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

                                       or

[   ]             Transition Report Pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934


For the Quarter Ended December 31, 1997           Commission File Number 1-5371


                              The Union Corporation
             (Exact name of Registrant as specified in its charter)


          Delaware                                   25-0848970
(State of incorporation)                (I.R.S. Employer Identification Number)


          211 King Street, Charleston, SC                     29401
      (Address of principal executive offices)              (Zip Code)


                                 (803) 958-3800
              (Registrant's telephone number, including area code)


     Indicate  by check  mark  whether  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

         5,893,007 Common shares were outstanding as of February 6, 1998
<PAGE>


                     THE UNION CORPORATION AND SUBSIDIARIES

        Index to Condensed Consolidated Financial Statements and Exhibits

Part I.  Financial Information:                                             Page

         Item 1.   Financial Statements

                   Condensed Consolidated Balance Sheets,
                   December 31, 1997 (Unaudited) and
                   June 30, 1997                                              3

                   Condensed Consolidated Statements of
                   Operations (Unaudited), for the Six
                   Months Ended December 31, 1997 and 1996                    4

                   Condensed Consolidated Statements of
                   Operations (Unaudited), for the Three
                   Months Ended December 31, 1997 and 1996                    5

                   Condensed Consolidated Statements of
                   Cash Flows (Unaudited), for the Six
                   Months Ended December 31, 1997 and 1996                    6

                   Condensed Consolidated Statement of
                   Shareholders' Equity (Unaudited), for
                   the Six Months Ended December 31, 1997                     7

                   Notes to Condensed Consolidated
                   Financial Statements (Unaudited)                       8 - 10

         Item 2.   Management's Discussion and Analysis
                   of Financial Condition and Results
                   of Operations (Unaudited)                             11 - 17

Part II. Other Information (Unaudited):

         Item 1.   Legal Proceedings                                     18 - 21

         Item 4.   Submission of Matters to a Vote of Security Holders        21

         Item 5.   Other Information                                          22

         Item 6.   Exhibits and Reports on Form 8-K                           22

         Signatures                                                           23


<PAGE>


                     THE UNION CORPORATION AND SUBSIDIARIES
                      Condensed Consolidated Balance Sheets
                 December 31, 1997 (Unaudited) and June 30, 1997
                                 (In thousands)
<TABLE>
<CAPTION>

                                                                                    December 31,       June 30,
                                                                                       1997              1997
                                                                                     ---------        ---------
        ASSETS
<S>                                                                                 <C>               <C>
Current assets:
  Cash                                                                               $  11,688        $  11,574
  Short-term investments, at cost, which approximates market                            43,507           37,804
  Accounts receivable, trade, less allowance for doubtful
    accounts of $825 and $681                                                           11,304           10,214
  Refundable income taxes                                                                  622              -
  Prepaid expenses and other current assets                                              5,450            3,842
                                                                                     ---------        ---------
    Total current assets                                                                72,571           63,434

Property, buildings and equipment, net                                                   7,785            8,323
Cost of intangible assets from businesses acquired,
  less accumulated amortization of $11,261 and $10,532                                  47,294           48,023
Other assets and deferred charges                                                        4,262            3,490
Deferred income taxes                                                                    5,819            2,749
                                                                                     ---------        ---------
    Total assets                                                                     $ 137,731        $ 126,019
                                                                                     =========        =========

         LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Accounts payable                                                                   $   2,960        $   3,406
  Accrued expenses                                                                      27,497           18,015
  Income taxes payable                                                                    -                 866
  Current portion of long-term debt                                                     20,213              259
                                                                                     ---------        ---------
    Total current liabilities                                                           50,670           22,546

Long-term debt                                                                             283           20,379
Other liabilities                                                                       17,103           11,482
                                                                                     ---------        ---------
    Total liabilities                                                                   68,056           54,407
                                                                                     ---------        ---------
Shareholders' equity:
  Common stock, $.50 par value; authorized shares,
    15,000; issued shares 8,837 and 8,696                                                4,418            4,348
  Additional paid-in capital                                                            47,964           45,272
  Retained earnings                                                                     54,188           58,887
  Less treasury stock, at cost, 2,945 and 2,945 shares                                 (36,895)         (36,895)
                                                                                     ---------        ---------
    Total shareholders' equity                                                          69,675           71,612
                                                                                     ---------        ---------

    Total liabilities and shareholders' equity                                       $ 137,731        $ 126,019
                                                                                     =========        =========

</TABLE>


<PAGE>


                     THE UNION CORPORATION AND SUBSIDIARIES
           Condensed Consolidated Statements of Operations (Unaudited)
               For the Six Months Ended December 31, 1997 and 1996
                (Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>

                                                                                            1997         1996
                                                                                         ---------    ---------
<S>                                                                                      <C>          <C>
Operating revenues                                                                        $64,740      $57,718
                                                                                         ---------    ---------

Expenses:
     Operating expenses                                                                    42,522       38,690
     Selling, general and administrative expenses                                          13,604       11,399
     Depreciation and amortization                                                          2,208        2,326
                                                                                         ---------    ---------

     Total expenses                                                                        58,334       52,415
                                                                                         ---------    ---------

Operating income                                                                            6,406        5,303

Interest expense                                                                             (731)        (696)
Interest income                                                                             1,256          746
                                                                                         ---------    ---------

Income from continuing operations
     before income taxes                                                                    6,931        5,353

Provision for income taxes                                                                  3,050        2,355
                                                                                         ---------    ---------

Income from continuing operations                                                           3,881        2,998

Discontinued operations loss provision
     (net of tax benefit of $4,420)                                                        (8,580)        -
                                                                                         ---------    ---------

Net income (loss)                                                                        $ (4,699)     $ 2,998
                                                                                         =========    =========
Basic earnings per common share:
     Income from continuing operations                                                   $    .67     $    .53
     Discontinued operations loss provision                                                 (1.48)        -
                                                                                         ---------    ---------
     Net income (loss)                                                                   $   (.81)    $    .53
                                                                                         =========    =========

Diluted earnings per common share:
     Income from continuing operations                                                   $    .65     $    .51
     Discontinued operations loss provision                                                 (1.43)        -
                                                                                         ---------    ---------
     Net income (loss)                                                                   $   (.78)    $    .51
                                                                                         =========    =========

Number of weighted average shares outstanding
     for basic earnings per common share                                                 5,787,675    5,705,841
Dilutive effect of stock options                                                           201,167      198,988
                                                                                         ---------    ---------
Number of adjusted weighted average shares outstanding
     for dilutive earnings per common share                                              5,988,842    5,904,829
                                                                                         =========    =========
</TABLE>



<PAGE>


                     THE UNION CORPORATION AND SUBSIDIARIES
           Condensed Consolidated Statements of Operations (Unaudited)
              For the Three Months Ended December 31, 1997 and 1996
                 (Dollars in thousands, except per share amounts
<TABLE>
<CAPTION>

                                                                                            1997         1996
                                                                                         ---------    ---------
<S>                                                                                      <C>          <C>
Operating revenues                                                                       $ 33,311     $ 28,977
                                                                                         ---------    ---------

