<PAGE>   1
 
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                            ------------------------
 
                                   FORM 10-K
              [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
                        COMMISSION FILE NUMBER 000-23217
 
                            ------------------------
 
                             COMPASS INTERNATIONAL
                              SERVICES CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
<TABLE>
<S>                                                         <C>
                        DELAWARE                                                   22-3540815
                (State of Incorporation)                                    (I.R.S. Employer ID No.)
</TABLE>
 
              ONE PENN PLAZA, SUITE 4430, NEW YORK, NEW YORK 10119
              (Address of principal executive offices) (Zip Code)
 
                                 (212) 967-7770
              (Registrant's telephone number, including area code)
 
        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                          COMMON STOCK, $.01 PAR VALUE
                                (TITLE OF CLASS)
 
     Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
 
                         YES  X                     NO
                             ---                       ---
 
     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ______
 
     As of March 24, 1999, the aggregate market value of the registrant's Common
Stock held by non-affiliates was approximately $59,730,793. The closing price of
the Common Stock on March 24, 1999, as reported on the Nasdaq National Market
was $5.75.
 
     As of March 24, 1999, the number of shares outstanding of the registrant's
Common Stock, par value $.01 per share, was 13,804,846.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
     Certain sections of the registrant's Notice of Annual Meeting of
Stockholders and Proxy Statement for its Annual Meeting of Stockholders to be
held on June 15, 1999, as described in the Cross-Reference Sheet and Table of
Contents included herewith, are incorporated by reference into Part III of this
report.
 
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<PAGE>   2
 
                             CROSS REFERENCE SHEET
                                      AND
                              TABLE OF CONTENTS(1)
 
<TABLE>
<CAPTION>
                                                                                         PAGE
                                                                                         ----
<S>           <C>          <C>                                                           <C>
PART I
              Item 1       Business....................................................     3
              Item 2       Properties..................................................     8
              Item 3       Legal Proceedings...........................................     9
              Item 4       Submission of Matters to a Vote of Security Holders.........     9
PART II
              Item 5       Market for Registrant's Common Equity and Related
                           Stockholder Matters.........................................    10
              Item 6       Selected Financial Data.....................................    10
              Item 7       Management's Discussion and Analysis of Financial Condition
                           and Results of Operations...................................    10
              Item 7A      Quantitative and Qualitative Disclosures About Market
                           Risk........................................................    14
              Item 8       Financial Statements and Supplementary Data.................    15
              Item 9       Changes in and Disagreements with Accountants on Accounting
                           and Financial Disclosure....................................    31
PART III
              Item 10      Directors and Executive Officers of the Registrant(2).......    31
              Item 11      Executive Compensation(3)...................................    31
              Item 12      Security Ownership of Certain Beneficial Owners and
                           Management(4)...............................................    31
              Item 13      Certain Relationships and Related Transactions(3)...........    31
PART IV
              Item 14      Exhibits, Financial Statement Schedules, and Reports on Form
                           8-K.........................................................    33
</TABLE>
 
---------------
 
(1) Certain information is incorporated by reference, as indicated below, from
    the registrant's Notice of Annual Meeting of Stockholders and Proxy
    Statement for its Annual Meeting of Stockholders to be held on June 15, 1999
    (the "Proxy Statement")
 
(2) Proxy Statement sections entitled "Election of Directors" and "Executive
    Officers."
 
(3) Proxy Statement sections entitled "Executive Compensation and Certain
    Transactions" and "Report on Executive Compensation."
 
(4) Proxy Statement section entitled "Security Ownership of Certain Beneficial
    Owners and Management."
 
                                        2
<PAGE>   3
 
                                     PART I
 
ITEM 1. BUSINESS
 
  COMPANY OVERVIEW
 
     Compass International Services Corporation ("Compass" or the "Company") is
a leading provider of accounts receivable management services and other
complementary outsourced services. Compass' Accounts Receivable Management
division provides a suite of accounts receivable management solutions to
clients, including traditional third-party collection services, pre-collection
customer contact programs, innovative payment options, credit report-related
services, an attorney network for severely delinquent accounts, and bankruptcy
and probate collection strategies. Compass' Print and Mail division offers
printing, mailing and related services which complement the accounts receivable
management services, including expertise and efficiency in direct mail and
billing, presorting, freight and drop shipping, data processing, laser printing,
mailing list rental and order fulfillment. The Company's Teleservices division
provides state-of-the-art call management and reporting.
 
     The Company's clients operate in a broad range of industries, including
telecommunications, financial services, insurance, healthcare, education,
government and utilities. The Company serves its clients from fifteen call
centers across the country and four mail processing centers. As of December 31,
1998, the Company employed approximately 2,250 employees, of whom 900 were
employed in connection with accounts receivable management and 1,350 were
employed in the Print & Mail and Teleservices divisions.
 
     Compass completed its initial public offering (the "IPO") and commenced
operations in March 1998 when it acquired five founding companies, three of
which provide accounts receivable management services, and two of which provide
complementary outsourced services (including mailing services and inbound and
outbound teleservices) (together, the "Founding Companies"). Nine subsequent
acquisitions have strengthened the depth and breadth of Compass' service
offerings. See "Acquisition History." As the Company has expanded and evolved
since the IPO, management has determined that it can best maximize profitability
by emphasizing accounts receivable management. Accordingly, Compass' goal is to
be the leading provider of accounts receivable management services on an
outsourced basis while continuing to provide complementary services in response
to clients' needs. To accomplish that goal, the Company's strategy is to (i)
continue to expand the breadth and depth of its service offerings (either
internally or through acquisitions); (ii) strengthen its client base in
attractive vertical markets; (iii) expand into new geographic markets; (iv)
continue to focus on high quality client service by delivering customized,
value-added solutions and offering other complementary outsourced services; (v)
use sophisticated technology to provide innovative solutions to clients on an
efficient and cost-effective basis; and (vi) operate on a centralized basis to
maintain strategic focus and build equity and brand awareness on a national
level.
 
     The Company continues to believe that it is well positioned to take
advantage of the overall corporate trend towards outsourcing as clients and
prospects seek to reduce their fixed costs and focus on their core competencies.
Compass believes that businesses are seeking experienced, technologically
advanced and service-focused providers with the full range of capabilities
necessary to perform efficiently projects of any size on a local, regional or
national basis. Compass believes that the breadth of services it offers is a
competitive advantage that differentiates Compass from its competitors. It has
quickly become one of the largest competitors in its highly fragmented industry.
By focusing on integration of its acquired companies, Compass will continue to
seek to leverage technology, achieve operating efficiencies and build a national
brand name for reliable, flexible and high-quality outsourcing solutions.
 
     The Company intends to continue to take advantage of the fragmented nature
of the accounts receivable management industry by making strategic acquisitions.
Through selected acquisitions, the Company will seek to serve new geographic
markets, expand its presence in its existing markets or add complementary
services. The Company regularly reviews various strategic acquisition
opportunities and periodically engages in discussions regarding such possible
acquisitions.
 
                                        3
<PAGE>   4
 
     Compass was incorporated in Delaware in 1997. Its principal offices are
located at One Penn Plaza, Suite 4430, New York, NY 10119, and its telephone
number is (212) 967-7770.
 
  ACQUISITION HISTORY
 
     Compass commenced operations on March 4, 1998 when it acquired the Founding
Companies. Compass has subsequently completed nine additional strategic
acquisitions which have added to its client base and geographic presence,
increased its presence in key client industries and expanded the depth and
breadth of its service offerings. The following chart summarizes Compass'
acquisition history:
 
<TABLE>
<CAPTION>
          ACQUISITION DATE                              COMPANY/ SUMMARY DESCRIPTION
-------------------------------------    -----------------------------------------------------------
<S>                                      <C>
March 4, 1998                            The Mail Box, Inc.
                                         Mailing services
March 4, 1998                            National Credit Management Corporation
                                         Accounts receivable management services,
                                         telephonic check drafting services
March 4, 1998                            B.R.M.C. of Delaware, Inc.
                                         Accounts receivable management services
March 4, 1998                            Mid-Continent Agencies, Inc.
                                         Accounts receivable management services
March 4, 1998                            Impact Telemarketing Group, Inc.
                                         Telemarketing services
April 8, 1998                            Bender Direct Mail
                                         Mailing services
May 1, 1998                              Delivery Verification Services
                                         Letter-based collection services
May 1, 1998                              Maher & Associates
                                         Mailing services
May 21, 1998                             Metro Webb
                                         Direct mail printing and mailing services
June 16, 1998                            Nationwide Debt Recovery, Ltd.
                                         Accounts receivable management services
June 23, 1998                            Midwest Collection Service, Inc.
                                         Accounts receivable management services
July 28, 1998                            R.C. Wilson Company
                                         Accounts receivable management services
August 13, 1998                          Rosenfeld Attorney Network
                                         Legal, bankruptcy and probate collection services
September 30, 1998                       Professional American Collections, Inc.
                                         Mortgage credit reporting and collection services
</TABLE>
 
  COMPASS' INTEGRATION STRATEGY
 
     To realize the benefits of its acquisition strategy, the Company recently
implemented a corporate reorganization to operate its business within three
operating divisions: (i) Accounts Receivable Management, (ii) Print & Mail, and
(iii) Teleservices.
 
     In the Accounts Receivable Management division, Compass has substantially
reorganized its separate accounts receivable management operations into one
nationally branded entity, Compass Receivables Management Corporation ("CRMC").
CRMC has achieved, and management expects it to continue to achieve, cost
 
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<PAGE>   5
 
savings through re-organization and integration initiatives in key areas that
include sales, operations, finance, compliance and information systems.
Management believes that other cost savings will be generated in CRMC from
Company-wide initiatives to realize economies of scale due to greater purchasing
power in key expense areas such as telecommunications, postage, credit bureau
reports, insurance and employee benefits.
 
     In its Print & Mail division, the Company is consolidating three of its
standard class mailing operations (all located in Texas) into one facility
located in Dallas, Texas. This consolidation is expected to take place in mid-
1999. With this consolidation, the Company's Print & Mail division is expected
to experience operating efficiencies and offer considerable capacity for new and
larger clients.
 
     The Teleservices division has benefited from Company-wide supplier/sourcing
initiatives such as favorable telephone rates and accounting infrastructure
improvements. The Teleservices division expects to realize further improvements
with a focused emphasis on higher margin services.
 
  COMPASS' SERVICES
 
     Compass provides a full suite of accounts receivable management services as
well as other complementary outsourced services. The following is a brief
description of the services that Compass provides:
 
  Accounts Receivable Management Services.
 
