NCO GROUP INC, 424A, 1997-06-16

NCO GROUP INC
424A, 1997-06-16
CONSUMER CREDIT REPORTING, COLLECTION AGENCIES

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<PAGE>
Pursuant to Rule 424(a)
Registration No. 333-28943

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.

SUBJECT TO COMPLETION, DATED JUNE 11, 1997

2,256,000 Shares

NCO GROUP, INC.

Common Stock

Of the 2,256,000 shares of Common Stock offered hereby (the "Offering"),
1,200,000 shares are being sold by NCO Group, Inc. ("NCO" or the "Company") and
1,056,000 shares are being sold by certain shareholders of the Company (the
"Selling Shareholders"). The Company will not receive any of the proceeds from
the sale of the shares by the Selling Shareholders. See "Principal and Selling
Shareholders."

The Common Stock of the Company is traded on the Nasdaq National Market
under the symbol "NCOG." On June 9, 1997, the last sale price of the Common
Stock as reported on the Nasdaq National Market was $32.00 per share. See
"Price Range of Common Stock."

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.

<TABLE>
<CAPTION>
=========================================================================================
Price to Underwriting Proceeds to Proceeds to
Public Discount (1) Company (2) Selling Shareholders
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share ...... $ $ $ $
- -----------------------------------------------------------------------------------------
Total (3) ...... $ $ $ $
=========================================================================================
</TABLE>

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

(2) Before deducting offering expenses payable by the Company, estimated at
$900,000.

(3) Certain Selling Shareholders have granted to the Underwriters a 30-day
option to purchase up to an additional 338,400 shares of Common Stock at
the Price to Public shown above solely to cover over-allotments, if any.
If the Underwriters exercise this option in full, the total Price to
Public, Underwriting Discount and Proceeds to Selling Shareholders will be
$ , $ , and $ , respectively. See "Principal and Selling
Shareholders" and "Underwriting."

The shares of Common Stock are offered by the several Underwriters named
herein when, as and if delivered to and accepted by the Underwriters and
subject to their right to reject any order in whole or in part. It is expected
that delivery of the certificates representing the shares will be made against
payment therefor at the office of Montgomery Securities on or about ,
1997.
----------------

MONTGOMERY SECURITIES
JANNEY MONTGOMERY SCOTT INC.

THE ROBINSON-HUMPHREY COMPANY, INC.

, 1997
<PAGE>

[Three pictures depicting: (i) the Company's call center in Blue Bell,
Pennsylvania, (ii) the Company's call center in Buffalo, New York and (iii) the
Company's computer center in Blue Bell, Pennsylvania. The Company's logo appears
in the upper left-hand corner of the page.]

Certain persons participating in this Offering may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Stock.
Such transactions may include stabilizing, the purchase of Common Stock to
cover syndicate short positions and the imposition of penalty bids. For a
description of these activities, see "Underwriting."

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. Unless the context otherwise requires, all
references in this Prospectus to the "Company" or "NCO" mean NCO Group, Inc., a
Pennsylvania corporation, and its subsidiaries and predecessors. Unless
otherwise indicated, all information in this Prospectus: (i) assumes no
exercise of the Underwriters' over-allotment option; and (ii) gives effect to
the Company's acquisitions of Goodyear & Associates, Inc. ("Goodyear"),
Tele-Research Center, Inc. ("TRC") and CMS A/R Services ("CMS A/R") in January
1997 and the Collection Division of CRW Financial, Inc. ("CRWCD") in February
1997 (collectively, the "1997 Acquisitions").

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. The Company provides these services on a national basis from 18 call
centers located in 15 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 completed eight acquisitions, including four
in the first quarter of 1997, 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 10 largest accounts receivable
management companies in the United States.

The Company provides its services principally to clients in the financial
services, government, education, healthcare, retail and commercial,
telecommunications and utilities sectors. The Company has over 7,000 clients,
including Bell Atlantic Corporation, Pennsylvania Higher Education Assistance
Agency, First Union Corporation, Medical Center of Delaware, PECO Energy
Company, Federal Express Corporation and MCI Communications Corporation. No
client accounted for more than 10% of the Company's revenue (no more than 5% on
a pro forma basis) in 1996. 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 an average of 23.7% in 1996 on a pro forma basis.
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 $84.3 billion in 1995, 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

3
<PAGE>

obtained from the ACA, there are 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."

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 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. In addition, 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 and add complementary services. Since the Company's initial
public offering in November 1996 ("IPO"), the Company has completed four
acquisitions. Certain information related to such acquisitions is summarized in
the following table.

<TABLE>
<CAPTION>
Fiscal 1996
Acquired Year Acquisition Revenues
Company Founded Date (millions) Headquarters Primary Services
- ---------- --------- ------------- ------------ ------------------ -------------------------------
<S> <C> <C> <C> <C> <C>
CRWCD 1957 Feb. 1997 $ 25.9 Philadelphia, PA Accounts Receivable Management
CMS A/R 1972 Jan. 1997 6.8 Jackson, MI Accounts Receivable Management
Goodyear 1974 Jan. 1997 5.5 Charlotte, NC Accounts Receivable Management
TRC 1992 Jan. 1997 1.9 Philadelphia, PA Market Research/Teleservices
</TABLE>

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" and the Pro Forma Consolidated
Financial Statements.

The Company's principal executive offices are located at 1740 Walton Road,
Blue Bell, Pennsylvania 19422, and its telephone number is (800) 220-2274.
Effective July 7, 1997, the Company's principal executive offices will be
relocated to 515 Pennsylvania Avenue, Fort Washington, Pennsylvania 19034.

4
<PAGE>

The Offering

<TABLE>
<S> <C>
Common Stock offered by:
The Company .......................................... 1,200,000 shares
The Selling Shareholders .............................. 1,056,000 shares
Common Stock to be outstanding after the Offering ...... 8,535,868 shares (1)
Use of proceeds ....................................... For repayment of bank debt incurred to
finance the 1997 Acquisitions and for
working capital and other general corpo-
rate purposes, including possible acquisi-
tions.
Nasdaq National Market symbol ........................... NCOG
</TABLE>

- ------------
(1) Includes an aggregate of 200,320 shares of Common Stock which are being
sold by certain Selling Shareholders upon the exercise of outstanding
warrants and stock options and an aggregate of 76,923 shares of Common
Stock which are being sold by certain Selling Shareholders upon the
conversion of a $1.0 million Convertible Note.

Excludes: (i) an aggregate of 749,680 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) 90,591 shares of
Common Stock reserved for issuance upon the exercise of warrants granted by
the Company to Mellon Bank, N.A.; (iii) 42,503 shares of Common Stock
reserved for issuance upon the conversion of the Company's $900,000
Convertible Note issued as partial consideration for the Goodyear
acquisition; and (iv) 250,000 shares of Common Stock reserved for issuance
upon the exercise of warrants issued as partial consideration for the CRWCD
acquisition. See "Acquisition History," "Management -- Stock Option Plans"
and "Description of Capital Stock -- Warrants and Convertible Notes."

5
<PAGE>

SUMMARY FINANCIAL AND OPERATING DATA
(Dollars in thousands, except per share data)

<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------
1992 1993 1994 1995
---------- ---------- ---------- ------------------
<S> <C> <C> <C> <C>
Statement of Income Data:
Revenue ........................ $ 5,822 $ 7,445 $ 8,578 $ 12,733
Operating costs and
expenses:
Payroll and related
expenses ..................... 3,058 4,123 4,558 6,797
Selling, general and
administrative expenses ...... 2,013 2,391 2,674 4,042
Depreciation and
amortization expenses ...... 95 141 215 348
-------- -------- -------- -------------
Income from operations ...... 656 790 1,131 1,546
Other income (expense) ......... 15 11 (45) (180)
-------- -------- -------- -------------
Income before provision for
income taxes .................. 671 801 1,086 1,366
Pro forma provision for
income taxes (5) ............ 268 320 434 546
-------- -------- -------- -------------
Pro forma net income (5) ...... $ 403 $ 481 $ 652 $ 820
======== ======== ======== =============
Pro forma net income per
share (5) ..................... $ 0.17(6)
=============
Pro forma weighted average
shares outstanding ............ 4,728,906(6)
=============
Selected Operating Data:
Total value of accounts
referred ..................... $150,707 $199,108 $281,387 $ 431,927
Average fee .................. 16.9% 20.2% 22.5% 22.4%
</TABLE>

[RESTUBBED FROM TABLE ABOVE]

<TABLE>
<CAPTION>
Years Ended December 31, Three Months Ended March 31,
-------------------------------------- ---------------------------------------------
1996 1997
-------------------------------------- ---------------------------
Pro Pro
Actual Forma(1)(2) 1996 Actual Forma(3)(4)
------------------ ------------------ ------------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Revenue ........................ $ 30,760 $ 79,944 $ 6,044 $ 18,077 $ 20,918
Operating costs and
expenses:
Payroll and related
expenses ..................... 14,651 40,209 2,998 9,046 10,324
Selling, general and
administrative expenses ...... 10,032 28,789 1,931 5,932 7,037
Depreciation and
amortization expenses ...... 1,254 3,043 200 716 846
------------- ------------- ------------- --------- ---------
Income from operations ...... 4,823 7,903 915 2,383 2,711
Other income (expense) ......... (576) 2 (155) (82) 34
------------- ------------- ------------- --------- ---------
Income before provision for
income taxes .................. 4,247 7,905 760 2,301 2,745
Pro forma provision for
income taxes (5) ............ 1,706 3,374 304 994 1,115
------------- ------------- ------------- --------- ---------
Pro forma net income (5) ...... $ 2,541 $ 4,531 $ 457 $ 1,307 $ 1,630
============= ============= ============= ========= =========
Pro forma net income per
share (5) ..................... $ 0.50(6) $ 0.64(6) $ 0.10(6) $ 0.18 $ 0.21
============= ============= ============= ========= =========
Pro forma weighted average
shares outstanding ............ 5,086,736(6) 7,045,350(6) 4,733,549(6) 7,371,157 7,886,151
============= ============= ============= ========= =========
Selected Operating Data:
Total value of accounts
referred ..................... $ 1,173,342 $ 4,024,658 $ 581,258 $ 974,266
Average fee .................. 25.2% 23.7% 25.2% 23.3%
</TABLE>

<PAGE>

March 31, 1997
-----------------------
As
Actual Adjusted(7)
-------- ------------
Balance Sheet Data:
Cash and cash equivalents .................. $5,793 $ 33,042
Working capital .............................. 7,996 35,245
Total assets ................................. 61,436 88,685
Long-term debt, net of current portion ...... 10,733 1,383
Shareholders' equity ........................ 41,044 77,644

- ------------
(1) Assumes that the acquisition of Management Adjustment Bureau, Inc. and the
1997 Acquisitions occurred on January 1, 1996.

(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 increase in amortization expense as if the
acquisitions had occurred on January 1, 1996 and the elimination of
depreciation and amortization expense related to assets revalued or not
acquired by NCO as part of the acquisitions; (iii) the elimination of
interest expense associated with acquisition-related debt repaid with
proceeds of the Company's IPO and the proceeds of the Offering; (iv) the
issuance of 1,604,620 shares of Common Stock at the IPO price of $13.00
per share which, net of the underwriting discount and offering expenses
payable by the Company, was sufficient to repay acquisition related debt
of $15.0 million and to fund the distribution of undistributed S
Corporation earnings of $3.2 million through September 3, 1996, the
termination date of the Company's S Corporation status, to existing
shareholders of the Company; (v) the issuance of 345,178 shares of Common
Stock and warrants exercisable for 250,000 shares of Common Stock in
connection with the acquisition of CRWCD; and (vi)

6
<PAGE>

the issuance of 305,886 shares of Common Stock at an assumed public offering
price of $32.00 per share which, net of the estimated underwriting discount
and offering expenses payable by the Company, would be sufficient to repay
acquisition related debt of $8.4 million. See Pro Forma Consolidated
Financial Statements.

(3) Assumes that the 1997 Acquisitions occurred on January 1, 1997.

(4) 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 increase in amortization expense as if the
acquisitions had occurred on January 1, 1997 and the elimination of
depreciation and amortization expense related to assets revalued or not
acquired by NCO as part of the acquisitions; (iii) the elimination of
interest expense associated with acquisition related debt to be repaid
with proceeds of the Offering; (iv) the issuance of 345,178 shares of
Common Stock and warrants exercisable for 250,000 shares of Common Stock
in connection with the acquisition of CRWCD; and (v) the issuance of
305,886 shares of Common Stock at an assumed public offering price of
$32.00 per share which, net of the estimated underwriting discount and
offering expenses payable by the Company, would be sufficient to repay
acquisition related debt of $8.4 million. See Pro Forma Consolidated
Financial Statements.

(5) 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 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 and pro forma net income per share
have been computed as if the Company had been fully subject to federal and
state income taxes for all periods presented. See Note 8 of Notes to
Consolidated Financial Statements.

(6) Assumes that the Company issued 249,758 shares of Common Stock at $13.00
per share to fund the distribution of undistributed S Corporation earnings
of $3.2 million through September 3, 1996, the termination date of the
Company's S Corporation status, to existing shareholders of the Company.

(7) Gives effect to: (i) the sale of the 1,200,000 shares of Common Stock
offered by the Company hereby (at an assumed public offering price of
$32.00 per share) and the application of the net proceeds therefrom as set
forth in "Use of Proceeds" and (ii) the exercise of warrants and stock
options to purchase an aggregate of 200,320 shares of Common Stock which
are being sold by certain Selling Shareholders in the Offering and the
receipt by the Company of the aggregate exercise price of $211,000.

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, the Company's ability to
realize operating efficiencies upon the completion of the recent acquisitions
and other acquisitions that may occur in the future, the Company's ability to
expand its service offerings, the anticipated changes in revenues from acquired
companies and trends in the Company's future operating performance, and
statements as to the Company's or management's beliefs, expectations or
opinions, are forward-looking statements. The factors discussed below and
elsewhere in this Prospectus 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 Recent Acquisitions

The 1997 Acquisitions were consummated in the first quarter of 1997. The
businesses acquired had combined revenues of $40.1 million in 1996 compared to
the Company's revenue of $30.8 million in 1996 ($39.9 million on a pro forma
basis assuming that the acquisition of Management Adjustment Bureau, Inc.
("MAB") had occurred on January 1, 1996). The Company is currently in the
process of integrating the 1997 Acquisitions as well as completing the
integration of MAB. Such integration will likely place significant demands on
the Company's management and infrastructure. There can be no assurance that
businesses acquired in the 1997 Acquisitions or the MAB acquisition 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. Due to the
consolidation or closing of certain CRWCD branch offices, and the loss of
certain contracts during 1996, revenue for CRWCD for 1997 is anticipated to be
10% to 15% lower than CRWCD's revenue for 1996. Approximately $8.4 million of
the proceeds of this Offering will be used to repay indebtedness incurred to
finance the 1997 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 continue to
pursue strategic acquisitions that expand and 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

8
<PAGE>

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 also be no assurance that the Company
will be able to continue 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, consolidators 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 businesses acquired in the future into its
business or operate such acquired businesses profitably. Acquisitions also may
involve a number of additional 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 to fund any
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 unable 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 revenue 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 effect of the change of
business mix on margins and the timing of additional selling, general and
administrative expenses to support new business. In connection with certain
customer contracts, the Company could incur costs in periods prior to
recognizing revenue under those contracts which may adversely affect the
Company's operating results in a particular quarter. 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."

The Company's quarterly operating results could also be affected by the
costs and timing of completion and integration of acquisitions. In the fourth
quarter of 1996, income from operations and net income as a percentage of
revenue were lower than in prior quarters of 1996 largely as a result of the
higher payroll and related expenses of MAB as compared to the Company's core
business. Similarly, in the first quarter of 1997, the Company's operating and
net margins were adversely affected by the higher cost structures of MAB and
the 1997 Acquisitions as compared to the Company's core business.

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."

9
<PAGE>

Dependence on Certain Sectors; Contract Risks

Most of the Company's revenues are derived from clients in the financial
services, government, education, healthcare, retail and commercial,
telecommunications and utilities sectors. A significant downturn in any of
these sectors 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 in which the Company
recognizes revenues only as accounts are recovered. See "Business."

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, Equifax Inc., Outsourcing
Solutions Inc., The 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, in many instances, are performed in-house. 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 the Company will be able to compete
successfully with its existing or future competitors. 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 require 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. 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

10
<PAGE>

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 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 24.1% of the Common Stock (approximately 21.5% if the
Underwriters' over-allotment option is exercised in full), and together with
the other directors and executive officers of the Company will beneficially own
approximately 38.7% (approximately 34.8% if the Underwriters' over-allotment
option is exercised in full). As a result of such voting concentration, Mr.
Barrist, together with the other directors and executive officers of the
Company, would likely 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."

Possible Volatility of Stock Price

Numerous factors, including announcements of fluctuations in the Company's
or its competitors' operating results, 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. There can be no assurance that purchasers of Common Stock in this
Offering will be able to resell their Common Stock at prices equal to or
greater than the offering price hereunder.

11
<PAGE>

Shares Eligible for Future Sale

Sales of the Company's Common Stock in the public market 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 8,535,868
shares of Common Stock outstanding. Of these shares, all of the 2,256,000
shares sold in the Offering will be, and the 2,875,000 shares sold in the IPO
are, available for resale in the public market without restriction, except for
any such shares purchased by affiliates of the Company. The Company's
directors, executive officers and the Selling Shareholders have agreed, subject
to certain limitations, not to offer, sell or otherwise dispose of any shares
of Common Stock for a period of 90 days after the closing of the Offering
without the prior written consent of Montgomery Securities. Following the
expiration of this 90-day period, such persons will hold an aggregate of
3,406,868 outstanding shares of Common Stock (3,068,468 shares if the
over-allotment option is exercised in full) which may be resold under Rule 144.
Upon completion of the Offering, the Company also will continue to have
outstanding warrants to purchase an aggregate of 90,591 shares of Common Stock
exercisable at any time on or before July 31, 2005, a $900,000 Convertible Note
convertible into 42,503 shares of Common Stock at any time on or before January
22, 2002 and a warrant to purchase 250,000 shares of Common Stock exercisable
at any time on or before January 31, 2002. The holders of the warrants, in
their capacity as Selling Shareholders, and the holder of the Convertible Note
have agreed, subject to certain limitations, not to offer, sell or otherwise
dispose of any shares of Common Stock issuable upon exercise of the warrants or
conversion of the Convertible Note for a period of 90 days after the closing of
the Offering without the prior written consent of Montgomery Securities. The
holders of the warrants and the Convertible Note will continue to be entitled
to certain demand and/or piggyback registration rights following the
completion of the Offering. In addition, the Company intends to register
749,680 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 the 1996 Non-Employee Director Stock Option Plan.
Options to purchase an aggregate of 538,651 shares of Common Stock will
continue to be outstanding under all such plans upon the completion of the
Offering. See "Management -- Stock Option Plans," "Description of Capital Stock
- -- Warrants and Convertible Notes" 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."

12
<PAGE>

ACQUISITION HISTORY

Since 1994, the Company has completed eight strategic acquisitions,
including four in the first quarter of 1997, 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 continue to pursue selected strategic
acquisitions to serve new geographic markets or industries, expand its presence
in its existing markets and 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:

Collection Division of CRW Financial, Inc.

