NCO GROUP INC, 424B1, 1996-11-08

NCO GROUP INC
424B1, 1996-11-08
CONSUMER CREDIT REPORTING, COLLECTION AGENCIES

Previous: MLC HOLDINGS INC, S-1/A, 1996-11-08

Next: INSIGHT PREMIER FUNDS, N-1A EL/A, 1996-11-08

<PAGE>

Pursuant to Rule 424B1
Registration No. 333-11745

2,500,000 SHARES
[LOGO]
COMMON STOCK

All of the shares of Common Stock offered hereby are being sold by NCO
Group, Inc. ("NCO" or the "Company").

Prior to this offering (the "Offering"), there has been no public market for
the Common Stock of the Company. See "Underwriting" for a discussion of the
factors considered in determining the initial public offering price. The Common
Stock has been approved for listing on the Nasdaq National Market, subject to
notice of issuance, under the symbol "NCOG."

See "Risk Factors" commencing on page 8 of this Prospectus for a
discussion of certain factors that should be considered by prospective
purchasers of the Common Stock offered hereby.

------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

===============================================================================
Price to Underwriting Proceeds to
Public Discount (1) Company (2)
- -------------------------------------------------------------------------------
Per Share ........ $13.00 $0.91 $12.09
Total (3) ........ $32,500,000 $2,275,000 $30,225,000
===============================================================================

(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.

(2) Before deducting offering expenses payable by the Company, estimated at
$1,150,000.

(3) The principal shareholders of the Company (the "Selling Shareholders") have
granted to the Underwriters a 30-day option to purchase up to 375,000
additional shares of Common Stock solely to cover over-allotments, if any.
If the Underwriters exercise this option in full, the total Price to Public,
Underwriting Discount, Proceeds to Company and Proceeds to Selling
Shareholders will be $37,375,000, $2,616,250, $30,225,000, and $4,533,750,
respectively. See "Principal and Selling Shareholders" and "Underwriting."

The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right
to reject any orders in whole or in part. It is expected that delivery of the
certificates representing such shares will be made against payment therefor
at the office of Montgomery Securities on or about November 13, 1996.

------

MONTGOMERY SECURITIES JANNEY MONTGOMERY SCOTT INC.

November 6, 1996

<PAGE>

Six pictures depicting the Company's call center in Blue Bell, Pennsylvania,
the Company's call center in Buffalo, New York and the Company's computer
center in Blue Bell, Pennsylvania and an NCO telephone representative appear
here. A diagram depicting the accounts receivable recovery process also
appears here.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

2
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, contained
elsewhere in this Prospectus. The Company is a recently formed Pennsylvania
corporation. On September 3, 1996, the shareholders of NCO Financial Systems,
Inc. ("NCO Financial") exchanged each of their shares of NCO Financial for
one share of the Company, NCO Financial became a wholly-owned subsidiary of
the Company and NCO Financial's status as an S Corporation was terminated.
See "Dividend Policy and Prior S Corporation Status." Unless the context
otherwise requires, all references in this Prospectus to the "Company" or
"NCO" mean NCO Group, Inc. and its subsidiaries. Unless otherwise indicated,
all information in this Prospectus: (i) assumes no exercise of the
Underwriters' over-allotment option; (ii) gives effect to a proposed
46.56-for-one stock split effected in September 1996; and (iii) gives effect
to the Company's acquisition of Management Adjustment Bureau, Inc. ("MAB") on
September 5, 1996.

THE COMPANY

NCO is a leading provider of accounts receivable management and related
services utilizing an extensive teleservices infrastructure. The Company
develops and implements customized accounts receivable management solutions for
clients. From eight call centers located in six states, the Company employs
advanced workstations and sophisticated call management systems comprised of
predictive dialers, automated call distribution systems, digital switching and
customized computer software. Through efficient utilization of technology and
intensive management of human resources, the Company has achieved rapid growth
in recent years. Since April 1994, the Company has made four acquisitions which
have enabled it to increase its penetration of existing markets, establish a
presence in certain new markets and realize significant operating efficiencies.
In addition, the Company has leveraged its infrastructure by offering additional
services including telemarketing, customer service call centers and other
outsourced administrative services. The Company believes that it is currently
among the 20 largest accounts receivable management companies in the United
States.

The Company provides its services principally to educational organizations,
financial institutions, healthcare organizations, telecommunications companies,
utilities and government entities. In 1995, the Company had over 5,000 clients,
including Bell Atlantic Corporation, City of Philadelphia Water Revenue Bureau,
First Union Corporation, George Washington University Hospital, NationsBank and
the University of Pennsylvania. No client other than the City of Philadelphia
Water Revenue Bureau accounted for more than 10% of the Company's actual revenue
in 1995. For its accounts receivable management services, the Company generates
substantially all of its revenue on a contingency fee basis. The Company seeks
to be a low cost provider and as such its fees typically range from 15% to 35%
of the amount recovered on behalf of the Company's clients, with a current
average of approximately 24%. According to the 1995 Top Collection Markets
Survey published by the American Collectors Association, Inc. ("ACA"), an
industry trade group, the average fees realized by the accounts receivable
management companies surveyed were in the range of 30% to 43% depending upon the
industries served. For many of its other outsourced teleservices, the Company is
paid on a fixed fee basis. While NCO's contracts are relatively short-term, the
Company seeks to develop long-term relationships with its clients and works
closely with them to provide quality, customized solutions.

Increasingly, companies are outsourcing many non-core functions to focus
on revenue generating activities, reduce costs and improve productivity. In
particular, many corporations are recognizing the advantages of outsourcing
accounts receivable management and other teleservices as a result of numerous
factors including: (i) the increasing complexity of such functions; (ii)
changing regulations and increased competition in certain industries; and
(iii) the development of sophisticated call management systems requiring
substantial capital investment, technical capabilities and human resource
commitments. Consequently, receivables referred to third parties for
management and recovery in the United States have grown substantially from
approximately $43.7 billion in 1990 to approximately $79.0 billion in 1994,
according to estimates published by the ACA. While significant economies of
scale exist for large accounts receivable management companies, the industry
remains highly fragmented. Based on information obtained from the ACA, there
are currently approximately 6,300 accounts receivable management companies in
operation, the majority of which are small, local businesses. Given the
financial and competitive constraints facing these small companies and the
limited number of liquidity options for the owners of such businesses, the
Company believes that the industry will experience consolidation in the
future. See "Business -- Industry Background."

3
<PAGE>

The Company strives to be a cost-effective, client service driven provider
of accounts receivable management and other related teleservices to companies
with substantial outsourcing needs. The Company's business strategy
encompasses a number of key elements which management believes are necessary
to ensure quality service and to achieve consistently strong financial
performance. First, the Company focuses on the efficient utilization of its
technology and infrastructure to constantly improve productivity. The
Company's teleservices infrastructure enables it to perform large scale
accounts receivable management programs cost effectively and to rapidly and
efficiently integrate the Company's acquisitions. A second critical component
is NCO's commitment to client service. Management believes that the Company's
emphasis on designing and implementing customized accounts receivable
management programs for its clients provides it with a significant
competitive advantage. Third, the Company seeks to be a low cost provider of
accounts receivable management services by centralizing all administrative
functions and minimizing overhead at all branch locations. Lastly, the
Company is targeting larger clients which offer significant cross-selling
opportunities and have greater teleservices outsourcing requirements. See
"Business -- Business Strategy."

The Company seeks to continue its rapid expansion through both internal
and external growth. The Company intends to continue to take advantage of the
fragmented nature of the accounts receivable management industry by making
strategic acquisitions. Through selected acquisitions, the Company will seek
to serve new geographic markets, expand its presence in its existing markets
or add complementary services. In addition, the Company has experienced and
expects to continue to experience strong internal growth by continually
striving to increase its market share, expand its industry-specific market
expertise and develop and offer new value-added teleservices. The Company
regularly reviews various strategic acquisition opportunities and
periodically engages in discussions regarding such possible acquisitions.
Currently, the Company is not a party to any agreements, understandings,
arrangements or negotiations regarding any material acquisitions; however, as
the result of the Company's process of regularly reviewing acquisition
prospects, negotiations may occur from time to time if appropriate
opportunities arise. See "Acquisition History."

The Company's principal executive offices are located at 1740 Walton Road,
Blue Bell, Pennsylvania 19422, and its telephone number is (610) 832-1440.

Risk Factors

Prospective investors should carefully consider the factors described under
"Risk Factors" prior to making an investment in the Company's Common Stock.

Summary of Recent Operating Results

The Company's revenue for the nine months ended September 30, 1996 was $20.3
million on an actual basis and $29.4 million on a pro forma basis, compared to
revenue for the nine months ended September 30, 1995 of $9.0 million. For the
nine months ended September 30, 1996, operating income was $3.3 million on an
actual basis and $3.9 million on a pro forma basis, compared to operating
income of $1.2 million for the nine months ended September 30, 1995. The
increase in actual revenue and operating income was attributable to internal
growth and the acquisition of Eastern Business Services, Inc. ("Eastern") in
August 1995, the Trans Union Corporation Collections Division ("TCD") in
January 1996 and MAB in September 1996. Such operating information is
preliminary and subject to further review and possible revision by the
Company. The preliminary results for the nine months ended September 30, 1996
are not necessarily indicative of the results to be expected for the full
year. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Results of Operations" and "Pro Forma Consolidated
Financial Statements."

4
<PAGE>

THE OFFERING
<TABLE>

<S> <C>
Common Stock offered by the Company ................ 2,500,000 shares

Common Stock to be outstanding after the Offering .. 6,713,447 shares (1)

Use of proceeds .................................... For repayment of bank debt incurred to finance
acquisitions, for payment of S Corporation
distributions, and for working capital and other
general corporate purposes, including possible
acquisitions.

Nasdaq National Market symbol ...................... NCOG

</TABLE>

- ------

(1) Excludes: (i) 464,390 shares of Common Stock reserved for issuance under the
Company's 1995 Stock Option Plan, 1996 Stock Option Plan and 1996
Non-Employee Director Stock Option Plan; (ii) 240,591 shares of Common Stock
reserved for issuance upon the exercise of warrants granted or to be granted
by the Company to its lender; and (iii) 76,923 shares of Common Stock
reserved for issuance upon the conversion of the Company's $1.0 million
Convertible Note (at a conversion price of $13.00 per share) issued as
partial consideration for the MAB acquisition. See "Acquisition History,"
"Management-- Stock Option Plans" and "Description of Capital Stock --
Warrants and Convertible Note."

5
<PAGE>

SUMMARY FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>

Years Ended December 31,
--------------------------------------------------
1991 1992 1993 1994
---------- ---------- ---------- ----------

<S> <C> <C> <C> <C>
Statement of Income Data:
Revenue ............... $ 3,792 $ 5,822 $ 7,445 $ 8,578
Operating costs and
expenses:
Payroll and related
expenses ......... 1,892 3,058 4,123 4,558
Selling, general and
administrative
expenses ......... 1,457 2,013 2,391 2,674
Depreciation and
amortization
expense .......... 40 95 141 215
---------- ---------- ---------- ----------
Income from operations 403 656 790 1,131
Other income (expense) (1) 15 11 (45)
---------- ---------- ---------- ----------
Income before income
taxes .............. 402 671 801 1,086
Pro forma provision for
income taxes (4) ... 160 268 320 434
---------- ---------- ---------- ----------
Pro forma net income
(4) ................ $ 242 $ 403 $ 481 $ 652
========== ========== ========== ==========
Pro forma net income
per share ..........
Pro forma weighted
average shares
outstanding ........
Operating Data:
Total value of accounts
referred ........... $178,529 $150,707 $199,108 $281,387
Average fee ........... 14.4% 16.9% 20.2% 22.5%

</TABLE>

<PAGE>

(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>

Six Months Ended June 30,
-------------------------------------------
1995 1995 1996
------------------------------ ---------- -----------------------------
Pro Pro
Actual Forma(1)(2) Actual Forma(2)(3)
-------------- ------------ ---------- -------------- -----------
<S> <C> <C> <C> <C> <C>

Statement of Income Data:
Revenue ............... $12,733 $34,509 $5,546 $12,543 $19,319
Operating costs and
expenses:
Payroll and related
expenses ......... 6,797 16,412 2,956 5,954 9,479
Selling, general and
administrative
expenses ......... 4,042 12,531 1,745 4,095 6,516
Depreciation and
amortization
expense .......... 348 1,529 116 423 833
-------------- ------------ ---------- -------------- -----------
Income from operations 1,546 4,037 729 2,071 2,491
Other income (expense) (180) (212) (73) (310) (19)
-------------- ------------ ---------- -------------- -----------
Income before income
taxes .............. 1,366 3,825 656 1,761 2,472
Pro forma provision for
income taxes (4) ... 546 1,659 262 704 1,053
-------------- ------------ ---------- -------------- -----------
Pro forma net income
(4) ................ $ 820 $2,166 $ 394 $ 1,057 $1,419
============== ============ ========== ============== ===========
Pro forma net income
per share .......... $ 0.17(5) $0.36 $ 0.22(5) $ 0.23
============== ============ ============== ===========
Pro forma weighted
average shares
outstanding ........ 4,728,906(5) 6,082,091 4,733,549(5) 6,086,734
============== ============ ============== ===========
Operating Data:
Total value of accounts
referred ........... $431,927 $1,134,000 $180,783 $373,499 $664,905
Average fee ........... 22.4% N/A 21.7% 24.0% 24.3%

</TABLE>

December 31, June 30, 1996
----------------------------------------------------- ----------------------------
Pro Forma
1991 1992 1993 1994 1995 Actual As Adjusted(6)
-------- -------- -------- -------- -------- ---------- --------------
Balance Sheet Data:
<S> <C> <C> <C> <C> <C> <C> <C>

Cash and cash equivalents ....... $ 355 $ 421 $ 562 $ 526 $ 805 $ 990 $11,840
Working capital ................. 179 362 445 473 812 2,458 13,925
Total assets .................... 1,162 1,794 1,990 3,359 6,644 12,565 34,104
Long-term debt, net of current
portion......................... 108 144 59 732 2,593 7,356 1,710
Shareholders' equity ............ 403 686 876 1,423 2,051 3,151 29,306

</TABLE>
6
<PAGE>

(1) Assumes that the acquisitions of MAB, TCD and Eastern occurred on January
1, 1995.

(2) Gives effect to: (i) the reduction of certain redundant operating costs
and expenses that were immediately identifiable at the time of the
acquisitions; (ii) the elimination of interest expense associated with
acquisition related debt assumed to be repaid with offering proceeds; and
(iii) the issuance of 1,583,954 shares of Common Stock (at the
initial public offering price of $13.00 per share) which, net of
estimated underwriting commissions and offering expenses payable by the
Company, would be sufficient to repay acquisition related debt of $15.0
million and to fund the distribution of undistributed S Corporation
earnings (estimated at $3.0 million) through September 3, 1996, the
termination date of the Company's S Corporation status, to existing
shareholders of the Company. See Pro Forma Consolidated Financial
Statements.

(3) Assumes that the acquisition of MAB occurred on January 1, 1995.

(4) Prior to September 3, 1996, the Company operated as an S Corporation for
income tax purposes and accordingly was not subject to federal or state
income taxes. Accordingly, the historical financial statements do not
include a provision for federal and state income taxes for such periods.
Pro forma net income has been computed as if the Company had been fully
subject to federal and state income taxes for all periods presented. See
Note 12 of Notes to Pro Forma Consolidated Financial Statements.

(5) Assumes that the Company issued 230,769 shares of Common Stock (at the
initial public offering price of $13.00 per share) to fund the
distribution of undistributed S Corporation earnings (estimated at $3.0
million) through September 3, 1996, the termination date of the Company's
S Corporation status, to existing shareholders of the Company.

(6) Gives effect to: (i) the MAB acquisition and (ii) the sale of the
2,500,000 shares of Common Stock offered by the Company hereby (at the
initial public offering price of $13.00 per share) and the
application of the net proceeds therefrom as set forth in "Use of
Proceeds."

7
<PAGE>

RISK FACTORS

Certain statements included in this Prospectus, including, without
limitation, statements regarding the anticipated growth in the amount of
accounts receivable placed for third-party management, the continuation of
trends favoring outsourcing of other administrative functions, the Company's
objective to grow through strategic acquisitions and its ability to realize
operating efficiencies upon the completion of the MAB acquisition and other
acquisitions that may occur in the future, the Company's ability to expand
its service offerings, and trends in the Company's future operating
performance, are forward-looking statements, and the factors discussed below
could cause actual results and developments to be materially different from
those expressed in or implied by such statements. Accordingly, in addition to
the other information contained in "Acquisition History -- Financial Impact
of Acquisitions," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this Prospectus, the
following factors should be considered carefully in evaluating an investment
in the shares of Common Stock offered by this Prospectus.

RISKS ASSOCIATED WITH TCD AND MAB ACQUISITIONS

The TCD and MAB acquisitions were consummated in January 1996 and
September 1996, respectively. These entities had revenues of $7.5 million and
$13.0 million, respectively, in 1995 compared to the Company's revenue of
$12.7 million in 1995. The Company's efforts in integrating the TCD
acquisition are continuing and its efforts in integrating the MAB acquisition
are in the initial stages. Such integration will likely place significant
demands on the Company's management and infrastructure. There can be no
assurance that TCD's or MAB's businesses will be successfully integrated with
that of the Company, that the Company will be able to realize operating
efficiencies or eliminate redundant costs or that their businesses will be
operated profitably. Further, there can be no assurance that clients of the
acquired businesses will continue to do business with the Company or that the
Company will be able to retain key employees. Approximately $15.0 million of
the proceeds of this Offering will be used to repay indebtedness incurred in
the MAB, TCD, Eastern and B. Richard Miller, Inc. ("BRM"), acquisitions. See
"Use of Proceeds."

RISKS ASSOCIATED WITH RAPID GROWTH

The Company has experienced rapid growth over the past several years which
has placed significant demands on its administrative, operational and
financial resources. The Company seeks to continue such rapid growth which
could place additional demands on its resources. Future internal growth will
depend on a number of factors, including the effective and timely initiation
and development of client relationships, the Company's ability to maintain
the quality of services it provides to its clients and the recruitment,
motivation and retention of qualified personnel. Sustaining growth will also
require the implementation of enhancements to its operational and financial
systems and will require additional management, operational and financial
resources. There can be no assurance that the Company will be able to manage
its expanding operations effectively or that it will be able to maintain or
accelerate its growth, and any failure to do so could have a materially
adverse effect on the Company's business, results of operations and financial
condition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business."

RISKS ASSOCIATED WITH FUTURE ACQUISITIONS

A primary element of the Company's growth strategy is to pursue strategic
acquisitions that expand or complement the Company's business. The Company
regularly reviews various strategic acquisition opportunities and
periodically engages in discussions regarding such possible acquisitions.
Currently, the Company is not a party to any agreements, understandings,
arrangements or negotiations regarding any material acquisitions; however, as
the result of the Company's process of regularly reviewing acquisition
prospects, negotiations may occur from time to time if appropriate
opportunities arise. There can be no assurance that the Company will be able
to identify additional acquisition candidates on terms favorable to the
Company or in a timely manner, enter into acceptable agreements or close any
such transactions. There can be no assurance that the Company will be able to
achieve its acquisition strategy, and any failure to do so could have a
materially adverse effect on the Company's business, financial condition,
results of operations and ability to sustain growth. In addition, the Company
believes that it will compete for attractive acquisition candidates with
other larger companies, consoli-

8
<PAGE>

dators or investors in the accounts receivable management industry. Increased
competition for such acquisition candidates could have the effect of
increasing the cost to the Company of pursuing this growth strategy or could
reduce the number of attractive candidates to be acquired. Future
acquisitions could divert management's attention from the daily operations of
the Company and otherwise require additional management, operational and
financial resources. Moreover, there is no assurance that the Company will
successfully integrate future acquisitions into its business or operate such
acquisitions profitably. Acquisitions may also involve a number of special
risks including: adverse short-term effects on the Company's operating
results; dependence on retaining key personnel; amortization of acquired
intangible assets and risks associated with unanticipated problems,
liabilities or contingencies. See "Business -- Growth Strategy."

The Company may require additional debt or equity financing for future
acquisitions, which may not be available on terms favorable to the Company,
if at all. To the extent the Company uses its capital stock for all or a
portion of the consideration to be paid for future acquisitions, dilution may
be experienced by existing shareholders, including the purchasers of Common
Stock in this Offering. In the event that the Company's capital stock does
not maintain sufficient value or potential acquisition candidates are
unwilling to accept the Company's capital stock as consideration for the sale
of their businesses, the Company may be required to utilize more of its cash
resources, if available, in order to continue its acquisition program. If the
Company does not have sufficient cash resources or is not able to use its
capital stock as consideration for acquisitions, its growth through
acquisitions could be limited. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

The Company has experienced and expects to continue to experience
quarterly variations in revenues and net income as a result of many factors,
including the timing of clients' accounts receivable management programs, the
commencement of new contracts, the termination of existing contracts, costs
to support growth by acquisition or otherwise, the costs and timing of
completion of additional acquisitions, the effect of the change of business
mix on margins and the timing of additional selling, general and
administrative expenses to support new business. The Company's planned
operating expenditures are based on revenue forecasts, and if revenues are
below expectations in any given quarter, operating results would likely be
materially adversely affected. While the effects of seasonality on the
Company's business historically have been obscured by its rapid growth, the
Company's business tends to be slower in the third and fourth quarters of the
year due to the summer and holiday seasons. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

DEPENDENCE ON KEY PERSONNEL

The Company is highly dependent upon the continued services and experience
of its senior management team, including Michael J. Barrist, President and
Chief Executive Officer. The loss of the services of Mr. Barrist or other
members of its senior management could have a materially adverse effect on
the Company. The Company has five-year employment contracts with Mr. Barrist
and certain other key executives. In addition, the Company has a $4.0 million
key person life insurance policy on Mr. Barrist. See "Management."

DEPENDENCE ON CERTAIN INDUSTRIES; CONTRACT RISKS

Most of the Company's revenues are derived from clients in the education,
financial services, healthcare, telecommunications and utilities industries.
A significant downturn in any of these industries or any trends to reduce or
eliminate the use of third-party accounts receivable management services
could have a materially adverse impact on the Company's business, results of
operations and financial condition. The Company enters into contracts with
most of its clients which define, among other things, fee arrangements, scope
of services and termination provisions. Clients may usually terminate such
contracts on 30 or 60 days notice. Accordingly, there can be no assurance
that existing clients will continue to use the Company's services at
historical levels, if at all. Under the terms of these contracts, clients are
not required to place accounts with the Company but do so on a discretionary
basis. In addition, substantially all of the Company's contracts are on a
contingent fee basis where the Company recognizes revenues only as accounts
are recovered. See "Business."

9
<PAGE>

COMPETITION

The accounts receivable management industry is highly competitive. The
Company competes with approximately 6,300 providers, including large national
corporations such as First Data Corporation, Payco American Corporation, CRW
Financial, Inc. and Union Corporation, and many regional and local firms.
Some of the Company's competitors have substantially greater resources, offer
more diversified services and operate in broader geographic areas than the
Company. In addition, the accounts receivable management services offered by
the Company are performed in-house by many businesses. Moreover, many larger
clients retain multiple accounts receivable management providers which
exposes the Company to continuous competition in order to remain a preferred
vendor. There can be no assurance that outsourcing of the accounts receivable
management function will continue or that the Company's clients which
currently outsource such services will not bring them in-house. The Company
also competes with other firms, such as SITEL Corporation, APAC Teleservices,
Inc. and Teletech Holdings, Inc., in providing teleservices. As a result of
these factors, there can be no assurance that competition from existing or
potential competitors will not have a materially adverse effect on the
Company's results of operations. See "Business - Competition."

RISK OF BUSINESS INTERRUPTION; RELIANCE ON COMPUTER AND TELECOMMUNICATIONS
INFRASTRUCTURE

The Company's success is dependent in large part on its continued
investment in sophisticated telecommunications and computer systems,
including predictive dialers, automated call distribution systems and digital
switching. The Company has invested significantly in technology in an effort
to remain competitive and anticipates that it will be necessary to continue
to do so in the future. Moreover, computer and telecommunication technologies
are evolving rapidly and are characterized by short product life cycles,
which requires the Company to anticipate technological developments. There
can be no assurance that the Company will be successful in anticipating,
managing or adopting such technological changes on a timely basis or that the
Company will have the capital resources available to invest in new
technologies. In addition, the Company's business is highly dependent on its
computer and telecommunications equipment and software systems, the temporary
or permanent loss of which, through casualty or operating malfunction, could
have a materially adverse effect on the Company's business. The Company's
business is materially dependent on service provided by various local and
long distance telephone companies. A significant increase in the cost of
telephone services that is not recoverable through an increase in the price
of the Company's services, or any significant interruption in telephone
services, could have a materially adverse impact on the Company. See
"Business - Operations."

DEPENDENCE ON LABOR FORCE

The accounts receivable management industry is very labor intensive and
experiences high personnel turnover. The Company experienced an annual
personnel turnover rate of approximately 38% for 1995. Many of the Company's
employees receive modest hourly wages and a portion of these employees are
employed on a part-time basis. A higher turnover rate among the Company's
employees would increase the Company's recruiting and training costs and
could adversely impact the quality of services the Company provides to its
clients. If the Company were unable to recruit and retain a sufficient number
of employees, it would be forced to limit its growth or possibly curtail its
operations. Growth in the Company's business will require it to recruit and
train qualified personnel at an accelerated rate from time to time. There can
be no assurance that the Company will be able to continue to hire, train and
retain a sufficient number of qualified employees. Additionally, an increase
in hourly wages, costs of employee benefits or employment taxes also could
materially adversely affect the Company. See "Business - Personnel and
Training."

GOVERNMENT REGULATION

The accounts receivable management and telemarketing industries are
regulated under various federal and state statutes. In particular, the
Company is subject to the federal Fair Debt Collection Practices Act which
establishes specific guidelines and procedures which debt collectors must
follow in communicating with consumer debtors, including the time, place and
manner of such communications. The Company is also subject to the Fair Credit
Reporting Act which regulates the consumer credit reporting industry and
which may impose liability on the Company to the extent that the adverse
credit information reported on a consumer to a credit

10
<PAGE>

bureau is false or inaccurate. The accounts receivable management business is
also subject to state regulation, and some states require that the Company be
licensed as a debt collection company. With respect to the other teleservices
offered by the Company, including telemarketing, the federal Telemarketing
and Consumer Fraud and Abuse Prevention Act of 1994 broadly authorizes the
Federal Trade Commission (the "FTC") to issue regulations prohibiting
misrepresentations in telemarketing sales. The FTC's telemarketing sales
rules prohibit misrepresentations of the cost, terms, restrictions,
performance or duration of products or services offered by telephone
solicitation and specifically address other perceived telemarketing abuses in
the offering of prizes and the sale of business opportunities or investments.
The federal Telephone Consumer Protection Act of 1991 (the "TCPA") limits the
hours during which telemarketers may call consumers and prohibits the use of
automated telephone dialing equipment to call certain telephone numbers. A
number of states also regulate telemarketing and some states have enacted
restrictions similar to the federal TCPA. The failure to comply with
applicable statutes and regulations could have a materially adverse effect on
the Company. There can be no assurance that additional federal or state
legislation, or changes in regulatory implementation, would not limit the
activities of the Company in the future or significantly increase the cost of
regulatory compliance.

Several of the industries served by the Company are also subject to
varying degrees of government regulation. Although compliance with these
regulations is generally the responsibility of the Company's clients, the
Company could be subject to a variety of enforcement or private actions for
its failure or the failure of its clients to comply with such regulations.
See "Business -- Government Regulation."

CONTROL BY PRINCIPAL SHAREHOLDERS

Immediately following this Offering, Michael J. Barrist will beneficially
own approximately 37.9% of the Common Stock (approximately 34.7% if the
Underwriters' over-allotment option is exercised in full), and together with
the other executive officers of the Company will beneficially own
approximately 60.8% (approximately 55.3% if the Underwriters' over-allotment
option is exercised in full). As a result of such voting concentration, Mr.
Barrist, together with other executive officers of the Company, will be able
to effectively control most matters requiring approval by the Company's
shareholders, including the election of directors. Such voting concentration
may have the effect of delaying, deferring or preventing a change in control
of the Company. See "Management" and "Principal and Selling Shareholders."