     The Company's accounts receivable management service operations, which are
provided from fifteen call centers across the United States, include full
service credit and receivables solutions for consumer and commercial account
portfolios across every stage of collection. Services provided to clients
include customized accounts receivable management programs, credit reporting
related services, innovative payment options, pre-collection customer contact
programs, traditional third-party receivable services for overdue accounts, a
network of attorneys for severely delinquent accounts and nationwide bankruptcy
and probate collection strategies. Accounts receivable management services
revenues are earned primarily on a contingency fee basis and, to a lesser
extent, on a fixed fee per account basis.
 
More specifically, accounts receivable management services include the
following:
 
     - Contingency Collections -- the Company provides collection services, for
       a contingency fee, for delinquent consumer and commercial accounts on a
       "primary" basis (first placement with an outside collection
       agency -- usually at 90 to 360 days past due), a "secondary" basis
       (placed with a second agency, generally between 12 and 18 months past
       due), and a "tertiary" basis (placed with more than two previous
       agencies, generally more than 18 months past due).
 
     - "Early Out" Programs -- the Company provides accounts receivable
       servicing and recovery services for early stage receivables (generally 90
       days or less past due), sometimes on a "first-party" outsourced basis.
       Fees billed are on a per account, contingency or blended basis.
 
     - Legal Network Management Services -- the Company provides litigation
       management, bankruptcy and probate collection services through CRMC's
       legal network division in Washington, D.C. This division maintains
       relationships with attorneys throughout the U.S. and provides case
       assignment, management, tracking, follow-up and reporting services to
       clients with accounts warranting litigation.
 
     - Credit Reporting Related Services -- the Company, through Professional
       American Collections, a subsidiary of CRMC, provides credit report access
       and verification services, primarily to mortgage lenders.
 
     - Innovative Payment Options -- the Company, through its Accelerated
       Payment System ("APS") unit, offers clients the opportunity to provide
       check-by-phone services to their customers. This capability -- which
       facilitates a checking account draft upon the customer's providing bank
       account information -- is a valuable payment and collection tool in
       on-line and telephone environments.
 
                                        5
<PAGE>   6
 
  Printing and Mailing Services.
 
     The Company provides direct mailing and billing services, mail presorting,
freight and drop shipping, data processing, laser printing, mailing list rental
and other services relating to mail handling. Using the Company's inserting
machines and related mail-handling systems, the Company's Printing and Mailing
division processed approximately one billion pieces of mail during 1998.
 
Printing and Mailing services include the following:
 
     - Mailing Services -- the Company provides high speed inserting,
       pre-sorting (combining volumes of like mail and sorting and bar coding it
       to United States Postal Service specifications), address cleansing,
       freight and drop shipping which generate significant postal discounts for
       customers.
 
     - List Processing -- the Company obtains and manages mailing lists for
       clients and provides personalization services in connection with printing
       and mailing projects.
 
     - Data Processing and Printing Services -- the Company converts data sent
       by clients and processes it to produce letters or bills. It also offers
       state-of-the-art predictive modeling and analysis for market segmentation
       to enhance response rates for direct marketing campaigns.
 
     - Fulfillment Services -- the Company provides order fulfillment services
       whereby it stores client inventory, receives and compiles orders and
       mails the item or information package ordered. The Company is expanding
       this service into internet commerce and is starting to manage
       order-taking web sites for clients.
 
  Teleservices.
 
     Compass' Teleservices division uses state-of-the-art call management and
predictive dialing technology to make, on average, approximately 65,000 hours
per month of calls on behalf of clients. More specifically, this division
provides the following services:
 
     - Outbound Calling Programs -- the Company provides outbound telemarketing
       services on behalf of many clients, receiving and updating customer data
       files and then calling the customers on the list to offer goods and
       services. Scripts are developed and agreed upon in advance by the Company
       and its client. Calling is controlled by sophisticated call management
       systems using a predictive dialer into which the target telephone numbers
       are loaded. Information regarding sales and other aspects of the program
       is captured, processed and verified systematically and provided to
       clients in customized report formats. The Company charges its outbound
       teleservices clients on a commission basis, an hourly rate or a
       combination of both.
 
     - Inbound Calling Programs -- the Company receives and processes inbound
       calls, primarily involving catalog sales, customer service, lead
       generation, order fulfillment or product information. Some inbound
       programs assist clients in responding to customer inquiries, offering
       technical and product support services and assessing customer
       satisfaction. Inbound services are normally billed by the hour or minute.
 
  CLIENT RELATIONSHIPS
 
     The Company provides its services to clients in a broad range of sectors
including telecommunications, financial services, insurance, healthcare,
education, government and utilities. VarTec Telecom, Inc. ("VarTec") accounted
for approximately 19% of the Company's 1998 consolidated net revenues. Other
than VarTec, no client accounted for more than 10% of the Company's revenues in
1998.
 
     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 short notice.
 
     The Company intends to continue its emphasis on developing and maintaining
long-term client relationships. The Company has implemented a marketing strategy
designed to: (i) provide a broad range of high quality, complementary services;
(ii) expand service offerings; and (iii) enable the cross-selling of services to
existing and new clients. Marketing strategies are being coordinated to optimize
the sales force efforts and prioritize new
 
                                        6
<PAGE>   7
 
client acquisitions of major national accounts. The Company also evaluates each
new client to determine the optimal Company location from which to service the
client. Considerations include capacity, technology platform, staffing needs,
proximity and others.
 
  COMPETITION
 
     The markets in which the Company competes are highly competitive, and the
Company expects competition to persist and intensify in the future. As a result,
the Company faces aggressive price competition in most of its businesses and
expects price competition to continue. The Company's competitors include small
firms offering specific applications, divisions of large entities, large
independent firms and, most significantly, the in-house operations of clients or
potential clients. Some of the Company's competitors have substantially greater
financial, marketing and other resources, offer more diversified services and
operate in broader geographic areas than the Company. There can be no assurance
that additional competitors with greater resources than the Company will not
enter the Company's market. All of the services offered by the Company may be
performed in-house. 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 services performed by the Company will continue or that existing Company
clients will not bring some or all of such services in-house.
 
     The Company competes primarily on the basis of performance, client service,
range of services offered and price. Management believes that the Company is
well-positioned due to its size and reputation to compete for national clients,
but notes that servicing national accounts with high placement volumes and
significant purchasing power will create downward pressure on pricing and
margins.
 
  GOVERNMENT REGULATION
 
     The accounts receivable management and telemarketing industries are
regulated under various federal and state statutes. CRMC is subject to the Fair
Debt Collection Practices Act ("FDCPA") and various state debt collection laws,
which, among other things, establish specific guidelines and procedures debt
collectors must follow in communicating with consumer debtors, including the
time and manner of such communications. The accounts receivable management
business is also subject to state regulation, and some states require that the
Company be licensed as a debt collector. In cases where the Company reports to
consumer reporting agencies, the Company is also subject to the Fair Credit
Reporting Act, which imposes liability on companies that furnish information to
consumer reporting agencies. With respect to the teleservices offered by the
Company, including telemarketing, the Telemarketing and Consumer Fraud and Abuse
Prevention Act of 1994 ("TCPA") broadly authorizes the Federal Trade Commission
(the "FTC") to issue regulations prohibiting misrepresentations in telemarketing
sales. The FTC's Telemarketing Sales Rule, among other things, limits the hours
during which telemarketers may call, prohibits misrepresentations of the cost,
terms, restrictions, performance or duration of products or services offered by
telephone solicitation and specifically addresses other perceived telemarketing
abuses in the offering of prizes and the sale of business opportunities or
investments. In addition, the TCPA restricts the use of automated telephone
equipment for telemarketing purposes, including limiting the hours during which
telemarketers may call consumers and prohibiting 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
TCPA. However, 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.
 
     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. The failure to
comply with
 
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<PAGE>   8
 
applicable statutes and regulations could have a materially adverse effect on
the Company's business, results of operations and financial condition.
 
  EMPLOYEES
 
     As of December 31, 1998, the Company employed a total of approximately 2250
employees, of whom approximately 900 were employed in connection with accounts
receivable management services, approximately 700 were employed in connection
with teleservices and approximately 650 were employed in connection with
printing and mailing services. In addition, the Company uses independent
contractors and hires temporary employees as needed. None of the Company's
employees is represented by a labor union. The Company believes that its
relations with its employees are good.
 
ITEM 2. PROPERTIES
 
     The Company currently operates the leased facilities set forth below.
 
<TABLE>
<CAPTION>
                    LOCATION OF FACILITY                      APPROXIMATE SQUARE FOOTAGE
                    --------------------                      --------------------------
<S>                                                           <C>
CORPORATE HEADQUARTERS
  New York, New York........................................             4,547
ACCOUNTS RECEIVABLE DIVISION
  Consumer Collection Call Centers
     and Administrative Offices
Atlanta, Georgia............................................            19,943
Tucker, Georgia.............................................             3,360
Baltimore, Maryland.........................................            16,257
Phoenix, Arizona(1).........................................             3,500
Washington, D.C.............................................             7,100
South Bend, Indiana.........................................             4,500
North Aurora, Illinois......................................            20,000
Tampa, Florida..............................................             8,479
Houston, Texas..............................................            16,230
St. Charles, Missouri.......................................            10,000
Pittsburgh, Pennsylvania....................................             3,675
Las Vegas, Nevada...........................................             3,333
  Commercial Collection Call Centers
     and Administrative Offices
Rolling Meadows, Illinois...................................            15,714
Louisville, Kentucky........................................             5,528
Amherst, New York...........................................             7,740
  Other
New Castle, Delaware........................................             3,150
COMPASS PRINT & MAIL DIVISION
  Print Services Facilities
Dallas, Texas (various locations)...........................            44,250
  Mail Services Facilities
Dallas, Texas(2)............................................           247,618
Dallas, Texas (various locations)(3)........................           450,000
Carrolton, Texas(4).........................................            61,000
COMPASS TELESERVICES DIVISION
Voorhees, New Jersey(5).....................................             8,767
Woodbury, New Jersey........................................             3,000
</TABLE>
 
---------------
(1) The Phoenix operation expects to move into a new 10,000 foot facility on or
    about June 1, 1999.
(2) The Print & Mail division expects to consolidate a number of its other
    facilities into this building in mid 1999.
 
                                        8
<PAGE>   9
 
(3) The Print & Mail division expects to exit facilities representing
    approximately 153,000 square feet during 1999.
(4) The Print & Mail division expects to exit this facility in mid 1999.
(5) The Teleservices division expects to exit this facility in mid 1999 and to
    move into a new 10,000 square foot facility in Mt. Laurel, New Jersey.
 
     The leases for the facilities listed above expire between 1999 and 2013,
and most contain renewal options. The Company's Accounts Receivable division
also leases a facility in Surrey, England. In addition to its leased facilities,
the Company owns a 24,909 square foot print services facility in Tulsa,
Oklahoma.
 