Expenses:
     Operating expenses                                                                    21,863       19,525
     Selling, general and administrative expenses                                           7,192        5,729
     Depreciation and amortization                                                          1,079        1,162
                                                                                         ---------    ---------

     Total expenses                                                                        30,134       26,416
                                                                                         ---------    ---------

Operating income                                                                            3,177        2,561

Interest expense                                                                             (365)        (346)
Interest income                                                                               650          357
                                                                                         ---------    ---------

Income from continuing operations
      before income taxes                                                                   3,462        2,572

Provision for income taxes                                                                  1,524        1,131
                                                                                         ---------    ---------

Income from continuing operations                                                           1,938        1,441

Discontinued operations loss provision
     (net of tax benefit of $4,420)                                                        (8,580)        -
                                                                                         ---------    ---------

Net income (loss)                                                                        $ (6,642)    $  1,441
                                                                                         =========    =========

Basic earnings per common share:
     Income from continuing operations                                                   $    .33     $    .25
     Discontinued operations loss provision                                                 (1.48)        -
                                                                                         ---------    ---------
     Net income (loss)                                                                   $  (1.15)    $    .25
                                                                                         =========    =========
Diluted earnings per common share:
     Income from continuing operations                                                   $    .32     $    .24
     Discontinued operations loss provision                                                 (1.43)        -
                                                                                         ---------    ---------
     Net income (loss)                                                                   $  (1.11)    $    .24
                                                                                         =========    =========

Number of weighted average shares outstanding
    for basic earnings per common share                                                  5,803,510    5,728,183
Dilutive effect of stock options                                                           209,668      172,003
                                                                                         ---------    ---------
Number of adjusted weighted average shares outstanding
    for dilutive earnings per common share                                               6,013,178    5,900,186
                                                                                         =========    =========
</TABLE>



<PAGE>


                     THE UNION CORPORATION AND SUBSIDIARIES
           Condensed Consolidated Statements of Cash Flows (Unaudited)
               For the Six Months Ended December 31, 1997 and 1996
                                 (In thousands)
<TABLE>
<CAPTION>

                                                                                        1997           1996
                                                                                     ---------      ---------
<S>                                                                                  <C>            <C>
Cash Flows From Operating Activities:
Net income (loss)                                                                    $ (4,699)      $  2,998
Adjustments to reconcile net income to net cash
    provided by operations:
  Discontinued operations loss provision, net of tax benefit                            8,580              -
  Depreciation and amortization                                                         2,208          2,326
  Deferred compensation expense                                                           205            194
  Non-cash compensation expense                                                           239              -
  Provision for doubtful accounts                                                         188            129
  Provision for deferred income taxes                                                     500            900
Changes in assets and liabilities:
    Accounts receivable - (increase) decrease                                          (1,278)           238
    Prepaid expenses and other current assets - (increase) decrease                    (1,608)           378
    Other assets and deferred charges - (increase) decrease                              (772)            71
    Accounts payable and accrued expenses - increase (decrease)                         6,331         (7,489)
    Income taxes payable - increase (decrease)                                              3           (581)
    Other liabilities - (decrease) increase                                            (4,879)           477
                                                                                     ---------      ---------
Net cash provided by (used by) operating activities                                     5,018           (359)
                                                                                     ---------      ---------

Cash Flows From Investing Activities:
  Capital expenditures                                                                   (947)        (1,523)
  Additional purchase price related to the
    purchase of Allied Bond & Collection Agency                                             -           (134)
  Other                                                                                     6              7
                                                                                     ---------      ---------
Net cash (used by) investing activities                                                  (941)        (1,650)
                                                                                     ---------      ---------

Cash Flows From Financing Activities:
  Principal payments on long-term debt                                                    (63)           (59)
  Principal payments on capital lease obligations                                         (79)           (75)
  Fair market value of shares of common stock received
    from an optionee to satisfy withholding tax obligation                               (252)          (868)
  Proceeds from the exercise of stock options                                           2,134            361
                                                                                     ---------      ---------
Net cash provided by (used by) financing activities                                     1,740           (641)
                                                                                     ---------      ---------

Net increase (decrease) in cash and short-term investments                              5,817         (2,650)

Cash and short-term investments at June 30                                             49,378         43,163
                                                                                     ---------      ---------

Cash and short-term investments at December 31                                       $ 55,195       $ 40,513
                                                                                     =========      =========

Supplemental disclosures of cash flow information:
  Interest paid                                                                      $    949       $    685
  Income taxes paid                                                                     2,547          2,036


</TABLE>

<PAGE>


                     THE UNION CORPORATION AND SUBSIDIARIES
      Condensed Consolidated Statement of Shareholders' Equity (Unaudited)
                   For the Six Months Ended December 31, 1997
                             (Dollars in thousands)
<TABLE>
<CAPTION>


                                                                      Additional
                                                        Common           paid-in         Retained          Treasury
                                                         stock           capital         earnings             stock
                                                        ------        ----------         --------          --------    
<S>                                                     <C>           <C>                <C>               <C>
Balance at June 30, 1997                              $  4,348         $  45,272        $  58,887        $ (36,895)

Net income                                                -                 -               1,943             -

Proceeds from common stock issued
    upon exercise of stock options
    (45,834 shares)                                         23               693         -                    -
                                                      --------         ---------        ---------        ----------

Balance at September 30, 1997                            4,371            45,965           60,830          (36,895)

Net (loss)                                                -                 -              (6,642)            -

Proceeds from common stock issued
    upon exercise of stock options
    (95,063 shares, net)                                    47             1,999         -                  -
                                                      --------         ---------        ---------        ----------

Balance at December 31, 1997                          $  4,418         $  47,964        $  54,188        $ (36,895)
                                                      ========         =========        =========        ==========
</TABLE>


During the quarter ended  December 31, 1997,  options were exercised to purchase
75,014 shares of common stock of the Company and the optionee elected to pay the
aggregate  exercise  price  for  42,917  shares  in cash  and pay the  aggregate
exercise price for the remaining  32,097 shares by  surrendering  to the Company
23,582 shares of common stock of the Company,  acquired in conjunction  with the
exercise of the  options,  that had a fair market  value on the date of exercise
equal to the aggregate  exercise  price.  In addition,  the optionee  elected to
satisfy  the  withholding  tax  obligations  resulting  from  such  exercise  by
surrendering to the Company 8,066 shares of common stock of the Company acquired
by the optionee in  conjunction  with the  exercise of the  options.  The shares
surrendered to satisfy the withholding  tax obligations  were valued at the fair
market value on the date of the exercise of the options.


                     THE UNION CORPORATION AND SUBSIDIARIES

        Notes to Condensed Consolidated Financial Statements (Unaudited)


     The  amounts  set  forth  in this  Form  10-Q  have  not  been  audited  by
independent  auditors;  however,  in the opinion of the  management of The Union
Corporation  (the  "Company"),   all  adjustments  (including  normal  recurring
accruals)  necessary  for a fair  statement  of the results of such periods have
been made.

