<PAGE>
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
                                   FORM 10-Q

/X/  Quarterly report pursuant to Section 13 or 15(d) of
     the Securities Exchange Act of 1934


     For the quarterly period ended June 30, 1998, or


/ /  Transition report pursuant to Section 13 or 15(d) of
     the Securities Exchange Act of 1934

     For the transition period from      to

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

                        COMMISSION FILE NUMBER 0-21639
--------------------------------------------------------------------------------

                                NCO GROUP, INC.
--------------------------------------------------------------------------------
            (Exact name of registrant as specified in its charter)

                                 PENNSYLVANIA
--------------------------------------------------------------------------------
        (State or other jurisdiction of incorporation or organization)

            515 Pennsylvania Avenue, Fort Washington, Pennsylvania
--------------------------------------------------------------------------------
                   (Address of principal executive offices)

                                  23-2858652
--------------------------------------------------------------------------------
                     (IRS Employer Identification Number)

                                     19034
--------------------------------------------------------------------------------
                                  (Zip Code)

                                 215-793-9300
--------------------------------------------------------------------------------
              (Registrant's telephone number including area code)


--------------------------------------------------------------------------------
             (Former name, former address and former fiscal year,
                        if changed since last report)

         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, and (2) has been subject to such filing
requirements for the past 90 days.
                                 Yes X  No       
                                    ---   ---


         The number of shares outstanding of each of the issuer's classes of
common stock was 17,864,771 shares common stock, no par value, outstanding as of
July 31, 1998.



<PAGE>
                                NCO GROUP, INC.
                                     INDEX
                                                                            
                                                                         PAGE
                                                                         ----
Part I                       FINANCIAL INFORMATION

  Item 1   CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

           Consolidated Balance Sheets -
               December 31, 1997 and June 30, 1998                         3

           Consolidated Statements of Income -
               Three months and six months ended
               June 30, 1997 and 1998                                      4


           Consolidated Statements of Cash Flows -
               Six months ended June 30, 1997 and 1998                     5

           Notes to Consolidated Financial Statements                      6
           Pro Forma Consolidated Statement of Income -

               Six months ended June 30, 1998                              11

           Notes to Pro Forma Consolidated Statement of Income             12

  Item 2   MANAGEMENT'S DISCUSSION AND ANALYSIS OF
             FINANCIAL CONDITION AND RESULTS OF OPERATIONS                 13

PART II                                                                    18

  Item 1.  Legal Proceedings
  Item 2.  Changes in Securities
  Item 3.  Defaults Upon Senior Securities
  Item 4.  Submission of Matters to a Vote of Shareholders
  Item 5.  Other Information
  Item 6.  Exhibits and Reports on 8-K

                                     -2-
<PAGE>

Part 1 - Financial Information
Item 1 - Financial Statements
                                NCO GROUP, INC.
                          Consolidated Balance Sheets
                                  (Unaudited)
                 (Amounts in thousands, except per share data)
<TABLE>
<CAPTION>

                                                                          December 31,    June 30,
                                               ASSETS                         1997           1998
                                                                          ------------   ----------
<S>                                                                          <C>          <C>     
Current assets:
    Cash and cash equivalents                                                $ 29,539     $ 25,554
    Accounts receivable, trade, net of allowance for
         doubtful accounts of $365 and $617, respectively                      13,442       23,621
    Other current assets                                                        2,357        2,628
                                                                          ------------   ----------
         Total current assets                                                  45,338       51,803

Funds held in trust for clients

Property and equipment, net                                                     7,469       10,762

Other assets:
    Intangibles,  net of accumulated amortization                              46,403      123,045
    Deferred taxes                                                                  -       10,103
    Deposits on acquisitions                                                    1,650            -
    Other assets                                                                  776        4,561
                                                                          ------------   ----------
          Total other assets                                                   48,829      137,709
                                                                          ------------   ----------
Total assets                                                                $ 101,636    $ 200,274
                                                                          ============   ==========


                                LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
    Long-term debt, current portion                                             $ 560      $ 1,463
    Capitalized lease obligations, current portion                                114          268
    Corporate taxes payable                                                       286        1,782
    Accounts payable                                                            1,913        3,185
    Accrued expenses                                                            3,074        4,475
    Accrued compensation and related expenses                                   2,844        4,418
    Accrued pension and other benefits, current portion                             -          995
    Unearned revenue, net of related costs                                        107          153
                                                                          ------------   ----------
         Total current liabilities                                              8,898       16,739

Funds held in trust for clients

Long-term liabilities:
    Long term debt, net of current portion                                      1,437            5
    Capitalized lease obligations, net of current portion                         248          760
    Deferred taxes                                                              1,691            -
    Accrued pension and other benefits, net of current portion                      -        6,706
    Unearned revenue, net of related costs                                         28            -

Commitments and contingencies

Shareholders' equity:
    Preferred stock, no par value, 5,000 shares authorized,
         no shares issued and outstanding
    Common stock,  no par value, 37,500 shares authorized,
        13,216 and 17,395 shares issued and outstanding, respectively.         80,249      161,902
    Unexercised warrants                                                        1,122          875
    Foreign currency translation adjustment                                         -         (266)
    Retained earnings                                                           7,963       13,553
                                                                          ------------   ----------
          Total shareholders' equity                                           89,334      176,064
                                                                          ------------   ----------
Total liabilities and shareholders' equity                                  $ 101,636    $ 200,274
                                                                          ============   ==========

The accompaning notes are an integral part of these consolidated financial statements.
</TABLE>

                                     -3-
<PAGE>

                                NCO GROUP, INC.
                       Consolidated Statements of Income
                                  (Unaudited)
                 (Amounts in thousands, except per share data)

<TABLE>
<CAPTION>

                                                       For the Three Months Ended   For the Six Months Ended
                                                                June 30,                     June 30,
                                                         ---------------------        --------------------
                                                            1997        1998             1997       1998
                                                         ---------    --------        --------   ---------
<S>                                                      <C>          <C>             <C>        <C>      
Revenue                                                  $  21,162    $ 38,990        $ 39,239   $  66,599
                                                                                   
