SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

[X]               ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  For the fiscal year ended December 31, 2000

 [   ]          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        333-16867
                                              -----------------

                           Outsourcing Solutions Inc.
--------------------------------------------------------------------------------
                    (Exact name of registrant as specified in its charter)

            Delaware                                     58-2197161
------------------------------------     ---------------------------------------
  (State or other jurisdiction of        (I.R.S. Employer Identification Number)
   incorporation or organization)

390 South Woods Mill Road, Suite 350
       Chesterfield, Missouri                          63017
------------------------------------     ---------------------------------------
(Address of principal executive office)              (Zip Code)

Registrant's telephone number, including area code:  (314) 576-0022

Securities registered pursuant to Section 12(b) of the Act:

      Title of each Class              Name of each exchange on which registered
-------------------------------        -----------------------------------------
            None                                         None

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes  X     No
                                      -----      -----


Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant is not determinable, as the stock is not publicly traded.

APPLICABLE  ONLY TO CORPORATE  REGISTRANTS:  As of March 29, 2001, the following
shares of the Registrant's common stock were issued and outstanding:

  Voting common stock                                 6,088,479.30
  Non-voting common stock                               480,321.30
                                                     -------------
                                                      6,568,800.60
                                                     =============

DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Company's Current Report on
Form 8-K, filed on June 30, 2000, are incorporated into Part II. Item 9.

<PAGE>
PART I

ITEM 1.  BUSINESS

General

     Outsourcing   Solutions   Inc.  (the   "Company"  or  "OSI"),   a  Delaware
corporation,  is one of the largest providers of accounts receivable  management
services  in the  United  States  with 2000  revenues  of  approximately  $542.6
million. The Company believes that it differentiates itself from its competitors
by  providing  a full range of  accounts  receivable  management  services  on a
national  basis that provide its  customers  the  opportunity  to outsource  the
management  of the entire  credit  cycle.  The breadth of  services  the Company
provides  across all  stages of the credit  cycle  allows  itself to  cross-sell
services  to  existing  customers  as well as to  expand  its  customer  base by
providing specific services to potential customers in targeted industries. These
services  include  collection   services,   portfolio  purchasing  services  and
outsourcing  services which accounted for approximately 65%, 16% and 19% of 2000
revenues,  69%,  16% and  15% of  1999  revenues  and  70%,  17% and 13% of 1998
revenues, respectively.

o    Collection services involve collecting  delinquent or charged-off  consumer
     accounts for a fixed percentage of realized  collections or a fixed fee per
     account.

o    Portfolio  purchasing services involve acquiring  portfolios of charged-off
     consumer  receivables from credit grantors or other owners,  servicing such
     portfolios and retaining all amounts collected.

o    Outsourcing  services include contract  management of accounts  receivable,
     billing, teleservicing and other services.

     The Company manages the marketing and execution of services within the four
stages of the credit cycle. In the first stage of the credit cycle, OSI provides
customers with the ability to outsource services including credit authorization,
usage  management and customer  service.  Dedicated call centers  provide "first
party"  services for its clients  performing  all  operations in their name. The
second  stage of the credit cycle is the  management  of  pre-uncollectable,  or
charge-off,   delinquency  situations.  OSI  provides  clients  with  fixed  fee
early-out  programs  based on either a letter  series  or  calling  program  for
accounts that are  generally  less than 180 days past due. In the third stage of
the credit cycle, the Company offers traditional  contingent collection services
for delinquent and charged-off receivables. In the fourth and final stage of the
credit  cycle,  OSI acts as a principal and  purchases  both new and  delinquent
charged-off receivables from credit grantors or other owners.

     The  accounts  receivable  management  industry is highly  fragmented.  The
Company  estimates  there  are  approximately   6,000  debt  collection  service
companies in the United  States,  with the 10 largest  agencies  accounting  for
approximately 20% of industry revenues. Competition is based largely on recovery
rates,  industry experience and reputation and service fees. Large volume credit
grantors typically employ more than one accounts  receivable  management company
at  one  time,  and  often  compare  performance  rates  and  rebalance  account
placements towards higher performing servicers.

     The  customer  base for the  accounts  receivable  management  industry  is
generally  concentrated by credit grantors in four  end-markets:  banks,  health
care,  utilities and  telecommunications.  Other significant  sources of account
placements include retail,  student loan and governmental  agencies. The Company
believes that the ongoing  consolidation in the banking,  health care, utilities
and  telecommunication  industries will benefit them by creating larger national
customers  seeking  to  place  accounts  with  accounts  receivable   management
companies  that offer  national  rather than local and  regional  coverage.  The
Company's customers include a full range of local,  regional and national credit
grantors.  The Company's largest customer  accounted for no more than 8% of 2000
revenues.

     The Company was formed in 1995 to acquire Account  Portfolios  L.P., one of
the largest  purchasers  and servicers of  non-performing  accounts  receivables
portfolios.  Since its  formation,  the Company has completed  seven  additional
acquisitions and has established itself as a leading industry consolidator.  The
Company has experienced  significant  growth in their business  through internal
growth and acquisitions, with its revenues increasing from $29.6 million in 1995
to $542.6 million in 2000.

Industry

     The accounts  receivable  management  industry has experienced  significant
growth over the past 15 years.  The rapid growth of outstanding  consumer credit
and the corresponding  increase in delinquencies and charge-offs has resulted in
credit  grantors  increasingly  looking  to third  party  service  providers  in
managing the accounts receivable process. In 1998, the contingent fee collection
industry,  the Company's  largest business  service,  was estimated to be a $6.5
billion market growing at approximately 8% to 10% per annum. The Company's other
business  services such as portfolio  purchasing  and  outsourcing  services are
estimated,  in the aggregate,  to be an approximately  $3.0 billion market.  The
Company  believes the  following  are the key trends in the accounts  receivable
management industry:

o    Increase in  Consumer  Debt and  Delinquencies.  Consumer  debt,  a leading
     indicator of current and future business for accounts receivable management
     companies,  more than doubled in the past ten years,  increasing  from $3.6
     trillion in 1990 to $7.5  trillion in 2000.  The ratio of  household  debt,
     including mortgages,  to disposable income increased almost 25% in the same
     period.  Toward the end of 2000,  3.6% of consumer  loans were  delinquent.
     Overall, U.S. consumer debt levels are higher than ever and are expected to
     increase steadily in coming years.

o    Increase in Commercial Debt and Delinquencies.  Commercial debt has climbed
     to its highest  level to date - $1.1  trillion in June 2000, a 42% increase
     over 1991 figures.  As with consumer debt,  commercial  debt is expected to
     continue to rise over the next several years.

o    Industry Consolidation.  The American Collectors Association estimates that
     there are approximately 6,000 contingent fee companies in the United States
     participating in an industry that generated over $6.5 billion in contingent
     fee  collection  revenue in 1998.  The industry has  undergone  significant
     consolidation,  with the top ten contingent fee companies  increasing their
     industry  share  to  over  20% in  1998.  Given  the  high  number  of debt
     collection  companies in the United States,  the financial and  competitive
     constraints  facing  these  smaller  companies  and the  limited  number of
     liquidity  options for the owners of such businesses,  the Company believes
     that   the   industry   will   continue   to   experience    consolidation.
     Well-capitalized  companies that offer national  capabilities  with a "full
     service"  approach  to  accounts  receivable  management  are  increasingly
     displacing local and regional competitors.

o    Customer Consolidation.  The largest credit granting industries,  including
     banking, utilities,  telecommunications and health care, account for 80% of
     accounts placed for collection and are  experiencing  rapid  consolidation.
     This   consolidation  has  forced  companies  to  focus  on  core  business
     activities  and to outsource  ancillary  functions,  including  some or all
     aspects of the accounts  receivable  management  process. As a result, many
     regional  customers are becoming national in scope and are shifting account
     placements  to  accounts  receivable  management  companies  that  have the
     ability to service a large volume of  placements on a national  basis.  The
     Company  established  relationships  with  many of the  target  industries'
     largest consolidators,  thereby improving its ability to capitalize on this
     consolidation trend.

o    Growth in  Portfolio  Sales.  As one of the leading  providers of portfolio
     purchasing  services,  we have  participated  in the rapid  and  consistent
     industry-wide  increase in the amount of charged-off  consumer  receivables
     sold by credit  grantors.  Portfolio  sales offer the credit  grantor  many
     benefits,  including  increased  predictability of cash flow,  reduction in
     monitoring  and  administrative  expenses and  reallocation  of assets from
     non-core  business  functions to core business  functions.  It is estimated
     that $28.1 billion of  charged-off  receivables  were acquired by portfolio
     purchasers in 1999 and more than $30.0 billion in 2000.

o    Accelerated Trend toward Outsourcing.  Outsourcing in the U.S. continues to
     grow at approximately 15% annually.  In an effort to focus on core business
     activities and to take advantage of economies of scale,  better performance
     and the lower cost structure offered by collection  companies,  many credit
     grantors  have  chosen to  outsource  some or all  aspects of the  accounts
     receivable management process. Instead of waiting until receivables are 180
     days,  in some  instances  90 days,  past due (or  later)  to turn over for
     credit collection,  credit grantors are now involving  collection companies
     much earlier in the process.  Increasingly,  credit grantors are looking to
     accounts  receivable  management  providers  for  assistance  with billing,
     customer service and complete call center outsourcing.

o    Technological  Sophistication.   Leading  companies  in  the  industry  are
     increasingly  using technology to improve their collection  efforts.  These
     initiatives include investments in data warehousing, proprietary databases,
     computerized   calling  systems,   debtor  location  databases,   web-based
     reporting,  and scoring  and  segmentation  of  receivables  portfolios  to
     identify customized treatments and maximize recoveries.

Competitive Advantages

     The Company believes that its strong market position, national presence and
breadth of  services  distinguishes  itself as a leading  provider  of  accounts
receivable   management   services  in  the  United  States.  OSI  believes  its
competitive advantages include:

o    Benefits  of  Scale.  The  benefits  of  scale in the  accounts  receivable
     industry are significant on both revenues and cost. Scale makes it possible
     for the  Company to compete  for larger  blocks of  revenue,  deliver  more
     services  over a wider  geographic  base,  leverage  its fixed costs over a
     broader customer base and access capital at attractive  rates. As customers
     consolidate  geographically  and  seek  to  reduce  suppliers,  a  national
     presence also provides an important competitive advantage.

o    "One-stop-shopping"  for Receivables  Management  Services.  OSI provides a
     full array of receivables  management  services including  front-end credit
     service,  pre  charge-off  delinquency  management,  contingent  collection
     services and  portfolio  purchasing.  This allows the Company to manage the
     entire  credit  cycle for its  customers  for all sizes of debt and  across
     multiple industries. The Company is one of the few industry participants to
     provide this breadth of services on a national basis.

o    Broad  Customer  Base.  OSI  provides  services  to some of the largest and
     fastest growing credit grantors in a wide range of industries.  OSI's broad
     customer base  diversifies its revenue stream and provides the Company with
     significant  opportunities  to  cross-sell  services.  The Company also has
     long-standing  relationships  with many of its customers  which  provides a
     strong base of recurring revenues.

o    Technology.  The Company has made,  and believes it will  continue to make,
     significant   investments   in  technology  and  know-how  to  enhance  its
     competitive   advantage.   OSI  believes  that  its  proprietary  software,
     including debtor-scoring models, computerized calling and debtor databases,
     provides them with a competitive advantage in pricing portfolios, providing
     outsourcing  services and  collecting  delinquent  accounts.  The Company's
     systems  interface  with  those of its  customers  to receive  new  account
     placements daily and provide frequent updates to customers on the status of
     collections.  OSI has become  increasingly  integrated  with its customers'
     systems resulting in higher switching costs for its customers.

o    Customer  Service.  OSI's  broad range of  services  and  focused  customer
     approach enables the Company to actively support and customize  services to
     its  customers  on a  cost-effective  basis.  This service  philosophy  has
     provided the foundation for the Company's reputation and when combined with
     its industry experience is critical in the clients' selection process.

Growth Strategies

     The  Company's  strategy  focuses on expanding  its business and  enhancing
profitability through the following initiatives:

o    Cross Selling  Services to Existing  Customers.  OSI offers its customers a
     wide  array of  services  including  traditional  fee  services,  portfolio
     purchasing  services,  pre-charge-off  programs,  outsourcing  of  accounts
     receivable  management functions and teleservicing.  This range of services
     allows OSI to cross-sell offerings within its existing customer base and to
     potential customers in specifically targeted industries.

o    Expansion of Customer Base.

     o    Existing  Target  End-Markets.  Increasingly,  credit  grantors in the
          public and private  sectors which have typically  maintained  accounts
          receivable  departments  within  their  organizations  are  turning to
          outside  accounts  receivable  management   companies.   In  addition,
          consolidation in the banking, retail, utilities,  student loan, health
          care and telecommunications  industries has created national customers
          who are  outsourcing  a portion  or all of their  accounts  receivable
          management  service needs to national  providers.  As OSI enhances its
          expertise and reputation  with customers in a target  end-market,  the
          Company  markets  that  expertise  to other  credit  grantors  in that
          end-market.  The Company's  relative size, ability to provide services
          in all 50 states and experience in successfully managing a high volume
          of  placements  on a  national  basis  allows it to  benefit  from the
          consolidation of these key industries.

     o    New Target Industries.  OSI intends to capitalize on its expertise and
          reputation  to penetrate  new  end-markets.  For example,  the Company
          plans to continue to focus on increasing its business  activities with
          governmental  agencies at the federal,  state and local levels,  which
          have begun to outsource tax, child support collection and student loan
          accounts receivable functions to private companies.  In addition,  the
          Company plans to focus on the commercial market segment (collection of
          delinquent  accounts  owed by  businesses  to  other  businesses)  and
          health care segment of the  industry.  Traditionally,  the  commercial
          market has been  underpenetrated by collection agencies given the need
          for tailored  collection  methods  which differ from those used in the
          consumer market. In addition,  significant changes and cost reductions
          in the health care market require specialized skills in the collection
          of past due accounts.

o    Disciplined Acquisitions. The Company has built its position as an industry
     leader  through  strategic  acquisitions  of  leading  accounts  receivable
     service  providers.  By  successfully  integrating  these  businesses,  its
     management has  demonstrated an ability to evaluate,  execute and integrate
     acquisitions. With over 6,000 contingent fee accounts receivable collection
     companies in the United States, OSI plans to pursue additional acquisitions
     that  complement  its existing  services or expand its customer base and is
     continually reviewing acquisition opportunities.

o    Cost  Reductions.  The  Company's  management  has  adopted  an  aggressive
     approach  to cost  management.  The  Company  plans to continue to focus on
     reducing its overall costs and improving operational efficiencies.


Acquisition and Integration History

     In  September  1995,  OSI was formed  and  acquired  Atlanta-based  Account
Portfolios,  one of the  largest  purchasers  and  servicers  of  non-performing
accounts receivable portfolios.

     In  January  1996,  OSI  acquired   Continental   Credit   Services,   Inc.
("Continental")  and A.M. Miller  Associates,  two industry leaders in providing
contingent fee services.  Continental,  which was  headquartered  in Seattle and
operated in eight western  states,  provided  contingent  fee services to a wide
range of end-markets  with particular  emphasis on public utilities and regional
telecommunications.  A.M. Miller, based in Minneapolis,  provided contingent fee
services to the student loan and bank credit card end markets.

     In November 1996, OSI acquired  Payco American  Corporation  with corporate
offices in Brookfield, Wisconsin. Originally founded as a contingent fee service
company,  Payco diversified into other outsourcing services such as student loan
billing,  health care accounts  receivable billing and management,  and contract
management of accounts receivable and teleservicing.

     In October 1997, OSI acquired the assets of North Shore Agency, Inc., a fee
service company headquartered in Westbury,  New York. North Shore specialized in
"letter series" collection  services for direct marketers targeted at collecting
small balance debts.  The majority of North Shore's revenues were generated from
traditional contingent collections utilizing letters with the remaining revenues
derived from fixed fee letter services.

     In  November  1997,  OSI  acquired  the  assets  of  Accelerated  Bureau of
Collections,  Inc. Accelerated Bureau of Collections was a Denver-based national
fee  service  company.  It  specialized  in credit card  collection  and derived
approximately  25%  of  its  revenues  from  pre-charge-off  programs  with  the
remaining 75% of revenues derived from standard contingent fee collections.

     In March 1998,  OSI  completed  the  acquisition  of The Union  Corporation
("Union").  Union was originally a conglomerate  involved in businesses  ranging
from  electronic and industrial  components to financial  services.  Union was a
leading  provider  of a range of  outsourcing  services  to both large and small
clients.  Union provided  contingent and fixed fee collection services and other
related outsourcing services.  Union provided fee services through the following
wholly-owned subsidiaries: Allied Bond & Collection Agency, Inc., Capital Credit
Corporation,  and Transworld  Systems,  Inc.  Allied,  headquartered in Trevose,
Pennsylvania,  provided  contingent and fixed fee collection  services for large
clients across a broad spectrum of industries.  Capital Credit, headquartered in
Jacksonville, Florida also provided contingent and fixed fee collection services
for large national clients primarily  serving the bankcard,  telecommunications,
travel and entertainment,  and government sectors. Transworld,  headquartered in
Rohnert Park, California,  is one of the largest prepaid, fixed fee providers of
delinquent  account  management  services  in the  United  States.  Transworld's
clients are primarily  small  companies  with low balance  delinquent  accounts.
Union provided related outsourcing services through its Interactive Performance,
Inc. and High Performance Services,  Inc. subsidiaries.  Interactive Performance
headquartered in North  Charleston,  South Carolina,  provided a range of credit
and  receivables  management  outsourcing  services  primarily  in the  form  of
teleservicing.  Interactive  Performance  services included inbound and outbound
calling programs for credit  authorization,  customer service,  usage management
and  receivable   management.   High  Performance  Services,   headquartered  in
Jacksonville,  Florida, provided services similar to Interactive Performance for
clients in the financial services industry.