RISKS ASSOCIATED WITH CERTAIN TRANSACTIONS WITH AFFILIATES

The principal shareholders of the Company will realize substantial
benefits from the Offering. The Company will use approximately $3.0 million
of the net proceeds of the Offering to make distributions of S Corporation
earnings to shareholders of record on September 3, 1996, the date on which
the Company terminated its S Corporation status. See "Dividend Policy and
Prior S Corporation Status." The Company has entered into a distribution and
tax indemnification agreement with such shareholders which provides for,
among other things, an indemnification by the Company of such shareholders
for any losses or liabilities with respect to any additional taxes resulting
from the Company's operations during the period it was an S Corporation. See
"Certain Transactions -- Distribution and Tax Indemnification Agreement."
Such shareholders have also granted the Underwriters an over-allotment option
and will receive cash proceeds in the Offering in the event such option is
exercised. See "Underwriting." Additionally, the Company currently leases
four facilities in Blue Bell, Pennsylvania from limited partnerships
controlled by Mr. Barrist and the limited partners of which are the current
shareholders of the Company. While the Company believes that such leases are
on terms no less favorable to the Company than would have been obtained by
unaffiliated parties, there can be no assurance that conflicts of interest
will not arise in the future with respect to these leases. See "Certain
Transactions -- Real Estate Matters."

ABSENCE OF PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE

Prior to this Offering, there has been no public market for the Company's
Common Stock. The Common Stock has been approved for listing on the Nasdaq
National Market, subject to notice of issuance. There can be no assurance that a
viable public market for the Common Stock will develop or be sustained after the
Offering or that purchasers of the Common Stock will be able to resell their
Common Stock at prices equal to or greater than the initial public offering
price. The initial public offering price has been determined by negotiations
among the Company,

11
<PAGE>

the Selling Shareholders and the representatives of the Underwriters and may
not be indicative of the prices that may prevail in the public market after
the Offering is completed. Numerous factors, including announcements of
fluctuations in the Company's or its competitors' operating results and
market conditions for accounts receivable management, telemarketing industry
or business services stocks in general, the timing and announcement of
acquisitions by the Company or its competitors or government regulatory
action, could have a significant impact on the future price of the Common
Stock. In addition, the stock market in recent years has experienced
significant price and volume fluctuations that often have been unrelated or
disproportionate to the operating performance of companies. These broad
fluctuations may adversely affect the market price of the Common Stock. See
"Underwriting."

SHARES ELIGIBLE FOR FUTURE SALE

Sales of the Company's Common Stock in the public market after the Offering
could adversely affect the market price of the Company's Common Stock and could
impair the Company's future ability to raise capital through the sale of equity
securities. Upon completion of the Offering, the Company will have 6,713,447
shares of Common Stock outstanding. Of these shares, all of the shares sold in
the Offering will be available for resale in the public market without
restriction, except for any such shares which may be purchased by affiliates of
the Company. The Company's directors, executive officers and existing
shareholders have agreed, subject to certain limitations, not to offer, sell or
otherwise dispose of any shares of Common Stock for a period of 180 days after
the closing of the Offering without the prior written consent of Montgomery
Securities. Following the expiration of this 180-day period, such persons will
hold an aggregate of 4,213,447 outstanding shares of Common Stock (3,838,447
shares if the over-allotment option is exercised in full) which may be resold
under Rule 144. The Company also has or expects to have outstanding warrants to
purchase 240,591 shares of Common Stock and a $1.0 million Convertible Note
convertible into 76,923 shares of Common Stock (at a conversion price of $13.00
per share) at any time on or before September 5, 2001. The holder of the
warrants has agreed, subject to certain limitations, not to offer, sell or
otherwise dispose of any shares of Common Stock issuable upon exercise of the
warrants for a period of 180 days after the closing of the Offering without the
prior written consent of Montgomery Securities. The warrants are entitled to
certain demand and piggy-back registration rights following the completion of
the Offering. In addition, the Company intends, as soon as practicable after the
consummation of the Offering, to register approximately 464,390 shares of Common
Stock reserved for issuance to its employees, directors, consultants and
advisors under the Company's 1995 Stock Option Plan, 1996 Stock Option Plan and
1996 Non-Employee Director Stock Option Plan. Options to purchase an aggregate
of 367,321 shares of Common Stock will be outstanding under all such plans upon
the consummation of the Offering. See "Management -- Stock Option Plans,"
"Description of Capital Stock -- Warrants and Convertible Note" and "Shares
Eligible for Future Sale."

ANTI-TAKEOVER PROVISIONS

The Company's Amended and Restated Articles of Incorporation (the
"Articles") and Bylaws (the "Bylaws") contain provisions which may be deemed
to be "anti-takeover" in nature in that such provisions may deter, discourage
or make more difficult the assumption of control of the Company by another
corporation or person through a tender offer, merger, proxy contest or
similar transaction. The Articles permit the Board of Directors to establish
the rights, preferences, privileges and restrictions of, and to issue, up to
5,000,000 shares of Preferred Stock without shareholder approval. The
Company's Bylaws also provide for the staggered election of directors to
serve for one-, two- and three-year terms, and for successive three-year
terms thereafter, subject to removal only for cause upon the vote of not less
than 65% of the shares of Common Stock represented at a shareholders'
meeting. Certain provisions of the Articles and Bylaws may not be amended
except by a similar 65% vote. In addition, the Company is subject to certain
anti-takeover provisions of the Pennsylvania Business Corporation Law. See
"Description of Capital Stock."

DILUTION

Purchasers of Common Stock in this Offering will experience immediate
dilution in net tangible book per share of Common Stock of $10.81 from the
initial public offering price per share. See "Dilution."

12
<PAGE>

ACQUISITION HISTORY

Since 1994, the Company has completed four strategic acquisitions which
have expanded its client base and geographic presence, increased its presence
in key industries and substantially increased its revenues and profitability.
A key element of the Company's growth strategy is to pursue selected
strategic acquisitions to serve new geographic markets or industries, expand
its presence in its existing markets or add complementary service
applications. The Company regularly reviews various strategic acquisition
opportunities and periodically engages in discussions regarding such possible
acquisitions. Currently, the Company is not a party to any agreements,
understandings, arrangements or negotiations regarding any material
acquisitions; however, as the result of the Company's process of regularly
reviewing acquisition prospects, negotiations may occur from time to time if
appropriate opportunities arise. A summary of the completed acquisitions
follows:

MANAGEMENT ADJUSTMENT BUREAU, INC.

On September 5, 1996, NCO purchased all of the outstanding stock of MAB
for $8.0 million in cash and a $1.0 million convertible note. The note is
convertible into the Company's Common Stock at any time after the Company's
initial public offering at the initial public offering price and bears
interest payable monthly at a rate of 8.0% per annum with principal due in
September 2001. MAB, based in Buffalo, New York, provides accounts receivable
management services, principally to the education, financial services,
telecommunications and utility industries. MAB's clients include NationsBank,
NYNEX, Marine Midland Bank and Boston Edison. MAB's revenues were $13.0
million for the year ended December 31, 1995 and $6.8 million for the six
months ended June 30, 1996. The Company will continue to operate MAB's
facilities in Buffalo and Denver, Colorado.

The Company has begun to realize operating efficiencies from the MAB
acquisition and has reduced compensation and related expenses associated with
MAB's principal shareholder, eliminated redundant collection and
administrative personnel, and begun to reduce selling, general and
administrative expenses to levels more consistent with NCO's current
operating results. NCO will also consolidate certain company-wide
administrative functions such as human resources and payroll administration
into MAB's Buffalo facility, resulting in the reduction of certain NCO
administrative costs.

TRANS UNION CORPORATION COLLECTIONS DIVISION

On January 3, 1996, NCO purchased certain assets of TCD for $4.8 million
in cash. TCD provided accounts receivable management services, principally to
the telecommunications, utility and healthcare industries from offices in
Pennsylvania, Ohio and Kansas. TCD's clients included Bell Atlantic
Corporation, Western Resources Corporation and Hutchinson Hospital
Corporation. TCD's revenues were $7.5 million for the year ended December 31,
1995. Promptly following the TCD acquisition, the Company reduced costs by
eliminating redundant collection and administrative personnel, closing one
office and reducing other selling, general and administrative expenses to
levels more consistent with NCO's current operating results.

EASTERN BUSINESS SERVICES, INC.

In August 1995, NCO purchased certain assets of Eastern for $1.6 million
in cash and the assumption of a non-interest bearing note payable in the
amount of $252,000 and certain other accounts payable in the amount of
$209,000. Eastern, based in Beltsville, Maryland, provided accounts
receivable management services, principally to the utility and healthcare
industries. Eastern's clients included Bell Atlantic Corporation and George
Washington University Hospital. Promptly following the Eastern acquisition,
the Company reduced costs by eliminating redundant collection and
administrative personnel and reducing selling, general and administrative
expenses to levels more consistent with NCO's current operating results.

B. RICHARD MILLER, INC.

In April 1994, NCO purchased certain assets of BRM for $1.0 million in
cash, the issuance by the Company of a $127,000 promissory note and the
issuance of 123,803 shares of Common Stock and an option to acquire 86,881
shares of Common Stock at an exercise price of $2.16 per share (which option
was exercised in 1995). In connection with the acquisition, BRM's principal
shareholder became an executive officer of the Com-

13
<PAGE>

pany. BRM, based in Ardmore, Pennsylvania, provided accounts receivable
management services, principally to the education industry. BRM's clients
included University of Pennsylvania, Rutgers University and Seton Hall
University. Promptly following the BRM acquisition, the Company reduced costs
by eliminating redundant collection and administrative personnel, closing
BRM's sole office and reducing other selling, general and administrative
expenses to levels more consistent with NCO's current operating results.

FINANCIAL IMPACT OF ACQUISITIONS

The Company financed the MAB, TCD, Eastern and BRM acquisitions with
borrowings from Mellon Bank, N.A. The bank recently increased the Company's
revolving credit facility from $7.0 million to $15.0 million to finance the
acquisition of MAB. The revolving credit facility currently bears interest at
the rate of prime plus 1.375%. The bank has issued a commitment letter to
further increase this facility to $25.0 million at an interest rate of LIBOR
plus 2.5% upon the completion of the Offering, provided that the Offering
results in minimum net proceeds to the Company of $24.0 million. The Company
granted the bank a warrant to acquire 175,531 shares of Common Stock at a
nominal exercise price in consideration for establishing the revolving credit
facility for acquisitions, and granted an additional warrant to purchase 46,560
shares of Common Stock at an exercise price equal to the initial public offering
price in consideration for increasing the revolving credit facility to $15.0
million. The warrants are exercisable at any time after the consummation of the
Offering and prior to July 31, 2005. The Company also has agreed to grant an
additional warrant to purchase 18,500 shares of Common Stock at an exercise
price equal to the initial public offering price in consideration for the
commitment to increase the revolving credit facility to $25.0 million.

The acquisitions have been accounted for under the purchase method of
accounting for financial reporting purposes. These acquisitions have created
goodwill estimated at $14.5 million which is being amortized over a 15- to
25-year period resulting in amortization expense of approximately $749,000
annually.

Pro forma statements of income for the year ended December 31, 1995 and the
six months ended June 30, 1996 appearing elsewhere in this Prospectus assume
that the MAB, TCD and Eastern acquisitions had occurred on January 1, 1995. Pro
forma adjustments have been made to reflect the elimination of certain expenses
that were immediately identifiable and promptly realized at the time of the
acquisitions, including the immediate elimination of certain redundant
collection and administrative personnel. These and other expense adjustments are
summarized in the table below and related footnotes.

Year Ended Six Months Ended
December 31, June 30,
1995 1996
-------------- ----------------
<S> <C> <C>
Redundant collection and administrative personnel $1,437,268 $ 407,400
MAB principal shareholder compensation (1) ...... 643,500 321,750
-------------- ----------------
Total payroll and related expense reductions 2,080,768 729,150
TCD occupancy costs (2) ......................... 260,300 --
Depreciation and amortization (3) ............... (379,216) (160,705)
-------------- ----------------
Total operating cost and expense adjustments $1,961,852 $ 568,445
============== ================
</TABLE>

- ------
(1) Reflects the reduction of the salary of MAB's principal shareholder (who
is no longer active in the day-to-day operations of MAB's business)
pursuant to an employment agreement.

(2) Reflects the difference between the Company's rent expense for the TCD
facilities pursuant to lease agreements entered into upon the acquisition
and the occupancy costs allocated to TCD by its parent prior to the
acquisition.

(3) Reflects additional amortization expense, assuming MAB, TCD, and Eastern
had been acquired at the beginning of the periods presented, partially
offset in the year ended December 31, 1995 by depreciation reductions
relating to assets not acquired by NCO as part of the TCD and Eastern
acquisitions.

14
<PAGE>

In each of the acquisitions, the Company acquired businesses with higher
cost structures than the Company. In the months following the acquisitions of
TCD, Eastern and BRM, the Company leveraged its existing infrastructure to
realize additional operating efficiencies in order to bring the cost
structure of acquired companies in line with NCO's current operating results.
These other cost savings include: (i) further reductions in payroll and
related expenses relating primarily to redundant collections and
administrative personnel, (ii) further reduction in rent and other facilities
costs, and (iii) reduction in certain expenses such as telephone, mailing and
data processing. While management believes it will realize similar cost
savings from the MAB acquisition, the Company's ability to achieve such cost
savings is uncertain and there can be no assurance that MAB's business will
be successfully integrated with that of the Company, or that the Company will
be able to realize operating efficiencies or eliminate redundant costs. See
"Risk Factors -- Risks Associated with TCD and MAB Acquisitions" and " --
Risks Associated with Future Acquisitions."

15
<PAGE>

USE OF PROCEEDS

The net proceeds from the sale of the 2,500,000 shares of Common Stock
offered by the Company hereby are estimated to be approximately $29.1 million
after deducting the estimated underwriting discounts and expenses of the
Offering. In the event the Underwriters' over-allotment option is exercised, the
Company will not receive any proceeds from the sale of Common Stock by the
Selling Shareholders.

Approximately $15.0 million of the net proceeds will be used to repay
outstanding debt under the Company's Credit Agreement with Mellon Bank, N.A.
The Company entered into the Credit Agreement in July 1995 to obtain working
capital and acquisition financing and to refinance certain existing debt. The
Credit Agreement, as amended, provides a revolving line of credit which
permits borrowings of up to $15.0 million at an interest rate equal to the
prime rate plus 1.375% (9.625% at August 31, 1996). The bank has issued a
commitment letter to increase this facility to $25.0 million at an interest
rate of LIBOR plus 2.5% upon the completion of the Offering provided that the
Offering results in minimum net proceeds to the Company of $24.0 million.
Borrowings under the Credit Agreement were used to fund the MAB, TCD and
Eastern acquisitions and to refinance indebtedness incurred in connection
with the BRM acquisition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

The Company also will use a portion of the net proceeds to make
distributions to shareholders of record on September 3, 1996, the date on
which the Company terminated its S Corporation status (the "S Corporation
Distributions"). The amount of the distributions will equal all undistributed
S Corporation earnings, estimated at $3.0 million as of September 3, 1996,
subject to final adjustment.

The Company intends to use the remaining net proceeds of $11.1 million for
working capital and other general corporate purposes, including future
acquisitions. The Company regularly reviews various strategic acquisition
opportunities and periodically engages in discussions regarding such possible
acquisitions. Currently, the Company is not a party to any agreements,
understandings, arrangements or negotiations regarding any material
acquisitions; however, as the result of the Company's process of regularly
reviewing acquisition prospects, negotiations may occur from time to time if
appropriate opportunities arise. Pending the uses described above, the
Company intends to invest its net proceeds in short-term, investment-grade
securities.

DIVIDEND POLICY AND PRIOR S CORPORATION STATUS

The Company historically was treated for federal and state income tax
purposes as an S Corporation under Subchapter S of the Internal Revenue Code
of 1986, as amended (the "Code"), and under Pennsylvania law. As a result of
the Company's status as an S Corporation, the Company's shareholders, rather
than the Company, were taxed directly on the earnings of the Company for
federal and certain state income tax purposes, whether or not such earnings
were distributed. The Company made cash distributions to the current
shareholders aggregating $658,000, $813,000, $1.1 million and $752,000 in
respect of the Company's S Corporation earnings for 1993, 1994 and 1995, and
for the six months ended June 30, 1996, respectively. On September 3, 1996
(the "Termination Date"), the Company terminated its status as an
S Corporation and thereupon became subject to federal and state income taxes at
applicable C Corporation rates.

The Company declared a distribution to existing shareholders in an
aggregate amount equal to the Company's undistributed S Corporation earnings
through the Termination Date, which are estimated at $3.0 million, subject to
final adjustment. The Company expects to pay the S Corporation Distributions
with a portion of the net proceeds of this Offering. See "Use of Proceeds."
The Company has also entered into a distribution and tax indemnification
agreement with its current shareholders with respect to taxes resulting from
the Company's operations during the period in which it was an S Corporation.
See "Certain Transactions--Distribution and Tax Indemnification Agreement."
Purchasers of shares of Common Stock in this Offering will not receive any of
the S Corporation Distributions or any distribution with respect to any
indemnification payment to the current shareholders.

The Company does not anticipate paying cash dividends on its Common Stock
in the foreseeable future. In addition, the Company's Credit Agreement
prohibits the Company from paying cash dividends without the lender's prior
consent. The Company currently intends to retain future earnings to finance
its operations and fund the growth of its business. Any payment of future
dividends will be at the discretion of the Board of Directors of the Company
and will depend upon, among other things, the Company's earnings, financial
condition, capital requirements, level of indebtedness, contractual
restrictions with respect to the payment of dividends and other factors that
the Company's Board of Directors deems relevant.

16
<PAGE>

CAPITALIZATION

The following table sets forth as of June 30, 1996 the current portion of
long-term debt and capitalized lease obligations and the actual
capitalization of the Company and the pro forma, as adjusted, capitalization
of the Company which gives effect to: (i) the MAB acquisition and (ii) the
sale of the 2,500,000 shares of Common Stock in the Offering (at the
initial public offering price of $13.00 per share), and the application of
the net proceeds therefrom as set forth in "Use of Proceeds." This table
should be reviewed in conjunction with the Company's historical and pro forma
financial statements and related notes appearing elsewhere in this
Prospectus.

June 30, 1996
--------------------------
Pro Forma
Actual As Adjusted
--------- -------------
(In thousands)
<S> <C> <C>

Current portion of long-term debt and capitalized lease obligations $ 101 $ 270
========= =============
Long-term debt, net of current portion (1):
Revolving credit agreement .................................... $ 7,118 $ 323
Capitalized lease obligations ................................. 238 387
Convertible note payable ...................................... -- 1,000
--------- -------------
Total long-term debt and capitalized lease obligations ... 7,356 1,710
Shareholders' equity:
Preferred Stock, no par value, 5,000,000 shares authorized; no
shares issued or outstanding ................................ -- --
Common Stock, no par value, 25,000,000 shares authorized;
4,213,447 shares issued and outstanding, actual, 6,713,447
shares issued and outstanding, pro forma as adjusted (2) .... 537 29,081
Unexercised warrant (3) ....................................... 177 177
Unrealized gains on securities ................................ 48 48
Retained earnings (4) ......................................... 2,388 0
--------- -------------
Total shareholders' equity ............................... 3,150 29,306
--------- -------------
Total capitalization ..................................... $10,506 $31,016
========= =============
</TABLE>

- ------
(1) See Notes 7, 9 and 13 of Notes to Financial Statements for a description
of the terms of the Company's debt.

(2) Excludes: (i) an aggregate of 464,390 shares of Common Stock reserved for
issuance under the Company's 1995 Stock Option Plan, 1996 Stock Option
Plan and 1996 Non-Employee Director Stock Option Plan; (ii) 240,591
shares of Common Stock reserved for issuance upon the exercise of
warrants granted or to be granted to Mellon Bank, N.A.; and (iii) 76,923
shares of Common Stock reserved for issuance upon the conversion of the
Company's $1.0 million Convertible Note (at a conversion price
of $13.00 per share). See "Acquisition History," "Management -- Stock
Option Plans" and "Description of Capital Stock -- Warrants and
Convertible Note."

(3) Reflects a warrant to purchase 175,531 shares of Common Stock at a
nominal exercise price issued by the Company to Mellon Bank, N.A. in July
1995.

(4) Pro forma as adjusted retained earnings are reduced for the estimated S
Corporation Distributions of $3.0 million but are partially offset by the
establishment of a deferred tax asset of $81,000, assuming the Company
converted from an S Corporation at June 30, 1996. S Corporation
Distributions in excess of retained earnings at June 30, 1996 are
deducted from Common Stock.

17
<PAGE>

DILUTION

At June 30, 1996, the net tangible book value of the Company was
approximately $(3.4) million, or $(0.80) per share of Common Stock. Net tangible
book value per share represents the amount of the Company's total tangible
assets less total liabilities, divided by the number of shares of Common Stock
outstanding. The pro forma net tangible book value, after giving effect to the
MAB acquisition and the S Corporation Distributions but without giving effect to
the Offering would have been $(14.3) million, or $(3.40) per share. After giving
further effect to the sale by the Company of 2,500,000 shares of Common Stock in
the Offering (at the initial public offering price of $13.00 per share) and the
application of the estimated net proceeds therefrom after deducting underwriting
discounts and offering expenses payable by the Company, the pro forma net
tangible book value of the Company at June 30, 1996 would have been
approximately $14.7 million, or $2.19 per share of Common Stock. This represents
an immediate increase in the pro forma net tangible book value of $5.59 per
share of Common Stock to existing shareholders and an immediate dilution in pro
forma net tangible book value of $10.81 per share of Common Stock to new
investors. The following table illustrates this dilution on a per share basis:

Assumed initial public offering price per share ........................ $13.00
Net tangible book value per share at June 30, 1996 ................. $(0.80)
Pro forma adjustments for MAB acquisition and S Corporation
Distributions .................................................... (2.60)
---------
Pro forma net tangible book value per share before the Offering .... (3.40)
Increase per share attributable to new investors ................... 5.59
---------
Pro forma net tangible book value per share, as adjusted for the Offering 2.19
--------
Dilution per share to new investors ..................................... $10.81
========
</TABLE>

The following table sets forth, as of June 30, 1996, the number of shares
of Common Stock purchased from the Company, the total consideration paid and
the average price per share paid by the Company's existing shareholders and
by the new investors purchasing shares of Common Stock from the Company in
the Offering (before deducting estimated underwriting discounts and offering
expenses payable by the Company):
<TABLE>
<CAPTION>

Shares Purchased (1) Total Consideration
------------------------ --------------------------
Average Price
Number Percent Amount Percent Per Share
----------- --------- ------------- --------- ---------------
<S> <C> <C> <C> <C> <C>

Existing shareholders 4,213,447 62.8% $ 537,326 1.6% $ 0.13
New investors ........ 2,500,000 37.2 32,500,000 98.4 13.00
----------- --------- ------------- ---------
Total .............. 6,713,447 100.0% $33,037,326 100.0%
=========== ========= ============= =========
</TABLE>

- ------
(1) Excludes: (i) an aggregate of 464,390 shares of Common Stock reserved for
issuance under the Company's 1995 Stock Option Plan, 1996 Stock Option
Plan and 1996 Non-Employee Director Stock Option Plan; (ii) 175,531
shares of Common Stock reserved for issuance to Mellon Bank, N.A. at a
nominal exercise price and 65,060 shares reserved for issuance pursuant
to warrants granted or to be granted with an exercise price equal to the
initial public offering price; and (iii) 76,923 shares of Common Stock
reserved for issuance upon the conversion of the Company's $1.0 million
Convertible Note (at a conversion price of $13.00 per share).
See "Acquisition History," "Management -- Stock Option Plans" and
"Description of Capital Stock -- Warrants and Convertible Note."

18
<PAGE>

SELECTED FINANCIAL AND OPERATING DATA

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

The selected financial and operating data of the Company for each of the
five years in the period ended December 31, 1995 are derived from the
financial statements of the Company which have been audited by Coopers &
Lybrand L.L.P., independent accountants. The selected financial and operating
data as of June 30, 1996 and for the six months ended June 30, 1995 and 1996
are derived from the unaudited financial statements of the Company and, in
the opinion of management, include all adjustments (consisting only of normal
recurring adjustments) which are necessary to present fairly the results of
operations and financial position for such periods. The results for the six
months ended June 30, 1996 are not necessarily indicative of the results to
be expected for the full year. The following data should be read in
conjunction with the Company's actual and pro forma consolidated financial
statements and the notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>

Years Ended December 31,
---------------------------------------------------------------------------------------
1991 1992 1993 1994 1995
----------- ----------- ----------- ----------- ------------------------------
Pro
Actual Forma(1)(2)
------- -------------
<S> <C> <C> <C> <C> <C> <C>

Statement of Income Data:
Revenue ............ $ 3,792 $ 5,822 $ 7,445 $ 8,578 $ 12,733 $ 34,509
Operating costs and
expenses:
Payroll and related
expenses ...... 1,892 3,058 4,123 4,558 6,797 16,412
Selling, general
and
administrative
expenses ...... 1,457 2,013 2,391 2,674 4,042 12,531
Depreciation and
amortization
expense ....... 40 95 141 215 348 1,529
----------- ----------- ----------- ----------- -------------- ------------
Income from
operations ...... 403 656 790 1,131 1,546 4,037
Other income (expense) (1) 15 11 (45) (180) (212)
----------- ----------- ----------- ----------- -------------- ------------
Income before income
taxes ........... 402 671 801 1,086 1,366 3,825
Pro forma provision for
income taxes (4) . 160 268 320 434 546 1,659
----------- ----------- ----------- ----------- -------------- ------------
Pro forma net income(4) $ 242 $ 403 $ 481 $ 652 $ 820 $ 2,166
=========== =========== =========== =========== ============== ============
Pro forma net income per
share ........... $ 0.17(5) $ 0.36
============== ============
Pro forma weighted
average shares
outstanding ..... 4,728,906(5) 6,082,091
============== ============
Operating Data:
Total value of accounts
referred ........ $178,529 $150,707 $199,108 $281,387 $ 431,927 $1,134,000
Average fee ........ 14.4% 16.9% 20.2% 22.5% 22.4% N/A

</TABLE>

<PAGE>

Six Months Ended June 30,
--------------------------------------------
1995 1996
----------- ------------------------------
Pro
Actual Forma(2)(3)
------ -----------
<S> <C> <C> <C>

Statement of Income Data:
Revenue ............ $ 5,546 $ 12,543 $ 19,319
Operating costs and
expenses:
Payroll and related
expenses ...... 2,956 5,954 9,479
Selling, general
and
administrative
expenses ...... 1,745 4,095 6,516
Depreciation and
amortization
expense ....... 116 423 833
----------- -------------- ------------
Income from
operations ...... 729 2,071 2,491
Other income (expense) (73) (310) (19)
----------- -------------- ------------
Income before income
taxes ........... 656 1,761 2,472
Pro forma provision for
income taxes (4) . 262 704 1,053
---------- ---------- ----------
Pro forma net income(4) $ 394 $ 1,057 $ 1,419
========== ========== ==========
Pro forma net income
per share ........... $ 0.22(5) $ 0.23
========= ==========
Pro forma weighted
average shares
outstanding ..... 4,733,549(5) 6,086,734
========== ==========
Operating Data:
Total value of accounts
referred ........ $ $180,783 $ 373,499 $ 664,905
Average fee ........ 21.7% 24.0% 24.3%

</TABLE>

December 31, June 30, 1996
------------------------------------------------ --------------------------
Pro Forma
1991 1992 1993 1994 1995 Actual As Adjusted(6)
------- ------- ------- ------- ------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>

Balance Sheet Data:
Cash and cash equivalents .......... $ 355 $ 421 $ 562 $ 526 $ 805 $ 990 $11,840
Working capital .................... 179 362 445 473 812 2,458 13,925
Total assets ....................... 1,162 1,794 1,990 3,359 6,644 12,565 34,104
Long-term debt, net of current
portion .......................... 108 144 59 732 2,593 7,356 1,710
Shareholders' equity ............... 403 686 876 1,423 2,051 3,151 29,306

</TABLE>

19
<PAGE>

(1) Assumes that the acquisitions of MAB, TCD and Eastern occurred on January
1, 1995.

(2) Gives effect to: (i) the reduction of certain redundant operating costs
and expenses that were immediately identifiable at the time of the
acquisitions; (ii) the elimination of interest expense associated with
acquisition related debt assumed to be repaid with offering proceeds; and
(iii) the issuance of 1,583,954 shares of Common Stock (at the
initial public offering price of $13.00 per share) which, net of
estimated underwriting commissions and offering expenses payable by the
Company, would be sufficient to repay acquisition related debt of $15.0
million and to fund the distribution of undistributed S Corporation
earnings through the Termination Date (estimated at $3.0 million) to
existing shareholders of the Company. See Pro Forma Consolidated
Financial Statements.

(3) Assumes that the acquisition of MAB occurred on January 1, 1995.

(4) Prior to the Termination Date, the Company operated as an S Corporation
for income tax purposes and accordingly was not subject to federal or
state income taxes prior to such date. Accordingly, the historical
financial statements do not include a provision for federal and state
income taxes for such periods. Pro forma net income has been computed as
if the Company had been fully subject to federal and state income taxes
for all periods presented. See Note 12 of Notes to Pro Forma Consolidated
Financial Statements.

(5) Assumes that the Company issued 230,769 shares of Common Stock (at the
initial public offering price of $13.00 per share) to fund the
distribution of undistributed S Corporation earnings (estimated at $3.0
million) through the Termination Date to existing shareholders of the
Company.