Operating costs and expenses:                                                      
    Payroll and related expenses                            10,537      20,125          19,583      34,269
    Selling, general and administrative                                            
      expenses                                               6,760      11,286          12,691      19,854
    Depreciation and amortization expense                      827       1,533           1,543       2,688
                                                         ---------    --------        --------   ---------
         Total operating costs and expenses                 18,124      32,944          33,817      56,811
                                                         ---------    --------        --------   ---------
Income from operations                                       3,038       6,046           5,422       9,788
                                                                                   
Other income (expense):                                                            
    Interest and investment income                              69         260             162         492
    Interest expense                                          (247)       (631)           (422)       (710)
                                                         ---------    --------        --------   ---------
                                                              (178)       (371)           (260)       (218)
                                                         ---------    --------        --------   ---------
Income before provision for income taxes                     2,860       5,675           5,162       9,570
                                                                                   
Income tax expense                                           1,144       2,401           2,138       3,980
                                                         ---------    --------        --------   ---------
                                                                                   
Net  income                                              $   1,716    $  3,274        $  3,024   $   5,590
                                                         =========    ========        ========   =========
                                                                                   
Net income per share:                                                              
    Basic                                                $    0.16    $   0.22        $   0.28   $    0.40
                                                         =========    ========        ========   =========
    Diluted                                              $    0.15    $   0.22        $   0.27   $    0.39
                                                         =========    ========        ========   =========
                                                                                
Weighted average shares outstanding:
    Basic                                                   10,851      14,624          10,753      13,932
    Diluted                                                 11,448      15,158          11,339      14,479

The accompaning notes are an integral part of these consolidated financial statements.
</TABLE>

                                     -4-

<PAGE>

                                NCO GROUP, INC
                     Consolidated Statements of Cash Flows
                                  (Unaudited)
                 (Amounts in thousands, except per share data)

<TABLE>
<CAPTION>

                                                                    For the Six Months Ended
                                                                             June 30,
                                                                    -----------------------
                                                                        1997          1998
                                                                    ----------    ---------
<S>                                                                 <C>           <C>      
Cash flows from operating activities:
  Net income                                                        $    3,024    $   5,590
  Adjustments to reconcile net income
    to net cash provided by operating activities:
      Depreciation                                                         599          999
      Amortization of intangibles                                          944        1,692
      Provision for doubtful accounts                                       83           56
      Changes in assets and liabilities, net of acquisitions:
        Accounts receivable, trade                                        (892)      (1,345)
        Other current assets                                               348        1,247
        Deferred taxes                                                     106        1,160
        Other assets                                                        85          251
        Accounts payable                                                  (847)         129
        Corporate taxes payable                                          1,151        1,432
        Accrued expenses                                                 1,158       (1,788)
        Accrued compensation and related costs                             (37)        (410)
        Unearned revenue                                                   (73)        (134)
                                                                    ----------    ---------
             Net cash provided by operating activities                   5,649        8,879

Cash flows from investing activities:
  Purchase of property and equipment                                    (1,625)      (2,457)
  Net cash paid for acquisitions                                       (17,257)     (86,964)
                                                                    ----------    ---------
             Net cash used in investing activities                     (18,882)     (89,421)

Cash flows from financing activities:
  Repayment of notes payable                                              (203)        (664)
  Repayment of acquired notes payable                                        -       (4,653)
  Borrowings under credit agreement                                      8,350       74,000
  Repayment of borrowings under credit agreement                             -      (74,000)
  Payment of fees to acquire new debt                                        -          493
  Issuance of common stock, net                                              -       81,406
                                                                    ----------    ---------
             Net cash provided by financing activities                   8,147       76,582

Effect of exchange rate on cash                                              -          (25)
                                                                    ----------    ---------

Net decrease in cash and cash equivalents                               (5,086)      (3,985)

Cash and cash equivalents at beginning of period                        12,059       29,539
                                                                    ----------    ---------

Cash and cash equivalents at end of period                          $    6,973    $  25,554
                                                                    ==========    =========
The accompaning notes are an integral part of these consolidated financial statements.
</TABLE>

                                     -5-

<PAGE>

                                NCO GROUP, INC.
                  Notes to Consolidated Financial Statements
                                  (Unaudited)


1. Nature of Operations:


NCO Group, Inc. (the "Company") is a leading provider of accounts receivable
management and other outsoucred services. The Company's client base is comprised
of companies located throughout the United States, Canada, United Kingdom and
Puerto Rico in the financial services, healthcare, retail and commercial,
education, telecommunications, utilities and government sectors.

In June 1998, the Company completed a public offering (the "1998 Offering") of
4,329,110 shares of Common Stock at a price to the public of $21.50 per share,
including 4,000,000 shares issued by the Company, 180,000 shares sold by
management and related shareholders and 149,110 shares sold by certain
non-management shareholders. The proceeds of the offering, after underwriting
discounts and expenses, were approximately $81.1 million.

In July 1998, in connection with the underwriters' exercise of the
over-allotment option granted pursuant to the 1998 Offering at a price to the
public of $21.50 per share, the Company issued 469,366 shares and 180,000 shares
were sold by management and related shareholders. The proceeds from the
underwriters' exercise of the over-allotment option, after underwriting
discounts and expenses, were approximately $9.6 million.

2. Summary of Significant Accounting Policies:

   Interim Financial Information:

The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions for Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of only
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month and six month periods ended
June 30, 1998 are not necessarily indicative of the results that may be expected
for the year ending December 31, 1998 or for any other interim period. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K, as
amended, filed with the Securities and Exchange Commission on March 31, 1998.

   Principles of Consolidation:

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

   Revenue Recognition:

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

                                     -6-
<PAGE>

   Income Taxes:

The Company accounts for income taxes using Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." This standard requires an
asset and liability approach that takes into account changes in tax rates when
valuing the deferred tax amounts to be reported on the balance sheet. If it is
more likely than not that some or all of a deferred tax asset will not be
realized, a valuation allowance is recognized.