     The  financial  statements  included  in this  Form 10-Q are  presented  in
accordance with the requirements of the form and may not include all disclosures
required  by  generally   accepted   accounting   principles.   For   additional
information, reference is made to the Company's Annual Report for the year ended
June 30, 1997.

1.   Share Purchase Agreement and Plan of Merger

     On December 22, 1997, the Company  entered into a Share Purchase  Agreement
and Plan of Merger (the "Merger  Agreement")  with  Outsourcing  Solutions  Inc.
("OSI"),  and  Sherman  Acquisition  Corporation  ("Sherman"),   a  wholly-owned
subsidiary  of OSI,  pursuant to which  Sherman  commenced  a tender  offer (the
"Offer") on December 24, 1997 to purchase all issued and  outstanding  shares of
common stock,  par value $.50 per share, of the Company (the "Shares") at a cash
price of $31.50 per Share. Sherman  successfully  completed its tender offer for
the Company's  common stock on January 23, 1998 and,  after giving effect to the
purchase of the Shares tendered and an additional 306,100 Shares purchased in an
open-market  transaction after the consummation of the Offer,  Sherman currently
owns approximately 83% of the outstanding shares of common stock of the Company.
The  Merger  Agreement   provides  that,   subject  to  fulfillment  of  certain
conditions,  following  completion  of the  Offer,  Sherman  will merge into the
Company (the  "Merger"),  and the Company,  as the surviving  corporation in the
Merger,  will become a  wholly-owned  subsidiary of OSI.  Pursuant to the Merger
Agreement and subject to certain  conditions  therein,  any Shares that were not
acquired  through the Offer will be converted into the right to receive the same
$31.50 cash per share price paid in the Offer. As a result,  the Company will no
longer be a public  company and there will be no public market for shares of its
stock.  For  additional  information,  reference is made to the  Schedule  14D-9
Solicitation/Recommendation  Statement that was filed by the Company on December
24, 1997 and  Amendments  No. 1 and 2 to  Schedule  14D-9 that were filed by the
Company on January 14, 1998 and January 21, 1998, respectively.

2.   Discontinued Operations - Subsequent Events

     The Company  recorded a $13,000,000  loss provision  ($8,580,000 net of tax
benefit), or $1.43 loss per share on a dilutive basis, during the current fiscal
quarter  for costs  related to certain of its  discontinued  operations,  all of
which were  terminated  or  otherwise  disposed  of prior to fiscal  1990.  This
provision  was  recorded  as a  result  of  recent  developments  regarding  (i)
previously  reported  environmental  matters  involving a site where an inactive
subsidiary  of the  Company  fully  performed  a  settlement  with  the  federal
government which has reopened the matter and (ii) the settlement, on February 9,
1998, of the  previously  reported  suit brought  against the Company by Gichner
Systems  Group,  Inc. The net loss  provision of  $8,580,000  is included in the
Condensed Consolidated  Statements of Operations under the caption "Discontinued
operations loss provision" for the three and six months ended December 31, 1997.
The Condensed  Consolidated Balance Sheet at December 31, 1997 includes "Accrued
expenses" of $2,500,000 and "Other  liabilities"  of $10,500,000  comprising the
$13,000,000 loss provision.

     As noted  above,  although an  inactive  subsidiary  of the  Company  fully
performed a  settlement  with the  federal  government,  covering  environmental
matters  at a  site  at  which  the  affected  subsidiary  previously  conducted
operations,  the government has subsequently  reopened the matter. As previously
reported,  a group of financially  solvent  responsible parties has completed an
extensive  investigation  of this  Superfund site under a consent order with the
federal   Environmental   Protection  Agency  ("EPA")  and  submitted   Remedial
Investigation  and  Feasibility  Study Reports (the "Reports") to the EPA, which
outline a range of various remedial  alternatives for the site. The EPA issued a
proposed plan which was subject to public comment.  The Company's  environmental
counsel retained several reputable environmental  consulting firms to review and
evaluate the Reports and proposed plan. The findings of these experts  indicated
that many of the assumptions,  purported facts and conclusions  contained in the
Reports  and  proposed  plan  are  significantly  flawed.  These  findings  were
submitted to the EPA to challenge the  perceived  need for and the extent of the
proposed additional  remediation.  As previously  reported, a better estimate of
costs associated with any further  remediation to be taken at the site could not
be made until a Record of  Decision  was issued by the EPA.  The EPA issued such
Record of Decision  for this site on February 6, 1998 and,  notwithstanding  the
information  contained  in the findings  submitted  by the Company,  the cost to
perform the remediation selected by the EPA for the site is estimated by the EPA
to be approximately $17,300,000. Notwithstanding the foregoing and the Company's
denial  of  liability  because  of the  prior  settlement  with the  government,
included in the  $13,000,000  loss provision  recorded during the current fiscal
quarter is an  additional  loss  provision of  $10,500,000  for this site.  As a
result,  the  aggregate  amounts  reserved  by the  Company  for  this  site  is
approximately  $13,750,000,  which includes reserves previously  established for
this site, and represents  the Company's best estimate of the ultimate legal and
consulting  costs for this site,  costs to defend the  Company's  aforementioned
settlement with the government regarding this site, and the Company's portion of
the estimated remediation costs that will ultimately be incurred by the Company,
based  on  current  information,  if the  Company's  prior  settlement  with the
government  is not  upheld in court.  However,  the  Company  may be  exposed to
additional substantial liability for this site as additional information becomes
available over the long-term.  Actual remediation costs cannot be computed until
such remedial action is completed.

     In 1989 the Company  sold the assets and  business  of its Gichner  Systems
Group division (the "Gichner  Division") to Gichner  Systems  Group,  Inc. ("the
Purchaser") and,  accordingly,  reflected the Gichner Division as a discontinued
operation in the Company's  Consolidated  Statements of Operations.  In 1991 the
Purchaser  informed the Company that false pricing  information  might have been
supplied by former  officers of the Gichner  Division,  who were also members of
the group that  purchased  the  Gichner  Division  from the Company and who were
officers of the  Purchaser,  in  connection  with certain  government  contracts
negotiated prior to the sale. After investigation,  those of the former officers
who were  then  working  for the  Purchaser  were  terminated  for  cause by the
Purchaser, and the Company and Purchaser tendered to the Department of Defense a
report of the results of their investigation.

     The Company reached agreements with the federal government in January 1996,
subject to certain  agency  approvals  and final  approval  by the Court,  which
approvals  were given in August 1996,  to settle the above  previously  reported
matters  involving  false pricing  information and claims made by certain senior
officers of the  Company's  former  Gichner  Division.  In  accordance  with the
agreements,  which  recognize  the  Company's  co-operation  in and  substantial
contribution to the  investigation of these matters,  the Company  fulfilled its
commitment  to make  compensation  for the  government's  civil claims by paying
$5,550,000 in September 1996. The Company also accepted  responsibility  for the
actions of the  officers  of the former  Gichner  Division by entering a plea of
guilty under the federal False Claims Act, although those actions were concealed
from the management of the Company, and paid a fine of $250,000 in August 1996.