20
<PAGE>

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

OVERVIEW

NCO is a leading provider of accounts receivable management and other
related services such as customer service call centers, telemarketing,
telephone-based auditing and other outsourced administrative services. In
1995, accounts receivable management services comprised more than 95% of the
Company's revenue; however, the Company expects other related services to
represent a greater portion of its business in the future. As a result of
rapid internal growth and selected strategic acquisitions, the Company's
revenue has grown from $7.4 million in 1993 to $34.5 million in 1995 on a pro
forma basis, giving effect to the Eastern, TCD and MAB acquisitions.
Currently, NCO operates eight call centers with 689 workstations in
Pennsylvania, New York, Maryland, Ohio, Kansas and Colorado.

The Company has historically generated substantially all of its revenue
from the recovery of delinquent accounts receivable on a contingency fee
basis. Contingency fees typically range from 15% to 35% of the amount
recovered on behalf of the Company's clients, but can range from 6% for the
management of accounts placed early in the recovery cycle to 50% for accounts
which have been serviced extensively by the client or by other third-party
providers. In addition, the Company generates revenue from fixed fees for
certain accounts receivable management and other related services. Revenue is
earned and recognized upon collection of the accounts receivable for
contingency fees and as work is performed for fixed fee services. Although
its average accounts receivable management fee has increased from 20.2% in
1993 to 24.0% for the six months ended June 30, 1996, the Company expects to
remain among the low cost providers of accounts receivable management
services; accordingly, the Company does not expect its average contingency
fee to increase materially in the future. The Company enters into contracts
with most of its clients which define, among other things, fee arrangements,
scope of services and termination provisions. Clients may usually terminate
such contracts on 30 or 60 days notice. In the event of termination, however,
clients typically do not withdraw accounts referred to the Company prior to
the date of termination, thus providing the Company with an ongoing stream of
revenue from such accounts which diminishes over time.

The Company's costs consist principally of payroll and related costs,
selling, general and administrative costs, and depreciation and amortization.
Payroll costs and related expenses consist of wages and salaries,
commissions, bonuses and benefits for all employees of the Company, including
management and administrative personnel. As the Company has grown, payroll
costs as a percentage of revenue have gradually declined. Selling, general
and administrative expenses, which include postage, telephone and mailing
costs, and other costs of collections as well as expenses which directly
support the operations of the business including facilities costs, equipment
maintenance, sales and marketing, data processing, professional fees and
other management costs, have remained relatively constant as a percentage of
revenue since 1993.

Since 1994, the Company has made four acquisitions which have had a
significant impact on the Company's financial condition and results of
operations. With the BRM, Eastern, TCD and MAB acquisitions, the Company has:
(i) increased its penetration of the utilities, healthcare, financial
services and telecommunications markets; (ii) established a presence in the
education and insurance markets; (iii) increased its base of national
clients; and (iv) expanded NCO's geographic presence by adding six offices in
six states. Pro forma revenues from these four acquired businesses accounted
for approximately 69.5% of the Company's pro forma revenue in 1995. With this
rapid increase in revenues, the Company has been able to achieve significant
economies of scale by eliminating certain redundant expenses, reducing the
workforce of the acquired companies, and in the case of BRM and TCD, closing
two offices. The Company regularly reviews various strategic acquisition
opportunities and periodically engages in discussions regarding such possible
acquisitions.

To date, all of the Company's acquisitions have been accounted for under
the purchase method of accounting with the results of the acquired companies
included in the Company's statements of income beginning on the date of
acquisition. In pursuing acquisitions, the Company typically seeks to serve
new geographic markets or industries, expand its presence in its existing
markets or add complementary services. Upon completion of an acquisition, the
Company immediately focuses on achieving operating efficiencies by
eliminating redundant expenses and reducing certain other expenses to levels
consistent with the Company's current operating results. Included elsewhere
in this prospectus are Pro Forma Consolidated Financial Statements which show
the effect

21
<PAGE>

of the Eastern, TCD and MAB acquisitions as if the results of each acquired
company had been included in the Company's statement of income throughout the
year ended December 31, 1995 and the six months ended June 30, 1996 and for
balance sheet purposes at June 30, 1996.

For the periods shown, the Company had been treated for federal and state
income tax purposes as an S Corporation. As a result, the Company's
shareholders, rather than the Company, were taxed directly on the earnings of
the Company for federal and certain state income tax purposes. The Company
terminated its status as an S Corporation effective September 3, 1996 and is
now subject to federal and state income taxes at applicable C Corporation
rates. Accordingly, the pro forma provision for income taxes assumes that the
Company was subject to federal and state income taxes for all prior periods.

RESULTS OF OPERATIONS

The following tables set forth income statement data on an historical and
pro forma basis as a percentage of revenue:

Years Ended December 31, Six Months Ended June 30,
------------------------------------------ -------------------------------
1993 1994 1995 1995 1996
-------- -------- -------------------- -------- --------------------
Pro Pro
Actual Forma Actual Forma
-------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue ...................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Operating costs and expenses:
Payroll and related expenses 55.4 53.1 53.4 47.6 53.3 47.5 49.1
Selling, general and
administrative expenses . 32.1 31.2 31.7 36.3 31.5 32.6 33.7
Depreciation and
amortization expense .. 1.9 2.5 2.7 4.4 2.1 3.4 4.3
-------- -------- -------- -------- -------- -------- --------
Total .............. 89.4 86.8 87.8 88.3 86.9 83.5 87.1
-------- -------- -------- -------- -------- -------- --------
Income from operations ....... 10.6 13.2 12.2 11.7 13.1 16.5 12.9
Other income (expense) ....... 0.1 (0.5) (1.4) (0.6) (1.3) (2.5) (0.1)
-------- -------- -------- -------- -------- -------- --------
Income before income taxes ... 10.7 12.7 10.8 11.1 11.8 14.0 12.8
Pro forma provision for income
taxes ...................... 4.3 5.1 4.3 4.8 4.7 5.6 5.5
-------- -------- -------- -------- -------- -------- --------
Pro forma net income ......... 6.4% 7.6% 6.5% 6.3% 7.1% 8.4% 7.3%
======== ======== ======== ======== ======== ======== ========

</TABLE>

PRO FORMA COMPARED TO ACTUAL RESULTS OF OPERATIONS

Pro forma operating data for the year ended December 31, 1995 and the six
months ended June 30, 1996 assume that the MAB, TCD and Eastern acquisitions
were consummated at the beginning of the respective periods. Pro forma
adjustments have been made to reflect the elimination of certain expenses
that were immediately identifiable at the time of the acquisitions, including
the immediate elimination of certain redundant collection and administrative
personnel. See "Acquisition History -- Financial Impact of Acquisitions" and
"Notes to Pro Forma Consolidated Financial Statements." In each of the
acquisitions, the Company acquired businesses with higher cost structures
than the Company. In the months following the acquisitions of TCD, Eastern
and BRM, the Company leveraged its infrastructure to realize additional
operating efficiencies in order to bring the cost structure of acquired
companies in line with NCO's current operating results. These other cost
savings include: (i) further reductions in payroll and related expenses
relating primarily to redundant collections and administrative personnel,
(ii) further reduction in rent and other facilities costs, and (iii)
reduction in certain expenses such as telephone, mailing and data processing.
Management believes it will realize similar cost savings from the MAB
acquisition, although no assurances can be given that such cost savings will
be realized. Due to the higher cost structures of the acquired businesses and
the fact that all expected expense savings are not reflected in pro forma
adjustments, certain pro forma operating percentages compare unfavorably to
actual operating percentages for the periods under consideration.

SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995

Revenue. Revenue increased $7.0 million or 126.1% to $12.5 million for the
six-month period ended June 30, 1996 from $5.5 million for the comparable
period in 1995. Of this increase, $3.7 million was attributable to

22
<PAGE>

the TCD acquisition completed in January 1996, and $1.0 million was
attributable to the Eastern acquisition completed in August 1995.
Additionally, $973,000 of the increase was due to a full six months of
revenue in 1996 from a contract awarded to the Company by a government agency
in April 1995. Revenue from other related services, which became an area of
focus in 1996, increased $586,000 to $682,000 for the six months ended June
30, 1996 from $96,000 for the comparable period in 1995. The balance of the
revenue increase was attributable to the addition of new clients and a growth
in business from existing clients.

Payroll and related expenses. Payroll and related expenses increased $3.0
million to $6.0 million for the six months ended June 30, 1996 from $3.0
million for the comparable period in 1995, but decreased as a percentage of
revenue to 47.5% from 53.3%. The decrease in payroll and related expenses as
a percentage of revenue was primarily the result of spreading the relatively
fixed costs of management and administrative personnel over a larger revenue
base, as well as eliminating redundant administrative staff following the TCD
and Eastern acquisitions.

Selling, general and administrative expenses. Selling, general and
administrative expenses increased $2.4 million to $4.1 million for the six
months ended June 30, 1996, from $1.7 million for the comparable period in
1995, and also increased as a percentage of revenue to 32.6% from 31.5%. A
large percentage of the increase was due to the increased costs associated
with litigation management services performed by the Company on behalf of its
clients in states where the laws are more conducive to the utilization of the
legal process for the recovery of delinquent accounts. In addition, the
Company experienced increased costs as a result of a change in business mix
which required the increased use of national databases and credit reporting
services. These increases were offset in part by operating efficiencies
resulting from the TCD acquisition.

Depreciation and amortization. Depreciation and amortization increased to
$423,000 for the six months ended June 30, 1996 from $116,000 for the
comparable period in 1995. Of this increase, $233,000 was a result of the TCD
and Eastern acquisitions. The remaining $74,000 consisted of amortization of
deferred financing charges and depreciation resulting from capital
expenditures incurred in the ordinary course of business.

Other income (expense). Interest expense increased $309,000 for the six
months ended June 30, 1996 from the comparable period in 1995, primarily due
to increased borrowings associated with the acquisitions of TCD and Eastern.
Other income (expense) for the six months ended June 30, 1995, also included
a loss from the disposal of assets of $49,000.

Net income. Net income pro forma for taxes increased to $1.1 million for
the six months ended June 30, 1996 from $394,000 for the comparable period in
1995, a 168% increase. Net income pro forma for taxes includes a provision
for federal and state income taxes at an assumed rate of 40% for the six
months ended June 30, 1996 and 1995.

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

Revenue. Revenue increased $4.2 million or 48.4% to $12.7 million in 1995
from $8.6 million in 1994. In 1995, the Company initiated a marketing program
targeted at larger, national accounts. As a result, the Company experienced
38% internal growth from the addition of new clients and growth in business
from existing clients. This growth includes approximately $1.3 million from a
contract with a governmental agency awarded in April 1995. In addition to
strong internal growth, approximately $808,000 of the increase in revenue was
attributable to the Eastern acquisition, and $437,000 was attributable to a
full year of operations of BRM in 1995 versus eight months in 1994. This was
partially offset by a decrease in revenue from outsourcing projects to
$259,000 in 1995 from $357,000 in 1994. Approximately $300,000 of revenue
from outsourcing projects in 1994 was from a one-time project completed in
the first quarter of 1994.

Payroll and related expenses. Payroll and related expenses increased $2.2
million to $6.8 million in 1995 from $4.6 million in 1994, and increased
slightly as a percentage of revenue to 53.4% from 53.1%. During the fourth
quarter of 1995, the Company hired a Vice President of Collection, as well as
20 additional telephone representatives necessary for two outsourcing
projects which did not generate revenue until the first quarter of 1996. In
addition, the one-time outsourcing project completed during the first quarter
of 1994 had lower payroll and related expenses as a percentage of revenue.
The increases in personnel were partially offset by spreading the relatively
fixed costs of the Company's management and administrative personnel over a
larger revenue base, as well as the elimination of redundant administrative
staff related to the Eastern acquisition.

23
<PAGE>

Selling, general and administrative expenses. Selling, general and
administrative expenses increased $1.3 million to $4.0 million in 1995, from
$2.7 million in 1994 and increased as a percentage of revenue to 31.7% from
31.2%. These increases were primarily due to higher data processing and
facilities costs in anticipation of growth and to allow for the rapid
assimilation of the TCD acquisition in the first quarter of 1996 without
having to purchase short-term administrative services from the parent company
of TCD during the post-acquisition transition.

Depreciation and amortization. Depreciation and amortization increased to
$348,000 in 1995 from $215,000 in 1994. Of this increase, $90,000 was
attributable to the Eastern and BRM acquisitions. The remaining $43,000
consisted of amortization of deferred financing charges and depreciation
resulting from capital expenditures incurred in the ordinary course of
business.

Other income (expense). Interest expense increased to $180,000 in 1995
from $72,000, primarily due to increased borrowings associated with the
Eastern and BRM acquisitions. The Company recorded a $49,000 loss from the
disposal of assets in 1995.

Net income. Net income pro forma for taxes increased to $820,000 for the
year ended December 31, 1995 from $652,000 in 1994, representing a 25.7%
increase. Net income pro forma for taxes includes a provision for federal and
state income taxes at an assumed rate of 40% for the years ended December 31,
1995 and 1994.

YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993

Revenue. Revenue increased $1.2 million or 15.2% to $8.6 million in 1994
from $7.4 million in 1993. Of this increase, $959,000 was attributable to the
BRM acquisition completed in April 1994. The remainder of the increase was
due to the addition of new clients and from growth in business from existing
clients, partially offset by a reduction resulting from the completion of the
one-time client project in February 1994.

Payroll and related expenses. Payroll and related expenses increased
$436,000 to $4.6 million in 1994 from $4.1 million in 1993, but as a
percentage of revenue, decreased to 53.1% from 55.4%. Payroll and related
expenses as a percentage of revenue were lower in 1994 primarily as a result
of spreading the relatively fixed costs of the Company's management and
administrative personnel over a larger revenue base, as well as the
elimination of duplicative administrative staff related to the BRM
acquisition.

Selling, general and administrative expenses. Selling, general and
administrative expenses increased $283,000 to $2.7 million in 1994, from $2.4
million in 1993. As a percentage of revenue, selling, general and
administrative expenses decreased to 31.2% from 32.1%. During 1993, the
Company performed services under a one-time contract which had a lower cost
structure than the Company's core business; however, in 1994, the Company was
able to achieve economies of scale by spreading its fixed costs over a larger
revenue base. The Company also closed an office and eliminated duplicative
costs in connection with the BRM acquisition.

Depreciation and amortization. Depreciation and amortization increased to
$215,000 in 1994 from $141,000 in 1993. Of this increase, $61,000 was the
result of the BRM acquisition. The remaining $13,000 consisted of
depreciation resulting from capital expenditures incurred in the ordinary
course of business.

Other income (expense). Interest expense increased to $72,000 in 1994 from
$14,000 in 1993, primarily due to increased borrowings associated with the
BRM acquisition.

Net income. Net income pro forma for taxes increased to $652,000 for the
year ended December 31, 1994 from $481,000 in 1993, representing a 35.6%
increase. Net income pro forma for taxes includes a provision for federal and
state income taxes at an assumed rate of 40% for the years ended December 31,
1994 and 1993.

QUARTERLY RESULTS

The following table sets forth selected actual historical financial data
for the calendar quarters of 1994 and 1995, and for the first two calendar
quarters of 1996. This quarterly information is unaudited but has been
prepared on a basis consistent with the Company's audited financial
statements presented elsewhere herein and, in the Company's opinion, includes
all adjustments (consisting only of normal recurring adjustments) necessary
for a fair presentation of the information for the quarters presented. The
operating results for any quarter are not necessarily indicative of results
for any future period.

24
<PAGE>

<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------------------------------------------------------------
1994 1995 1996
------------------------------------------- ------------------------------------------ --------------------
Mar. Jun. Sept. Dec. Mar. Jun. Sept. Dec. Mar. Jun.
31 30 30 31 31 30 30 31 31 30
--------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue ..... $2,087 $2,147 $2,188 $2,156 $2,544 $3,002 $3,480 $3,707 $6,044 $6,499
Income from
operations . 431 173 280 247 244 485 496 320 915 1,156
Net income .. 436 160 262 228 227 429 460 250 760 1,001
</TABLE>

Quarter Ended
-------------------------------------------------------------------------------------------------------------
1994 1995 1996
------------------------------------------ ------------------------------------------ --------------------
Mar. Jun. Sept. Dec. Mar. Jun. Sept. Dec. Mar. Jun.
31 30 30 31 31 30 30 31 31 30
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(as a percentage of revenue)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue ..... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Income from
operations . 20.7 8.0 12.8 11.5 9.6 16.2 14.3 8.6 15.1 17.8
Net income .. 20.9 7.4 12.0 10.6 8.9 14.3 13.2 6.7 12.6 15.4
</TABLE>

In the past, the Company has experienced quarterly fluctuations in
operating expenses. Due to the low revenue base of the Company at the time
these costs were incurred, the impact of these fluctuations was more
significant than if they had occurred at the Company's current revenue base.
For instance, the fourth quarter of 1995 included additional costs primarily
due to increases in data processing and facilities costs in anticipation of
growth and to allow for the rapid assimilation of the TCD acquisition. The
second quarter of 1994 included $94,000 of moving and acquisition costs
related to the BRM acquisition. The first quarter of 1994 included $300,000
of revenue related to the completion of a project which had a lower than
normal cost structure.

<PAGE>

The Company could experience quarterly variations in revenue and operating
income as a result of many factors, including the timing of clients'
referrals of accounts, the timing of acquisitions that may be effected in the
future, the timing of the hiring of personnel, the timing of additional
selling, general and administrative expenses incurred to support new business
and changes in the Company's revenue mix among its various service offerings.
In connection with certain contracts, the Company could incur costs in
periods prior to recognizing revenue under those contracts. In addition, the
Company must plan its operating expenditures based on revenue forecasts, and
a revenue shortfall below such forecast in any quarter would likely adversely
affect the Company's operating results for the quarter. While the effects of
seasonality of NCO's business have historically been obscured by its rapid
growth, the Company's business tends to be slower in the third and fourth
quarter of the year due to the summer and the holiday seasons.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary sources of cash have historically been cash flow
from operations and bank borrowings. Cash has been used for acquisitions of
accounts receivable management companies and distributions to shareholders,
and for purchases of equipment and working capital to support the Company's
growth.

Cash provided by operating activities was $1.7 million, $2.0 million, $1.1
million, and $980,000 for the six months ended June 30, 1996, and for the
years 1995, 1994, and 1993, respectively. The increases in each period were
due to increases in net income before non-cash charges which were partially
offset by cash used for working capital during the six months ended June 30,
1996 and the calendar year 1994; and partially increased by decreases in
working capital for the years 1993 and 1995.

Cash used in investing activities was $5.3 million, $2.0 million, $1.1
million, and $135,000 for the six months ended June 30, 1996 and for the
years 1995, 1994, and 1993, respectively. In April 1994 the Company purchased
certain assets of BRM for consideration consisting in part of $1.0 million in
cash and the issuance of a $127,000 promissory note. In August 1995, the
Company purchased certain assets of Eastern for $1.6 million in cash and the
assumption of a non-interest bearing note payable of $252,000 and certain
other accounts payable in the amount of $209,000. In January 1996, the
Company purchased all the assets of TCD for $4.8 million in cash. In
September 1996, the Company purchased all the outstanding stock of MAB for
$8.0 million in

25
<PAGE>

cash and the issuance of a $1.0 million, five-year convertible note to the
principal shareholder of MAB. The note is convertible into the Common Stock
of the Company at the initial public offering price and bears interest
payable monthly at a rate of 8.0% per annum. The Company financed the cash
portion of these acquisitions with bank borrowings. These acquisitions
collectively resulted in goodwill estimated at $14.5 million, which is being
amortized at approximately $749,000 per year. See "Acquisition History."

Cash provided by financing activities was $3.8 million and $280,000 for
the six months ended June 30, 1996 and the year ended December 31, 1995,
respectively. Cash used in financing activities was $35,000 and $704,000 in
1994 and 1993, respectively. Bank borrowings have been the Company's primary
source of cash from financing activities and have been used for distributions
to shareholders and for acquisitions of accounts receivable management
companies. The Company borrowed from its bank $4.5 million, $2.4 million and
$1.0 million for the six months ended June 30, 1996 and the years 1995 and
1994, respectively. Distributions to shareholders were $752,000, $1.1
million, $813,000 and $658,000 for the six months ended June 30, 1996 and the
years 1995, 1994, and 1993, respectively. The Company expects to distribute
previously undistributed S Corporation earnings through the Termination Date
(which are expected to be approximately $3.0 million) using a portion of the
net proceeds of the Offering. See "Use of Proceeds" and "Dividend Policy and
Prior S Corporation Status."

In July 1995 the Company entered into a revolving credit agreement with
Mellon Bank, N.A. which provided for borrowings up to $7.0 million at an
interest rate equal to prime plus 1.375%, which was recently increased to
$15.0 million, to be utilized for working capital and strategic acquisitions.
The current outstanding principal balance under the revolving credit line is
$15.0 million. The revolving credit line is collateralized by substantially
all the assets of the Company and includes certain financial covenants such
as maintaining minimum working capital and net worth requirements and
includes restrictions on capital expenditures and distributions to
shareholders. The Company has received a commitment letter from its bank to
increase the revolving credit facility to $25.0 million and decrease the rate
of interest to 2.5% above LIBOR upon completion of the Offering provided that
the Company receives minimum net proceeds of $24.0 million from the Offering.

In connection with entering into the original revolving credit agreement,
the Company recorded deferred charges of approximately $135,000 relating
primarily to bank and legal fees. The Company also issued a warrant to the
bank exercisable for an aggregate of 175,531 shares of the Company's Common
Stock. The warrant expires on July 31, 2005 and is exercisable for nominal
consideration. The warrant has been capitalized on the balance sheet as
deferred charges and is being amortized over the four-year life of the credit
facility. In connection with the expansion of the line of credit in September
1996, the Company recorded deferred charges of $120,000 primarily relating to
bank charges and legal fees. In addition, the Company issued an additional
warrant to the bank for 46,560 shares of Common Stock. The Company also has
agreed to grant an additional warrant to purchase 18,500 shares of Common
Stock at an exercise price equal to the initial public offering price in
consideration for the commitment to increase the revolving credit facility. All
of the warrants are exercisable at any time after the consummation of the
Offering.

In addition to equipment financed under operating leases, capital
expenditures were $78,000, $298,000 and $426,000 in 1994, 1995 and the first
six months of 1996, respectively. In addition to equipment anticipated to be
financed under operating leases, the Company anticipates that capital
expenditures will be approximately $1,250,000 and $1,750,000 for 1996 and
1997, respectively, none of which is pursuant to a firm commitment.

The Company believes that funds generated from operations, together with
existing cash, the net proceeds from the Offering and available borrowings
under its revolving credit line will be sufficient to finance its current
operations and planned capital expenditure requirements and internal growth
at least through 1997. In addition, the Company believes it will have
sufficient funds to make selected acquisitions. However, the Company could
require additional debt or equity financing if it were to make any
significant acquisitions for cash. The Company has no current commitments or
agreements with respect to any acquisitions.

The Company will account for corporate income taxes in accordance with
Statement of Financial Accounting Standards No. 109 (SFAS No. 109). On the
Termination Date and upon application of SFAS No. 109, a net deferred tax
asset of $81,000, representing cumulative temporary differences, was recorded
in the financial statements.

26
<PAGE>

RECENTLY ISSUED ACCOUNTING STANDARD

In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, ("SFAS 123") "Accounting for
Stock-Based Compensation," which was adopted by the Company January 1, 1996.
SFAS 123 affords two acceptable methods to account for stock-based
compensation. Companies are encouraged, but are not required, to adopt the
fair value method of accounting for employee stock-based transactions.
Companies are also permitted to continue to account for such transactions
under Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," but would be required to disclose in a note to the
financial statements pro forma net income and, if presented, earnings per
share as if the company had applied the new method of accounting. The
accounting requirements of the new method are effective for all employee
awards granted after the beginning of the year of adoption. The Company has
elected the disclosure alternative allowed under SFAS 123 and has not
recorded expense pursuant to the fair value method. Adoption of the new
standard will have no effect on the Company's cash flows.

27
<PAGE>

BUSINESS

NCO is a leading provider of accounts receivable management and related
services utilizing an extensive teleservices infrastructure. The Company
develops and implements customized accounts receivable management solutions for
clients' delinquent and current accounts. From eight call centers located in six
states, the Company employs advanced workstations and sophisticated call
management systems comprised of predictive dialers, automated call distribution
systems, digital switching and customized computer software. Through efficient
utilization of its technology and intensive management of human resources, the
Company has achieved rapid growth in recent years. Since April 1994, the Company
has made four acquisitions which have enabled it to increase its penetration of
existing markets, establish a presence in certain new markets and realize
significant operating efficiencies. In addition, the Company has leveraged its
infrastructure by offering additional services including telemarketing, customer
service call centers and other outsourced administrative services. The Company
believes that it is currently among the 20 largest accounts receivable
management companies in the United States.

INDUSTRY BACKGROUND

Increasingly, companies are outsourcing many non-core functions to focus
on revenue generating activities, reduce costs and improve productivity. In
particular, many large corporations are recognizing the advantages of
outsourcing accounts receivable management. This trend is being driven by a
number of industry-specific factors. First, the complexity of accounts
receivable management functions in certain industries has increased
dramatically in recent years. For example, with the increasing popularity of
HMOs and PPOs, healthcare institutions now face the challenge of billing not
only large insurance companies but also individuals who are required to pay
small, one-time co-payments. Second, changing regulations and increased
competition in certain industries such as utilities and telecommunications
have created new outsourcing opportunities. Third, the ability to implement
cost-effective specialized accounts receivable management, customer support
and telemarketing programs has improved dramatically in recent years with the
development of sophisticated call and information systems. These programs
require substantial capital investment, technical capabilities, human
resource commitments and extensive management supervision.

The emphasis on cost-effective outsourcing solutions, the increasing
sophistication of call center technology and the efficacy of third-party
intervention in the recovery process has resulted in the steady growth of the
accounts receivable management industry. Based on studies published by the
ACA, an industry trade group, it is estimated that receivables referred to
third parties for management and recovery in the United States increased from
approximately $43.7 billion in 1990 to approximately $79.0 billion in 1994.
The leading market segments within the overall accounts receivable management
market are healthcare organizations, financial institutions and utilities
which represented approximately 43%, 15% and 12%, respectively, or an
aggregate of 70%, of total industry referrals in 1994.

The accounts receivable management industry is highly fragmented. Based on
information obtained from the ACA, there are currently approximately 6,300
accounts receivable management companies in operation, the majority of which
are small local businesses. The Company believes that many small accounts
receivable management companies have insufficient capital to expand and
invest in call center technology and sophisticated workstations and are
unable to adequately meet the standards demanded by businesses seeking to
outsource their accounts receivable recovery function. In addition, there are
a limited number of options for owners of such businesses to obtain liquidity
or to sell their businesses. As a result, the Company believes that the
industry will experience consolidation in the future and that strategic
acquisition opportunities will continue to become available.

BUSINESS STRATEGY

28
<PAGE>

Efficient Utilization of Technology and Management Infrastructure to
Improve Productivity. Efficient use of technology and intensive management of
human resources enables the Company to provide cost-effective client
solutions and perform large scale accounts receivable management programs.
The Company has made a substantial investment in its teleservices
infrastructure and is committed to utilizing the best available technologies
to achieve operational efficiencies. This investment has enabled the Company
to rapidly and efficiently integrate the acquisitions it has made. For
example, in the TCD acquisition, the Company was able to reduce the workforce
of 148 employees by approximately 40% while maintaining the same revenue
base. The Company believes that its infrastructure is capable of supporting
additional growth internally or through acquisitions without commensurate
increases in costs.

Commitment to Client Service. NCO is committed to providing superior
service to its clients. The Company works closely with its clients to
identify particular needs, design appropriate recovery strategies and
implement customized accounts receivable management programs. The Company
maintains a client service department to promptly address client issues,
assigns dedicated field service representatives to assist larger clients and
offers clients the ability to electronically communicate with the Company and
monitor operational activity.

Seek Low Cost Solutions. The Company seeks to be a low cost provider of
accounts receivable management services by centralizing all administrative
functions and minimizing overhead at all branch locations. Specifically, the
Company has centralized such functions as payment processing, information
systems, accounting, sales and marketing and human resources.

Target Larger Clients. The Company continues to focus on expanding its
base of larger clients while at the same time continuing to pursue mid-size
prospects that have traditionally comprised the Company's client base. While
the Company's traditional clients have provided a stable revenue base, the
Company believes that larger clients offer significant cross-selling
opportunities as they continue to outsource more of their accounts receivable
management, customer support and telemarketing functions. The Company
believes that its size and increasing geographic diversity will help it to
obtain larger national clients.