   Credit Policy:

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

   Goodwill:

Goodwill represents the excess of purchase price over the fair market value of
the net assets of the acquired businesses. Goodwill is amortized on a
straight-line basis over 15 to 40 years. The Company periodically reviews the
recoverability of goodwill. In making such determination with respect to
goodwill, the Company evaluates the operating cash flows of the underlying
business that gave rise to such amount.

   Estimates Utilized in the Preparation of Financial Statements:

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

   Earnings Per Share:


All earnings per share computations and presentations are in accordance with
SFAS No. 128, "Earnings per Share."

3. Acquisitions:

On January 22, 1997, the Company purchased the outstanding stock of Goodyear &
Associates, Inc. ("Goodyear") for $5.4 million comprised of $4.5 million in cash
and a $900,000 convertible note. The Company recognized goodwill of $4.9
million.

On January 30, 1997, the Company purchased substantially all the assets of
Tele-Research Center, Inc. ("Tele-Research") for $2.2 million in cash including
contingent consideration paid. The Company recognized goodwill of $1.6 million.

On January 31, 1997, the Company purchased certain assets of CMS A/R Services
("CMSA/R"), the Collection Division of CMS Energy Corporation, for $5.1 million
in cash. The Company recognized goodwill of $3.2 million.

On February 2, 1997, the Company purchased certain assets and assumed certain
liabilities of the Collections Division of CRW Financial, Inc. ("CRWCD") for
$3.8 million in cash, 518,000 shares of common stock and warrants for 375,000
shares of common stock. The acquisition was valued at approximately $12.8
million. The Company recognized goodwill of $10.2 million.



                                     -7-
<PAGE>

On October 1, 1997, the Company purchased the outstanding stock of ADVANTAGE
Financial Services, Inc. and related companies ("AFS") for $2.9 million in cash,
46,000 shares of common stock and $1.0 million in notes payable. The acquisition
was valued at approximately $5.0 million. The Company recognized goodwill of
$5.1 million.

On October 1, 1997, the Company purchased the outstanding stock of Credit
Acceptance Corp. ("CAC") for $1.8 million in cash. The Company recognized
goodwill of $1.8 million.

On December 31, 1997, effective January 1, 1998, the Company purchased certain
assets of American Financial Enterprises, Inc. Collections Division ("AFECD")
for $1.7 million in cash. Cash paid for the acquisition of AFECD is included on
the Consolidated Balance Sheet at December 31, 1997 under the caption "Deposits
on acquisitions." The Company recognized goodwill of $2.1 million.

On February 6, 1998, the Company purchased certain assets of The Response Center
("TRC"), which was an independent division of TeleSpectrum Worldwide, Inc., for
$15.0 million in cash plus an earn-out based on the value of the Company's
market research business at December 31, 1998. The Company recognized goodwill
of $13.9 million.

On May 5, 1998, the Company purchased all of the outstanding common shares of
FCA International Ltd. ("FCA") at $9.60 per share, Canadian (equivalent to $6.77
in U.S. dollars based upon the exchange rate at the date of the agreement). The
acquisition was valued at approximately $69.9 million. The allocation of the
fair market value to the acquired assets and liabilities of FCA was based on
preliminary estimates and is subject to change. The Company recognized goodwill
of $69.8 million.

On July 1, 1998, the Company purchased all of the outstanding stock of
MedSource, Inc. ("MedSource") for $17.7 million in cash. In connection with the
acquisition, the Company repaid debt of $17.3 million. The Company financed the
acquisition with $25.5 million of borrowings under the Company's revolving
credit facility and with $9.5 million of the proceeds received in July 1998 from
the underwriters' exercise of the over-allotment option granted pursuant to the
1998 Offering. The Company expects to recognize goodwill of $36.3 million.

4. Comprehensive Income:

Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS No. 130
establishes standards for the reporting and display of comprehensive income.
Comprehensive income consists of net income from operations, plus certain
changes in assets and liabilities that are not included in net income but are
reported as a separate component of shareholders' equity under generally
accepted accounting principles. The Company's comprehensive income is as follows
(amounts in thousands):

<TABLE>
<CAPTION>
                                                  For the three months      For the six months
                                                    ended June 30,            ended June 30,
                                                ----------------------    ---------------------   
                                                   1997       1998          1997         1998
                                                --------   -----------    -------     ---------  
<S>                                             <C>        <C>            <C>         <C>       
   Net income                                   $  1,716   $    3,274     $ 3,024     $   5,590 
                                                                         
   Foreign currency  translation adjustment            -         (266)          -          (266)
                                                --------   -----------    -------     ---------  
   Comprehensive income                         $  1,716   $    3,008     $ 3,024     $   5,324
                                                ========   ===========    =======     =========  
 Acquisitions:
</TABLE>

                                     -8-
<PAGE>


5. Funds Held in Trust for Clients:

In the course of the Company's regular business activities as an accounts
receivable management company, the Company receives clients' funds arising from
the collection of accounts placed with the Company. These funds are placed in
segregated cash accounts and are generally remitted to clients within 30 days.
Funds held in trust for clients of $8.1 million and $27.3 million at December
31, 1997 and June 30, 1998, respectively, have been shown net of their
offsetting liability for financial statement presentation purposes.


6. Long-term debt:

In March 1998, Mellon Bank, N.A. increased the revolving credit facility to
$75.0 million from $25.0 million and changed the interest rate from a fixed rate
of 2.5% over LIBOR to a variable rate ranging from LIBOR plus 0.75% to LIBOR
plus 2.0% (LIBOR was 5.75% at June 30, 1998) based on the Company's interest
coverage ratios. There were no outstanding borrowings as of December 31, 1997 or
June 30, 1998. The revolving credit line is collateralized by substantially all
the assets of the Company and includes certain financial covenants such as
maintaining minimum working capital and net worth requirements and includes
restrictions on, among other things, capital expenditures and distributions to
shareholders. The bank had received warrants to purchase an aggregate of 361,000
shares of the Company's Common Stock for establishing the credit facility
initially and for subsequent amendments to increase the Company's borrowing
capacity under such facility. In July 1997, the bank exercised 225,000 warrants
for Common Stock which were sold in the 1997 offering. The remainder of the
warrants were exercised in January 1998.