     In 1999, as part of a strategy to increase the efficiency of its operations
by aligning the Company along business services and establishing call centers of
excellence by industry  specialization and in order to market its services under
one OSI  brand,  the  Company  reorganized  many of its  acquired  subsidiaries.
Account  Portfolios  changed  its name to OSI  Portfolio  Services,  Inc.  Payco
American  Corporation's  largest debt collection  subsidiary changed its name to
OSI Collection Services, Inc. and Continental,  A.M. Miller,  Accelerated Bureau
of Collections,  Allied Bond & Collection  Agency and Capital Credit merged into
OSI  Collection  Services.  Interactive  Performance  changed  its  name  to OSI
Outsourcing Services, Inc., and the Interactive Performance and High Performance
Services  subsidiaries  merged into OSI  Outsourcing  Services.  The Company now
provides  specialized  services  for  the  following  industries:   health care,
government,  education,   telecommunications/utilities,   commercial,  financial
services and bank card.


     As part of its strategy to expand its  outsourcing  services,  in September
2000,  the  Company  through  a newly  formed  limited  liability  company,  RWC
Consulting Group,  LLC, acquired certain assets and assumed certain  liabilities
of  RWC  Consulting   Group,   Inc.   ("RWC"),   a  service  company   providing
highly-skilled  consultants  to banks to assist in their back office  functions.
Total  consideration  for RWC  included  cash  of  approximately  $17.0  million
including transaction costs of $225,000,  voting common stock worth $2.0 million
(53,376.03  shares)  and an 18%  unsecured,  subordinated  note of $5.0  million
(interest  compounded  annually and  principal  and interest due  September  29,
2003).  The cash portion of the purchase  price was financed under the Company's
revolving credit facility.  The acquisition was accounted for under the purchase
method and the excess of cost over the fair value of the net assets  acquired is
being amortized on a straight-line basis over 30 years. The acquisition contains
a certain  contingent  payment  obligation  based on the attainment of a certain
financial  performance  target over the next three years. The future  contingent
payment obligation,  if any, will be accounted for as additional goodwill if the
payment is deemed probable.


Recapitalization

     On December  10,  1999,  pursuant to a Stock  Subscription  and  Redemption
Agreement,  dated as of  October  8, 1999,  as  amended  (the  "Recapitalization
Agreement"),  by and among Madison Dearborn Capital Partners III, L.P. (together
with  its  affiliates,  "MDP"),  the  Company,  and  certain  of  the  Company's
stockholders,   optionholders   and   warrantholders:   (i)  the  Company   sold
5,323,561.08  shares of its common stock,  par value $.01 per share,  to certain
purchasers for an aggregate  purchase price of $199.5 million;  (ii) the Company
sold 100,000  shares of its Senior  Mandatorily  Redeemable  Preferred  Stock to
certain  purchasers for an aggregate  purchase price of $100 million;  (iii) the
Company  redeemed  4,792,307.20  shares of the Company's common stock (including
voting common  stock,  par value $.01 per share,  Class A Convertible  Nonvoting
Common Stock,  par value $.01 per share,  Class B Convertible  Nonvoting  Common
Stock, par value $.01 per share, Class C Convertible Nonvoting Common Stock, par
value $.01 per share and  1,114,319.33  shares of its  preferred  stock,  no par
value) for an  aggregate  of $221.35  million  (such  transactions  collectively
referred   to  herein  as  the   "Recapitalization").   Immediately   after  the
Recapitalization,  MDP owned approximately 70.3% of the outstanding common stock
(75.9% of the  outstanding  voting  common  stock) of the Company.  Prior to the
Recapitalization,  the Company was  controlled by McCown  DeLeeuw & Co., Inc., a
private equity investment firm.

     In connection with the Recapitalization, all members of the Company's Board
of Directors  other than Timothy Beffa  resigned and Paul Wood and Tim Hurd were
elected to serve as directors.  In addition,  the stockholders and optionholders
of  the  Company  entered  into  a  stockholders  agreement  (the  "Stockholders
Agreement"). The Stockholders Agreement provides for the election of individuals
to the Board of  Directors  of the  Company  and  includes  restrictions  on the
transfer of capital stock,  and the provision of registration,  preemptive,  tag
along and drag along rights granted to the parties thereto.

     In conjunction with the  Recapitalization,  the Company also entered into a
Credit Agreement among the Company,  DLJ Capital  Funding,  Inc., as Syndication
Agent, Harris Trust & Savings Bank, as Documentation Agent, Fleet National Bank,
N.A., as  Administrative  Agent and other  Lenders who are parties  thereto (the
"Credit Agreement").  The Credit Agreement provides for: (i) a $150 million Term
A Loan  Facility;  (ii) a $250  million  Term B Loan  Facility;  and (iii) a $75
million Revolving Loan Facility. Borrowings under the Credit Agreement were used
to refinance the Company's  existing credit agreement and will be used for other
working capital, acquisitions and general corporate purposes.


Services and Operations

     The  Company  is  one of  the  largest  providers  of  accounts  receivable
management services in the United States. Through its subsidiaries,  the Company
offers customers collection services,  portfolio purchasing services and related
outsourcing services.

Collection Services

     The Company is one of the largest  providers of collection  services in the
United States.  The Company offers a full range of contingent fee (percentage of
realized collections)  services,  including  pre-charge-off  programs and letter
series, to most consumer credit end-markets.  The Company utilizes sophisticated
management information systems and vast experience with locating, contacting and
effecting  payment  from  delinquent  account  holders  in  providing  its  core
contingent  fee  services.  With 54 call centers in 25 states and  approximately
2,500  account  representatives,  the Company has the ability to service a large
volume of accounts with national coverage. In addition to traditional contingent
fee services involving the placement of accounts, creditors have begun to demand
services in which accounts are outsourced  earlier in the collection  cycle. The
Company has responded to this trend by developing "early-out" programs,  whereby
the Company  receives placed accounts that are often less than 180 days past due
and earn a fixed fee per placed  account  rather than a  percentage  of realized
collections.   These  programs   require  a  greater  degree  of   technological
integration between OSI and its customers, leading to higher switching costs for
the Company's  customers.  The Company primarily  services  consumer  creditors,
although  the  Company  has a  growing  presence  in the  commercial  collection
business, offering contingent fee services to commercial creditors.

     Contingent  fee  services  are the  traditional  services  provided  in the
accounts  receivable  management  industry.   Credit  grantors  typically  place
non-performing accounts after they have been deemed non-collectible,  usually 90
to 180 days past due, depending on the specific credit grantor policy,  agreeing
to pay the servicer a commission  level  calculated on the amount of collections
actually made. At this point,  the  receivables  are usually still valued on the
customer's  balance sheet,  albeit in a form at least partially reserved against
for possible  noncollection.  Customers  typically use multiple  agencies on any
given placement category,  enabling them to benchmark each agency's  performance
against the other.  Placement  is usually  for a fixed time  frame,  typically a
year, at the end of which the agency returns the uncollected  receivables to the
customer, which may then place them with an alternative agency.

     The commission  rate for contingent fee services is generally  based on the
collectability  of the asset in terms of the  costs  which  the  contingent  fee
servicer must incur to effect  repayment.  The earlier the placement  (i.e., the
less elapsed time  between the past due date of the  receivable  and the date on
which the debt is placed  with the  contingent  fee  servicer),  the  higher the
probability of recovering the debt and, therefore, the lower the cost to collect
and  the  commission  rate.   Creditors   typically  assign  their   charged-off
receivables  to  contingent  fee  servicers  for a twelve month cycle,  and then
reassign the  receivables to other servicers as the accounts become further past
due.  There are three main types of placements in the  contingent  fee business,
each representing a different stage in the cycle of account collection.  Primary
placements are accounts,  usually 90 to 270 days past due, that are being placed
with  agencies  for the first time and usually  receive  the lowest  commission.
Secondary  placements,  accounts  270 to 360 days past due,  have  already  been
placed with a contingent  fee servicer and usually  require a process  including
obtaining judgments,  asset searches,  and other more rigorous legal remedies to
obtain  repayment  and,  therefore,   receive  a  higher  commission.   Tertiary
placements,  accounts  usually over 360 days past due,  generally  involve legal
judgments, and a successful collection receives the highest commission.

     Once the account has been placed with OSI, the fee service process consists
of (i) locating and contacting the debtor through mail, telephone,  or both, and
(ii)  persuading  the  debtor to settle  his or her  outstanding  balance.  Work
standards,  or the method  and order in which  accounts  are worked by OSI,  are
specified by the customer,  and  contractually  bind OSI. Some accounts may have
different  work  standards  than others based on criteria such as account age or
balance.  In  addition,  OSI must comply with the federal  Fair Debt  Collection
Practices Act and comparable state statutes,  which restrict the methods it uses
to collect consumer debt.

     The Company attempts to estimate the collectability of each placement using
sophisticated  recovery  score models that estimate both  probability of payment
and resulting amount of that payment.  The objective is to maximize revenues and
minimize  expenses by matching  the  appropriate  work effort with the  expected
yield of each  individual  account.  For example,  every account is different in
some way much as no consumer is exactly like another.  As a result, each account
may require a different  combination of letters and calls to attain the expected
yield.


Outsourcing Services

     As  the  volume  of  consumer  credit  has  expanded  across  a  number  of
industries,  credit  grantors have begun  demanding a wider range of outsourcing
services.  In  response,  the Company has  developed a number of other  accounts
receivable  management  services.  The  Company  leverages  its  call  and  data
management  technology  and  operational  expertise  by offering  the  following
services:

o    contract  management,  whereby  the  Company  performs a range of  accounts
     receivable management services at the customer's or the Company's location,

o    student loan billing,  whereby the Company provides billing,  due diligence
     and customer services,

o    health care accounts  receivable  management,  whereby the Company  assumes
     responsibility for managing  third-party  billing,  patient pay resolution,
     inbound and outbound  patient  communication  services and cash application
     functions, and

o    teleservicing  whereby the Company  offers  inbound  and  outbound  calling
     programs,   customer  retention  programs,  market  research  and  customer
     service.

     In addition,  the Company offers banking and financial services transaction
processing.  The services  provided assist the Company's  clients in back office
functions such as research and adjustment,  reconcilement,  charge-off  recovery
and other areas.

     In each client relationship, the cornerstone of the outsourcing strategy is
to customize  services to its  customers on terms that will lead to  substantial
and increased growth rates in revenues and profit margins for the client as well
as more stabilized cash flows.  Customer service and billing inquiry  activities
are ideal  candidates  for  outsourcing  relationships  for a number of reasons,
including:  (i)  the  need  for  technological  investments  in  automated  call
management systems, (ii) activities that are labor intensive, and (iii) activity
volumes  that are subject to  fluctuations  which make it  difficult to maintain
stable  employment  levels and high  utilization of the required  equipment.  By
offering  outsourcing  services to a variety of clients,  the Company is able to
leverage its productive resources to greater efficiency levels. In addition, the
Company will continue to develop its expertise in outsourcing  service delivery,
enhancing its creativity and  effectiveness in managing various inbound programs
that a captive operation does not generally have. This can translate into higher
response rates and returns on investment for the client.

Portfolio Purchasing Services

     While  contingent  fee  servicing  remains  the most  widely used method by
credit grantors in recovering non-performing accounts,  portfolio purchasing has
increasingly  become  a  popular  alternative.  Beginning  in  the  1980's,  the
Resolution  Trust  Corporation  and the Federal Deposit  Insurance  Corporation,
under  government  mandate,  began to sell portfolios of  non-performing  loans.
Spurred on by the success of these  organizations in selling  charged-off  debt,
other creditors  likewise began to sell portfolios of  non-performing  debt. The
Company's management estimates the total principal value of purchased portfolios
at over $30 billion in 2000.  The largest  percentage  of  purchased  portfolios
originated  from the bank card receivable and retail markets and such portfolios
are typically purchased at a deep discount from the aggregate principal value of
the accounts,  with an inverse correlation between purchase price and age of the
delinquent  accounts.  Once  purchased,  traditional  collection  techniques are
employed to obtain payment of non-performing accounts.

     The  Company  offers  portfolio  purchasing  services  to a wide  range  of
financial institutions,  telecommunications and retailers. The Company purchases
large and diverse  portfolios of  charged-off  consumer  receivables  both on an
individually  negotiated  basis as well as through  "forward  flow"  agreements.
Under forward flow agreements,  the Company agrees, subject to due diligence, to
purchase  charged-off  receivables on a monthly basis.  Credit grantors  selling
portfolios  to the  Company  realize a number of  benefits  including  increased
predictability  of  cash  flow,   reduction  in  monitoring  and  administrative
expenses,  and reallocation of assets from non-core  business  functions to core
business functions.

     The Company's purchased  portfolios consist primarily of consumer loans and
credit card  receivables,  student loan  receivables and health club receivables
including portfolios purchased under forward flow agreements. The Company's most
recent  portfolio  acquisitions  have been  primarily  health club and bank card
purchases. The Company continues to pursue acquisitions of portfolios in various
industries for both individually negotiated and forward flow purchases.

     In 1999, the Company  established  its own portfolio  purchasing  valuation
unit to complement  services  previously  provided by an  independent  portfolio
valuation firm.

     In order to fund an  increased  level of portfolio  purchasing,  in October
1998 the Company  established  a financing  conduit,  in  association  with MBIA
Insurance Corporation. The conduit is expected to provide OSI with significantly
increased  purchasing  capacity  necessary  to expand its  portfolio  purchasing
activities  at a lower  aggregate  cost of capital.  The  transaction  structure
involves  off-balance  sheet treatment for a significant  portion of prospective
portfolio  purchases  and the related  financing,  while  providing a consistent
servicing  revenue  stream.  Although the Company  places most of its  portfolio
purchases in the conduit,  OSI will,  when  required,  continue to place certain
portfolio  purchases on its balance sheet.  The revenue from owned portfolios is
derived from gross  collections  and offset by  collection  costs and  portfolio
amortizations.  Conversely,  the  off-balance  sheet  accounting  treatment  for
portfolios  sold  into the  conduit  creates  service  fee  revenues  which is a
percentage  of  gross  collections,  offset  by  collection  costs  but  with no
portfolio amortization.  In addition, from time to time, the Company may receive
income from the conduit  representing excess collections above the original cost
to purchase the portfolio and related financing fees.


Financial Information about Industry and Geographic Segments

     For detailed  information  concerning the Company's industry and geographic
segments,  reference  is made to Note 17 of the  Financial  Statements  included
elsewhere in this Annual Report on Form 10-K.



Sales and Marketing

     The  Company has a sales force of  approximately  80 sales  representatives
providing  comprehensive  geographic  coverage of the United  States on a local,
regional  and  national  basis,  and, to a much lesser  extent in,  Puerto Rico,
Canada and  Mexico.  The  Company,  except its  Transworld  Systems  subsidiary,
maintains  a sales force and has a marketing  strategy  closely  tailored to the
credit-granting  markets  that  it  serves.  The  Company's  primary  sales  and
marketing  objective is to expand its customer base in those customer industries
in which it has a  particular  expertise  and to target  new  customers  in high
growth end-markets.  OSI emphasizes its industry experience and reputation - two
key factors  considered  by  creditors  when  selecting  an accounts  receivable
service  provider.   The  Company  believes  it  will   increasingly   focus  on
cross-selling its full range of services to its existing  customers and will use
its  product  breadth as a key  selling  point in  creating  new  business.  The
Company's  overall  sales  and  marketing  strategies  are  coordinated  at  its
principal executive offices in Chesterfield, Missouri.

     The marketing  force is responsible  both for  identifying  and cultivating
potential  customers,  as well as  retaining  or  increasing  market  share with
existing  clients.  The marketing force is generally  organized  around specific
industries  and is also trained to market the overall  benefits of its services,
providing a  cross-selling  function  for all its business  units.  Compensation
plans for the marketing force are incentive based, with professionals  receiving
a base salary and incremental  compensation based on performance.  The Company's
Transworld  Systems  subsidiary  has a  sales  force  of  over  800  independent
contractors based in 110 offices.

Customers

     The Company's  customer  base includes a full range of local,  regional and
national credit grantors.  The Company's largest customer  accounted for no more
than 8% of 2000 revenues.

Employees

     The Company employs  approximately 7,600 people, of which 5,300 are account
representatives,    80   are   sales   representatives   and   2,220   work   in
corporate/supervisory  and  administrative  functions.  None  of  the  Company's
employees are unionized,  and the Company  believes its relations with employees
are satisfactory.

     The Company is committed to providing  continuous  training and performance
improvement  plans to increase the productivity of its account  representatives.
Account  representatives  receive extensive training in a classroom  environment
for  several  days  on  the  Company's   procedures,   information  systems  and
regulations  regarding  contact with debtors.  The training  includes  technical
topics,  such as use of on-line  collection  systems  and  computerized  calling
techniques,  as well as  instruction  regarding  the  Company's  approach to the
collection process and listening, negotiation and problem-solving skills, all of
which are essential to efficient and effective collections.

     Account  representatives  are then  assigned  to work groups for a training
period.  Initially,  the trainees only screen incoming  calls.  This allows less
experienced  account  representatives  to  communicate  with  debtors  in a less
confrontational  environment  than  may  be  experienced  with  outgoing  calls.
Additionally,  the trainees are assigned  accounts,  which based upon scoring by
the Company's information systems, have a higher likelihood of collection. After
the  training  period,  the  account   representatives  begin  working  accounts
directly.

Competition

     The  accounts  receivable  management  industry  is highly  fragmented  and
competitive. The Company estimates there are approximately 6,000 debt collection
service companies in the United States,  with the 10 largest agencies accounting
for  approximately  20%  of  industry   revenues.   Within  the  collection  and
outsourcing  services of the Company's  business,  large volume credit  grantors
typically  employ  more  than  one  accounts   receivable   management  company.
Competition  is  based  largely  on  recovery  rates,  industry  experience  and
reputation,  and service  fees.  Within  this  market,  our largest  competitors
include Dun & Bradstreet,  G.C. Services,  IntelliRisk Management, NCO Group and
Vengroff, Williams & Associates.