GROWTH STRATEGY

In light of the increasing volume of accounts receivable referred for
third party management, the greater emphasis on the outsourcing of non-core
competencies by businesses and the fragmented nature of the industry, the
Company believes there are significant opportunities to expand its business.
The Company's growth strategy includes the following key elements:

Actively Pursue Strategic Acquisitions. The Company intends to take
advantage of the fragmented nature of the accounts receivable management
industry, along with opportunities in related industries, by making strategic
acquisitions. Through selected acquisitions, the Company will seek to serve
new geographic markets or industries, expand its presence in its existing
vertical markets or add complementary service applications. For example,
through the MAB acquisition, management believes that the Company will be
able to further its penetration of the education market and expand its
presence in the financial services market in the Midwest and Southern regions
of the United States. The Company evaluates acquisitions using numerous
criteria including size, management strength, service quality, industry
focus, diversification of client base, operating characteristics and the
ability to integrate the acquired businesses into the Company's operations
and eliminate redundant costs.

Increase Market Penetration. The Company believes that its long-standing
reputation as a quality provider of cost-effective accounts receivable
management services is one of its most significant competitive advantages and
intends to continue to build upon its reputation. The Company continually
strives to increase its share of its clients' accounts receivable management
business and to obtain new clients that have outsourced or are seeking to
outsource these services. In particular, the Company will continue to focus
on the education, financial services, healthcare, telecommunications and
utilities industries. These industries include many large corporations which
rely heavily on third-party providers for a substantial portion of their
accounts receivable management needs. In addition, the Company believes there
is significant opportunity for growth in certain new market segments, such as
the retail credit card and insurance industries, in which it can leverage its
accumulated business expertise and call center infrastructure.

29
<PAGE>

Expand Service Offerings. The Company regularly seeks to leverage its
infrastructure by expanding the array of services offered to clients by
cross-selling existing services and by developing new value-added services
that strengthen its long-term relationship with existing clients. For
example, the Company has already begun providing other outsourced
administrative services such as customer service call centers, telemarketing,
telephone-based auditing and other administrative services outsourcing.
Substantially all of these services are presently provided to clients who
utilize NCO's accounts receivable management services; however, in the
future, the Company plans to market these services to both existing and new
clients.

ACCOUNTS RECEIVABLE MANAGEMENT SERVICES

The Company provides a wide range of accounts receivable management services
to its clients utilizing an extensive teleservices infrastructure. Although most
of the Company's accounts receivable management services to date have focused on
recovery of traditional delinquent accounts (which typically average
approximately 169 days past due), the Company does engage in the recovery of
current receivables and early stage delinquencies (generally accounts which are
90 days or less past due). The Company generates substantially all of its
revenue from the recovery of delinquent accounts receivable on a contingency fee
basis. In addition, the Company generates revenue from fixed fees for certain
accounts receivable management and other related services. Contingency fees
typically range from 15% to 35% of the amount recovered on behalf of the
Company's clients, but can range from 6% for the management of accounts placed
early in the accounts receivable cycle to 50% for accounts which have been
serviced extensively by the client or by third-party providers.

Recovery activities typically include the following:

Management Planning. The Company's approach to accounts receivable
management for each client is determined by a number of factors including
account size and demographics, the client's specific requirements and
management's estimate of the collectability of the account. The Company has
developed a library of standard processes for accounts receivable management
which is based upon its accumulated experience. The Company will integrate
these processes with its client's requirements to create a customized
recovery solution. In many instances, the approach will evolve and change as
the relationship with the client develops and both parties evaluate the most
effective means of recovering accounts receivable. The Company's standard
approach, which may be tailored to the specialized requirements of its
clients, defines and controls the steps that will be undertaken by the
Company on behalf of the client and the manner in which data will be reported
to the client. Through its systemized approach to accounts receivable
management, the Company removes most decision making from the recovery staff
and ensures uniform, cost-effective performance.

Once the approach has been defined, the Company electronically or manually
transfers pertinent client data into its information system. Once the
client's records have been established in the Company's system, the Company
commences the recovery process.

Skip Tracing. In cases where the customer's telephone number or address is
unknown, the Company systematically searches the United States Post Office
National Change of Address service, consumer data bases, electronic telephone
directories, credit agency reports, tax assessor and voter registration
records, motor vehicle registrations, military records and other sources. The
geographic expansion of banks, credit card companies, national and regional
telecommunications companies and managed healthcare providers along with the
mobility of consumers has increased the demand for locating the client's
customers. Once the Company has located the customer, the notification
process can begin.

Account Notification. The Company initiates the recovery process by
forwarding an initial letter which is designed to seek payment of the amount
due or open a dialogue with customers who cannot afford to pay at the current
time. This letter also serves as an official notification to each customer of
their rights as required by the federal Fair Debt Collection Practices Act.
The Company continues the recovery process with a series of mail and
telephone notifications. Telephone representatives remind the customer of
their obligation, inform them that their account has been placed for
collection with the Company and begin a dialogue to develop a payment
program.

Credit Reporting. At a client's request, the Company will electronically
report delinquent accounts to one or more of the national credit bureaus
where it will remain for a period of up to seven years. The denial of future
credit often motivates the payment of all past due accounts.

30
<PAGE>

Litigation Management. When account balances are sufficient, the Company
will also coordinate litigation undertaken by a nationwide network of
attorneys that the Company utilizes on a routine basis. Typically, account
balances must be in excess of $1,000 to warrant litigation and the client is
asked to advance legal costs such as filing fees and court costs. Attorneys
are generally compensated on a contingency fee basis. The Company's
Collection Support staff manages the Company's attorney relationships and
facilitates the transfer of all necessary documentation.

Payment Process. After the Company receives payment from the customer, it
either remits the amount received net of its fee to the client or remits the
entire amount received to the client and bills the client for its services.

Activity Reports. Clients are provided with a system-generated set of
standardized or customized reports that fully describes all account activity
and current status. These reports are typically generated monthly, however,
the information included in the report and the frequency that the reports are
generated can be modified to meet the needs of the client.

Quality Tracking. The Company emphasizes quality control throughout all
phases of the accounts receivable management process. Some clients may
specify an enhanced level of supervisory review and others may request
customized quality reports. Large national credit grantors will typically
have exacting performance standards which require sophisticated capabilities
such as documented complaint tracking and specialized software to track
quality metrics to facilitate the comparison of the Company's performance to
that of its peers.

OTHER SERVICES

The Company selectively provides other related services which complement
its traditional accounts receivable management business and which leverage
its teleservices infrastructure. The Company believes that the following
services will provide additional growth opportunities for the Company.

Telemarketing. The Company provides telemarketing services for clients,
including lead generation and qualification and the actual booking of
appointments for a client's sales representatives.

Customer Service Call Center. The Company utilizes its communications and
information system infrastructure to supplement or replace the customer
service function of its clients. For example, the Company is currently
engaged by PECO Energy Company, a regional utility, to function as its
customer service department to field and respond to calls concerning new
services which the utility is beginning to develop and offer. In this manner,
the utility can focus on developing these services without investing the
resources to build the in-house infrastructure necessary to respond to
customer inquiries.

Accounts Receivable Outsourcing. The Company complements existing service
lines by offering adjunct billing services to clients as an outsourcing
option. Additionally, the Company can assist healthcare clients in the
billing and management of third party insurance.

Custom Designed Business Applications. The Company has the ability to
provide outsourced administrative and other back-office responsibilities
currently conducted by its clients. For example, the Company was recently
engaged by United Healthcare, a national health insurer, to assume all
administrative operations for its COBRA and individual conversion coverage,
including all responsibility for premium billing and payment processing,
customer service call center and policy fulfillment. The Company also was
engaged by Independence Blue Cross to audit its base of small business
employer accounts to determine if individuals insured through these accounts
were, in fact, employees.

OPERATIONS

Technology and Infrastructure. Over the past five years, the Company has
made a substantial investment in its call management systems such as
predictive dialers, automated call distribution systems, digital switching
and customized computer software. As a result, the Company believes it is
able to address accounts receivable management activities more reliably and
more efficiently than many other accounts receivable management companies.
The Company's systems also permit network access to enable clients to
electronically communicate with NCO and monitor operational activity on a
real-time basis.

31
<PAGE>

NCO provides its accounts receivable management services through the
operation of eight state-of-the-art call centers which are electronically
linked through the MFS Datanet ATM Network. The Company utilizes two
Unix-based NCR 3455 computers which provide necessary redundancy (either
computer can operate the system in the event of the failure of the other) and
excess capacity for future growth. The computers are linked via network
servers to the Company's 689 workstations which consist of personal computers
and terminals that are linked to the microcomputers but do not have separate
processors.

The Company maintains a predictive dialer at each of its Blue Bell,
Pennsylvania and Cleveland, Ohio facilities to address its low balance, high
volume accounts. These systems scan the Company's database and simultaneously
initiate calls on all available telephone lines and determine if a live
connection is made. Upon determining that a live connection has been made,
the computer immediately switches the call to an available representative and
instantaneously displays the associated account record on the
representative's workstation. Calls that reach other signals, such as a busy
signal, telephone company intercept or no answer, are tagged for statistical
analysis and placed in priority recall queues or multiple-pass calling
cycles. The system also automates virtually all recordkeeping and follow-up
activities including letter and report generation. The Company's automated
method of operations dramatically improves the productivity of the Company's
collection staff.

The Company employs an eight person MIS staff led by a Vice President -
Chief Information Officer. The Company maintains disaster recovery
contingency plans and has implemented procedures to protect the loss of data
against power loss, fire and other casualty. The Company has implemented a
security system to protect the integrity and confidentiality of its computer
system and data and maintains comprehensive business interruption and
critical systems insurance on its telecommunications and computer systems.

Quality Assurance and Client Service. The Company's reputation for quality
service is critical to acquiring and retaining clients. Therefore, the
Company and its clients monitor the Company's representatives for strict
compliance with the clients' specifications and the Company's policies. The
Company regularly measures the quality of its services by capturing and
reviewing such information as the amount of time spent talking with clients'
customers, level of customer complaints and operating performance. In order
to provide ongoing improvement to the Company's telephone representatives'
performance and to assure compliance with the Company's policies and
standards, quality assurance personnel monitor each telephone representative
on a frequent basis and provide ongoing training to the representative based
on this review. The Company's information systems enable it to provide
clients with reports on a real-time basis as to the status of their accounts
and clients can choose to network with the Company's computer system to
access such information directly.

The Company maintains a client service department to promptly address
client issues and questions and alert senior executives of potential problems
that require their attention. In addition to addressing specific issues, a
team of client service representatives will contact accounts on a regular
basis in order to establish a close client rapport, determine the client's
overall level of satisfaction and identify practical methods of improving the
client's satisfaction.

CLIENT RELATIONSHIPS

The Company's client base currently includes over 5,000 companies in such
industries as education, financial services, healthcare, telecommunications and
utilities. The Company's 10 largest clients in 1995 accounted for approximately
34.9% of the Company's revenue on a pro forma basis. In 1995, the City of
Philadelphia Water Revenue Bureau accounted for 3.9% of total revenue on a pro
forma basis and 10.5% on an actual basis. No client other than the City of
Philadelphia Water Revenue Bureau accounted for more than 10% of the Company's
actual revenue in 1995. For the six months ended June 30, 1996, the Company on a
pro forma basis derived 18.7% of its referrals from educational organizations,
36.6% from financial institutions, 16.2% from healthcare organizations, 9.1%
from telecommunications companies, 8.0% from utilities and 7.0% from government
entities.

32
<PAGE>

The following table sets forth a list of certain of the Company's key
clients:

Financial Services Healthcare Education
-------------------------- ----------------------------------- --------------------------------
<S> <C> <C>
First Union Corporation Reimbursement Technologies, Inc. Pennsylvania Higher Education
Mellon Bank. N.A. Medical Center of Delaware Assistance Agency
NationsBank, N.A. Franciscan Healthcare University of Pennsylvania
The Progressive George Washington University Seton Hall University
Corporation Hospital Penn State University
United Healthcare Hutchinson Hospital Corporation Rutgers University
University of Virginia

Telecommunications Utilities Government
---------------------------- ---------------------------------- -----------------------------
Bell Atlantic Corporation New York State Electric & Gas Water Revenue Bureau, City
NYNEX National Fuel Gas Distribution of Philadelphia
ATX Telecommunications Corporation State of New Jersey Motor
Frontier Cellular PECO Energy Company Vehicle Services
Boston Edison Company
Western Resources Corporation

</TABLE>

The Company enters into contracts with most of its clients which define,
among other things, fee arrangements, scope of services and termination
provisions. Clients may usually terminate such contracts on 30 or 60 days
notice. In the event of termination, however, clients typically do not
withdraw accounts referred to the Company prior to the date of termination,
thus providing the Company with an ongoing stream of revenue from such
accounts which diminish over time. Under the terms of the Company's
contracts, clients are not required to place accounts with the Company but do
so on a discretionary basis.

SALES AND MARKETING

The Company utilizes a focused and highly professional direct selling
effort in which sales representatives personally cultivate relationships with
prospects and existing clients. The Company's sales effort consists of a 23
person direct sales force. Each sales representative is charged with
identifying leads, qualifying prospects and closing sales. When appropriate,
Company operating personnel will join in the sales effort to provide detailed
information and advice regarding the Company's operational capabilities.
Sales and operating personnel also work together to take advantage of
potential cross-selling opportunities. The Company supplements its direct
sales effort with print media and attendance at trade shows.

Many of the Company's prospective clients issue requests-for-proposals
("RFPs") as part of the contract award process. The Company retains a
technical writer for the purpose of preparing detailed, professional
responses to RFPs. In addition, the effect of the Company's direct sales
force in maintaining contact with the prospective client often allow them to
serve in an informal advisory capacity to the prospective client with respect
to the requirements of the RFP which the Company believes gives it a
competitive edge in responding to the RFP.

PERSONNEL AND TRAINING

The Company's success in recruiting, hiring and training a large number of
employees is critical to its ability to provide high quality accounts
receivable management, customer support and teleservices programs to its
clients. The Company seeks to hire personnel with previous experience in
accounts receivable management or as a telephone representative. NCO
generally offers competitive compensation and benefits and offers promotion
opportunities within the Company.

All Company personnel receive a comprehensive training course that
consists of a combination of classroom and practical experience. Prior to
customer contact, new employees receive one week of training in the Company's
operating systems, procedures and telephone techniques and instruction in
applicable federal and state regulatory requirements. Company personnel also
receive a wide variety of continuing professional education consisting of
both classroom and role playing sessions.

33
<PAGE>

As of June 30, 1996, the Company (including MAB) had a total of 577
full-time employees and 91 part- time employees, of which 547 were telephone
representatives. None of the Company's employees is represented by a labor
union. The Company believes that its relations with its employees are good.

COMPETITION

The accounts receivable management industry is highly competitive. The
Company competes with approximately 6,300 providers, including large national
corporations such as First Data Corporation, Payco American Corporation, CRW
Financial, Inc. and Union Corporation, and many regional and local firms.
Many of the Company's competitors have substantially greater resources, offer
more diversified services and operate in broader geographic areas than the
Company. In addition, the accounts receivable management services offered by
the Company, in many instances, are performed in-house. Moreover, many larger
clients retain multiple accounts receivable management and recovery providers
which exposes the Company to continuous competition in order to remain a
preferred vendor. The Company believes that the primary competitive factors
in obtaining and retaining clients are the ability to provide customized
solutions to a client's requirements, personalized service, sophisticated
call and information systems and price. The Company also competes with other
firms, such as SITEL Corporation, APAC TeleServices, Inc. and Teletech
Holdings, Inc., in providing teleservices.

REGULATION

The accounts receivable management industry is regulated both at the
federal and state level. The federal Fair Debt Collection Practices Act (the
"FDCPA") regulates any person who regularly collects or attempts to collect,
directly or indirectly, consumer debts owed or asserted to be owed to another
person. The FDCPA establishes specific guidelines and procedures which debt
collectors must follow in communicating with consumer debtors, including the
time, place and manner of such communications. Further, it prohibits
harassment or abuse by debt collectors, including the threat of violence or
criminal prosecution, obscene language or repeated telephone calls made with
the intent to abuse or harass. The FDCPA also places restrictions on
communications with individuals other than consumer debtors in connection
with the collection of any consumer debt and sets forth specific procedures
to be followed when communicating with such third parties for purposes of
obtaining location information about the consumer. Additionally, the FDCPA
contains various notice and disclosure requirements and prohibits unfair or
misleading representations by debt collectors. The Company is also subject to
the Fair Credit Reporting Act which regulates the consumer credit reporting
industry and which may impose liability on the Company to the extent that the
adverse credit information reported on a consumer to a credit bureau is false
or inaccurate. The accounts receivable management business is also subject to
state regulation. Some states require that the Company be licensed as a debt
collection company. Management believes that the Company currently holds
applicable licenses from all states where required.

With respect to the other teleservices offered by the Company, including
telemarketing, the federal Telemarketing and Consumer Fraud and Abuse
Prevention Act of 1994 (the "TCFAPA") broadly authorizes the Federal Trade
Commission (the "FTC") to issue regulations prohibiting misrepresentations in
telemarketing sales. The FTC's telemarketing sales rules prohibit
misrepresentations of the cost, terms, restrictions, performance or duration
of products or services offered by telephone solicitation and specifically
address other perceived telemarketing abuses in the offering of prizes and
the sale of business opportunities or investments. The federal Telephone
Consumer Protection Act of 1991 (the "TCPA") limits the hours during which
telemarketers may call consumers and prohibits the use of automated telephone
dialing equipment to call certain telephone numbers. A number of states also
regulate telemarketing. For example, some states have enacted restrictions
similar to the federal TCPA. From time to time, Congress and the states
consider legislation that would further regulate the Company's telemarketing
operations and the Company cannot predict whether additional legislation will
be enacted and, if enacted, what effect it would have on the telemarketing
industry and the Company's business.

34
<PAGE>

The Company devotes significant and continuous efforts, through training
of personnel and monitoring of compliance, to ensure that it is in compliance
with all federal and state regulatory requirements. The Company believes that
it is in material compliance with all such regulatory requirements.

FACILITIES

The Company operates eight leased facilities. The chart below summarizes
the Company's facilities:

Location Approximate
of Facility Square Footage Function
---------------- -------------- -------------------------------------------
Denver, CO 4,800 Processing center
Hutchinson, KS 900 Processing center
Wichita, KS 10,000 Processing center
Beltsville, MD 4,700 Processing center
Buffalo, NY 30,000 Processing center
Cleveland, OH 7,000 Processing center
Blue Bell, PA 36,500 Corporate headquarters and processing center
Philadelphia, PA 5,700 Processing center

The leases of these facilities expire between 1997 and 2010, and most
contain renewal options. The Company believes that these facilities are
adequate for its current operations, but additional facilities may be
required to support growth. The Company believes that suitable additional or
alternative space will be available as needed on commercially reasonable
terms. In addition, the Company leases sales offices in Birmingham, Alabama
and Canton, Massachussetts.

The Company leases space in four buildings in Blue Bell, Pennsylvania from
three limited partnerships of which the existing shareholders of the Company
are limited partners and Michael J. Barrist is the sole shareholder of the
corporate general partners, pursuant to leases expiring between 1998 and
2000. See "Management -- Certain Transactions -- Leases."

LEGAL PROCEEDINGS

The Company is involved in legal proceedings from time to time in the
ordinary course of its business. Management believes that none of these legal
proceedings will have a materially adverse effect on the financial condition
or results of operations of the Company.

35
<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information concerning the
Company's directors, executive officers, certain key employees and persons
who will become directors of the Company following the consummation of the
Offering:

Name Age Position
--------------------- ----- --------------------------------------
Michael J. Barrist .. 35 Chairman of the Board, President and
Chief Executive Officer
Charles C. Piola, Jr. . 49 Executive Vice President and Director
Bernard R. Miller ... 49 Senior Vice President, Development and
Director
Steven L. Winokur ... 37 Vice President, Finance and Chief
Financial Officer
Joseph C. McGowan ... 43 Vice President, Operations
Stephen Elliott ..... 35 Vice President, Technology and Chief
Information Officer
Steven Leckerman .... 44 Vice President, Collection Operations
Eric S. Siegel ...... 40 Proposed Director
Allen F. Wise ....... 54 Proposed Director

Michael J. Barrist has served as Chairman of the Board, President and
Chief Executive Officer of NCO since purchasing the Company in 1986. Mr.
Barrist was employed by U.S. Healthcare Inc. from 1984 to 1986, most recently
as Vice President of Operations, and was employed by Gross & Company, a
certified public accounting firm, from 1980 through 1984. Mr. Barrist is a
certified public accountant.

Charles C. Piola, Jr. joined the Company in 1986 as Executive Vice
President, Sales and Marketing and has served as a director since that time.
Prior to joining NCO, Mr. Piola was the Regional Sales Manager for Trans
World Systems from 1983 to 1986 and IC Systems from 1979 to 1981, both
accounts receivable management companies.

Bernard R. Miller joined the Company as Senior Vice President of
Development in 1994 when NCO acquired BRM, a Philadelphia-based accounts
receivable management company owned principally by Mr. Miller. Mr. Miller
became a director in 1996. Prior to joining the Company, Mr. Miller served as
President and Chief Executive Officer of BRM since he founded it in 1980.

Steven L. Winokur joined the Company in December 1995 as Vice President,
Finance and Chief Financial Officer. Prior to that, Mr. Winokur acted as a
part-time consultant to the Company since 1986. From February 1992 to
December 1995, Mr. Winokur was the principal of Winokur & Associates, a
certified public accounting firm. From March 1981 to February 1992, Mr.
Winokur was a partner with Gross & Company, a certified public accounting
firm, where he most recently served as Administrative Partner. Mr. Winokur is
a certified public accountant.

Joseph C. McGowan joined the Company in 1990 as Vice President,
Operations. Prior to that, Mr. McGowan was Assistant Manager of the
Collections Department at Philadelphia Gas Works, a public utility, since
1975.

Stephen Elliott joined the Company in May 1996 as Vice President,
Technology and Chief Information Officer and provided consulting services to
the Company since May 1995. Prior to joining NCO, Mr. Elliott was employed by
Electronic Data Systems, a computer services company, since 1986, most
recently as Senior Account Manager.

36
<PAGE>

Steven Leckerman joined the Company in September 1995 as Vice President,
Collection Operations. From 1982 to September 1995, Mr. Leckerman was
employed by Allied Bond Corporation, a division of Union Corporation, an
accounts receivable management company, where he served as manager of dialer
and special projects.

Eric S. Siegel will become a director of the Company after the consummation
of the Offering. Mr. Siegel has been president of Siegel Management Company, a
management consulting firm, since 1983. Mr. Siegel also is an adjunct faculty
member at the Wharton School of the University of Pennsylvania and is co-author
of "The Ernst & Young Business Plan Guide."

Allen F. Wise will become a director of the Company after the consummation of
the Offering. Mr. Wise became a director and Chief Executive Officer of Coventry
Corporation, a managed care company, in October 1996. Prior thereto, he was
Executive Vice President of United Healthcare Corporation since October 1994,
President of Wise Health Systems, a healthcare management company, from
September 1993 to October 1994, Chief Executive Officer of Keystone Health Plan
and Chief Operating Officer of Independence Blue Cross from September 1991 to
September 1993 and Vice President of US Healthcare, Inc. from April 1985 to
September 1991. Mr. Wise is also a director of Transition Systems Inc.

BOARD OF DIRECTORS

Within 90 days after completion of this Offering, the Company will expand
its Board of Directors from three to five members and will appoint two
independent directors to fill the vacancies created by the increase. The
Board will be divided into three classes: Class I will consist of Mr.
Barrist, whose term will expire at the 1997 annual meeting of shareholders;
Class II will consist of Messrs. Miller and Wise, whose terms will expire at
the 1998 annual meeting of shareholders; Class III will consist of Messrs.
Piola and Siegel, whose terms will expire at the 1999 annual meeting of
shareholders. Beginning with the 1997 annual meeting of shareholders,
directors whose terms are expiring will be elected by the shareholders to
serve for three year terms. The Company will also establish an Audit
Committee consisting of Messrs. Siegel and Wise, and a Compensation Committee
consisting of Messrs. Barrist, Siegel and Wise.

Audit Committee. The Audit Committee will make recommendations concerning
the engagement of independent public accountants; review with the independent
public accountants the plans for and scope of the audit, the audit procedures
to be utilized and the results of the audit; approve the professional
services provided by the independent public accountants; review the
independence of the independent public accountants; and review the adequacy
and effectiveness of the Company's internal accounting controls.

Compensation Committee. The Compensation Committee will make
recommendations to the Board of Directors concerning compensation for the
Company's executive officers; review general compensation levels for other
employees as a group; administer the Company's 1995 Stock Option Plan and
1996 Stock Option Plan; and take such other actions as may be required in
connection with the Company's compensation and incentive plans.

DIRECTOR COMPENSATION

The Company previously has not paid fees to its directors for their
services as directors. Upon completion of this Offering, each non-employee
director of the Company will receive an annual fee of $5,000 and a fee of
$500 for each meeting of the Board or Board committee attended, plus
reimbursement of expenses incurred in attending meetings; however, no
additional fee will be paid for committee meetings held the same day as Board
meetings. Non-employee directors will receive stock options pursuant to the
Company's 1996 Non-Employee Director Stock Option Plan and directors who are
also employees are eligible to participate in the Company's 1996 Stock Option
Plan. See "--Stock Option Plans".

EXECUTIVE COMPENSATION

Summary Compensation Table. The following table sets forth the
compensation earned by the Chief Executive Officer and the three next most
highly compensated executive officers of the Company whose aggregate salaries
and bonuses exceeded $100,000 (collectively, the "Named Executive Officers")
for services rendered in all capacities to the Company during 1995.

37
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards (1)
------------------------ --------------
Securities All Other
Name and Underlying Compensation
Principal Position Year Salary Bonus Options (#) (2)
----------------------------- ------ ---------- ---------- -------------- --------------
<S> <C> <C> <C> <C>
Michael J. Barrist .......... 1995 $200,000 $242,641 -- $ 5,993
Chairman of the Board,
President and Chief Executive
Officer

Charles C. Piola, Jr. ....... 1995 200,000 135,714 -- 15,835
Executive Vice President and
Director

Bernard R. Miller ........... 1995 130,000 21,645 -- 5,955
Senior Vice President,
Development

Joseph C. McGowan ........... 1995 100,000 30,000 44,344 5,088
Vice President, Operations
</TABLE>

- ------
(1) The Company did not grant any restricted stock awards or stock
appreciation rights or make any long-term incentive plan payouts during
1995.

(2) Consists of premiums for disability policies paid by the Company of
$3,493, $13,335, $4,197 and $3,695 and the Company matching contribution
under the 401(k) Profit Sharing Plan of $2,500, $2,500, $1,758 and $1,393
for the benefit of Messrs. Barrist, Piola, Miller and McGowan,
respectively.

1995 Option Grants Table. The following table sets forth certain
information concerning stock options granted during 1995 to each of the Named
Executive Officers.

OPTION GRANTS IN 1995

<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed Annual
Rates of Stock Price
Appreciation For
Individual Grants Option Term (1)
-------------------------------------------------------------------- -------------------------
Number of Percent of
Securities Total Options
Underlying Granted to Exercise
Options Employees In Price Per Expiration
Name Granted Fiscal Year Share Date 5% 10%
-------------------------- -------------- ----------------- ------------- -------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>

Michael J. Barrist ....... -- -- -- -- -- --
Charles C. Piola, Jr. .... -- -- -- -- -- --
Bernard R. Miller ........ -- -- -- -- -- --
Joseph C. McGowan ........ 44,344 (2) 33.3% $2.73 6/1/05 $76,133 $192,937
</TABLE>

- ------
(1) Represents the difference between the market value of the Common Stock
for which the option may be exercised, assuming that the market value of
the Common Stock on the date of grant appreciates in value to the end of
the ten-year option term at annualized rates of 5% and 10%, respectively,
and the exercise price of the option. The potential realizable value of
the options based on the initial public offering price of $13.00
per share will substantially exceed the potential realizable values shown
in the table.

(2) The options were granted on June 1, 1995 and become exercisable in three
equal annual installments beginning one year after the date of grant.

38
<PAGE>
Aggregated Option Exercises in 1995 and 1995 Year-End Option Values Table.
The following table sets forth certain information concerning the exercise of
options in 1995 and the number of unexercised options and the value of
unexercised options at December 31, 1995 held by the Named Executive
Officers.

AGGREGATED OPTION EXERCISES IN 1995 AND 1995 YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Shares Acquired Value Options at December 31, 1995 December 31, 1995(1)
Name on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
--------------------------------------------- ---------------- -------------------------------- -----------------------------
<S> <C> <C> <C> <C>

Michael J. Barrist ....... -- -- -- /-- -- /--
Charles C. Piola, Jr. .... -- -- -- /-- -- /--
Bernard R. Miller ........ 86,881 (2) $941,453 (2) -- /-- -- /--
Joseph C. McGowan ........ -- -- -- /44,344 -- /$455,413
</TABLE>

- ------
(1) There was no public trading market for the Common Stock as of December
31, 1995. Accordingly, these values have been calculated on the basis of
the initial public offering price of $13.00 per share, less the
applicable exercise price.