On February 2, 1997, NCO purchased substantially all of the assets of the
CRWCD for $3.8 million in cash, 345,178 shares of Common Stock and warrants to
purchase 250,000 shares of Common Stock at an exercise price of $27.625 per
share. In connection with the acquisition of CRWCD, NCO granted to CRW
Financial, Inc. certain demand and piggyback registration rights to register,
under certain conditions, the shares of Common Stock issued to CRW Financial,
Inc. and the shares of Common Stock issuable upon the exercise of warrants
issued by the Company to CRW Financial, Inc. The purchase price was valued at
approximately $12.8 million. CRWCD provided accounts receivable management
services principally to the telecommunications, education, financial,
government and utility sectors from 10 offices located throughout the United
States. In addition, CRWCD had a commercial collections division. CRWCD's
clients included California Student Aid Commission, Federal Express Corporation
and the Massachusetts Department of Revenue. CRWCD's revenues for the year
ended December 31, 1996 were $25.9 million.

CMS A/R Services

On January 31, 1997, NCO purchased substantially all of the assets of CMS
A/R for $5.1 million in cash. CMS A/R, located in Jackson, Michigan,
specialized in providing a wide range of accounts receivable management and
administrative services to the utility sector, including traditional recovery
of delinquent accounts, outsourced administrative services, early stage
accounts receivable management and database management services. CMS A/R's
clients included CMS Energy Corporation, Commonwealth Edison Company and PECO
Energy Company. CMS A/R's revenues for the year ended December 31, 1996 were
$6.8 million.

Tele-Research Center, Inc.

On January 30, 1997, NCO purchased certain assets of TRC for $1.6 million
in cash. The purchase price may be increased by up to $600,000 if the TRC
business achieves certain revenue targets during the three-year period
following the closing date. At the option of the seller, the purchase price
adjustment may be paid in cash or Common Stock, based on the fair market value
of the Common Stock as of the date that the purchase price adjustment accrues.
TRC, located in Philadelphia, Pennsylvania, provided market research, data
collection and other teleservices to market research companies as well as
end-users. TRC's clients included Corestates Bank, N.A., Nextel Communications
and ATX Telecommunications. TRC's revenues for the year ended December 31, 1996
were $1.9 million.

Goodyear & Associates, Inc.

On January 22, 1997, NCO purchased all of the outstanding stock of
Goodyear for $4.5 million in cash and a $900,000 Convertible Note. The Note is
convertible at any time into 42,503 shares of the Company's Common Stock and
bears interest payable monthly at a rate of 8.0% per annum with principal due
in January 2002. In connection with the acquisition of Goodyear, NCO granted
the former majority shareholders of Goodyear certain piggyback registration
rights to register the shares of Common Stock issuable upon the conversion of
the

13
<PAGE>

Convertible Note. Goodyear, based in Charlotte, North Carolina, provided
accounts receivable management services principally to the telecommunications,
education and utility sectors. Goodyear's clients included BellSouth
Corporation. Goodyear's revenues for the year ended December 31, 1996 were $5.5
million.

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 at any time into 76,923 shares of the Company's Common Stock and
bears interest payable monthly at a rate of 8.0% per annum with principal due
in September 2001. In connection with the acquisition of MAB, NCO granted the
former majority shareholder of MAB certain piggyback registration rights to
register the shares of Common Stock issuable upon the conversion of the
Convertible Note. MAB, based in Buffalo, New York, provided accounts receivable
management services, principally to the education, financial services,
telecommunications and utility sectors. MAB's clients included NationsBank
Corporation, Fleet Bank, New York State Electric and Gas and St. John's
University.

Trans Union Corporation Collections Division

On January 3, 1996, NCO purchased certain assets of the Trans Union
Corporation Collections Division ("TCD") for $4.8 million in cash. TCD provided
accounts receivable management services, principally to the telecommunications,
utility and healthcare sectors from offices in Pennsylvania, Ohio and Kansas.
TCD's clients included Bell Atlantic Corporation, Western Resources Corporation
and Hutchinson Hospital Corporation.

Eastern Business Services, Inc.

In August 1995, NCO purchased certain assets of Eastern Business Services,
Inc. ("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 sectors. Eastern's clients included Bell Atlantic Corporation,
Potomac Electric Power Company and Washington Gas.

B. Richard Miller, Inc.

In April 1994, NCO purchased certain assets of B. Richard Miller, Inc.
("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
Company. BRM, based in Ardmore, Pennsylvania, provided accounts receivable
management services, principally to the education sector. BRM's clients
included University of Pennsylvania, Rutgers University and Seton Hall
University.

Financial Impact of Acquisitions

The Company financed the 1997 Acquisitions with borrowings of approximately
$8.4 million from its revolving credit facility with Mellon Bank, N.A., the net
proceeds from the Company's IPO and funds from operations. The Company financed
the MAB, TCD, Eastern and BRM acquisitions with borrowings from Mellon Bank,
N.A., which borrowings were repaid with a portion of the proceeds from the
Company's IPO. In September 1996, the bank increased the Company's revolving
credit facility from $7.0 million to $15.0 million to finance the acquisition of
MAB. The bank further increased this facility to $25.0 million at an interest
rate of LIBOR plus 2.5% in December 1996. Mellon Bank, N.A. has committed to
reduce the interest rate to 1.5% over LIBOR upon the completion of this
Offering. 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 additional warrants to
purchase 46,560 shares and 18,500 shares of Common Stock at an exercise price of
$13.00 per share in consideration for increasing the revolving credit facility
to $15.0 million and to $25.0 million, respectively.

14
<PAGE>

All of the acquisitions have been accounted for under the purchase method
of accounting for financial reporting purposes. These acquisitions have created
goodwill estimated at $38.0 million which is being amortized over a 15- to
25-year period resulting in amortization expense of approximately $1.7 million
annually.

In each of the acquisitions completed prior to 1997, the Company acquired
businesses with higher cost structures than the Company. In the months following
the acquisitions, the Company leveraged its existing infrastructure to realize
additional operating efficiencies in order to bring the cost structure of the
acquired companies in line with NCO's current operating results. These other
cost savings included: (i) reductions in payroll and related expenses relating
primarily to redundant collections and administrative personnel, (ii) reduction
in rent and other facilities costs, and (iii) reduction in certain direct and
indirect expenses such as telephone, mailing and data processing costs.

The Company has also begun to realize certain operating efficiencies from
the 1997 Acquisitions. These result from: (i) reduction of management,
operating and administrative personnel, (ii) consolidation and centralization
of numerous administrative functions such as cash processing, data entry and
client service, (iii) closure of several facilities, and (iv) renegotiation of
certain of the remaining facilities' leases. As a result, the Company has
reduced the expense structure of the 1997 Acquisitions to levels more
consistent with NCO's current operating results. The Company expects to realize
further expense reductions as it continues the integration process through the
end of 1997, including: (i) migration of acquired companies' computer systems
to a single computer platform, (ii) additional staff reductions, and (iii)
consolidation and centralization of certain other administrative functions. The
Company's ability to achieve such further cost savings is uncertain and there
can be no assurance that such businesses 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 Recent Acquisitions."

15
<PAGE>

USE OF PROCEEDS

The net proceeds from the sale of the 1,200,000 shares of Common Stock
offered by the Company hereby are estimated to be approximately $35.4 million
after deducting the estimated underwriting discount and expenses of the
Offering and based on an assumed public offering price of $32.00 per share. The
Company will not receive any proceeds from the sale of Common Stock by the
Selling Shareholders.

Approximately $8.4 million of the net proceeds will be used to repay
outstanding debt under the Company's Credit Agreement with Mellon Bank, N.A.
incurred to finance the 1997 Acquisitions. 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 $25.0 million at
an interest rate equal to LIBOR plus 2.5% (8.1875% at May 31, 1997). Mellon
Bank, N.A. has committed to reduce the interest rate to 1.5% over LIBOR upon
the completion of the Offering. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

The Company intends to use the remaining net proceeds of $27.0 million for
working capital and other general corporate purposes, including possible 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 then current
shareholders aggregating $658,000, $813,000, $1.1 million and $876,838 in
respect of the Company's S Corporation earnings for 1993, 1994, 1995 and 1996
(through September 3, 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. In November 1996, the Company paid to shareholders of record
as of the Termination Date a distribution of approximately $3.2 million
representing the Company's undistributed S Corporation earnings through the
Termination Date.

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>

PRICE RANGE OF COMMON STOCK

The Company completed the initial public offering of its Common Stock at
$13.00 per share on November 6, 1996. The Common Stock is traded on the Nasdaq
National Market under the symbol "NCOG." The following table sets forth, for
the periods indicated, the high and low closing sale prices for the Common
Stock, as reported by Nasdaq:

High Low
---------- --------
1996
Fourth Quarter (from November 6, 1996) $19 7/16 $16 1/2
1997
First Quarter ........................... 28 3/8 16 3/4
Second Quarter (through June 9, 1997) ... 33 3/4 18 1/4

On June 9, 1997, the last reported sale price of the Common Stock on the
Nasdaq National Market was $32.00 per share. As of June 9, 1997, the Company's
Common Stock was held by approximately 29 holders of record. Based on
information obtained from the Company's transfer agent, the Company believes
that the number of beneficial owners of its Common Stock is approximately
1,064.

17
<PAGE>

CAPITALIZATION

The following table sets forth as of March 31, 1997 the current portion of
long-term debt and capitalized lease obligations and the actual capitalization
of the Company and the capitalization of the Company as adjusted to give effect
to: (i) the exercise of warrants and stock options to purchase an aggregate of
200,320 shares of Common Stock which are being sold by certain Selling
Shareholders in the Offering and the receipt by the Company of the aggregate
exercise price of $211,000, (ii) the conversion of a $1.0 million Convertible
Note into 76,923 shares of Common Stock which are being sold by a certain
Selling Shareholder in the Offering, and (iii) the sale by the Company of
1,200,000 shares of Common Stock in the Offering (at an assumed public offering
price of $32.00 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.

<TABLE>
<CAPTION>
March 31, 1997
------------------------
Actual As Adjusted
--------- ------------
(In thousands)
<S> <C> <C>
Current portion of long-term debt and capitalized lease obligations ... $ 182 $ 182
======== ========
Long-term debt, net of current portion (1):
Revolving credit agreement .......................................... $ 8,429 $ 79
Capitalized lease obligations ....................................... 404 404
Convertible notes payable .......................................... 1,900 900
-------- --------
Total long-term debt and capitalized lease obligations. ............ 10,733 1,383
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;
7,058,625 shares issued and outstanding, actual, 8,535,868 shares
issued and outstanding, as adjusted (2) ........................... 37,577 74,328
Unexercised warrants (3) ............................................. 1,271 1,120
Retained earnings ................................................... 2,196 2,196
-------- --------
Total shareholders' equity .......................................... 41,044 77,644
-------- --------
Total capitalization ................................................ $51,777 $79,027
======== ========
</TABLE>

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

(2) Excludes: (i) an aggregate of 800,000 shares of Common Stock (749,680
shares, as adjusted) 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 (90,591 shares, as
adjusted) reserved for issuance upon the exercise of warrants issued to
Mellon Bank, N.A.; (iii) 76,923 shares of Common Stock (0 shares, as
adjusted) reserved for issuance upon the conversion of the Company's $1.0
million Convertible Note issued as partial consideration for the MAB
acquisition; (iv) 42,503 shares of Common Stock reserved for issuance upon
the conversion of the Company $900,000 Convertible Note issued as partial
consideration for the Goodyear acquisition; and (v) 250,000 shares of
Common Stock reserved for issuance upon the exercise of warrants issued by
the Company at an exercise price of $27.625 per share as partial
consideration for the CRWCD acquisition. See "Acquisition History,"
"Management -- Stock Option Plans" and "Description of Capital Stock --
Warrants and Convertible Notes."

(3) Reflects: (i) a warrant to purchase 175,531 shares of Common Stock (25,531
shares, as adjusted) at a nominal exercise price issued by the Company to
Mellon Bank, N.A.; (ii) a warrant to purchase 46,560 shares of Common
Stock at an exercise price of $13.00 per share issued by the Company to
Mellon Bank, N.A.; (iii) a warrant to purchase 18,500 shares of Common
Stock at an exercise price of $13.00 per share issued by the Company to
Mellon Bank, N.A.; and (iv) a warrant to purchase 250,000 shares of Common
Stock issued by the Company at an exercise price of $27.625 per share as
partial consideration for the CRWCD acquisition.

18
<PAGE>

SELECTED FINANCIAL AND OPERATING DATA

The selected financial data of the Company for each of the five years in
the period ended December 31, 1996 are derived from the financial statements of
the Company which have been audited by Coopers & Lybrand L.L.P., independent
accountants. The selected financial data as of March 31, 1997 and for the three
months ended March 31, 1996 and 1997 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 three months ended March 31, 1997 are not
necessarily indicative of the results to be expected for the full year. 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. 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.

19
<PAGE>

SELECTED FINANCIAL AND OPERATING DATA
(Dollars in thousands, except per share data)

<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996
---------- ---------- ---------- ------------------ --------------------------------------
Pro
Actual Forma(1)(2)
------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Statement of Income Data:
Revenue ..................... $ 5,822 $ 7,445 $ 8,578 $ 12,733 $ 30,760 $ 79,944
Operating costs and
expenses:
Payroll and related
expenses .................. 3,058 4,123 4,558 6,797 14,651 40,209
Selling, general and
administrative
expenses .................. 2,013 2,391 2,674 4,042 10,032 28,789
Depreciation and amor-
tization expenses 95 141 215 348 1,254 3,043
-------- -------- -------- ------------- ------------- -------------
Income from
operations ............... 656 790 1,131 1,546 4,823 7,903
Other income
(expense) .................. 15 11 (45) (180) (576) 2
-------- -------- -------- ------------- ------------- -------------
Income before provision for
income taxes .............. 671 801 1,086 1,366 4,247 7,905
Pro forma provision
for income taxes (5) ...... 268 320 434 546 1,706 3,374
-------- -------- -------- ------------- ------------- -------------
Pro forma net income (5) ...... $ 403 $ 481 $ 652 $ 820 $ 2,541 $ 4,531
======== ======== ======== ============= ============= =============
Pro forma net income per
share (5) .................. $ 0.17(6) $ 0.50(6) $ 0.64(6)
============= ============= =============
Pro forma weighted average
shares outstanding ......... 4,728,906(6) 5,086,736(6) 7,045,350(6)
============= ============= =============
Selected Operating Data:
Total value of
accounts referred ......... $150,707 $199,108 $281,387 $ 431,927 $ 1,173,342 $ 4,024,658
Average fee .................. 16.9% 20.2% 22.5% 22.4% 25.2% 23.7%
</TABLE>

<PAGE>

[RESTUBBED FROM TABLE ABOVE]

<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------------------------
1996 1997
------------------ ---------------------------
Pro
Actual Forma(3)(4)
------------- ------------
<S> <C> <C> <C>
Statement of Income Data:
Revenue ..................... $ 6,044 $ 18,077 $ 20,918
Operating costs and
expenses:
Payroll and related
expenses .................. 2,998 9,046 10,324
Selling, general and
administrative
expenses .................. 1,931 5,932 7,037
Depreciation and amor-
tization expenses .......... 200 716 846
------------- --------- ---------
Income from
operations ............... 915 2,383 2,711
Other income
(expense) .................. (155) (82) 34
------------- --------- ---------
Income before provision for
income taxes .............. 760 2,301 2,745
Pro forma provision
for income taxes (5) ...... 304 994 1,115
------------- --------- ---------
Pro forma net income (5) ..... $ 457 $ 1,307 $ 1,630
============= ========= =========
Pro forma net income per
share (5) .................. $ 0.10(6) $ 0.18 $ 0.21
============= ========= =========
Pro forma weighted average
shares outstanding ........ 4,733,549(6) 7,371,157 7,886,151
============= ========= =========
Selected Operating Data:
Total value of
accounts referred ......... $ 581,258 $ 974,266
Average fee .................. 25.2% 23.3%
</TABLE>

<TABLE>
<CAPTION>
December 31,
---------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents .................. $ 421 $ 562 $ 526 $ 805 $12,059
Working capital ........................... 362 445 473 812 13,629
Total assets .............................. 1,794 1,990 3,359 6,644 35,826
Long-term debt, net of current portion ... 144 59 732 2,593 1,092
Shareholders' equity ..................... 686 876 1,423 2,051 30,648

</TABLE>
[RESTUBBED FROM TABLE ABOVE]

<TABLE>
<CAPTION>
March 31, 1997
-----------------------
As
Actual Adjusted(7)
-------- ------------
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents .................. $5,793 $33,042
Working capital ........................... 7,996 35,245
Total assets .............................. 61,436 88,685
Long-term debt, net of current portion ... 10,733 1,383
Shareholders' equity ..................... 41,044 77,644
</TABLE>

20
<PAGE>

- ------------
(1) Assumes that the acquisition of MAB and the 1997 Acquisitions occurred on
January 1, 1996.

(3) Assumes that the 1997 Acquisitions occurred on January 1, 1997.

(7) Gives effect to: (i) the sale of the 1,200,000 shares of Common Stock
offered by the Company hereby (at an assumed public offering price of
$32.00 per share) and the application of the net proceeds therefrom as set
forth in "Use of Proceeds" and (ii) the exercise of warrants and stock
options to purchase an aggregate of 200,320 shares of Common Stock which
are being sold by certain Selling Shareholders in the Offering and the
receipt of the Company of the aggregate exercise price of $211,000.

21
<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 and other
outsourced administrative services. In 1996, accounts receivable management
services comprised more than 90% 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
$79.9 million in 1996 on a pro forma basis, giving effect to the MAB
acquisition and the 1997 Acquisitions. NCO operates 18 call centers with 1,337
workstations in 15 states.

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 23.7% in 1996 on
a pro forma basis, 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 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 April 1994, the Company has completed eight acquisitions, including
four in the first quarter of 1997, which have had a significant impact on the
Company's financial condition and results of operations. As a result of these
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 17 call
centers in 14 states. With respect to the acquisitions completed prior to 1997,
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. Revenues from
the 1997 Acquisitions accounted for approximately 50.1% of the Company's 1996
pro forma revenue. The Company is currently integrating the 1997 Acquisitions
and is in the process of bringing the cost structures of the acquired companies
in line with NCO's current operating results. The Company regularly reviews
various strategic acquisition proposals 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
and add complementary services. Upon completion of an acquisition, the Company
immediately focuses on achieving operating efficiencies by eliminating
redundant

22
<PAGE>

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 of the MAB
acquisition and the 1997 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, 1996 and which show the effect of the 1997 Acquisitions
as if the results of each acquired company had been included in the Company's
statement of income throughout the three months ended March 31, 1997.

For the periods shown prior to September 3, 1996, 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.

Pro Forma Compared to Actual Results of Operations

Pro forma operating data for the year ended December 31, 1996 and the
quarter ended March 31, 1997 assume that the MAB acquisition was consummated on
January 1, 1996 and that the 1997 Acquisitions were consummated on January 1,
1996 and January 1, 1997, respectively. Pro forma adjustments have been made to
reflect the elimination of certain expenses that were immediately identifiable
at the time of the acquisitions. For instance, pro forma adjustments to the MAB
acquisition and the 1997 Acquisitions include the elimination of approximately
59 redundant administrative and collection personnel, the reduction of the
salaries of the principal shareholders of MAB and Goodyear, respectively, the
closing or consolidation of four existing call centers, as well as the
downsizing of three call centers into customer service locations. See
"Acquisition History -- Financial Impact of Acquisitions" and Notes to Pro
Forma Consolidated Financial Statements. At the time of the acquisitions, the
acquired companies had a higher cost structure than that of the Company's core
business. The Company intends to leverage its infrastructure to realize
additional operating efficiencies in order to bring the cost structure of the
acquired companies in line with NCO's current operating results. These other
costs savings include: (i) further reduction in payroll and related expenses
relating primarily to redundant collections and administrative personnel; (ii)
further reductions in facilities costs; and (iii) reduction of certain expenses
such as telephone, mailing and data processing. Management believes it will
realize these cost savings with respect to the acquired companies, although no
assurances can be given that such cost savings will be realized. Due to the
higher cost structures of the acquired business 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. Due to the consolidation or closing of certain
CRWCD branch offices, and the loss of certain contracts during 1996, revenue
for CRWCD for 1997 is anticipated to be 10% to 15% lower than CRWCD's revenue
for 1996.