     The bidding process associated with the acquisition of purchased portfolios
has become more  competitive as the number of  participants in this business has
increased.  The  Company's  largest  competitors  in this market  include  Asset
Acceptance Corp., ASTA Funding, Arrow Financial and Calvary Investments.

Environmental, Health & Safety Matters

     Current  operations of OSI and its  subsidiaries do not involve  activities
materially  affecting  the  environment.   However,  The  Union  Corporation,  a
subsidiary of the Company, is party to several pending environmental proceedings
involving  the  United  States  Environmental  Protection  Agency,  or EPA,  and
comparable state environmental 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 of Union
for which it has potential  continuing  responsibility.  Upon  completion of the
acquisition  of  Union,  OSI,  in  consultation  with  both  legal  counsel  and
environmental  consultants,  established  reserves  that  it  believes  will  be
adequate for the ultimate settlement of these environmental proceedings.

     One group of Union's known  environmental  proceedings relates to Superfund
or other sites where Union'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, Union's involvement is
considered to be de minimus (i.e.,  a volumetric  share of  approximately  1% or
less)  and in  each of  these  cases  Union  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
Union's  projected  liability,   although  potentially  joint  and  several,  is
consistent with its allocable share of liability.  At one "generator"  liability
site, Union'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.  Union 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 Union.
These cases generally involve matters for which Union or an inactive  subsidiary
is the sole or primary  responsible  party.  In one case, the Metal Bank Cottman
Avenue site, the EPA issued a record of decision on February 6, 1998.  According
to the record of decision,  the cost to perform the remediation  selected by the
EPA for the site is estimated by the EPA to be approximately $17.3 million.  The
aggregate  amount  reserved  by Union  for this site was  $18.2  million,  which
represented Union's best estimate of the ultimate potential legal and consulting
costs for defending its legal and technical positions  regarding  remediation of
this  site  and  its  portion  of the  potential  remediation  costs  that  will
ultimately be incurred by it, based on current information.  However,  Union 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  Union  or an  inactive  subsidiary  are at a  state  where  an
assessment  of ultimate  liability,  if any,  cannot  reasonably be made at this
time.

     It is Union'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 Union's  likely  allocated  share among viable  parties.  Where
insufficient  information is available  regarding projected remedial actions for
these  "generator"  liability  cases,  Union 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. OSI periodically  reviews all known
environmental  claims,  where  information is available,  to provide  reasonable
assurance that reserves are adequate.

Governmental Regulatory Matters

     Certain of the Company's operations are subject to the Fair Debt Collection
Practices Act, or FDCPA, and comparable statutes existing in many states.  Under
the FDCPA, a third-party  collection agency is restricted in the methods it uses
to collect consumer debt. For example,  a third-party  collection  agency (1) is
limited  in  communicating  with  persons  other  than the  consumer  about  the
consumer's  debt,  (2) may not  telephone at  inconvenient  hours,  and (3) must
provide  verification of the debt at the consumer's request.  Requirements under
state collection agency statutes vary, with most requiring compliance similar to
that  required   under  the  FDCPA.   In  addition,   most  states  and  certain
municipalities  require collection  agencies to be licensed with the appropriate
authorities before collecting debts from debtors within those jurisdictions.  It
is the Company's  policy to comply with the provisions of the FDCPA,  comparable
state  statutes  and  applicable   licensing   requirements.   The  Company  has
established  policies and  procedures to reduce the  likelihood of violations of
the FDCPA and related state statutes.  For example, all of the Company's account
representatives  receive  extensive  training on these  policies and must pass a
test on the FDCPA, and the Company's  agents work in an open  environment  which
allows managers to monitor interaction with debtors.

     From time to time, certain of the Company's  subsidiaries have been subject
to consent decrees with various governmental  agencies,  none of which currently
have a  material  effect on the  Company's  financial  condition,  cash flows or
results of operations.





ITEM 2.  PROPERTIES

     As of December  31,  2000,  the Company  and its  subsidiaries  operated 70
facilities in the U.S., all of which are leased, except for three administrative
and collection  offices  operated by Transworld  Systems,  which are owned.  The
Company  believes  that  such  facilities  are  suitable  and  adequate  for its
business.  The Company's facilities are strategically located across the U.S. to
give effective broad geographic coverage for customers and access to a number of
labor markets.


ITEM 3.  LEGAL PROCEEDINGS

     At  December  31,  2000,  the  Company  was  involved  in a number of legal
proceedings and claims that were in the normal course of business and routine to
the nature of the Company's  business,  none of which are currently  expected to
have a  material  effect on the  Company's  financial  condition,  cash flows or
results of operations. In addition, one of the OSI subsidiaries, Union, is party
to several pending  environmental  proceedings discussed elsewhere herein. While
the results of litigation  cannot be predicted with  certainty,  the Company has
provided for the  estimated  uninsured  amounts and costs to resolve the pending
suits and management, in consultation with legal counsel, believes that reserves
established  for the ultimate  settlement of such suits are adequate at December
31, 2000.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

<PAGE>
PART II.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

     No public market currently exists for the Company's Voting common stock and
Nonvoting common stock.

     As of March 29, 2001, there were  approximately 40 holders of record of the
Voting common stock and Nonvoting common stock.

     The Company has not declared any cash  dividends on any of its common stock
since  the  Company's   formation  in  September   1995.   The  Indenture   (the
"Indenture"),  dated as of  November  6,  1996,  by and among the  Company,  the
Guarantors (as defined therein) and Wilmington Trust Company,  as Trustee,  with
respect  to the 11%  Series  B  Senior  Subordinated  Notes  due  2006  contains
restrictions on the Company's ability to declare or pay dividends on its capital
stock.  Additionally,  the Credit  Agreement dated as of November 30, 1999 among
the Company,  the Lenders  listed  therein,  DLJ Capital  Funding,  Inc., as the
Syndication  Agent,  Harris Trust and Savings Bank, as the Documentation  Agent,
and Fleet National Bank, as the  Administrative  Agent (the "Credit  Agreement")
contains  certain  restrictions  on the  Company's  ability  to  declare  or pay
dividends on its capital  stock.  The  Indenture,  the Credit  Agreement and the
Certificate  of  Designation  of  the  powers  and   preferences   and  relative
participating,  optional  and  other  special  rights  of  Class  A  14%  Senior
Mandatorily  Redeemable  Preferred  Stock,  Series  A,  and  Class B 14%  Senior
Mandatorily  Redeemable  Preferred  Stock,  Series  A,  and  qualifications  and
limitations and restrictions  thereof prohibit the declaration or payment of any
Common Stock  dividends or the making of any  distribution by the Company or any
subsidiary  (other  than  dividends  or  distributions  payable  in stock of the
Company) other than dividends or distributions payable to the Company.


ITEM 6. SELECTED FINANCIAL DATA

     The following selected historical  financial data set forth below have been
derived  from,  and are  qualified  by  reference  to the  audited  Consolidated
Financial Statements of OSI for, and as of, each of the fiscal years in the five
year period ended December 31, 2000. The selected financial data set forth below
should  be  read in  conjunction  with,  and  are  qualified  by  reference  to,
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" and the Consolidated  Financial  Statements and  accompanying  notes
thereto of OSI included elsewhere herein.
<TABLE>
<CAPTION>
                                                           Year Ended December 31,
                                        -----------------------------------------------------------
                                           1996       1997          1998         1999       2000
                                           ----       ----          ----         ----       ----
                                                              ($ in thousands)
Income Statement Data:
<S>                                     <C>         <C>          <C>          <C>        <C>
Operating revenue.....................  $106,331    $271,683     $479,400     $504,425    $542,627
Salaries and benefits.................    46,997     133,364      230,114      244,157     264,293
Other operating expenses (a)..........    80,357     156,738      221,598      224,616     233,328
Compensation expense related to
    redemption of stock options.......         -           -            -            -         187
Change in control bonuses, stock option
    redemption and other bonuses......         -           -            -       10,487           -
Nonrecurring conversion, realignment
    and relocation expenses...........         -           -            -        5,063       2,742
Recapitalization related costs........         -           -            -        6,827           -
                                        --------    --------     --------     --------    --------
Operating income (loss)...............   (21,023)    (18,419)      27,688       13,275      42,077
Interest expense, net.................    12,131      28,791       50,627       52,265      60,934
                                        --------    --------     --------     --------    --------
Loss before taxes.....................   (33,154)    (47,210)     (22,939)     (38,990)    (18,857)
Provision for income taxes (benefit)..   (11,757)     11,127          830          759         594
Minority interest.....................         -           -          572            -           -
                                        --------    --------     --------     --------    --------
Loss before extraordinary item........  $(21,397)   $(58,337)    $(24,341)    $(39,749)    (19,451)
Extraordinary loss....................         -           -            -        4,208           -
                                        --------    --------     --------     --------    --------
Net loss..............................  $(21,397)   $(58,337)    $(24,341)    $(43,957)   $(19,451)
                                        ========    ========     ========     ========    ========

Balance Sheet Data (at end of period):
Total assets..........................  $355,207    $381,690     $618,491     $624,712    $636,854
Total debt............................   247,616     324,966      528,148      518,307     539,463
Mandatorily redeemable preferred stock         -           -            -       85,716 (c) 103,455
Stockholders equity (deficit).........    51,598      (5,478)     (30,032)     (93,948)(c)(128,755)

Other Financial Data:
Amortization of purchased portfolios..   $27,317     $52,042(d)   $50,703(e)   $38,722     $28,092
Other depreciation and amortization...    18,281      33,574       30,007       31,095      31,885
Cash capital expenditures.............     2,606       9,489       13,480       18,437      18,398
On-balance sheet portfolio purchases..    10,373(f)   46,494       43,186       23,176      12,835
Cash flows from:
    Operating activities and portfolio
        purchasing....................    (2,978)    (13,669)      12,066       (3,652)     24,792
    Investing activities..............  (186,790)    (73,005)    (184,619)     (21,549)    (36,714)
    Financing activities..............   202,796      75,394      178,150       22,446      16,136
EBITDA (b)............................    24,575      67,197      108,398       83,092     102,054
Adjusted EBITDA (b)...................    25,775      67,197      108,398      105,469     104,983
</TABLE>


(a)Other operating expenses include telephone, postage, supplies, occupancy
   costs, data processing costs, depreciation, amortization and miscellaneous
   operating expenses.
(b)EBITDA is defined as income from continuing operations before interest,
   taxes, depreciation and amortization. Adjusted EBITDA reflects EBITDA as
   defined above adjusted for the non-recurring write-off of acquired technology
   in process in connection with the Payco acquisition and relocation expenses
   incurred by Continental of $1,000 and $200, respectively, in the year ended
   December 31, 1996, the change in control bonuses, stock option redemption and
   other bonuses; nonrecurring conversion, realignment and relocation expenses;
   and recapitalization related expenses of $10,487, $5,063 and $6,827,
   respectively, in the year ended December 31, 1999; and the compensation
   expense related to redemption of stock options and the nonrecurring
   realignment expenses of $187 and $2,742, respectively, in the year ended
   December 31, 2000. EBITDA and Adjusted EBITDA are presented here, as
   management believes they provide useful information regarding the Company's
   ability to service and/or incur debt. EBITDA and Adjusted EBITDA should not
   be considered in isolation or as substitutes for net income, cash flows from
   continuing operations, or other consolidated income or cash flow data
   prepared in accordance with generally accepted accounting principles or as
   measures of a company's profitability or liquidity. EBITDA and Adjusted
   EBITDA may not be comparable to other companies.
(c)Due to the Recapitalization discussed elsewhere herein.
(d)In the fourth quarter of 1997, the Company completed an in-depth analysis of
   the carrying value of the purchased portfolios acquired and valued in
   conjunction with the Company's September 1995 acquisition of API. As a result
   of this analysis, the Company recorded $10,000 of additional amortization
   related to these purchased portfolios to reduce their carrying value to their
   estimated net realizable value. This amount includes the $10,000 of
   additional amortization.
(e)In the fourth quarter of 1998, the Company wrote down its investment in a
   limited liability corporation (the "LLC") by $3,000 resulting from an
   analysis of the carrying value of the purchased portfolios owned by the LLC.
   This amount includes the $3,000.
(f)In May 1996, a subsidiary of the Company acquired participation interests in
   certain loan portfolios, representing the undivided ownership interests in
   such portfolios which were originally sold pursuant to existing Participation
   Agreements ("MLQ Interests") for aggregate consideration of $14,772. This
   amount excludes the $14,772.


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

Results of Operations

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

     Revenues for the year ended December 31, 2000 were $542.6 million  compared
to $504.4  million for the year ended  December  31, 1999 - an increase of 7.6%.
The  revenue  increase  of  $38.2  million  was  due  to  increased  collection,
outsourcing and portfolio services revenues.  Revenues from collection  services
were $353.4  million  for the year ended  December  31, 2000  compared to $349.7
million in 1999 due primarily to increased government and letter series business
partially offset by lower telecommunications business and the continued weakness
in the bank card market.  The  outsourcing  services  revenue of $101.7  million
compared  favorably to $74.3  million in 1999 due to increased  revenue of $21.7
million  from new and existing  business  and $5.7  million from RWC,  which was
acquired in September 2000.  Revenues from portfolio services increased to $87.5
million for the year ended  December 31, 2000 from $80.4  million for 1999.  The
increased revenues were due to higher servicing fee revenues for the off-balance
sheet  collections of OSI Funding LLC ("FINCO"),  the Company's  special purpose
finance company,  portfolios  partially offset by lower revenues from on-balance
sheet  portfolios  resulting from the shift from  on-balance  sheet ownership of
purchased loans and accounts receivable  portfolios to off-balance sheet. During
the year ended  December  31,  2000,  the Company  recorded  revenue  from FINCO
servicing fees of $26.8 million  compared to servicing fees of $15.2 million for
1999.

     Operating  expenses,  inclusive of salaries and benefits,  service fees and
other operating and  administrative  expenses,  were $437.6 million for the year
ended  December 31, 2000 and $398.9  million for 1999 - an increase of 9.7%. The
increase in these operating  expenses resulted  primarily from higher collection
expenses, increased collection-related expenses due to the increased revenues of
collection and outsourcing services and increased collection expenses associated
with  the  increase  in  collections  of  on  and  off-balance  sheet  purchased
portfolios  partially  offset by lower consulting  expenses.  For the year ended
December 31, 2000,  amortization and depreciation  charges of $60.0 million were
lower than $69.8 million for 1999 - a decrease of 14.0%. The lower  amortization
and depreciation charges resulted primarily from lower portfolio amortization as
a result of the shift towards  off-balance  sheet  purchased  loans and accounts
receivable portfolios.

     For the year ended  December 31, 2000, the Company  incurred  approximately
$0.2 million of additional compensation expense resulting from the redemption of
vested stock options.

     In  continuing  with the  strategy,  adopted  in early  1999,  to align the
Company  along  business  services and  establish  call centers of excellence by
industry specialization,  the Company incurred nonrecurring realignment expenses
of $2.7  million  which  includes  cost for  closures of certain  call  centers,
severance  associated  with these  office  closures and certain  other  one-time
costs.  These costs were recognized as incurred in 2000. See explanation of 1999
nonrecurring conversion,  realignment and relocation expenses of $5.1 million in
the  discussion  of  results of  operations  for year ended  December  31,  1999
compared to year ended December 31, 1998.

     In connection with the Recapitalization, the Company incurred $10.5 million
of additional  compensation expense in 1999. This compensation expense consisted
primarily of expense  relating to payment of cash for vested  stock  options and
the payment of change in control bonuses to certain  officers in accordance with
terms of their  employment  agreements.  In addition,  the Company incurred $6.8
million  of  Recapitalization  related  costs in  1999.  These  costs  consisted
primarily of professional and advisory fees, and other expenses.

     Earnings before interest  expenses,  taxes,  depreciation  and amortization
("EBITDA") for the year ended December 31, 2000 was $102.1 million.  Adding back
the  nonrecurring  charges and the  additional  compensation  expense,  adjusted
EBITDA was $105.0  million  for the year ended  December  31,  2000  compared to
$105.5 million after adding back the nonrecurring and  Recapitalization  related
expenses for 1999.  The decrease of $0.5 million was primarily  attributable  to
the increased  collection  expenses in relation to the revenue reported from the
collections of purchased  portfolios  partially offset by the contribution  from
increased  collection and  outsourcing  services  revenues and lower  consulting
expenses.

     While EBITDA was down slightly due to the  off-balance  sheet  ownership of
the  portfolios,  depreciation  and  amortization  also  declined  resulting  in
operating income of $42.1 million.  Adding back the nonrecurring charges of $2.7
million and the additional  compensation  expense of approximately $0.2 million,
operating income was $45.0 million for the year ended December 31, 2000 compared
to  $35.7   million   for  1999  after   adding   back  the   nonrecurring   and
Recapitalization related expenses.

     Net interest  expense for the year ended December 31, 2000 of $60.9 million
compared  unfavorably to $52.3 million in 1999 due primarily to higher  interest
rates and higher amortization of deferred financing fees.

     The  provision  for income  taxes of $0.6  million was provided for certain
state and foreign income tax obligations.  The Company generated a net operating
loss for federal and certain state income tax purposes in 2000, for which a full
valuation allowance was provided.

     The extraordinary loss of $4.2 million in 1999, the write-off of previously
capitalized  financing  costs,  resulted  from  the  extinguishment  of the then
existing credit facility in conjunction  with the  establishment of a new credit
facility in the fourth quarter of 1999.

     The net loss for the year ended December 31, 2000 of $19.5 million compared
favorably  to the net  loss of $44.0  million  for  1999  due  primarily  to the
nonrecurring and Recapitalization related expenses and the extraordinary item in
1999.

Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

     Revenues for the year ended December 31, 1999 were $504.4 million  compared
to $479.4  million for the year ended  December  31, 1998 - an increase of 5.2%.
The revenue increase of $25.0 million was due primarily to increased  collection
and  outsourcing  revenues of $19.7  million and $7.3 million from the full year
effect of the  acquisition  of Union in March  1998.  Revenues  from  collection
services  were $349.7  million for the year ended  December 31, 1999 compared to
$334.9 million for 1998. The increase in collection  services revenue was due to
a  2.7%  increase  in  existing   business  and  $5.7  million  from  the  Union
acquisition.   The  outsourcing  services  revenue  of  $74.3  million  compared
favorably  to  $62.1  million  for 1998 due to  increased  revenue  from new and
existing  business of $10.6  million,  or 17.0% and $1.6  million from the Union
acquisition.  Revenues from purchased portfolio services decreased 2.4% to $80.4
million for the year ended  December  31, 1999 from $82.4  million in 1998.  The
decreased  revenue was  attributable  to lower  revenues from  on-balance  sheet
portfolios and lower  strategic sales of portfolios  offset by higher  servicing
fee revenues for the off-balance sheet collections of portfolios which increased
due to the  formation  of FINCO.  Prior to forming  FINCO in October  1998,  the
Company would record as revenue the total  collections on purchased  portfolios.
Currently, for all purchased portfolios which are sold to and financed by FINCO,
the Company records as revenue a servicing fee on the total collections of FINCO
purchased  portfolios.  During the year ended  December  31,  1999,  the Company
recorded  revenue  from  FINCO  servicing  fees of  $15.2  million  compared  to
servicing fees of $0.8 million in 1998.

     Operating  expenses,  inclusive of salaries and benefits,  service fees and
operating and  administrative  expenses,  were $398.9 million for the year ended
December  31,  1999 and $371.0  million for the  comparable  period in 1998 - an
increase of 7.5%. The increase in these operating  expenses  resulted  primarily
from the Union acquisition,  higher collection-related  expenses associated with
the  increased  revenues  of  collection  and  outsourcing  services,  increased
collection  expenses  associated  with the increase in  collections of purchased
portfolios,   higher   infrastructure   costs  and  increased   advertising  and
promotional  expenses and consulting  expenses.  For the year ended December 31,
1999,  amortization and depreciation  charges of $69.8 million compared to $80.7
million for 1998 - a decrease of 13.5%. The lower  amortization and depreciation
charges resulted  primarily from lower  on-balance sheet portfolio  amortization
offset partially by additional depreciation and amortization of goodwill related
to the Union acquisition and depreciation of current year capital expenditures.

     During  the  fourth  quarter  of 1998 and the first  quarter  of 1999,  the
Company evaluated its business strategy for its operations.  After the Company's
formation and seven  acquisitions,  the Company  adopted a strategy to align the
Company  along  business  services and  establish  call centers of excellence by
industry specialization.  As a result, nonrecurring conversion,  realignment and
relocation  expenses  include costs resulting from the temporary  duplication of
operations,  closure of certain call centers  along with  relocation  of certain
employees,  hiring and  training  of new  employees,  costs  resulting  from the
conversion of multiple collection  operating systems to a one industry operating
system,  and other one-time and redundant costs, which are not expected to recur
as the  realignment  and  integration  plans are completed.  These costs of $5.1
million were recognized as incurred during 1999.

     In connection with the Recapitalization, the Company incurred $10.5 million
of  additional   compensation   expense.  This  compensation  expense  consisted
primarily of expense  relating to payment of cash for vested  stock  options and
the payment of change in control bonuses to certain  officers in accordance with
terms of their employment agreements.

     In addition, the Company incurred $6.8 million of Recapitalization  related
costs.  These costs consisted  primarily of professional  and advisory fees, and
other expenses.

     As a result of the above, the Company  generated  operating income of $13.3
million for the year ended  December  31,  1999.  Adding  back the  nonrecurring
charges of $5.1 million,  additional  compensation  expense of $10.5 million and
Recapitalization  related  costs of $6.8  million,  operating  income  was $35.7
million for 1999 compared to $27.7 million for 1998.

     Earnings before interest  expense,  taxes,  depreciation  and  amortization
(EBITDA) for the year ended December 31, 1999 was $83.1 million. Adding back the
nonrecurring and Recapitalization  related expenses,  adjusted EBITDA was $105.5
million for 1999  compared to $108.4  million  for the year ended  December  31,
1998.  The decrease was primarily  attributable  to the higher  marketing  costs
associated with branding initiatives, higher infrastructure and industry focused
expenses and the decreased portfolio service revenues due to the increased level
of off-balance sheet ownership of portfolios.

     Net interest  expense of $52.3 million for the year ended December 31, 1999
compared  unfavorably  to 1998  expense of $50.6  million due  primarily  to the
additional indebtedness incurred to finance the Union acquisition.

     The  provision  for income  taxes of $0.8  million was provided for certain
state and foreign income tax obligations.  The Company generated a net operating
loss for federal and certain state income tax purposes in 1999, for which a full
valuation allowance was provided.

     Minority interest in 1998 resulted from the Union  acquisition.  On January
23, 1998, the Company acquired approximately 77% of the outstanding common stock
of Union through a tender offer.  The  acquisition of all remaining  outstanding
common stock of Union was  completed on March 31, 1998.  The Company  recognized
minority  interest in earnings of Union  during the period from January 23, 1998
to March 31, 1998.

     Due to the factors stated above, the loss before extraordinary item for the
year ended  December 31, 1999 of $39.7  million  compared  unfavorably  to $24.3
million in 1998.


     The extraordinary  item of $4.2 million,  which related to the write-off of
previously  capitalized financing costs, resulted from the extinguishment of the
existing credit facility in conjunction  with the  establishment of a new credit
facility in the fourth quarter of 1999.

     Primarily  as a result of the  nonrecurring  and  Recapitalization  related
expenses  and the  extraordinary  item,  net loss of $44.0  million for the year
ended  December 31, 1999 compared  unfavorably  to the net loss of $24.3 million
for 1998.

Liquidity and Capital Resources

     At December 31, 2000,  the Company had cash and cash  equivalents  of $10.3
million.  The  Company's  bank  credit  facility  provides  for a $75.0  million
revolving  credit  facility,  which  allows the  Company  to borrow for  working
capital,  general  corporate  purposes  and  acquisitions,  subject  to  certain
conditions.  As of December 31, 2000, the Company had outstanding  $32.0 million
under the revolving  credit facility  leaving $36.2 million,  after  outstanding
letters of credit, available under the revolving credit facility.

     Cash and cash equivalents  increased from $6.1 million at December 31, 1999
to $10.3  million at December 31, 2000  principally  due to cash from  operating
activities  and portfolio  purchasing  of $24.8 million and cash from  financing
activities of $16.1 million primarily from the increase in the revolver of $19.0
million  offset  by the use of cash  of  $36.7  million  primarily  for  capital
expenditures  of $18.4 million and $16.7 million for the  acquisition of certain
assets of RWC. In addition to the cash  consideration  for RWC of $16.7 million,
the purchase  price  included  voting common stock worth $2.0 million and a $5.0
million 18%  unsecured,  subordinated  note  (interest  compounded  annually and
principal and interest due  September 29, 2003) along with a contingent  payment
obligation  due in three years.  The Company also held $22.0 million of cash for
clients in restricted trust accounts at December 31, 2000.

     Cash and cash equivalents  decreased from $8.8 million at December 31, 1998
to $6.1 million at December 31, 1999 principally due to the use of cash of $21.5
million for investing  activities primarily for capital expenditures and the use
of cash of $3.7 million for operating activities and portfolio purchasing offset
by net cash from  financing  activities of $22.5  million,  which was due to the
Recapitalization  of the Company on December 10, 1999.  In  connection  with the
Recapitalization,  the Company entered into a new credit facility.  The proceeds
of the new credit facility were used to refinance the  indebtedness  outstanding
under the then  existing  credit  facility on the date of the  Recapitalization.
Further  discussion  of  the  Recapitalization  is  included  in  the  Company's
financial  statements  (Note 2) included  herein.  The  Company  also held $22.5
million of cash for clients in restricted trust accounts at December 31, 1999.

     Purchased  Loans and Accounts  Receivable  Portfolios  decreased from $39.9
million at December 31, 1999 to $24.7 million at December 31, 2000 due primarily
to amortization of purchased portfolios of $28.1 million offset partially by new
on-balance sheet portfolio purchases of $12.8 million. In addition,  the Company
purchased,  and sold to FINCO, loans and accounts receivable portfolios of $86.9
million and $56.7  million  during the years ended  December  31, 2000 and 1999,
respectively.

     The purchased loans and accounts receivable portfolios consist primarily of
consumer  loans and credit card  receivables,  commercial  loans,  student  loan
receivables  and health club  receivables.  Consumer loans  purchased  primarily
consist of  unsecured  term  debt.  A summary of  purchased  loans and  accounts
receivable  portfolios  at December  31, 2000 and  December  31, 1999 by type of
receivable is shown below:

                         December 31, 2000               December 31, 1999
                  ------------------------------   -----------------------------
                  Original Gross   Recorded Net   Original Gross   Recorded Net
                  Principal Value   Book Value    Principal Value   Book Value
                  ---------------  ------------   ---------------  ------------
                   (in millions)   in thousands)   (in millions)  (in thousands)

Consumer loans....   $4,525           $9,477          $2,958          $16,141
Student loans.....      343              653             343            1,258
Credit cards......    1,515            9,292             958           11,837
Health clubs......    1,661            5,118           1,565            9,060
Commercial........      129              150             129            1,651
                     ------          -------          ------          -------
                     $8,173          $24,690          $5,953          $39,947
                     ======          =======          ======          =======


     Net  deferred  tax assets were zero at December  31, 2000 and 1999 due to a
valuation allowance of $95.2 million and $78.8 million, respectively.  Temporary
differences giving rise to deferred tax assets at December 31, 2000 and December
31, 1999 relate  principally  to net  operating  loss  carryforwards  and future
deductible differences. The realization of this asset is dependent on generating
sufficient taxable income prior to expiration of the loss carryforwards in years
through  2020.  At December  31, 2000,  the Company has a  cumulative  valuation
allowance  of $95.2  million to reflect  management's  assessment,  based on the
weight of the available  evidence of current and  projected  future book taxable
income, that there is significant  uncertainty that any of the benefits from the
deferred  tax assets  will be  realized.  For all  federal  tax years  since the
Company's  formation in September  1995,  the Company has incurred net operating
losses.  Since the Company has a history of generating net operating  losses and
is expected to continue to incur significant  interest expense,  management does
not expect the  Company to generate  taxable  income in the  foreseeable  future
sufficient to realize tax benefits from the net operating loss  carryforwards or
the future reversal of the net deductible temporary  differences.  The amount of
the  deferred  tax  assets  considered   realizable,   however,  is  subject  to
reassessment  in future years if estimates of future  taxable  income during the
carryforward period change.

     The  Company's  current debt  structure  at December  31, 2000  consists of
$429.5 million  indebtedness under the bank credit facility,  $100.0 million 11%
Senior Subordinated Notes (the "Notes") and other indebtedness of $10.0 million.
See Note 6 of the Consolidated  Financial  Statements of OSI included  elsewhere
herein for a description of the bank credit facility.

     The Notes and the bank credit  facility  contain  financial  and  operating
covenants and restrictions on the ability of the Company to incur  indebtedness,
make  investments  and take certain other  corporate  actions.  The debt service
requirements  associated  with the  borrowings  under the facility and the Notes
significantly impact the Company's liquidity requirements.  Additionally, future
portfolio purchases may require significant financing or investment. The Company
anticipates  that its operating cash flow together with  availability  under the
bank credit facility will be sufficient to fund its anticipated future operating
expenses and to meet its debt service  requirements as they become due. However,
actual capital requirements may change, particularly as a result of acquisitions
the  Company  may make.  The  ability of the  Company  to meet its debt  service
obligations  and  reduce  its total debt will be  dependent,  however,  upon the
future  performance of the Company and its subsidiaries  which, in turn, will be
subject to general  economic  conditions  and to  financial,  business and other
factors including factors beyond the Company's control.

     In October of 1998, a special-purpose  finance company,  OSI Funding Corp.,
formed by the Company,  entered into a revolving warehouse financing arrangement
for up to $100.0  million  of funding  capacity  for the  purchase  of loans and
accounts   receivable   over  its  five  year  term.  In  connection   with  the
Recapitalization, OSI Funding Corp. converted to a limited liability company and
is now OSI Funding LLC, a bankruptcy remote,  non-consolidated subsidiary of the
Company,  with OSI owning approximately 78% of the financial interest but having
only  approximately  29%  of  the  voting  rights.  The  Company  believes  this
arrangement will provide it with expanded portfolio  purchasing  capability in a
very opportunistic buying market.

     Capital  expenditures  for the year  ended  December  31,  2000 were  $18.4
million.  The Company  expects to spend  approximately  $15.0 million on capital
expenditures  (exclusive of any expenditures in connection with acquisitions) in
2001. Historical expenditures have been, and future expenditures are anticipated
to be primarily for replacement and/or upgrading of telecommunications  and data
processing  equipment,  leasehold  improvements  and continued  expansion of the
Company's   information  services  systems.   Subject  to  compliance  with  the
provisions of its debt agreements, the Company expects to finance future capital
expenditures with cash flow from operations,  borrowings and capital leases. The
Company will reduce its future capital  expenditures  to the extent it is unable
to fund its capital plan. The Company  believes that its facilities will provide
sufficient  capacity  for  increased  revenues  and  will not  require  material
additional capital expenditures in the next several years.

     In March  2001,  in keeping  with its  strategy  to expand its  outsourcing
services,  the  Company,  through  a newly  formed  limited  liability  company,
Coast-to-Coast  Consulting,  LLC  acquired  certain  assets and assumed  certain
liabilities of Coast-to-Coast Consulting, Inc. ("CCC") for cash of approximately
$16.2 million.  CCC provides highly skilled experts to health care clients.  The
services provided assist CCC's clients with on-site,  back office functions such
as billing, collections, cash posting, special projects and other areas.

Inflation

     The Company  believes that  inflation has not had a material  impact on its
results of operations for the years ended December 31, 2000, 1999 and 1998.

Accounting Pronouncements

     In June 1998,  Statement of Financial Accounting Standard ("SFAS") No. 133,
Accounting for Derivative  Instruments  and Hedging  Activities,  was issued and
subsequently amended by SFAS No. 138, Accounting for Derivative  Instruments and
Hedging  Activities,  which is required  to be adopted no later than  January 1,
2001. The statement  provides a  comprehensive  and consistent  standard for the
recognition and measurement of derivatives and hedging activities. The Company's
derivative  instruments  are interest  rate swaps.  The Company  believes  these
instruments  qualify for hedge  accounting under SFAS No. 133 as amended by SFAS
No.  138.  As of January  1, 2001,  based on the  Company's  current  derivative
instruments, the Company believes this statement will not have a material impact
on the consolidated statement of operations and consolidated balance sheet.

In September  2000,  SFAS No. 140,  Accounting  for  Transfers  and Servicing of
Financial  Assets and  Extinguishments  of  Liabilities - a replacement  of FASB
Statement  No. 125 was  issued and is  effective  April 1, 2001.  The  statement
provides  accounting  and  reporting  standards  for  transfers and servicing of
financial assets and  extinguishments  of liabilities.  The Company is currently
evaluating  the  impact  of  SFAS  No.  140 on  its  consolidated  statement  of
operations and consolidated  balance sheet and does not expect the impact on the
Company's  financial  condition,  cash  flows or  results  of  operations  to be
material.

Forward-Looking Statements

     The  following  statements  in this entire  document are or may  constitute
forward-looking  statements made in reliance upon the safe harbor of the Private
Securities  Litigation  Reform  Act  of  1995:  (1)  statements  concerning  the
anticipated   costs  and  outcome  of  legal   proceedings   and   environmental
liabilities,  (2)  statements  regarding  anticipated  changes  in the  accounts
receivable  management  industry,  including  but not  limited  to debt  levels,
delinquencies,  industry  consolidation,  customer consolidation and outsourcing
trends,  (3)  statements   regarding   anticipated   changes  in  the  Company's
opportunities in its industry, (4) statements regarding the Company's ability to
fund its future  operating  expenses and meet its debt service  requirements  as
they become  due,  (5)  statements  regarding  the  Company's  expected  capital
expenditures and facilities, (6) any statements preceded by, followed by or that
include the word  "believes,"  "expects,"  "anticipates,"  "intends,"  "should,"
"may,"  or  similar   expressions;   and  (7)  other  statements   contained  or
incorporated  by  reference  in this  document  regarding  matters  that are not
historical facts.

     Because  such  statements  are subject to risks and  uncertainties,  actual
results  may  differ   materially  from  those  expressed  or  implied  by  such
forward-looking  statements.  Factors that could cause actual  results to differ
materially  include,  but are not limited  to: (1) the demand for the  Company's
services,  (2) the demand for  accounts  receivable  management  generally,  (3)
general  economic  conditions,  (4) changes in interest rates,  (5) competition,
including  but not limited to pricing  pressures,  (6)  changes in  governmental
regulations  including,  but not  limited to the  federal  Fair Debt  Collection
Practices  Act  and  comparable  state  statutes,  (7)  legal  proceedings,  (8)
environmental  investigations  and clean up  efforts,  (9)  expected  synergies,
economies of scale and cost savings from recent  acquisitions by the Company not
being fully realized or realized within the expected time frames,  (10) costs of
operational  difficulties  related to  integrating  the  operations  of recently
acquired  companies with the Company's  operations  being greater than expected,
(11)  unanticipated  realignment  costs,  (12) the Company's ability to generate
cash flow or obtain  financing to fund its operations,  service its indebtedness
and continue its growth and expand  successfully  into new markets and services,
and (13) factors discussed from time to time in the Company's public filings.

     These forward-looking  statements speak only as of the date they were made.
These cautionary  statements should be considered in connection with any written
or oral forward-looking statements that the Company may issue in the future. The
Company does not undertake any  obligation to release  publicly any revisions to
such  forward-looking  statements to reflect later events or circumstances or to
reflect the occurrence of unanticipated events.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The  Company is subject to the risk of  fluctuating  interest  rates in the
normal  course of business.  From time to time and as required by the  Company's
Credit Agreement,  the Company will employ derivative  financial  instruments as
part of its risk management program.  The Company's objective is to manage risks
and exposures of its debt and not to trade such instruments for profit or loss.