ITEM 3. LEGAL PROCEEDINGS
 
     In October 1997, Mid-Continent Agencies, Inc. (a Founding Company) and its
New York subsidiary filed a lawsuit in the State of New York, Supreme Court,
County of Erie (the "New York Supreme Court") against Vincent S. Burgio, Eric R.
Main and Michael Luksch (all of whom are former employees of Mid-Continent's
subsidiary), as well as Continental Commercial Group of New York, Inc. and L.A.
Commercial Group, Inc. The complaint alleges (i) breach of employment agreement;
(ii) breach of the duty of loyalty; (iii) interference with business
relationships; (iv) conversion of confidential information; and (v)
misappropriation of trade secrets, and seeks injunctive relief and unspecified
damages.
 
     In February 1998, the defendants in the above-described lawsuit filed two
lawsuits in the New York Supreme Court. The first lawsuit, filed by Mr. Burgio,
names as defendants Mid-Continent, its New York subsidiary, and William
Vallecorse, an employee of the subsidiary, and alleges (i) breach of contract;
(ii) breach of contract and constructive discharge; (iii) fraud; (iv) tortious
interference with employment contract; and (v) unjust enrichment. The complaint
seeks aggregate damages in excess of $1.3 million. The second lawsuit, filed by
Messrs. Burgio, Main and Luksch, names as defendants Mid-Continent, its New York
subsidiary, Les J. Kirschbaum, Mr. Vallecorse and Michelle Helmer (an employee
of the New York subsidiary), alleges defamation of Messrs. Burgio, Main and
Luksch and seeks aggregate compensatory damages of $1.5 million in addition to
punitive damages. The Company believes that the allegations against it and its
co-defendants are without merit, however, because this litigation is still at an
early state, its outcome cannot be predicted. The cases remain in the discovery
stage. The former stockholders of Mid-Continent Agencies, Inc. agreed, in the
purchase agreement whereby Compass agreed to purchase Mid-Continent, to
indemnify the Company for losses and damages, if any, arising from these
lawsuits.
 
     In October 1998, a subsidiary of one of the Founding Companies, Bomar
Credit Corporation, and CRMC received a Civil Investigative Demand from the
FTC's Chicago Regional Office requesting various categories of information
relating to compliance with the FDCPA. The Company is cooperating fully with the
FTC's request. The Company, along with counsel, has reviewed the requests, but
since the matter is still in the very early state, an assessment of its duration
and outcome, and associated liability and expense, if any, cannot reasonably be
made at this time. However, there can be no assurances that future developments
relating to this matter will not have a material adverse impact on the Company's
business, financial condition or results of operations.
 
     The Company is not involved in any other legal proceedings material to the
business, financial condition or results of operations of the Company.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     No matters were submitted to a vote of security holders during the fourth
quarter of 1998.
 
                                        9
<PAGE>   10
 
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
  STOCK INFORMATION: PRICE RANGE OF COMMON STOCK
 
     The Company's common stock is traded on the Nasdaq National Market under
the symbol CMPS. The following table shows the high and low trading prices for
each fiscal quarter in 1998 as reported by Nasdaq.
 
<TABLE>
<CAPTION>
                        FISCAL 1998                              HIGH        LOW
                        -----------                             -------    -------
<S>                                                             <C>        <C>
First Q (2/27-3/1/98)(1)                                        $14.875    $10.750
Second Q....................................................    $ 17.00    $  9.25
Third Q.....................................................    $ 13.00    $  7.00
Fourth Q....................................................    $ 10.75    $  7.00
</TABLE>
 
---------------
 
 (1) The Company's Common Stock began trading upon effectiveness of this
     Company's Registration Statement on Form S-1 (Registration No. 333-37209)
     in connection with the Company's initial public offering on February 27,
     1998.
 
At March 24, 1999, the last reported sale price for the Common Stock was $5.75
and there were 109 holders of record of the Company's Common Stock.
 
Since the Company's initial public offering in 1998, the Company has not
declared any cash dividends or distributions on its capital stock. The Company
currently intends to retain its earnings to finance future growth and therefore
does not anticipate paying any cash dividends in the foreseeable future.
 
ITEM 6. SELECTED FINANCIAL DATA
 
     Although the Company was formed in April 1997, there were no operating
activities prior to the IPO and closing of the Founding Companies Acquisitions.
Selected financial data as of and for the year ended December 31, 1998 and as of
December 31, 1997 follows (all dollars except per share data are in thousands):
 
<TABLE>
<CAPTION>
                                                                1998        1997
                                                              --------    --------
<S>                                                           <C>         <C>
Net revenues................................................  $127,140    $     --
Operating income............................................  $ 12,842    $     --
Net Income..................................................  $  6,007    $     --
Diluted net income per share................................  $   0.53    $     --
Working capital.............................................  $  8,065    $     --
Property and equipment, net.................................  $ 18,285    $     --
Total assets................................................  $187,481    $  3,942
Long-term debt, net of current maturities...................  $ 55,760    $     --
</TABLE>
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
 
     The following discussion should be read in conjunction with the
Consolidated Financial Statements of Compass and related notes thereto included
herein and in the Company's Registration Statement on Form S-1 (No. 333-37205),
as amended, filed with the Securities and Exchange Commission in connection with
its IPO.
 
     Presented below are discussions of the Company's results of operations on
both a historical and unaudited pro forma basis. Although the Company was formed
in April, 1997, there were no operating activities prior to the IPO and the
closing of the Founding Companies Acquisitions. Furthermore, since the Founding
Companies Acquisitions did not occur until March 4, 1998, the historical
operating results for the year ended December 31, 1998 include only ten months
of results from the Founding Companies. All of the acquisitions subsequent to
the IPO and Founding Company acquisitions have been accounted for as purchases
and, accordingly, the Company's consolidated financial statements reflect the
operations of the subsequently acquired companies from their
 
                                       10
<PAGE>   11
 
respective dates of acquisition. For this reason, a discussion of the unaudited
pro forma operating results which readers may find useful has been included.
 
RESULTS OF OPERATIONS
 
  YEAR ENDED DECEMBER 31, 1998 -- HISTORICAL
 
     Historical results of operations reflect the activities of Compass and the
Founding Companies since February 28, 1998 and the subsequent purchases since
their respective dates of acquisition.
 
     Net revenues. Net revenues for the period amounted to $127.1 million. Among
the segments, Accounts Receivable Management services contributed $55.7 million,
or 43.8%, Print & Mail services contributed $56.2 million, or 44.2% and
Teleservices added $15.2 million or 12%.
 
     Cost of revenues. Cost of revenues for the period amounted to $85.9 million
or 67.6% of net revenues. By segment, cost of revenues for Accounts Receivable
Management Services amounted to $33.4 million, or 60% of segment net revenues,
Print and Mail Services amounted to $40.9 million, or 72.8% of segment net
revenues and Telemarketing Services amounted to $11.6 million, or 76.3% of
segment net revenues.
 
     Selling, general and administrative expenses. Selling general and
administrative expenses for the period amounted to $26.3 million, or 20.6% of
net revenues. Selling, general and administrative expenses in dollars and as a
percentage of segment net revenues for Accounts Receivable Management services
amounted to $11.8 million, or 21.2%, Print & Mail services amounted to $8.8 or
15.7% and Teleservices amounted to $2.5 million or 16.4%. Corporate expenses
amounted to $3.2 million.
 
     Interest expense. Interest expense amounted to $2.0 million in the current
period. The interest primarily relates to borrowing under the Company's credit
facility, which was used to make acquisitions, loans from selling shareholders
in connection with the acquisition of their companies and interest imputed on
capital leases.
 
     Income taxes. The effective income tax rate was 44.8% as compared to the
statutory rate of 35%. The difference primarily relates to the effects of state
income taxes and the non-deductibility of goodwill arising primarily from the
stock acquisitions.
 
  UNAUDITED PRO FORMA YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE UNAUDITED PRO
FORMA YEAR
  ENDED DECEMBER 31, 1997
 
     Unaudited pro forma results of operations presented below assume that the
IPO, the Founding Companies Acquisitions and the subsequent acquisitions
occurred on January 1, 1998 and 1997 and reflect certain pro forma adjustments.
See Note 3 of Notes to the Consolidated Financial Statements.
 
<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                              ------------------------
                                                                 1998          1997
                                                              ----------    ----------
                                                               (DOLLARS IN THOUSANDS)
<S>                                                           <C>           <C>
Net revenues................................................   $177,105      $151,088
Cost of revenues............................................    119,408       103,748
                                                               --------      --------
  Gross Profit..............................................     57,697        47,340
Selling, general and administrative expenses................     36,922        34,393
                                                               --------      --------
  Operating income..........................................   $ 20,775      $ 12,947
                                                               ========      ========
</TABLE>
 
     Net revenues. Net revenues increased $26.0 million, or 17.2%, from $151.1
million for the year ended December 31, 1997 to $177.1 million for the year
ended December 31, 1998. Accounts Receivable Management services increased $12.1
million or 16.1%, Print & Mail services increased $8.3 million or 13.1% and
Teleservices increased $5.6 million or 43.7%.
 
     Cost of revenues. Cost of revenues increased $15.7 million, or 15.1% from
$103.7 million for the year ended December 31, 1997 to $119.4 million for the
year ended December 31, 1998. Cost of revenues as a percentage of net revenues
amounted to 67.4% for 1998 as compared to 68.7% for 1997. As a percentage of
segment net revenues, Accounts Receivable Management services cost of revenues
decreased to 61.4% from 63.7% and cost of revenues for Teleservices decreased to
76.1% from 76.7% as both segments benefited from
 
                                       11
<PAGE>   12
 
greater revenue over an existing cost base. The Print & Mail Segment cost of
revenues as a percentage of net revenues remained consistent between periods as
revenue increases were offset by similar increases in costs.
 
     Selling, general and administrative expenses. Selling general and
administrative expenses for 1998 increased $2.5 million to $36.9 million from
$34.4 million in 1997. As a percentage of net revenues, such expenses decreased
to 20.8% in 1998 from 22.8% in 1997. On a segment basis, as a percentage of net
revenues, selling, general and administrative expenses in Accounts Receivable
Management services decreased to 17.6% in 1998 from 21% in 1997 and Teleservices
decreased to 17.8% in 1998 from 20.6% in 1997. Both of these segments benefited
from increased volumes without similar increases in selling general and
administrative expenses. For the Print and Mail Segment, selling general and
administrative expenses as a percentage of net revenues increased to 15% in 1998
from 14.5% in 1997 as these expenses increased at a greater rate then did net
revenues for the segment.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     During the year ended December 31, 1998, net cash provided by operating
activities amounted to $2.4 million. Operating activities included $11.4 million
of earnings before depreciation, amortization and change in deferred income
taxes. Such activities were offset by a $2.9 million increase in trade
receivables and prepaid expenses and other assets and a $6.1 million decrease in
accounts payable and accrued expenses.
 