     The Purchaser,  which has pled guilty to obstruction of justice as a result
of its  hindrance  of the  government's  investigation  and its  destruction  of
documents  related to this  matter,  commenced  suit in fiscal 1995  against the
Company  in which it  alleges  misrepresentation  and  breach by the  Company of
provisions  of the  Purchase  Agreement  and  asserts  claims  for  damages  and
indemnification. The Company has denied each of the claims. However, in order to
end the substantial expense and distraction of continued litigation, the Company
settled this matter with the Purchaser on February 9, 1998,  whereby the Company
will pay  $2,750,000  to the  Purchaser  to settle any and all  liabilities  and
obligations  which were asserted or could have been asserted by the Purchaser in
the above lawsuit.  Accordingly,  the $13,000,000 loss provision recorded during
the current  fiscal  quarter  includes a provision of $2,500,000  for settlement
costs related to this matter.

     See Part II, Item 1 of this Form 10-Q for additional  information regarding
discontinued  operations  and claims in  connection  with the sale of the former
Gichner Division.

3.   Earnings Per Share

     In February 1997, the Financial Accounting Standards Board issued Statement
of Financial  Accounting  Standards No. 128,  "Earnings Per Share" ("SFAS 128").
SFAS 128 replaced the previously reported primary and fully diluted earnings per
share.  Unlike primary earnings per share, basic earnings per share excludes any
dilutive  effects of options,  warrants,  and  convertible  securities.  Diluted
earnings  per share is very similar to the  previously  reported  fully  diluted
earnings per share.  All  earnings  per share  amounts for all periods have been
presented and where  necessary,  restated to conform to the requirements of SFAS
128.


<PAGE>


                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED)

Liquidity and Capital Resources

     The  Company's  financial  condition  remained  very  strong  and liquid at
December 31, 1997 with cash and  short-term  investments  totaling  $55,195,000,
working  capital of  $21,901,000  and net worth of  $69,675,000.  During the six
months ended  December 31, 1997,  the net cash provided by operating  activities
was  $5,018,000 compared to  net cash used by operating activities of $359,000 a
year ago. This increase was principally  the result of the $5,800,000  aggregate
payment made to the federal  government in the prior year  regarding the matters
involving  the former  Gichner  Division of the Company  (See Note 2 of Notes to
Condensed  Consolidated   Financial  Statements  for  additional   information).
Excluding the aggregate payment to the federal government in the prior year, the
net cash provided by operating  activities  decreased by $423,000  compared to a
year ago. This decrease was principally the result of increases of approximately
$500,000 in income taxes paid and approximately  $260,000 in interest paid, both
primarily  due to the  timing of the  payments,  partially  offset  by  improved
operating results.

     The Company's  capital  spending  during the six months ended  December 31,
1997 was  $947,000  compared  with  $1,523,000  a year ago.  This  decrease  was
principally  attributable  to the purchase of computer and office  equipment and
leasehold  improvements  in the first fiscal  quarter  last year by  Interactive
Performance,  Inc.  ("Interactive  Performance") and High Performance  Services,
Inc. ("High Performance Services"), primarily in connection with the start-up of
the Company's new outsourcing businesses.

     On December 22, 1997, the Company  entered into a Share Purchase  Agreement
and Plan of Merger (the "Merger  Agreement")  with  Outsourcing  Solutions  Inc.
("OSI"),  and  Sherman  Acquisition  Corporation  ("Sherman"),   a  wholly-owned
subsidiary  of OSI,  pursuant to which  Sherman  commenced  a tender  offer (the
"Offer") on December 24, 1997 to purchase all issued and  outstanding  shares of
common stock,  par value $.50 per share, of the Company (the "Shares") at a cash
price of $31.50 per Share. Sherman  successfully  completed its tender offer for
the Company's  common stock on January 23, 1998 and,  after giving effect to the
purchase of the Shares tendered and an additional 306,100 Shares purchased in an
open-market  transaction after the consummation of the Offer,  Sherman currently
owns approximately 83% of the outstanding shares of common stock of the Company.
The  Merger  Agreement   provides  that,   subject  to  fulfillment  of  certain
conditions,  following  completion  of the  Offer,  Sherman  will merge into the
Company,  and the Company,  as the  surviving  corporation  in the merger,  will
become a wholly-owned  subsidiary of OSI.  Pursuant to the Merger  Agreement and
subject to certain conditions therein, any Shares that were not acquired through
the Offer will be  converted  into the right to receive the same $31.50 cash per
share  price paid in the Offer.  As a result,  the  Company  will no longer be a
public  company and there will be no public market for shares of its stock.  For
additional   information,    reference   is   made   to   the   Schedule   14D-9
Solicitation/Recommendation  Statement that was filed by the Company on December
24, 1997 and  Amendments  No. 1 and 2 to  Schedule  14D-9 that were filed by the
Company on January 14, 1998 and January 21, 1998,  respectively.  As a result of
the  change-in-control  of the Company,  certain executives,  in accordance with
their respective employment agreements, resigned from their respective positions
as officers of the Company,  terminating their respective employment agreements,
and received a lump sum payment in  satisfaction of all payments due under their
respective  employment  agreements.  The aggregate amount paid by the Company in
January  1998 to such  executives,  and to certain  non-employee  directors  and
employees as a result of the change-in-control of the Company, was approximately
$14,100,000,  of which approximately $9,000,000 represents the net present value
of the aggregate amount that would have been payable to such persons at the time
of their termination of employment, or thereafter, if a change-in-control of the
Company had not  occurred.  In  addition,  the Merger  Agreement  provided  that
outstanding  stock options to purchase an aggregate of 603,534  shares of Common
Stock of the Company be  cancelled  and, in  exchange,  each holder  thereof was
entitled to a payment in cash equal to the difference between the exercise price
of such options and $31.50 per share. As a result, the Company paid an aggregate
of approximately $7,859,000 to the holders of such options in January 1998.

     Under the current  terms of the  unsecured  $25,000,000  revolving  line of
credit facility  furnished by a bank (the "Credit  Agreement"),  the $20,000,000
aggregate  principal amount  outstanding under the revolving line of credit must
be repaid by the Company at the time of the Merger. The Company anticipates that
such repayment  will be made with funds then currently  available to the Company
and/or debt facilities  available to OSI. Loans under the Credit  Agreement bear
interest,  at the  Company's  option,  at either the bank's base rate,  which is
announced by the bank from time to time, or at 3/4% above the bank's  Eurodollar
rate during both the revolving and term loan periods.  The interest rate,  which
is reset  periodically,  on the revolving  term loan was  approximately  6.7% at
December 31, 1997 and 8.5% at February 6, 1998.

     The maximum  amount of letters of credit that the bank will issue under the
Credit Agreement is currently limited to $8,000,000. As of February 6, 1998, the
Company was contingently  liable for outstanding  letters of credit  aggregating
approximately  $3,725,000  which  reduced  the amount  currently  available  for
letters of credit under the Credit Agreement to approximately $1,275,000,  based
on amounts currently  outstanding under the Company's revolving credit facility.
The  Company  currently  anticipates  that its bank will  continue  to provide a
letter of credit  facility  to the  Company  and that the letters of credit that
have been  issued by the bank on behalf of the Company  will remain  outstanding
following the Merger.