23
<PAGE>

Results of Operations

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

<TABLE>
<CAPTION>
Years Ended December 31, Three Months Ended March 31,
----------------------------------------- --------------------------------
1994 1995 1996 1996 1997
-------- -------- ------------------- -------- ---------------------
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 ...... 53.1 53.4 47.6 50.3 49.6 50.0 49.4
Selling, general and administrative
expenses ........................... 31.2 31.7 32.6 36.0 32.0 32.8 33.6
Depreciation and amortization
expenses ........................ 2.5 2.7 4.1 3.8 3.3 4.0 4.0
------ ------ ------ ------ ------ ------ ------
Total .............................. 86.8 87.8 84.3 90.1 84.9 86.8 87.0
------ ------ ------ ------ ------ ------ ------
Income from operations ............... 13.2 12.2 15.7 9.9 15.1 13.2 13.0
Other income (expense) ............... (0.5) (1.4) (1.9) -- (2.6) (0.5) 0.1
------ ------ ------ ------ ------ ------ ------
Income before income taxes ......... 12.7 10.8 13.8 9.9 12.5 12.7 13.1
Pro forma provision for income taxes. 5.1 4.3 5.5 4.2 5.0 5.5 5.5
------ ------ ------ ------ ------ ------ ------
Pro forma net income ............... 7.6% 6.5% 8.3% 5.7% 7.5% 7.2% 7.5%
====== ====== ====== ====== ====== ====== ======
</TABLE>

Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996

Revenue. Revenue increased $12.1 million or 199.1% to $18.1 million for
the three months ended March 31, 1997 from $6.0 million for the comparable
period in 1996. The addition of new clients and growth in business from
existing clients represented $1.3 million of the additional revenue. In
addition, $3.4 million of revenue was attributable to the MAB acquisition
completed in September 1996, $4.1 million was attributable to the CRWCD
acquisition completed in February 1997, and $3.2 million was attributable to
the Goodyear, CMS A/R, and TRC acquisitions completed in January 1997.

Payroll and related expenses. Payroll and related expenses increased $6.0
million to $9.0 million for the three months ended March 31, 1997 from $3.0
million for the comparable period in 1996, and increased as a percentage of
revenue to 50.0% from 49.6%. Payroll and related expenses increased as a
percentage of revenue primarily as a result of the businesses acquired in the
MAB acquisition and the 1997 Acquisitions having a higher cost structure than
that of the Company. This increase was partially offset by spreading the cost
of management and administrative personnel over a larger revenue base.

Selling, general and administrative expenses. Selling, general and
administrative expenses increased $4.0 million to $5.9 million for the three
months ended March 31, 1997 from $1.9 million for the comparable period in
1996, and increased as a percentage of revenue to 32.8% from 32.0%. Selling,
general and administrative expenses increased as a percentage of revenue
primarily as a result of the businesses acquired in the CRWCD and CMS A/R
acquisitions having a higher cost structure than that of the Company. The
Company also experienced increased costs as a result of a change in business
mix which required the increased use of national data bases and credit
reporting services.

Depreciation and amortization. Depreciation and amortization increased to
$716,000 for the three months ended March 31, 1997 from $200,000 for the
comparable period in 1996. Of this increase, $394,000 was a result of the MAB
acquisition and the 1997 Acquisitions. The remaining $122,000 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 $3,000 to $175,000 for
the three months ended March 31, 1997 from the comparable period in 1996.
Although the Company's revolving credit facility had been repaid

24
<PAGE>

with a portion of the net proceeds from the IPO, the Company borrowed $8.4
million to partially finance the 1997 Acquisitions in the three months ended
March 31, 1997. Investment income increased $76,000 to $93,000 for the three
months ended March 31, 1997 from the comparable period in 1996. This increase
was primarily attributable to the investment of funds remaining from the IPO
after repayment of outstanding debt as well as an increase in funds held in
trust for clients.

Income tax expense. Income tax expense for the three months ended March 31,
1997 was $994,000 and was computed using an assumed rate of 43.2% after giving
effect to non-deductible goodwill resulting from certain of the acquired
companies. The Company was an S Corporation as of March 31, 1996, and
accordingly, there was no provision for income taxes. The pro forma provision
for income taxes of $304,000 for the three months ended March 31, 1996 was
computed utilizing an assumed rate of 40.0% after giving effect to
non-deductible goodwill.

Net income. Net income increased to $1.3 million for the three months
ended March 31, 1997 from $456,000 for the comparable period in 1996, a 186.6%
increase.

Year Ended December 31, 1996 Compared to Year Ended December 31, 1995

Revenue. Revenue increased $18.0 million or 141.6% to $30.8 million in
1996 from $12.7 million in 1995. Of this increase, $5.0 million was
attributable to the MAB acquisition completed in September 1996, $6.8 million
was attributable to the TCD acquisition completed in January 1996, and $1.3
million was attributable to a full year of revenue from the Eastern acquisition
in 1996 versus three months in 1995. Additionally, $4.8 million of the increase
was due to internal growth from the addition of new clients and a growth in
business from existing clients. Of this internal growth, $2.9 million of the
increase was due to a full 12 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 $1.2 million to $1.5
million in 1996 from $259,000 in 1995.

Payroll and related expenses. Payroll and related expenses increased $7.9
million to $14.7 million in 1996 from $6.8 million in 1995, but decreased as a
percentage of revenue to 47.6% from 53.5%. 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 and the increased utilization of "on-line" computer services and
other outside services, as well as eliminating redundant administrative staff
following the TCD and Eastern acquisitions. These efficiencies were offset in
part by higher payroll and related expenses of MAB as a percentage of its
revenue. The effect of MAB was minimized due to only four months of the
operations of MAB being included in the income statements.

Selling, general and administrative expenses. Selling, general and
administrative expenses increased $6.0 million to $10.0 million in 1996, from
$4.0 million in 1995, and increased as a percentage of revenue to 32.6% from
31.7%. 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 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 data bases 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
$1.3 million in 1996 from $348,000 in 1995. Of this increase, $605,000 was a
result of the MAB, TCD and Eastern acquisitions. The remaining $301,000
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 $818,000 in 1996
from $180,000 in 1995, primarily due to increased borrowings associated with
the acquisitions of MAB, TCD and Eastern. Also included in other income
(expense) for 1995 was a loss from the disposal of assets of $49,000.

Pro forma provision for income taxes. The pro forma provision for income
taxes of $1.7 million and $546,000 in 1996 and 1995 respectively, was computed
using an assumed tax rate of 40.0% and giving effect to non-deductible goodwill
from certain of the acquired companies.

25
<PAGE>

Pro forma net income. Pro forma net income increased to $2.5 million in
1996 from $820,000 in 1995, a 210.0% increase.

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 had internal
growth of $2.9 million 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.

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 in 1994, 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.

Pro forma provision for income taxes. The pro forma provision for income
taxes of $546,000 and 434,000 in 1995 and 1994 respectively, was computed using
an assumed tax rate of 40.0% and giving effect to non-deductible goodwill from
certain of the acquired companies.

Pro forma net income. Pro forma net income increased to $820,000 in 1995
from $652,000 in 1994, a 25.7% increase.

26
<PAGE>
Quarterly Results

The following table sets forth selected actual historical financial data
for the calendar quarters of 1995 and 1996, and for the first calendar quarter
of 1997. 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.
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------------------------------------------------------------
1995 1996 1997
----------------------------------------- ------------------------------------------ --------
Mar. Jun. Sept. Dec. Mar. Jun. Sept. Dec. Mar.
31 30 30 31 31 30 30 31 31
-------- -------- -------- -------- -------- -------- -------- --------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue ......... $2,544 $3,002 $3,480 $3,707 $6,044 $6,499 $7,715 $10,502 $18,076
Income from
operations ...... 244 485 496 320 915 1,156 1,183 1,569 2,383
Net income ...... 227 429 460 250 760 1,001 968 906 1,307
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------------------------------------------------------------
1995 1996 1997
------------------------------------------ ------------------------------------------ -------
Mar. Jun. Sept. Dec. Mar. Jun. Sept. Dec. Mar.
31 30 30 31 31 30 30 31 31
-------- -------- --------- -------- -------- -------- --------- -------- -------
(as a percentage of revenue)
<S> <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%
Income from
operations ...... 9.6 16.2 14.3 8.6 15.1 17.8 15.3 14.9 13.2
Net income ...... 8.9 14.3 13.2 6.7 12.6 15.4 12.5 8.6 7.2
</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 Company has experienced and expects to continue to experience
quarterly variations in revenue 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 effect of the change of
business mix on margins and the timing of additional selling, general and
administrative expenses to support new business. In connection with certain
contracts, the Company could incur costs in periods prior to recognizing
revenue under those contracts. 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.

Liquidity and Capital Resources

In November 1996, the Company completed its IPO of 2,500,000 shares of its
Common Stock at a price of $13.00 per share. The net proceeds to the Company
were $28.8 million. The Company's primary sources of

27
<PAGE>

cash have historically been cash flow from operations, bank borrowings and, in
1996, the net proceeds from the IPO. Cash has been used for acquisitions,
distributions to shareholders, purchases of equipment and working capital to
support the Company's growth.

Cash provided by operating activities was $1.4 million during the three
months ended March 31, 1997, and $800,000 for the comparable period in 1996.
The increase in cash provided by operations was primarily due to the increase
in net income to $1.3 million in the three months ended March 31, 1997 compared
to $760,000 in the comparable period in 1996, and the increase in non-cash
charges, primarily depreciation and amortization, to $808,000 during the three
months ended March 31, 1997 compared to $210,000 for the comparable period in
1996. These increases were offset by a $2.0 million increase in accounts
receivable in the three months ended March 31, 1997 compared to a $811,000
increase in the comparable period in 1996 and a $254,000 decrease in accounts
payable and accrued expenses in the three months ended March 31, 1997 compared
to a $547,000 increase in the comparable period in 1996. Approximately $1.0
million of accounts payable and accrued expenses in acquired companies were
reduced in order to bring the balances in line with NCO's payment policies.

Cash provided by operating activities was $2.9 million in 1996 and $2.0
million in 1995. The increase in cash provided by operations was primarily due
to the increase in net income to $3.6 million in 1996 compared to $1.4 million
in 1995, and the increase in non-cash charges, primarily depreciation and
amortization, to $1.3 million in 1996 compared to $348,000 in 1995. These
increases were offset by a $1.8 million increase in accounts receivable in 1996
compared to a $572,000 increase in 1995 and a $222,000 increase in accounts
payable and accrued expenses in 1996 compared to an $858,000 increase in 1995.

Cash used in investing activities was $15.9 million during the first
quarter of 1997 compared to $4.8 million for the comparable period in 1996. The
increase was primarily due to the 1997 Acquisitions during the first quarter of
1997 versus the acquisition of TCD during the first quarter of 1996. In
February 1997, NCO purchased substantially all of the assets of CRWCD for $3.75
million in cash, 345,178 shares of Common Stock and warrants for 250,000 shares
of Common Stock. In January 1997, the Company purchased substantially all of
the assets of CMS A/R for $5.1 million in cash, certain assets of TRC for $1.6
million in cash and all of the outstanding stock of Goodyear for $4.5 million
in cash and a $900,000 Convertible Note. The Note is convertible into an
aggregate of 42,503 shares of Common Stock at any time and bears interest
payable monthly at a rate of 8.0% per annum with principal due in January 2002.
The Company financed the cash portion of the purchase price for the 1997
Acquisitions with borrowings of $7.4 million under its Credit Agreement and
financed the balance with proceeds of its IPO and existing working capital.
During March 1997, the Company borrowed an additional $1.0 million under the
Credit Agreement to pay certain accounts payable assumed as part of the CRWCD
acquisition. In addition, the Company has accrued $1.6 million of acquisition
related expenses. The 1997 Acquisitions collectively resulted in goodwill of
$21.0 million.

Cash used in investing activities was $13.5 million in 1996 compared to
$2.0 million in 1995. The increase was primarily due to the acquisitions of MAB
and TCD in 1996. In September 1996, the Company purchased all the outstanding
stock of MAB for $8.0 million in 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 of $13.00 per share, and bears interest payable monthly at a rate of 8.0%
per annum. In January 1996, the Company purchased all the assets of TCD for
$4.8 million in cash. 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. The Company financed the cash portion of these acquisitions with bank
borrowings. These acquisitions collectively resulted in goodwill of $14.2
million.

In addition to equipment financed under operating leases, capital
expenditures were $298,000, $976,000 and $312,000 in 1995, 1996 and the first
three months of 1997, respectively.

Cash provided by financing activities was $8.2 million during the three
months ended March 31, 1997 compared to $4.6 million for the comparable period
in 1996. Cash provided by financing activities was $21.8 million in 1996
compared to $280,000 in 1995. Bank borrowings had been the Company's primary
source of cash from financing activities and were used for acquisitions and,
along with cash provided by operations, for

28
<PAGE>

distributions to shareholders. The Company raised net proceeds of approximately
$28.8 million in the IPO of which $15.0 million was used to repay outstanding
indebtedness under the Credit Agreement and approximately $3.2 million was used
to pay undistributed S Corporation earnings. Total distributions to
shareholders were $4.1 million in 1996 and $1.1 million in 1995.

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 subsequently increased to
$15.0 million in September 1996, to be utilized for working capital and
strategic acquisitions. Subsequent to the IPO, Mellon Bank, N.A. increased the
revolving credit facility to $25.0 million and decreased the rate of interest
to 2.5% over LIBOR. Mellon Bank, N.A. has committed to reduce the interest rate
to 1.5% over LIBOR upon the completion of the Offering. Outstanding borrowings
under the Credit Agreement at March 31, 1997 and December 31, 1996 and 1995
were $8.4 million, $0 and $2.4 million, respectively. 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, among other things, capital
expenditures and distributions to shareholders.

In connection with entering into the original 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. In connection with the increase of the line of credit available
under the Credit Agreement in September 1996 and December 1996, the Company
recorded deferred charges of $261,000 primarily relating to bank charges and
legal fees. In addition, the Company issued additional warrants to the bank for
an aggregate of 65,060 shares of Common Stock exercisable at $13.00 per share.
The warrants have been capitalized on the balance sheet as a deferred charge
and are being amortized over the four-year life of the credit facility. All the
warrants are currently exercisable.

The Company believes that funds generated from operations, together with
existing cash, the net proceeds from the Offering and available borrowings
under its Credit Agreement will be sufficient to finance its current operations
and planned capital expenditure requirements and internal growth at least
through June 30, 1998. 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.

Recently Issued Accounting Standard

In March 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128 "Earnings Per Share." This
Statement establishes standards for computing and presenting earnings per share
("EPS") and applies to entities with publicly held common stock or potential
common stock. This Statement is effective for financial statements issued for
periods ending after December 15, 1997; earlier application is not permitted.
This Statement requires restatement of all prior-period EPS data presented. The
Company is currently evaluating the impact, if any, adoption of SFAS No. 128
will have on its financial statements.

29
<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. The Company provides these services
on a national basis from its 18 call centers located in 15 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
completed eight acquisitions, including four in the first quarter of 1997,
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 10 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
Health Maintenance Organizations (HMOs) and Preferred Provider Organizations
(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 $84.3 billion in 1995. The
leading market segments within the overall accounts receivable management market
are healthcare financial services, telecommunications and utilities which
represented approximately 35%, 22%, 12% and 9%, respectively, or an aggregate of
78%, of total industry referrals in 1995.

The accounts receivable management industry is highly fragmented. Based on
information obtained from the ACA, there are 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

30
<PAGE>

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

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 enables the Company to rapidly and efficiently
integrate acquisitions. For example, in the MAB acquisition, the Company was
able to reduce the workforce by approximately 16% while maintaining the same
revenue base. In the CRWCD acquisition, the Company has been able to reduce the
workforce by approximately 17%, to date. 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, payroll 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 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 continuing to make
strategic acquisitions. Through selected acquisitions, the Company will seek to
serve new geographic markets or industries, expand its presence in its existing
vertical markets and add complementary service applications. For example, the
acquisitions of CRWCD, Goodyear and CMS A/R allowed the Company to market its
services nationwide and expand its penetration of the commercial collections
market. 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.

31
<PAGE>

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
sectors. These sectors 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 sectors and commercial accounts receivable
management, in which it can leverage its accumulated business expertise and
call center infrastructure.

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. Additionally, through the CMS
A/R acquisition, the Company expanded into early stage accounts receivable
management services and expanded into telephone-based market research through
the acquisition of TRC. 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 continue 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 282 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

32
<PAGE>

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.

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 generally are
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 and Market Research. The Company provides telemarketing
services for clients, including lead generation and qualification and the
actual booking of appointments for a client's sales representatives. As a
result of the TRC acquisition, the Company also provides market research and
data collection services.

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.

33
<PAGE>

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 engaged by
United Healthcare Corporation, 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.

NCO provides its accounts receivable management services through the
operation of 18 state-of-the-art call centers which are electronically linked
through a national, wide area network. The Company utilizes two computer
platform systems. One system consists of two Unix-based NCR 3455 computers
which are linked via network servers to 583 workstations and 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 other
system consists of three Unix-based Hewlett-Packard computers which are linked
via network servers to 754 workstations. The computers are linked via network
servers to the Company's 1,337 workstations, which consist of personal
computers and terminals that are linked to the microcomputers but do not have
separate processors.

The Company utilizes predictive dialers 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 a 15 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.

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<PAGE>

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 7,000 companies in the
financial services, government, education, healthcare, retail and commercial,
telecommunications and utilities sectors. The Company's 10 largest clients in
1996 accounted for approximately 22.7% of the Company's revenue on a pro forma
basis assuming that the MAB acquisition and the 1997 Acquisitions had occurred
on January 1, 1996. In 1996, no client accounted for more than 10% of total
revenue (no more than 5% on a pro forma basis). In 1996, the Company on a pro
forma basis derived 32.2% of its referrals from financial institutions, 19.3%
from government entities, 17.1% from educational organizations, 11.8% from
healthcare organizations, 8.3% from retail and commercial entities, 6.1% from
telecommunications companies and 5.2% from utilities.

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

<TABLE>
<CAPTION>
Financial Services Education Healthcare
- ------------------------------- ------------------------------- --------------------------------
<S> <C> <C> <C>
First Union Corporation California Student Aid Catholic Health Initiatives
Mellon Bank Corporation Commission Hutchinson Hospital Corporation
NationsBank Corporation Penn State University Kaiser Permanente
The Progressive Corporation Pennsylvania Higher Education Medical Center of Delaware
United Healthcare Corporation Assistance Agency Reimbursement Technologies Inc.
Seton Hall University
University of Pennsylvania
</TABLE>

<TABLE>
<CAPTION>
Government and Utilities Telecommunications Retail and Commercial
- ------------------------------- --------------------------- -----------------------------
<S> <C> <C>
Commonwealth Edison Company Bell Atlantic Corporation Airborne Freight Corporation
Massachusetts Department of BellSouth Corporation Emery Worldwide
Revenue Frontier Cellular Federal Express Corporation
New York State Electric & Gas MCI Communications The Bon Ton Stores, Inc.
Corporation Corporation
PECO Energy Company Sprint Corporation
Water Revenue Bureau,
City of Philadelphia
</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
prospective and existing clients. The Company's sales effort consists of a 44
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.