     The Company uses interest rate swap and collared swap  agreements to manage
the interest rate  characteristics  of its outstanding  debt to a more desirable
fixed or  variable  rate  basis or to limit  the  Company's  exposure  to rising
interest rates.

     The following  table  provides  information  about the Company's  financial
instruments   that  are  sensitive  to  changes  in  interest  rates.  For  debt
obligations,   the  table   presents   principal  and  cash  flows  and  related
weighted-average  interest rates by expected  maturity dates.  For interest rate
swap and collared  swap  agreements,  the table  presents  notional  amounts and
weighted-average interest rates.





<TABLE>
<CAPTION>

                            Interest Rate Sensitivity
                       Principal (Notional) Amount by Expected Maturity
                              Average Interest Rate
                              (Dollars in millions)

                                                                                             Fair
                          2001     2002     2003     2004      2005   Thereafter   Total     Value
                          ----     ----     ----     ----      ----   ----------   -----    -------
Liabilities
Long-term debt
<S>                      <C>      <C>      <C>     <C>      <C>       <C>        <C>       <C>
    Fixed rate              -        -        -        -        -      $100.0      $100.0    $80.0
    Average interest rate  11.0%    11.0%    11.0%    11.0%    11.0%     11.0%

    Variable rate         $10.0    $17.5    $32.5    $40.0   $187.8    $141.7      $429.5   $429.5
    Average interest rate  (1)      (1)      (1)      (1)      (1)       (1)

Interest Rate Derivative Financial Instruments Related to Debt

Interest Rate Swap
    Notional amount         -        -        -        -        -       $50.0       $50.0     $0.4(2)
    Average pay rate       (3)      (3)      (3)      (3)      (3)       (3)
    Average receive rate   11.0%    11.0%    11.0%    11.0%    11.0%     11.0%

Interest Rate Collared Swap
    Notional amount         -        -     $150.0      -        -         -        $150.0    $(3.7)(2)
    Strike cap rate         8.5%     8.5%     8.5%     -        -         -
    Strike floor rate       5.9%     5.9%     5.9%     -        -         -
    Strike swap rate        7.0%     7.0%     7.0%     -        -         -
    Forward rate           (4)      (4)      (4)       -        -         -
</TABLE>

(1)  Three-month  LIBOR (6.4% at December 31, 2000) plus weighted average margin
     of 3.7%.
(2)  Represents the fair value of the interest rate swap agreement  based on the
     receivable (payment) to exit the agreement at December 31, 2000.
(3)  One-month  LIBOR (6.6% at December 31, 2000) plus margin of 3.5% (capped at
     11.0% until November 2002 and 15.0% until maturity).
(4)  Three-month LIBOR.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Reference is made to the Financial  Statements and  Supplementary  Schedule
contained in Part IV hereof.


ITEM 9.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE

     The  information  required  by this Item 9 is  contained  in the  Company's
Current  Report on Form 8-K,  filed June 30, 2000,  and  incorporated  herein by
reference.

<PAGE>
PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Directors of the Company are elected  annually by its shareholders to serve
during the ensuing  year or until a  successor  is duly  elected and  qualified.
Executive  officers of the Company are duly elected by its Board of Directors to
serve until their respective successors are elected and qualified. The following
table sets forth certain information with respect to the directors and executive
officers of the Company.

          Name                Age                    Position or Office
---------------------         ---         -------------------------------------
Timothy G. Beffa              50          Director, President and
                                             Chief Executive Officer
William B. Hewitt             62          Director
Timothy M. Hurd               31          Director and Vice President
Scott P. Marks, Jr.           55          Director
Richard L. Thomas             70          Director
Paul R. Wood                  47          Director and Vice President
Michael A. DiMarco            43          Executive Vice President -
                                             President of Specialty Business
Bryan K. Faliero              35          Executive Vice President Operations -
                                             President of Portfolio Services
Michael B. Staed              54          Executive Vice President Sales -
                                             Chief Sales and Marketing Officer
Gary L. Weller                40          Executive Vice President and
                                             Chief Financial Officer


Timothy G. Beffa  (50),  President,  Chief  Executive  Officer  and  Director of
Outsourcing  Solutions  Inc.  since August  1996.  From August 1995 until August
1996,  Mr.  Beffa  served as  President  and Chief  Operating  Officer  of DIMAC
Corporation  ("DIMAC") and DIMAC DIRECT Inc. ("DDI") and a director of DDI. From
1989 until  August 1995,  Mr.  Beffa served as a Vice  President of DIMAC and as
Senior  Vice  President  and Chief  Financial  Officer of DDI.  Prior to joining
DIMAC,  Mr. Beffa was Vice  President of  Administration  and Controller for the
International  Division  of Pet  Incorporated,  a  food  and  consumer  products
company, where he previously had been Manager of Financial Analysis.

William B. Hewitt (62),  Director of the Company since February 1998. Mr. Hewitt
has served as President and Chief  Executive  Officer of Sirius  Ventures,  Inc.
since  February  1998.  From July 1997 to January  1998,  Mr.  Hewitt  served as
President  and Chief  Executive  Officer of Union and prior to that he served as
President and Chief  Operating  Officer of Union since May 1995. Mr. Hewitt also
served as Chairman and Chief  Executive  Officer of Capital  Credit  Corporation
since  September  1991,  Chairman  and Chief  Executive  Officer of  Interactive
Performance,  Inc. since November 1995 and Chairman and Chief Executive  Officer
of High Performance  Services,  Inc. since May 1996. Capital Credit Corporation,
Interactive   Performance,   Inc.  and  High  Performance  Services,  Inc.  were
subsidiaries of Union. He currently serves as a director of ZIBEX, Inc.

Timothy M. Hurd (31),  Director and Vice President of the Company since December
1999.  Mr. Hurd is a director  of Madison  Dearborn  Partners.  Prior to joining
Madison  Dearborn  Partners in 1995,  Mr. Hurd was with Goldman Sachs & Co. from
1992  to  1994.  He  currently  serves  as  a  director  of  CapitalSource  LLC,
PeopleFirst.com, Pax Clearing Company and PayPal Inc.

Scott P. Marks, Jr. (55),  Director of the Company since January 2000. Mr. Marks
is a private  investor in Chicago,  IL. Mr. Marks resigned from his post as Vice
Chairman and a member of the Board of Directors of First Chicago NBD Corporation
in December  1997, a post he had held since  December  1995.  Previously  he was
Executive Vice President of First Chicago  Corporation  and managed their credit
card business for  approximately 10 years. Mr. Marks serves as a director of ADA
Business   Enterprises,   the  for-profit  subsidiary  of  the  American  Dental
Association and Clark Polk Land LLC.

Richard L. Thomas (70),  Director of the Company since January 2000.  Mr. Thomas
has been  retired  since May  1996.  Prior to  retiring,  Mr.  Thomas  served as
Chairman of First Chicago NBD Corporation  from December 1995 to May 1996. Prior
to that he served as Chairman of First Chicago Corporation from December 1991 to
December 1995. He currently serves as a director of Exelon, IMC Global Inc., The
PMI Group Inc., The Sabre Holding Corp. and Sara Lee Corporation.

Paul R. Wood (47),  Director and Vice  President of the Company  since  December
1999. Mr. Wood is a managing  director of Madison  Dearborn  Partners.  Prior to
co-founding  Madison Dearborn  Partners in 1993, Mr. Wood was with First Chicago
Venture  Capital for nine years in various  leadership  positions.  He currently
serves as a director of Hines Horticulture,  Inc., Woods Equipment Company, Inc.
and Eldorado Bankshares, Inc.

Michael A.  DiMarco  (43),  Executive  Vice  President - President  of Specialty
Business since January 2001;  Executive Vice President and President  Collection
Services of the Company from September 1998 until December 2000. From 1991 until
September  1998,  Mr.  DiMarco  was  with  Paging  Network,   Inc.,  a  wireless
communications  provider,  serving in  various  leadership  positions  including
Senior Vice President of Operations and Executive Vice President of Sales. Prior
to that, he served in various senior  leadership  positions with the City of New
York, Hertz Rent-A-Car, Inc., ARA Services, Inc. and National Car Rental, Inc.

Bryan K.  Faliero  (35),  Executive  Vice  President  Operations  - President of
Portfolio  Services  since January  2001;  President  Portfolio  Services of the
Company from October 1997 until December 2000. From June 1997 to September 1997,
Mr. Faliero served as Vice President,  Business Analysis for the Company.  Prior
to joining  the  Company,  he was an  associate  with Booz Allen &  Hamilton,  a
strategic  consulting  company  based in Chicago,  concentrating  on  operations
strategy and network rationalization.

Michael  B.  Staed  (54),  Executive  Vice  President  Sales - Chief  Sales  and
Marketing  Officer  since  January  2001;  Senior Vice  President  and President
Outsourcing Services of the Company from July 1999 until December 2000. From May
1998 to June  1999,  Mr.  Staed  served  as  Senior  Vice  President  Marketing,
Outsourcing  for the  Company.  Prior to  joining  the  Company,  he served as a
partner in the consulting  division of Ernst & Young LLP for four years focusing
on the global telecommunications practice.


Gary L. Weller (40), Executive Vice President and Chief Financial Officer of the
Company  since July 1999.  From January 1998 to June 1999,  Mr. Weller served as
Senior Vice  President  and Chief  Financial  Officer of Harbour  Group Ltd., an
investment  firm based in St. Louis.  From June 1993 to December 1997, he served
as  Executive  Vice  President  and  Chief   Financial   Officer  of  Greenfield
Industries, Inc.


ITEM 11. EXECUTIVE COMPENSATION

     The following table sets forth information concerning the compensation paid
or accrued for by the Company on behalf of the Company's Chief Executive Officer
and the four other most  highly  compensated  executive  officers of the Company
(collectively, the "Named Officers") for the years ended December 31, 2000, 1999
and 1998.
<TABLE>
<CAPTION>
                                                       Summary Compensation Table
                                    ----------------------------------------------------------------
                                                                         Long Term
                                                                        Compensation
                                                         Other Annual      Awards         All Other
Name and                            Salary      Bonus    Compensation   ------------    Compensation
Principal Position        Year        ($)        ($)          ($)        Options (#)       ($)(1)
------------------        -----     -------    -------   ------------   ------------    ------------
<S>                     <C>        <C>         <C>       <C>             <C>            <C>
Timothy G. Beffa         2000       371,250    375,000                     30,000             3,400
President and CEO        1999       370,836    365,000                                        2,617
                         1998       350,000    405,300

Michael A. DiMarco       2000       319,370    105,000                      3,000             3,400
Executive Vice           1999       325,000    100,000     42,373(2)       50,000         1,373,017
  President - President  1998(3)    108,337    220,000     14,491(2)
  of Specialty Business

Bryan K. Faliero         2000       241,673    105,000                     31,250             3,400
Executive Vice           1999       195,206     90,000                                      480,337
  President Operations-  1998       159,373     83,800                                        4,272
  President of
  Portfolio Services

Mike B. Staed            2000       245,519     70,000                     19,663             3,400
Executive Vice           1999       228,337     70,000                     16,000           947,505
  President Sales -      1998(4)    135,289     89,600                      9,000
  Chief Sales and
  Marketing Officer

Gary L. Weller           2000       269,884    120,000
Executive Vice           1999(5)    134,512    310,000                     50,000            10,459
  President and CFO
</TABLE>

(1)  Amounts  for 2000  represent  the  Company's  portion  of the  401(k)  Plan
     contribution. In connection with the Recapitalization in 1999, Mr. DiMarco,
     Mr.  Faliero  and  Mr.  Staed  received  change  in  control   payments  of
     $1,356,875, $475,627 and $937,500, respectively.  Remaining amounts in 1999
     and 1998,  if any,  represent  split dollar life  insurance  and  long-term
     disability premiums paid by the Company along with the Company's portion of
     the 401(k) Plan contribution.
(2)  Payment of taxes by the Company for includable W-2 relocation expenses.
(3)  1998  compensation  based on an annual salary of $325,000.  Mr. DiMarco was
     hired in September 1998.
(4)  1998  compensation  based on an annual  salary of  $210,000.  Mr. Staed was
     hired in May 1998.
(5)  1999  compensation  based on an annual  salary of $275,000.  Mr. Weller was
     hired in July 1999.

     The  following  table  sets  forth  grants  of stock  options  to the Named
Officers during the year ended December 31, 2000.
<TABLE>
<CAPTION>

                              OPTION GRANTS IN 2000

                                    Percent of                                     Potential Realizable Value
                     Number of         Total                                       at Assumed Annual Rates of
                    Securities        Options                                       Stock Price Appreciation
                    Underlying      Granted to     Exercise or                          for Option Term
                      Options      Employees In    Base Price       Expiration     ---------------------------
      Name          Granted (#)     Fiscal Year     ($/share)           Date          5%              10%
-----------------   -----------    ------------    -----------    -------------    --------      -------------
<S>                  <C>             <C>            <C>           <C>             <C>             <C>
Timothy G. Beffa      30,000          10.1%          $37.47       June 29, 2010    $706,800       $1,791,600

Michael A. DiMarco     3,000           1.0%          $37.47       June 29, 2010     $70,680         $179,160

Bryan K. Faliero      31,250          10.5%          $37.47       June 29, 2010    $736,250       $1,866,250

Mike B. Staed         19,663           6.6%          $37.47       June 29, 2010    $463,260       $1,174,274

</TABLE>

     During  the year  ended  December  31,  2000,  there  were no stock  option
exercises by the Named Officers.  The following table sets forth options held by
the Named Officers at December 31, 2000.

                           AGGREGATED OPTION VALUES ON
                                DECEMBER 31, 2000


                           Number of Securities
                          Underlying Unexercised        Value of Unexercised
                                Options at             In-the-Money Options at
                            December 31, 2000            December 31, 2000(1)
                       ---------------------------    --------------------------
      Name             Exercisable   Unexercisable    Exercisable  Unexercisable
-----------------      -----------   -------------    -----------  -------------

Timothy G. Beffa         70,175         30,000         $1,752,270            0

Michael A. DiMarco       50,000          3,000                  0            0

Bryan K. Faliero         18,750         31,250           $233,813            0

Michael B. Staed         25,000         19,663                  0            0

Gary L. Weller           50,000              0                  0            0

(1) Based on the price per share of $37.47, the last price at which  the Company
      sold its Voting common stock.

Employment Agreements

     OSI has entered into employment agreements with certain officers, including
each of the named  executive  officers.  The employment  agreements  provide for
initial base salaries for Messrs. Beffa, DiMarco,  Faliero,  Staed and Weller of
$375,000, $325,000, $210,000, $250,000 and $275,000, respectively. Base salaries
are adjusted  annually by the Compensation  Committee of the Board of Directors.
In  addition,  the  agreements  provide that Mr. Beffa is eligible for an annual
bonus of up to 150% of his annual  base  salary and  Messrs.  DiMarco,  Faliero,
Staed and Weller are eligible  for target  annual  bonuses of 67%,  50%, 50% and
67%, respectively.

     On  December  31 of each year,  the term of each  employment  agreement  is
automatically  extended for an additional year unless the Company or the officer
gives 30 days advance  termination  notice.  If (i) the Company  terminates  the
officer's  employment without "cause" (as defined in the employment  agreement),
(ii) the  Company  does not agree to extend the  employment  agreement  upon the
expiration  thereof,  (iii) the officer  terminates his  employment  because the
Company  reduces  his  responsibilities  or  compensation  in a manner  which is
tantamount to termination of the officer's employment,  or (iv) within two years
following a sale of the company (as defined in the  employment  agreement),  the
officer resigns for "good reason" (as defined in the employment agreement),  the
officer  would  be  entitled  to  receive  an  amount  equal to his  total  cash
compensation (base salary plus bonus, excluding,  however, any change of control
bonus  described  below) for the preceding year and continue to receive  medical
and  dental  health  benefits  for one  year.  If the  officer's  employment  is
terminated  by the  Company  "for  cause",  the  officer is not be  entitled  to
severance compensation.

     The employment  agreements for Messrs.  DiMarco,  Faliero and Staed provide
that upon  consummation  of a sale of the Company (as defined in the  employment
agreement), if the officer is employed by the Company immediately prior thereto,
he will be entitled to receive a payment  from the Company in the amount of 250%
of his (i) then current base salary plus (ii) target  annual  bonus,  reduced by
any gain for all of the  options to  purchase  capital  stock of the  Company or
other equity compensation awards previously granted to the officer.  Pursuant to
this provision,  Messrs.  DiMarco,  Faliero and Staed received change in control
bonuses in 1999 upon consummation of the Recapitalization. The change in control
bonuses paid in 1999 and any future  bonuses paid pursuant to this  provision of
the employment agreements will be paid only if such bonus is previously approved
by a vote of more than  seventy-five  percent  (75%) of the voting  power of the
Company's outstanding stock immediately before any sale of the Company.

Director Compensation

     Messrs.  Hewitt,  Marks and Thomas receive  $2,000 per regularly  scheduled
meeting of the Board of  Directors,  $1,000 per special  meeting of the Board of
Directors  and $500 per  committee  meeting.  Effective  May 31,  2000,  Messrs.
Hewitt,  Marks and Thomas each  purchased  2,669 shares of the Company's  voting
common stock for fair value,  $37.47 per share.  In conjunction  with this stock
purchase,  each was granted an option to purchase an additional  2,669 shares of
the  Company's  voting  common  stock at an exercise  price of $37.47 per share.
These options  time-vest  over a three-year  period and expire on the earlier of
May 31,  2010 or the date the  director  ceases to be a member of the  Company's
Board of Directors.

     All directors receive  reimbursement for travel and out-of-pocket  expenses
incurred in connection with attendance at all such meetings. Except as described
above,  no  director  of OSI  receives  any  other  compensation  from  OSI  for
performance of services as a director of OSI or a member of any committee of the
Board of Directors.