7. Earnings per share:

Basic earnings per share were computed by dividing the net income for the three
months and six months ended June 30, 1997 and 1998 by the weighted average
number of shares outstanding. Diluted earnings per share were computed by
dividing the net income, adjusted for the effects of interest expense
attributable to convertible debt, for the three months and six months ended June
30, 1997 and 1998 by the weighted average number of shares outstanding including
all dilutive potential common shares. All outstanding options, warrants and
convertible securities have been utilized in calculating diluted net income per
share only when their effect would be dilutive.

The reconciliation of basic to diluted earnings per share ("EPS") consists of
the following (amounts in thousands except EPS amounts):

<TABLE>
<CAPTION>
                                       For the three months ended        For the six months ended
                                  ----------------------------------  --------------------------------
                                   June 30, 1997      June 30, 1998    June 30, 1997    June 30, 1998
                                  ----------------  ----------------  ---------------  ---------------
                                  Shares     EPS     Shares    EPS    Shares    EPS    Shares    EPS
                                  ------  --------   ------  -------  ------  -------  ------  -------
<S>                               <C>     <C>        <C>     <C>      <C>     <C>      <C>     <C>    
Basic                             10,851  $   0.16   14,624  $  0.22  10,753  $  0.28  13,932  $  0.40
Dilutive effect of warrants           48         -       89        -      47        -      94        -
Dilutive effect of options           370     (0.01)     381        -     397    (0.01)    389    (0.01)
Dilutive effect of
  Convertible notes                  179         -       64        -     177        -      64        -
                                  ------  --------   ------  -------  ------  -------  ------  -------
Diluted                           11,448  $   0.15   15,158  $  0.22  11,339  $  0.27  14,479  $  0.39
                                  ======  ========   ======  =======  ======  =======  ======  =======

</TABLE>

                                     -9-
<PAGE>

8. Supplemental Cash Flow Information:

The following are supplemental disclosures of cash flow information for the six
months ended June 30 following (amounts in thousands):

                                                                1997     1998
                                                              -------- --------
    Noncash investing and financing activities:
        Fair value of assets acquired                         $ 7,987  $ 34,093
        Liabilities assumed from acquisitions                   3,400    19,732
        Convertible note payable, issued for acquisition          900         -
        Common stock issued for acquisition                     8,215         -
        Warrants issued for acquisitions                          875         -
        Warrants exercised                                          -       247


                                     -10-
<PAGE>

                                NCO GROUP, INC.
                  Pro Forma Consolidated Statement of Income
                    For the Six Months Ended June 30, 1998
                                  (Unaudited)
               (Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
                                                                           Historical                          
                                                    -----------------------------------------------------
                                                    NCO Group,   The Response                               Acquisition
                                                        Inc.      Center (1)     FCA (1)    MedSource (1)   Adjustments (2) 
                                                    ----------   ------------   --------    -------------   ---------------
<S>                                                 <C>            <C>          <C>           <C>             <C>           
Revenue                                             $  66,599      $   788      $ 19,340      $ 11,109        $     -       
Operating costs and expenses:
    Payroll and related expenses                       34,269          429        14,267         6,140         (2,780)      
    Selling, general and administrative expenses       19,854          162         8,995         3,530         (2,732)      
    Depreciation and amortization expense               2,688            7         2,673           635         (1,773)      
                                                    ---------      -------      --------      --------        -------  
         Total operating costs and expenses            56,811          598        25,935        10,305         (7,285)      
                                                    ---------      -------      --------      --------        -------  
Income (loss) from operations                           9,788          190        (6,595)          804          7,285       
Other income (expense):
    Interest and investment income                        492            -           107             -            (69)      
                                                    ---------        
    Interest expense                                     (710)           -          (135)       (1,048)        (2,009)      
                                                    ---------      -------      --------      --------        -------  
                                                         (218)           -           (28)       (1,048)        (2,078)      
                                                    ---------      -------      --------      --------        -------  
Income (loss) before provision for income taxes         9,570          190        (6,623)         (244)         5,207       

Income tax expense (benefit)                            3,980            -           132           146           (866)      
                                                    ---------      -------      --------      --------        -------  
                                                    
Net  income (loss)                                  $   5,590      $   190      $ (6,755)(4)  $   (390)       $ 6,073       
                                                    =========      =======      ========      ========        =======    
Net income per share:                               
    Basic                                           $    0.40                                                               
                                                    =========                                                              
    Diluted                                         $    0.39                                                               
                                                    =========                                                              
Weighted average shares outstanding:                
    Basic                                              13,932                                                               
                                                    =========                                                              
    Diluted                                            14,479                                                               
                                                    =========                                                              
</TABLE>
                                                                          
                                                        

<PAGE>
                                 [RESTUBBED]

<TABLE>
<CAPTION>
                                                                                   Pro Forma    
                                                                    Offering          As        
                                                    Pro Forma      Adjustments(3)  Adjusted     
                                                    ---------      --------------  ---------
<S>                                                 <C>              <C>           <C>          
Revenue                                             $ 97,836         $     -       $ 97,836     
Operating costs and expenses:                                                                   
    Payroll and related expenses                      52,325               -         52,325     
    Selling, general and administrative expenses      29,809               -         29,809     
    Depreciation and amortization expense              4,230                          4,230     
                                                    --------         -------       --------                                
         Total operating costs and expenses           86,364               -         86,364     
                                                    --------         -------       --------                                
Income (loss) from operations                         11,472               -         11,472     
Other income (expense):                                                                         
    Interest and investment income                       530               -            530     
    Interest expense                                  (3,902)          2,769         (1,133)    
                                                    --------         -------       --------                                
                                                      (3,372)          2,769           (603)    
                                                    --------         -------       --------                                
Income (loss) before provision for income taxes        8,100           2,769         10,869     
                                                                                                