35
<PAGE>

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.

As of May 31, 1997, the Company had a total of 1,180 full-time employees
and 255 part-time employees, of which 1,094 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, Equifax Inc., Outsourcing
Solutions Inc., The 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, 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

36
<PAGE>

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.

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 currently operates 19 leased facilities. The Company intends
to close or consolidate certain offices acquired in the 1997 Acquisitions. The
chart below summarizes the Company's current call center facilities:

Approximate
Location of Facility Square Footage
------------------------ ---------------
Blue Bell, PA(1) 36,500
Fort Washington, PA(1) 82,000
Tucson, AZ 1,400
San Diego, CA 3,200
Aurora, CO 4,800
Honolulu, HI 2,900
Hutchinson, KS 900
Wichita, KS 10,000
Metairie, LA 6,900
Beltsville, MD(2) 4,700
Crofton, MD(2) 12,000
Jackson, MI 12,200
Charlotte, NC 15,000
Buffalo, NY 30,000
Cleveland, OH 7,000
Tulsa, OK 13,900
Philadelphia, PA 5,700
Philadelphia, PA 5,500
Columbia, SC 10,500
Richardson, TX 6,100

- ------------
(1) The Company's headquarters will be relocated from Blue Bell, PA to Fort
Washington, PA effective July 7, 1997.

(2) Locations will be consolidated and relocated to a new facility during the
second half of 1997.

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<PAGE>

The leases of these facilities expire between 1997 and 2009, 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; Little Rock,
Arkansas; Boston, Massachusetts; Las Vegas, Nevada; Jericho, New York; Houston,
McAllen and Waco, Texas.

The Company leases its corporate headquarters and processing facility in
Blue Bell, Pennsylvania from three limited partnerships of which Messrs.
Barrist, Piola and Miller and Mr. Barrist's mother are limited partners and Mr.
Barrist is the sole shareholder of the corporate general partners. In July
1997, the Company will terminate its leases of the Blue Bell facilities
(without penalty) and will relocate such offices to an 82,000 square foot
facility located in Fort Washington, Pennsylvania leased from a limited
partnership of which J. Brian O'Neill is a partner. Mr. O'Neill is a principal
shareholder, Chairman of the Board and Chief Executive Officer, of CRW
Financial, Inc., which owns 8.1% of the Company's Common Stock prior to this
Offering as a result of the CRWCD acquisition. See "Management -- Certain
Transactions -- Leases" and "Principal and Selling Shareholders."

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.

38
<PAGE>

MANAGEMENT

Directors, Executive Officers and Key Employees

The following table sets forth certain information concerning the
Company's directors, executive officers and key employees:

<TABLE>
<CAPTION>
Name Age Position
- ----------------------------- ----- ----------------------------------------------------------
<S> <C> <C>
Michael J. Barrist ......... 36 Chairman of the Board, President and Chief
Executive Officer
Charles C. Piola, Jr. ...... 50 Executive Vice President and Director
Bernard R. Miller ......... 49 Senior Vice President, Development and Director
Steven L. Winokur ......... 37 Vice President, Finance, Chief Financial Officer
and Treasurer
Joseph C. McGowan ......... 43 Co-Chief Operating Officer of NCO Financial Systems, Inc.
Michael G. Noah ............ 51 Co-Chief Operating Officer of NCO Financial Systems, Inc.
Stephen Elliott ............ 35 Vice President, Technology and Chief Information
Officer
Steven Leckerman ............ 45 Vice President, Collection Operations
Eric S. Siegel ............ 40 Director
Allen F. Wise ............... 54 Director
</TABLE>

Michael J. Barrist has served as Chairman of the Board, President and
Chief Executive Officer of the Company 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 the Company, 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 founding it in 1980.

Steven L. Winokur joined the Company in December 1995 as Vice President,
Finance, Chief Financial Officer and Treasurer. 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
and became Co-Chief Operating Officer of NCO Financial Systems, Inc., the
Company's wholly owned subsidiary, in February 1997. Prior to that, Mr.
McGowan was Assistant Manager of the Collections Department at Philadelphia Gas
Works, a public utility, since 1975.

Michael G. Noah has been President of MAB since May 1994. He became
Co-Chief Operating Officer of NCO Financial Systems, Inc., the Company's wholly
owned subsidiary, in February 1997. Prior to joining MAB, he was an Executive
Vice President of Everest National Bank, a subsidiary of GE Capital, since
August 1991.

39
<PAGE>

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.

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 was appointed to the Board of Directors of the Company in
December 1996. 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 was appointed to the Board of Directors of the Company in
December 1996. Mr. Wise has been a director and Chief Executive Officer of
Coventry Corporation, a managed care company, since 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

Following completion of the Company's initial public offering in the
fourth quarter of 1996, the Board of Directors was reorganized by increasing
the number of directors from three to five, appointing Eric S. Siegel and Allen
F. Wise as outside directors to fill the vacancies created by the increase and
dividing the Board into three classes. Class I consists of Mr. Michael J.
Barrist, whose term will expire at the 1997 Annual Meeting of Shareholders;
Class II consists of Messrs. Bernard R. Miller and Allen F. Wise, whose terms
will expire at the 1998 Annual Meeting of Shareholders; and Class III consists
of Messrs. Charles C. Piola and Eric S. 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.

Audit Committee. The Board of Directors has established an Audit
Committee, consisting of Messrs. Siegel and Wise, to 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 Board of Directors has established a
Compensation Committee, consisting of Messrs. Barrist, Siegel and Wise, to 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; and take such other actions as may be required in
connection with the Company's compensation and incentive plans.

Director Compensation

Each director of the Company who is not also an employee receives an
annual fee of $5,000 and a fee of $500 for each meeting of the Board or any
committee of the Board attended, plus reimbursement of expenses incurred in
attending meetings.

Non-employee directors receive stock options pursuant to the Company's
1996 Non-Employee Director Stock Option Plan and all directors, including
non-employee directors, are eligible to participate in the Company's 1996 Stock
Option Plan. See "-- Stock Option Plans."

40
<PAGE>

Executive Compensation

Summary Compensation Table. The following table sets forth the
compensation earned by the Chief Executive Officer and the four 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 1996.

SUMMARY COMPENSATION TABLE

Long-Term
Compensation
Awards (1)
Annual Compensation -------------
------------------------------- Securities
Name and Underlying All Other
Principal Position Year Salary ($) Bonus ($) Options (#) Compensation ($)(2)
- ------------------------------------- ------ ------------ ---------------- ------------- --------------------
<S> <C> <C> <C> <C> <C>
Michael J. Barrist .................. 1996 $208,653 $ 53,862(3) -- $5,957
Chairman of the Board, President and 1995 200,000 242,641 -- 5,993
Chief Executive Officer

Charles C. Piola, Jr. ............... 1996 202,884 33,333(3) -- 16,413
Executive Vice President and 1995 200,000 135,714 -- 15,835
Director

Bernard R. Miller .................. 1996 136,730 26,448(3) 50,000 7,926
Senior Vice President, Development 1995 130,000 21,645 -- 5,955
and Director

Steven L. Winokur .................. 1996 149,422 35,000 31,201 --
Vice President, Finance, Chief 1995 -- -- 33,257 --
Financial Officer and Treasurer

Joseph C. McGowan .................. 1996 117,000 18,000 41,600 3,664
Co-Chief Operating Officer (4) 1995 100,000 30,000 44,344 5,088
</TABLE>

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

(1) The Company did not grant any restricted stock awards or stock appreciation
rights during 1995 or 1996.

(2) For 1996, consists of premiums for disability policies paid by the Company
of $3,582, $14,038, $6,217, $0, and $1,989 and the Company matching
contribution under the 401(k) Profit Sharing Plan of $2,375, $2,375,
$1,709, $0 and $1,675 for the benefit of Messrs. Barrist, Piola, Miller,
Winokur and McGowan, respectively.

(3) These bonus amounts represent the bonuses earned by the respective officers
from September 3, 1996, the date of the Company's termination of its
status as an S Corporation under the Internal Revenue Code of 1986, as
amended, until December 31, 1996 pursuant to bonus arrangements contained
in their respective employment agreements. No bonus was paid to these
executive officers (who were also shareholders) for the period while the
Corporation was an S Corporation in 1996. If the bonus arrangements had
been in effect for the entire year, the bonus amounts for 1996 for Messrs.
Barrist, Piola and Miller would have been $161,587, $100,000 and $79,343,
respectively.

(4) Mr. McGowan became Co-Chief Operating Officer of NCO Financial Systems, Inc.
in 1997.

41
<PAGE>

1996 Option Grants Table. The following table sets forth certain
information concerning stock options granted during 1996 to each of the Named
Executive Officers.

OPTION GRANTS IN 1996

<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 ......... 50,000(2) 17.1% $ 17.00 12/18/06 $534,560 $1,354,681
Steven L. Winokur ......... 31,201(3) 10.6% 13.00 10/17/06 255,088 646,443
Joseph C. McGowan ......... 41,600(3) 14.2% 13.00 10/17/06 340,106 861,896
</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
10-year option term at annualized rates of 5% and 10%, respectively, and
the exercise price of the option. The rates of appreciation used in this
table are prescribed by regulation of the SEC and are not intended to
forecast future appreciation of the market value of the Common Stock.

(2) These options were granted on 12/18/96 at the fair market value of the
Common Stock on the date of grant and become exercisable in three equal
annual installments beginning one year after the date of grant.

(3) These options were granted on 10/17/96 at the initial public offering price
of the Common Stock and become exercisable in three equal annual
installments beginning one year after the date of grant.

Aggregated Option Exercises in 1996 and 1996 Year-End Option Values
Table. No stock options were exercised in 1996. The following table sets forth
certain information concerning the number of unexercised options and the value
of unexercised options at December 31, 1996 held by each of the Named Executive
Officers.

AGGREGATED OPTION EXERCISES IN 1996 AND 1996 YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Shares Unexercised Options at In-the-Money Options at
Acquired Value December 31, 1996 December 31, 1996(1)
Name on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
- --------------------------- ------------- ---------- --------------------------------- --------------------------
<S> <C> <C> <C> <C>
Michael J. Barrist ...... -- -- --/-- --/--
Charles C. Piola, Jr. ... -- -- --/-- --/--
Bernard R. Miller ......... -- -- --/50,000 --/$0
Steven L. Winokur ......... -- -- 11,086/53,373 $156,811/$434,513
Joseph C. McGowan ......... -- -- 14,781/71,163 $209,077/$579,369
</TABLE>

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

(1) Represents the difference between the last sale price of the Common Stock
on December 31, 1996 ($16.875 per share), as reported on the Nasdaq
National Market, and the exercise price of in-the-money options,
multiplied by the number of exercisable or unexercisable options held, as
the case may be.

42
<PAGE>

Employment Agreements

In September 1996, the Company entered into five-year employment
agreements with Messrs. Barrist, Piola, Miller, Winokur and McGowan pursuant to
which they are entitled to receive annual base salaries of $275,000, $225,000,
$150,000, $150,000, and $125,000, 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. Mr. Miller is
entitled to a bonus equal to .00375 of the annualized revenue resulting from
companies acquired during the preceding year, subject to a maximum bonus of
$100,000. Messrs. Winokur and McGowan 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 1996 Plan was amended by the Board in January 1997 and the
Director Plan was amended by the Board in April 1997, in each case subject to
shareholder approval at the 1997 Annual Meeting of Shareholders to be held on
June 23, 1997. 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
under the 1995 Plan and the 1996 Plan. These Plans are administered by the
Compensation Committee of the Board of Directors or, at the option of the Board
of Directors, the Board may administer the 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 modify 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 478,281 shares of
Common Stock for issuance upon the exercise of options granted under the 1996
Plan, which includes an increase of 259,868 shares of Common Stock, which
increase is subject to shareholder approval in connection with the amendment of
the 1996 Plan. Options to purchase an aggregate of 566,971 shares of Common
Stock have been issued under the 1995 Plan and the 1996 Plan, including options
to purchase 126,839 shares subject to shareholder approval in connection with
the amendment of 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

43
<PAGE>

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. No individual may receive
options under the 1995 Plan or the 1996 Plan for more than 90% of the total
number of shares of the Company's Common Stock authorized for issuance under
such Plans.

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 100,000 shares of Common Stock for issuance upon
the exercise of options under the Director Plan, which includes an increase of
75,742 shares of Common Stock which increase is subject to shareholder approval
in connection with the amendment of the Director Plan. Options granted under
the Director Plan are not incentive stock options under Section 422 of the
Code. Under the Director Plan, as amended, each person who was a non-employee
director as of the date of the approval of the amendments by the Board and each
person who thereafter is first elected or appointed to serve as a non-employee
director of the Company automatically would be granted an option to purchase
10,000 shares of Common Stock and automatically would be granted an option to
purchase 2,000 shares of Common Stock at each annual meeting of shareholders
thereafter (beginning with the 1997 Annual Meeting of Shareholders) provided
that such person is re-elected or continues to serve as a non-employee
director. Each of Messrs. Siegel and Wise was granted an option to purchase
1,000 shares of Common Stock at an exercise price of $18.125 per share upon
their appointment to the Board of Directors in December 1996. As a result of
the amendments to the Director Plan, and subject to shareholder approval, each
of Messrs. Siegel and Wise received a grant of an option to purchase 10,000
shares of Common Stock in April 1997 at an exercise price of $25.00 per share
and will be granted an option to purchase 2,000 shares immediately following
the 1997 Annual Meeting of Shareholders at the fair market value of the Common
Stock on the date of grant.

Compensation Committee Interlocks and Insider Participation in Compensation
Decisions

Prior to the completion of the Company's IPO, the Company did not have a
Compensation Committee and compensation decisions were made by the Board of
Directors, consisting of Messrs. Barrist, Piola and Miller, each of whom is
also an executive officer of the Company. In December, the Board appointed
Messrs. Siegel and Wise to the Board and established a Compensation Committee
consisting of Messrs. Barrist, Siegel and Wise.

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 Messrs. Barrist, Piola, Miller and Mr.
Barrist's mother, except that, in certain partnerships, an unaffiliated person
is also a limited partner. Under the facilities leases, the Com-

44
<PAGE>

pany paid the limited partnerships owned by the persons named above
approximately $297,500, $385,217, $489,926 and $151,101 for the years ended
December 31, 1994, 1995, 1996 and the three months ended March 31, 1997,
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.

The Company 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, 1995 and 1996 was $64,000,
$100,000 and $249,820, respectively. These amounts were repaid in June 1996.

In July 1997, the Company will terminate its leases of the Blue Bell
facilities and will relocate such offices to a 82,000 square foot facility
located in Fort Washington, Pennsylvania leased from a limited partnership of
which J. Brian O'Neill is a partner. Mr. O'Neill is a principal shareholder,
and the Chairman of the Board and Chief Executive Officer, of CRW Financial,
Inc., which owns 8.1% of the Company's Common Stock as a result of the
Company's acquisition of CRWCD. The lease term is 12 years beginning on July 1,
1997. The annual rental for the first five years of the lease is $1.1 million
and the Company is responsible for the payment of operating expenses, taxes and
insurance.

The Company believes that the terms of the leases described above are no
less favorable to the Company than would have been obtained from unaffiliated
parties. See "Business -- Facilities" and Note 11 of Notes to Consolidated
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.

S Corporation Distributions

On the Termination Date, the Company terminated its status as an S
Corporation. In connection therewith, the Company declared a distribution to
the then existing shareholders in an amount equal to the Company's
undistributed S Corporation earnings as of such date, and paid such
distributions with a portion of the proceeds of its IPO including distributions
of $1,815,042, $1,015,193, $170,508 and $246,108 to Messrs. Barrist, Piola and
Miller, and Mrs. Annette Barrist, respectively.

Distribution and Tax Indemnification Agreement

In 1996, the Company entered into a distribution and tax indemnification
agreement with its shareholders as of the Termination Date which provided for:
(i) the payment of the estimated S Corporation distribution described above;
(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 such
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 such shareholders of the
Company for the amount of any tax refund received by such 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 such shareholders with respect to the S
Corporation Period in excess of such shareholder's share of taxable income of
the Company for the S Corporation Period.

Loan to Bernard R. Miller

In 1995, the Company loaned $135,888 to Bernard R. Miller, Senior Vice
President of Development and a director of the Company, 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 acquisition
of BRM, a company which was principally owned by Mr. Miller. This loan was
repaid in May 1996.

45
<PAGE>

Professional Services

The Company paid consulting fees of $40,000 to Siegel Management Company
in 1996. The Company also paid a fee to Siegel Management Company of $240,000
after the consummation of its IPO for various consulting and advisory services
rendered to the Company in connection with such public offering. Eric S. Siegel
is a director of the Company and is the President and owner of Siegel
Management Company. In connection with such consulting services, in 1996 Mr.
Siegel also received options to purchase 11,086 shares of Common Stock under
the Company's 1995 Stock Option Plan at an exercise price of $13.00 per share.

46
<PAGE>

PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of June 9, 1997, and as
adjusted to reflect the sale of the shares of Common Stock offered hereby by:
(i) each Selling Shareholder; (ii) each person known by the Company to own
beneficially more than 5% of the Company's outstanding Common Stock; (iii) each
of the Company's directors; (iv) each of the Named Executive Officers; and (v)
the Company's 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>
Shares Beneficially
Owned Shares Beneficially Owned
Prior to the Offering After the Offering
----------------------- Shares Being --------------------------
Name of Beneficial Owner Number Percent Offered Number Percent
- -------------------------------------- ----------- --------- -------------- ----------- --------
<S> <C> <C> <C> <C> <C>
APT Holdings Corporation (1) ......... 240,591 3.3% 150,000 90,591 1.1%
Annette H. Barrist (2) ............... 231,501 3.3 34,725 196,776 2.3
Joshua Gindin, Esq. and Michael J.
Barrist, Trustees, U/A/T dated
10/16/96, Annette H. Barrist,
Settlor ........................... 60,192 * 9,029 51,163 *
Michael J. Barrist (3)(4) ............ 2,302,650 32.6 246,350 2,056,300 24.1
Joshua Gindin, Esq. and Steven
Winokur, CPA, Trustees, U/A/T
dated 9/6/96, Michael J. Barrist
and Natalie Barrist, Settlors ...... 140,518 2.0 21,078 119,440 1.4
Canisius College(5) .................. 3,077 * 3,077 -- --
Craig Costanzo (5) .................. 73,846 1.0 73,846 -- --
CRW Financial, Inc. (6) ............ 595,178 8.1 345,178 250,000 2.8
Stephen Elliott (7) .................. 14,781 * 7,196 7,585 *
Steven Leckerman (7) ............... 7,390 * 7,196 194 *
Mark Macrone (7) ..................... 22,172 * 10,044 12,128 *
Joseph C. McGowan (7) ............... 29,563 * 14,392 15,171 *
Bernard R. Miller .................. 191,934 2.7 37,790 154,144 1.8
Charles C. Piola, Jr.(3)(8) ......... 1,062,827 15.1 107,283 955,544 11.2
Joshua Gindin, Esq., Trustee U/A/T
dated 9/6/96, Charles C. Piola,
Jr. and June Piola, Settlors ...... 140,518 2.0 21,078 119,440 1.4
Eric S. Siegel (9) .................. 5,695 * -- 5,695 *
Steven L. Winokur (10) ............... 162,689 2.3 32,570 130,119 1.5
Allen F. Wise ........................ -- -- -- -- --
All directors and executive officers
as a group (8 persons) (11) ......... 3,755,358 52.8 438,385 3,316,973 38.7
</TABLE>

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

(1) Represents shares issuable upon the exercise of warrants originally issued
to Mellon Bank, N.A. and subsequently assigned to APT Holdings
Corporation, an affiliate.