     Cash used in investing activities in 1998 included net cash paid for the
acquisition of the Founding Companies and subsequent acquisitions in the amount
of $60.1 million and capital expenditures of approximately $3.3 million which
were primarily comprised of purchases of equipment for Print & Mail services.
 
     Financing activities in 1998 generated net cash in the amount of $69.6
million. Of this amount, net proceeds of $40.2 million were received from the
Company's IPO. Proceeds of $48 million were received under the Company's
revolving credit facility (which is further discussed in the following
paragraphs). Financing activities that required cash included the repayment of
acquired debt in the amount of $16.8 million and repayments of capital lease
obligations of $1.5 million. Loan acquisition costs used $.3 million in cash.
 
     On April 23, 1998, Compass entered into an agreement (the "Revolver") with
Bank of America, NT & SA together with a group of other financial institutions,
with respect to a $35 million revolving credit facility. On August 7, 1998, the
Revolver was amended to increase the total amount available to $50 million and
on November 16, 1998 it was further amended to increase the total available
credit to $55 million. The Revolver has a three-year term and may be used for
acquisitions, capital expenditures, refinancing debt, and for general corporate
purposes. The Revolver also provides that a maximum of $2 million of the total
$55 million available may be used for letters of credit. At December 31, 1998,
borrowings under the Revolver totaled $48 million, there were $.8 million in
outstanding letters of credit and $6.2 million available.
 
     The Revolver requires Compass to comply with various covenants which
include maintenance of certain financial ratios, restrictions on additional
indebtedness and restrictions on liens, guarantees, investments, capital
expenditures, sales of assets, mergers and acquisitions, and dividends.
Indebtedness under the Revolver bears interest at an initial increment, based on
the Company maintaining a specified leverage ratio of 125 basis points over the
Interbank Offered Rate or a Base Rate, as defined therein. The Revolver is
secured by the common stock of Compass' current and future subsidiaries. In
addition, if the Company fails to maintain a leverage ratio, as defined in the
agreement, of less than 1.5-to-1, lenders may collateralize the Revolver with
substantially all of the assets of the Company and its subsidiaries. At December
31, 1998, the leverage ratio, as defined, exceeded 1.5-to-1 and the lenders have
perfected their lien on the collateral. At December 31, 1998, the Company was in
compliance with the debt covenants.
 
     The interest rate under the Revolver at December 31, 1998 was 6.75%. On
October 13, 1998, the Company entered into interest rate swap arrangements to
effectively lock in a fixed rate covering $40 million of the Company's total
outstanding borrowings. The rate under the swap agreements at December 31, 1998
was 6.34%, which is comprised of a fixed rate of 4.84% plus an increment, based
on the Company maintaining a specified leverage ratio, of 150 basis points.
These swap arrangements were entered into with two of the lenders that are
parties to the Revolver and terminate on October 15, 2000.
 
                                       12
<PAGE>   13
 
     Due to a change in the Company's leverage ratio, the Revolver and swap
arrangements are being amended to provide, among other matters, a change in the
margin increment from 150 basis points to 225 basis points, or to interest rates
of 7.50% under the revolver and 7.09% under the swap arrangements. This margin
change is effective with the signing of the amendment.
 
     During 1999, cash to be paid pursuant to certain earn-out agreements with
former owners of acquired companies is expected to be $8.9 million. The cash
payments of notes payable during 1999 is expected to be $1.9 million. The
Company anticipates that the integration and consolidation of acquired print and
mail companies will result in cash payments of approximately $1.8 million.
 
     Based upon its current projections, management believes that cash flows
from operations combined with borrowings under the Revolver will be sufficient
to meet the Company's working capital needs in 1999.
 
SEASONALITY
 
     The operations of Compass are not subject to seasonal factors that have a
material impact on the results of operations.
 
COMPANY'S EXPLORATION OF STRATEGIC ALTERNATIVES
 
     On January 7, 1999 the Company's Board of Directors approved the engagement
of Lehman Brothers to assist the Company in evaluating its strategic
alternatives. The Company's Board has met periodically with Lehman Brothers and
is working towards finalizing its evaluation and developing plans accordingly.
 
YEAR 2000
 
     The Company has assembled a Year 2000 Task Force which is in the process of
identifying and assessing potential operating and software problems related to
the "Year 2000" issue, both internally and externally. The Company's Year 2000
program is addressing both information technology and non-information
technology. The Company's Year 2000 Task Force has completed an inventory of the
hardware and software used in its operations, has prioritized the hardware and
software into "mission critical" and "non-mission critical" and has assessed the
Year 2000 readiness of all of the "mission-critical" and the majority of the
"non-mission critical" hardware and software inventoried. Based on this effort,
the Company has identified only non-material Year 2000 issues, all of which are
being remediated and will be tested on or before September 30, 1999. Two of the
Company's acquisitions have non-compliant hardware and software, but the
hardware and software used by those acquisitions are in the process of being
replaced in the course of a broader upgrade which will bring them into
compliance. Additionally, the Company has communicated with landlords,
significant vendors and other critical service providers to determine if such
parties are year 2000 compliant or have effective plans in place to address the
year 2000 issue and to determine the extent of the Company's vulnerability to
the failure of such parties to remediate such issues. The Company has received
responses from many of these third parties and is awaiting responses and/or
re-contacting the non-responding third parties. None of the responses received
to date have identified any Year 2000 issues which are not on-track to be
remediated well in advance of the requisite date(s). The Company will continue
to assess its risks and develop appropriate contingency plans as needed if
responses from landlords, significant vendors and other critical service
providers so warrant. The Company does not believe that the costs of
modifications, upgrades or replacements which would not have been incurred but
for, or which have been accelerated because of, the Year 2000 issue will be
material.
 
     The Company does not expect the impact of the Year 2000 to have a material
adverse impact on the Company's business or results of operations. However, no
assurances can be given that any failure to effectively complete the necessary
changes to the Company's financial and operating systems on a timely basis or
that unanticipated or undiscovered Year 2000 compliance problems arise that
could have a material adverse effect on the Company's business and results of
operations. In addition, there can be no assurance that Year 2000 non-
compliance by any of the Company's clients or significant suppliers or vendors
will not have a material adverse effect on the Company's business or results of
operations.
 
                                       13
<PAGE>   14
 
FORWARD-LOOKING INFORMATION -- SAFE HARBOR STATEMENT
 
     Certain statements contained in this discussion regarding future events and
financial performance are not based on historical facts and, as such, constitute
"forward looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, that involve uncertainties and risk. There can be
no assurance that actual results will not differ materially from the Company's
expectations. Factors that could cause such differences include the timing and
pace of acquisitions, the Company's ability to achieve expected growth in
revenues, earnings and operating efficiencies, year 2000 uncertainties and other
risks described in the Company's Registration Statement on Form S-1, File No.
333-37205.
 
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
     The principal market risk (i.e. the risk of loss arising from adverse
changes in market rates and prices) to which the Company is exposed is interest
rates on debt.
 
     At December 31, 1998, the Company had $8 million of debt subject to
variable interest rates. A one percent change in interest rates would impact
interest expense by $0.08 million with respect to the amount of debt that is
subject to variable interest rates.
 
     The Company has entered into interest rate swap arrangements to reduce the
risk of increases in interest rates on $40 million of outstanding Revolver debt
through October 15, 2000. A one percent change in interest rates would have
affected interest expense by $0.4 million with respect to the amount of debt
covered by the interest rate swaps.
 
     The Company does not hold or issue derivative financial instruments for
speculation or trading purposes.
 
                                       14
<PAGE>   15
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
                   COMPASS INTERNATIONAL SERVICES CORPORATION
 
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
<TABLE>
<S>                                                             <C>
Report of Independent Accountants...........................      16
Consolidated Balance Sheets -- December 31, 1998 and 1997...      17
Consolidated Statement of Operations -- Year ended December
  31, 1998..................................................      18
Consolidated Statement of Stockholders' Equity -- Year ended
  December 31, 1998.........................................      19
Consolidated Statement of Cash Flows -- Year ended December
  31, 1998..................................................      20
Notes to Consolidated Financial Statements..................      21
Financial Statement Schedule Supporting Consolidated
  Financial Statements Schedule II Valuation and Qualifying
  Accounts..................................................      31
</TABLE>
 
All other schedules have been omitted as the required information is
inapplicable or the                     information is included in the
consolidated financial statements or related notes.
 
                                       15
<PAGE>   16
 
                       REPORT OF INDEPENDENT ACCOUNTANTS
 
TO THE BOARD OF DIRECTORS
AND STOCKHOLDERS OF
COMPASS INTERNATIONAL SERVICES CORPORATION
 
     In our opinion, the consolidated financial statements listed in the index
appearing under Item 8 on Page 15 present fairly, in all material respects, the
financial position of Compass International Services Corporation and its
subsidiaries at December 31, 1998 and 1997, and the results of their operations
and their cash flows for the year ended December 31, 1998, in conformity with
generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
 
/s/ PricewaterhouseCoopers LLP
 
New York, New York
March 3, 1999
 
                                       16
<PAGE>   17
 
                   COMPASS INTERNATIONAL SERVICES CORPORATION
 
                          CONSOLIDATED BALANCE SHEETS
 
                        AS OF DECEMBER 31, 1998 AND 1997
 
<TABLE>
<CAPTION>
                                                                 1998         1997
                                                              ----------    --------
                                                              (IN THOUSANDS, EXCEPT
                                                                   SHARE DATA)
<S>                                                           <C>           <C>
ASSETS
Current assets:
  Cash and cash equivalents.................................   $  8,606      $   --
  Cash held in trust for clients............................      4,346          --
  Trade receivables, less allowance of $725 at December 31,
     1998...................................................     20,704          --
  Inventory.................................................      1,282          --
  Postage on hand...........................................      2,067          --
  Prepaid expenses and other current assets.................      1,819          --
  Deferred income taxes.....................................        877          --
                                                               --------      ------
          Total current assets..............................     39,701          --
Property and equipment, net.................................     18,285          --
Deferred offering costs.....................................         --       3,942
Goodwill, net...............................................    127,857          --
Other assets................................................      1,495          --
                                                               --------      ------
          Total assets......................................   $187,338      $3,942
                                                               ========      ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Trade payables............................................   $  6,783      $   --
  Accrued expenses..........................................      5,540       2,747
  Accrued earn-outs payable.................................      8,904
  Collections due to clients................................      4,346          --
  Customer postage advances and deposits....................      2,484          --
  Notes payable.............................................      1,924       1,045
  Capital lease obligations.................................      1,798          --
                                                               --------      ------
          Total current liabilities.........................     31,779       3,792
Long-term debt..............................................     48,000          --
Notes payable...............................................      7,760          --
Capital lease obligations...................................      2,644          --
Deferred income taxes.......................................        273          --
                                                               --------      ------
          Total liabilities.................................     90,456       3,792
                                                               --------      ------
Commitments and contingencies