Income tax expense (benefit)                           3,392           1,108          4,500     
                                                    --------         -------       --------                                
Net  income (loss)                                  $  4,708         $ 1,661       $  6,369     
                                                    ========         =======       ========                                
Net income per share:                                                                           
    Basic                                           $   0.34(5)                    $   0.37(5)    
                                                    ========                       ========                                
    Diluted                                         $   0.33(5)                      $ 0.36(5)    
                                                    ========                       ========                                
Weighted average shares outstanding:                                                            
    Basic                                             13,932                         17,170(6) 
                                                    ========                       ========                                
    Diluted                                           14,479                         17,717(6) 
                                                    ========                       ========                                









The accompanying notes are an integral part of these pro forma consolidated financial statements.
</TABLE>
                                     -11-

<PAGE>


                                NCO GROUP, INC.
              Notes to Pro Forma Consolidated Statement of Income
                                  (Unaudited)


(1)  Gives effect to the acquisitions of The Response Center ("TRC") and FCA
     International Ltd. ("FCA") and the pending acquisition of MedSource, Inc.
     ("MedSource") as if they occurred on January 1, 1998.

(2)  Gives effect to: (i) the elimination of payroll and related expenses
     relating to certain redundant collection and administrative personnel costs
     immediately eliminated at the time of the TRC and FCA acquisitions and
     expenses identified during the due diligence process which were eliminated
     upon the closing of the MedSource acquisition; (ii) the elimination of
     certain rental expenses and related operating costs attributable to
     facilities which were closed upon the completion of the FCA acquisition and
     costs attributable to facilities that were identified during the due
     diligence process and closed upon the completion of the MedSource
     acquisition; (iii) the increase in amortization expense resulting from the
     TRC, FCA and MedSource acquisitions; (iv) the elimination of depreciation
     and amortization expense related to assets revalued or not acquired; (v)
     interest expense on borrowings related to the FCA and MedSource
     acquisitions; and (vi) the estimated income tax expense or benefit, after
     giving consideration to non-deductible goodwill expense.

(3)  Reflects the elimination of interest expense on debt assumed to be repaid
     with a portion of the proceeds from the Company's public offering of
     4,469,366 shares of Common Stock, including the 469,366 shares of Common
     Stock sold in July 1998 in connection with the underwriters' exercise of
     the over-allotment option, at the public offering price of $21.50 per
     share, net of underwriting discount and estimated offering expenses payable
     by the Company (the "1998 Offering").

(4)  Includes non-recurring charges of $5.7 million. $4.3 million of these
     expenses were incurred in connection with NCO's acquisition of FCA and were
     therefore eliminated for the purposes of calculating pro forma net income.
     $1.4 million of the expenses were not incurred in connection with NCO's
     acquisition of FCA but are non-recurring in nature and are not necessarily
     representative of FCA's future operating costs.

(5)  Includes $1.4 million of expenses which were not incurred in connection
     with NCO's acquisition of FCA but are non-recurring in nature and are not
     necessarily representative of FCA's future operating costs. Net income per
     share - basic and net income per share - diluted would have been $0.40 and
     $0.38, respectively, on a pro forma basis assuming these expenses had not
     been incurred. On a pro forma as adjusted basis, net income per share -
     basic and net income per share - diluted would have been $0.42 and $0.41,
     respectively, assuming these expenses had not been incurred.

(6)  Gives effect to the issuance of 4,469,366 shares of Common Stock, including
     the 469,366 shares of Common Stock sold in July 1998 in connection with the
     underwriters' exercise of the over-allotment option, in the 1998 Offering.


                                     -12-
<PAGE>
Item 2
                    Management's Discussion and Analysis of
                 Financial Condition and Results of Operations


     Certain statements included in this Report on Form 10-Q, other than
historical facts, are forward-looking statements (as such term is defined in
the Securities Exchange Act of 1934, and the regulations thereunder)
including, without limitation, statements as to the Company's objective to
grow through strategic acquisitions and internal growth, the Company's ability
to realize operating efficiencies in the integration of its acquisitions,
trends in the Company's future operating performance, the classification of
the Company's investment portfolio, and statements as to the Company's or
management's beliefs, expectations and opinions. Forward-looking statements
are subject to risks and uncertainties and may be affected by various factors
which may cause actual results to differ materially from those in the
forward-looking statements. In addition to the factors discussed in this
Report, certain risks, uncertainties and other factors, including, without
limitation the risk that the Company will not be able to realize operating
efficiencies in the integration of its acquisitions, risks associated with
growth and future acquisitions, fluctuations in quarterly operating results,
and the other risks detailed from time to time in the Company's filings with
the Securities and Exchange Commission, including the Company's Annual Report
on Form 10-K, filed on March 31, 1998, as amended, and the Company's
Registration Statement on Form S-3, filed on May 4, 1998, as amended, can
cause actual results and developments to be materially different from those
expressed or implied by such forward-looking statements.

     In analyzing whether to make, or to continue, an investment in the Company,
investors should consider, among other factors, certain risk factors and other
information contained in the Company's filings with the Securities and Exchange
Commission, including, without limitation, the Annual Report on Form 10-K filed
with the Securities and Exchange Commission on March 31, 1998, as amended and
the Company's Registration Statement on Form S-3 filed with the Securities and
Exchange Commission on May 4, 1998, as amended.

     A copy of the Annual Report on Form 10-K can be obtained, without charge
except for exhibits, by written request to Steven L. Winokur, Executive
Vice-President, Finance/CFO, NCO Group, Inc., 515 Pennsylvania Avenue, Ft.
Washington, PA 19034.

Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997

     Revenue. Revenue increased $17.8 million or 84.3% to $39.0 million for the
three months ended June 30, 1998 from $21.2 million for the comparable period in
1997. Of the increase, $5.5 million was attributable to the addition of new
clients and growth in business from existing clients. Revenue attributable to
the FCA International Ltd. ("FCA") acquisition completed in May 1998 represented
$8.7 million of the increase. In addition, $2.2 million of the increase was
attributable to the Collection Division of American Financial Enterprises, Inc.
("AFECD") and The Response Center ("TRC") acquisitions completed in the first
quarter of 1998 and $1.4 million of the increase was attributable to the
ADVANTAGE Financial Services, Inc. ("AFS") and the Credit Acceptance Corporation
("CAC") acquisitions completed in October 1997.

     Payroll and related expenses. Payroll and related expenses increased $9.6
million to $20.1 million for the three months ended June 30, 1998 from $10.5
million for the comparable period in 1997, and increased as a percentage of
revenue to 51.6% from 49.8%. Payroll and related expenses increased as a
percentage of revenue primarily as a result of FCA and the market research
division having higher payroll cost structures than that of the remainder of the
Company. In addition, the start up of a contract with the United States
Department of Education (the "DOE Contract") required the Company to hire and
train a certain number of collection personnel the cost of which was only
partially offset by revenues generated by the contract during its startup phase.
These higher costs were partially offset by lower payroll costs in the AFS and
CAC acquisitions and by spreading the cost of management and administrative
personnel over a larger revenue base.


                                     -13-
<PAGE>
     Selling, general and administrative expenses. Selling, general and
administrative expenses increased $4.5 million to $11.3 million for the three
months ended June 30, 1998 from $6.8 million for the comparable period in 1997,
but decreased as a percentage of revenue to 28.9% from 31.9%. The decrease as a
percentage of revenue was, in part, the result of additional operating
efficiencies obtained when selling, general and administrative expenses were
spread over a larger revenue base. In addition, a portion of the decrease was
attributable to the market research division having a lower selling, general and
administrative expense structure than that of the Company's core business. These
decreases as a percentage of revenue were partially offset by the higher cost
structures of acquired companies.

     Depreciation and amortization. Depreciation and amortization increased to
$1.5 million for the three months ended June 30, 1998 from $827,000 for the
comparable period in 1997. Of this increase, $262,000 was attributable to the
FCA acquisition, $284,000 was attributable to the TRC and AFECD acquisitions and
$87,000 was attributable to the AFS and CAC acquisitions. The remaining $40,000
consisted of depreciation resulting from normal capital expenditures incurred in
the ordinary course of business.

     Other income (expense). Interest and investment income increased $190,000
to $259,000 for the three months ended June 30, 1998 from $69,000 for the
comparable period in 1997. This increase was primarily attributable to the
investment of funds remaining from the Company's public offering completed in
July 1997 (the "1997 Offering") and the Company's public offering completed in
June 1998 (the "1998 Offering"), as well as an increase in operating funds and
funds held in trust for clients. Interest expense increased to $631,000 for the
three months ended June 30, 1998 from $247,000 for the comparable period in
1997. The increase was primarily attributable to the Company financing the May
1998 acquisition of FCA with $74.0 million of borrowings under its revolving
credit facility. In June 1998, the revolving credit facility was repaid with a
portion of the proceeds from the 1998 Offering.

     Income tax expense. Income tax expense increased to $2.4 million, or 42.3%
of income before taxes, for the three months ended June 30, 1998 from $1.1
million, or 40.0% of income before taxes, for the comparable period in 1997.
Income taxes were computed after giving effect to non-deductible goodwill
expenses resulting from certain of the acquired companies.

     Net income. Net income increased $1.6 million or 90.7% to $3.3 million
for the three months ended June 30, 1998 from $1.7 million for the comparable
period in 1997.

Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997

     Revenue. Revenue increased $27.4 million or 69.7% to $39.0 million for the
six months ended June 30, 1998 from $21.2 million for the comparable period in
1997. Of the increase, $11.3 million was attributable to the addition of new
clients and growth in business from existing clients. Revenue attributable to
the FCA acquisition completed in May 1998 represented $8.7 million of the
increase. In addition, $3.9 million of the increase was attributable to the
AFECD and TRC acquisitions completed in the first quarter of 1998 and $3.5
million of the increase was attributable to the AFS and the CAC acquisitions
completed in October 1997.

     Payroll and related expenses. Payroll and related expenses increased $14.7
million to $34.3 million for the six months ended June 30, 1998 from $19.6
million for the comparable period in 1997, and increased as a percentage of
revenue to 51.5% from 49.9%. Payroll and related expenses increased as a
percentage of revenue primarily as a result of FCA and the market research
division having higher payroll cost structures than that of the remainder of the
Company. In addition, the start up of the DOE Contract required the Company to
hire and train a certain number of collection personnel the cost of which was
only partially offset by revenues generated by the contract during its startup
phase. These higher costs were partially offset by lower payroll costs in the
AFS and CAC acquisitions and by spreading the cost of management and
administrative personnel over a larger revenue base.

     Selling, general and administrative expenses. Selling, general and
administrative expenses increased $7.2 million to $19.9 million for the six
months ended June 30, 1998 from $12.7 million for the comparable period in 1997,
and decreased as a percentage of revenue to 29.8% from 32.3%. The decrease as a
percentage of revenue was, in part, the result of additional operating
efficiencies obtained when selling, general and administrative expenses were
spread over a larger revenue base. In addition, a portion of the decrease was
attributable to the market research division having a lower selling, general and
administrative expense structure than that of the Company's core business. These
decreases as a percentage of revenue were partially offset by the higher cost
structures of acquired companies.

                                     -14-
<PAGE>

     Depreciation and amortization. Depreciation and amortization increased to
$2.7 million for the six months ended June 30, 1998 from $1.5 million for the
comparable period in 1997. Of this increase, $262,000 was attributable to the
FCA acquisition, $515,000 was attributable to the TRC and AFECD acquisitions and
$176,000 was attributable to the AFS and CAC acquisitions. The remaining
$247,000 consisted of depreciation resulting from normal capital expenditures
incurred in the ordinary course of business.