(2) 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.

(3) The address of such person is c/o NCO Group, Inc., 1740 Walton Road, Blue
Bell, Pennsylvania 19422-0987; effective July 7, 1997 the address of such
person is c/o NCO Group, Inc., 515 Pennsylvania Avenue, Fort Washington,
Pennsylvania 19034.

(4) Includes: (i) 231,501 shares of Common Stock owned by Mrs. Annette Barrist
(including 34,725 shares being sold by her in the Offering) 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.
Annette Barrist's family (including 9,029 shares being sold by such trust)
for which Mr. Barrist is a co-trustee. Excludes 140,518

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<PAGE>

shares held in trust for the benefit of Mr. Barrist's child, as to which
Mr. Barrist disclaims beneficial ownership. Mrs. Annette Barrist is the
mother of Michael J. Barrist. In the event that the Underwriters' over-
allotment option is exercised in full, Mr. Barrist would sell an additional
221,246 shares and would beneficially own 21.5% of the outstanding Common
Stock after the Offering.

(5) Represents shares issuable upon conversion of a $1.0 million Convertible
Note issued as partial consideration in the MAB acquisition. Canisius
College is a transferee of a portion of such Convertible Note.

(6) Represents 345,178 outstanding shares and 250,000 shares issuable upon
exercise of a warrant issued as partial consideration in the CRWCD
acquisition. The address of CRW Financial, Inc. is 443 South Gulph Road,
King of Prussia, PA 19406.

(7) Represents shares issuable upon the exercise of options which are
exercisable within 60 days after June 9, 1997. Such person will exercise
options to acquire all of the shares being sold by him in the Offering.

(8) Excludes 140,518 shares held in trust for the benefit of Mr. Piola's
children, as to which Mr. Piola disclaims beneficial ownership. In the
event that the Underwriters' over-allotment option is exercised in full,
Mr. Piola would sell an additional 117,154 shares and would beneficially
own 9.8% of the outstanding Common Stock after the Offering.

(9) Includes 3,695 shares issuable upon the exercise of options which are
exercisable within 60 days after June 9, 1997.

(10) Represents: (i) 140,518 shares held in trust for the benefit of Mr.
Barrist's child (including 21,078 shares being sold by such trust) for
which Mr. Winokur is a co-trustee; and (ii) 22,171 shares issuable upon
the exercise of options which are exercisable within 60 days after June 9,
1997. Mr. Winokur will exercise options to acquire all of the shares being
sold by him in the Offering.

(11) Includes: (i) 231,501 shares of Common Stock owned by Mrs. Annette Barrist
(including 34,725 shares being sold by her in the Offering) 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. Annette
Barrist's family (including 9,029 shares being sold by such trust) 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 Mr. Winokur is a co-trustee;
and (iv) an aggregate of 55,429 shares issuable upon exercise of options
which are exercisable within 60 days after June 9, 1997. Excludes 140,518
shares held in trust for the benefit of Mr. Piola's children. In the event
that the Underwriters' over-allotment option is exercised in full, the
directors and executive officers as a group would sell an additional
338,400 shares and would beneficially own 34.8% of the outstanding Common
Stock after the Offering.

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<PAGE>

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 June 9, 1997,
7,058,625 shares of Common Stock were issued and outstanding and held of record
by 29 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 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 Notes

The Company issued a warrant (the "First Mellon Warrant") to purchase
175,531 shares of Common Stock to Mellon Bank, N.A. pursuant to the Company's
Credit Agreement. The First Mellon Warrant is exercisable at any time prior to
July 31, 2005 at a nominal exercise price. The Company issued a warrant (the
"Second Mellon Warrant") to purchase an additional 46,560 shares of Common
Stock to Mellon Bank, N.A. upon the amendment of the Credit Agreement. The
First Mellon Warrant and the Second Mellon Warrant were subsequently assigned
to APT Holdings Corporation, an affiliate of Mellon Bank, N.A. The Company
issued an additional warrant (the "Third Mellon Warrant") to APT Holdings
Corporation to purchase 18,500 shares of Common Stock in consideration of the
increase in the revolving credit facility to $25.0 million. The Second Mellon
Warrant and the Third Mellon Warrant each have an exercise price of $13.00 per
share and expire on July 31, 2005. The number of shares of Common Stock which
may be acquired upon exercise of the First Mellon Warrant, Second

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<PAGE>

Mellon Warrant and Third Mellon 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 APT Holdings Corporation 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. APT Holdings Corporation has elected to exercise the First Mellon
Warrant for 150,000 shares of Common Stock and to have the Company register the
shares of Common Stock received upon exercise for sale in the Offering. APT
Holdings Corporation will continue to have demand and piggyback registration
rights with respect to the unexercised Warrants for 90,591 shares of Common
Stock upon completion of the Offering.

As part of the purchase price for the MAB acquisition, the Company issued
a $1.0 million Convertible Note which is convertible into 76,923 shares of
Common Stock at any time prior to maturity in September 2001 (the "MAB
Convertible Note"). As part of the purchase price for the Goodyear acquisition,
the Company issued a $900,000 Convertible Note which is convertible into 42,503
shares of Common Stock at any time prior to maturity in January 2002. Whenever
the Company proposes to register any securities under the Securities Act and
the form of registration statement to be used permits registration of the
shares of Common Stock issuable upon conversion of the Convertible Notes, the
Company is required to give prompt notice to the holders of the Convertible
Notes who, at their expense, shall have the right to include the shares of
Common Stock issuable upon conversion of the Convertible Notes in such
registration. The holder of the MAB Convertible Note has elected to convert the
principal amount of the Note into 76,923 shares of Common Stock and to have the
Company register the shares received upon conversion for sale in the Offering.

As part of the purchase price for the CRWCD acquisition, the Company
issued a warrant to purchase 250,000 shares of Common Stock at an exercise
price of $27.625 per share. In connection with the CRWCD Acquisition, the
Company entered into a Registration Rights Agreement granting CRW Financial,
Inc. and its transferees, among other things, 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
February 1, 2002, the Company is required to give notice to CRW Financial, Inc.
of the proposed registration and to include its 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 CRW Financial, Inc. 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. CRW Financial, Inc. may also
require the Company to file one registration statement under the Securities Act
with respect to such shares at any time after November 13, 1997. The Company is
required to pay all registration expenses (other than underwriting discounts,
the fees and expenses of the CRW Holders' counsel, and a proportionate share of
any registration and filing fees with respect to such shares). CRW Financial,
Inc. has elected to sell the 345,178 shares received as partial consideration
for the CRWCD acquisition in the Offering pursuant to application registration
rights under the Registration Rights Agreement.

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

50
<PAGE>

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 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.

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<PAGE>

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 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 ChaseMellon
Shareholder Services, L.L.C., New York, New York.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this Offering the Company will have an aggregate of
8,535,868 shares of Common Stock outstanding. Of these shares, the 2,256,000
shares of Common Stock sold in this Offering will be, and the 2,875,000 shares
sold in the IPO are, 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 3,404,868 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 one year, 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 85,358 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 two 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 Company's directors, executive officers and the Selling Shareholders
have agreed, subject to certain limitations, not to offer, sell or otherwise
dispose of any shares of Common Stock for a period of 90 days after the closing
of the Offering without the prior written consent of Montgomery Securities.
Following the expiration of this 90-day period, such directors, executive
officers and Selling Shareholders will hold an aggregate of 3,406,868
outstanding shares of Common Stock (3,068,468 shares if the over-allotment
option is exercised in full) which may be resold under Rule 144. Upon
completion of the Offering, the Company also will continue to have outstanding
warrants to purchase an aggregate of 90,591 shares of Common Stock exercisable
at any time on or before July 31, 2005, a $900,000 Convertible Note convertible
into 42,503 shares of Common Stock at any time on or before January 22, 2002
and a warrant to purchase 250,000 shares of Common Stock exercisable at any
time on or before January 31, 2002. The holders of the warrants, in their
capacity as Selling Shareholders, and the holder of the Convertible Note, have
agreed, subject to certain limitations, not to offer, sell or otherwise dispose
of any shares of Common Stock issuable upon exercise of the warrants or
conversion of the Con-

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<PAGE>

vertible Note for a period of 90 days after the closing of the Offering without
the prior written consent of Montgomery Securities. The holders of the warrants
will continue to be entitled to certain demand and piggy- back registration
rights and the holder of the Convertible Note will continue to be entitled to
certain piggyback registration rights following completion of the Offering. In
addition, the Company intends, as soon as practicable after the completion of
the Offering, to register approximately 749,680 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 538,651 shares of Common Stock will continue to be outstanding
under all such Plans upon the completion of the Offering.

The Company's Common Stock has been traded on the Nasdaq National Market
since November 1996. 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.

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<PAGE>

UNDERWRITING

The Underwriters named below (the "Underwriters") 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 and the Selling Shareholders
the number of shares of Common Stock indicated below opposite their respective
names, at the 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
Underwriter Shares
----------- ---------
Montgomery Securities ..................
Janney Montgomery Scott Inc ............
The Robinson-Humphrey Company, Inc ...... ---------
Total ................................. 2,256,000
=========

The Underwriters have advised the Company and the Selling Shareholders
that the Underwriters propose 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 $ per share; and the
Underwriters may allow, and such dealers may reallow, a concession of not more
than $ per share to certain other dealers. After the public offering, the
public offering price and other selling terms may be changed by the
Underwriters. 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.

Certain of 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 338,400 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 3,406,868 outstanding
shares of Common Stock, have agreed that for a period of 90 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 or
securities exchangeable or exercisable or convertible into shares of Common
Stock held by them. 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 90 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 holders of the
warrants issued by the Company, in their capacity as Selling Shareholders, and
the holder of the $900,000 Convertible Note issued in the Goodyear acquisition,
have also agreed not to offer, sell or otherwise dispose of any shares of Common
Stock issuable upon exercise of the warrants or conversion of the Convertible
Note for a period of 90 days after the closing of the Offering without the prior
written consent of Montgomery Securities. In evaluating any request for a waiver
of the 90-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."

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<PAGE>

Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters
and certain selling group members to bid for and purchase the Common Stock. As
an exception to these rules, the Underwriters are permitted to engage in
certain transactions that stabilize the price of the Common Stock. Such
transactions consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of the Common Stock.

If the Underwriters create a short position in the Common Stock in
connection with the offering, i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the Underwriters may
reduce that short position by purchasing Common Stock in the open market. The
underwriters may also elect to reduce any short position by exercising all or
part of the over-allotment option described above.

The Underwriters may also impose a penalty bid on certain selling group
members. This means that if the Underwriters purchase shares of Common Stock in
the open market to reduce the Underwriters' short position or to stabilize the
price of the Common Stock, they may reclaim the amount of the selling
concession from the selling group members who sold those shares as part of the
Offering.

In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security. Neither the Company nor any of the
Underwriters makes any representation or predictions as to the direction or
magnitude of any effect that the transactions described above may have on the
price of the Common Stock. In addition, neither the Company nor any of the
Underwriters makes any representation that the Underwriters will engage in such
transactions or that such transactions, once commenced, will not be
discontinued without notice.

The public offering price of the Common Stock will be determined by
negotiations among the Underwriters and the Company, and will be based largely
upon the market price for the Common Stock as reported on the Nasdaq National
Market.

LEGAL MATTERS

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

The balance sheet of CRWCD at December 31, 1996 and the related statements
of operations, Division equity and cash flows for the two years in the period
ended December 31, 1996 included in this Prospectus and elsewhere in the
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said report.

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

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<PAGE>

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 qualified in its entirety by such reference.

The Company is subject to the information requirements of the Securities
and Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports and other information with the Securities and Exchange
Commission. 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.

The Registration Statement, including the exhibits and schedules thereto,
and any reports and information filed by the Company 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.

56
<PAGE>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S> <C>
NCO Group, Inc.
Pro Forma Consolidated Financial Statements:
Basis of Presentation .................................................................. F-2
Pro Forma Consolidated Statement of Income for the year ended December 31, 1996 ......... F-3
Pro Forma Consolidated Statement of Income for the three months ended March 31, 1997 ... F-4
Notes to Pro Forma Consolidated Financial Statements .................................... F-5
Historical Financial Statements:
Report of Independent Accountants ...................................................... F-7
Consolidated Balance Sheets as of December 31, 1995 and 1996 and March 31, 1997
(Unaudited) ............................................................................ F-8
Consolidated Statements of Income for each of the three years in the period ended
December 31, 1996 and the three months ended March 31, 1996 and 1997 (Unaudited)....... F-9
Consolidated Statements of Shareholders' Equity for each of the three years in the
period ended December 31, 1996 and the three months ended March 31, 1996 and
1997 (Unaudited) ...................................................................... F-10
Consolidated Statements of Cash Flows for each of the three years in the period ended
December 31, 1996 and the three months ended March 31, 1996 and 1997 (Unaudited)........ F-11
Notes to Consolidated Financial Statements ............................................. F-12
The Collection Division of CRW Financial, Inc.
Report of Independent Accountants ...................................................... F-23
Balance Sheet as of December 31, 1996 ................................................... F-24
Statements of Operations for the years ended December 31, 1995 and 1996 ............... F-25
Statements of Division Equity for the years ended December 31, 1995 and 1996 ............ F-26
Statements of Cash Flows for the years ended December 31, 1995 and 1996 ............... F-27
Notes to Financial Statements ......................................................... F-28
Management Adjustment Bureau, Inc.
Report of Independent Accountants ...................................................... F-31
Balance Sheets as of December 31, 1994 and 1995 and as of June 30, 1996 ............... F-32
Statements of Income and Retained Earnings for the three year period ending December 31,
1995 and the six months ended June 30, 1996 ......................................... F-33
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-34
Notes to Financial Statements ......................................................... F-35
</TABLE>

F-1
<PAGE>

Pro Forma Consolidated Financial Statements

Basis of Presentation

The Pro Forma Consolidated Statements of Income for the year ended
December 31, 1996 and the three months ended March 31, 1997 are based on the
historical financial statements of NCO Group, Inc. ("NCO" or the "Company"),
Management Adjustment Bureau, Inc. ("MAB"), Goodyear & Associates, Inc.
("Goodyear"), CMS A/R Services ("CMS A/R"), Tele-Research Center, Inc. ("TRC")
and the Collection Division of CRW Financial, Inc. ("CRWCD"). The Pro Forma
Consolidated Statements of Income for the year ended December 31, 1996 and the
three months ended March 31, 1997 have been prepared assuming the MAB
acquisition occurred on January 1, 1996, and the Goodyear, CMS A/R, TRC and
CRWCD acquisitions occurred on January 1, 1996 and January 1, 1997,
respectively. The Pro Forma Consolidated Statement of Income for the year ended
December 31, 1996 reflects the issuance of 1,604,620 shares of Common Stock at
the initial public offering price of $13.00 per share which, net of the
underwriting discount and offering expenses paid by the Company, was sufficient
to repay acquisition related debt of $15.0 million, and to fund the
distribution of undistributed S Corporation earnings of $3.2 million through
September 3, 1996, the termination date of the Company's S Corporation status,
to existing shareholders of the Company. The Pro Forma Consolidated Statements
of Income for the year ended December 31, 1996 and the three months ended March
31, 1997 reflect the issuance of: (i) 345,178 shares of Common Stock and a
warrant to purchase 250,000 shares of Common Stock in connection with the
acquisition of CRWCD and (ii) 305,886 shares of Common Stock at the assumed
public offering price of $32.00 per share which, net of the estimated
underwriting discount and offering expenses payable by the Company, would be
sufficient to repay acquisition related debt of $8.4 million.

The Pro Forma Consolidated Statements of Income 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
Goodyear, CMS A/R, TRC and CRWCD are preliminary and the final allocations may
differ from the amounts reflected herein. The unaudited Pro Forma Consolidated
Statements of Income 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 Statement of Income
for the year ended December 31, 1996
(Unaudited)

<TABLE>
<CAPTION>
Historical
--------------------------------------------------------------------------------------
NCO MAB(1) Goodyear(2) CMS A/R(3) TRC(4) CRWCD(5)
------------- ------------ ------------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Revenue .............................. $30,760,452 $9,162,744 $5,454,500 $6,790,849 $1,917,607 $25,857,862
Operating costs and expenses:
Payroll and related expenses ......... 14,651,384 5,870,416 3,339,926 2,933,754 1,139,791 14,967,000

Selling, general and
administrative expenses ........... 10,032,216 3,255,089 1,619,526 2,927,587 633,426 10,970,256
Depreciation and amortization
expense .......................... 1,253,867 337,295 169,322 295,021 11,341 1,305,000
----------- ---------- ---------- ---------- ---------- -----------
Total operating costs and
expenses ......................... 25,937,467 9,462,800 5,128,774 6,156,362 1,784,558 27,242,256
----------- ---------- ---------- ---------- ---------- -----------
Income (loss) from operations ...... 4,822,985 (300,056) 325,726 634,487 133,049 (1,384,394)
Other income (expense):
Interest and investment income ..... 242,380 1,636 20,473
Interest expense .................... (817,951) (50,974) (27,253) (66,193) (75) (8,000)
----------- ---------- ---------- ---------- ---------- -----------
(575,571) (50,974) (25,617) (45,720) (75) (8,000)
----------- ---------- ---------- ---------- ---------- -----------
Income (loss) before provision for
income taxes ....................... 4,247,414 (351,030) 300,109 588,767 132,974 (1,392,394)
Income tax expense .................. 612,748 83,924 117,000 207,104 (509,000)
----------- ---------- ---------- ---------- ---------- -----------
Net income (loss) .................. $ 3,634,666 $ (434,954) $ 183,109 $ 381,663 $ 132,974 $ (883,394)
=========== ========== ========== ========== ========== ===========
Historical income before income
taxes ............................. $ 4,247,414
Pro forma provision for income
taxes .............................. 1,706,485
-----------
Pro forma net income ............... $ 2,540,929
===========
Pro forma net income per share ...... $ 0.50
===========
Pro forma weighted average shares
outstanding ....................... 5,086,736
===========
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Acquisition Pro Forma Offering
Adjustments Consolidated Adjustments Pro Forma
----------------------- ------------------- ------------------ --------------------
<S> <C> <C> <C> <C>
Revenue .............................. $ 79,944,014 $ 79,944,014
Operating costs and expenses:
Payroll and related expenses ......... $ (376,175)(6) 40,208,406 40,208,406
(543,200)(7)
(451,400)(9)
(84,000)(10)
(122,000)(11)
(1,117,090)(12)
Selling, general and
administrative expenses ............ (649,112)(13) 28,788,988(8) 28,788,988
Depreciation and amortization
expense ........................... (328,538)(14) 3,043,308 3,043,308
-------------- -------------- ----------- -------------
Total operating costs and
expenses ........................... (3,671,515) 72,040,702 72,040,702
-------------- -------------- -------------
Income (loss) from operations ...... 3,671,515 7,903,312 7,903,312
Other income (expense):
Interest and investment income ...... 264,489 264,489
Interest expense ..................... 59,470(15) (910,976) 648,692(15) (262,284)
-------------- -------------- ----------- -------------
59,470 (646,487) 648,692 2,205
-------------- -------------- ----------- -------------
Income (loss) before provision for
income taxes ........................ 3,730,985 7,256,825 648,692 7,905,517
Income tax expense .................. 511,776 511,776
-------------- ----------- -------------
Net income (loss) .................. $ 3,730,985 $ 6,745,049 $ 648,692 $ 7,393,741
============== ============== =========== =============
Historical income before income
taxes .............................. $ 7,256,825 $ 7,905,517
Pro forma provision for income
taxes .............................. 3,114,868 3,374,345(16)
-------------- -------------
Pro forma net income ............... $ 4,141,957 $ 4,531,172
============== =============
Pro forma net income per share ...... $ 0.63 $ 0.64(17)
============== =============
Pro forma weighted average shares
outstanding ........................ 6,587,838 7,045,350
============== =============
</TABLE>

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

F-3

<PAGE>

NCO GROUP, INC.