     In December  1992, the Company  completed the  acquisition of Allied Bond &
Collection Agency ("Allied Bond") for an initial purchase price of approximately
$40,300,000.  In  addition,  contingent  payments  not to  exceed  approximately
$8,300,000  may be  payable by the  Company  based upon  Allied  Bond  attaining
certain  earnings  levels over the five and one-half year period ending June 30,
1998.  As of December  31, 1997,  approximately  $1,131,000  of such  contingent
payments have been made.

     The  Company  and  its   subsidiaries   are  involved  in  litigation   and
administrative  proceedings  described in Part II, Item 1 of this Form 10-Q. The
Company  periodically  reviews and  updates the status of these  matters and the
estimated  future costs, if any, as well as the past costs incurred with respect
to each. Estimates of future costs are based upon currently available data.

     The Company  recorded a $13,000,000  loss provision  ($8,580,000 net of tax
benefit), or $1.43 loss per share on a dilutive basis, during the current fiscal
quarter  for costs  related to certain of its  discontinued  operations,  all of
which were  terminated  or  otherwise  disposed  of prior to fiscal  1990.  This
provision  was  recorded  as a  result  of  recent  developments  regarding  (i)
previously  reported  environmental  matters  involving a site where an inactive
subsidiary  of the  Company  fully  performed  a  settlement  with  the  federal
government which has reopened the matter and (ii) the settlement, on February 9,
1998, of the  previously  reported  suit brought  against the Company by Gichner
Systems  Group,  Inc. The net loss  provision of  $8,580,000  is included in the
Condensed Consolidated  Statements of Operations under the caption "Discontinued
operations loss provision" for the three and six months ended December 31, 1997.
The Condensed  Consolidated Balance Sheet at December 31, 1997 includes "Accrued
expenses" of $2,500,000 and "Other  liabilities"  of $10,500,000  comprising the
$13,000,000 loss provision.

     The Company does not anticipate,  based on current  information and amounts
previously  recorded,  that the ultimate resolution of the Legal Proceedings and
the  Environmental  Matters and the matter relating to the Gichner Systems Group
described  in Part II,  Item 1 of this Form 10-Q  will have a  material  adverse
impact on the Company's overall financial condition given its available cash and
short-term  investments,  nor  that  the  resolution  of the  Legal  Proceedings
described on page 18 will have a material adverse impact on the Company's future
results  of  operations.  However,  there is no way to be  certain  that  future
developments  relating to the environmental matters described in Part II, Item 1
of this Form  10-Q,  will not  involve  additional  substantial  costs  that may
require future charges to the Discontinued operations loss provision.

     Management  believes that current cash and short-term  investments  and the
Company's  future  cash flows from  operations  are  sufficient  to provide  for
anticipated working capital, debt service and capital expenditure requirements.

Six Months Ended December 31, 1997  vs. Six Months Ended December 31, 1996

Operating Revenues
     Operating revenues increased by 12% to $64,740,000 for the six months ended
December 31, 1997 compared with  $57,718,000  for the six months ended  December
31, 1996 representing the highest revenues achieved by the Company for the first
six months of a fiscal year since it became a pure financial services company in
fiscal 1989. This increase was  attributable to increases at Transworld  Systems
Inc.  ("Transworld  Systems"),  Allied Bond,  Interactive  Performance  and High
Performance  Services.  Revenues at Transworld  Systems were $31,090,000 for the
six months ended December 31, 1997 compared with  $29,456,000 a year ago. Allied
Bond  reported a 21% increase in revenues for the six months ended  December 31,
1997,  compared with a year ago, which  represents the highest level of revenues
achieved  in the first six months of a fiscal  year by Allied  Bond since it was
acquired in December  1992.  Revenues at Capital  Credit  Corporation  ("Capital
Credit") for the six months ended December 31, 1997 were  essentially  unchanged
compared with a year ago.

Operating Expenses
     Operating  expenses  increased  by  $3,832,000  for  the six  months  ended
December  31, 1997  compared  with the six months ended  December 31, 1996.  The
increase was  attributable  to increases  in  operating  expenses at  Transworld
Systems and Allied Bond, which expenses increased at rates  proportionately less
than the rates of  increases  in revenues at the  respective  subsidiaries,  and
increases in operating expenses at Interactive  Performance and High Performance
Services,   which   expenses   increased   at  rates  that  were   approximately
proportionate   to  the  rates  of  increases  in  revenues  at  the  respective
subsidiaries.  Operating  expenses at Capital Credit decreased slightly compared
with a year ago.

Selling, General and Administrative Expenses
     Selling,  general and  administrative  expenses increased by $2,205,000 for
the six months  ended  December  31,  1997  compared  with the six months  ended
December 31, 1996.  The  increase was  attributable  to increases in expenses at
Transworld  Systems,  Allied Bond,  Interactive  Performance  and the  Corporate
office,  partially  offset by slight decreases in expenses at Capital Credit and
High Performance  Services.  The increase in Corporate office expenses primarily
resulted from increases in  professional  fees resulting from the Share Purchase
Agreement  and Plan of  Merger  with  Outsourcing  Solutions  Inc.  and  Sherman
Acquisition  Corporation  and  expenses  related  to the  closing  of the former
Corporate office in Connecticut.

Depreciation and Amortization
     Depreciation  and amortization  expenses  decreased by $118,000 for the six
months ended  December 31, 1997 compared with the six months ended  December 31,
1996 due to decreases in  depreciation  expense at Transworld  Systems,  Capital
Credit and Allied Bond, partially offset by increases in depreciation expense at
Interactive Performance and High Performance Services.

Operating  Income
     Operating  income  increased by 21% to $6,406,000  for the six months ended
December 31, 1997 compared with $5,303,000 for the six months ended December 31,
1996  representing the highest  operating income achieved by the Company for the
first six  months of a fiscal  year  since it became a pure  financial  services
company in fiscal 1989.  This increase was  attributable  to increases at Allied
Bond,  Transworld  Systems,  Capital  Credit,  Interactive  Performance and High
Performance  Services,  partially  offset by an  increase  in  Corporate  office
expenses.  Transworld Systems reported operating income,  before amortization of
goodwill, of $7,054,000 for the six months ended December 31, 1997 compared with
$6,600,000 a year ago and continued to maintain a strong operating margin, which
was approximately 22%, after amortization of goodwill,  for the six months ended
December 31, 1997.  Operating income at Allied Bond increased  significantly for
the six months  ended  December  31,  1997 and was more than 50% higher than any
level  previously  achieved  by Allied Bond for the first six months of a fiscal
year since it was acquired in December 1992.  Operating income at Capital Credit
also increased significantly for the six months ended December 31, 1997 compared
with a year ago.

Interest Expense and Interest Income
     Interest expense increased by $35,000 for the six months ended December 31,
1997 compared with a year ago. Interest income increased by $510,000 for the six
months ended  December 31, 1997  compared  with a year ago,  principally  due to
higher short-term investment balances.  During the six months ended December 31,
1997  and  1996,  the  Company  primarily  invested  in  commercial  paper  with
short-term maturities and overnight time deposits.