     Other income (expense). Interest and investment income increased $329,000
to $491,000 for the six months ended June 30, 1998 from $162,000 for the
comparable period in 1997. This increase was primarily attributable to the
investment of funds remaining from the 1997 Offering and the 1998 Offering, as
well as an increase in operating funds and funds held in trust for clients.
Interest expense increased to $710,000 for the six months ended June 30, 1998
from $422,000 for the comparable period in 1997. The increase was primarily
attributable to the Company financing the May 1998 acquisition of FCA with $74.0
million of borrowings under its revolving credit facility. In June 1998, the
revolving credit facility was repaid with a portion of the proceeds from the
1998 Offering.

     Income tax expense. Income tax expense increased to $4.0 million, or 41.6%
of income before taxes, for the six months ended June 30, 1998 from $2.1
million, or 41.4% of income before taxes, for the comparable period in 1997.
Income taxes were computed after giving effect to non-deductible goodwill
expenses resulting from certain of the acquired companies.

     Net income. Net income increased $2.6 million or 84.9% to $5.6 million for
the six months ended June 30, 1998 from $3.0 million for the comparable period
in 1997.

Liquidity and Capital Resources

     In July 1997, the Company completed the 1997 Offering, selling 2,166,000
shares of Common Stock and received net proceeds of approximately $40.4
million.

     In June 1998, the Company completed the 1998 Offering, selling 4,000,000
shares of Common Stock and received net proceeds of approximately $81.1
million.

     In July 1998, the Company sold 469,366 shares of Common Stock in connection
with the underwriters' exercise of the over-allotment option granted pursuant to
the 1998 Offering. The Company received net proceeds of approximately $9.6
million.

     Since 1996, the Company's primary sources of cash have been public
offerings, cash flows from operations and bank borrowings. Cash has been used
for acquisitions, purchases of equipment and working capital to support the
Company's growth.

     Cash provided by operating activities was $8.9 million during the six
months ended June 30, 1998, and $5.6 million for the comparable period in 1997.
The increase in cash provided by operations was primarily due to the increase in
net income to $5.6 million for the six months ended June 30, 1998 compared to
$3.0 million for the comparable period in 1997, and the decrease in other
current assets by $1.2 million for the six months ended June 30, 1998 compared
to $348,000 for the comparable period in 1997. In addition, the increase in cash
provided by operations was also attributable to the decrease in deferred taxes
by $1.2 million for the six months ended June 30, 1998 compared to $106,000 for
the comparable period in 1997, and the increase in accounts payable by $129,000
for the six months ended June 30, 1998 compared to a decrease of $847,000 for
the comparable period in 1997. These increases were partially offset by the
decrease in accrued liabilities by $1.8 million for the six months ended June
30, 1998 compared to an increase of $1.2 million for the comparable period in
1997

                                     -15-
<PAGE>

     Cash used in investing activities was $89.4 million during the six months
ended June 30, 1998, and $18.9 million for the comparable period in 1997. The
increase was primarily due to the cash portion of the purchase price paid for
the acquisitions of AFECD, TRC and FCA during the six months ended June 30, 1998
compared to the cash portion of the purchase price paid for the acquisitions of
Goodyear, Tele-Research, CMS A/R, and CRWCD during the first quarter of 1997. In
addition, during the six months ended June 30, 1998, capital expenditures were
$2.5 million compared to 1.6 million for the comparable period in 1997.

     Cash provided by financing activities was $76.6 million during the six
months ended June 30, 1998 compared to $8.1 million for the comparable period in
1997. The Company borrowed $74.0 million against its revolving credit facility
to finance the acquisition of FCA in May 1998. The Company repaid the borrowings
under the revolving credit agreement in June 1998 with a portion of the $81.1
million of net proceeds raised in the 1998 Offering.

     In March 1998, the Company's credit agreement was amended to, among other
things, increase the Company's revolving credit facility with Mellon Bank, N.A.
to provide for borrowings up to $75.0 million at an interest rate ranging from
LIBOR plus 0.75% to LIBOR plus 2.0% (LIBOR was 5.75% at June 30, 1998). The
Company has the right to permanently reduce the revolving credit facility by up
to $25 million. There were no outstanding borrowings as of December 31, 1997 or
June 30, 1998. The revolving credit line is collateralized by substantially all
the assets of the Company and includes certain financial covenants such as
maintaining minimum working capital and net worth requirements and includes
restrictions on, among other things, capital expenditures and distributions to
shareholders.

     On July 1, 1998, the Company purchased all of the outstanding stock of
MedSource, Inc. ("MedSource") for $17.7 million in cash. In connection with the
acquisition, the Company repaid debt of $17.3 million. The Company financed the
acquisition with $25.5 million of borrowings under the Company's revolving
credit facility and with $9.5 million of the proceeds received from the
underwriters' exercise of the over-allotment option granted pursuant to the 1998
Offering.

     The Company believes that funds generated from operations, together with
existing cash and available borrowings under its Credit Agreement will be
sufficient to finance its current operations and planned capital expenditure
requirements and internal growth at least through the next twelve months.
However, the Company could require additional debt or equity financing if it
were to make any other significant acquisitions for cash.

Year 2000 System Modifications

     NCO has implemented a program to evaluate and address the impact of the
year 2000 on its information systems in order to insure that its network and
software will manage and manipulate data involving the transition of dates from
1999 to 2000 without functional or data abnormality and without inaccurate
results related to such data. This program includes steps to: (a) identify
software that require date code remediation; (b) establish timelines for
availability of corrective software releases; (c) implement the fix to a test
environment and test the remediated product; (d) integrate the updated software
to NCO's production environment; (e) communicate and work with clients to
implement year 2000 compliant data exchange formats; and (f) provide management
with assurance of a seamless transition to the year 2000. The identification
phase is substantially complete and deliveries of the final software updates are
scheduled for the third quarter of 1998. Management expects to complete the
major portion of testing and acceptance procedures in 1998. The Company will
continue to coordinate the year 2000 compliance effort throughout the balance of
1998 and into 1999 to synchronize data exchange formats with clients.