Pro Forma Consolidated Statement of Income
for the three months ended March 31, 1997
(Unaudited)

<TABLE>
<CAPTION>
Historical
---------------------------------
1997
NCO Acquisitions(18)
------------- ------------------
<S> <C> <C>
Revenue ........................... $18,076,757 $2,841,578
Operating costs and expenses:
Payroll and related expenses ...... 9,046,110 1,381,883
Selling, general and
administrative expenses ......... 5,931,574 1,159,470
Depreciation and amortization
expense ........................ 716,467 156,915
----------- ----------
Total operating costs and
expenses ..................... 15,694,151 2,698,268
----------- ----------
Income from operations ............ 2,382,606 143,310
Other income (expense):
Interest and investment income ... 93,308
Interest expense ............... (175,150) (273)
----------- ----------
(81,842) (273)
----------- ----------
Income before provision for income
taxes ........................... 2,300,764 143,037
Income tax expense ............... 993,974
----------- ----------
Net income ........................ $ 1,306,790 $ 143,037
=========== ==========
Net income per share ............ $ 0.18
===========
Weighted average shares
outstanding ..................... 7,371,157
===========
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Acquisition Pro Forma Offering
Adjustments Consolidated Adjustments Pro Forma
--------------------- ------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Revenue ........................... $20,918,335 $20,918,335
Operating costs and expenses:
Payroll and related expenses ... $ (103,258)(19) 10,324,735 10,324,735
Selling, general and
administrative expenses .......... (54,093)(20) 7,036,951 7,036,951
Depreciation and amortization
expense ........................ (27,378)(21) 846,004 846,004
------------ ----------- -----------
Total operating costs and
expenses ..................... (184,729) 18,207,690 18,207,690
------------ ----------- -----------
Income from operations ............ 184,729 2,710,645 2,710,645
Other income (expense):
Interest and investment income ... 93,308 93,308
Interest expense ............... (49,000)(22) (224,423) 165,132(24) (59,291)
------------ ----------- ----------- -----------
(49,000) (131,115) 165,132 34,017
------------ ----------- ----------- -----------
Income before provision for income
taxes ........................... 135,729 2,579,530 165,132 2,744,662
Income tax expense ............... 120,431 1,114,405 1,114,405
------------ ----------- ----------- -----------
Net income ........................ $ 15,298 $ 1,465,125 $ 165,132 $ 1,630,257
============ =========== =========== ===========
Net income per share ............ $ 0.20 $ 0.21(23)
=========== ===========
Weighted average shares
outstanding ..................... 7,432,522 7,886,151
=========== ===========
</TABLE>

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

F-4
<PAGE>
Notes to Consolidated
Pro Forma Financial Statements
(Unaudited)

1. Represents the results of operations of MAB prior to its acquisition by
the Company in September 1996.

2. Gives effect to the acquisition of Goodyear, as if it occurred on
January 1, 1996, for $4.5 million in cash and the issuance of a $900,000
Convertible Note payable to Goodyear's principal shareholder. In
addition, the Company recognized $30,000 of direct closing costs related
to the acquisition and accrued $270,000 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, the Company recognized $5,223,342 of goodwill.

3. Gives effect to the acquisition of CMS A/R, as if it occurred on January
1, 1996, for $5.1 million in cash of which $2,000,000 was borrowed from
the Company's credit facility. In addition, the Company recognized
$30,000 of direct closing costs related to the acquisition and accrued
$220,000 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, the Company
recognized $3,486,107 of goodwill.

4. Gives effect to the acquisition of TRC, as if it occurred on January 1,
1996, for $1.6 million in cash which was borrowed from the Company's
credit facility. In addition, the Company recognized $8,000 of direct
closing costs related to the acquisition and accrued $92,000 of costs
related to the acquisition. After allocating the purchase price to the
estimated fair market value of the assets acquired and liabilities
assumed, the Company recognized $1,680,000 of goodwill.

5. Gives effect to the acquisition of CRWCD, as if it occurred on January
1, 1996, for $3.8 million in cash borrowed from the Company's credit
facility, the issuance of 345,178 shares of the Common Stock, and the
issuance of a warrant to purchase 250,000 shares of Common Stock at an
exercise price of $27.625 per share. The Common Stock and warrant issued
were valued at $9,090,000. In addition, the Company recognized $195,000
of direct closing costs related to the acquisition and accrued
$1,805,000 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, the Company
recognized $12,240,000 of goodwill.

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.

7. Reflects the elimination of payroll and related expenses relating to the
elimination of certain redundant collection and administration personnel
costs immediately identifiable at the time of the acquisition of MAB.

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

9. Reflects the reduction in salary of Goodyear's principal shareholder
(who is no longer active in the day-to-day operations of Goodyear's
business), pursuant to a new employment agreement.

10. Reflects the elimination of payroll and related expenses relating to the
elimination of certain redundant administration personnel costs
immediately identifiable at the time of the acquisition of Goodyear.

11. Reflects the elimination of payroll and related expenses relating to the
elimination of certain redundant administration personnel costs
immediately identifiable at the time of the acquisition of CMS A/R.

F-5
<PAGE>
Notes to Consolidated
Pro Forma Financial Statements
(Unaudited)

12. Reflects the elimination of payroll and related expenses relating to the
elimination of certain redundant collection and administration personnel
costs immediately identifiable at the time of the acquisition of CRWCD.

13. Reflects the elimination of certain rental expenses attributable to
facilities which were immediately identified for closure or
consolidation into other existing facilities.

14. Reflects amortization expense assuming MAB and the 1997 Acquisitions had
been acquired on January 1, 1996. In addition, reflects the elimination
of depreciation and amortization expense related to assets revalued or
not acquired by NCO as part of the acquisitions.

15. Reflects the elimination of interest expense on current and long-term
debt which was not assumed with the acquisitions, or was repaid with the
proceeds of the Company's public offerings as if the repayments had
occurred on January 1, 1996.

16. Reflects estimated provision for income taxes, at an assumed rate of 40%
after giving consideration to non-deductible goodwill expenses, assuming
the Company had converted from an S Corporation to a C Corporation on
January 1, 1996.

17. Pro forma net income per share was computed by dividing the pro forma
net income for the year ended December 31, 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, 1996 to: (i) the 46.56-for-one stock split
effected in September 1996; (ii) the issuance of 1,604,620 shares of
Common Stock (at $13.00 per share) net of underwriting discount and
offering expenses paid by the Company, to result in net proceeds
sufficient to pay a $3.2 million S Corporation distribution and repay
$15,000,000 of acquisition-related debt; (iii) the issuance of 345,178
shares of Common Stock and a warrant to purchase 250,000 shares of
Common Stock in connection with the acquisition of CRWCD; (iv) and the
issuance of 305,886 shares of Common Stock at an assumed public offering
price of $32.00 per share which, net of estimated underwriting discount
and offering expenses payable by the Company, would be sufficient to
repay acquisition related debt of $8.4 million.

18. Gives effect to the 1997 Acquisitions as if they had occurred on January
1, 1997.

19. Reflects the elimination of payroll and related expenses relating to the
elimination of certain redundant administration personnel costs
immediately identifiable at the time of the acquisitions.

20. Reflects the reduction of certain redundant operating costs and expenses
that were immediately identifiable at the time of the acquisitions.

21. Reflects the increase in amortization expense as if the 1997
Acquisitions had occurred on January 1, 1997 and the elimination of
depreciation and amortization expense related to assets revalued or not
acquired by NCO as part of the acquisitions.

22. Reflects the elimination of interest expense on current and long-term
debt which was not assumed with the 1997 Acquisitions, or was repaid
with the proceeds of the Company's public offerings as if the repayments
had occurred on January 1, 1997.

23. Pro forma net income per share was computed by dividing the pro forma
net income for the three months ended March 31, 1997 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, 1997 to the issuance of 345,178 shares of Common
Stock, and a warrant to purchase 250,000 shares of Common Stock in
connection with the acquisition of CRWCD and the issuance of 305,886
shares of Common Stock at an assumed public offering price of $32.00 per
share which, net of estimated underwriting discount and offering
expenses payable by the Company, would be sufficient to repay
acquisition related debt of $8.4 million.

F-6
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

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

We have audited the accompanying consolidated balance sheets of NCO Group,
Inc. as of December 31, 1995 and 1996 and the related consolidated statements
of income, shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 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.

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 consolidated financial position of NCO Group,
Inc. as of December 31, 1995 and 1996 and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.

Coopers & Lybrand L.L.P.

2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 7, 1997

F-7
<PAGE>

NCO GROUP, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
----------------------------- March 31,
ASSETS 1995 1996 1997
------------ -------------- ------------
(Unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents ........................... $ 804,550 $ 12,058,798 $ 5,793,016
Available-for-sale securities ........................ 299,488
Accounts receivable, trade, net of allowance for
doubtful accounts of $23,200, $79,000 and
$279,000, respectively .............................. 1,402,546 4,701,364 11,122,643
Notes receivable .................................... 100,000
Other current assets ................................. 118,793 499,815 631,284
---------- ------------- ------------
Total current assets .............................. 2,725,377 17,259,977 17,546,943
---------- ------------- ------------
Funds held in trust for clients
Property and equipment, net ........................... 637,133 2,830,062 5,365,069
Other assets:
Intangibles, net of accumulated amortization ......... 2,774,894 14,673,155 37,089,886
Deferred taxes ....................................... 70,760 8,666
Deferred financing costs ........................... 279,014 684,390 653,213
Other assets ....................................... 227,826 308,011 771,766
---------- ------------- ------------
Total other assets .............................. 3,281,734 15,736,316 38,523,531
---------- ------------- ------------
Total assets .......................................... $6,644,244 $ 35,826,355 $61,435,543
========== ============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Long-term debt, current portion ..................... $ 46,171 $ 46,946 $ 52,727
Capitalized lease obligations, current portion ...... 62,131 129,048
Corporate taxes payable .............................. 216,709 1,081,382
Accounts payable .................................... 221,562 657,647 2,011,363
Accrued expenses .................................... 565,734 1,044,536 4,104,255
Accrued compensation and related expenses ............ 777,985 1,376,982 2,018,959
Unearned revenue, net of related costs ............... 302,384 225,817 153,450
---------- ------------- ------------
Total current liabilities ........................ 1,913,836 3,630,768 9,551,184
---------- ------------- ------------
Funds held in trust for clients
Long-term liabilities:
Long-term debt, net of current portion ............... 2,592,906 1,091,901 10,328,989
Capitalized lease obligations, net of current portion 385,683 403,691
Unearned revenue, net of related costs ............... 86,155 70,385 107,388
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value, 5,000,000 shares
authorized, no shares issued and outstanding ......
Common stock, no par value, 25,000,000 shares
authorized, 4,213,447, 6,713,447 and 7,058,625
shares issued and outstanding at December 31,
1995 and 1996 and March 31, 1997,
respectively ....................................... 537,326 29,362,326 37,577,206
Unexercised warrants ................................. 177,294 396,054 1,271,054
Retained earnings .................................... 1,378,261 889,238 2,196,031
Unrealized gain on securities ........................ 41,339
Notes receivable -- shareholder ..................... (82,873)
---------- ------------- ------------
Total shareholders' equity ........................ 2,051,347 30,647,618 41,044,291
---------- ------------- ------------
Total liabilities and shareholders' equity ............ $6,644,244 $ 35,826,355 $61,435,543
========== ============= ============
</TABLE>

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

F-8
<PAGE>

NCO GROUP, INC.

Consolidated Statements of Income
<TABLE>
<CAPTION>
For the Three Months Ended
For the Years Ended December 31, March 31,
-------------------------------------------- ----------------------------
1994 1995 1996 1996 1997
------------ ------------- ------------- ------------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Revenue ........................... $8,577,895 $12,732,597 $30,760,452 $6,043,960 $18,076,757
Operating costs and expenses:
Payroll and related expenses ...... 4,558,351 6,797,338 14,651,384 2,997,478 9,046,110
Selling, general and
administrative expenses ......... 2,673,521 4,042,342 10,032,216 1,931,278 5,931,574
Depreciation and amortization
expense ........................... 215,117 347,503 1,253,867 200,275 716,467
---------- ----------- ----------- ---------- -----------
Total operating costs and
expenses ........................ 7,446,989 11,187,183 25,937,467 5,129,031 15,694,151
---------- ----------- ----------- ---------- -----------
Income from operations ............ 1,130,906 1,545,414 4,822,985 914,929 2,382,606
Other income (expense):
Interest and investment income ... 26,735 49,473 242,380 17,024 93,311
Interest expense .................. (71,588) (180,205) (817,951) (172,123) (175,150)
Loss on disposal of property and
equipment ........................ (49,082)
---------- ----------- ----------- ---------- -----------
(44,853) (179,814) (575,571) (155,099) (81,839)
---------- ----------- ----------- ---------- -----------
Income before provision for
income taxes ........................ 1,086,053 1,365,600 4,247,414 759,830 2,300,767
Income tax expense .................. 612,748 993,974
---------- ----------- ----------- ---------- -----------
Net income ........................ $1,086,053 $ 1,365,600 $ 3,634,666 $ 759,830 $1,306,793
========== =========== =========== ========== ===========
Pro forma (unaudited):
Historical income before income
taxes ........................... $1,086,053 $ 1,365,600 $ 4,247,414 $ 759,830
Pro forma provision for income
taxes ........................... 434,000 546,000 1,706,485 303,932
---------- ----------- ----------- ----------
Pro forma net income ............... $ 652,053 $ 819,600 $ 2,540,929 $ 455,898
========== =========== =========== ==========
Pro forma net income per share . $ 0.17 $ 0.50 $ 0.10 $ 0.18
=========== =========== ========== ===========
Pro forma weighted average
shares outstanding ............... 4,728,906 5,086,736 4,733,549 7,371,157
=========== =========== ========== ===========
</TABLE>

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

F-9
<PAGE>

NCO GROUP, INC.

Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Common Stock
--------------------------
Number
of Unexercised
Shares Amount Warrants
----------- ------------- -------------
<S> <C> <C> <C>
Balance, January 1, 1994 ..................... 4,002,763 $ 49,326
Issuance of common stock ..................... 123,803 300,000
Net income .................................
Distributions to shareholders ...............
Change in unrealized gains on securities ...
---------- ----------- -----------

Balance, December 31, 1994 .................. 4,126,566 349,326
Issuance of common stock ..................... 86,881 188,000
Warrants issued .............................. $ 177,294
Note repayments ..............................
Net income .................................
Distributions to shareholders ...............
Change in unrealized losses on securities ...
---------- ----------- -----------

Balance, December 31, 1995 .................. 4,213,447 537,326 177,294
Issuance of common stock ..................... 2,500,000 28,825,000
Warrants issued .............................. 218,760
Note repayments ..............................
Net income .................................
Distributions to shareholders ...............
---------- ----------- -----------

Balance, December 31, 1996 .................. 6,713,447 29,362,326 396,054
Issuance of common stock for acquisitions . 345,178 8,214,880
Warrants issued .............................. 875,000
Net income ....................................
---------- ----------- -----------

Balance, March 31, 1997 (Unaudited) ......... 7,058,625 $37,577,206 $1,271,054
========== ============ ===========

<CAPTION>
Unrealized
Gains Notes
Retained (Losses) on Receivable
Earnings Securities Shareholder Total
--------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance, January 1, 1994 ..................... $ 813,366 $ 13,539 $ 876,231
Issuance of common stock ..................... 300,000
Net income ................................. 1,086,053 1,086,053
Distributions to shareholders ............... (813,366) (813,366)
Change in unrealized gains on securities ... (26,234) (26,234)
----------- ----------- ----------- -----------
Balance, December 31, 1994 .................. 1,086,053 (12,695) 1,422,684
Issuance of common stock ..................... $ (135,888) 52,112
Warrants issued .............................. 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 losses on securities ... 54,034 54,034
----------- ----------- ----------- -----------
Balance, December 31, 1995 .................. 1,378,261 41,339 (82,873) 2,051,347
Issuance of common stock ..................... 28,825,000
Warrants issued .............................. 218,760
Note repayments .............................. 82,873 82,873
Net income ................................. 3,634,666 3,634,666
Distributions to shareholders ............... (4,123,689) (41,339) (4,165,028)
----------- ----------- ----------- -----------
Balance, December 31, 1996 .................. 889,238 30,647,618
Issuance of common stock for acquisitions . 8,214,880
Warrants issued .............................. 875,000
Net income .................................... 1,306,793 1,306,793
----------- ----------- ----------- -----------
Balance, March 31, 1997 (Unaudited) ......... $ 2,196,031 $41,044,291
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.

F-10
<PAGE>

NCO GROUP, INC.

Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
1994 1995 1996
------------- --------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ............................................. $ 1,086,053 $ 1,365,600 $ 3,634,666
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation .......................................... 171,378 199,123 465,785
Loss on disposal of equipment ........................ 49,082
(Gain) Loss on sale of securities ..................... 4,421 2,877 (70,481)
Amortization of intangibles ........................... 43,739 221,813 707,050
Amortization of deferred financing costs ............... 32,443 81,031
Provision for doubtful accounts ........................ 3,903 3,808 55,845
Changes in assets and liabilities, net of acquisitions:
Accounts receivable, trade ........................... (41,675) (571,611) (1,825,307)
Notes receivable .................................... (64,000) (36,000) 155,856
Accounts receivable, purchased ........................ (44,038) 36,293 (4,755)
Other current assets ................................. 31,126 (22,241) (307,988)
Deferred taxes ....................................... (154,684)
Other assets .......................................... (40,112) (105,037) (8,903)
Accounts payable .................................... (123,094) 161,601 422,694
Corporate taxes payable .............................. 216,709
Accrued expenses .................................... (214) 187,353 (788,709)
Accrued compensation and related costs ............... 51,755 555,398 598,997
Unearned revenue .................................... 23,950 (46,718) (227,548)
----------- ----------- ------------
Net cash provided by operating activities ......... 1,103,192 2,033,784 2,950,258
Cash flows from investing activities:
Purchase of property and equipment ..................... (77,999) (298,076) (976,080)
Purchase of securities ................................. (169,785) (107,643) (78,307)
Proceeds from sales of securities ........................ 143,613 99,256 406,937
Net cash paid for acquisitions ........................... (1,000,000) (1,729,244) (12,857,223)
----------- ----------- ------------
Net cash used in investing activities ............... (1,104,171) (2,035,707) (13,504,673)
Cash flows from financing activities:
Repayment of notes payable .............................. (1,067,117) (303,138)
Borrowings under credit agreement ........................ 1,000,000 2,450,000 12,550,000
Repayment under credit agreement ........................ (222,084) (15,000,000)
Payment of fees to acquire new debt ..................... (134,163) (222,383)
Issuance of common stock ................................. 105,127 32,500,000
Costs related to issuance of common stock ............... (3,675,000)
Decrease in notes receivable, shareholders ............... 82,873
Distributions to shareholders ........................... (813,366) (1,073,392) (4,123,689)
----------- ----------- ------------
Net cash provided by (used in) financing activities (35,450) 280,455 21,808,663
----------- ----------- ------------
Net increase (decrease) in cash and cash equivalents ...... (36,429) 278,532 11,254,248
Cash and equivalents at beginning of period ............... 562,447 526,018 804,550
----------- ----------- ------------
Cash and equivalents at end of period ..................... $ 526,018 $ 804,550 $ 12,058,798
=========== =========== ============
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------
1996 1997
------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income ............................................. $ 759,830 $ 1,306,793
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation .......................................... 65,582 269,158
Loss on disposal of equipment ........................
(Gain) Loss on sale of securities .....................
Amortization of intangibles ........................... 106,898 403,975
Amortization of deferred financing costs ............... 27,795 43,334
Provision for doubtful accounts ........................ 9,982 91,828
Changes in assets and liabilities, net of acquisitions:
Accounts receivable, trade ........................... (810,920) (1,978,519)
Notes receivable .................................... 100,000
Accounts receivable, purchased ........................
Other current assets ................................. (33,887) 126,694
Deferred taxes ....................................... 39,644
Other assets .......................................... 4,563 50,568
Accounts payable .................................... 307,539 (1,073,492)
Corporate taxes payable .............................. 41,309 822,617
Accrued expenses .................................... 626,278 1,310,644
Accrued compensation and related costs ............... (387,202) 17,017
Unearned revenue .................................... (29,005) (35,364)
----------- ------------
Net cash provided by operating activities ......... 788,762 1,394,897
Cash flows from investing activities:
Purchase of property and equipment ..................... (280,391) (311,503)
Purchase of securities ................................. (16,063)
Proceeds from sales of securities ........................ 24,636
Net cash paid for acquisitions ........................... (4,515,534) (15,556,862)
----------- ------------
Net cash used in investing activities ............... (4,787,352) (15,868,365)
Cash flows from financing activities:
Repayment of notes payable .............................. (17,067) (130,157)
Borrowings under credit agreement ........................ 4,550,000 8,350,000
Repayment under credit agreement ........................
Payment of fees to acquire new debt ..................... (10,916) (12,157)
Issuance of common stock .................................
Costs related to issuance of common stock ...............
Decrease in notes receivable, shareholders ............... 82,873
Distributions to shareholders ...........................
----------- ------------
Net cash provided by (used in) financing activities 4,604,890 8,207,686
----------- ------------
Net increase (decrease) in cash and cash equivalents ...... 606,300 (6,265,782)
Cash and equivalents at beginning of period ............... 804,550 12,058,798
----------- ------------
Cash and equivalents at end of period ..................... $ 1,410,850 $ 5,793,016
=========== ============
</TABLE>

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

F-11
<PAGE>

NCO GROUP, INC.