Income Taxes
     The Company's  effective income tax rate for continuing  operations was 44%
for the six months ended December 31, 1997 and 1996.

Discontinued Operations Loss Provision
     The Company  recorded a $13,000,000  loss provision  ($8,580,000 net of tax
benefit), or $1.43 loss per share on a dilutive basis, during the current fiscal
quarter  for costs  related to certain of its  discontinued  operations,  all of
which were  terminated  or  otherwise  disposed  of prior to fiscal  1990.  This
provision  was  recorded  as a  result  of  recent  developments  regarding  (i)
previously  reported  environmental  matters  involving a site where an inactive
subsidiary  of the  Company  fully  performed  a  settlement  with  the  federal
government which has reopened the matter and (ii) the settlement, on February 9,
1998, of the  previously  reported  suit brought  against the Company by Gichner
Systems  Group,  Inc. The net loss  provision of  $8,580,000  is included in the
Condensed Consolidated  Statements of Operations under the caption "Discontinued
operations loss provision" for the six months ended December 31, 1997. (See Note
2 of  Notes  to  Condensed  Consolidated  Financial  Statements  for  additional
information).

Three Months Ended December 31, 1997 vs. Three Months Ended December 31, 1996

Operating Revenues
     Operating  revenues  increased by 15% to  $33,311,000  for the three months
ended  December 31, 1997  compared with  $28,977,000  for the three months ended
December  31, 1996  representing  the highest  second  fiscal  quarter  revenues
achieved by the Company  since it became a pure  financial  services  company in
fiscal 1989. This increase was attributable to increases at Transworld  Systems,
Allied Bond and  Interactive  Performance.  Revenues at Transworld  Systems were
$16,290,000  for  the  three  months  ended  December  31,  1997  compared  with
$14,571,000 a year ago.  Allied Bond reported a 26% increase in revenues for the
three months ended December 31, 1997, compared with a year ago, which represents
the highest  level of  revenues  achieved in any quarter by Allied Bond since it
was acquired in December 1992.  Revenues at Capital  Credit  decreased by 2% for
the three months ended December 31, 1997,  compared with a year ago. Revenues at
High  Performance  Services for the three  months  ended  December 31, 1997 were
essentially unchanged compared to a year ago.

Operating Expenses
     Operating  expenses  increased  by  $2,338,000  for the three  months ended
December 31, 1997  compared with the three months ended  December 31, 1996.  The
increase was  attributable  to increases  in  operating  expenses at  Transworld
Systems and Allied Bond, which expenses increased at rates  proportionately less
than the rates of increases in revenues at the respective  subsidiaries,  and an
increase  in  operating  expenses at  Interactive  Performance,  which  expenses
increased at a rate that was approximately proportionate to the rate of increase
in revenues at Interactive Performance. Operating expenses at Capital Credit for
the three months ended December 31, 1997 decreased slightly compared with a year
ago. Operating expenses at High Performance  Services for the three months ended
December 31, 1997 were essentially unchanged compared to a year ago.

Selling, General and Administrative Expenses
     Selling,  general and  administrative  expenses increased by $1,463,000 for
the three months ended  December 31, 1997  compared  with the three months ended
December 31, 1996.  The  increase was  attributable  to increases in expenses at
Transworld  Systems,  Allied Bond,  Interactive  Performance  and the  Corporate
office,  partially  offset by slight decreases in expenses at Capital Credit and
High Performance  Services.  The increase in Corporate office expenses primarily
resulted from increases in  professional  fees resulting from the Share Purchase
Agreement  and Plan of  Merger  with  Outsourcing  Solutions  Inc.  and  Sherman
Acquisition  Corporation  and  expenses  related  to the  closing  of the former
Corporate office in Connecticut.

Depreciation and Amortization
     Depreciation and amortization  expenses  decreased by $83,000 for the three
months ended December 31, 1997 compared with the three months ended December 31,
1996 due to decreases in  depreciation  expense at Transworld  Systems,  Capital
Credit and Allied Bond,  partially offset by an increase in depreciation expense
at Interactive Performance.

Operating Income
     Operating  income increased by 24% to $3,177,000 for the three months ended
December 31, 1997 compared with  $2,561,000  for the three months ended December
31, 1996  representing  the  highest  second  fiscal  quarter  operating  income
achieved by the Company  since it became a pure  financial  services  company in
fiscal  1989.  This  increase  was  attributable  to  increases  at Allied Bond,
Transworld Systems, Capital Credit and Interactive Performance, partially offset
by an  increase  in  Corporate  office  expenses.  Transworld  Systems  reported
operating income,  before amortization of goodwill,  of $3,841,000 for the three
months ended December 31, 1997 compared with $3,286,000 a year ago and continued
to  maintain a strong  operating  margin,  which was  approximately  23%,  after
amortization  of  goodwill,  for the  three  months  ended  December  31,  1997.
Operating  income at Allied Bond  increased  significantly  for the three months
ended  December 31, 1997 and was more than 50% higher than any level  previously
achieved by Allied Bond in the second  fiscal  quarter  since it was acquired in
December 1992.  Operating income at Capital Credit also increased  significantly
for the three months ended December 31, 1997 compared with a year ago. Operating
income at High Performance Services for the three months ended December 31, 1997
was essentially unchanged compared to a year ago.

Interest Expense and Interest Income
     Interest  expense  increased by $19,000 for the three months ended December
31, 1997 compared with a year ago. Interest income increased by $293,000 for the
three months ended December 31, 1997 compared with a year ago,  principally  due
to higher short-term investment balances. During the three months ended December
31, 1997 and 1996,  the Company  primarily  invested  in  commercial  paper with
short-term maturities and overnight time deposits.

Income Taxes
     The Company's  effective income tax rate for continuing  operations was 44%
for the three months ended December 31, 1997 and 1996.

Discontinued Operations Loss Provision
     The Company  recorded a $13,000,000  loss provision  ($8,580,000 net of tax
benefit), or $1.43 loss per share on a dilutive basis, during the current fiscal
quarter  for costs  related to certain of its  discontinued  operations,  all of
which were  terminated  or  otherwise  disposed  of prior to fiscal  1990.  This
provision  was  recorded  as a  result  of  recent  developments  regarding  (i)
previously  reported  environmental  matters  involving a site where an inactive
subsidiary  of the  Company  fully  performed  a  settlement  with  the  federal
government which has reopened the matter and (ii) the settlement, on February 9,
1998, of the  previously  reported  suit brought  against the Company by Gichner
Systems  Group,  Inc. The net loss  provision of  $8,580,000  is included in the
Condensed Consolidated  Statements of Operations under the caption "Discontinued
operations  loss  provision" for the three months ended December 31, 1997.  (See
Note 2 of Notes to Condensed  Consolidated  Financial  Statements for additional
information).