(2) Mr. Miller purchased these shares for an aggregate exercise price of
$188,000 pursuant to the exercise of an option issued to him at the time
of the BRM acquisition. Because there was no public trading market for
the Common Stock as of the date of exercise, the value realized upon
exercise of this option was calculated on the basis of the initial
public offering price of $13.00 per share, less the exercise price.

EMPLOYMENT AGREEMENTS

In September 1996, the Company entered into five-year employment
agreements with Messrs. Barrist, Piola, Miller, McGowan and Winokur pursuant
to which they are entitled to receive annual base salaries of $275,000,
$225,000, $150,000, $125,000 and $150,000, respectively, adjusted each year
in accordance with the Consumer Price Index. Mr. Barrist is entitled to
receive an annual bonus of $50,000 if the Company reaches performance goals
determined by the Board of Directors. He is also entitled to a bonus of
$100,000 if the Company's net income increases by 20% over the prior year and
a bonus equal to 5% of any increase in net income in excess of 20%, in each
case adjusted for dilution. Mr. Piola is eligible for an annual bonus of
$50,000, $75,000 or $100,000 if the Company's annual increase in net income
(adjusted for dilution) over the prior year exceeds 20%, 30% or 40%,
respectively. Messrs. Miller, McGowan and Winokur receive such annual bonuses
as are determined by the Board of Directors.

Each of the employment agreements provides that, in the event of the death
of the employee or the termination of employment by the Company other than
"for cause" (as defined in the agreements), the Company shall continue to pay
the employee's full compensation, including bonuses, for the balance of the
employment term. In addition to a non-disclosure covenant, each employment
agreement also contains a covenant-not-to compete with the Company for a
period of two years following the date that the Company ceases to pay the
employee any compensation pursuant to the terms of the agreement.

STOCK OPTION PLANS

In June 1995, the Company adopted, and the shareholders approved, the
Company's 1995 Stock Option Plan (the "1995 Plan"). In September 1996, the
Company adopted, and the shareholders approved, the 1996 Stock Option Plan
(the "1996 Plan") and the 1996 Non-Employee Director Stock Option Plan (the
"Director Plan" and collectively with the 1995 Plan and the 1996 Plan, the
"Plans"). The purpose of the Plans is to attract and retain employees,
non-employee directors, and independent consultants and contractors and to
provide additional incentive to them by encouraging them to invest in the
Common Stock and acquire an increased personal interest in the Company's
business. Payment of the exercise price for options granted under the Plans
may be made in cash, shares of Common Stock or a combination of both. All
options granted pursuant to the Plans are exercisable in accordance with a
vesting schedule which is set at the time of the issuance of the option and,
except as indicated below, may not be exercised more than ten years from the
date of grant. Options granted under the Plans will become immediately
exercisable upon a "change in control" as defined in the Plans.

1995 Plan and 1996 Plan. All officers, directors, key employees,
independent contractors and independent consultants of the Company or any of
its current or future parents or subsidiaries are eligible to receive options

39
<PAGE>

under the 1995 Plan and the 1996 Plan. These Plans are administered by the
Compensation Committee of the Board of Directors. The Board of Directors may
administer these Plans. The committee will select the optionees and will
determine the nature of the option granted, the number of shares subject to
each option, the option vesting schedule and other terms and conditions of
each option. The Board of Directors may amend or supplement these Plans and
outstanding options and may suspend or terminate these Plans, provided that
such action may not adversely affect outstanding options.

The Company has reserved 221,719 shares of Common Stock for issuance upon
the exercise of options granted under the 1995 Plan and 218,413 shares of
Common Stock for issuance upon the exercise of options granted under the 1996
Plan. Options to purchase an aggregate of 367,321 shares of Common Stock have
been issued under the 1995 Plan and the 1996 Plan. Options granted under
these Plans may be incentive stock options intended to qualify under Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), or options
not intended to so qualify. These Plans require the exercise price of
incentive stock options to be at least equal to the fair market value of the
Common Stock on the date of the grant. In the case of options granted to a
shareholder owning, directly or indirectly, in excess of 10% of the Common
Stock, the option exercise price must be at least equal to 110% of the fair
market value of the Common Stock on the date of grant and such option may not
be exercised more than five years from the date of grant. The option price
for non-qualified options, at the discretion of the Compensation Committee,
may be less than the fair market value of the Common Stock on the date of
grant.

All unexercised options terminate three months following the date on which
an optionee's employment by, or relationship with, the Company or any parent
or subsidiary of the Company, terminates other than by reason of disability
or death (but not later than the expiration date) whether or not such
termination is voluntary. Any option held by an employee who dies or who
ceases to be employed because of disability must be exercised by the employee
or his representative within one year after the employee dies or ceases to be
an employee (but not later than the scheduled termination date). Options are
not transferable except to the decedent's estate in the event of death. No
additional options may be granted under the 1995 Plan and no option may be
granted under the 1996 Plan after August 2006.

In September and October 1996, the Company granted options to purchase an
aggregate of 189,946 shares under the 1995 Plan and the 1996 Plan at an
exercise price equal to the initial public offering price. Of these options,
63,315 will become exercisable on the first anniversary of the date of grant
and the remaining options will become exercisable in equal amounts on the
second and third anniversaries of the date of grant.

Director Plan. All non-employee directors automatically receive options
under the Director Plan. The Director Plan is administered by the Board of
Directors of the Company, including non-employee directors, who may modify,
amend, suspend or terminate the plan, other than the number of shares with
respect to which options are to be granted, the option exercise price, the
class of persons eligible to participate, or options previously granted.

The Company has reserved 24,258 shares of Common Stock for issuance upon
the exercise of options under the Director Plan. Options granted under the
Director Plan are not incentive stock options under Section 422 of the Code.
Each person who is first elected or appointed to serve as a non-employee
director of the Company is automatically granted options to purchase 1,000
shares of Common stock at the fair market value of the Common Stock on the
date of the grant. Immediately after the Company's 1997 annual meeting of
shareholders and at each annual meeting of shareholders thereafter, each
individual who is re-elected or continues as a non- employee director
automatically is granted an option to purchase 1,000 shares of Common stock
at the fair market value of the Common Stock on the date of the grant.

COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION IN COMPENSATION DECISIONS

Prior to the completion of the Offering, the Company did not have a
Compensation Committee and compensation decisions were made by Mr. Barrist.
Within 90 days after the completion of this Offering, the Company expects to
appoint Messrs. Siegel and Wise to the Board and to establish a Compensation
Committee consisting of Messrs. Barrist, Siegel and Wise.

40
<PAGE>

CERTAIN TRANSACTIONS
REAL ESTATE MATTERS

The Company currently leases four facilities in Blue Bell, Pennsylvania.
These facilities are leased from limited partnerships, in each case the
general partner of which is a corporation with Mr. Barrist as the sole
shareholder and the limited partners of which are the current shareholders of
the Company except that, in certain partnerships, an unaffiliated person is
also a limited partner. The leases for the four facilities provide for terms
expiring between 1998 and 2005, and provide for total base monthly rent
during 1996 of approximately $47,100. Under the facilities leases, the
Company paid the limited partnerships controlled by the Company's current
shareholders approximately $81,563, $297,500, $385,217, and $282,289 for the
years ended December 31, 1993, 1994 and 1995 and the six months ended June
30, 1996, respectively. At one of the facilities, the Company has sublet the
space to an affiliate of the limited partnership owning the facility for a
monthly rent of $1,454, which is equal to the monthly rent paid by the
Company. While the Company believes that the terms of the leases are no less
favorable to the Company than would have been obtained by unaffiliated
parties, there can be no assurance that conflicts of interest will not arise
in the future with respect to these leases. See "Business -- Facilities" and
Note 9 of Notes to the Financial Statements. Any material transactions that
may arise in the future with respect to these leases or any other future
material transactions between the Company and its directors, executive
officers or principal shareholders will be subject to approval by the
Company's independent directors and will be on terms no less favorable to the
Company than could be obtained from unaffiliated third parties. .

The Company has made interest-free advances to the limited partnerships
for the purpose of making improvements to these facilities. The largest
aggregate amount of indebtedness outstanding during 1994 and 1995 and the six
months ended June 30, 1996 was $64,000, $100,000 and $249,820, respectively.
These advances were repaid in June 1996.

S CORPORATION DISTRIBUTIONS

At the Termination Date, the Company terminated its status as an S
Corporation. In connection therewith, the Company declared distributions in
an amount equal to the Company's undistributed S Corporation earnings as of
the Termination Date, estimated at $3.0 million, subject to adjustment. The
Company expects to pay the S Corporation Distributions with a portion of the
proceeds from this Offering. See "Use of Proceeds" and "Dividend Policy and
Prior S Corporation Status."

DISTRIBUTION AND TAX INDEMNIFICATION AGREEMENT

The Company has entered into a distribution and tax indemnification
agreement with its current shareholders which provides for: (i) the payment
of the S Corporation Distributions, (ii) the adjustment of the S Corporation
Distributions based on the final determination of the Company's actual
undistributed S Corporation earnings through the Termination Date, (iii) an
indemnification by the Company of the current shareholders for any losses or
liabilities with respect to any additional taxes (including interest,
penalties, legal and accounting fees and any additional taxes resulting from
any indemnification) resulting from the Company's operations during the
period in which it was an S Corporation (the "S Corporation Period") and (iv)
an indemnification by the current shareholders of the Company for the amount
of any tax refund received by the current shareholders due to a reduction in
their share of the Company's S Corporation taxable income for the S
Corporation Period less any taxes, interest or penalties imposed by any tax
authority on any distributions to the current shareholders with respect to
the S Corporation Period in excess of the current shareholder's share of
taxable income of the Company for the S Corporation Period. See "Dividend
Policy and Prior S Corporation Status."

LOAN TO BERNARD R. MILLER

In 1995, the Company loaned $135,888 to Bernard R. Miller at an interest
rate of 7.0% per year to enable him to exercise an option to purchase 86,881
shares of Common Stock, which option was issued to him in connection with the
BRM acquisition. This loan was repaid in May 1996.

41
<PAGE>
PROFESSIONAL SERVICES

The Company has paid consulting fees of $5,000, $49,000 and $40,000 to Siegel
Management Company for 1994, 1995 and 1996, respectively. The Company will pay a
fee to Siegel Management Company of $240,000 after the consummation of the
Offering for various consulting and advisory services rendered to the Company in
connection with the Offering. Eric S. Siegel, who will become a director of the
Company after the consummation of the Offering, is the President and owner of
Siegel Management Company. In 1996, Mr. Siegel received options to purchase
11,086 shares of Common Stock under the 1995 Plan at an exercise price equal to
the initial public offering price.

Joshua Gindin is the beneficial owner of approximately 8.2% of the
outstanding Common Stock of the Company, principally as a result of serving
as trustee or co-trustee of certain trusts which own Common Stock. See
"Principal and Selling Shareholders." Mr. Gindin provides legal services to
the Company. In 1995, Mr. Gindin also received options to purchase 11,086
shares of Common Stock under the 1995 Plan at an exercise price of $2.73 per
share.

PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of November 6, 1996, and as adjusted
to reflect the sale of the shares of Common Stock offered hereby by: (i) each
person known by the Company to own beneficially more than 5% of the Company's
outstanding Common Stock; (ii) each of the Company's directors and proposed
directors; (iii) each of the Named Executive Officers; and (iv) the Company's
directors, proposed directors and executive officers as a group. Except as
otherwise indicated, to the knowledge of the Company, the beneficial owners of
the Common Stock listed below have sole investment and voting power with respect
to such shares.
<TABLE>
<CAPTION>

Beneficial Ownership
-----------------------------------------------
Percent After
Percent Prior the Offering
Name of Beneficial Owner Number to the Offering (1)
----------------------------------------------- ----------- --------------- --------------
<S> <C> <C> <C>
Michael J. Barrist (2)(3) ..................... 2,541,338 60.3% 37.9%
Annette Barrist (2)(4) ........................ 260,001 6.2 3.9
Charles C. Piola, Jr. (2)(5) .................. 1,180,389 28.0 17.6
Bernard R. Miller (2) ......................... 210,684 5.0 3.1
Eric S. Siegel ................................. - - -
Allen F. Wise .................................. - - -
Joseph C. McGowan(2)(6) ....................... 14,781 * *
Joshua Gindin (7) ............................. 344,923 8.2 5.1
230 South Broad Street
20th Floor
Philadelphia, PA 19102
Mellon Bank, N.A. ............................. 222,091 5.0 3.2
610 West Germantown Pike
Suite 200
Plymouth Meeting, PA 19462
All directors, proposed directors
and executive officers as a group
(7 persons) (8) .............................. 4,098,796 96.7% 60.8%
</TABLE>

- ------
*Less than one percent.

(1) Assumes no exercise of the Underwriters' over-allotment option. In the
event that the Underwriters' over- allotment option is exercised in full,
Messrs. Barrist, Piola and Miller and Mrs. Barrist have agreed to sell
210,188, 117,562, 18,750 and 28,500 shares, respectively, and after the
Offering will beneficially own 34.7%, 15.8%, 2.9% and 3.4%, respectively,
and all directors and executive officers as a group will beneficially own
55.3% of the outstanding Common Stock.

(2) The address of such person is c/o NCO Group, Inc., 1740 Walton Road, Blue
Bell, Pennsylvania 19422-0987.

(3) Includes: (i) 260,001 shares of Common Stock owned by Mrs. Barrist which
Mr. Barrist has the sole right to vote pursuant to an irrevocable proxy
and (ii) 60,192 shares held in trust for the benefit of members of Mrs.
Barrist's family for which Mr. Barrist is a co-trustee. Excludes 140,518
shares held in trust for the benefit of Mr. Barrist's child, as to which
Mr. Barrist disclaims beneficial ownership. Mrs. Barrist is the mother of
Michael J. Barrist.

42
<PAGE>

(4) Excludes 60,192 shares held in trust for the benefit of members of Mrs.
Barrist's family, as to which Mrs. Barrist disclaims beneficial
ownership. Mrs. Barrist is the mother of Michael J. Barrist.

(5) Excludes 140,518 shares held in trust for the benefit of Mr. Piola's
children, as to which Mr. Piola disclaims beneficial ownership.

(6) Represents 14,781 shares issuable upon exercise of options which are
exercisable within 60 days of November 6, 1996.

(7) Includes (i) 140,518 shares held in trust for the benefit of Mr.
Barrist's child for which Mr. Gindin is a co-trustee, (ii) 60,192 shares
held in trust for the benefit of Mrs. Barrist's family for which Mr.
Gindin is a co-trustee, (iii) 140,518 shares held in trust for the
benefit of Mr. Piola's children for which Mr. Gindin is trustee and (iv)
3,695 shares issuable upon the exercise of options which are exercisable
within 60 days of November 6, 1996.

(8) Includes: (i) 260,001 shares of Common Stock owned by Mrs. Barrist which
Mr. Barrist has the sole right to vote pursuant to an irrevocable proxy,
(ii) 60,192 shares held in trust for the benefit of members of Mrs.
Barrist's family for which Mr. Barrist is a co-trustee, (iii) 140,518
shares held in trust for the benefit of Mr. Barrist's child for which an
executive officer of the Company is a co-trustee and (iv) an aggregate of
25,867 shares issuable upon exercise of options which are exercisable
within 60 days of November 6, 1996.

DESCRIPTION OF CAPITAL STOCK

The Company is authorized to issue 25,000,000 shares of Common Stock, no
par value, and 5,000,000 shares of Preferred Stock, no par value, issuable in
series, the relative rights, limitations and preferences of which may be
designated by the Board of Directors ("Preferred Stock"). As of the date of
this Prospectus, 4,213,447 shares of Common Stock were issued and outstanding
and held of record by six shareholders and no shares of Preferred Stock were
outstanding.

COMMON STOCK

The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by shareholders. Subject to preferences that may be
applicable to any then outstanding Preferred Stock, the holders of Common
Stock are entitled, among other things, (i) to share ratably in dividends if,
when and as declared by the Board of Directors out of funds legally available
therefor; and (ii) in the event of liquidation, dissolution or winding-up of
the Company, to share ratably in the distribution of assets legally available
therefor, after payment of debts and expenses. The holders of Common Stock do
not have cumulative voting rights in the election of directors and have no
preemptive rights to subscribe for additional shares of capital stock of the
Company. All currently outstanding shares of the Common Stock are, and the
shares offered hereby, when sold in the manner contemplated by this
Prospectus will be, fully paid and nonassessable. The rights, preferences and
privileges of holders of Common Stock are subject to the terms of any series
of Preferred Stock which the Company may issue in the future.

PREFERRED STOCK

The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more classes or series. Subject to the
provisions of the Company's Articles and limitations prescribed by law, the
Board of Directors is expressly authorized to adopt resolutions to issue the
shares, to fix the number of shares, to change the number of shares
constituting any series, and to provide for or change the voting powers,
designations, preferences and relative, participating, optional or other
special rights, qualifications, limitations or restrictions thereof,
including dividend rights (including whether dividends are cumulative),
dividend rates, terms of redemption (including sinking fund provisions),
redemption prices, conversion rights and liquidation preferences of the
shares constituting any class or series of the Preferred Stock, in each case
without any further action or vote by the shareholders. The Company has no
current plans to issue any shares of Preferred Stock.

One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest,
merger or otherwise, and thereby to protect the continuity of the Company's
management. The issuance of shares

43
<PAGE>

of the Preferred Stock pursuant to the Board of Directors' authority
described above may adversely affect the rights of the holders of Common
Stock. For example, Preferred Stock issued by the Company may rank prior to
the Common Stock as to dividend rights, liquidation preference or both, may
have full or limited voting rights and may be convertible into shares of
Common Stock. Accordingly, the issuance of shares of Preferred Stock may
discourage bids for the Common Stock or may otherwise adversely affect the
market price of the Common Stock.

WARRANTS AND CONVERTIBLE NOTE

In July 1995, the Company issued a warrant (the "1995 Warrant") to
purchase 175,531 shares of Common Stock to Mellon Bank, N.A. pursuant to the
Company's Credit Agreement. The Company issued a warrant (the "1996 Warrant")
to purchase an additional 46,560 shares of Common Stock to Mellon Bank, N.A.
upon the amendment of the Credit Agreement in September 1996. The 1995
Warrant is exercisable at any time after the consummation of this Offering
and prior to July 31, 2005 at a nominal exercise price. The Company has
agreed to grant an additional warrant to purchase 18,500 shares of Common
Stock at an exercise per share price equal to the initial public offering
price in consideration of increasing the revolving credit facility to $25.0
million. The 1996 Warrant is exercisable at any time after the consummation
of the Offering and prior to July 31, 2005 at an exercise price equal to the
initial public offering price of the Common Stock. The number of shares of
Common Stock which may be acquired upon exercise of the 1995 Warrant and the
1996 Warrant (collectively, the "Warrants") and the exercise price are each
subject to adjustment in certain circumstances, including the sale by the
Company of Common Stock at a price per share less than the then current fair
market value of the Common Stock. The holder of the Warrants also has the
right to surrender the Warrants in exchange for shares of Common Stock having
an aggregate fair market value equal to the amount by which the aggregate
fair market value of all of the shares issuable upon exercise of the Warrants
exceeds the aggregate exercise price of the Warrants.

In connection with the Credit Agreement, the Company entered into a
Registration Rights Agreement granting Mellon Bank, N.A. and its transferees
(collectively, "Holders") the right to register the shares received upon
exercise of the Warrants under the Securities Act. Whenever the Company
proposes to register any shares of Common Stock at any time prior to July 31,
2005, the Company is required to give notice to the Holders of the proposed
registration and to include their shares in such registrations, subject to
certain conditions including the right of the underwriters of such offering
to limit the number of shares sold by the Holders if, in the underwriters'
opinion, the number of securities requested to be included in such
registration exceeds the number which can be sold without adversely affecting
the marketability of the offering. The Holders may also require the Company
to file up to two registration statements under the Securities Act with
respect to such shares. The Company is required to pay all registration
expenses (other than underwriting discounts), including the reasonable fees
of one counsel chosen by the Holders. The Holders have agreed to waive any
rights to register shares of Common Stock in this Offering.

As part of the purchase price for the MAB acquisition, the Company issued
a $1.0 million Convertible Note which is convertible into shares of Common
Stock at the initial public offering price at any time prior to maturity in
September 2001.

ANTI-TAKEOVER PROVISIONS

The Company's Articles and Bylaws contain several provisions intended to
limit the possibility of, or make more difficult, a takeover of the Company.
In addition to providing for a classified Board of Directors and the issuance
of Preferred Stock having terms established by the Board of Directors without
shareholder approval, the Articles provide that: (i) at least 65% of the
votes entitled to be cast by shareholders is required to approve amendments
to the Articles and Bylaws, unless at least a majority of the incumbent
directors on the Board of Directors has voted in favor of the amendment, in
which case only a majority of the votes cast by shareholders is required to
approve the amendment, (ii) directors can be removed only for cause and only
by a vote of at least 65% of the votes entitled to be cast by shareholders,
and (iii) the shareholders of the Company are not entitled to call special
meetings of the shareholders. In addition, the Articles provide that actions
by shareholders without a meeting must receive the unanimous written consent
of all shareholders. The Articles also permit the Board

44
<PAGE>

of Directors to oppose, in its sole discretion, a tender offer or other offer
for the Company's securities and to take into consideration all pertinent
issues. Should the Board of Directors determine to reject such an offer, it
may take any lawful action to accomplish its purpose, including, among other
things, advising shareholders not to accept the offer and commencing
litigation against the offeror. The Company's Bylaws establish procedures for
the nomination of directors by shareholders and the proposal by shareholders
of matters to be considered at meetings of the shareholders, including the
submission of certain information within the times prescribed in the Bylaws.

In addition, under the Pennsylvania Business Corporation Law of 1988, as
amended (the "BCL"), subject to certain exceptions, a business combination
between a Pennsylvania corporation and a person owning 20% or more of such
corporation's voting stock (an "interested person") may be accomplished only
if: (i) the business combination is approved by the corporation's directors
prior to the date on which such person acquired 20% or more of such stock or
if the board approved such person's acquisition of 20% or more of such stock
prior to such acquisition; (ii) the interested person owns shares entitled to
cast at least 80% of the votes all shareholders would be entitled to cast in
the election of directors, the business combination is approved by the vote
of shareholders entitled to cast a majority of votes that all stockholders
would be entitled to cast in an election of directors (excluding shares held
by the interested person), which vote may occur no earlier than three months
after the interested person acquired its 80% ownership, and the consideration
received by shareholders in the business combination satisfies certain
minimum conditions; (iii) the business combination is approved by the
affirmative vote of all outstanding shares of common stock; or (iv) the
business combination is approved by the vote of shareholders entitled to cast
a majority of the votes that all shareholders would be entitled to cast in
the election of directors (excluding shares held by the interested person),
which vote may occur no earlier than five years after the interested person
became an interested person. A corporation may exempt itself from this
provision by an amendment to its articles of incorporation that requires
shareholder approval. The Articles do not provide an exemption from this
provision. Pennsylvania has also adopted other anti-takeover legislation from
which the Company has elected to exempt itself in the Articles.

The BCL also provides that the directors of a corporation, in making
decisions concerning takeovers or any other matters, may consider, to the
extent that they deem appropriate, among other things, (i) the effects of any
proposed transaction upon any or all groups affected by such action,
including, among others, shareholders, employees, suppliers, customers and
creditors, (ii) the short-term and long-term interests of the corporation and
(iii) the resources, intent and conduct of the person seeking control.

The existence of the foregoing provisions of the Articles, Bylaws and BCL
may discourage other persons or companies from making a tender offer for, or
seeking to acquire, substantial amounts of the Company's Common Stock.

LIMITATIONS ON DIRECTORS' LIABILITIES AND INDEMNIFICATION

As permitted by the BCL, the Company's Bylaws provide that a director
shall not be personally liable in such capacity for monetary damages for any
action taken, or any failure to take any action, unless the director breaches
or fails to perform the duties of his or her office under the BCL, and the
breach or failure to perform constitutes self-dealing, willful misconduct or
recklessness. These provisions of the Bylaws, however, do not apply to the
responsibility or liability of a director pursuant to any criminal statute,
or to the liability of a director for the payment of taxes pursuant to local,
Pennsylvania or federal law. These provisions offer persons who serve on the
Board of Directors of the Company protection against awards of monetary
damages for negligence in the performance of their duties.

The Bylaws also provide that every person who is or was a director or
executive officer of the Company, or of any corporation which he served as
such at the request of the Company, shall be indemnified by the Company to
the fullest extent permitted by law against all expenses and liabilities
reasonably incurred by or imposed upon him, in connection with any proceeding
to which he may be made, or threatened to be made, a party, or in which he
may become involved by reason of his being or having been a director or
executive officer of the Company, or of such other corporation, whether or
not he is a director or executive officer of the Company or such other
corporation at the time the expenses or liabilities are incurred. No
indemnification shall be provided, however, with respect to: liabilities
arising under Section 16(b) of the Securities Exchange Act of 1934, as

45
<PAGE>

amended, if a final unappealable judgment or award establishes that such
officer or director engaged in self- dealing, willful misconduct or
recklessness, for expenses or liabilities which have been paid directly to,
or for the benefit of, such person by an insurance carrier or for amounts
paid in settlement of actions without the written consent of the Board of
Directors.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is Mellon Bank,
N.A., Philadelphia, Pennsylvania.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this Offering, the Company will have an aggregate of
6,713,447 shares of Common Stock outstanding. Of these shares, the 2,500,000
shares of Common Stock sold in this Offering will be freely tradeable without
restriction or further registration under the Securities Act of 1933 (the
"Securities Act") unless purchased by "affiliates" of the Company, as that
term is defined in Rule 144 under the Securities Act. The remaining 4,213,447
shares of outstanding Common Stock will be "restricted securities", as that
term is defined in Rule 144 ("Restricted Shares"), and may be sold only in
accordance with an exemption from registration, such as the exemption
provided by Rule 144.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for
at least two years, including persons who may be deemed "affiliates" of the
Company, would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of: (i) one percent of the number of
shares of Common Stock then outstanding (approximately 67,134 shares
immediately after the Offering) or (ii) the average weekly trading volume of
the Common Stock in the over-the-counter market during the four calendar
weeks immediately preceding the date on which notice of the sale is filed
with the Securities and Exchange Commission. Sales under Rule 144 are also
subject to certain manner of sale provisions and notice requirements, and to
the availability of current public information about the Company. In
addition, a person who is not deemed to have been an affiliate of the Company
at any time during the 90 days preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least three years, is entitled to
sell such shares under Rule 144(k) without regard to the requirements
described above. Rule 144 also provides that affiliates of the Company who
are selling shares that are not Restricted Shares must nonetheless comply
with the same restrictions applicable to Restricted Shares with the exception
of the holding period requirement. The Securities and Exchange Commission has
published a notice of rule-making that, if adopted as proposed, would shorten
the two-year holding period under Rule 144 to one year and would shorten the
three-year holding period under Rule 144(k) to two years. The Company cannot
predict whether such amendments will be adopted.

The Company's directors, executive officers and existing shareholders have
agreed, subject to certain limitations, not to offer, sell or otherwise dispose
of any shares of Common Stock for a period of 180 days after the closing of the
Offering without the prior written consent of Montgomery Securities. Following
the expiration of this 180-day period, such directors, executive officers and
existing shareholders will hold an aggregate of 4,213,447 outstanding shares of
Common Stock (3,838,447 shares if the over-allotment option is exercised in
full) which may be resold under Rule 144. The Company also has outstanding
warrants to purchase 222,091 shares of Common Stock and a $1.0 million
Convertible Note convertible into 76,923 shares of Common Stock (at a conversion
price of $13.00 per share) at any time on or before September 2001. The holder
of the warrants has agreed, subject to certain limitations, not to offer, sell
or otherwise dispose of any shares of Common Stock issuable upon exercise of the
warrants for a period of 180 days after the closing of the Offering without the
prior written consent of Montgomery Securities. The holder of the warrants is
entitled to certain demand and piggy-back registration rights following
completion of the Offering. In addition, the Company intends, as soon as
practicable after the consummation of the Offering, to register approximately
464,390 shares of Common Stock reserved for issuance to its employees,
directors, consultants and advisors under the Company's 1995 Plan, 1996 Plan and
Director Plan. Options to purchase an aggregate of 367,321 shares of Common
Stock will be outstanding under all such Plans upon the consummation of the
Offering.

Prior to this Offering, there has been no public market for the Company's
Common Stock. Sales of substantial amounts of Common Stock in the public
market could adversely affect market prices for the Common Stock and make it
more difficult for the Company to sell equity securities in the future at a
time and price which it deems appropriate.