Stockholders' equity:
Preferred stock, 10,000,000 shares authorized $.01 par
  value, no shares issued or outstanding....................         --          --
Common stock, 50,000,000 shares authorized $.01 par value,
  13,804,846 and 1,682,769 shares issued and outstanding at
  December 31, 1998 and 1997, respectively..................        138          17
Additional paid-in capital..................................     85,041         133
Value of shares to be issued (note 3).......................      2,501          --
Retained earnings...........................................      9,202          --
                                                               --------      ------
          Total stockholders' equity........................     96,882         150
                                                               --------      ------
          Total liabilities and stockholders' equity........   $187,338      $3,942
                                                               ========      ======
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                       17
<PAGE>   18
 
                   COMPASS INTERNATIONAL SERVICES CORPORATION
 
                      CONSOLIDATED STATEMENT OF OPERATIONS
 
                      FOR THE YEAR ENDED DECEMBER 31, 1998
                       (IN THOUSANDS, EXCEPT SHARE DATA)
 
<TABLE>
<S>                                                           <C>
Net revenues................................................     $   127,140
Cost of revenues............................................          85,919
                                                                 -----------
  Gross profit..............................................          41,221
Selling, general and administrative expenses................          26,250
Goodwill amortization.......................................           2,129
                                                                 -----------
  Operating income..........................................          12,842
Interest expense, net.......................................           1,966
                                                                 -----------
  Income before provision for income taxes..................          10,876
Provision for income taxes..................................           4,869
                                                                 -----------
  Net income................................................     $     6,007
                                                                 ===========
Net income per share:
  Basic.....................................................     $      0.54
                                                                 ===========
  Diluted...................................................     $      0.53
                                                                 ===========
Weighted average number of shares:
  Basic.....................................................      11,168,799
                                                                 ===========
  Diluted...................................................      11,313,525
                                                                 ===========
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                       18
<PAGE>   19
 
                   COMPASS INTERNATIONAL SERVICES CORPORATION
 
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
 
                      FOR THE YEAR ENDED DECEMBER 31, 1998
 
<TABLE>
<CAPTION>
                                             COMMON STOCK        ADDITIONAL
                                         --------------------     PAID-IN      RETAINED
                                           SHARES      AMOUNT     CAPITAL      EARNINGS     TOTAL
                                         ----------    ------    ----------    --------    -------
                                                     (IN THOUSANDS, EXCEPT SHARE DATA)
<S>                                      <C>           <C>       <C>           <C>         <C>
Balance, December 31, 1997.............   1,682,769     $ 17      $   133       $   --     $   150
Shares issued in Offering..............   4,715,000       47       46,045           --      46,092
Offering costs.........................          --       --       (5,945)          --      (5,945)
Shares issued for acquisitions.........   7,407,077       74       30,823           --      30,897
Value of shares to be issued (note
  3)...................................          --       --        2,501           --       2,501
Retained earnings of The Mail Box, Inc.
  accounting acquirer..................          --       --           --        3,195       3,195
Increase in value of shares exchanged
  for Compass pre-offering shares......          --       --       13,985           --      13,985
Net income.............................          --       --           --        6,007       6,007
                                         ----------     ----      -------       ------     -------
Balance, December 31, 1998.............  13,804,846     $138      $87,542       $9,202     $96,882
                                         ==========     ====      =======       ======     =======
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                       19
<PAGE>   20
 
                   COMPASS INTERNATIONAL SERVICES CORPORATION
 
                      CONSOLIDATED STATEMENT OF CASH FLOWS
 
                      FOR THE YEAR ENDED DECEMBER 31, 1998
                                 (IN THOUSANDS)
 
<TABLE>
<S>                                                             <C>
Cash flows from operating activities:
Net income..................................................    $         6,007
Adjustments to reconcile net income to net cash provided by
  operating activities:
  Depreciation..............................................              2,957
  Amortization..............................................              2,204
  Deferred income taxes.....................................                273
Change in operating assets and liabilities, net of effect of
  acquisitions:
  Cash held in trust for clients............................                 74
  Trade receivables.........................................               (413)
  Inventory.................................................                 42
  Postage on hand...........................................               (553)
  Prepaid expenses and other current assets.................             (1,692)
  Other assets..............................................               (374)
  Trade payables............................................               (978)
  Accrued expenses..........................................             (5,874)
  Collections due to clients................................                 15
  Customer postage advances and deposits....................                765
  Other non-current liabilities.............................                (55)
                                                                ---------------
Net cash provided by operating activities...................              2,398
                                                                ---------------
Cash flows from investing activities:
  Purchases of property & equipment.........................             (3,336)
  Business acquisitions, net of cash acquired...............            (60,059)
                                                                ---------------
Net cash used in investing activities.......................            (63,395)
                                                                ---------------
Cash flows from financing activities:
  Loan acquisition costs....................................               (352)
  Repayments of capital lease obligations...................             (1,471)
  Net proceeds from initial public offering.................             40,248
  Proceeds from revolving credit facility borrowings........             48,000
  Repayment of acquired debt................................            (16,822)
                                                                ---------------
Cash flows from financing activities........................             69,603
                                                                ---------------
Net increase in cash and cash equivalents...................              8,606
Cash and cash equivalents, beginning of period..............                 --
                                                                ---------------
Cash and cash equivalents, end of period....................    $         8,606
                                                                ===============
Supplemental Disclosures of cash flow information:
  Cash paid for interest....................................    $         1,687
                                                                ===============
  Cash paid for income taxes................................    $         5,659
                                                                ===============
Non cash investing activities:
  Fair value of net assets acquired.........................    $       145,728
  Value of common stock issued..............................            (60,190)
  Notes issued..............................................             (8,650)
  Amounts payable pursuant to earn-outs.....................            (11,405)
                                                                ---------------
  Net cash paid.............................................             65,483
  Cash acquired.............................................             (5,424)
                                                                ---------------
  Net cash paid for acquisitions............................    $        60,059
                                                                ===============
</TABLE>
 
Non cash financing activities include $2,413 of capital lease obligations
incurred for equipment.
 
   The accompanying notes are an integral part of these financial statements.
 
                                       20
<PAGE>   21
 
                   COMPASS INTERNATIONAL SERVICES CORPORATION
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                       (IN THOUSANDS, EXCEPT SHARE DATA)

NOTE 1 -- BUSINESS AND ORGANIZATION
 
     Compass International Services Corporation, a Delaware corporation,
("Compass" or the "Company") was founded in April 1997 to create a leading
provider of outsourced business services to public and private entities
throughout the United States. These services include: management of accounts
receivables, including the recovery of traditional delinquent accounts from both
consumer and commercial debtors and the management of early stage delinquencies;
mailing services, including the mailing of direct marketing materials, billing
services, mail presorting and other services related to mail handling; and
telemarketing services for outbound telemarketing, inbound customer service and
inbound sales.
 
     On March 4, 1998, simultaneously with the closing of the Company's initial
public offering ("IPO" or the "Offering") of its common stock, Compass acquired
all of the outstanding capital stock of five companies providing accounts
receivable management services, mailing services and teleservices in separate
purchase transactions (the "Founding Companies"). (See Note 3 -- Acquisitions).
Prior to the Offering, Compass had no operating activities. These consolidated
financial statements reflect the results of operations of Compass and its
subsidiaries subsequent to the IPO and initial acquisitions.
 
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
  Principles of Consolidation
 
     The consolidated financial statements include the accounts of Compass and
its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
 
  Use of Estimates
 
     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. While management believes that the estimates and related
assumptions used in the preparation of these financial statements are
appropriate, actual results could differ from those estimates.
 
  Cash Equivalents
 
     Cash equivalents are liquid unrestricted investments with original
maturities of three months or less.
 
  Revenue Recognition
 
     The Company generally recognizes revenues in its accounts receivable
management business at the time a payment is received on an account directly
from the debtor, or when reported as paid by the client. Revenue is typically
based upon contractual percentages of amounts collected. Revenues for certain
other accounts receivable management services are recognized based upon
completion of services performed for the client.
 
     The Company provides a variety of print and mail services to its customers.
Revenue for the print and mail services is recognized upon delivery to the
United States Post Office or to the customer. Postage expenses are passed
directly through to the Company's clients and are not recognized as revenues or
expenses in the Company's consolidated financial statements.
 
     Revenues for outbound and inbound teleservices consist of hourly rate
charges and incentive based commissions that are recognized as these services
are provided.
 
                                       21
<PAGE>   22
                   COMPASS INTERNATIONAL SERVICES CORPORATION
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
  Inventory
 
     Inventory consists of raw materials and work in process recorded at cost
(FIFO) not to exceed market. The cost of work in process includes the costs of
completed but unmailed production.
 
  Property and Equipment
 
     Property and equipment are carried at cost less accumulated depreciation
and amortization. Depreciation and amortization of assets recorded under capital
leases and leasehold improvements, are provided using the straight-line method
over estimated useful lives of each class of assets, or, if shorter, the term of
lease. Useful lives range from 3 to 8 years. Expenditures for repairs and
maintenance are charged to expense as incurred.
 
  Goodwill and Other Intangibles
 
     Goodwill is the excess of the purchase price over the fair value of net
assets acquired in business combinations and certain amounts ascribed to the
issuance of pre-IPO shares of the Company's common stock. Goodwill is amortized
on a straight-line basis over periods ranging from 15 to 40 years. Accumulated
amortization at December 31, 1998 amounted to $2,129.
 
     Other intangibles are comprised of non-compete agreements totaling $450
with certain selling shareholders. The agreements are for periods ranging from
two to six years. Accumulated amortization at December 31, 1998 amounted to $75.
 
  Long-lived Assets
 
     Long-lived assets, including goodwill, are reviewed for permanent
impairment annually or whenever events or changes in circumstances indicate that
the carrying amount may be impaired. A loss would be recognized for the
difference between the fair value and carrying value of the asset.
 
  Financial Instruments
 
     Interest rate swap agreements have been used to effectively modify the
interest rate on $40 million of the Company's revolving line of credit from a
variable rate to a fixed rate. Amounts paid or received by the Company under
these agreements are recorded as adjustments to interest expense as realized.
 
     Financial instruments, which potentially expose the Company to a
concentration of credit risk principally, consist of accounts receivable. The
Company provides its services to a large number of clients in many domestic
geographic areas. To minimize credit concentration risk, the Company performs
ongoing credit evaluations of its customers' financial conditions.
 
  Income Taxes
 
     The Company records income taxes using the liability method, under which
deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets or liabilities and their
respective tax basis, using enacted tax rates.
 