Part II - Other Information (Unaudited)

Item 1.   Legal Proceedings:

     In  addition to the  continuing  environmental  clean-up  efforts and other
matters  described below, the Company and certain  subsidiaries are parties to a
number of lawsuits arising in the ordinary course of business.

     A lawsuit was brought in 1993 by three  individuals  engaged by  Transworld
Systems as  independent  contractors,  in which it was alleged  that  Transworld
Systems had improperly treated the plaintiffs as independent  contractors rather
than  employees.  All of the asserted claims were dismissed by the court in 1996
with prejudice.

     Some of the  same  persons  and  others  have  also  brought  suit  against
Transworld  Systems and certain of its directors and officers alleging breach of
contract  and mental  distress  as a result of  Transworld  Systems'  failure to
supply  plaintiffs  with certain  business  information,  including  copies of a
monthly publication distributed by Transworld Systems. Several persons have also
brought suit alleging wrongful  termination.  Transworld  Systems prevailed in a
jury trial in 1997, and all of these claims have been dismissed.

     Nine  purported  class actions are  currently  pending  against  Transworld
Systems,  two of which also name the  Company as a  defendant,  and one  alleged
class action is currently  pending against Allied Bond,  which actions have been
brought  by  debtors  who  received  written   collection  notices  from  either
Transworld Systems or its Credit Management  Services division,  or Allied Bond,
respectively.  Plaintiffs  in these  actions  allege that such letters  violated
various  provisions  of  the  federal  Fair  Debt  Collection  Practices  Act or
comparable state regulations.  In a suit brought against Allied Bond, the United
States District Court denied class  certification,  denied approval of the class
settlement,   and  denied  plaintiff's  motion  for  partial  summary  judgment,
effectively ending the case. The plaintiff's  individual claim remains, which is
expected to be settled for an immaterial  amount. A United States District Court
in one of the alleged class actions against  Transworld Systems has, upon motion
of Transworld Systems,  granted summary judgment in favor of Transworld Systems.
The claims in the eight other purported class actions against Transworld Systems
have  been  reviewed  by  counsel  to  Transworld  Systems  and,  based on their
assessment,  management has concluded that the claims are of questionable merit.
Transworld Systems intends to vigorously defend each of these actions.

     Based on current  estimates and  information,  the Company does not believe
that the ultimate  resolution of the above lawsuits will have a material adverse
impact on the Company's overall financial condition given its available cash and
short-term investments, or future results of operations.


Gichner Systems Group Division:

     In 1989 the Company  sold the assets and business of the  Company's  former
Gichner  Systems  Group  division (the  "Gichner  Division") to Gichner  Systems
Group, Inc. (the "Purchaser") and,  accordingly,  reflected the Gichner Division
as  a  discontinued  operation  in  the  Company's  Consolidated  Statements  of
Operations.  In 1991 the  Purchaser  informed  the  Company  that false  pricing
information might have been supplied by former officers of the Gichner Division,
who were also members of the group that purchased the Gichner  Division from the
Company and who were  officers of the  Purchaser,  in  connection  with  certain
government contracts negotiated prior to the sale. After investigation, those of
the former  officers who were then working for the Purchaser were terminated for
cause by the Purchaser, and the Company and Purchaser tendered to the Department
of Defense a report of the results of their investigation.

     The Purchaser, which has plead guilty to obstruction of justice as a result
of its  hindrance  of the  government's  investigation  and its  destruction  of
documents  related to this  matter,  commenced  suit in fiscal 1995  against the
Company  in which it  alleges  misrepresentation  and  breach by the  Company of
provisions  of the  Purchase  Agreement  and  asserts  claims  for  damages  and
indemnification. The Company has denied each of the claims. However, in order to
end the substantial expense and distraction of continued litigation, the Company
settled this matter with the Purchaser on February 9, 1998,  whereby the Company
will pay  $2,750,000  to the  Purchaser  to settle any and all  liabilities  and
obligations  which were asserted or could have been asserted by the Purchaser in
the above lawsuit.  Accordingly,  the $13,000,000 loss provision recorded during
the current  fiscal  quarter  includes a provision of $2,500,000  for settlement
costs related to this matter.

     Two former officers of the Gichner  Division filed suit against the Company
for  retirement   benefits  that  the  Company  terminated  when  their  alleged
misconduct was reported to the Company.  All of their claims,  and their refiled
claims,  have been dismissed by the Court.  The Company has  counterclaimed  for
damages  resulting from the misconduct of the two former officers of the Gichner
Division.  Appeals are pending in these  matters.  The estate of a third  former
officer of the  Gichner  Division  filed suit  against  the  Company for similar
claims, all of which have been dismissed by the Court.

Environmental Matters:

     Current  commercial  operations of the Company and its  subsidiaries do not
involve activities affecting the environment. However, the Company is a party in
several pending  environmental  proceedings  involving the federal Environmental
Protection  Agency ("EPA") and comparable  state agencies in Indiana,  Maryland,
Massachusetts,  New Jersey, Ohio, Pennsylvania, South Carolina and Virginia. All
of these  matters  relate to  discontinued  operations  of former  divisions  or
subsidiaries for which the Company has potential continuing responsibility.

     One group of the  Company's  known  environmental  proceedings  relates  to
Superfund or other sites where the Company's liability arises from arranging for
the disposal of allegedly  hazardous  substances in the ordinary course of prior
business operations. In most of these "generator" liability cases, the Company's
involvement  is  considered  to  be de  minimus  (i.e.  a  volumetric  share  of
approximately  1% or less) and in each of these cases the Company is only one of
many potentially  responsible parties. From the information currently available,
there are a sufficient number of other economically viable participating parties
so that the  Company's  projected  liability,  although  potentially  joint  and
several, is consistent with its allocable share of liability. At one "generator"
liability  site,  the Company's  involvement  is  potentially  more  significant
because of the volume of waste contributed in past years by a currently inactive
subsidiary.  Insufficient  information  is available  regarding  the need for or
extent and scope of any remedial actions which may be required.  The Company has
recorded what it believes to be a reasonable estimate of its ultimate liability,
based on current information, for this site.