     For the years 1998 and 1999, the Company expects to incur total pre-tax
expenses of approximately $200,000 to $250,000, per year. These costs are
associated with both internal and external staffing resources for the necessary
planning, coordination, remediation, testing and other expenses to prepare its
systems for the year 2000. However, a portion of these expenses will not be
incremental, but rather represent a redeployment of existing information
technology resources. The Company does not expect year 2000 compliance costs to
have a material adverse impact on the Company's business or results of
operations because the majority of the Company's software has been provided by
third-party vendors and the third-party vendors are incorporating the necessary
modifications as part of their normal system maintenance. The majority of the
costs will be incurred through the modification and testing of electronic data
interchange formats with the Company's clients and the testing of modifications
performed by its third-party vendors. The cost of planning and initial
remediation incurred through 1997 has not been significant.


                                     -16-
<PAGE>

     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. No assurance
can be given, however, that unanticipated or undiscovered year 2000 compliance
problems will not have a material adverse effect on the Company's business or
results of operations. In addition, if the Company's clients or significant
suppliers and contractors do not successfully achieve year 2000 compliance, the
Company's business and results of operations and results of operations could be
adversely affected, resulting from, among other things, the Company's inability
to properly exchange and/or receive data with its clients.

Recent Accounting Pronouncements

     Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS
No. 130 establishes standards for the reporting and display of comprehensive
income, requiring its components to be reported in a financial statement that is
displayed with the same prominence as other financial statements.

     In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS No.
131 establishes standards for reporting financial information about operating
segments in annual financial statements and requires reporting of selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customer. The Company is
required to disclose this information for the first time it publishes its 1998
annual report. Management is in the process of evaluating the segment
disclosures for purposes of reporting under SFAS No. 131. Management has not
determined what impact the adoption of SFAS. No. 131 will have on the
consolidated results of operations, financial condition or cash flows of the
Company.

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which is
effective for the fiscal years beginning after June 15, 1999. SFAS No. 133
requires that an entity recognize all derivative instruments as either assets or
liabilities on its balance sheet at their fair value. Changes in the fair value
of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction, and, if it is, the type of hedge transaction. The Company
will adopt SFAS No. 133 by the first quarter of 2000. Due to the Company's
limited use of derivative instruments, SFAS No. 133 is not expected to have a
material impact on the consolidated results of operations, financial condition
or cash flows of the Company.

                                     -17-
<PAGE>


                          Part II. Other Information


Item 1. Legal Proceedings

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

Item 2. Changes in Securities

     None - not applicable

Item 3. Defaults Upon Senior Securities

     None - not applicable

Item 4. Submission of Matters to a Vote of Shareholders

     The Annual Meeting of Shareholders of the Company was held on June 29,
1998. At the Annual Meeting, the Shareholders elected Bernard R. Miller and
Allen F. Wise for a term of three years as described below:

                  Name                 For               Withhold Authority
                  ----                 ---               ------------------
         Bernard R. Miller          10,230,655                38,665

         Allen F. Wise              10,230,205                39,115

     In addition, the terms of the following directors continued after the
Annual Meeting:

         Michael J. Barrist
         Charles C. Piola, Jr.
         Eric S. Siegel

     At the Annual Meeting, the Shareholders approved an amendment to the 1996
Stock Option Plan as follows:

               For         Against     Abstain    Broker Non-Vote
               ---         -------     -------    ---------------
           7,519,155      1,575,376    10,326       1,164,463
                    
Item 5. Other Information

     Pursuant to recent amendments to the proxy rules under the Securities
Exchange Act of 1934, as amended, the Company's shareholders are notified that
the deadline for providing the Company timely notice of any shareholder proposal
to be submitted for consideration at the Company's 1999 Annual Meeting of
Shareholders (the "Annual Meeting") will be January 29, 1999. As to all such
matters which the Company does not have notice on or prior to January 29, 1999,
the proxy solicited on behalf of the Board of Directors in connection with the
matters to be considered at such Annual Meeting will confer discretionary voting
authority on the persons designated in such proxy.

     Shareholder proposals for the 1999 Annual Meeting of Shareholders must be
submitted to the Company by January 29, 1999 to receive consideration for
inclusion in the Company's Proxy Statement relating to the 1999 Annual Meeting
of Shareholders.


                                     -18-
<PAGE>


Item 6. Exhibits and Reports on 8-K

   (a)  Exhibits
        10.1      1996 Stock Option Plan, as amended
        10.2      1996 Stock Option Plan for Non-Employee Directors, as amended
        27.1      Financial Data Schedule

   (b)  Reports on Form 8-K

        Date of Report    Item Reported
        4/22/98           Item 7 - No financial statements for The Response 
                               Center
        5/4/98            Item 5 - FCA International Ltd. tender offer and 
                               Item 7 - FCA International Ltd. 
                               financial statements
        5/12/98           Item 2 - FCA International Ltd. acquisition, Item 5 -
                               MedSource, Inc. acquisition, and
                               Item 7 - MedSource, Inc. financial statements
        7/2/98            Item 5 - MedSource, Inc. acquisition



<PAGE>



                                   Signatures

Pursuant to the requirement 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.




Date:    August 14, 1998                 By:  /s/ Michael J. Barrist
                                              ----------------------
                                              Michael J. Barrist
                                              Chairman of the Board, President
                                              and Chief Executive Officer
                                              (principal executive officer)



Date:    August 14, 1998                 By:  /s/ Steven L. Winokur
                                              ---------------------
                                              Steven L. Winokur
                                              Executive Vice President, Finance,
                                              Chief Financial Officer and
                                              Treasurer