Option Plans

     The  Company  maintains  the 1995 Stock  Option and Stock Award Plan ("1995
Plan") and Outsourcing  Solutions Inc. 2000 Equity  Incentive Plan ("2000 Plan")
(collectively,   the  "Stock  Option   Plans").   The  Stock  Option  Plans  are
administered  by the  Compensation  Committee  of the Board of  Directors of the
Company.  Under the Stock Option Plans, the Compensation  Committee may grant or
award (i)  options to purchase  stock of the  Company,  (ii) stock  appreciation
rights granted in conjunction  with stock options,  (iii)  restricted  stock, or
(iv)  bonuses  payable  in stock,  to key  salaried  employees  of the  Company,
including officers,  independent contractors of the Company and directors of the
Company.  Options  granted  under the 1995 Plan may  either be  incentive  stock
options ("ISOs"), within the meaning of Section 422 of the Internal Revenue Code
of 1986, as amended, or stock options other than ISOs ("NQSOs"),  but all grants
under the 1995 Plan were NQSOs.  The 2000 Plan  authorizes  the issuance of only
NQSOs.

     A total of 1,150,000 shares of common stock of the Company are reserved for
issuance under the Stock Option Plans. As of March 29, 2001, options to purchase
up to 705,345  shares of the Company's  common stock are  outstanding  under the
Stock Option Plans, which 399,925 shares are vested and exercisable.

Compensation Committee Interlocks and Insider Participation

     Mr. Hurd serves as a member of the Company's  Compensation Committee and as
a Vice President of the Company.  Mr. Hurd is not,  however,  an employee of the
Company.

Board of Directors' Report on Executive Compensation

     The Compensation  Committee  recommends  compensation  arrangements for the
Company's  executive  officers and administers the Company's Stock Option Plans.
The Company's compensation program was designed to be competitive with companies
similar in structure and business to the Company.

     The Company's  executive  compensation  program was  structured to help the
Company achieve its business objectives by:

o    Setting  levels of  compensation  designed to attract  and retain  superior
     executives in a highly competitive environment.

o    Designing equity-related and other performance-based incentive compensation
     programs to align the interests of management with the ongoing interests of
     shareholders; and

o    Providing  incentive  compensation  that varies  directly with both Company
     financial performance and individual contributions to that performance.


     The Company has used a combination  of salary and  incentive  compensation,
including cash bonuses and  equity-based  incentives to achieve its compensation
goals. In accordance with the 2000 Management Incentive Plan, effective in April
2000,  the  Company  selected  executives  and  certain  managers  and other key
personnel to  participate in the annual bonus  program.  It  established  target
awards  for  each  participant,  as a  percent  of his or her  base  salary.  In
addition, corporate and individual business unit objectives were established for
revenue  and  adjusted  earnings  before  interest,   taxes,   depreciation  and
amortization  ("EBITDA") and corporate leverage.  These financial factors, along
with a  component  for  accomplishment  of  individual  goals,  were  assigned a
weighting  for each  participant,  depending on his or her  position  within the
Company.

     In February 2001, the head of each functional  unit  recommended the amount
of  payout  for   individual   performance   based  on  an  evaluation  of  each
participant's   performance   in  2000.   Recommendations   for  the  individual
performance  component  were  reviewed  and in some cases  adjusted by the Chief
Executive Officer. Payout for revenue, EBITDA and leverage were determined based
on the Company's  financial  results for the year ended  December 31, 2000.  The
total amount of bonus payouts and  individual  payouts for each of the Company's
senior executives were presented to and approved by the Compensation Committee.

     In June 1999, the Company  entered into an amended and restated  employment
agreement  with  Timothy  G.  Beffa to serve as  President  and Chief  Executive
Officer of OSI. Under the employment agreement, Mr. Beffa's base salary for 1999
was $375,000  and his bonus  target  potential  was  $562,500,  150% of his base
salary.  In March 2000, the  Compensation  Committee  increased Mr. Beffa's base
salary to $390,000 and his target  potential  to $585,000,  150% of base salary.
These amounts were established by the Compensation Committee after consideration
of compensation  paid to Chief Executive  Officers of comparative  companies and
the  relationship  of  his  compensation  to  that  paid  to  other  OSI  senior
executives.  For 2000, Mr. Beffa's bonus was determined based upon the following
three  factors,  which were  weighted as indicated:  the  Company's  performance
against pre-established revenue and EBITDA goals (70%), leverage goals (15%) and
Mr.  Beffa's  attainment  of  pre-established  objectives,   based  on  specific
strategic  initiatives  to both build a  suitable  business  infrastructure  and
deliver on strategic growth  initiatives  (15%).  Based on the Company's revenue
and EBITDA performance, year-end leverage and Mr. Beffa's substantial obtainment
of personal  objectives,  Mr. Beffa's bonus for 2000 was  $375,000--64.1% of his
target bonus.

                             Compensation Committee
                                 Timothy M. Hurd
                                  Paul R. Wood


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     As of March 29, 2001, the authorized  capital stock of the Company consists
of (i) 15,000,000  shares of Voting Common Stock,  par value $.01 per share,  of
which  6,088,479.30  are  issued  and  outstanding,  (ii)  2,000,000  shares  of
Non-Voting  Common  Stock,  par value $.01 per share,  of which  480,321.30  are
issued and  outstanding,  (iii)  200,000  shares of 14%  Mandatorily  Redeemable
Senior  Preferred  Stock,  no  par  value,  of  which  100,000  are  issued  and
outstanding and (iv) 50,000 shares of Junior  Preferred  Stock, no par value, of
which 7,000 are issued and outstanding.

     The following  table sets forth the number and percentage of shares of each
class of the Company's capital stock  beneficially owned as of March 29, 2001 by
(i) each person known to the Company to be the beneficial  owner of more than 5%
of any  class  of the  Company's  voting  equity  securities,  (ii)  each of the
Company's directors and nominees, (iii) each of the Named Officers, and (iv) all
directors and executive officers of the Company as a group.

                                                           Amount and
                                                            Nature of   Percent
                                                           Beneficial   of Class
  Title of Class      Name and Address Beneficial Owner     Ownership      (1)
--------------------  ---------------------------------   ------------  --------
Voting Common Stock   Madison Dearborn Capital Partners   4,536,367.84    74.5%
                         III, L.P.(2)
                      Madison Dearborn Special Equity     4,536,367.84    74.5%
                         III, L.P. (2)
                      Special Advisors Fund I, L.L.C.     4,536,367.84    74.5%
                         (2)
                      Timothy M. Hurd (2)                 4,536,367.84    74.5%
                      Paul R. Wood (2)                    4,536,367.84    74.5%
                      Timothy G. Beffa (3)                   96,863.02     1.5%
                      Michael A. DiMarco (3)                 57,000.00     *
                      Bryan K. Faliero (3)                   28,758.00     *
                      Michael B. Staed (3)                   30,337.60     *
                      Gary L. Weller (3)                     63,344.01     1.0%
                      All directors and executive         4,812,670.47    76.4%
                         officers as a group


Junior Preferred      Timothy G. Beffa                           81.65     1.2%
Stock                 Bryan K. Faliero                            2.48     *
                      All directors and executive                84.13     1.2%
                         officers as a group


* Represents less than one percent.

(1)  The information as to beneficial ownership is based on statements furnished
     to the Company by the beneficial owners. As used in this table, "beneficial
     ownership"  means the sole or shared power to vote, or direct the voting of
     a  security,  or the sole or shared  investment  power  with  respect  to a
     security  (i.e.,  the power to dispose of, or direct the  disposition  of a
     security). A person is deemed as of any date to have "beneficial ownership"
     of any  security  that such person has the right to acquire  within 60 days
     after such date.  For purposes of computing the  percentage of  outstanding
     shares held by each person named above,  any security  that such person has
     the right to acquire within 60 days of the date of calculation is deemed to
     be  outstanding,  but is not  deemed  to be  outstanding  for  purposes  of
     computing the percentage ownership of any other person.

(2)  Includes  4,433,913.11  shares owned by Madison  Dearborn  Capital Partners
     III, L.P.,  98,452.05  shares owned by Madison Dearborn Special Equity III,
     L.P. and 4,002.68 shares owned by Special Advisors Fund I, L.L.C. with each
     entity  managed by or  affiliated  with  Madison  Dearborn  Partners,  LLC.
     Messrs.  Hurd and Wood are managing directors of Madison Dearborn Partners,
     LLC. Madison Dearborn Capital Partners III, L.P.,  Madison Dearborn Special
     Equity III,  L.P. and Special  Advisors  Fund I, L.L.C.  have pledged their
     shares of the Company's common stock as security under the Company's Credit
     Agreement.  In  addition,  under the  Stockholders  Agreement,  dated as of
     December 10, 1999, among the Company and substantially all of the Company's
     stockholders,  Madison  Dearborn  Capital  Partners III, L.P., as principal
     investor,  may designate  individuals to serve as directors of the Company.
     The  Stockholders  Agreement also includes  restrictions on the transfer of
     capital stock,  and provides for  registration,  preemptive,  tag along and
     drag  along  rights  granted  to the  parties  thereto,  including  Madison
     Dearborn  Capital  Partners  III, L.P. and certain of its  affiliates.  The
     address  of  all  the  above-mentioned  entities  is c/o  Madison  Dearborn
     Partners, LLC, 3 First National Plaza, Suite 3800, Chicago, IL 60602.

(3)  Includes  vested  options to acquire the following  number of shares of the
     Company's common stock: Mr. Beffa 70,175;  Mr. DiMarco 50,000;  Mr. Faliero
     18,750;  Mr. Staed  25,000 and Mr.  Weller  50,000.  The address of Messrs.
     Beffa,  DiMarco,  Staed and Weller is c/o  Outsourcing  Solutions Inc., 390
     South Woods Mill Rd.,  Suite 350,  Chesterfield,  MO 63017.  Mr.  Faliero's
     address is c/o OSI Portfolio  Services,  Inc., 2425 Commerce Ave., Building
     2100, Suite 100, Duluth, GA 30096.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Advisory Services Agreement

     On  September  21,  1995 the  Company  entered  into an  Advisory  Services
Agreement (the "Advisory  Services  Agreement") with MDC Management Company III,
L.P.  ("MDC  Management"),  then  an  affiliate.  Under  the  Advisory  Services
Agreement, the Company received consulting,  financial, and managerial functions
for a $300,000  annual  fee. On  December  10,  1999,  in  conjunction  with the
Recapitalization,  the Advisory  Services  Agreement was amended and assigned to
Madison Dearborn Partners,  Inc. ("MDP").  As amended,  the annual fee under the
Advisory Services Agreement is $500,000. The Advisory Services Agreement expires
September 21, 2005 and is renewable  annually  thereafter,  unless terminated by
the Company.  The Company may terminate the Advisory  Services  Agreement at any
time for  cause  by  written  notice  to MDP  authorized  by a  majority  of the
directors  other than those who are partners,  principals or employees of MDP or
any of its affiliates. The Advisory Services Agreement may be amended by written
agreement of MDP and the  Company.  The Company  believes  that the terms of and
fees paid for the  professional  services  rendered are at least as favorable to
the Company as those which could be negotiated  with a third party. In 2000, the
Company  expensed  $500,000  under the  Advisory  Services  Agreement  for MDP's
professional services.

Consulting Agreements

     On January  26,  1998,  the  Company  entered  into a  one-year  Consulting
Agreement with William B. Hewitt, a director of the Company.  Under the original
Consulting Agreement, Mr. Hewitt provided consulting assistance with the growing
outsourcing services of the Company at 80% of normal working hours. In addition,
Mr.  Hewitt  received  options to purchase  10,000 shares of common stock of the
Company,  which  options  in  accordance  with  their  terms  became  vested and
exercisable upon consummation of the Recapitalization.  On January 25, 1999, the
Consulting  Agreement  was extended  through March 31, 1999 and at the same time
the Consulting  Agreement was renewed for the period April 1, 1999 through March
31,  2000,  with  the  consulting  services  reduced  to a  maximum  of 50  days
(approximately 20% of normal working hours). Beginning April 1, 2000, Mr. Hewitt
agreed to perform consulting  services as mutually agreed from time to time. For
the year ended  December  31,  2000,  the Company  paid Mr.  Hewitt  $80,000 for
consulting services.


Indebtedness of Management

     During 2000, the Company issued  26,688.02,  10,008 and 13,344.01 shares of
its voting  common  stock at fair value to Messrs.  Beffa,  Faliero  and Weller,
respectively  in exchange for cash and  interest  bearing  notes  secured by the
shares along with certain personal assets. At December 31, 2000, the outstanding
indebtedness  under  the  notes  for  Messrs.  Beffa,  Faliero  and  Weller  was
approximately $1,030,000,  $375,000 and $412,000,  respectively,  which includes
the outstanding principal balance and interest. The interest rate on Mr. Beffa's
and Mr. Weller's note is 6.71% per annum and on Mr. Faliero's note, the interest
rate is 6.01% per annum.


PART IV.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) 1.   Financial Statements

         See index on page 42 for a listing of consolidated financial statements
         filed with this report.

    2.   Financial Statement Schedule

         See index on page 42 for a listing of consolidated financial statements
         schedule required to be filed by Item 8 of this Form 10-K.

    3.   Exhibits


Exhibit No.

  2.1    Stock Subscription and Redemption Agreement by and among Madison
         Dearborn Capital Partners III, L.P., the Company and certain
         stockholders, optionholders and warrantholders of the Company, dated as
         of October 8, 1999, as amended (incorporated herein by reference to
         Exhibit 2 of the Company's Current Report on Form 8-K filed on December
         23, 1999).

  2.2    Assignment and Stock Purchase Agreement dated as of December 10, 1999
         by and among Outsourcing Solutions Inc., Madison Dearborn Capital
         Partners III, L.P., and certain other parties thereto (incorporated
         herein by reference to Exhibit 2.5 of the Company's Form 10-K for the
         period ended December 31, 1999).

  2.3    Purchase Agreement dated as of December 10, 1999, by and among
         Outsourcing Solutions Inc. and certain other parties thereto
         (incorporated herein by reference to Exhibit 2.6 of the Company's Form
         10-K for the period ended December 31, 1999).

  2.4    Junior Preferred Stock Purchase Agreement, dated as of December 10,
         1999, by and among Outsourcing Solutions Inc. and certain other parties
         thereto (incorporated herein by reference to Exhibit 2.7 of the
         Company's Form 10-K for the period ended December 31, 1999).

  2.5    Consent Solicitation Statement, dated November 9, 1999, relating to the
         Company's 11% Senior Subordinated Notes due November 1, 2006
         (incorporated herein by reference to Exhibit 2.8 of the Company's Form
         10-K for the period ended December 31, 1999).

  2.6    Asset Purchase Agreement dated September 26, 2000 by and among
         Outsourcing Solutions Inc., RWC Consulting Group, LLC, RWC Consulting
         Group, Inc., and Robert W. Curtis, Jr. (incorporated herein by
         reference to Exhibit 2 of the Company's Form 10-Q for the period ended
         September 30, 2000).

  3.1    Fourth Amended and Restated Certificate of Incorporation of the
         Company, as of December 3, 1999 (incorporated herein by reference to
         Exhibit 3.1 of the Company's Form 10-K for the year ended December 31,
         1999).

  3.2    By-laws of the Company.

  4.1    Indenture dated as of November 6, 1996 by and among the Company, the
         Guarantors and Wilmington Trust Company (the "Indenture") (incorporated
         herein by reference to Exhibit 4.1 of the Company's Registration
         Statement on Form S-4 filed on November 26, 1996).


  4.2    Specimen Certificate of 11% Senior Subordinated Note due 2006 (included
         in Exhibit 4.1 hereto) (incorporated herein by reference to Exhibit 4.2
         of the Company's Registration Statement on Form S-4 filed on November
         26, 1996).

  4.3    Specimen Certificate of 11% Series B Senior Subordinated Note due 2006
         (the "New Notes") (included in Exhibit 4.1 hereto) (incorporated herein
         by reference to Exhibit 4.3 of the Company's Registration Statement on
         Form S-4 filed on November 26, 1996).

  4.4    Form of Guarantee of securities issued pursuant to the Indenture
         (included in Exhibit 4.1 hereto) (incorporated herein by reference to
         Exhibit 4.4 of the Company's Registration Statement on Form S-4 filed
         on November 26, 1996).

  4.5    First Supplemental Indenture dated as of March 31, 1998 by and among
         the Company, the Additional Guarantors and Wilmington Trust Company
         (incorporated herein by reference to Exhibit 4.5 of the Company's Form
         10-K for the year ended December 31, 1998).

  4.6    Second Supplemental Indenture dated as of July 16, 2000 by and among
         the Company, the Additional Guarantors and Wilmington Trust Company, as
         trustee (incorporated herein by reference to Exhibit 4.1 of the
         Company's Form 10-Q for the period ended September 30, 2000).

  4.7    Third Supplemental Indenture dated as of September 29, 2000 by and
         among the Company, the Additional Guarantors and Wilmington Trust
         Company, as trustee (incorporated herein by reference to Exhibit 4.2 of
         the Company's Form 10-Q for the period ended September 30, 2000).

  4.8    Release of Subsidiary Guarantee of OSI Education Services, Inc.
         (incorporated herein by reference to Exhibit 4.3 of the Company's Form
         10-Q for the period ended September 30, 2000).

  10.1   Stockholders Agreement dated as of December 10, 1999 by and among the
         Company and various stockholders of the Company (incorporated herein by
         reference to Exhibit 10 of the Company's Current Report on Form 8-K
         filed on December 23, 1999).

  10.2   Advisory Services Agreement dated September 21, 1995 between the
         Company and Madison Dearborn Partners, Inc., as assignee from MDC
         Management Company III, L.P. as amended by Assignment Agreement dated
         as of December 10, 1999 by and between Madison Dearborn Partners, Inc.,
         the Company and MDC Management Company III, L.P. (incorporated herein
         by reference to Exhibit 10.2 of the Company's Form 10-K for the period
         ended December 31, 1999).