  Cash Held in Trust for Clients/Collections Due to Clients
 
     Cash held in trust for clients and collections due to clients consist of
amounts collected on behalf of the Company's clients, net of the Company's
commission.
 
                                       22
<PAGE>   23
                   COMPASS INTERNATIONAL SERVICES CORPORATION
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
  Earnings Per Share
 
     The computation of basic earnings per share ("Basic EPS") for the year
ended December 31, 1998 reflects the number of shares of Common Stock
outstanding (1,682,769) attributable to BGL Capital Partners, LLC and Compass
management from January 1, 1998 until February 27, 1998, the number of shares
following the Founding Companies Acquisitions and Offering (11,218,460) from
February 27, 1998 until March 25, 1998, and the number of shares following the
exercise of the underwriters' overallotment option (11,833,460) from March 25,
1998 until the respective dates of acquisitions made using the Company's common
stock that occurred through September 30, 1998. The weighted average number of
shares outstanding for the year was 11,168,799.
 
     Diluted earnings per share ("Diluted EPS") for the year ended December
31,1998 includes the effect of 111,270 shares earned as of December 31, 1998
pursuant to earn-out agreements (see note 3) and 33,456 shares issuable for
dilutive options outstanding, net of treasury shares that could be purchased in
the open market based on the average closing per share price for the period. At
December 31, 1998, options amounting to 122,700 weighted shares were not
considered dilutive potential shares as their exercise prices were greater than
the average market price.
 
     A decrease in the price of a share of the Company's common stock subsequent
to the calculation of the estimated number of shares to be issued pursuant to
the earn-out agreements would result in more shares being issued than have been
used in the diluted earnings per share calculation. The actual number of shares
to be issued will be based on the closing common stock price at March 30, 1999.
 
  New Accounting Pronouncements
 
     In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and for Hedging Activities. The statement is effective for fiscal
years beginning after June 15, 1999 and defines a derivative and establishes
common accounting principles for all types of instruments. The statement
requires the Company to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives are either offset against the change in
fair value of assets, liabilities, or firm commitments through earnings or
recognized in comprehensive income until the hedged item is recognized in
earnings. The non-hedge portion of a derivative's change in fair value will be
immediately recognized in earnings. The Company plans to adopt Statement No. 133
in 2000, however, management does not expect its adoption to have a significant
impact on the Company's financial position, results of operations or cash flows.
 
NOTE 3 -- ACQUISITIONS
 
  Founding Companies
 
     On March 4, 1998, Compass acquired the Founding Companies for consideration
consisting of common stock, cash and debt. The closing of the Founding Companies
Acquisitions and the Offering occurred on that date. The Founding Companies
include providers of accounts receivable management services: National Credit
Management Corporation ("NCMC"), B.R.M.C. of Delaware, Inc. ("BRMC"),
Mid-Continent Agencies, Inc. ("MCA"); print and mail services: The Mail Box,
Inc. ("Mail Box"); and telemarketing services: Impact Telemarketing Group, Inc.
("Impact"). Mail Box has been identified as the accounting acquirer.
Accordingly, in recording the Founding Companies Acquisitions the accounts of
Mail Box continue to be reflected on its historic basis of accounting, while the
aggregate purchase price for the other Founding Companies was allocated based on
the fair value of assets acquired and liabilities assumed.
 
  Acquired Companies
 
     Subsequent to the IPO, the Company made several additional acquisitions in
the accounts receivable management services and the print and mail service
industries. These acquisitions included the following
                                       23
<PAGE>   24
                   COMPASS INTERNATIONAL SERVICES CORPORATION
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
accounts receivable management services companies : Professional American
Collections, Inc. ("PAC") Nationwide Debt Recovery, Ltd. ("NDR"), Delivery
Verification Service, Inc. ("DVS"), Midwest Collection Service, Inc.( "MCS"),
R.C. Wilson Company ("Wilson"), and Rosenfeld Attorney Network ("Rosenfeld").
The print and mail service companies acquired included: Metrowebb, Inc. and MWI
Laser Group, Inc. ("Metrowebb"), Maher & Associates Mailing Services, Inc.
("Ameritex") and Bender Direct Mail Service, Inc. ("Bender") (the "Acquired
Companies"). The aggregate purchase price for each acquisition has been assigned
to their respective assets based upon the fair value of the assets acquired and
liabilities assumed. As each of these acquisitions has been accounted for as a
purchase the Company's consolidated financial statements reflect the operations
of the acquired companies subsequent to the date of the acquisitions.
 
     The following table sets forth the consideration paid (a) in shares of the
Company's common stock, (b) in cash and (c) in other consideration, principally
debt incurred and amounts payable pursuant to earn-out agreements as of December
31, 1998; the fair value of the net assets acquired and the resulting goodwill.
 
<TABLE>
<CAPTION>
                                                                 CONSIDERATION PAID
                                         SHARES      ------------------------------------------
                                           OF         VALUE                                           NET
                                         COMMON         OF                                          ASSETS       GOOD-
                                          STOCK       SHARES      CASH       OTHER      TOTAL      ACQUIRED       WILL
                                        ---------    --------    -------    -------    --------    ---------    --------
<S>                                     <C>          <C>         <C>        <C>        <C>         <C>          <C>
NCMC..................................    965,801    $ 8,163     $ 3,169    $    88    $ 11,420     $2,689      $  8,731
BRMC..................................  1,151,787      9,675       3,894      1,538      15,107     (4,036)       19,143
MCA...................................    490,467      4,120       1,635      5,296      11,051        598        10,453
Impact................................    389,124      3,269         322        113       3,704        456         3,248
PAC...................................    659,154      3,803      10,425      7,617      21,845         56        21,789
NDR...................................    205,556      1,503       6,937      6,516      14,956        458        14,498
DVS...................................         --         --       1,500        365       1,865       (374)        2,239
MCS...................................         --         --       3,225        922       4,147       (411)        4,558
Wilson................................     14,285         97       3,000        584       3,681        149         3,532
Rosenfeld.............................         --         --       8,100      4,635      12,735        537        12,198
Metrowebb.............................    550,000      4,156       6,000        596      10,752      3,476         7,276
Ameritex..............................    284,112      2,850       3,500         55       6,405      1,559         4,846
Bender................................    234,939      1,875       2,152         78       4,105        632         3,473
                                        ---------    -------     -------    -------    --------     ------      --------
                                        4,945,225    $39,511     $53,859    $28,403    $121,773     $5,789      $115,984
                                        =========    =======     =======    =======    ========     ======      ========
</TABLE>
 
     Consideration issued pursuant to the acquisition of Mail Box, the
accounting acquirer, amounted to 2,461,852 shares of common stock with a value
of $20,679 and $8,614 in cash. At the acquisition date, additional paid-in
capital relating to the acquisition has been reduced by $29,293 for the value of
the consideration paid for Mail Box which is accounted for at historical cost.
 
     Shares issued to the Founding Companies were valued at $8.40 per share,
representing a 20% discount from the IPO price due to a one-year restriction on
transferability. For shares issued in conjunction with other acquisitions during
the year, having an aggregate recorded share value of $14,284, discounts from
the market price ranged from 20% for one year restrictions on transferability to
a maximum of 35% for two-year restrictions on transferability.
 
     The purchase agreements with certain of the Acquired Companies provide for
the payment of earn-out amounts based upon 1998 performance, as defined in the
specific agreements. At December 31, 1998, $11,405 has been provided in the
accompanying consolidated balance sheet for estimated payments earned pursuant
to these agreements, which are in the process of being finalized. The earn-outs
are payable in cash of $8,904 and common stock valued at $2,501. The shares to
be issued pursuant to the earn-out agreements are subject to the same
restrictions on transferability as those issued in the acquisitions and,
therefore, the market value of such shares have been discounted on a consistent
basis. In addition, the purchase agreement with one of the Acquired Companies
provides for the payment, in shares of the Company's common stock, of an
earn-out based upon that company's 1999 earnings before interest, income taxes,
depreciation and amortization, as defined, to a maximum amount of $3,745.
 
     Pursuant to the acquisitions, the Company undertook a program to
consolidate and streamline the operations of the accounts receivable management
services operations and to eliminate certain other redundant positions. A
 
                                       24
<PAGE>   25
                   COMPASS INTERNATIONAL SERVICES CORPORATION
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
total charge amounting to $1,433 has been recorded as part of the goodwill
recorded in the acquisition transactions. Of this amount, $1,333 relates to the
severance of approximately 20 employees and $100 relates to the close-down and
consolidation of operations. At of December 31, 1998, $712 was included in
accrued expenses relating to severance.
 
     The following unaudited pro forma summary presents the combined results of
operations of the Company, the Founding Companies and the Acquired Companies, as
if the acquisitions and Compass' IPO occurred at the beginning of 1998 and 1997.
The pro forma amounts give effect to certain adjustments including: adjustments
to salaries, bonuses and benefits to former owners and key management of the
Founding Companies and the Acquired Companies, repayment of long-term debt
acquired, amortization of goodwill and other intangible assets resulting from
the Founding Company acquisitions and the Acquired Companies, interest expense
on additional debt for the Acquired Companies and provision for income taxes as
if income were subject to corporate federal and state income taxes during the
period. The pro forma summary does not purport to represent what Compass'
operations would actually have been if such transactions had occurred on January
1, 1998 and 1997, and is not necessarily representative of Compass' results of
operations for any future period. Since the Founding Companies were not under
common control or management, historical combined results may not be comparable
to, or indicative of, future performance.
 
<TABLE>
<CAPTION>
                                                          YEAR ENDED       YEAR ENDED
                                                         DEC. 31, 1998    DEC. 31, 1997
                                                         -------------    -------------
                                                          (UNAUDITED)      (UNAUDITED)
<S>                                                      <C>              <C>
Net revenues...........................................    $177,105         $151,088
Operating income.......................................      20,775           12,947
Net income.............................................       9,345            4,634
Net income per share-basic.............................    $   0.68         $   0.34
</TABLE>
 
NOTE 4 -- PROPERTY AND EQUIPMENT
 
     At December 31, 1998, property and equipment consist of the following:
 
<TABLE>
<S>                                                             <C>
Facilities..................................................    $ 1,098
Equipment...................................................     12,159
Furniture, fixtures and office equipment....................     13,808
Other.......................................................        398
                                                                -------
          Total.............................................     27,463
Less accumulated depreciation...............................     (9,178)
                                                                -------
          Net property and equipment........................    $18,285
                                                                =======
</TABLE>
 
NOTE 5 -- LONG-TERM DEBT
 
  Credit Facility
 
     On April 23, 1998, Compass entered into an agreement (the "Revolver") with
Bank of America, NT & SA together with a group of other financial institutions,
with respect to a $35 million revolving credit facility. On August 7, 1998, the
Revolver was amended to increase the total amount available to $50 million and
on November 16, 1998 it was further amended to increase the total available
credit to $55 million. The Revolver has a three-year term and has been used for
acquisitions, capital expenditures, refinancing debt, and for general corporate
purposes. The Revolver also provides that a maximum of $2 million of the total
$55 million available may be used for letters of credit. At December 31, 1998,
borrowings under the Revolver totaled $48 million, there were $.8 million in
outstanding letters of credit and $6.2 million of availability.
 