46
<PAGE>
UNDERWRITING

The Underwriters named below (the "Underwriters"), represented by
Montgomery Securities and Janney Montgomery Scott Inc. (the
"Representatives"), have severally agreed, subject to the terms and
conditions in the underwriting agreement (the "Underwriting Agreement"), by
and among the Company, the Selling Shareholders and the Underwriters, to
purchase from the Company the number of shares of Common Stock indicated
below opposite their respective names, at the initial public offering price
less the underwriting discount set forth on the cover page of this
Prospectus. The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters are committed to purchase all of the shares of Common Stock, if
they purchase any.

Number of
Underwriters Shares
- ------------ -----------
Montgomery Securities ........................................ 960,000
Janney Montgomery Scott Inc. .................................. 640,000
William Blair & Company, L.L.C. ............................... 90,000
Alex. Brown & Sons Incorporated................................ 90,000
Hambrecht & Quist LLC.......................................... 90,000
Morgan Stanley & Co. Incorporated.............................. 90,000
Robertson, Stephens & Company LLC.............................. 90,000
Smith Barney Inc............................................... 90,000
Robert W. Baird & Co. Incorporated............................. 40,000
The Chicago Corporation........................................ 40,000
Dain Bosworth Incorporated..................................... 40,000
Furman Selz LLC................................................ 40,000
McDonald & Company Securities, Inc............................. 40,000
Needham & Company, Inc......................................... 40,000
Raymond James & Associates, Inc................................ 40,000
Unterberg Harris .............................................. 40,000
H. C. Wainwright & Co., Inc.................................... 40,000
--------
Total .................................................... 2,500,000
========

The Representatives have advised the Company and the Selling Shareholders
that the Underwriters propose initially to offer the Common Stock to the
public on the terms set forth on the cover page of this Prospectus. The
Underwriters may allow selected dealers a concession of not more than $0.52
per share; and the Underwriters may allow, and such dealers may reallow, a
concession of not more than $0.10 per share to certain other dealers. After
the initial public offering, the public offering price and other selling
terms may be changed by the Representatives. The Common Stock is offered
subject to receipt and acceptance by the Underwriters, and to certain other
conditions, including the right to reject orders in whole or in part.

The Selling Shareholders have granted an option to the Underwriters,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to a maximum of 375,000 additional shares of Common Stock to
cover over-allotments, if any, at the same price per share as the initial
shares to be purchased by the Underwriters. To the extent that the
Underwriters exercise such over-allotment option, the Underwriters will be
committed, subject to certain conditions, to purchase such additional shares
in approximately the same proportion as set forth in the above table. The
Underwriters may purchase such shares only to cover over-allotments made in
connection with the Offering.

The Underwriting Agreement provides that the Company and the Selling
Shareholders will indemnify the Underwriters against certain liabilities,
including civil liabilities under the Securities Act, or will contribute to
payments the Underwriters may be required to make in respect thereof.

The Company, the Selling Shareholders and the Company's officers and
directors who are also shareholders of the Company and who, immediately
following the Offering (assuming no exercise of the Underwriters'
over-allotment option) collectively will beneficially own an aggregate of
4,239,314 shares of Common Stock, have agreed that for a period of 180 days
after the effective date of the Offering they will not, without the prior
written consent of Montgomery Securities, directly or indirectly offer for
sale, sell, solicit an offer to sell, contract or grant an option to sell,
pledge, transfer, establish an open put equivalent position or otherwise
dispose of any shares of Common stock, options or warrants to acquire shares
of Common Stock. The Company has also agreed not to issue, offer, sell, grant
options to purchase or otherwise dispose of any of the Company's equity
securities or any other securities convertible into or exchangeable with its
Common Stock for a period of 180 days after the effective date of the
Offering without the prior written consent of Montgomery Securities, subject
to limited exceptions and grants and exercises of stock options. The holder
of the warrants issued by the Company has also agreed not to offer, sell or
otherwise dispose of any shares of Common Stock issuable upon exer-

47
<PAGE>

cise of the warrants for a period of 180 days after the closing of the
Offering without the prior written consent of Montgomery Securities. In
evaluating any request for a waiver of the 180-day lock-up period, the
Underwriters will consider, in accordance with their customary practice, all
relevant facts and circumstances at the time of the request, including,
without limitation, the recent trading market for the Common Stock, the size
of the request and, with respect to a request by the Company to issue
additional equity securities, the purpose of such an issuance. See "Shares
Eligible for Future Sale."

The Representatives have informed the Company that the Underwriters do not
expect to make sales of Common Stock offered by this Prospectus to accounts
over which they exercise discretionary authority in excess of 5% of the
number of shares of Common Stock offered hereby.

Prior to the Offering, there has been no public trading market for the Common
Stock. Consequently, the initial public offering price of the Common Stock has
been determined by negotiations between the Company, the Representatives and the
Selling Shareholders. Among the factors considered in such negotiations were the
history of, and the prospects for, the Company and the industry in which the
Company competes, an assessment of the Company's management, its financial
condition, its past and present earnings and the trend of such earnings, the
prospects for future earnings of the Company, the present state of the Company's
development, the general condition of the economy and the securities markets at
the time of the Offering and the market prices of and demand for publicly traded
common stock of comparable companies in recent periods.

LEGAL MATTERS

An opinion has been rendered by the law firm of Blank Rome Comisky &
McCauley, Philadelphia, Pennsylvania, to the effect that the shares of Common
Stock offered by the Company hereby, when issued and paid for as contemplated in
this Prospectus, will be, and the shares of Common Stock offered by the Selling
Shareholders hereby are, legally issued, fully paid and non- assessable. Certain
legal matters will be passed upon for the Underwriters by Piper & Marbury
L.L.P., Baltimore, Maryland.

EXPERTS

The Company's and MAB's balance sheets as of December 31, 1994 and 1995
and the Company's statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1995 and MAB's
statements of income and shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1995 and the six months ended
June 30, 1996 included in this Prospectus, have been included herein in
reliance on the report of Coopers & Lybrand, L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.

The financial statements of Trans Union Corporation Collections Division at
December 31, 1994 and 1995 and for each of the three years in the period ended
December 31, 1995 included in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-1 under the Securities Act with respect to
the Common Stock offered hereby. This Prospectus, filed as part of the
Registration Statement, does not contain all of the information included in
the Registration Statement and the exhibits and schedules thereto, certain
portions of which have been omitted in accordance with the rules and
regulations of the Securities and Exchange Commission. For further
information with respect to the Company and the Common Stock offered hereby,
reference is hereby made to the Registration Statement, including the
exhibits and schedules filed therewith. Statements contained in this
Prospectus as to the contents of any contract, agreement or other document
referred to herein are not necessarily complete and in each such instance,
reference is made to the copy of such contract, agreement or other document
filed as an exhibit to the Registration Statement for a more complete
description of the matters involved, and each such statement shall be deemed

48
<PAGE>

qualified in its entirety by such reference. The Registration Statement,
including the exhibits and schedules thereto, may be inspected without charge
and copied at the offices of the Securities and Exchange Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549; 7
World Trade Center, 13th Floor, New York, New York 10048; and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies
of such materials may be obtained at the prescribed rates from the
Commission's Public Reference Section at Judiciary Plaza, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549. The Commission maintains a Web Site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The
address of such Web Site is http://www.sec.gov.

As a result of the Offering, the Company will be subject to the
information requirements of the Securities and Exchange Act of 1934, as
amended (the "Exchange Act"). So long as the Company is subject to periodic
reporting requirements of the Exchange Act, it will continue to furnish the
reports and other information required thereby to the Securities and Exchange
Commission. The Company will furnish to its shareholders annual reports
containing financial statements audited by its independent auditors and will
make available copies of quarterly reports for the first three quarters of
each fiscal year containing unaudited financial information.

49
<PAGE>

INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>

NCO Group, Inc.
Pro Forma Consolidated Financial Statements:
<S> <C>
Basis of Presentation ............................................................................. F-2
Pro Forma Consolidated Balance Sheet as of June 30, 1996 .......................................... F-3
Pro Forma Consolidated Statement of Income for the six months ended June 30, 1996 ................. F-4
Pro Forma Consolidated Statement of Income for the year ended December 31, 1995 ................... F-5
Notes to Consolidated Pro Forma Financial Statements .............................................. F-6
Historical Financial Statements:
Report of Independent Accountants ................................................................. F-8
Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996 (Unaudited) ..................... F-9
Statements of Income for each of the three years in the period ended December 31, 1995 and the six
months ended June 30, 1995 and June 30, 1996 (Unaudited) ....................................... F-10
Statements of Shareholders' Equity for each of the years in the three year period ended December
31, 1995 and the six months ended June 30, 1996 (Unaudited) .................................... F-11
Statements of Cash Flows for each of the years in the three year period ended December 31, 1995 and
the six months ended June 30, 1995 and June 30, 1996 (Unaudited) ............................... F-12
Notes to Financial Statements ..................................................................... F-13
Management Adjustment Bureau, Inc.:
Report of Independent Accountants ................................................................. F-22
Balance Sheets as of December 31, 1994 and 1995 and as of June 30, 1996 ........................ F-23
Statements of Income and Retained Earnings for the three year period ended December 31, 1995 and
the six months ended June 30, 1996 ........................................................... F-24
Statements of Cash Flows for each of the years in the three year period ended December 31, 1995 and
the six months ended June 30, 1996 ............................................................. F-25
Notes to Financial Statements ..................................................................... F-27
Trans Union Corporation Collections Division:
Report of Independent Auditors .................................................................... F-31
Statements of Net Assets as of December 31, 1994 and 1995 ......................................... F-32
Statements of Operations for each of the three years ended December 31, 1995 ...................... F-33
Statements of Cash Flows for each of the three years ended December 31, 1995 ...................... F-34
Notes to Financial Statements ..................................................................... F-35

</TABLE>

F-1
<PAGE>

PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

BASIS OF PRESENTATION

The Pro Forma Consolidated Balance Sheet as of June 30, 1996 and the Pro
Forma Consolidated Statements of Income for the year ended December 31, 1995
and the six months ended June 30, 1996 are based on the historical financial
statements of NCO Group, Inc. (NCO), Management Adjustment Bureau, Inc.
(MAB), Trans Union Corporation Collections Division (TCD) and Eastern
Business Services, Inc. (Eastern). The Pro Forma Consolidated Balance Sheet
has been prepared assuming the MAB acquisition occurred on June 30, 1996. The
Pro Forma Consolidated Statement of Income for the six months ended June 30,
1996 and for the year ended December 31, 1995 has been prepared assuming the
MAB, TCD and Eastern acquisitions occurred on January 1, 1995. Additionally,
the Pro Forma Consolidated Financial Statements include adjustments relating
to NCO's conversion from an S Corporation effective September 3, 1996 (the
"Termination Date"). The Pro Forma Consolidated Statements of Income also
reflect the assumed issuance of 1,583,954 shares of Common Stock (at the
initial public offering price of $13.00 per share), which, net of
estimated underwriting discounts and offering expenses payable by the
Company, would result in sufficient net proceeds to repay acquisition-related
debt and finance the distribution of all undistributed S Corporation earnings
through the Termination Date (estimated at $3.0 million, subject to final
adjustment.) These shares are assumed to have been issued, and the debt
repaid, at the beginning of the periods presented, and thus interest expense
attributable to such debt has been eliminated. The Pro Forma Consolidated
Balance Sheet reflects the assumed issuance of 2,500,000 shares of Common
Stock at June 30, 1996 (at the initial public offering price of $13.00
per share, net of estimated underwriting discounts and offering expenses
payable by the Company) and the application of the net proceeds to repay
acquisition-related debt and finance the S Corporation distributions, with
the remaining net proceeds of approximately $11,075,000 added to working
capital.

The Pro Forma Consolidated Financial Statements do not purport to
represent what NCO's actual results of operations or financial position would
have been had the acquisitions occurred as of such dates, or to project NCO's
results of operations or financial position for any period or date, nor does
it give effect to any matters other than those described in the notes
thereto. In addition, the allocations of purchase price to the assets and
liabilities of MAB are preliminary and the final allocations may differ from
the amounts reflected herein. The unaudited Pro Forma Consolidated Financial
Statements should be read in conjunction with the other financial statements
and notes thereto included elsewhere in this Prospectus.

F-2
<PAGE>

NCO GROUP, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)

Historical
----------------------------- Acquisition Offering Pro Forma
ASSETS NCO MAB Adjustments(1) Pro Forma Adjustments As Adjusted
------------- ------------ -------------- ------------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>

Current assets:
Cash and cash
equivalents ......... $ 989,773 $ 475,354 $ (300,000)(1) $ 765,127 $11,075,000(5) $11,840,127
(400,000)(2)
Available-for-sale
securities .......... 329,290 329,290 329,290
Accounts receivable,
trade ............... 2,830,610 1,234,393 4,065,003 4,065,003
Accounts receivable,
purchased ...........
Notes receivable ....... 56,088 56,088 56,088
Prepaid expenses and
other current assets .. 108,286 135,888 244,174 244,174
----------- ----------- ------------ ----------- ------------- -----------
Total current assets . 4,257,959 1,901,723 (700,000) 5,459,682 11,075,000 16,534,682
Funds held in trust for
clients
Property and equipment,
net .................... 1,420,073 1,160,130 2,580,203 2,580,203
Other assets:
Goodwill, net of
accumulated
amortization ........ 6,074,713 8,035,284(1) 14,109,997 14,109,997
Covenants, net of
accumulated
amortization ........ 217,708 217,708 217,708
Acquired account
inventory, net ...... 85,979 85,979 85,979
Deferred financing costs 243,879 243,879 243,879
Due from related party . 33,811 33,811 33,811
Other assets ........... 264,505 33,703 298,208 298,208
----------- ----------- ------------ ----------- ------------- -----------
Total other assets ... 6,886,784 67,514 8,035,284 14,989,582 14,989,582
----------- ----------- ------------ ----------- ------------- -----------
Total assets ......... $12,564,816 $3,129,367 $ 7,335,284 $23,029,467 $ 11,075,000 $34,104,467
=========== =========== ============ =========== ============= ===========

<PAGE>

LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Demand loan ............ $ 400,000 $ (400,000)(2)
Long-term debt, current
portion ............. $ 42,333 60,000 $ 102,333 $ 102,333
Capitalized lease
obligations,
current portion ..... 59,128 108,459 167,587 167,587
Accounts payable ....... 182,023 123,756 305,779 305,779
Accrued expenses ....... 867,933 128.027 200,000(1) 1,195,960 1,195,960
Accrued repayment
guarantee ........... 190,000 190,000 190,000
Accrued compensation and
related expenses .... 550,423 550,423 550,423
Unearned revenue, net of
related costs ....... 98,092 98,092 98,092
----------- ----------- ------------ ----------- ------------- -----------
Total current
liabilities ......... 1,799,932 1,010,242 (200,000) 2,610,174 2,610,174
----------- ----------- ------------ ----------- ------------- -----------
Funds held in trust for
clients
Deferred tax liability ... 300,000(1) 219,000 219,000
Long-term liabilities: (81,000)(4)
Long-term debt, net of
current portion ..... 7,118,039 205,000 8,000,000(1) 15,323,039 $ (18,000,000)(5) 323,039
3,000,000 (3)
Unearned revenue, net of
related costs ....... 258,464 258,464 258,464
Convertible note ....... 1,000,000(1) 1,000,000
Capitalized lease
obligations, net of
current portion ..... 237,620 149,409 387,029 387,029
Commitments and
contingencies
Shareholders' equity:
Common stock ............ 537,326 19,000 (19,000)(1) 537,326 29,075,000 (5) 29,080,992
(531,334)(3)
Unexercised warrants ..... 177,294 177,294 177,294
Unrealized gain on
securities ............. 48,475 48,475 48,475
Retained earnings ........ 2,387,666 1,745,716 (1,745,716)(1) 2,468,666 (3,000,000)(3)
81,000 (4) 531,334 (3)
----------- ----------- ------------ ----------- ------------- -----------
Total shareholders'
equity ................. 3,150,761 1,764,716 (1,683,716) 3,231,761 26,075,000 29,306,761
----------- ----------- ------------ ----------- ------------- -----------
Total liabilities and
share holders' equity $12,564,816 $3,129,367 $ 7,335,284 $23,029,467 $ 11,075,000 $34,104,467
=========== =========== ============ =========== ============= ===========

</TABLE>

See accompanying notes to pro forma consolidated financial statements.

F-3
<PAGE>

NCO GROUP, INC.

PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)

Historical
------------------------------ Acquisition Offering Pro Forma
NCO MAB Adjustments Pro Forma Adjustments As Adjusted
------------- ------------- -------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Revenue .................. $12,542,664 $6,776,290 $19,318,954 $ 9,318,954
Operating costs and expenses:
Payroll and related
expenses ............ 5,953,895 4,254,479 $ (321,750)(6) 9,479,224 9,479,224
(407,400)(7)
Selling, general and
administrative
expenses ............ 4,094,626 2,421,714 6,516,340 6,516,340(10)

Depreciation and
amortization expense . 422,814 248,921 160,705(8) 832,440 832,340
------------- ------------- -------------- ------------- -------------- ---------------
Total operating costs
and expenses ........ 10,471,335 6,925,114 (568,445) 16,828,004 16,828,004
------------- ------------- -------------- ------------- -------------- ---------------
Income (loss) from operations 2,071,329 (148,824) 568,445 2,490,950 2,490,950
Other income (expense):
Interest and investment
income .............. 47,415 6,712 54,127 54,127
Interest expense ....... (357,494) (30,262) (387,756) $314,785(9) (72,971)
------------- ------------- -------------- ------------- -------------- ---------------
Income (loss) before taxes . $ 1,761,250 $ (172,374) $ 568,445 2,157,321 $ 314,785 2,472,106
============= ============= ============== ============= ============== ===============
Pro forma provision for income
taxes .................. 1,053,124(11)
---------------
Pro forma net income ..... $ 1,418,982
===============
Pro forma net income per share $ 0.23(12)
---------------
Pro forma weighted average
shares outstanding ..... 6,086,734
===============

</TABLE>

See accompanying notes to pro forma consolidated financial statements.

F-4
<PAGE>

NCO GROUP, INC.

PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)

<TABLE>
<CAPTION>
Historical
-----------------------------------------------------
Acquisition Offering Pro Forma
NCO MAB TCD Eastern(14) Adjustments Pro Forma Adjustments As Adjusted
----------- ---------- --------- ----------- -------------- ----------- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>

Revenue .............. $12,732,597 $12,975,799 $7,467,000 $1,333,675 $34,509,071 $34,509,071
Operating costs and
expenses:
Payroll and related
expenses ........ 6,797,338 7,909,785 3,125,000 660,617 $(1,437,268)(7) 16,411,972 16,411,972
(643,500)(6)
Selling, general and
administrative
expenses ........ 4,042,342 4,138,523 3,840,000 770,742 (260,300)(14) 12,531,307 12,531,307
Depreciation and
amortization
expense ......... 347,503 457,997 198,000 145,778 379,216 (8) 1,528,494 1,528,494
----------- ----------- ---------- ----------- -------------- ----------- ----------- ----------
Total operating
costs and
expenses ........ 11,187,183 12,506,305 7,163,000 1,577,137 (1,961,852) 30,471,773 30,471,773
----------- ----------- ---------- ----------- -------------- ----------- ----------- ----------
Income (loss) from
operations ........ 1,545,414 469,494 304,000 (243,462) 1,961,852 4,037,298 4,037,298
----------- ----------- ---------- ----------- -------------- ----------- ----------- ----------
Other income (expense):
Interest and
investment income . 49,473 12,115 61,588 61,588
Interest expense .. (180,205) (26,802) (94,904) (301,911) $252,609(9) (49,302)
Loss on disposal of
property and
equipment ....... (49,082) (175,392) (224,474) (224,474)
----------- ----------- ---------- ----------- -------------- ----------- ----------- ----------
Total other income
(expense) ..... (179,814) (190,079) (94,904) (464,797) 252,609 (212,188)
----------- ----------- ---------- ----------- -------------- ----------- ----------- ----------
Income (loss) before
taxes ........... $ 1,365,600 $ 279,415 $ 304,000 $ (338,366) $ 1,961,852 $ 3,572,501 $ 252,609 3,825,110
=========== =========== ========== =========== ============== =========== ============ ============
Pro forma provision
for income taxes . 1,658,609(11)
----------
Pro forma net income $2,166,501
==========
Pro forma net income
per share ....... $ 0.36(12)
==========
Pro forma weighted
average shares
outstanding ..... 6,082,091
==========

</TABLE>

See accompanying notes to pro forma consolidated financial statements.

F-5
<PAGE>

NOTES TO CONSOLIDATED
PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)

(1) Gives effect to the acquisition of MAB, as if it occurred on June 30,
1996, for $8.0 million in cash and the issuance of a $1.0 million
convertible note payable to MAB's principal shareholder. In addition,
the Company recognized $300,000 of direct closing costs related to the
acquisition and accrued $200,000 of costs related to the termination of
employees and other items. After allocating the purchase price to the
estimated fair market value of the assets acquired and liabilities
assumed, including the recognition of $300,000 of deferred taxes, the
Company recognized $8,035,284 of goodwill.

(2) Assumes that the $400,000 demand loan payable by MAB was repaid from
the available cash of MAB.

(3) On September 3, 1996, the Company terminated its S Corporation status
for federal income tax purposes and declared a distribution of the
Company's estimated undistributed S Corporation earnings through the
termination date (estimated at $3.0 million, subject to adjustment.)
The declaration also resulted in the elimination of the Company's
retained earnings and a charge of $531,334 to the common stock
account for the excess of the distribution over the Company's
retained earnings.

(4) Upon the termination of NCO's S Corporation status, the Company
recognized $81,000 of deferred taxes.

(5) Gives effect to the sale by the Company of 2,500,000 shares of Common
Stock in the Offering and the application of the estimated net
proceeds of $29.1 million to repay the outstanding debt of $15.0
million under the revolving credit facility and to pay the S
Corporation distributions (estimated at $3.0 million) to existing
shareholders of the Company, with the balance of $11.1 million added
to working capital.

(6) Reflects the reduction in salary of MAB's principal shareholder (who
is no longer active in the day- to-day operations of MAB's business),
pursuant to a new employment agreement, in the amount of $321,750 and
$643,500 for the six-months ended June 30, 1996 and the year ended
December 31, 1995, respectively.

(7) Reflects the elimination of payroll and related expenses of $407,400
and $1,437,268 for the six months ended June 30, 1996 and the year
ended December 31, 1995, respectively, relating to the elimination of
certain redundant collection and administration personnel costs
immediately identifiable at the time of the acquisitions.

(8) Reflects amortization expenses of $160,705 and $680,808 for the six
months ended June 30, 1996 and the year ended December 31, 1995,
respectively assuming MAB, TCD and Eastern had been acquired at the
beginning of the periods presented. In addition, reflects the
elimination of depreciation and amortization expense related to
assets not acquired by NCO as part of the acquisitions of TCD and
Eastern of $301,592 for the year ended December 31, 1995.

(9) Reflects the elimination of interest expenses on current and
long-term debt assumed to be repaid with the offering proceeds at the
beginning of the periods presented.

(10) Includes a non-recurring charge of $190,000 recorded by MAB to
account for potential losses relating to certain repayment guarantees
made on behalf of third parties.

F-6
<PAGE>

NOTES TO CONSOLIDATED
PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)

(11) Reflects estimated provision for income taxes, at an assumed rate of
40% after giving consideration to non-deductible goodwill expense,
assuming the Company had converted from an S Corporation to a C
Corporation at the beginning of the periods presented.

(12) Pro forma net income per share was computed by dividing the pro forma
net income for the year ended December 31, 1995 and for the six
months ended June 30, 1996 by the pro forma weighted average number
of shares outstanding. Pro forma weighted average shares outstanding
are based on the weighted average number of shares outstanding
including common share equivalents giving retroactive effect as of
January 1, 1995 to the 46.56-for-one stock split and the issuance of
1,583,954 shares of common stock (at the initial public
offering price of $13.00 per share) net of estimated underwriting
discounts and offering expenses payable by the Company, to result in
net proceeds sufficient to finance the estimated $3,000,000 S
Corporation distributions and repay $15,000,000 of acquisition -
related debt.

(13) Represents the results of operations prior to the acquisition of
Eastern in August 1995.

(14) Reflects the difference between the Company's rent expense for the
TCD facilities pursuant to lease agreements entered into upon the
acquisition and the occupancy costs allocated to TCD by its parent
prior to the acquisition.

F-7
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders of
NCO Group, Inc.
Blue Bell, Pennsylvania

We have audited the accompanying balance sheets of NCO Group, Inc. as of
December 31, 1994 and 1995 and the related statements of income,
shareholders' equity, and cash flows for each of the three years in the
period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of NCO Group, Inc. as of
December 31, 1994 and 1995 and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles.

Coopers & Lybrand L.L.P.

2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 16, 1996, except as to
Notes 1, 2, 3, 7 and 13 for
which the date is September 30, 1996

F-8
<PAGE>

NCO GROUP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>

December 31, June 30,
----------------------------- -------------
ASSETS 1994 1995 1996
------------- ------------ -------------
(Unaudited)
<S> <C> <C> <C>

Current assets:
Cash and cash equivalents ......................... $ 526,018 $ 804,550 $ 989,773
Available-for-sale securities ..................... 239,944 299,488 329,290
Accounts receivable, trade, net of allowance for
doubtful accounts of $7,400, $23,200 and
$64,554, respectively .......................... 603,176 1,394,801 2,830,610
Accounts receivable, purchased .................... 44,038 7,745
Notes receivable .................................. 64,000 100,000
Prepaid expenses and other current assets ......... 96,552 118,793 108,286
------------- ------------ -------------
Total current assets ......................... 1,573,728 2,725,377 4,257,959
------------- ------------ -------------
Funds held in trust for clients
Property and equipment, net ......................... 477,327 637,133 1,420,073
Other assets:
Goodwill, net of accumulated amortization ......... 940,387 2,636,271 6,074,713
Covenants, net of accumulated amortization ........ 217,708
Acquired account inventory, net ................... 244,499 138,623 85,979
Deferred financing costs .......................... 279,014 243,879
Other assets ...................................... 122,789 227,826 264,505
------------- ------------ -------------
Total other assets ........................... 1,307,675 3,281,734 6,886,784
------------- ------------ -------------
$3,358,730 $6,644,244 $12,564,816
============= ============ =============
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Long-term debt, current portion ................... $ 316,863 $ 46,171 $ 42,333
Capitalized lease obligations, current portion .... 59,128
Accounts payable .................................. 59,961 221,562 182,023
Accrued expenses .................................. 169,045 565,734 867,933
Accrued compensation and related expenses ......... 222,587 777,985 550,423
Unearned revenue, net of related costs ............ 332,671 302,384 98,092
------------- ------------ -------------
Total current liabilities .................... 1,101,127 1,913,836 1,799,932
------------- ------------ -------------
Funds held in trust for clients
Long-term liabilities:
Long-term debt, net of current portion ............ 732,333 2,592,906 7,118,039
Capitalized lease obligations, net of current
portion ........................................ 237,620
Unearned revenue, net of related costs ............ 102,586 86,155 258,464
Commitments and contingencies .......................
Shareholders' equity:
Common stock, no par value, 25,000,000 shares
authorized, 4,126,566, 4,213,447 and 4,213,447
shares issued and outstanding December 31, 1994
and 1995 and June 30, 1996, respectively ....... 349,326 537,326 537,326
Unexercised warrants .............................. 177,294 177,294
Retained earnings ................................. 1,086,053 1,378,261 2,387,666
Unrealized gain (loss) on securities .............. (12,695) 41,339 48,475
Notes receivable -- shareholder ................... (82,873)
------------- ------------ -------------
Total shareholders' equity ................... 1,422,684 2,051,347 3,150,761
------------- ------------ -------------
$3,358,730 $6,644,244 $12,564,816
============= ============ =============
</TABLE>

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

F-9
<PAGE>

NCO GROUP, INC.