     The second group of matters relates to  environmental  issues on properties
currently  or  formerly  owned or operated  by a  subsidiary  or division of the
Company.  These  cases  generally  involve  matters  for which the Company or an
inactive  subsidiary is the sole or primary responsible party. In one such case,
however,  although the affected subsidiary fully performed a settlement with the
federal government, the government has subsequently reopened the matter. A group
of  financially   solvent   responsible   parties  has  completed  an  extensive
investigation  of this  Superfund  site  under a consent  order with the EPA and
submitted  Remedial  Investigation and Feasibility Study Reports (the "Reports")
to the EPA, which outline a range of various remedial alternatives for the site.
The EPA  issued a  proposed  plan  which  was  subject  to public  comment.  The
Company's   environmental  counsel  retained  several  reputable   environmental
consulting  firms to review and  evaluate  the Reports and  proposed  plan.  The
findings of these  experts  indicated  that many of the  assumptions,  purported
facts  and   conclusions   contained  in  the  Reports  and  proposed  plan  are
significantly  flawed. These findings were submitted to the EPA to challenge the
perceived  need for and the extent of the proposed  additional  remediation.  As
previously  reported,  a better  estimate of costs  associated  with any further
remediation to be taken at the site could not be made until a Record of Decision
was issued by the EPA.  The EPA issued such Record of Decision  for this site on
February 6, 1998 and,  notwithstanding the information contained in the findings
submitted by the Company,  the cost to perform the  remediation  selected by the
EPA  for the  site is  estimated  by the  EPA to be  approximately  $17,300,000.
Notwithstanding  the foregoing and the Company's denial of liability  because of
the prior  settlement  with the  government,  included in the  $13,000,000  loss
provision  recorded  during the current  fiscal  quarter is an  additional  loss
provision of  $10,500,000  for this site.  As a result,  the  aggregate  amounts
reserved by the Company for this site is  $13,750,000,  which includes  reserves
previously established for this site, and represents the Company's best estimate
of the ultimate  legal and consulting  costs for  this site, costs to defend the
Company's aforementioned settlement with the government regarding this site, and
the Company's  portion of the remediation costs that will ultimately be incurred
by the Company, based on current information,  if the Company's prior settlement
with the government is not upheld in court.  However, the Company may be exposed
to additional  substantial  liability  for this site as  additional  information
becomes  available  over the  long-term.  Actual  remediation  costs  cannot  be
computed  until  such  remedial  action is  completed.  Some of the other  sites
involving  the  Company  or an  inactive  subsidiary  are at a  stage  where  an
assessment  of ultimate  liability,  if any,  cannot  reasonably be made at this
time.

     It is the  Company's  policy  to  comply  fully  with all  laws  regulating
activities  affecting the  environment and to meet its obligations in this area.
In many "generator" liability cases,  reasonable cost estimates are available on
which to base  reserves on the  Company's  likely  allocated  share among viable
parties.  Where  insufficient   information  is  available  regarding  projected
remedial actions for these "generator" liability cases, the Company has recorded
what it  believes  to be  reasonable  estimates  of its  potential  liabilities.
Reserves for liability for sites on which former  operations  were conducted are
based on cost estimates of remedial actions projected for these sites. All known
environmental claims are periodically reviewed by the Company, where information
is  available,  to provide  reasonable  assurance  that  adequate  reserves  are
maintained.  Reserves  recorded  for  environmental  liabilities  are not net of
insurance  or other  expected  recoveries.  Other than the  aforementioned  loss
provision that was recorded by the Company during the current fiscal quarter and
an  $8,000,000  loss  provision  that was recorded  during  fiscal  1995,  which
included a provision of approximately  $4,000,000 for environmental  matters, no
significant  expenses  related to  environmental  matters  were  recorded by the
Company  during the six months ended  December 31, 1997 or the three fiscal year
period ended June 30, 1997 due to the adequacy of  previously  recorded  reserve
balances  based on  information  available  at that time.  The Company  does not
anticipate,  based on current information,  that the resolution of these matters
will have a material adverse impact on the Company's overall financial condition
given its available cash and short-term investments. However, there is no way to
be certain that future developments  relating to environmental  matters will not
involve  additional  substantial  costs that may require  future  charges to the
Discontinued operations loss provision.

Item 4.   Submission of Matters to a Vote of Security Holders

     One November 19, 1997, the Company held its Annual Meeting of Stockholders.
The following matters were voted on and approved by the stockholders:

(1)  Messrs.  William B. Hewitt and Robert A. Kerr were  re-elected to the Board
     of Directors and Messrs. Herbert A. Denton, Robert A. Marshall and James M.
     McCormick were elected to the Board of Directors. Messrs. Melvin L. Cooper,
     Gordon S. Dunn,  James C.  Miller III and Herbert R.  Silver  continued  to
     serve as members of the Board of Directors after the meeting.
<PAGE>

<TABLE>
<CAPTION>
                                                    Votes        Votes         Votes           Broker
                                                     For        Against      Abstaining       Non-Votes
                                                    -----       -------      ----------       ---------
<S>  <C>                                            <C>         <C>          <C>             <C>
(2)  Proposal to approve the adoption of the 1997
     Non-Employee Directors' Stock Option Plan      2,960,732    646,392      102,485        1,801,551

(3)  Proposal  to approve  the  amendment  to the
     1994 Incentive Stock Plan to increase by
     250,000 the number of shares of Common Stock
     available for issuance thereunder              2,862,514    747,840       99,255        1,801,551

</TABLE>


Item 5.   Other Information:

     On December 22, 1997, the Company  entered into a Share Purchase  Agreement
and Plan of Merger (the "Merger  Agreement")  with  Outsourcing  Solutions  Inc.
("OSI")  and  Sherman  Acquisition  Corporation   ("Sherman"),   a  wholly-owned
subsidiary  of OSI,  pursuant to which  Sherman  commenced  a tender  offer (the
"Offer") on December 24, 1997 to purchase all issued and  outstanding  shares of
common stock, par value $0.50 per share, of the Company (the "Shares") at a cash
price of $31.50 per Share.  The Offer was  consummated  on January 23, 1998 when
Sherman  accepted and purchased the 4,614,568  Shares  validly  tendered and not
withdrawn  prior to such date by  stockholders  of the Company.  On February 10,
1998,  Sherman  purchased  an  additional  306,100  Shares  in  an  open  market
transaction,  making the aggregate number of Shares owned by Sherman  4,920,668,
constituting  approximately  83.05% of the issued and  outstanding  Shares.  The
Merger  Agreement  provides that,  subject to fulfillment of certain  conditions
following  the  completion  of the Offer,  Sherman  will merge with and into the
Company (the  "Merger"),  and the Company,  as the surviving  corporation in the
Merger,  will become a  wholly-owned  subsidiary of OSI.  Pursuant to the Merger
Agreement and subject to certain  conditions  therein,  any Shares that were not
acquired through the Offer will be converted into the right to receive $31.50 in
cash per Share. As a result,  the Company will no longer be a public company and
there  will  be no  public  market  for  shares  of its  stock.  For  additional
information, reference is made to the Schedule 14D-9 Solicitation/Recommendation
Statement  that was filed by the Company on December 24, 1997 and Amendments No.
1 and 2 to Schedule 14D-9 that were filed by the Company on January 14, 1998 and
January 21, 1998, respectively.

Item 6.   Exhibits and Reports on Form 8-K:

(a)       Exhibits:

          Exhibit No. 27      -   Financial Data Schedule (Unaudited)

(b)       Reports on Form 8-K:

     There were no reports on Form 8-K filed for the three months ended December
31, 1997.


<PAGE>


                                   SIGNATURES


     Pursuant to the  requirements  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.


                                                   THE UNION CORPORATION
                                                   (Registrant)




Date:  February 17, 1998                         By: Timothy G. Beffa
                                                    --------------------
                                                     Timothy G. Beffa
                                                     President
                                                     (Chief Executive Officer)




Date:  February 17, 1998                         By: Daniel J. Dolan
                                                    --------------------
                                                     Daniel J. Dolan
                                                     Vice President
                                                     (Chief Financial Officer)