                                       25
<PAGE>   26
                   COMPASS INTERNATIONAL SERVICES CORPORATION
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
     The Revolver requires Compass to comply with various covenants which
include maintenance of certain financial ratios, restrictions on additional
indebtedness and restrictions on liens, guarantees, investments, capital
expenditures, sales of assets, mergers and acquisitions, and dividends.
Indebtedness under the Revolver bears interest at an initial increment, based on
the Company maintaining a specified leverage ratio of 125 basis points over the
Interbank Offered Rate or a Base Rate, as defined therein. The Revolver is
secured by the common stock of Compass' current and future subsidiaries. In
addition, if the Company fails to maintain a leverage ratio, as defined, of
1.5-to-1, lenders may collateralize the Revolver with substantially all of the
assets of the Company and its subsidiaries. At December 31, 1998, the leverage
ratio, as defined, exceeded 1.5-to-1 and the lenders have perfected their lien
on the collateral. At December 31, 1998 the Company was in compliance with the
debt covenants.
 
     The borrowing rate under the Revolver on December 31, 1998 was 6.75%. On
October 13, 1998, the Company entered into interest rate swap arrangements to
effectively lock in a fixed rate covering $40 million of the Company's total
outstanding borrowings. The rate under the swap agreements at December 31, 1998
was 6.34%, which is comprised of a fixed rate of 4.84% plus an increment, based
on the Company maintaining a specified leverage ratio, of 150 basis points. The
swap arrangements were entered into with two of the lenders that are parties to
the Revolver and terminate on October 15, 2000.
 
     Due to a change in the Company's leverage ratio, the Revolver and swap
arrangements are being amended to provide a change in the margin increment to
225 basis points, or interest rates of 7.50% and 7.09%, respectively. This
margin change is effective with the signing of the amendment.
 
NOTES PAYABLE
 
     The Company issued notes in connection with acquisitions and has other
notes outstanding with respect to equipment financing and general working
capital. Such notes are summarized as follows:
 
<TABLE>
<S>                                                             <C>
Notes issued in connection with acquisitions, due between
  January 1999 and May 2001, with interest rates ranging
  from 7.16% to 10%.........................................    $8,650
Secured equipment financing facilities, due between 1999 and
  2001, with interest rates between 8.98% and 10.15%........       584
Other notes due between 1999 to 2015, with interest rates
  between 8% and 9.5%.......................................       450
                                                                ------
          Total.............................................    $9,684
                                                                ======
</TABLE>
 
     Aggregate maturities of long-term borrowings over the next five fiscal
years are as follows: 1999 - $1,924; 2000 - $7,214; 2001 - $48,497; 2002 - $6;
2003 - $6; Thereafter $37.
 
NOTE 6 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
 
     The carrying amounts of cash and cash equivalents, accounts
receivable/payable, accrued expenses and short-term debt approximate fair value
because of the short-term nature of these instruments. The estimated fair value
of notes payable and long-term debt approximates the carrying value due to its
stated interest rates approximating market rates for debt with similar terms and
average maturities.
 
     The Company uses interest rate swap arrangements to reduce interest rate
fluctuation risk. Amounts paid or received by the Company under these agreements
are recorded as an adjustment to interest expense as realized. Fair value of
these instruments is determined based on estimated settlement costs using
current interest rates. At December 31, 1998, the fair value of these
instruments approximates an asset of $122, which is not reflected in the
accompanying consolidated balance sheet. The counterparties to the Company's
interest rate swap agreements are substantial and creditworthy commercial banks
which are recognized as market makers. Neither the risks of
 
                                       26
<PAGE>   27
                   COMPASS INTERNATIONAL SERVICES CORPORATION
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
counterparty nonperformance nor the economic consequences of counterparty
nonperformance associated with these contracts were considered by the Company to
be material.
 
NOTE 7 -- INCOME TAXES
 
     The provision for income taxes consists of:
 
<TABLE>
<S>                                                             <C>
Current:
  Federal...................................................    $3,865
  State.....................................................       731
                                                                ------
                                                                 4,596
                                                                ------
Deferred:
  Federal...................................................       231
  State.....................................................        42
                                                                ------
                                                                   273
                                                                ------
                                                                $4,869
                                                                ======
</TABLE>
 
     Actual income tax expense differs from the "expected" income tax expense
(computed by applying the U.S. Federal corporate tax rate of 35% to income
before income taxes) as follows:
 
<TABLE>
<S>                                                             <C>
Computed "expected" income tax expense......................    $3,807
Non-deductible goodwill.....................................       686
State income taxes, net of Federal benefit..................       502
Other.......................................................      (126)
                                                                ------
          Effective income tax expense......................    $4,869
                                                                ======
</TABLE>
 
     Deferred tax assets and deferred tax liabilities were comprised of the
following:
 
<TABLE>
<S>                                                             <C>
Deferred tax assets:
  Allowance for doubtful accounts...........................    $  251
  Net operating loss carryforwards..........................       337
  Accrued expenses..........................................       282
  Other.....................................................         7
                                                                ------
          Total deferred tax assets.........................       877
Deferred tax liabilities --
  Amortizable goodwill......................................       136
  Depreciation expense......................................       137
                                                                ------
          Total deferred tax liabilities....................       273
                                                                ------
          Net deferred tax assets...........................    $  604
                                                                ======
</TABLE>
 
     There was no valuation allowance for deferred tax assets as of December 31,
1998. Based upon the scheduled reversal of deferred tax liabilities, projected
future taxable income and tax planning strategies, management believes it is
more likely than not the Company will realize the benefits of deferred tax
assets as of December 31, 1998. The Company's net operating loss carryforwards,
which may be used to offset future taxable income of certain purchased
subsidiaries, expire through 2012.
 
                                       27
<PAGE>   28
                   COMPASS INTERNATIONAL SERVICES CORPORATION
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
NOTE 8 -- STOCK OWNERSHIP AND COMPENSATION PLANS
 
  Employee Incentive Compensation Plan
 
     In 1998, the Company adopted the Employee Incentive Compensation Plan (the
"Incentive Plan") pursuant to which 2,000,000 shares of common stock have been
reserved for option grants to directors, officers, employees, consultants and
independent contractors. Individual awards under the Incentive Plan may take the
form of one or more of: (a) either incentive stock options ("ISOs") or
non-qualified stock options ("NQSOs"); (b) stock appreciation rights ("SARs");
(c) restricted or deferred stock; (d) dividend equivalents and (e) cash awards
or other awards not otherwise provided for, the value of which is based in whole
or part upon the value of the common stock.
 
     It is the policy of the Company that the number of shares of common stock
subject to options granted under the Incentive Plan will not exceed 10% of the
number of shares of common stock then outstanding. Shares of common stock which
are attributable to awards which have expired, terminated or been canceled or
forfeited, are available for issuance or use in connection with future awards.
The Board of Directors may amend the Incentive Plan without the consent of the
stockholders of the Company except to the extent such consent is required by law
or agreement.
 
  Employee Stock Purchase Plan
 
     During 1998 the Company has also adopted an Employee Stock Purchase Plan
(the "Purchase Plan") pursuant to which a total of 500,000 shares of common
stock have been reserved for issuance. The Purchase Plan, which qualifies under
Section 423 of the Internal Revenue Code of 1986, as amended, permits eligible
employees of the Company to purchase common stock through payroll deductions.
Payroll deductions may not exceed $25,000 for all purchase periods ending with
any Plan Year, as defined. As of December 31, 1998, 500,000 shares are reserved
pursuant to the Purchase Plan.
 
     Information as to shares subject to stock option plans is as follows:
 
<TABLE>
<CAPTION>
                                                           WEIGHTED
                                                           AVERAGE             TOTAL
                                           OPTIONS      EXERCISE PRICE     CONSIDERATION
                                          ---------    ----------------    -------------
<S>                                       <C>          <C>                 <C>
Granted.................................  1,118,695    $          10.70       $11,972
Forfeited...............................   (187,370)   $          10.95        (2,053)
                                          ---------    ----------------       -------
Shares under option at December 31,
  1998..................................    931,325    $          10.65       $ 9,919
                                          =========    ================       =======
Shares exercisable at December 31,
  1998..................................         --    $             --       $    --
                                          =========    ================       =======
</TABLE>
 
     Shares outstanding under the Incentive Stock Plan vest over periods ranging
from one to three years. At December 31, 1998, the weighted average remaining
life of the options was 9.32 years.
 
  Accounting for Stock-Based Compensation
 
     The Company applies APB Opinion No. 25 Accounting for Stock Issued to
Employees, and related Interpretations in accounting for its plans and the
exercise price of all options issued have equaled or exceeded the market value
of the stock on the date of grant. Accordingly, no compensation cost has been
recognized for the stock compensation plans. Had compensation cost for the
Company's stock compensation plans been determined
 
                                       28
<PAGE>   29
                   COMPASS INTERNATIONAL SERVICES CORPORATION
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
consistent with FASB Statement No. 123, Accounting for Stock Based Compensation,
the Company's net income and earnings per share would have been reduced to the
pro forma amounts indicated below.
 
<TABLE>
<S>                                                             <C>
Net income:
  As reported...............................................    $6,007
                                                                ======
  Pro forma.................................................    $5,249
                                                                ======
Basic net income per share:
  As reported...............................................    $ 0.54
                                                                ======
  Pro forma.................................................    $ 0.47
                                                                ======
Diluted net income per share:
  As reported...............................................    $ 0.53
                                                                ======
  Pro forma.................................................    $ 0.46
                                                                ======
</TABLE>
 
     The estimated fair value of options granted amounted to $5.34 using the
Black-Scholes option-pricing model. The principal assumptions used were:
 
<TABLE>
<S>                                                             <C>
Risk-free interest rate.....................................    5.46%
Expected dividend yield.....................................       0%
Expected volatility.........................................      60%
Expected life in years......................................       4
</TABLE>
 
NOTE 9 -- BUSINESS SEGMENTS
 
     The Company's operations are principally in three industry segments:
accounts receivable management, including the recovery of traditional delinquent
accounts from both consumer and commercial debtors; print and mail services
including the mailing of direct marketing materials, billing services, mail
presorting and other services related to mail handling; and teleservices for
outbound telemarketing, inbound customer service and inbound sales. The
Company's operations are principally within the United States.
 