STATEMENTS OF INCOME

For the Six Months Ended
For the Years Ended December 31, June 30,
----------------------------------------------- ------------------------------
1993 1994 1995 1995 1996
------------- ------------- -------------- ------------ --------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>

Revenue ........................ $7,444,982 $8,577,895 $12,732,597 $5,546,258 $12,542,664
Operating costs and expenses:
Payroll and related expenses . 4,122,528 4,558,351 6,797,338 2,956,773 5,953,895
Selling, general and
administrative expenses ... 2,390,741 2,673,521 4,042,342 1,744,785 4,094,626
Depreciation and amortization
expense ................... 141,497 215,117 347,503 115,869 422,814
------------- ------------- -------------- ------------ --------------
6,654,766 7,446,989 11,187,183 4,817,427 10,471,335
------------- ------------- -------------- ------------ --------------
Income from operations ......... 790,216 1,130,906 1,545,414 728,831 2,071,329
------------- ------------- -------------- ------------ --------------
Other income (expense):
Interest and investment income 24,135 26,735 49,473 24,560 47,415
Interest expense ............. (13,607) (71,588) (180,205) (48,305) (357,494)
Loss on disposal of property
and equipment ............. (49,082) (49,082)
------------- ------------- -------------- ------------ --------------
10,528 (44,853) (179,814) (72,827) (310,079)
------------- ------------- -------------- ------------ --------------
Net income ..................... $ 800,744 $1,086,053 $ 1,365,600 $ 656,004 $ 1,761,250
============= ============= ============== ============ ==============
Pro forma (unaudited):
Historical income before
income taxes .............. $ 800,744 $1,086,053 $ 1,365,600 $ 656,004 $ 1,761,250
Pro forma provision for income
taxes ..................... 320,000 434,000 546,000 262,000 704,000
------------- ------------- -------------- ------------ --------------
Pro forma net income ......... $ 480,744 $ 652,053 $ 819,600 $ 394,004 $ 1,057,250
============= ============= ============== ============ ==============
Pro forma net income per share $ 0.17 $ 0.22
============== ==============
Pro forma weighted average
shares outstanding ........ 4,728,906 4,733,549
============== ==============

</TABLE>

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

F-10
<PAGE>

NCO GROUP, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY

Common Stock
-------------------------- Unrealized
Number Gains Notes
of Unexercised Retained (Losses) on Receivable
Shares Amount Warrants Earnings Securities Shareholder Total
----------- ----------- ------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 1, 1993 ............ 4,002,763 $ 49,326 $ 670,728 $ 720,054
Net income ................. 800,744 800,744
Distributions to shareholders (658,106) (658,106)
Change in unrealized gains on
securities ................ $ 13,539 13,539
----------- ----------- ------------- ------------- ------------ ------------- -------------
Balance, December 31, 1993 . 4,002,763 49,326 813,366 13,539 876,231
Issuance of common stock ... 123,803 300,000 300,000
Net income ................. 1,086,053 1,086,053
Distributions to shareholders (813,366) (813,366)
Change in unrealized losses on
securities ................ (26,234) (26,234)
----------- ----------- ------------- ------------- ------------ ------------- -------------
Balance, December 31, 1994 . 4,126,566 349,326 1,086,053 (12,695) 1,422,684
Issuance of common stock ... 86,881 188,000 $ (135,888) 52,112
Warrants issued (Note 7) ... $177,294 177,294
Note repayments ............ 53,015 53,015
Net income ................. 1,365,600 1,365,600
Distributions to shareholders (1,073,392) (1,073,392)
Change in unrealized gains on
securities ................ 54,034 54,034
----------- ----------- ------------- ------------- ------------ ------------- -------------
Balance, December 31, 1995 . 4,213,447 537,326 177,294 1,378,261 41,339 (82,873) 2,051,347
Note repayments ............ 82,873 82,873
Net income (unaudited) ..... 1,761,250 1,761,250
Distributions to shareholders
(unaudited) ............... (751,845) (751,845)
Change in unrealized gains
on securities (unaudited) . 7,136 7,136
----------- ----------- ------------- ------------- ------------ ------------- -------------
Balance, June 30, 1996
(unaudited) ............... 4,213,447 $537,326 $177,294 $ 2,387,666 $ 48,475 $3,150,761
=========== =========== ============= ============= ============ ============= =============

</TABLE>

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

F-11
<PAGE>

NCO GROUP, INC.

STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

For the Six Months Ended
For the Years Ended December 31, June 30, (unaudited)
-------------------------------------------- ----------------------------
1993 1994 1995 1995 1996

----------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income ......................................... $ 800,744 $ 1,086,053 $ 1,365,600 $ 656,004 $ 1,761,250
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation .................................. 141,497 171,378 199,123 83,065 150,008
Loss/(gain) on disposal of equipment .......... 49,082 49,082 (9,043)
Loss/(gain) on sale of securities ............. 9,001 4,421 2,877 2,609 (8,925)
Amortization of goodwill and covenants ........ 43,739 115,937 32,804 237,670
Amortization of deferred financing fees ....... 32,443 35,135
Provision for doubtful accounts ............... 3,903 3,808 3,808 33,000
Amortization of deferred rent ................. (59,100)
Other noncash credits ......................... (5,531)
Changes in assets and liabilities, net of
acquisitions:
Accounts receivable, trade ................. (17,776) (41,675) (571,611) (566,168) (646,041)
Notes receivable ........................... (64,000) (36,000) 64,000 100,000
Acquired accounts inventory ................ 71,375 105,876 53,235 52,644
Accounts receivable, purchased ............. (44,038) 36,293 22,062 7,745
Prepaid expenses ........................... (5,728) (40,249) (22,241) (2,153) 10,507
Other assets ............................... (27,868) (40,112) (105,037) (4,695) (26,679)
Accounts payable ........................... 33,036 (123,094) 161,601 (39,539)
Accrued expenses ........................... 70,511 (214) 187,353 561,334 302,199
Accrued compensation and related expenses .. 51,755 555,398 (1,200) (227,562)
Unearned revenue ........................... 40,929 23,950 (46,718) (2,897) (31,982)
----------- ------------- ------------ ------------- -----------
Net cash provided by operating activities 979,715 1,103,192 2,033,784 950,890 1,700,387
----------- ------------- ------------ ------------- -----------
Cash flows from investing activities:
Purchase of property and equipment ................. (131,927) (77,999) (298,076) (88,439) (426,069)
Purchase of securities ............................. (29,187) (169,785) (107,643) (88,089) (53,307)
Proceeds from sales of securities .................. 26,466 143,613 99,256 69,640 39,566
Net cash paid for acquisitions ..................... (1,000,000) (1,729,244) (4,875,839)
----------- ------------- ------------ ------------- ------------
Net cash used in investing activities . (134,648) (1,104,171) (2,035,707) (106,888) (5,315,649)
----------- ------------- ------------ ------------- -------------
Cash flows from financing activities:
Issuance of notes payable .......................... 1,000,000
Repayment of notes payable ......................... (79,530) (222,084) (1,067,117) (185,040) (80,543)
Borrowings under credit agreement .................. 2,450,000 4,550,000
Payment of fees to acquire new debt ................ (134,163)
Issuance of common stock ........................... 105,127 52,112
Decrease in notes receivable -- shareholders ....... 33,604 82,873
Distributions to shareholders ...................... (658,106) (813,366) (1,073,392) (914,956) (751,845)
----------- ------------- ------------ ------------- -----------
Net cash provided by (used in) financing
activities .......................... (704,032) (35,450) 280,455 (1,047,884) 3,800,485
----------- ------------- ------------- ------------- -----------
Net increase (decrease) in cash ...................... 141,035 (36,429) 278,532 (203,882) 185,223
Cash and cash equivalents at beginning of year ....... 421,412 562,447 526,018 526,018 804,550
----------- ------------- ------------ ------------- -----------
Cash and cash equivalents at end of year ............. $ 562,447 $ 526,018 $ 804,550 $ 322,136 $ 989,773
=========== ============= ============ ============= ===========
Supplemental disclosures of cash flow information:
Cash paid for interest ............................. $ 13,559 $ 71,588 $ 157,379 $ 48,653 $ 323,097
Noncash investing and financing activities:
Note receivable -- shareholder .................. 82,873 82,873
Fair value of assets acquired ................... 442,874 2,145,578 982,018
Liabilities assumed from acquisitions ........... 127,000 416,334
Warrants issued with debt ....................... 177,294
Property acquired under capital leases .......... 348,586
Common stock issued for acquisition ............. 300,000

</TABLE>

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

F-12
<PAGE>

NCO GROUP, INC.

Notes to Financial Statements
(AMOUNTS AND DISCLOSURES FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1995 ARE UNAUDITED)

NOTE 1. NATURE OF OPERATIONS:

NCO Group, Inc. (the "Company") is a leading provider of accounts
receivable management and related services utilizing an extensive
teleservices infrastructure. The Company's client base is comprised of
companies in the following industries: education, financial services,
healthcare, telecommunications, utilities and government entities.

Effective September 3, 1996, the Company reorganized its corporate
structure. At September 3, 1996, the shareholders of NCO Financial Systems,
Inc. contributed each of their shares of common stock in exchange for one
share of common stock of the Company, a recently formed corporation. The
Company effected a 46.56-for- one stock split in September 1996 and increased
the number of authorized shares to 5,000,000 shares of preferred stock and
25,000,000 shares of common stock. All per share and related amounts have
been adjusted to reflect the stock exchange and stock split.

Simultaneously with the contribution of the common stock of NCO Financial
Systems, Inc., two additional subsidiaries of NCO Group were formed. Prior to
September 3, 1996, NCO Financial Systems, Inc. was the only company within
NCO Group, Inc. to have operations.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

REVENUE RECOGNITION:

The Company generates revenues from contingency fees and contractual
services. Contingency fee revenue is recognized upon collection of funds on
behalf of clients. Contractual services revenue is deferred and recognized as
services are performed.

PROPERTY AND DEPRECIATION:

Property and equipment is stated at cost, less accumulated depreciation.
Depreciation is provided over the estimated useful life of each class of
assets using the straight-line method. Expenditures for maintenance and
repairs are charged to expense as incurred. Renewals and betterments are
capitalized. When property is sold or retired, the cost and related
accumulated depreciation are removed from the balance sheet and any gain or
loss on the transaction is included in the statement of income.

INCOME TAXES:

The Company has elected to be taxed as an S Corporation under the Internal
Revenue Code and the Pennsylvania Tax Code. While this election was in
effect, no provision was made for income taxes by the Company since all
income is taxed directly to, and losses and tax credits utilized directly by,
the shareholders of the Company.

The Company terminated its S Corporation status on September 3, 1996. Upon
termination of its Subchapter S status, the Company adopted SFAS No. 109,
"Accounting for Income Taxes". This standard requires an asset and liability
approach that takes into account changes in tax rates when valuing the
deferred tax amounts to be reported in the balance sheet.

Upon termination of the S Corporation status and adoption of SFAS 109, the
Company recorded an estimated net deferred tax asset that will not have a
material impact on the financial statements. The net deferred tax asset
resulted primarily from differences in the treatment of unearned revenue and
acquired account inventory.

F-13
<PAGE>

NCO GROUP, INC.

Notes to Financial Statements - (Continued)
(Amounts and disclosures for the six months
ended June 30, 1996 and 1995 are unaudited)

2. Summary of Significant Accounting Policies: - (Continued)

CASH AND CASH EQUIVALENTS:

The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents. These financial
instruments potentially subject the Company to concentrations of credit risk.

At December 31, 1994 and 1995 and June 30, 1996, the Company had bank
deposits in excess of federally insured limits of approximately $500,000,
$1,276,000 and $2,514,474, respectively. The Company's cash deposits have
been placed with a large national bank to minimize risk and the cost
approximates fair value.

CREDIT POLICY:

The Company has two types of arrangements under which it collects its
contingency fee revenue. For certain clients the Company remits funds
collected on behalf of the client, net of the related contingency fees while,
for other clients, the Company remits gross funds, collected on behalf of
clients, and bills the client separately for its contingency fees. Management
carefully monitors its client relationships in order to minimize its credit
risk and generally does not require collateral. In the event of collection
delays from clients, management may at its discretion change from the gross
remittance method to the net remittance method.

INVESTMENT SECURITIES:

The Company accounted for marketable securities in accordance with
Statement of Financial Accounting Standards SFAS 115, "Accounting for Certain
Investments in Debt and Equity Securities," for all periods presented. The
statement requires management to make a determination as to which of three
categories they will report their investments in: "held to maturity" which
are reported at amortized cost; "trading securities" which are reported at
fair value with changes in unrealized gains or losses included in current
earnings and "available for sale" securities which include all investments
not included in the above two categories and are reported at fair value with
changes in unrealized gains and losses reflected directly as a separate
component of shareholders' equity. Realized gains and losses on the sale of
securities are recognized using the specific identification method and
included in the statement of income.

ACCOUNTS RECEIVABLE PURCHASED:

Purchased accounts receivable portfolios are recorded at cost and
amortized, based upon a percentage of expected collections, over the
estimated life of the individual portfolios. The amortization rates are
reviewed periodically and adjusted based on the projected overall collection
performance of each portfolio.

ACQUIRED ACCOUNT INVENTORY:

Acquired account inventory consists of individual contracts with student
loan debtors that do not exceed three years. These accounts are periodically
reviewed by management for collectibility.

GOODWILL AND ACQUISITION COSTS:

Goodwill represents the excess of purchase price over the fair market
value of the net assets of the acquired business. Goodwill is amortized on a
straight-line basis over 15 years. The recoverability of goodwill is
periodically reviewed by the Company. In making such determination with
respect to goodwill, the Company evaluates the operating cash flows of the
underlying business which gave rise to such amount. Accumulated amortization
at December 31, 1994 and 1995 and June 30, 1996 totaled $43,739, $159,676 and
$377,553, respectively.

F-14
<PAGE>

NCO GROUP, INC.

Notes to Financial Statements - (Continued)
(Amounts and disclosures for the six months
ended June 30, 1996 and 1995 are unaudited)

2. Summary of Significant Accounting Policies: - (Continued)

COVENANTS:

Non-compete covenants are based on an allocation of the purchase price of
$237,500 in connection with the acquisition of Trans Union Corporation
Collections Division (TCD) on January 3, 1996. The non-compete covenant is
being amortized on a straight-line basis over the term of the covenant which
is 5 years.

DEFERRED FINANCING COSTS:

Deferred financing costs relate to debt issuance costs incurred which are
capitalized and amortized over the term of the debt.

ESTIMATES UTILIZED IN THE PREPARATION OF FINANCIAL STATEMENTS:

The preparation of 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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.

EARNINGS PER SHARE:

On September 3, 1996, the shareholders of NCO Financial Systems, Inc.
(Note 1) contributed each of their shares of common stock in exchange for one
share of the Company's common stock. The Company effected a 46.56-for-one
stock split in September 1996. All per share and related amounts contained in
these financial statements and notes have been adjusted to reflect the stock
exchange and stock split.

Pro forma net income per share was computed by dividing the pro forma net
income for the year ended December 31, 1995 and for the six-month period ended
June 30, 1996 by the pro forma weighted average number of shares outstanding.
Pro forma weighted average shares outstanding are based on the weighted average
number of shares outstanding including common equivalent shares giving
retroactive effect as of January 1, 1995 to the stock split. All outstanding
options and warrants have been treated as common equivalent shares in
calculating pro forma net income per share, using the treasury stock method and
the initial public offering price of $13.00 per share, only when their effect
would be dilutive. The pro forma weighted average number of shares outstanding
have also been adjusted to include the number of shares of common stock
(230,769) that the Company would have needed to issue at the initial public
offering price of $13.00 per share to finance the distribution of undistributed
S Corporation earnings through the date on which the Company terminated its S
Corporation status (estimated at $3,000,000).

INTERIM FINANCIAL INFORMATION:

The interim financial information as of June 30, 1996 and for the six
months ended June 30, 1996 and 1995 has been prepared from the unaudited
financial records of the Company and in the opinion of management, reflects
all adjustments necessary for a fair presentation of the financial position
and results of operations and of cash flows for the respective interim
periods. All adjustments were of a normal and recurring nature.

3. ACQUISITIONS:

On January 3, 1996, the Company purchased certain assets of TCD for
$4,750,000 in cash. The purchase price was allocated based upon the estimated
fair market value of property, accounts receivable and an agreement not to
compete which resulted in goodwill in the amount of $3,681,000.

F-15
<PAGE>

NCO GROUP, INC.

Notes to Financial Statements - (Continued)
(Amounts and disclosures for the six months
ended June 30, 1996 and 1995 are unaudited)

3. Acquisitions: - (Continued)

On August 1, 1995, the Company purchased certain assets of Eastern
Business Services, Inc. (Eastern) for approximately $2,041,000 comprised of
$1,625,000 in cash and $416,000 of liabilities assumed. The purchase price
was allocated primarily based upon the estimated fair market values of
accounts receivable and equipment purchased less notes payable and funds due
to clients which resulted in goodwill in the amount of $1,812,000.

On April 29, 1994 the Company purchased certain assets of B. Richard
Miller, Inc. (BRM) at a cost of $1,427,000, which was comprised of $1,000,000
in cash, common stock valued at $300,000 and a note payable to the seller of
$127,000. The purchase price was allocated based upon the estimated fair
market value of the acquired property and equipment and account inventory and
resulted in goodwill of $984,126.

The following summarizes unaudited pro forma results of operations for the
years ended December 31, 1994 and 1995 and the six months ended June 30,
1996, assuming the acquisitions (including the acquisition of MAB on
September 5, 1966) occurred as of the beginning of the respective periods.

June 30,
1994 1995 1996
------------- ------------- --------------
Net revenue ... $30,530,000 $34,509,000 $19,319,000
Income before
taxes ....... 3,001,000 3,825,000 2,472,000

4. MARKETABLE SECURITIES:

The Company has classified all of its securities as "available for sale"
and has recorded them at fair value and unrealized gains and losses as a
separate component of shareholders' equity.

Proceeds from the sale of investment securities were $26,466, $143,613 and
$99,256 for the years ended December 31, 1993, 1994 and 1995, respectively
and $69,640 and $39,566 for the six months ended June 30, 1995 and 1996,
respectively.

Unrealized Unrealized
Holding Holding Fair
Cost Gain Loss Value
----------- ------------ ------------ -----------
1994
------
Common stock ..... $162,342 $ 8,827 $ (18,650) 152,519

Corporate bonds ... 90,297 (2,872) 87,425
----------- ------------ ------------ -----------
$252,639 $ 8,827 $ (21,522) $239,944
=========== ============ ============ ===========
1995
-----
Common stock ...... $167,852 $41,475 $ (6,164) $203,163

Corporate bonds ... 90,297 6,028 96,325
----------- ------------ ------------ -----------
$258,149 $47,503 $ (6,164) $299,488
=========== ============ ============ ===========
1996
-----
Common stock ...... $190,518 $48,503 $ (1,971) $237,050

Corporate bonds ... 90,297 1,943 92,240
----------- ------------ ------------ -----------
$280,815 $50,446 $ (1,971) $329,290
=========== ============ ============ ===========

F-16
<PAGE>
NCO GROUP, INC.

Notes to Financial Statements - (Continued)
(Amounts and disclosures for the six months
ended June 30, 1996 and 1995 are unaudited)

4. Marketable Securities: - (Continued)

Investment income, included in interest and investment income on the
statement of income, consisted of:
<TABLE>
<CAPTION>
Six Months
Ended
Year Ended December 31, June 30,
-------------------------------------- -----------------------
1993 1994 1995 1995 1996
----------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Realized gain on the sale of
available-for-sale securities .. $ 11,749 $ 12,217 $ 7,255 $11,535
Realized loss on the sale of
available-for-sale securities .. $ (9,001) (16,170) (15,094) (9,864) (2,610)
Interest income .................. 7,497 5,142 7,035 3,517 3,517
Dividend income .................. 5,835 5,211 5,892 2,866 3,270
----------- ---------- ---------- --------- ----------
$ 4,331 $ 5,932 $ 10,050 $ 3,774 $15,712
=========== ========== ========== ========= ==========
</TABLE>

The fair values of marketable securities by contractual maturity are shown
below. Actual maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or repayment penalties

December 31, June 30,
----------------------- ----------
1994 1995 1996
--------- --------- ----------
Within one year ............. $20,425 $20,208
After one year but within 5
years ..................... $29,375 10,537 10,172
After 5 years but within 10
years ..................... 58,050 65,363 61,860
--------- --------- ----------
$87,425 $96,325 $92,240
========= ========= ==========

5. FUNDS HELD IN TRUST FOR CLIENTS:

In the course of the Company's regular business activities as a accounts
receivable management company, the Company receives clients' funds arising
from the collection of accounts placed with the Company. These funds are
placed in segregated cash accounts and are generally remitted to clients
within 30 days. Funds held in trust for clients and their offsetting liability
of $746,989 and $1,228,889 at December 31, 1994 and 1995 and $2,089,714 at
June 30, 1996 have been shown net for financial statement presentation purposes.

6. PROPERTY AND EQUIPMENT:

Property and equipment, at cost, consists of the following:

December 31, June 30
--------------------------- ------------
1994 1995 1996
----------- ----------- ------------
Leased assets ........... $ 324,414
Computer equipment ...... $726,099 $ 905,732 1,368,155
Furniture and fixtures .. 236,413 316,312 462,423
----------- ----------- ------------
962,512 1,222,044 2,154,992
Less accumulated
depreciation .......... 485,185 584,911 734,919
----------- ----------- ------------
$477,327 $ 637,133 $1,420,073
=========== =========== ============

Depreciation of property and equipment is calculated on a straight-line
basis over their estimated useful lives. Amounts charged to operations
amounted to $141,497, $171,378 and $199,123 for the years ended 1993, 1994
and 1995, respectively and $83,065 and $150,008 for the six months ended June
30, 1995 and 1996,

F-17
<PAGE>

NCO GROUP, INC.

Notes to Financial Statements - (Continued)
(Amounts and disclosures for the six months
ended June 30, 1996 and 1995 are unaudited)

6. Property and Equipment: - (Continued)

respectively. Included in leased assets shown above for the six months ended
June 30, 1996 are capital leases with a gross amount of $324,414 and
accumulated depreciation of $17,429. The Company had not entered into any
capital lease transactions for the years ended December 31, 1994 and 1995.

7. LONG-TERM DEBT:
<TABLE>
<CAPTION>

December 31, June 30,
---------------------------- -------------
1994 1995 1996
----------- ------------- -------------
<S> <C> <C> <C>
Revolving credit agreement, prime
plus 1.375%, due July 1999 ......... $2,450,000 $7,000,000
Non-interest bearing note acquired;
$225,750 face amount, payable in
monthly installments of $5,250
through July 1999
(less unamortized discount based on
imputed interest rate of 10%) ...... 189,077 160,372
Note payable, bank, prime plus 1.0%,
due April 1999 ...................... $ 662,500
Note payable, bank, prime plus 0.5%,
due March 1996 ...................... 250,000
Note payable, bank, 7.15%, due August
1995 ............................... 59,112
Subordinated seller note payable,
prime plus 1.5%, due August 1995 ... 77,584
---------- ------------- -------------
1,049,196 2,639,077 7,160,372
Less current portion ................. (316,863) (46,171) (42,333)
----------- ------------- -------------
$ 732,333 $2,592,906 $7,118,039
=========== ============= =============
</TABLE>

The following summarizes the Company's required debt payments for the next
five years:

1996 ................................................. $ 46,000
1997 ................................................. 46,000
1998 ................................................. 46,000
1999 ................................................. 2,501,000
2000 ................................................. --
------------
$2,639,000
============

In July 1995 the Company entered into a revolving credit agreement which
provides for borrowings up to $7,000,000 to be utilized for working capital
and qualified acquisition indebtedness of the Company. The line of credit is
collateralized by substantially all the assets of the Company. Proceeds from
the agreement were utilized to primarily refinance notes payable due to the
bank in the amount of approximately $850,000, and cash payments of $1,600,000
and $4,500,000 for the acquisition of Eastern and TCD, respectively (see Note
3).

The revolving credit agreement contains, among other provisions,
requirements for maintaining defined levels of working capital, net worth,
capital expenditures, various financial ratios and restrictions of
distributions to shareholders.

The Company recorded deferred charges of approximately $311,000 in
connection with the acquisition of the revolving credit agreement, which
consisted primarily of bank charges, legal fees and warrants issued to the

F-18
<PAGE>

NCO GROUP, INC.

Notes to Financial Statements - (Continued)
(Amounts and disclosures for the six months
ended June 30, 1996 and 1995 are unaudited)

7. Long-Term Debt: - (Continued)

bank exercisable into an aggregate of 175,531 shares of the Company's common
stock. The warrants expire on July 31, 2005 and are only exercisable upon
certain events at a nominal exercise price. The bank had the right to put,
and the Company had the ability to call, the warrants during the twelve-month
period ending on July 31, 2001. However, these rights were eliminated as part
of the increase in the credit agreement in August 1996.

In August 1996 the credit agreement was increased to $15,000,000 to
provide financing for the acquisition of Management Adjustment Bureau, Inc.
and the bank received a warrant for 46,560 shares, exercisable at the initial
public offering price, as consideration. In addition, the bank agreed to
increase the credit agreement to $25,000,000 upon completion of the Company's
initial public offering (see Note 13) and will receive, as consideration, a
warrant for an additional 18,500 shares, exercisable at the initial public
offering price.

In connection with the acquisition of Eastern Business Services, the
Company assumed a noninterest-bearing note payable with an outstanding face
amount of $225,750 at December 31, 1995 and June 30, 1996.

Long-term debt is primarily variable in nature and is based on the prime
rate. Management estimates the carrying value of long-term debt approximates
fair value.

8. EMPLOYEE BENEFIT PLANS:

The Company has a savings plan under Section 401(k) of the Internal
Revenue Code (the "Plan"). The Plan allows all eligible employees to defer up
to 20% of their income on a pretax basis through contributions to the Plan.
The Company will match 25% of employee contributions for an amount up to 6%
of each employee's base salary. The charge to operations for the matching
contributions was $22,828, $23,536 and $30,027 for 1993, 1994 and 1995,
respectively and $14,819 and $20,525 for the six months ended June 30, 1995
and 1996. F-21 Notes to Financial Statements, Continued (Amounts and
disclosures for six months ended June 30, 1996 and 1995 are unaudited).

9. LEASES:

The Company has entered into various office lease agreements with limited
partnerships owned by shareholders of the Company. In addition, the Company
has made disbursements on behalf of the limited partnerships and has recorded
a note receivable of $64,000 and $100,000 at December 31, 1994 and 1995,
respectively. This note was repaid during the six-months ended June 30, 1996.

The Company leases certain equipment under agreements which are classified
as capital leases. The equipment leases have original terms ranging from 36
to 48 months, and have purchase options at the end of the original lease
term.

The Company also leases certain equipment under noncancelable operating
leases. Future minimum payments, by year and in the aggregate, under
noncancelable capital leases and operating leases with initial or remaining
terms of one year or more consist of the following at December 31, 1995:

1996 ................................................... $ 815,000
1997 ................................................... 758,000
1998 ................................................... 658,000
1999 ................................................... 640,000
2000 ................................................... 573,000
Thereafter ............................................. 1,975,000
$5,419,000
============

F-19
<PAGE>

NCO GROUP, INC.

Notes to Financial Statements - (Continued)
(Amounts and disclosures for the six months
ended June 30, 1996 and 1995 are unaudited)

9. Leases: - (Continued)

Rent expense was $466,189, $305,308 and $463,916 for the years ended
December 31, 1993, 1994 and 1995, respectively and $466,453 and $194,162 for
the six months ended June 30, 1996 and 1995. The related party office lease
expense was $81,563, $297,500 and $385,217 for 1993, 1994 and 1995,
respectively and $201,825 and $282,289 for the six months ended June 30, 1995
and 1996, and provides for an escalation clause which takes effect in 1998.
The total amount of base rent payments is being charged to expense on the
straight-line method over the term of the lease.

10. STOCK OPTIONS:

The Company adopted a stock option plan (the Plan) in 1995 for its
employees. The Plan authorized 221,719 shares of the Company's common stock
to be issued pursuant to either incentive stock options or non-qualified
stock options. The option price for incentive stock options shall be equal to
at least fair market value, at the date of grant, whereas the option price
for non-qualified stock options may be less than fair market value. The
vesting period of options issued under either plan is at the discretion of
the Board of Directors. The maximum exercise period is ten years after the
date of grant. A summary of stock option activity since inception of the plan
is as follows:

Number of
Number of Option Price Shares
Options Per Share Exercisable
----------- -------------- -------------
Outstanding at January 1,
1995 .....................
Granted ............... 144,057 $2.73 144,057
Exercised .............
Expired ...............
---------- -------------- -------------
Outstanding at December 31,
1995 ..................... 144,057 2.73 144,057
Granted ...............
Exercised .............
Expired ...............
----------- -------------- -------------
Outstanding at June 30, 1996 144,057 $2.73 144,057
=========== ============== =============

As part of the purchase price for the acquisition of certain assets of B.
Richard Miller, Inc., 123,803 shares of the Company's common stock were
issued to BRM's principal shareholder, who also received an option to
purchase up to an additional 86,881 shares of the Company which was exercised
during 1995 at a cost of $188,000. As a result of the purchase of these
shares, a receivable of $82,873 was due from the seller as of December 31,
1995 which was subsequently repaid during the six month period ended June 30,
1996.

11. RECENT ACCOUNTING PRONOUNCEMENTS:

In October 1995, the FASB issued (SFAS No. 123), "Accounting for
Stock-Based Compensation", which is effective for the Company in 1996. SFAS
No. 123 requires Companies to either recognize compensation expense, based on
fair value of the stock-based compensation determined by an option pricing
model utilizing various assumptions regarding the underlying attributes of
the options and the Company's stock, or provide pro-forma disclosures and
continue to recognize compensation expense in accordance with Accounting
Practices Bulletin Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB 25). The Company will adopt the provisions of SFAS No. 123 in its 1996
annual financial statements. The adoption of SFAS No. 123 had no effect on
the Company's cash flows.