Notes to Consolidated Financial Statements

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 organizations located
throughout the United States in the following sectors: financial services,
government, education, healthcare, retail and commercial, telecommunications,
and utilities.

Effective 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. In September
1996, the Company also effected a 46.56-for-one stock split 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.

On November 13, 1996, the Company completed its initial public offering
(the "IPO"), selling 2,875,000 shares of common stock including 375,000
over-allotment shares sold by existing shareholders. The Offering raised net
proceeds of approximately $28.8 million for the Company. A director of the
Company received compensation of $240,000 for services rendered in connection
with the IPO.

2. Summary of significant accounting policies:

Principles of Consolidation:

The consolidated financial statements include the accounts of NCO Group,
Inc. and its wholly-owned subsidiaries after elimination of significant
intercompany accounts and transactions.

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 had 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 was
taxed directly to the shareholders of the Company.

The Company terminated its S Corporation status on September 3, 1996 and
adopted Statement of Financial Accounting Standards 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 on the balance sheet. Upon termination of the S Corporation
status and adoption of SFAS No. 109, the Company recorded an estimated net
deferred tax asset. The net deferred tax asset resulted primarily from
differences in the treatment of unearned revenue and acquired account
inventory.

F-12
<PAGE>

NCO GROUP, INC.

Notes to Consolidated Financial Statements -- (Continued)

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, 1995 and 1996 and March 31, 1997, the Company had bank
deposits in excess of federally insured limits of approximately $1,276,000,
$1,045,605, and $1,052,207, respectively. The Company's cash deposits have been
placed with a large national bank to minimize risk.

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 adopted 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 report their
investments as either "held-to-maturity", "trading securities", or
"available-for-sale".

Deferred Financing Costs:

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

Intangibles:

Intangibles consists of goodwill and acquisition costs and non-compete
covenants. Goodwill represents the excess of purchase price over the fair
market value of the net assets of the acquired businesses based on their
respective fair values at the date of acquisition. Goodwill is amortized on a
straight-line basis over 15 to 25 years. The recoverability of goodwill is
periodically reviewed by the Company. Such allocation has been based on
estimates which may be revised at a later date. In making such determination
with respect to goodwill, the Company evaluates the operating results of the
underlying business which gave rise to such amount. Accumulated amortization at
December 31, 1995 and 1996, and March 31, 1997 totaled $159,676, $762,612, and
$1,140,733, respectively.

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:

Earnings per share were computed by dividing the net income (including pro
forma income taxes where applicable) for the years ended December 31, 1995 and
1996 and the three months ended March 31, 1996 and 1997 by the pro forma
weighted average number of shares outstanding. Pro forma net income amounts are
used

F-13
<PAGE>

NCO GROUP, INC.

Notes to Consolidated Financial Statements -- (Continued)

2. Summary of significant accounting policies: -- (Continued)

for the years ended December 31, 1995 and 1996 and the three months ended March
31, 1996 because the historical net income does not include the impact of
federal and state income taxes as if the Company had been subject to income
taxes. Pro forma weighted average shares outstanding are based on the weighted
average number of shares outstanding including common equivalent shares. 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 IPO price of $13.00 per share for periods prior to the IPO, only when
their effect would be dilutive. For December 31, 1995 and 1996, the pro forma
weighted average number of shares outstanding have also been adjusted to include
the number of shares of common stock (250,000 shares) that the Company would
have needed to issue at the IPO 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. Fully diluted earnings per
share are not materially different from primary earnings per share.

Interim Financial Information:

The accompanying consolidated interim financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions for Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three month
period ended March 31, 1997 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1997.

Reclassifications:

Certain amounts for December 31, 1994 and 1995 and the years then ended,
and for March 31, 1996 and the three months then ended, have been reclassified
for comparative purposes.

3. Acquisitions:

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, equipment and account inventory and resulted in
goodwill of $984,126.

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 acquired
property, equipment, and accounts receivable less notes payable and funds due
to clients which resulted in goodwill of $1,812,000.

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

F-14
<PAGE>

NCO GROUP, INC.

Notes to Consolidated Financial Statements -- (Continued)

3. Acquisitions: -- (Continued)

On September 5, 1996 the Company purchased the outstanding stock of
Management Adjustment Bureau, Inc. ("MAB") for $9,000,000 comprised of
$8,000,000 in cash and a $1,000,000 convertible note. The purchase price was
allocated based upon the estimated fair market value of acquired property,
equipment, and accounts receivable which resulted in goodwill of $8,511,000.

The following summarizes unaudited pro forma results of operations for the
years ended December 31, 1995 and 1996, assuming the above acquisitions
occurred as of the beginning of the respective periods.

1995 1996
------------- ------------
Revenue .................. $34,509,071 $39,923,196
Net income ............... 2,166,501 3,372,491
Earnings per share ...... .36 .54

On January 22, 1997, NCO purchased all of the outstanding stock of
Goodyear & Associates, Inc. ("Goodyear") for $4.5 million in cash and a
$900,000 convertible note. The note is convertible into the Company's Common
Stock, at any time, at $21.175 per share and bears interest payable monthly at
a rate of 8.0% per annum with principal due in January 2002. Goodyear, based in
Charlotte, North Carolina, provided accounts receivable management services
principally to the telecommunications, education, and utility industries.
Goodyear's revenues in 1996 were $5.5 million. This acquisition resulted in
goodwill of $5.1 million.

On January 30, 1997, NCO purchased certain assets of Tele-Research Center,
Inc. ("TRC") for $1.6 million in cash. TRC, located in Philadelphia,
Pennsylvania, provided market research, data collection, and other teleservices
to market research companies as well as end-users. TRC's revenues in 1996 were
$1.8 million. This acquisition resulted in goodwill of $1.6 million.

On January 31, 1997, NCO purchased substantially all the assets of CMS A/R
Services ("CMS A/R"), formerly a division of CMS Energy Corporation, owner of
Consumers Energy, one of the nation's largest utility companies, for $5.1
million in cash. Specializing in the utility industry, CMS A/R, located in
Jackson, Michigan, provided a wide range of accounts receivable management
services in addition to traditional recovery of delinquent accounts including
project outsourcing, early intervention, and database management services. CMS
A/R's revenues in 1996 were $6.8 million. This acquisition resulted in goodwill
of $3.5 million.

On February 2, 1997, NCO purchased substantially all the assets of the
Collection Division of CRW Financial, Inc. ("CRWCD") for $3.8 million in cash,
345,178 shares of its Common Stock and a warrant to purchase 250,000
shares of common stock. The purchase price was valued at approximately $12.8
million. CRWCD provided accounts receivable management services principally to
the telecommunications, education, financial, government and utility industries
from 14 offices located throughout the United States. In addition, CRWCD had a
commercial collections division. CRWCD's revenues in 1996 were $25.9 million.
Due to the consolidation or closing of certain CRWCD branch offices, and the
loss of certain contracts during 1996, revenue for CRWCD for 1997 is
anticipated to be 10-15% lower than the revenue shown on their historical
financial statements. This acquisition resulted in goodwill of $12.2 million.

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 $406,937 in 1996. As
of December 31, 1996, there were no gross unrealized gains or losses because
all available-for-sale securities were distributed as part of the undistributed
S Corporation earnings and all gains and losses were recognized accordingly.

F-15
<PAGE>
NCO GROUP, INC.

Notes to Consolidated Financial Statements -- (Continued)

4. Marketable securities: -- (Continued)

Proceeds from the sale of investment securities were $99,256 in 1995.
Gross unrealized gains and losses as of December 31, 1995 for
available-for-sale securities are as follows:
<TABLE>
<CAPTION>
Unrealized Unrealized
Holding Holding Fair
Cost Gain Loss Value
---------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
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
========= ========= ========= =========
</TABLE>
Investment income, included in interest and investment income on the
statement of income consisted of:
<TABLE>
<CAPTION>

For the
For the Year Ended December 31, Three Months
---------------------------------------- Ended March
1994 1995 1996 31, 1997
---------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Realized gain on the sales of securities ...... $ 11,749 $ 12,217 $ 86,509
Realized loss on the sales of securities ...... (16,170) (15,094) (12,186)
Interest income .............................. 5,142 7,035 33,577 $93,308
Dividend income .............................. 5,211 5,892 6,816
-------- -------- -------- -------
$ 5,932 $ 10,050 $114,716 $93,308
======== ======== ======== =======
</TABLE>
The fair values of marketable securities held as of December 31, 1995 by
contractual maturity are as follows: due within one year, $20,425; due after
one year but within 5 years, $10,537; due after five years but within 10 years,
$65,363. 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. There were no marketable securities held as of December
31, 1996 or March 31, 1997.

5. Funds held in trust for clients:

In the course of the Company's regular business activities as an 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 of $1,228,889, $3,835,409 and $5,832,231 at
December 31, 1995 and 1996 and March 31, 1997, respectively, have been shown
net of their offsetting liability for financial statement presentation.

6. Property and equipment:

At December 31, 1995 and 1996 and March 31, 1997, property and equipment,
at cost, consisted of the following:
<TABLE>
<CAPTION>
December 31, March 31,
-------------------------- -----------
1995 1996 1997
----------- ------------ -----------
<S> <C> <C> <C>
Computer equipment ............... $ 905,732 $2,461,211 $9,542,288
Furniture and fixtures ............ 316,312 1,095,134 1,626,429
Leased assets ..................... 324,414 262,448
--------- ----------- -----------
1,222,044 3,880,759 11,431,165
Less accumulated depreciation ...... 584,911 1,050,697 6,066,096
---------- ----------- -----------
$ 637,133 $2,830,062 $5,365,069
========== =========== ===========
</TABLE>
F-16
<PAGE>

NCO GROUP, INC.

Notes to Consolidated Financial Statements -- (Continued)

6. Property and equipment: -- (Continued)

Depreciation charged to operations amounted to $171,378, $199,123, and
$465,785 for the years ended 1994, 1995 and 1996, respectively, and $65,582,
and $269,158 for the three months ended March 31, 1996 and 1997, respectively.
The Company had not entered into any capital lease transactions for the year
ended December 31, 1995.

7. Long-term debt:
<TABLE>
<CAPTION>
December 31,
--------------------------- March 31,
1995 1996 1997
------------ ------------ --------------
<S> <C> <C> <C>
Revolving credit agreement, LIBOR plus 2.5%, due
December 2000 ............................................. $2,450,000 $ 8,350,000
Non-interest bearing note; $157,500 face amount, payable
in monthly installments of $5,250 through July 1999
(less unamortized discount based on imputed interest
rate of 10%) ............................................. 189,077 $ 138,847 131,716
Subordinated seller note payable, 8.00% due September
2001, convertible to common stock at $13.00 per share 1,000,000 1,000,000
Subordinated seller note payable, 8.00% due January
2002, convertible to common stock at $21.175 per
share ................................................... 900,000
Less current portion .................................... (46,171) (46,946) (52,727)
---------- ---------- -----------
$2,592,906 $1,091,901 $10,328,989
========== ========== ===========
</TABLE>

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

For the period ended December 31:

1997 ..................... $ 46,946
1998 ..................... 56,346
1999 ..................... 35,555
2000 ..................... -0-
2001 and thereafter ...... 1,000,000
----------
1,138,847
==========

In July 1995, the Company entered into a $7,000,000 revolving credit
agreement. The line of credit is collateralized by substantially all the assets
of the Company. 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 revolving credit agreement which consisted primarily of
bank charges, legal fees and a warrant to purchase 175,531 shares of Common
Stock. The warrants expire on July 31, 2005 and are exercisable 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 September 1996.

In September 1996, the credit agreement was increased to $15,000,000 to
provide financing for the acquisition of MAB and the bank received a warrant to
purchase 46,560 shares of Common Stock, exercisable at $13.00 per share. In
December 1996, the bank increased the credit agreement to $25,000,000 and
received a warrant to purchase an additional 18,500 shares of Common Stock,
exercisable at $13.00 per share.

F-17
<PAGE>
NCO GROUP, INC.

Notes to Consolidated Financial Statements -- (Continued)

8. Income taxes:

A summary of the components of the tax provision is as follows:
<TABLE>
<CAPTION>
Year Ended Three Months
December 31, Ended March
1996 31, 1997
-------------- -------------
<S> <C> <C>
Currently payable:
Federal .............................. $620,133 $737,844
State ................................. 147,299 213,168
Deferred:
Federal ................................. 500 33,332
State ................................. 125 9,630
--------- ---------
Provision for income taxes ............... 768,057 993,974
(excluding effect of change in tax status)
Effect of accounting change:
Federal .............................. 124,247 --
State ................................. 31,062 --
--------- ---------
Total provision ........................... $612,748 $993,974
========= =========
</TABLE>

Deferred tax assets (liabilities) consist of the following:

<TABLE>
<CAPTION>
December 31, March 31,
1996 1997
-------------- -------------
<S> <C> <C>
Amortization ........................... $ 90,083 $ 65,864
Contractual revenue recognition ......... 65,333 51,188
Accrued expenses ........................ 38,878 34,192
--------- ---------
Gross deferred tax assets ............ 194,294 151,244
Depreciation ........................... (39,610) (58,654)
Accrual basis conversion ............... (83,924) (83,924)
--------- ---------
Gross deferred tax liabilities ...... (123,534) (142,578)
--------- ---------
Net deferred tax asset ............... $ 70,760 $ 8,666
========= =========
</TABLE>

A reconciliation of the U.S. statutory income tax rate to the effective
rate (excluding the effect of the change in tax status) is as follows:
<TABLE>
<CAPTION>
Year Ended Three Months
December 31, Ended March
1996 31, 1997
-------------- -------------
<S> <C> <C>
U.S. statutory income tax rate .................. 34% 34%
Income allocable to S Corporation ............... (27%) --
Non-deductible goodwill and other expenses ...... 5% 3%
State taxes, net of federal ..................... 2% 6%
------- ---
Effective tax rate ........................... 14% 43%
======= ===
</TABLE>
9. 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

F-18
<PAGE>

NCO GROUP, INC.

Notes to Consolidated Financial Statements -- (Continued)

9. Employee benefit plans: -- (Continued)

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 $23,536, $30,027, $71,800, $7,802 and $33,659 for the year
ended December 31, 1994, 1995 and 1996, and the three months ended March 31,
1996 and 1997, respectively.

10. Supplemental cash flow information:

The following are supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
------------------------------------- -----------------------
1994 1995 1996 1996 1997
--------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Cash paid for interest ......... $71,588 $ 157,379 $ 817,950 $137,727
Cash paid for income taxes ...... 600,000 $ 181,206
Noncash investing and
financing activities:
Note receivable,
shareholder .................. 135,888
Fair value of assets
acquired ..................... 442,874 2,145,578 4,081,005 680,983
Liabilities assumed from
acquisitions .................. 127,000 416,334 2,005,749 3,400,271
Warrants issued with debt ....... 177,294 218,760
Warrants issued with
acquisitions .................. 875,000
Property acquired under
capital leases ............... 348,586
Common stock issued for
acquisitions .................. 300,000 8,214,880
Convertible note payable,
issued for acquisition ...... 1,000,000 900,000
</TABLE>

11. Leases:

The Company has entered into various office lease agreements with limited
partnerships owned by certain shareholders of the Company. In addition, the
Company has made disbursements on behalf of the limited partnerships and
recorded a note receivable of $100,000 at December 31, 1995. The notes
outstanding at December 31, 1995 were repaid during 1996.

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

The Company also leases certain equipment under non-cancelable 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, 1996:

For the year ended December 31:

1997 ............ $1,686,000
1998 ............ 1,398,000
1999 ............ 1,191,000
2000 ............ 1,088,000
2001 ............ 727,000
Thereafter ...... 476,000
-----------
$6,566,000
===========

F-19
<PAGE>
NCO GROUP, INC.

Notes to Consolidated Financial Statements -- (Continued)

11. Leases: -- (Continued)

Rent expense was $305,308, $463,916, $1,073,914, $228,497 and $561,268 for
the years ended December 31, 1994, 1995, and 1996, and the three months ended
March 31, 1996 and 1997, respectively. The related party office lease expense
was $297,500, $385,217, $489,926, $151,101 and $135,194 for the years ended
December 31, 1994, 1995, and 1996, and the three months ended March 31, 1996
and 1997, respectively, 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.