  10.3   Registration Rights Agreement dated December 10, 1999, by and among
         Outsourcing Solutions Inc., Madison Dearborn Partners III, L.P. and
         certain other parties thereto (incorporated herein by reference to
         Exhibit 10.3 of the Company's Form 10-K for the period ended December
         31, 1999).

  10.4   Registration Rights Agreement dated December 10, 1999, by and among the
         Company and certain other parties thereto (incorporated herein by
         reference to Exhibit 10.4 of the Company's Form 10-K for the period
         ended December 31, 1999).

  10.5   Amended and Restated Employment Agreement dated as of June 4, 1999
         between the Company and Timothy G. Beffa (incorporated herein by
         reference to Exhibit 10.5 of the Company's Form 10-K for the period
         ended December 31, 1999).

  10.6   Amended and Restated Employment Agreement dated as of June 4, 1999
         between the Company and Michael A. DiMarco (incorporated herein by
         reference to Exhibit 10.6 of the Company's Form 10-K for the period
         ended December 31, 1999).

  10.7   Employment Agreement dated as of June 4, 1999 between the Company and
         Bryan K. Faliero (incorporated herein by reference to Exhibit 10.7 of
         the Company's Form 10-K for the period ended December 31, 1999).

  10.8   Amended and Restated Employment Agreement dated as of June 4, 1999
         between the Company and Michael B. Staed (incorporated herein by
         reference to Exhibit 10.8 of the Company's Form 10-K for the period
         ended December 31, 1999).

  10.9   Employment Agreement dated July 5, 1999 between the Company and Gary L.
         Weller (incorporated herein by reference to Exhibit 10.9 of the
         Company's Form 10-K for the period ended December 31, 1999).

  10.10  Consulting Agreement dated as of February 6, 1998 between the Company
         and William B. Hewitt as amended January 25, 1999 (incorporated herein
         by reference to Exhibit 10.6 of the Company's Form 10-K for the year
         ended December 31, 1998).

  10.11  1995 Stock Option and Stock Award Plan of the Company (incorporated
         herein by reference to Exhibit 10.31 of the Company's Registration
         Statement on Form S-4 filed on November 26, 1996).

  10.12  First Amendment to 1995 Stock Option and Stock Award Plan of the
         Company (incorporated herein by reference to Exhibit 10.13 of the
         Company's Form 10-K for the year ended December 31, 1997).

  10.13  Form of Non-Qualified Stock Option Award Agreement [B], as amended
         (incorporated herein by reference to Exhibit 10.14 of the Company's
         Form 10-K for the period ended December 31, 1999).

  10.14  Form of Non-Qualified Stock Option Award Agreement [C], as amended
         (incorporated herein by reference to Exhibit 10.15 of the Company's
         Form 10-K for the period ended December 31, 1999).

  10.15  Form of Non-Qualified Stock Option Award Agreement [E] (incorporated
         herein by reference to Exhibit 10.15 of the Company's Form 10-K for the
         period ended December 31, 1999).

  10.16  Outsourcing Solutions Inc. 2000 Equity Incentive Plan.

  10.17  Form of Non-Qualified Stock Purchase and Option Award Agreement [F]
         (incorporated herein by reference to Exhibit 10.4 of the Company's Form
         10-Q for the period ended June 30, 2000).

  10.18  Form of Director Stock Purchase and Option Agreement (incorporated
         herein by reference to Exhibit 10.3 of the Company's Form 10-Q for the
         period ended June 30, 2000).

  10.19  Management Stock Purchase Agreement, Non-Recourse Secured Promissory
         Note and Management Stock Pledge Agreement dated as of April 19, 2000
         between the Company and Timothy Beffa (incorporated herein by reference
         to Exhibit 10.1 of the Company's Form 10-Q for the period ended June
         30, 2000).

  10.20  Management Stock Purchase Agreement, Promissory Note and Management
         Stock Pledge Agreement dated as of April 19, 2000 between the Company
         and Gary Weller (incorporated herein by reference to Exhibit 10.2 of
         the Company's Form 10-Q for the period ended June 30, 2000).

  10.21  Management Stock Purchase Agreement, Promissory Note and Management
         Stock Pledge Agreement dated as of November 1, 2000 between the Company
         and Bryan Faliero.

  10.22  2000 Management Incentive Plan.

  10.23  Outsourcing Solutions Inc. Deferred Compensation Plan.

  10.24  Earn-out Agreement dated October 8, 1997 by and among NSA Acquisition
         Corporation, Outsourcing Solutions Inc., North Shore Agency, Inc.,
         Automated Mailing Services, Inc., Mailguard Security Systems, Inc.,
         and DMM Consultants (incorporated herein by reference to Exhibit 10.17
         of the Company's Form 10-K for the year ended December 31,1997).

  10.25  Credit Agreement dated as of November 30, 1999 among the Company, the
         Lenders listed therein, DLJ Capital Funding, Inc., as the Syndication
         Agent, and Fleet National Bank, as the Administrative Agent
         (incorporated herein by reference to Exhibit 10.18 of the Company's
         Form 10-K for the year ended December 31, 1999).

  16     Letter from Deloitte & Touche LLP dated June 29, 2000 (incorporated
         herein by reference to Exhibit 16.1 of the Company's Current Report on
         Form 8-K filed on June 30, 2000).

  21     Subsidiaries of registrant.



(b) Reports on Form 8-K

There were no reports on Form 8-K for the three-month  period ended December 31,
     2000.


<PAGE>

SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
     Exchange  Act of 1934,  the  registrant  has duly  caused this report to be
     signed on its behalf by the undersigned thereunto duly authorized.

                                   OUTSOURCING SOLUTIONS INC.


                                   /s/Timothy G. Beffa
                                   ------------------------------------
                                   Timothy G. Beffa
                                   President and Chief Executive Officer


                                   /s/Gary L. Weller
                                   ------------------------------------
                                   Gary L. Weller
                                   Executive Vice President and
                                   Chief Financial Officer

DATE:  March 29, 2001

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

        Signature                       Title                         Date


/s/Timothy G. Beffa           President and Chief Executive      March 22, 2001
------------------------       Officer, Director
Timothy G. Beffa


/s/William B. Hewitt          Director                           March 21, 2001
------------------------
William B. Hewitt


/s/Timothy M. Hurd            Director and Vice President        March 19, 2001
------------------------
Timothy M. Hurd


/s/Scott P. Marks, Jr.        Director                           March 21, 2001
------------------------
Scott P. Marks, Jr.


/s/Richard L. Thomas          Director                           March 19, 2001
------------------------
Richard L. Thomas


/s/Paul R. Wood               Director and Vice President        March 28, 2001
------------------------
Paul R. Wood


<PAGE>


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL
STATEMENT SCHEDULE


                                                                            Page

Consolidated Financial Statements

Outsourcing Solutions Inc. and Subsidiaries
    Reports of Independent Accountants...............................        F-1
    Consolidated Balance Sheets at December 31, 2000 and 1999........        F-3
    Consolidated Statements of Operations for the years ended
        December 31, 2000, 1999 and 1998.............................        F-4
    Consolidated Statements of Stockholders' Deficit for the years
        ended December 31, 2000, 1999 and 1998.......................        F-5
    Consolidated Statements of Cash Flows for the years ended
        December 31, 2000, 1999 and 1998.............................        F-6
    Notes to Consolidated Financial Statements.......................        F-8



Consolidated Financial Statement Schedule

Report of Independent Accountants....................................       F-27
Schedule II - Valuation and Qualifying Accounts and Reserves.........       F-28


<PAGE>

                       Report of Independent Accountants



To the Stockholders of Outsourcing Solutions Inc.:

In our  opinion,  the  consolidated  financial  statements  listed  in the index
appearing  under  Item  14(a)(1)  on page 37  present  fairly,  in all  material
respects,   the  financial  position  of  Outsourcing  Solutions  Inc.  and  its
subsidiaries at December 31, 2000, and the results of their operations and their
cash flows for the year ended  December 31, 2000 in conformity  with  accounting
principles  generally accepted in the United States of America. In addition,  in
our opinion,  the financial  statement  schedules  listed in the index appearing
under Item 14(a)(2) on page 37 present  fairly,  in all material  respects,  the
information  set  forth  therein  when  read in  conjunction  with  the  related
consolidated   financial   statements.   These  financial   statements  are  the
responsibility of the Company's management;  our responsibility is to express an
opinion on these  financial  statements  based on our audits.  We conducted  our
audits of these  statements in  accordance  with  auditing  standards  generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable  assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence  supporting the amounts and  disclosures  in the financial  statements,
assessing the  accounting  principles  used and  significant  estimates  made by
management,  and evaluating the overall  financial  statement  presentation.  We
believe  that our  audits  provide  a  reasonable  basis  for our  opinion.  The
consolidated financial statements of the Company as of December 31, 1999 and for
the years ended  December  31, 1999 and 1998 were  audited by other  independent
accountants  whose report dated March 28, 2000 expressed an unqualified  opinion
on those statements.





/s/ PricewaterhouseCoopers LLP
--------------------------------
PricewaterhouseCoopers LLP



St. Louis, Missouri
March 2, 2001

<PAGE>






REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of Outsourcing Solutions Inc.:

We have  audited the  accompanying  consolidated  balance  sheet of  Outsourcing
Solutions  Inc.  and  subsidiaries  as of  December  31,  1999,  and the related
consolidated  statements of operations,  stockholders'  (deficit) and cash flows
for each of the two years in the period ended December 31, 1999. These financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

In our opinion,  such consolidated  financial  statements present fairly, in all
material  respects,  the financial  position of  Outsourcing  Solutions Inc. and
subsidiaries  as of December  31, 1999 and the results of their  operations  and
their cash flows for each of the two years in the period ended December 31, 1999
in conformity with accounting principles generally accepted in the United States
of America.





/s/ Deloitte & Touche LLP
-----------------------
Deloitte & Touche LLP



St. Louis, Missouri
March 28, 2000


<PAGE>

OUTSOURCING SOLUTIONS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
(In thousands, except share and per share amounts)
--------------------------------------------------------------------------------

                                                              2000       1999
                                                              ----       ----
ASSETS

Cash and cash equivalents                                   $ 10,273   $  6,059

Cash and cash equivalents held for clients                    21,970     22,521

Accounts receivable - trade, less allowance for
  doubtful receivables of $447 and $529                       62,876     52,082

Purchased loans and accounts receivable portfolios            24,690     39,947

Property and equipment, net                                   46,601     43,647

Intangible assets, net                                       417,084    410,471

Deferred financing costs, less accumulated
  amortization of $4,538 and $248                             22,934     27,224

Other assets                                                  30,426     22,761
                                                            --------   --------

             TOTAL                                          $636,854   $624,712
                                                            ========   ========

LIABILITIES AND STOCKHOLDERS' DEFICIT

Accounts payable - trade                                    $ 14,446   $  6,801

Collections due to clients                                    21,970     22,521

Accrued salaries, wages and benefits                          15,195     17,009

Debt                                                         539,463    518,307

Other liabilities                                             71,080     68,306

Commitments and contingencies (Notes 2, 7 and 13)                  -          -

Mandatorily redeemable preferred stock; redemption
  amount $123,115 and $107,877                               103,455     85,716

Stockholders deficit:
  Voting common stock; $.01 par value; authorized
    15,000,000 shares, 9,166,728.37 and
    9,054,638.11 shares, respectively, issued                     92         90
  Non-voting common stock; $.01 par value;
    authorized 2,000,000 shares, 480,321.30
    issued and outstanding                                         5          5
  Paid-in capital                                            200,537    196,339
  Accumulated deficit                                       (192,715)  (155,525)
                                                            --------   --------
                                                               7,919     40,909
  Notes receivable from management for shares sold            (1,817)         -
  Common stock in treasury, at cost; 3,078,249.07 shares    (134,857)  (134,857)
                                                            --------   --------
        Total stockholders' deficit                         (128,755)   (93,948)
                                                            --------   --------

               TOTAL                                        $636,854   $624,712
                                                            ========   ========










                  See notes to consolidated financial statements.
<PAGE>
OUTSOURCING SOLUTIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(In thousands)
--------------------------------------------------------------------------------

                                                     2000      1999       1998
                                                     ----      ----       ----

REVENUES                                           $542,627  $504,425  $479,400

EXPENSES:
  Salaries and benefits                             264,293   244,157   230,114
  Service fees and other operating
    and administrative expenses                     173,351   154,799   140,888
  Amortization of purchased loans
    and accounts receivable portfolios               28,092    38,722    50,703
  Amortization of goodwill and other intangibles     16,082    16,229    15,725
  Depreciation expense                               15,803    14,866    14,282
  Compensation expense related to redemption of
    stock options                                       187         -         -
  Nonrecurring conversion, realignment and
    relocation expenses                               2,742     5,063         -
  Change in control bonuses, stock option
    redemption and other bonuses                          -    10,487         -
  Recapitalization related costs                          -     6,827         -
                                                   --------  --------  --------
           Total expenses                           500,550   491,150   451,712
                                                   --------  --------  --------

OPERATING INCOME                                     42,077    13,275    27,688

INTEREST EXPENSE - Net                               60,934    52,265    50,627
                                                   --------  --------  --------
LOSS BEFORE INCOME TAXES, MINORITY INTEREST
AND EXTRAORDINARY ITEM                              (18,857)  (38,990)  (22,939)

PROVISION FOR INCOME TAXES                              594       759       830

MINORITY INTEREST                                         -         -       572
                                                   --------  --------  --------

LOSS BEFORE EXTRAORDINARY ITEM                      (19,451)  (39,749)  (24,341)

EXTRAORDINARY LOSS ON EXTINGUISHMENT OF DEBT              -     4,208         -
                                                   --------  --------  --------

NET LOSS                                            (19,451)  (43,957)  (24,341)

PREFERRED STOCK DIVIDEND REQUIREMENTS AND
ACCRETION OF SENIOR PREFERRED STOCK                  17,739     2,358       681
                                                   --------  --------  --------

NET LOSS TO COMMON STOCKHOLDERS                    $(37,190) $(46,315) $(25,022)
                                                   ========  ========  ========




                    See notes to consolidated financial statements.

<PAGE>
OUTSOURCING SOLUTIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(In thousands, except share and per share amounts)
<TABLE>
---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                             Non-voting           Common Stock
                             Cumulative  ------------------------------
                             Redeemable                      Non-voting
                             Preferred                        Classes     Paid-in   Accumulated    Notes     Treasury
                               Stock     Voting  Non-voting    A,B&C      Capital     Deficit    Receivable    Stock     Total
                             ----------  ------  ----------  ----------   -------   -----------  ----------  --------   -------
<S>                          <C>         <C>      <C>         <C>       <C>        <C>           <C>       <C>         <C>
BALANCE, JANUARY 1, 1998      $11,699     $ 35     $  -        $  18     $ 66,958   $ (84,188)    $    -    $       -  $  (5,478)

Payment of preferred stock
  dividends through issuance
  of 37,435.47 shares of
  preferred stock and recorded
  preferred stock dividend
  requirements of $1 per share    468        -        -            -            -        (681)          -           -       (213)

Net loss                            -        -        -            -            -     (24,341)          -           -    (24,341)
                              -------     ----     ----        -----     --------   ---------     -------   ---------  ---------
BALANCE, DECEMBER 31, 1998     12,167       35        -           18       66,958    (109,210)          -           -    (30,032)

Payment of preferred stock
  dividends through issuance
  of 140,997.01 shares of
  preferred stock and recorded
  preferred stock dividend
  requirements of $1 per share  1,762        -        -            -            -      (1,276)          -           -        486

Issuance of 186,791.67 common
  shares in exchange for MDP's
  investment in FINCO               -        2        -            -        6,998           -           -           -      7,000

Issuance of 5,273,037.98
  voting and 480,321.30
  non-voting common shares          -       52        5            -      215,546           -           -           -    215,603

Repurchase of common stock and
  redemption of preferred,
  non-voting common, stock
  options and warrants        (13,929)       1        -          (18)     (93,163)          -           -    (115,391)  (222,500)

Recapitalization fees and
  expenses                          -        -        -            -            -           -           -     (19,466)   (19,466)

Accrued dividends on mandatorily
  redeemable preferred stock        -        -        -            -            -        (877)          -           -       (877)

Accretion of mandatorily
  redeemable preferred stock        -        -        -            -            -        (205)          -           -       (205)

Net loss                            -        -        -            -            -     (43,957)          -           -    (43,957)
                              -------     ----     ----        -----     --------   ---------     -------   ---------  ---------
BALANCE, DECEMBER 31, 1999          -       90        5            -      196,339    (155,525)          -    (134,857)   (93,948)

Issuance of 62,050.23
  voting common shares              -        1        -            -        2,324           -           -           -      2,325

Issuance of 50,040.03 voting
  common shares in exchange
  for cash and notes receivable     -        1        -            -        1,874           -      (1,774)          -        101

Accrued interest on
  notes receivable                  -        -        -            -            -           -         (43)          -        (43)

Accrued dividends on
  mandatorily redeemable
  preferred stock                   -        -        -            -            -     (15,238)          -           -    (15,238)

Accretion of mandatorily
  redeemable preferred stock        -        -        -            -            -      (2,501)          -           -     (2,501)

Net loss                            -        -        -            -            -     (19,451)          -           -    (19,451)
                              -------     ----     ----        -----     --------   ---------     -------   ---------  ---------
BALANCE, DECEMBER 31, 2000    $     -     $ 92     $  5        $   -     $200,537   $(192,715)    $(1,817)  $(134,857) $(128,755)
                              =======     ====     ====        =====     ========   =========     =======   =========  =========

                                                    See notes to consolidated financial statements.
</TABLE>
<PAGE>

OUTSOURCING SOLUTIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(In thousands)
--------------------------------------------------------------------------------

                                                     2000      1999      1998
                                                     ----      ----      ----