In March 1995, the FASB issued (SFAS No. 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of",
which was effective for the Company beginning January 1, 1996.

F-20
<PAGE>

NCO GROUP, INC.

Notes to Financial Statements - (Continued)
(Amounts and disclosures for the six months
ended June 30, 1996 and 1995 are unaudited)

11. Recent Accounting Pronouncements: - (Continued)

SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment, based on the estimated future cash
flows, whenever events or changes in circumstances indicate that the carrying
amount of the asset may not be recoverable. SFAS No. 121 had no impact on the
financial statements upon adoption.

12. COMMITMENTS AND CONTINGENCIES:

The Company is party from time to time to various legal proceedings
incidental to its business. In the opinion of management none of these items
individually or in the aggregate would have a significant effect on the
financial position, results of operations, or cash flows of the Company.

13. SUBSEQUENT EVENTS:

The Company filed a registration statement in September 1996 with the
Securities and Exchange Commission in connection with a proposed initial
public offering of 2,500,000 shares of its common stock. The Company intends
to use the proceeds for repayment of bank debt incurred to finance
acquisitions, payment of S Corporation distributions, and for working capital
and other general corporate purposes, including possible acquisitions.

The Company purchased the common stock of Management Adjustment Bureau,
Inc. for $8,000,000 in cash and a $1,000,000 convertible note on September 5,
1996. The purchase price was allocated based upon the estimated fair market
value of the acquired assets and liabilities. Goodwill generated in this
acquisition will be amortized over 25 years. MAB provides accounts receivable
management to a variety of general businesses.

F-21
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholder of Management Adjustment Bureau, Inc.

We have audited the accompanying balance sheets of Management Adjustment
Bureau, Inc. as of December 31, 1994, 1995 and June 30, 1996, and the related
statements of income and retained earnings, and cash flows for each of the
three years in the period ended December 31, 1995 and the six months ended
June 30, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Management Adjustment
Bureau, Inc. as of December 31, 1994, 1995 and June 30, 1996, and the results
of its operations and its cash flows for each of the three years in the
period ended December 31, 1995 and the six months ended June 30, 1996, in
conformity with generally accepted accounting principles.

Coopers & Lybrand, L.L.P.

Rochester, New York
August 20, 1996

F-22
<PAGE>

MANAGEMENT ADJUSTMENT BUREAU, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>

December 31, June 30,
Assets 1994 1995 1996
------ ------------ ------------ ------------
<S> <C> <C> <C>

Current assets:
Cash ............................................ $ 413,088 $ 290,197 $ 475,354
Accounts receivable (less allowance for doubtful
accounts of $47,000, $80,420 and $92,808,
respectively) ................................ 924,551 1,308,511 1,234,393
Property held for sale .......................... 217,400
Loans receivable ................................ 57,623 56,088
Prepaid expenses ................................ 145,476 162,091 135,888
------------ ------------ ------------
Total current assets ......................... 1,483,115 2,035,822 1,901,723
------------ ------------ ------------
Funds held in trust for clients
Property and equipment, net ....................... 1,005,664 1,319,614 1,160,130
Other assets:
Loan receivable ................................. 50,000 33,811
Cash value - officer's life insurance ........... 6,256 6,673 7,189
Deposits ........................................ 12,000 16,200 26,514
------------ ------------ ----------
Total other assets ........................... 68,256 22,873 67,514
------------ ------------ ----------
$2,557,035 $3,378,309 $3,129,367
============ ============ ==========
Liabilities and Retained Earnings
Current liabilities:
Line-of-credit .................................. $ 446,000 $ 400,000
Long-term debt, current portion ................. $ 252,176 271,456 168,459
Accounts payable ................................ 41,917 92,738 123,756
Accrued distribution ............................ 64,500
Accrued repayment guarantee ..................... 190,000
Accrued compensation ............................ 28,369 192,375 97,044
Accrued expenses ................................ 24,309 28,573 30,983
------------ ------------ ----------
Total current liabilities .................... 411,271 1,031,142 1,010,242
------------ ------------ ----------
Funds held in trust for clients
Long-term debt .................................... 173,089 410,077 354,409
Retained earnings:
Common stock, no par value; Class A - authorized
200 shares; issued and outstanding 100 shares 19,000 19,000 19,000
Retained earnings ............................... 1,953,675 1,918,090 1,745,716
------------ ------------ ----------
Total retained earnings ...................... 1,972,675 1,937,090 1,764,716
------------ ------------ ----------
$2,557,035 $3,378,309 $3,129,367
============ ============ ==========

</TABLE>

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

F-23
<PAGE>

MANAGEMENT ADJUSTMENT BUREAU, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS

For the
For the Years Ended Six Months
December 31, Ended
----------------------------------------------- -------------
June 30,
1993 1994 1995 1996
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues .................................... $9,281,629 $11,183,167 $12,975,799 $6,776,290
Operating costs and expenses:
Payroll and related expenses .............. 5,303,241 6,556,110 7,909,785 4,254,479
Selling, general and administrative
expenses ............................... 3,425,653 3,624,489 4,138,523 2,421,714
Depreciation and amortization ............. 165,006 300,158 457,997 248,921
------------- -------------- ------------- -------------
8,893,900 10,480,757 12,506,305 6,925,114
------------- -------------- ------------- -------------
Income (loss) from operations ............... 387,729 702,410 469,494 (148,824)
------------- -------------- ------------- -------------
Other income (expense):
Interest expense .......................... (28,856) (31,065) (26,802) (30,262)
Loss on disposal of assets ................ (72,389) (96,792)
Miscellaneous income ...................... 2,848 1,656 12,115 6,712
Property write-down ....................... (78,600)
------------- -------------- ------------- -----------
Total other expense ................... (98,397) (29,409) (190,079) (23,550)
------------- -------------- ------------- -------------
Net income (loss) ........................... 289,332 673,001 279,415 (172,374)
Retained earnings - beginning of year ....... 1,336,342 1,565,674 1,953,675 1,918,090
Distributions to shareholder ................ (60,000) (285,000) (315,000)
------------- -------------- ------------- -------------
Retained earnings - end of year ............. $1,565,674 $ 1,953,675 $ 1,918,090 $1,745,716
============= ============== ============= =============

</TABLE>

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

F-24
<PAGE>

MANAGEMENT ADJUSTMENT BUREAU, INC.
STATEMENTS OF CASH FLOWS

For the Six
For the Years Ended Months Ended
December 31, June 30,
---------------------------------------- --------------
1993 1994 1995 1996
----------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 289,332 $ 673,001 $ 279,415 $(172,374)
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 165,006 300,158 457,997 248,921
Loss on disposal of assets 72,389 96,792
Property write-down 78,600
Provision for doubtful accounts 30,000 17,000 33,420 12,388
Changes in assets and liabilities:
Decrease (increase) in accounts
receivable (352,768) 130,193 (417,380) 61,730
Decrease (increase) in prepaid
expenses 10,558 (109,889) (16,615) 26,203
Decrease (increase) in cash value
officer's life insurance 284 6,000 (417) (516)
Increase in deposits (12,000) (4,200) (10,314)
Increase (decrease) in accounts
payable (15,867) (35,367) 50,821 31,018
Increase (decrease) in accrued
expenses 123,436 (41,377) 103,770 97,079
Decrease in accrued profit
sharing contributions (175,000)
----------- ----------- ----------- --------------
Total adjustments (141,962) 254,718 382,788 466,509
----------- ----------- ----------- --------------
Net cash provided by operating
activities 147,370 927,719 662,203 294,135
----------- ----------- ----------- --------------
Cash flows from investing activities:
Proceeds from sale of equipment 42,695 5,800
Purchases of equipment (488,186) (371,172) (637,419) (89,437)
Repayment (issuance) of loans
receivable 117 (50,000) (7,623) (32,276)
Proceeds from sale of property 217,400
----------- ----------- ----------- --------------
Net cash provided by (used in)
investing activities (445,374) (421,172) (639,242) 95,687
----------- ----------- ----------- --------------
Cash flows from financing activities:
Repayment of loans (100,000) (193,324) (204,695) (561,719)
Proceeds from loan agreements 200,000 100,000 300,000 400,000
Payment of stock redemption note (70,007)
Proceeds from line-of-credit 150,000
Principal payments on capital leases (18,198) (47,428) (76,157) (42,946)
Distributions to shareholders (60,000) (285,000) (315,000)
----------- ----------- ----------- --------------
Net cash used in financing
activities (48,205) (425,752) (145,852) (204,665)
----------- ----------- ----------- --------------
Net increase (decrease) in cash (346,209) 80,795 (122,891) 185,157
Cash -- beginning of year 678,502 332,293 413,088 290,197
----------- ----------- ----------- --------------
Cash -- end of year $ 332,293 $ 413,088 $ 290,197 $ 475,354
=========== =========== =========== ==============
</TABLE>

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

F-25
<PAGE>

MANAGEMENT ADJUSTMENT BUREAU, INC.
STATEMENTS OF CASH FLOWS, CONTINUED

<TABLE>
<CAPTION>
For the
Six
For the Years Ended Months Ended
December 31, June 30,
------------------------------------- --------------
1993 1994 1995 1996
---------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
Supplemental disclosures of cash flow
information:
Cash paid for interest $36,975 $41,704 $ 43,042 $27,762
Cash paid for state income taxes $ 607 $15,715 $ 15,246
Noncash activities:
Capital lease obligations entered
into $89,139 $61,742 $237,121
Debt assumed for property held for
sale $296,000

</TABLE>

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

F-26
<PAGE>
MANAGEMENT ADJUSTMENT BUREAU, INC.
Notes to Financial Statements

NOTE 1. NATURE OF OPERATIONS

Management Adjustment Bureau, Inc. ("MAB"), specializes in accounts
receivable management and liquidation, with a concentration of university,
guaranteed student loans, bank credit cards, utility, retail, commercial and
health care customers. MAB has principal operations in Buffalo, New York and
Denver, Colorado.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

REVENUE RECOGNITION

MAB generates revenues from contingency fees and contractual services and
revenue is recognized upon collection of funds on behalf of clients.

CREDIT POLICY

MAB has two types of arrangements under which it collects its contingency
fee revenue. For certain clients, MAB remits funds collected on behalf of the
client, net of the related contingency fees while, for other clients, MAB
remits gross funds, collected on behalf of clients, and bills the client
separately for its contingency fees. Management carefully monitors its client
relationships in order to minimize its credit risk and generally does not
require collateral. In the event of collection delays from clients,
management may at its discretion change from the gross remittance method to
the net remittance method.

ESTIMATES UTILIZED IN THE PREPARATION OF FINANCIAL STATEMENTS

PROPERTY, EQUIPMENT AND DEPRECIATION

Property and equipment are stated at cost less accumulated depreciation.
Expenditures for maintenance and repairs are charged to expense as incurred.
Depreciation is computed over the estimated useful lives of the assets which
range from three to thirty-nine years, using straight-line and accelerated
methods. When property is sold or retired, the cost and related accumulated
depreciation are removed from the balance sheet and any gain or loss on the
transaction is included in the statement of income.

INCOME TAXES

MAB has elected to be treated as an S-Corporation for tax purposes.
Accordingly, no provision will be made for income taxes by MAB since all
income will be taxed directly to the shareholder of MAB. State taxes which
are not significant are included in selling, general and administrative
expenses.

3. CONCENTRATION OF CREDIT RISK

At December 31, 1994, 1995 and June 30, 1996, MAB had bank deposits in
excess of federally insured limits of approximately $2,322,000, $1,662,000
and $1,614,070, respectively. MAB's cash deposits have been placed with a
large national bank to minimize risk.

4. LOANS RECEIVABLE

In 1994, MAB loaned a former shareholder $50,000. Interest is payable in
monthly installments of $333 at a fixed annual rate of eight percent. The
loan is due in full on or before September 1, 1996. The note is unsecured. In
1995, MAB also extended various miscellaneous loans to employees.

In 1996, MAB loaned $33,811 to a related party. The loan was assumed by
the shareholder in August 1996.

F-27
<PAGE>

Management Adjustment Bureau, Inc.
Notes to Financial Statements - (Continued)

5. FUNDS HELD IN TRUST FOR CLIENTS

In the course of MAB's regular business activities as an accounts receivable
management agency, MAB receives clients' funds arising from the collection of
accounts placed with MAB. These funds are placed in segregated cash accounts and
are generally remitted to clients within 30 days. Funds held in trust for
clients and their offsetting liability of $1,778,502 and $1,530,270 as of
December 31, 1994 and 1995 and $1,393,938 as of June 30, 1996, have been shown
net for financial statement presentation purposes.

6. DEMAND LOANS

MAB has a $200,000 unsecured demand line-of-credit with a bank which
carries interest at the prime rate less .25%. The demand loan balance at
December 31, 1995 was $150,000. The demand loan balance was paid off in
January 1996, at which time MAB borrowed $400,000 through an unsecured note
from a related party. The related party note is due on demand and accrues
interest at nine percent per year.

MAB has an outstanding demand line-of-credit of $296,000 with PHH Real
Estate Services Corporation at December 31, 1995. The line-of-credit is
secured by an investment in real estate and due upon sale of the real estate.
In May 1996, the real estate was sold and the line-of-credit was repaid and
terminated.

7. PROPERTY AND EQUIPMENT

Property and equipment, at cost, are as follows:

December 31,
----------------------------
June 30,
1994 1995 1996
------------ ------------ ------------
Computer equipment ...... $1,059,596 $1,341,432 $1,407,832
Furniture and fixtures .. 513,633 625,828 648,865
Capitalized leases ...... 150,881 388,002 388,002
------------ ------------ ------------
1,724,110 2,355,262 2,444,699
Less: Accumulated
depreciation ........... 718,446 1,035,648 1,284,569
------------ ------------ ------------
$1,005,664 $1,319,614 $1,160,130
============ ============ ============

Depreciation charged to operations amounted to approximately $165,006,
$300,158 and $457,997 in 1993, 1994 and 1995, respectively and $248,921 for
the six months ended June 30, 1996 and included amortization of capital
leases of approximately $-0-, $9,984 and $41,567 in 1993, 1994 and 1995,
respectively and $29,629 for the six months ended June 30, 1996.

F-28
<PAGE>

Management Adjustment Bureau, Inc.
Notes to Financial Statements - (Continued)

8. LONG-TERM DEBT

Long-term debt is as follows:

<TABLE>
<CAPTION>
December 31,
--------------------------
June 30,
1994 1995 1996
----------- ----------- -----------
Bank debt:
Chemical Bank, collateralized by computer equipment. Monthly principal
<S> <C> <C> <C>
payments of $8,333 plus interest at 8.4% are due through April 1996. $ 133,333 $ 33,333
Chemical Bank, unsecured term loan. Monthly principal payments of
$5,000 plus interest at 8% are due through November 2000. ........... 295,000 $ 265,000
M & T Bank, collateralized by computer equipment payments of $1,195,
which include interest at 6.5%, are due through December 1996. ...... 206,676 106,979 54,593
----------- ----------- -----------
340,009 435,312 319,593
Capital Leases:
AT&T Credit Corporation, telephone leases. Monthly lease payments of
$3,084 and $2,039 which include interest and due through October
1998. ............................................................... 30,684 67,079 49,452
Steelcase Financial Services, office furniture lease. Monthly lease
payments of $2,000 for the first 20 months; $3,000 for the next 40
months, which include interest and are due through June 2002. ....... 164,394 153,823
Data General Corporation, lease collateralized by computer equipment
Monthly lease payments of $794, which include interest at 9.3%, are
due through May 1996. ............................................... 12,598 3,878
Data General Corporation, lease collateralized by an optical imaging
system Monthly payments of $2,758, which include interest at 7.1%,
are due through April, 1996. ........................................ 41,974 10,870
----------- -----------
85,256 246,221 203,275
----------- ----------- -----------
Total debt and capital leases ........................................ 425,265 681,533 522,868
Less: Current portion ................................................ (252,176) (271,456) (168,459)
----------- ----------- -----------
$ 173,089 $ 410,077 $ 354,409
=========== =========== ===========
</TABLE>

The fair value of debt approximates the carrying value.

Long-term debt and capital leases maturing during the next five years
ending December 31, is approximately as follows:

Debt Capital leases
---------- --------------
1996 .................................... $200,750 $ 84,627
1997 .................................... 60,000 59,757
1998 .................................... 60,000 40,172
1999 .................................... 60,000 32,280
2000 .................................... 54,562 32,280
Thereafter .............................. -- 48,420
----------
$435,312 297,536
==========
Less amounts representing interest ...... 51,315
--------------
Present value of net minimum lease
payments ............................... $246,221
==============

F-29
<PAGE>

Management Adjustment Bureau, Inc.
Notes to Financial Statements - (Continued)

The term loan agreement contains, among other provisions, requirements for
maintaining defined levels of working capital, net worth and various
financial ratios. MAB was in violation of covenants for which waivers were
obtained.

In May 1996, MAB established two unsecured lines-of-credit with a total
availability of $1,000,000. Each line-of-credit carries variable interest
based on the prime rate. One line-of-credit is collateralized by MAB's
accounts receivables and specific equipment.

9. COMMITMENTS AND CONTINGENCIES

MAB has operating leases for a building and automobiles which expire at
various dates through 2010 with renewal privileges in some instances. Total
rental expense under operating leases was approximately $344,500, $330,000
and $469,400 for 1993, 1994, and 1995, respectively and $227,500 for the six
months ended June 30, 1996.

Future minimum lease payments under operating leases through 2000 for the
years ending December 31, are approximately:

1996 ......................... $ 416,900
1997.......................... 346,600
1998.......................... 324,900
1999.......................... 305,100
2000.......................... 310,700

MAB is involved in various legal issues. In the opinion of MAB's
management, the ultimate cost individually or in the aggregate to resolve
these matters will not have a material adverse effect on MAB's financial
position, results of operations or cash flows beyond the reserves already
established. Included in these reserves is an amount for $190,000 for a
potential loss related to a specific contract. Management estimates the range
of potential losses is between $-0- and $380,000 for this specific contract.
Management is not aware of any other legal proceedings.

10. PROFIT SHARING PLAN

MAB has a profit sharing plan with a 401(k) feature covering all qualified
employees. MAB's contribution to this plan is a 50% match on the first 4%
contributed by employees. MAB contributed $47,732, $50,531, and $50,805 in
1993, 1994, and 1995, respectively, to the Plan. MAB contributed $40,242 to
the Plan for the six month period ended June 30, 1996.

11. MAJOR CUSTOMER

MAB had revenues from a major customer of approximately 9% and 10% for the
years ended December 31, 1994 and 1995, respectively and 13% for the six
month period ended June 30, 1996.

During August 1996, MAB was notified that it will not continue to provide
certain services to this customer.

12. STOCK PURCHASE AGREEMENT

In July 1996, the shareholder received a letter of intent from NCO
Financial Systems to purchase MAB. MAB is currently pursuing the sale.

F-30
<PAGE>
REPORT OF INDEPENDENT AUDITORS

TRANS UNION CORPORATION:

We have audited the accompanying statements of net assets of the Trans
Union Corporation Collections Division (the Collections Division) as of
December 31, 1994 and 1995, and the related statements of operations and cash
flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the management of the
Collections Division and Trans Union Corporation. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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 the
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.

As described in Note 1, the accompanying statements of net assets,
operations, and cash flows include the assets, liabilities, revenues,
expenses, and cash flows which are specifically identifiable with the
Collections Division, as well as certain allocated expenses. These financial
statements may not necessarily reflect the assets and liabilities and results
of operations and cash flows of the Collections Division had it been operated
as a stand-alone entity.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the net assets of the Collections Division as of
December 31, 1994 and 1995, and the results of its operations and cash flows
for each of the three years in the period ended December 31, 1995 in conformity
with generally accepted accounting principles.
Ernst & Young LLP
Chicago, Illinois
January 16, 1996

F-31
<PAGE>

TRANS UNION CORPORATION
COLLECTIONS DIVISION

STATEMENTS OF NET ASSETS
(IN THOUSANDS)

DECEMBER 31,
----------------------
1994 1995
--------- ---------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ................................ $ 2,671 $ 1,733
Accounts receivable -- Trade, net of allowances of $20 in
1994 and 1995 ......................................... 931 614
Prepaid expenses and other current assets ................ 18 11
--------- ---------
Total current assets ....................................... 3,620 2,358
Fixed assets:
Equipment ................................................ 1,449 1,162
Leasehold improvements ................................... 13 --
Furniture and fixtures ................................... 261 302
Capitalized leased assets ................................ -- --
--------- -------
1,723 1,464
Less: Accumulated depreciation and amortization .......... (1,457) (1,245)
--------- -------
266 219
Deposits ................................................... -- 10
--------- ---------
Total assets ............................................... 3,886 2,587
Liabilities
Accounts payable and accrued liabilities ................... 379 393
Current portion of capital lease obligation ................ -- --
Debtor payments owed clients ............................... 357 256
--------- ---------
Total liabilities .......................................... 736 649
--------- ---------
Net assets ................................................. $ 3,150 $ 1,938
========= =========

</TABLE>

See accompanying notes.

F-32
<PAGE>

TRANS UNION CORPORATION
COLLECTIONS DIVISION

STATEMENTS OF OPERATIONS
(IN THOUSANDS)

For the Years Ended December 31,
-----------------------------------
1993 1994 1995
--------- -------- --------
Revenue
Service revenues .................... $7,770 $7,537 $7,467

Expenses
Salaries and employee benefits ...... 3,746 3,090 2,888
Payroll and other taxes ............. 297 283 237
Depreciation and amortization ....... 324 287 198
Repairs and maintenance ............. 182 170 163
Corporate office charges ............ 62 124 117
Communications ...................... 521 438 391
Selling, general, and administrative 3,279 2,926 3,174
Other (income) expenses, net ........ 98 2 (5)
--------- -------- --------
Total expenses ...................... 8,509 7,320 7,163
--------- -------- --------
Operating income (loss) ............. $ (739) $ 217 $ 304
========= ======== ========

See accompanying notes.

F-33
<PAGE>

TRANS UNION CORPORATION
COLLECTIONS DIVISION

STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

For the Years Ended December 31,
---------------------------------
1993 1994 1995
--------- -------- ---------
<S> <C> <C> <C>
Operating activities
Operating income (loss) ..................................... $ (739) $ 217 $ 304
Adjustments to reconcile operating income to net cash
provided by operating activities:
Depreciation and amortization .......................... 324 287 198
(Gain) loss on fixed asset disposition ................. 87 -- (5)
Provision for losses on accounts receivable ............ -- 1 5
Decrease (increase) in accounts receivable ............. 42 (184) 312
(Increase) decrease in prepaid expenses, other assets,
and deposits ......................................... 12 1 (3)
Increase (decrease) in accounts payable and accrued
liabilities .......................................... 46 (40) 14
(Decrease) increase in debtor payments owed clients .... 61 (6) (101)
--------- -------- ---------
Net cash provided by (used in) operating activities ......... (167) 276 724
Investing activities
Purchases of fixed assets ................................... (119) (85) (165)
Proceeds from sale of fixed assets .......................... -- -- 15
--------- -------- ---------
Net cash used in investing activities ....................... (119) (85) (150)
Financing activities
Net (distributions) contributions to parent company ......... 1,086 1,709 (1,512)
Principal payments under capital lease obligations .......... (19) (50) --
--------- -------- ---------
Net cash (used in) provided by financing activities ......... 1,067 1,659 (1,512)
--------- -------- ---------
Net (decrease) increase in cash and cash equivalents ........ 781 1,850 (938)
Cash and cash equivalents at beginning of year .............. 40 821 2,671
--------- -------- ---------
Cash and cash equivalents at end of year .................... $ 821 $2,671 $ 1,733
========= ======== =========

</TABLE>

See accompanying notes.

F-34
<PAGE>

TRANS UNION CORPORATION
COLLECTIONS DIVISION

NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)

1. BUSINESS AND BASIS OF PRESENTATION

The Trans Union Corporation Collections Division (the Collections Division)
is a business unit of Trans Union Corporation (TUC) that provides various
collection services. TUC is a wholly owned subsidiary of Marmon Industrial
Corporation (MIC), and its ultimate parent company is Marmon Holdings, Inc.
Substantially all of the stock of Marmon Holdings, Inc. is owned, directly or
indirectly, by trusts for the benefit of the lineal descendants of Nicholas
J. Pritzker, deceased, and entities controlled by such trusts.

The Collections Division provides third-party debt collection services within
the health care, utilities, and insurance markets. The principal markets are
located in the states of Ohio, Pennsylvania, and Kansas.

These financial statements present the historical assets, liabilities,
revenues, expenses, and cash flows directly related to the operations of the
Collections Division during the period presented. These financial statements
are not necessarily indicative of the financial position and results of
operations which would have occurred had the Collections Division been
operated as an independent company; specifically, the financial statements do
not include a provision for contingencies or income taxes. The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.

TUC and its Collections Division are part of a group that files a
consolidated tax return. There is no tax-sharing agreement for allocating
income taxes to the Collections Division. Accordingly, the financial
statements do not reflect any income tax expense or benefit.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

REVENUE RECOGNITION

Service revenues are recognized when debtor payments are received.

FIXED ASSETS

Fixed assets are recorded at cost. Depreciation is provided on a
straight-line basis over the estimated useful lives of the related assets
beginning in the month following acquisition.

CASH AND CASH EQUIVALENTS

The Collections Division considers cash and cash equivalents to consist of
cash on hand and all highly liquid debt instruments purchased with a maturity
of three months or less, if any.

MIC provides a centralized cash management function; accordingly, the
Collections Division does not maintain separate operating cash accounts, and
its cash disbursements and the majority of its collections of client revenues
are settled to the TUC and MIC cash concentrator accounts. Therefore, certain
parent company transactions are deemed to be cash transactions for purposes
of the statement of cash flows.

3. RELATED PARTY TRANSACTIONS

TUC provides certain common general management services to the Collections
Division including accounting, legal, and cash management services. The
amount charged to the Collections Division for these services totaled $62,
$124, and $117 for the years ended December 31, 1993, 1994, and 1995,
respectively.

F-35
<PAGE>

TRANS UNION CORPORATION
COLLECTIONS DIVISION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)

4. PROFIT-SHARING AND EMPLOYEE SAVING PLANS

The Collections Division employees are part of a MIC mixed savings and
profit-sharing plan. All employees with at least one year of continuing
service are eligible for participation in the plan. Each participant's
contribution is matched in part by MIC up to a maximum of 6% of the
participant's annual compensation. Employee savings plans expense was
approximately $151, $194, and $139 for the years ended December 31, 1993,
1994, and 1995, respectively.

5. LEASES

As lessee, the Collections Division shares leased office facilities with TUC
and leased equipment under noncancelable operating lease agreements expiring
January 31, 2005. Total rent expense under such operating leases based on a
square foot allocation for the office facilities and actual usage for office
equipment was $146, $171, and $162 for the years ended December 31, 1993,
1994, and 1995, respectively. A summary by year of future minimum lease
payments that would be allocable to the Collections Division under
noncancelable operating leases as of December 31, 1995, is shown below.

Year ending December 31:
1996 $139
1997 72
1998 70
1999 70
2000 70
2001 and beyond 164
-----
$585
=====

6. MAJOR CUSTOMERS

Bell Atlantic represented more than 10% of the combined revenue of the
Collections Division or $1,216, $1,423, and $1,586 for the years ended
December 31, 1993, 1994, and 1995, respectively.

F-36
<PAGE>

================================================================================
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with the
Offering other than those contained in this Prospectus and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company or any of the Underwriters. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any
securities other than the shares of Common Stock to which it relates or an
offer to, or a solicitation of, any person in any jurisdiction where such
offer or solicitation would be unlawful. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
an implication that there has been no change in the affairs of the Company,
or that information contained herein is correct as of any time, subsequent to
the date hereof.

------
TABLE OF CONTENTS
------

Page
--------
Prospectus Summary ................................ 3
Risk Factors ...................................... 8
Acquisition History ............................... 13
Use of Proceeds ................................... 16
Dividend Policy and Prior S Corporation Status .... 16
Capitalization .................................... 17
Dilution .......................................... 18
Selected Financial and Operating Data ............. 19
Management's Discussion and Analysis of Financial
Condition and Results of Operations .............. 21
Business .......................................... 28
Management ........................................ 36
Certain Transactions .............................. 41
Principal and Selling Shareholders ................ 42
Description of Capital Stock ...................... 43
Shares Eligible for Future Sale ................... 46
Underwriting ...................................... 47
Legal Matters ..................................... 48
Experts ........................................... 48
Additional Information ............................ 48
Index to Financial Statements ..................... F-1

Until December 2, 1996 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligation of dealers to deliver
a Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.

================================================================================

<PAGE>
================================================================================

2,500,000 SHARES

[COMPANY LOGO]
COMMON STOCK

------
PROSPECTUS
------

MONTGOMERY SECURITIES

JANNEY MONTGOMERY SCOTT INC.

November 6, 1996

================================================================================