some of or all of the deferred tax assets will not be realized.
After consideration of all the evidence, both positive and negative, management
has determined that a valuation allowance at March 16, 2001 is not necessary.

F-45

CLINFORCE, INC.

NOTES TO CONSOLIDATED STATEMENTS (CONTINUED)

6. INCOME TAXES (CONTINUED)

The reconciliation of income tax computed at the U. S. federal statutory
rate to income tax expense is as follows at March 16, 2001:

Tax at U.S. statutory rate.................................. $197,467
State taxes, net of federal benefit......................... 25,551
Non-deductible items........................................ 1,925
Other....................................................... (9,517)
--------
$215,426
========

7. CASH FLOW INFORMATION (UNAUDITED)

Based on available information and management's best estimates, cash flows
for the Company are as follows for the period January 1, 2001 to March 16, 2001:

Used in operating activities................................ $(224,336)
Used in investing activities................................ (32,523)
Provided by financing activities............................ --

F-46

SCHEDULE II

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

(a) --Allowance for doubtful accounts for receivables acquired in TravCorps
acquisition.

(b) --Allowance for doubtful accounts for receivables acquired in ClinForce
acquisition.

II-1