12. Stock options:

In June 1995, the Company adopted the 1995 Stock Option Plan (the "1995
Plan"). In September 1996, the Company adopted 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"). 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. The 1995 plan
authorized 221,719 shares of the Company's common stock to be issued as either
incentive or non-qualified stock options. The 1996 Plan authorized 218,413
shares of the Company's common stock to be issued as either incentive or
non-qualified stock options and the Director Plan authorized 24,258 shares of
the Company's common stock to be issued as non-qualified stock options. In
January 1997, the Board amended the 1996 Plan, subject to shareholder approval,
to increase the number of shares of Common Stock authorized under that Plan by
259,868 shares to a total of 478,281 shares. In April 1997, the Board amended
the Director Plan to, among other things, increase the number of shares of
Common Stock authorized under that plan by 75,742 shares to a total of 100,000
shares. The maximum exercise period is ten years after the date of grant. A
summary of stock option activity since inception of the Plans is as follows:
<TABLE>
<CAPTION>
Weighted Weighted
Average Number of Average
Number of Option Price Shares Exercise Price
Options Per Share Exercisable Per share
----------- -------------- ------------- ---------------
<S> <C> <C> <C> <C>
Outstanding at January 1, 1995
Granted ..................... 144,057 $ 2.73 48,039 $2.73
-------- ------- ------- ------
Outstanding at December 31, 1995
(all at $2.73).................. 144,057 2.73 48,039 2.73
Granted ..................... 294,914 13.88
-------- ------- ------ ------
Outstanding at December 31, 1996
(at $2.73 to $17.00) ......... 438,971 $10.20 48,039 $2.73
Forfeitures .................. 250 17.00
Granted ........................ 149,600 24.86
-------- ------- ------ ------
Outstanding at March 31, 1997
(at $2.73 to $25.00) ......... 588,321 $10.20 48,039 $2.73
======== ======= ======= ======
</TABLE>

Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards SFAS No. 123, "Accounting for Stock-Based Compensation".
In accordance with the provisions of SFAS 123, the Company applies APB Opinion
25 and related interpretations in accounting for its stock option plans and,
accordingly, does not recognize compensation cost based on the fair value of
the options granted at grant date. If the Company had elected to recognize
compensation cost based on the fair value of the options granted at grant date
in accordance with provisions of SFAS 123, net income and earnings per share
for 1995 and 1996 would have been reduced to the unaudited pro forma amounts
indicated in the following table:

F-20
<PAGE>
NCO GROUP, INC.

Notes to Consolidated Financial Statements -- (Continued)

12. Stock options: -- (Continued)
1995 1996
---------- -----------
Net income -- as reported .................. $819,600 $2,540,929
Net income -- pro forma .................... $812,022 $2,483,138
Earnings per share -- as reported ............ $ .17 .50
Earnings per share -- pro forma .............. $ .17 .49

The estimated weighted-average grant-date fair value of the options
granted during the year ended December 31, 1996 was $4.35, and the
weighted-average remaining contractual life of options outstanding at December
31, 1996 was 9.3 years. All options granted were at the market price of the
stock on the grant date. For valuation purposes, the Company utilized the
Black-Scholes option pricing model and assumed a weighted average risk-free
interest rate of 6.32%, a weighted average expected life of 3.25 years, a
weighted average 32.16% volatility factor, no expected dividends and a
forfeiture rate of 5% over the vesting period.

As part of the purchase price for the 1994 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 1996.

13. Fair value of financial instruments:

The following methods and assumptions were used to estimate the fair value
of each class of financial instrument for which it is practicable to estimate
that value:

Cash and Cash Equivalents: The carrying amount reported in the balance
sheet approximates fair value because of the short maturity of these
instruments.

Marketable Securities: Available-for-sale securities consisted of debt and
equity securities. Fair values are based on quoted market prices.

Debt: The Company's non-seller-financed debt is primarily variable in
nature and based on the prime rate, and accordingly, the carrying amount of
debt instruments approximates fair value. Seller-financed debt contains a
conversion option which allows the seller to convert the debt into shares of
common stock at a price of $13.00 per share. Valuation of the subordinated note
assumes a required rate of return of 13.25%. For valuation of the option to
convert the note into 76,923 shares of Common Stock, the Company utilized the
Black-Scholes option pricing model and assumed a risk-free interest rate of
6.48%, an expected life of three years, a 35.00% volatility factor and no
expected dividends.

The estimated fair value of the Company's financial instruments are as
follows at December 31:
<TABLE>
<CAPTION>
1995 1996
------------------------- ----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents ............... $ 804,550 $ 804,550 $12,058,798 $12,058,798
Available-for-sale securities ......... 299,488 299,488
Financial Liabilities:
Non-interest bearing note payable ...... 189,077 189,077 138,847 138,847
Revolving credit agreement ............ 2,450,000 2,450,000
Subordinated seller note payable ...... 1,000,000 1,491,016
</TABLE>

14. Quarterly Financial Information (unaudited):

The following table sets forth selected actual unaudited historical
financial data for the calendar quarters of 1995, 1996 and the three months
ended March 31, 1997. This quarterly information is unaudited but has been

F-21
<PAGE>

NCO GROUP, INC.

Notes to Consolidated Financial Statements -- (Continued)

14. Quarterly Financial Information (unaudited): -- (Continued)

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 and 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.
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------------------------------------
1995 1996 1997
--------------------------------------- --------------------------------------- --------
Mar. Jun. Sept. Dec. Mar. Jun. Sept. Dec. Mar.
31 30 30 31 31 30 30 31 31
-------- --------- -------- -------- -------- -------- -------- --------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue ..................... $2,544 $ 3,002 $3,480 $3,707 $6,044 $6,499 $7,715 $10,502 $18,077
Income from operations ...... 244 485 496 320 915 1,156 1,183 1,569 2,383
Net income .................. 227 429 460 250 760 1,001 968 906 1,307
</TABLE>

15. 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, result of operations or cash flows of the Company.

16. Other Recent Accounting Pronouncements:

In March 1995, the FASB issued Statement of Financial Accounting Standards
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. 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.

F-22
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To CRW Financial, Inc.:

We have audited the accompanying balance sheet of the Collection Division of
CRW Financial, Inc. (a Delaware Corporation) as of December 31, 1996, and the
related statements of operations, Division equity and cash flows for each of
the two years in the period ended December 31, 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 the Collection Division of CRW
Financial, Inc. as of December 31, 1996, and the results of its operations and
its cash flows for each of the two years in the period ended December 31, 1996,
in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Philadelphia, Pa.,
April 17, 1997

F-23
<PAGE>

CRW FINANCIAL, INC.

COLLECTION DIVISION OF CRW FINANCIAL, INC.

BALANCE SHEET--AS OF DECEMBER 31, 1996

<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash ......................................................... $ 1,448,000
Cash held for clients ....................................... 2,729,000
Accounts receivable, net of allowance for doubtful accounts of
$127,000 ................................................... 2,527,000
Other current assets ....................................... 153,000
------------
Total current assets ....................................... 6,857,000
------------
Property and Equipment, net ................................. 2,591,000
Intangible Assets, net ....................................... 4,392,000
Other Assets ................................................ 475,000
------------
$14,315,000
============
LIABILITIES AND DIVISION EQUITY
Current Liabilities:
Collections due to clients ................................. $ 2,729,000
Current portion of long-term debt ........................... 111,000
Accounts payable ............................................. 1,784,000
Accrued interest ............................................. 1,494,000
Due to CRW Financial, Inc. ................................. 2,927,000
------------
Total current liabilities ................................. 9,045,000
------------
Long-Term Debt ................................................ 79,000
------------
Commitments and Contingencies, (Note 6)
Division Equity ............................................. 5,191,000
------------
$14,315,000
============
</TABLE>

The accompanying notes are an integral part of these statements.

F-24
<PAGE>

CRW FINANCIAL, INC.

COLLECTION DIVISION OF CRW FINANCIAL, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1995 1996
------------- ---------------
<S> <C> <C>
NET REVENUES ................................. $28,742,000 $25,858,000

OPERATING EXPENSES:
Compensation and payroll taxes ............... 14,933,000 14,967,000
Telephone .................................... 2,528,000 2,745,000
Occupancy .................................... 1,994,000 2,113,000
Postage and printing ........................ 2,019,000 2,052,000
Other operating costs ........................ 5,259,000 4,060,000
Depreciation ................................. 741,000 928,000
Amortization of intangible assets ............ 686,000 377,000
----------- -----------
Operating income (loss) ..................... 582,000 (1,384,000)

INTEREST EXPENSE .............................. (12,000) (8,000)
----------- -----------
INCOME (LOSS) BEFORE INCOME TAX BENEFIT ...... 570,000 (1,392,000)
INCOME TAX BENEFIT ........................... -- (509,000)
----------- -----------
NET INCOME (LOSS) ........................... $ 570,000 (883,000)
=========== ===========
</TABLE>

The accompanying notes are an integral part of these statements.

F-25
<PAGE>

CRW FINANCIAL, INC.

COLLECTION DIVISION OF CRW FINANCIAL, INC.

STATEMENTS OF DIVISION EQUITY

BALANCE, DECEMBER 31, 1994 ...... $ 5,504,000
Net income ..................... 570,000
-----------
BALANCE, DECEMBER 31, 1995 ...... 6,074,000
Net loss ........................ (883,000)
-----------
BALANCE, DECEMBER 31, 1996 ...... $ 5,191,000
===========

The accompanying notes are an integral part of these statements.

F-26
<PAGE>

CRW FINANCIAL, INC.

COLLECTION DIVISION OF CRW FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1995 1996
--------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ................................................ 570,000 (883,000)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities-
Bad debt provision ............................................. -- 46,000
Depreciation and amortization ................................. 1,427,000 1,305,000
Changes in operating assets and liabilities-
Accounts receivable .......................................... 266,000 260,000
Prepaid and other current assets .............................. (65,000) 245,000
Accounts payable ............................................. 306,000 (707,000)
Accrued expenses ............................................. (1,282,000) 384,000
Due to CRW Financial, Inc. .................................... 1,436,000 (115,000)
Other liabilities ............................................. (308,000) (11,000)
----------- -----------
Net cash provided by operating activities .................. 2,350,000 524,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment .............................. (1,447,000) (246,000)
----------- -----------
Net cash used in investing activities ........................ (1,447,000) (246,000)
----------- -----------
CASH FLOWS FROM FINANCIAL ACTIVITIES:
Repayment of long-term debt .................................... (129,000) (140,000)
----------- -----------
Net cash used in financing activities ........................ (129,000) (140,000)
----------- -----------
NET INCREASE IN CASH ............................................. 774,000 138,000
CASH, BEGINNING OF PERIOD ....................................... 536,000 1,310,000
----------- -----------
CASH, END OF PERIOD ............................................. $ 1,310,000 $ 1,448,000
=========== ===========
</TABLE>

The accompanying notes are an integral part of these statements.

F-27
<PAGE>
CRW Financial, Inc.
Collection Division of CRW Financial, Inc.
Notes to Financial Statements

1. Background:
The Collection Division of CRW Financial, Inc. (the "Division") performs
receivables management, administration and debt collection services for clients
primarily in the health care, student loan, credit card and utility industries,
and to commercial clients. CRW Financial, Inc. ("CRW") was a subsidiary of
Casino & Credit Services, Inc. ("CCS") prior to May 11, 1995, and its
operations were a division of CCS from July 1992 to May 11, 1995 when CCS
contributed all of its assets and subsidiaries, other than Central Credit, Inc.
("CCI"), to a newly formed subsidiary, CRW Financial, Inc. CCS then spun-off
CRW Financial, Inc. in a distribution of CRW Financial, Inc. stock to CCS
Shareholders on May 11, 1995.

2. Sale of Division:
On February 2, 1997, CRW sold the assets of the Division to NCO Group,
Inc. ("NCO") for $3,750,000 in cash and 345,178 shares of NCO Common stock and
a warrant to purchase 250,000 shares of NCO Common stock at $27.625 per share
and the assumption of certain liabilities. The NCO Common stock and warrant
have been valued at $9,050,000.

3. Summaries of Significant Accounting Policies:

Use of Estimates in Preparation of Financial Statements

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect 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.

Revenue Recognition

Collection fees are recorded as revenue upon collection of amounts owed by
the debtor on behalf of the client. These fees are either billed to the client
upon the Division's remittance of the amount collected to the client or are
retained by the Division through a net remittance to the client.

Property and Equipment

Property and equipment are stated at cost. The Division provides for
depreciation on a straight-line basis over estimated useful lives of three to
five years. Leasehold improvements are amortized over the lease term. Property
and equipment, for continuing operations, consist of the following:
<TABLE>
<CAPTION>
December 31,
1996
-------------
<S> <C>
Data processing, telecommunications equipment and software ...... 6,058,000
Machinery and office equipment ................................. 600,000
Furniture and fixtures .......................................... 423,000
Leasehold improvements .......................................... 155,000
-----------
7,236,000
Less -- Accumulated depreciation ................................. (4,645,000)
-----------
$ 2,591,000
===========
</TABLE>
December 31,
Intangible Assets Life 1996
- ------------------ ----------- ------------
Goodwill, net of accumulated amortization of
$902,000 .................................... 15 years 4,021,000
Noncompete agreements, net of accumulated
amortization of $1,869,000 .................. 3-5 years 371,000
-----------
$4,392,000
===========

F-28
<PAGE>

CRW Financial, Inc.
Collection Division of CRW Financial, Inc.
Notes to Financial Statements -- (Continued)

3. Summaries of Significant Accounting Policies: -- (Continued)

The Division determines impairments to goodwill and other intangibles
based upon management's estimates of undiscounted future cash flows over the
remaining useful life of the intangible asset. If the amount of such estimated
undiscounted future cash flows is less than the net book value of the related
intangible asset, the intangible asset is written down to the amount of the
estimated discounted cash flows. No such write-down of intangible assets was
made in 1995 or 1996.

Income Taxes

The Division accounts for income taxes in accordance with Statement of
Financial Accounting Standard No. 109, "Accounting for Income Taxes" (SFAS No.
109). Under SFAS No. 109, deferred income tax assets and liabilities are
determined based on differences between the financial reporting and income tax
basis of assets and liabilities measured using enacted income tax rates and
laws that are expected to be in effect when the differences reverse.

Statement of Cash Flows

For the years ended December 31, 1995 and 1996, the Division paid interest
expense of $12,000 and $8,000, respectively. The Division did not pay any
income taxes for the years ended December 31, 1995 and 1996.

Investments in RTC Partnerships

In January 1994, CRW entered into two partnerships with the Resolution
Trust Corporation ("RTC") in which the Division is a general partner owning
approximately 37.5% and the RTC is a limited partner. The Division accounts for
these partnerships under the equity method. The Division has contributed
approximately $143,000 of capital to the partnerships and has been retained by
the partnerships as a collection agent for which it is paid a percentage of
collections as a fee. The Division records such contingent fee revenue upon
receipt of payment from the partnership. Revenues paid by the partnership to
the Division in 1995 and 1996 were approximately $1,018,000, and $1,058,000,
respectively. Included in other assets as of December 31, 1996 is the $143,000
of capital contributions made by the Division to the partnerships and the
Division's share of the partnership's undistributed earnings of approximately
$10,000.

4. Debt:

In February 1994, the Division entered into a Note for the purchase of
certain computer equipment. The Note is for a term of 60 months and requires
monthly payments of principal and interest of $6,260, through January 1999. The
Note is collateralized by the equipment underlying the Note. At December 31,
1996, the remaining obligation under this Note was $154,000.

In August 1994, the Division entered into a note payable to purchase
certain equipment. The Note bears interest at 10.5% and is payable in monthly
installments, including principal and interest, of $5,414, through August 1997.
The Note is collateralized by the equipment underlying the Note. At December
31, 1996, the remaining obligation under this Note was $36,000.

Future obligations under the notes discussed above, are as follows:

1997 $111,000
1998 73,000
1999 6,000
---------
$190,000
=========

5. Income Taxes:

The results of operations of the Division are included in the consolidated
Federal and state income tax returns of CRW. Deferred income taxes result from
temporary differences between tax and financial accounting recognition of
income and expense. The principal temporary differences are depreciation and
certain accruals and reserves not deductible for tax purposes.

F-29
<PAGE>

CRW Financial, Inc.
Collection Division of CRW Financial, Inc.
Notes to Financial Statements -- (Continued)

5. Income Taxes: -- (Continued)

In 1996, the net income tax benefit has been calculated by multiplying
CRW's Federal effective income tax rate by the Division's pre-tax loss. CRW's
federal effective rate was zero in 1995, therefore, the Division did not record
any income taxes.

Federal and state income taxes are payable by CRW. Therefore, the
Division's portion of these assets have been netted against the due to CRW
Financial, Inc. balance on the accompanying balance sheet. At December 31,
1996, the Division's portion of CRW's deferred tax asset amounted to $73,000.

6. Commitments and Contingencies:

The Division has noncancellable operating lease, including the
related-party leases discussed in Note 7, for its office facilities,
automobiles and certain office equipment. Rent expense under leases was
$1,299,000 in 1995 and $1,209,000 in 1996. The future minimum lease payments
under leases at December 31, 1996 are as follows:

1997 $1,264,000
1998 879,000
1999 671,000
2000 594,000
2001 365,000
-----------
$3,773,000
===========

The Division is party to a number of lawsuits arising in the ordinary
course of business. In the opinion of management, the ultimate resolution of
these lawsuits will not have a material impact on the Division's financial
position, liquidity or results of operations.

7. Related-Party Transactions:

CRW leases an aggregate of 13,000 square feet from a partnership
controlled by the Chief Executive Officer of CRW. The lease requires CRW to
make monthly payments of $23,478 through December 31, 2001. In connection with
the sale of the Division to NCO (discussed in Note 3), NCO has subleased this
facility through July 31, 1997. In addition, CRW leases an aggregate of 22,000
square feet in King of Prussia from a second partnership which is also
controlled by the Chief Executive Officer of CRW. This lease requires monthly
base rent payments of $28,875 through April 1, 2005. CRW allocates a portion of
the rent expense associated with these facilities to the Division.

In addition to rent expense on facilities, certain other costs are
allocated by CRW to the Division for overhead, data processing, employee
benefits, etc. The net effect of intercompany transactions is reflected in the
due to CRW Financial, Inc. balance on the accompanying balance sheet. At
December 31, 1996, the obligation to CRW totaled $2,927,000 and is non-interest
bearing. This obligation has no defined repayment terms.

8. Major Customers:

Net revenues from the California Student Aid Commission were $4,220,000
and $3,619,000 in 1995 and 1996, respectively.

F-30
<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-31
<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-32
<PAGE>

Management Adjustment Bureau, Inc.
Statements of Income and Retained Earnings

For the Years Ended For the
December 31, Six Months
---------------------------------------------- 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-33
<PAGE>

Management Adjustment Bureau, Inc.
Statements of Cash Flows

For the Years Ended For the Six
December 31, Months Ended
--------------------------------------- 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
========= ========= ========= ==========
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-34
<PAGE>

Management Adjustment Bureau, Inc.

Notes to Financial Statements

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-35
<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:

<TABLE>
<CAPTION>
December 31,
---------------------------
June 30,
1994 1995 1996
------------ ------------ -----------
<S> <C> <C> <C>
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
=========== =========== ===========
</TABLE>

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-36
<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
----------- ------------- -------------
<S> <C> <C> <C>
Bank debt:
Chemical Bank, collateralized by computer equipment. Monthly principal
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 pay-
ments 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 sys-
tem 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:

<TABLE>
<CAPTION>
Debt Capital leases
---------- ---------------
<S> <C> <C>
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
=========
</TABLE>

F-37
<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-38

<PAGE>

(A map of the United States showing the location of the
Company's corporate headquarters, call centers and
sales centers appears on the inside back cover
of the Prospectus. The map is superimposed over
a photograph of computer boards.)

<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
Price Range of Common Stock ..................... 17
Capitalization ................................. 18
Selected Financial and Operating Data ............ 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ................................. 22
Business ....................................... 30
Management .................................... 39
Certain Transactions ........................... 44
Principal and Selling Shareholders ............ 47
Description of Capital Stock .................. 49
Shares Eligible for Future Sale ............... 52
Underwriting .................................... 54
Legal Matters ................................. 55
Experts ....................................... 55
Additional Information ........................ 55
Index to Consolidated Financial Statements ...... F-1

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

2,256,000 Shares

[GRAPHIC OMITTED]

Common Stock

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

MONTGOMERY SECURITIES

JANNEY MONTGOMERY SCOTT INC.

THE ROBINSON-HUMPHREY
COMPANY, INC.

, 1997

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