     For the year ended December 31, 1998, revenues from one customer in the
print and mail segment represented approximately 19% of consolidated net
revenues.
 
     It should be noted that industry segment information might be of limited
usefulness in comparing an industry segment of the Company with a similar
industry segment of another enterprise.
 
     Selected information by industry segment is summarized below for the year
ended December 31, 1998:
 
<TABLE>
<CAPTION>
                                        ACCOUNTS
                                       RECEIVABLE    PRINT &      TELE-                   CONSOLI-
                                       MANAGEMENT     MAIL      SERVICES     CORPORATE      DATED
                                       ----------    -------    ---------    ---------    ---------
<S>                                    <C>           <C>        <C>          <C>          <C>
Net revenues.........................   $ 55,708     $56,165     $15,267                  $127,140
                                        --------     -------     -------                  --------
Operating profit.....................   $  9,319     $ 6,164     $   921      $(3,562)    $ 12,842
                                        ========     =======     =======      =======     ========
Total assets.........................   $119,290     $43,342     $ 6,842      $18,007     $187,481
                                        ========     =======     =======      =======     ========
Depreciation.........................   $  1,047     $ 1,681     $   155      $    74     $  2,957
                                        ========     =======     =======      =======     ========
Capital expenditures.................   $  1,951     $ 3,072     $    80      $   646     $  5,749
                                        ========     =======     =======      =======     ========
</TABLE>
 
                                       29
<PAGE>   30
                   COMPASS INTERNATIONAL SERVICES CORPORATION
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
NOTE 10 -- COMMITMENTS AND CONTINGENCIES
 
  Legal Matters
 
     The Company is involved in various legal matters in the normal course of
business. In the opinion of the Company's management, these matters are not
anticipated to have a material adverse effect on the financial position, results
of operations or cash flows of the Company.
 
  Lease Commitments and Related Parties
 
     The Company leases office and manufacturing space and certain plant and
office equipment pursuant to long-term non-cancelable lease agreements. As of
December 31, 1998, future minimum payments under lease arrangements amount to:
 
<TABLE>
<CAPTION>
                                                              CAPITAL    OPERATING
   YEAR ENDING DECEMBER 31,                                   LEASES      LEASES
   ------------------------                                  -------    ---------
<S>                                                           <C>        <C>
          1999..............................................  $2,077      $ 5,429
          2000..............................................   1,294        4,902
          2001..............................................     909        4,173
          2002..............................................     527        2,832
          2003..............................................     163        2,104
Thereafter..................................................      --        9,357
                                                              ------      -------
Total minimum lease payments................................  $4,970      $28,797
                                                                          =======
Less amount representing interest...........................    (528)
                                                              ------
Present value of minimum lease payments.....................   4,442
Less current maturities of lease obligations................  (1,798)
                                                              ------
Obligations under capital leases, excluding current
  installments..............................................  $2,644
                                                              ======
</TABLE>
 
     Rent expense for the year ended December 31, 1998 amounted to approximately
$5,200. The Company has real property leases either with certain former owners
of the Founding and Acquired Companies or entities with which such former owners
have an equity or partnership interest. Included in rent expense for the year
ended December 31, 1998 is $707 for payments under leases with these related
parties.
 
     At December 31, 1998, property and equipment included cost of $7,761 and
accumulated amortization of $2,168 with respect to equipment leased under
capital leases.
 
                                       30
<PAGE>   31
 
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
 
<TABLE>
<CAPTION>
                                                       ADDITIONS
                                                ------------------------
                                 BALANCE AT     CHARGED TO    CHARGED TO                    BALANCE AT
                                DECEMBER 31,    COSTS AND       OTHER                      DECEMBER 31,
                                    1997         EXPENSES      ACCOUNTS      OTHER(1)          1998
                                ------------    ----------    ----------    -----------    ------------
<S>                             <C>             <C>           <C>           <C>            <C>
Allowance for Doubtful
  Accounts....................       $--           (321)         --            (404)          $(725)
                                     ==            ====           ==           ====           =====
</TABLE>
 
---------------
 
(1) Represents amount of allowances from purchased companies.
 
ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
 
     Not applicable.
 
                                    PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
     The information in response to this item is incorporated by reference from
the Proxy Statement sections entitled "Election of Directors" and "Executive
Officers."
 
ITEM 11. EXECUTIVE COMPENSATION
 
     The information in response to this item is incorporated by reference from
the Proxy Statement sections entitled "Executive Compensation and Certain
Transactions" and "Report on Executive Compensation."
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
     The information in response to this item is incorporated by reference from
the Proxy Statement section entitled "Security Ownership of Certain Beneficial
Owners and Management."
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
     The information in response to this item is incorporated by reference from
the Proxy Statement section entitled "Executive Compensation and Certain
Transactions."
 
                                       31
<PAGE>   32
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 
<TABLE>
<S>      <C>      <C>
a.       The following documents are filed as part of this report:
         1.       Financial Statements:

                  An index to the Financial Statements filed as a part of this
                  report is contained in Item 8

                  Financial Statements of the Registrant's subsidiaries are
                  omitted because the Registrant is primarily an operating
                  company and the subsidiaries are wholly owned

b.       Reports on Form 8-K filed for the three months ended December 31,
         1998
         1.       The Company filed Form 8-K with the Securities and Exchange
                  Commission on October 16, 1998 (dated September 30, 1998)
                  with respect to the acquisition of the stock of Professional
                  American Collections, Inc. The filing was made pursuant to
                  Item 2 and Item 7 and included the unaudited financial
                  statements of Professional American Collections, Inc. and
                  unaudited pro forma combined financial statements of the
                  Company and Professional American Collections, Inc.

c.       Exhibits (Numbered in accordance with Item 601 of Regulation S-K):
         3.1(2)   Amended and Restated Certificate of Incorporation
         3.2(1)   By-Laws
         4.1(1)   Specimen Certificate representing Common Stock
         10.1(2)  1997 Employee Incentive Compensation Plan
         10.2(2)  Employee Stock Purchase Plan
         10.3(2)  Employment Agreement between the Company and Michael J.
                  Cunningham
         10.4     Amendment to Employment Agreement between the Company and
                  Michael J. Cunningham
         10.5(2)  Employment Agreement between the Company and Mahmud U. Haq
         10.6     Amendment to Employment Agreement between the Company and
                  Mahmud U. Haq
         10.7     Employment Agreement between the Company and Julie S.
                  Schechter
         10.8(2)  Employment Agreement between Compass Mail Services, L.P.,
                  (formerly the Mail Box, Inc.) and Kenneth W. Murphy
         10.9(2)  Stockholders Agreement
         10.10(2) Employment Agreement between CRMC (formerly National Credit
                  Management Corporation) and Leeds Hackett
         10.11(2) Employment Agreement between CRMC (formerly Mid-Continent
                  Agencies, Inc.) and Leslie J. Kirschbaum
         10.12(2) Employment Agreement between Compass Teleservices, Inc.,
                  (formerly Impact Telemarketing Group, Inc.) and Edward A.
                  DuCoin
         10.13(1) Processing Agreement between VarTec Telecommunications, Inc.
                  and Compass Mail Services L.P. (formerly The Mail Box, Inc.)
         10.14    Credit Agreement dated March 17, 1998 among the Company and
                  Various Financial Institutions
         10.15    First Amendment dated August 7, 1998 to the Credit Agreement
                  dated March 17, 1998 among the Company and Various Financial
                  Institutions
         10.16    Second Amendment dated November 16, 1998 to the Credit
                  Agreement dated March 17, 1998 among the Company and Various
                  Financial Institutions
         10.17    Third Amendment dated December 11, 1998 to the Credit
                  Agreement dated March 17, 1998 among the Company and Various
                  Financial Institutions
</TABLE>
 
                                       32
<PAGE>   33
<TABLE>
<S>      <C>      <C>
         10.18    Lease between Petula Associates, LTD and Compass
                  International Services Corporation dated December 22, 1998
         10.19    First Amendment to the Lease Agreement between Petula
                  Associates, Ltd. and the Company
         11       Statement regarding computation of per share income
         21       Subsidiaries of Registrant
         27       Financial Data Schedule (for SEC Information Only)
         99       Financial statements of The Mail Box, Inc., the accounting
                  Acquirer, at December 31, 1996, 1997, and February 28, 1998
                  and the results of their operations and their cash flows for
                  each of the years ended December 31, 1996 and 1997 and the
                  two months ended February 28, 1998
</TABLE>
 
---------------
 
(1) Included as an Exhibit to the Company's Registration Statement on Form S-1
    (File No. 333-37205) and incorporated by reference herein.
 
(2) Included as an Exhibit to the Company's Registration Statement on Form S-1
    (File No. 333-50021) and incorporated by reference herein.
 
                                       33
<PAGE>   34
 
                                   SIGNATURES
 
     Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 30th day of
March, 1999.
 
                                          COMPASS INTERNATIONAL
                                          SERVICES CORPORATION
 
                                          By:        /s/ MAHMUD U. HAQ
                                            ------------------------------------
                                                       Mahmud U. Haq
                                                  Chief Executive Officer
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons in the capacities and on
the dates indicated.
 
<TABLE>
<CAPTION>
                  SIGNATURE                                     TITLE
                  ---------                                     -----
<C>                                              <S>                                    <C>
 
          /s/ MICHAEL J. CUNNINGHAM              Chairman of the Board                  March 30, 1999
---------------------------------------------
            Michael J. Cunningham
 
              /s/ MAHMUD U. HAQ                  Chief Executive Officer (Principal     March 30, 1999
---------------------------------------------      Executive Officer and Director
                Mahmud U. Haq
 
              /s/ LEEDS HACKETT                  Chief Financial Officer (Principal     March 30, 1999
---------------------------------------------      Financial Officer and Accounting
                Leeds Hackett                      Officer and Director)
 
          /s/ HOWARD L. CLARK, JR.               Director                               March 30, 1999
---------------------------------------------
            Howard L. Clark, Jr.
 
            /s/ EDWARD A. DUCOIN                 Director                               March 30, 1999
---------------------------------------------
              Edward A. DuCoin
 
            /s/ LES J. KIRSCHBAUM                Director                               March 30, 1999
---------------------------------------------
              Les J. Kirschbaum
 
              /s/ SCOTT H. LANG                  Director                               March 30, 1999
---------------------------------------------
                Scott H. Lang
 
            /s/ KENNETH W. MURPHY                Director                               March 30, 1999
---------------------------------------------
              Kenneth W. Murphy
 
            /s/ BILLY RAY PITCHER                Director                               March 30, 1999
---------------------------------------------
              Billy Ray Pitcher
 
            /s/ TOMMASO ZANZOTTO                 Director                               March 30, 1999
---------------------------------------------
              Tommaso Zanzotto
</TABLE>
 
                                       34