OPERATING ACTIVITIES AND PORTFOLIO PURCHASING:
  Net loss                                         $(19,451) $(43,957) $(24,341)
  Adjustments to reconcile net loss to net cash
    from operating activities and portfolio
    purchasing:
      Depreciation and amortization                  36,300    34,477    32,833
      Amortization of purchased loans and
        accounts receivable portfolios               28,092    38,722    50,703
      Extraordinary loss on extinguishment
        of debt                                           -     4,208         -
      Compensation expense related to redemption
        of stock options and repriced options             -     4,635         -
      Deferred taxes                                      -         -       380
      Minority interest                                   -         -       572
      Change in assets and liabilities:
        Purchases of loans and accounts
          receivable portfolios                     (12,835)  (23,176)  (43,186)
        Other assets                                (15,334)  (13,245)    2,894
        Accounts payable and other liabilities        8,020    (5,316)   (7,789)
                                                   --------  --------  --------
      Net cash from operating activities and
        portfolio purchasing                         24,792    (3,652)   12,066
                                                   --------  --------  --------

INVESTING ACTIVITIES:
  Payments for acquisitions, net of cash acquired   (18,316)     (877) (168,900)
  Investment in FINCO                                     -    (2,500)   (2,500)
  Acquisition of property and equipment             (18,398)  (18,437)  (13,480)
  Purchases of loans and accounts receivable
    portfolios for resale to FINCO                  (86,910)  (56,664)   (9,134)
  Sales of loans and accounts receivable
    portfolios to FINCO                              86,910    56,664     9,134
  Other                                                   -       265       261
                                                   --------  --------  --------
      Net cash from investing activities            (36,714)  (21,549) (184,619)
                                                   --------  --------  --------

FINANCING ACTIVITIES:
  Proceeds from term loans                              150   400,000   225,000
  Borrowings under revolving credit agreement       341,950   289,700   230,000
  Repayments under revolving credit agreement      (322,950) (302,200) (236,350)
  Repayments of debt                                 (3,315) (397,448)  (36,618)
  Deferred financing fees                              (125)  (21,242)   (3,882)
  Proceeds from issuance of preferred and
    common stock                                        426   300,237         -
  Repurchase of preferred stock, common stock
    and warrants                                          -  (223,208)        -
  Redemption of stock options                             -    (3,927)        -
  Recapitalization fees                                   -   (19,466)        -
                                                   --------  --------  --------
      Net cash from financing activities             16,136    22,446   178,150
                                                   --------  --------  --------
NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS                                    4,214    (2,755)    5,597

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR          6,059     8,814     3,217
                                                   --------  --------  --------
CASH AND CASH EQUIVALENTS, END OF YEAR             $ 10,273  $  6,059  $  8,814
                                                   ========  ========  ========



                                   (Continued)

                 See notes to consolidated financial statements.
<PAGE>
OUTSOURCING SOLUTIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(In thousands)
--------------------------------------------------------------------------------

                                                     2000      1999      1998
                                                     ----      ----      ----
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid during year for interest               $ 49,151  $ 51,232  $ 43,923
                                                   ========  ========  ========

  Net cash paid (received) during year for taxes   $      2  $    306  $(10,995)
                                                   ========  ========  ========

SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION:
  Investment in FINCO through exchange of
    common stock with MDP                          $      -  $  7,000  $      -
                                                   ========  ========  ========

  Accrued dividends on mandatorily redeemable
    preferred stock                                $ 15,238  $    877  $      -
                                                   ========  ========  ========
  Accretion of mandatorily redeemable
    preferred stock                                $  2,501  $    205  $      -
                                                   ========  ========  ========

  Notes receivable for common stock                $  1,774  $      -  $      -
                                                   ========  ========  ========

  Capital lease obligations incurred for the
    purchase of new equipment                      $    320  $      -  $      -
                                                   ========  ========  ========

  Issuance of voting common stock in partial
    payment of asset acquisition                   $  2,000  $      -  $      -
                                                   ========  ========  ========

  Notes payable in partial payment of asset
    acquisition                                    $  5,000  $      -  $      -
                                                   ========  ========  ========





























                            See notes to consolidated financial statements.

<PAGE>

OUTSOURCING SOLUTIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000 AND 1999
(In thousands, except share and per share amounts)
--------------------------------------------------------------------------------

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Consolidation  Policy - The consolidated  financial statements  include the
     accounts   of   Outsourcing   Solutions   Inc.   ("OSI")  and  all  of  its
     majority-owned  subsidiaries  (collectively,  the "Company").  Ownership in
     entities of less than 50% are  accounted for under the equity  method.  All
     significant intercompany accounts and transactions have been eliminated.

     Cash and Cash  Equivalents  - Cash and cash  equivalents  consist  of cash,
     money market  investments,  and overnight deposits with original maturities
     of less than three  months.  Cash  equivalents  are  valued at cost,  which
     approximates  market. Cash and cash equivalents held for clients consist of
     certain  restricted  accounts which are used to maintain cash collected and
     held on behalf of the Company's clients.

     Purchased  Loans and Accounts  Receivable  Portfolios - Purchased loans and
     accounts  receivable  portfolios  ("Receivables")  acquired  in the  normal
     course of business are recorded at cost. The Company  periodically  reviews
     all  Receivables to assess  recoverability.  Impairments  are recognized in
     operations if the expected  aggregate  discounted future net operating cash
     flows  derived from the  portfolios  are less than the  aggregate  carrying
     value (see Note 15).

     The Company  amortizes  on an  individual  portfolio  basis the cost of the
     Receivables  based on the ratio of current  collections  for a portfolio to
     current and anticipated future collections including any terminal value for
     that  portfolio.  Such  portfolio  cost  is  amortized  over  the  expected
     collection  period as  collections  are  received  which,  depending on the
     individual portfolio, generally ranges from 3 to 5 years.

     Revenue  Recognition  -  Collections  on  Receivables  owned are  generally
     recorded  as  revenue  when  received.  Proceeds  from  strategic  sales of
     Receivables  owned are  generally  recognized  as  revenue  when  received.
     Revenue  from  collections  and  outsourcing  services  is recorded as such
     services  are  provided.  Certain  collection  services  are  provided on a
     contingent fee basis.  For these services,  revenue is recognized when cash
     is collected.  Deferred revenue in the accompanying balance sheet primarily
     relates to certain prepaid letter  services which are generally  recognized
     as earned as services are provided.

     Property  and  Equipment - Property  and  equipment  are  recorded at cost.
     Depreciation is computed on the straight-line method based on the estimated
     useful  lives  (3 years  to 30  years)  of the  related  assets.  Leasehold
     improvements are amortized over the term of the related lease.

     Intangible Assets - The excess of cost over the fair value of net assets of
     businesses  acquired is  amortized on a  straight-line  basis over 20 to 30
     years. Other identifiable  intangible assets are primarily comprised of the
     fair value of  existing  account  placements  acquired in  connection  with
     certain business combinations and non-compete agreements.  These assets are
     short-lived   and  are  being   amortized  over  the  assets'   periods  of
     recoverability,  which  are  estimated  to  be 1 to 3  years.  The  Company
     annually reviews goodwill and other  intangibles to assess  recoverability.
     Impairments  will  be  recognized  in  operations  if the  expected  future
     operating cash flows  (undiscounted  and without interest  charges) derived
     from such intangible assets are less than its carrying value.

     Deferred  Financing  Costs - Deferred  financing  costs are being amortized
     over the terms of the related debt agreements.

     Income  Taxes - The Company  accounts  for income  taxes using an asset and
     liability  approach.  The Company recognizes the amount of taxes payable or
     refundable for the current year and deferred tax liabilities and assets for
     expected future tax consequences of events that have been recognized in the
     consolidated financial statements. The Company evaluates the recoverability
     of deferred tax assets and establishes a valuation  allowance to reduce the
     deferred  tax  assets  to an  amount  that is more  likely  than  not to be
     realized.

     Environmental Costs - All of the Company's environmental proceedings relate
     to discontinued operations of former divisions or subsidiaries of The Union
     Corporation  (See Note 2).  Costs  incurred to  investigate  and  remediate
     contaminated   sites  are  charged  against  the   environmental   reserves
     established in conjunction with the Union acquisition.

     Stock-Based  Compensation  -  The  Company  accounts  for  its  stock-based
     compensation plan using the intrinsic value method prescribed by Accounting
     Principles  Board ("APB")  Opinion No. 25,  Accounting  for Stock Issued to
     Employees.  Statement of Financial  Accounting  Standard  ("SFAS") No. 123,
     Accounting for Stock-Based Compensation,  requires that companies using the
     intrinsic  value method make pro forma  disclosures of net income as if the
     fair value-based method of accounting had been applied. See Note 12 for the
     fair value disclosures required under SFAS No. 123.

     Comprehensive  Income - Effective January 1, 1998, the Company adopted SFAS
     No. 130, Reporting  Comprehensive  Income, which established  standards for
     the reporting and display of comprehensive  income and its components.  The
     adoption  of this  statement  did not  affect  the  Company's  consolidated
     financial  statements  for  each of the  three  years in the  period  ended
     December  31, 2000.  Comprehensive  loss for each of the three years in the
     period ended December 31, 2000 was equal to the Company's net loss.

     Accounting For Transfers of Financial Assets - SFAS No. 125, Accounting for
     Transfers  and  Servicing  of  Financial  Assets  and   Extinguishments  of
     Liabilities,  provides accounting and reporting standards for transfers and
     servicing of financial  assets and  extinguishments  of liabilities.  These
     standards are based on  consistent  application  of a  financial-components
     approach that focuses on control. Under this approach,  after a transfer of
     financial  assets,  an entity recognizes the financial and servicing assets
     it controls and the  liabilities  it has incurred,  derecognizes  financial
     assets when control has been surrendered, and derecognizes liabilities when
     extinguished.    This   Statement   provides   consistent   standards   for
     distinguishing  transfers of financial assets that are sales from transfers
     that are secured borrowings.  Commencing in the fourth quarter of 1998, the
     Company began selling, concurrent with its purchase, certain Receivables to
     a special-purpose entity, OSI Funding LLC ("FINCO") (see Note 18). SFAS No.
     140,  Accounting  for  Transfers  and  Servicing  of  Financial  Assets and
     Extinguishments  of  Liabilities - a replacement of FASB Statement No. 125,
     is effective April 1, 2001. The Company is currently  evaluating the impact
     of  SFAS  No.  140  on  its   consolidated   statement  of  operations  and
     consolidated  balance sheet and does not expect the impact on the Company's
     financial condition, cash flows or results of operations to be material.

     Segment  Information  - SFAS No.  131,  Disclosures  About  Segments  of an
     Enterprise and Related Information,  established standards for the way that
     public business  enterprises report information about operating segments in
     annual  financial  statements  and also  established  standards for related
     disclosures  about  products  and  services,  geographic  areas  and  major
     customers.  Management has considered the requirements of SFAS No. 131 and,
     as  discussed  in Note 17,  believes  the Company  operates in one business
     segment.

     New  Derivatives and Hedging  Accounting  Standard - In June 1998, SFAS No.
     133,  Accounting for Derivative  Instruments  and Hedging  Activities,  was
     issued and subsequently  amended by SFAS No. 138, Accounting for Derivative
     Instruments  and  Hedging  Activities,  which is  required to be adopted no
     later than January 1, 2001.  The  statement  provides a  comprehensive  and
     consistent  standard for the recognition and measurement of derivatives and
     hedging activities.  The Company's derivative instruments are interest rate
     swaps  as  further   discussed  in  Note  6.  The  Company  believes  these
     instruments  qualify for hedge  accounting under SFAS No. 133 as amended by
     SFAS No.  138.  As of  January  1,  2001,  based on the  Company's  current
     derivative  instruments,  the Company believes that this statement will not
     have a material  impact on the  consolidated  statement of  operations  and
     consolidated balance sheet.

     Accounting  for the Costs of Computer  Systems  Developed  or Obtained  for
     Internal Use - Statement of Position  ("SOP") No. 98-1,  Accounting for the
     Costs of Computer Systems  Developed or Obtained for Internal Use, provides
     guidelines  for  capitalization  of  developmental   costs  of  proprietary
     software and  purchased  software for internal use. The adoption of SOP No.
     98-1 in fiscal  1999 did not have a  material  impact  on the  consolidated
     statement of operations and consolidated balance sheet.

     Accounting   Estimates  -  The  preparation  of  financial   statements  in
     conformity  with  accounting  principles  generally  accepted in the United
     States 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 - SFAS No. 128,  Earnings per Share,  is  applicable  to
     companies who have publicly traded equity securities. As such, SFAS No. 128
     is not currently applicable to the Company and,  accordingly,  earnings per
     share is not presented.


2.   ORGANIZATION, ACQUISITIONS & RECAPITALIZATION

     OSI was formed on September  21, 1995 to build,  through a  combination  of
     acquisitions and sustained internal growth, one of the leading providers of
     accounts receivable  management services.  In 1999, the Company reorganized
     many of its acquired subsidiaries. Account Portfolios, Inc. ("API") changed
     its name to OSI  Portfolio  Services,  Inc.  Payco  American  Corporation's
     ("Payco")  largest  debt  collection  subsidiary  changed  its  name to OSI
     Collection   Services,   Inc.  and  Continental   Credit   Services,   Inc.
     ("Continental"),  A.M. Miller & Associates  ("AMM"),  Accelerated Bureau of
     Collections, Inc. ("ABC"), and former subsidiaries of The Union Corporation
     ("Union"),  Allied Bond & Collection Agency and Capital Credit, merged into
     OSI Collection Services. Former Union subsidiary,  Interactive Performance,
     changed its name to OSI  Outsourcing  Services,  Inc.  and the  Interactive
     Performance  and High  Performance  services  subsidiaries  merged into OSI
     Outsourcing  Services.  The Company  purchases  and collects  portfolios of
     charged-off  loans and accounts  receivable  for the Company's own account,
     services accounts receivable placements on a contingent and fixed fee basis
     and provides  contract  management  of accounts  receivable.  The Company's
     customers  are mainly in the  educational,  utilities,  telecommunications,
     retail,  healthcare and financial services industries.  The markets for the
     Company's services currently are the United States, Puerto Rico, Canada and
     Mexico.

     In October and  November  1997,  the Company  acquired  the assets of North
     Shore Agency,  Inc. ("NSA"),  a fee service company  specializing in letter
     series collection services,  and ABC, a fee service company specializing in
     credit card  collections,  for total cash  consideration  of  approximately
     $53,800  including  transaction costs of $1,173 and common stock of $1,000.
     One of the acquisitions  contains certain contingent  payment  obligations,
     $4,110  through  December 31, 2000,  based on the  attainment  by the newly
     formed  subsidiary  of certain  financial  performance  targets  with final
     payment due April  2001.  Future  contingent  payment  obligations  will be
     accounted for as additional goodwill as the payments are made.

     In January 1998, the Company acquired through a tender offer  approximately
     77% of the outstanding shares of Union's common stock for $31.50 per share.
     On March 31, 1998, the Company acquired the remaining outstanding shares of
     Union when Union merged with a wholly-owned  subsidiary of the Company. The
     aggregate cash purchase price of the Union  acquisition  was  approximately
     $220,000  including  transaction costs of $10,900 and assumed  liabilities.
     The Company  financed the  acquisition  primarily with funds provided by an
     amended  credit  agreement.  Union,  through  certain of its  subsidiaries,
     furnishes a broad range of credit and  receivables  management  outsourcing
     services as well as management and collection of accounts  receivable.  The
     Company  allocated  the total  purchase  price to the fair value of the net
     assets acquired resulting in goodwill of approximately $219,000.

     The above acquisitions were accounted for as purchases.  The excess of cost
     over the fair value of net assets of businesses acquired is being amortized
     on a straight-line basis over 20 to 30 years. Results of operations for the
     acquired businesses were included in the consolidated  financial statements
     from their respective acquisition dates.

     On December 10, 1999,  the Company  consummated a transaction  with Madison
     Dearborn  Capital  Partners III, L.P.  ("MDP") and certain of the Company's
     stockholders,  optionholders  and  warrantholders  pursuant  to  which  MDP
     acquired 75.9% of OSI's common stock, most of the then outstanding  capital
     stock of OSI was redeemed,  the Company  refinanced its credit facility and
     issued $107,000 of preferred stock (the "Recapitalization"). Total value of
     the Company based on the Recapitalization was approximately $790,000.

     The Recapitalization had no impact on the historical basis of the Company's
     assets and liabilities.

     In  accordance  with the  terms of the  Recapitalization,  the  holders  of
     approximately  85.6% of shares of the  Company's  common stock  outstanding
     immediately  prior  to the  Recapitalization  received  $37.47  in  cash in
     exchange  for  each of  these  shares.  In  addition,  the  holders  of the
     Company's preferred stock,  non-voting common stock, warrants and exercised
     stock  options,  which  pursuant to the  Recapitalization  all  outstanding
     options  became  vested,  received  $37.47 in cash in exchange  for each of
     these instruments.  Immediately following the Recapitalization,  continuing
     shareholders (14.4% before the  Recapitalization)  owned approximately 8.5%
     of the outstanding shares of the Company's common stock.

     In connection  with the  Recapitalization,  the Company  entered into a new
     credit facility providing for term loans of $400,000 and revolving loans of
     up to $75,000  (see Note 6). The proceeds of the initial  borrowings  under
     the new credit facility and the issuance of  approximately  $300,000 of the
     Company's preferred and common stock have been used to finance the payments
     of cash to cash-electing shareholders,  to pay the holders of stock options
     and stock warrants exercised or canceled, as applicable, in connection with
     the  Recapitalization,  to repay the Company's existing credit facility and
     to pay expenses incurred in connection with the Recapitalization.

     During 1999, the Company recorded  $57,880 in fees and expenses  associated
     with the Recapitalization. The total fees and expenses consist of: (i) fees
     and expenses  related to the debt and equity  transactions,  including bank
     commitment  fees  and  underwriting  commissions;   (ii)  professional  and
     advisory  fees and expenses;  (iii)  compensation  expense  relating to the
     payment  of cash for  vested  stock  options  and the  payment of change in
     control  bonuses to certain  officers in accordance with the terms of their
     respective  employment  agreements;  and (iv) other  miscellaneous fees and
     expenses.  The fees and expenses that could be  specifically  identified as
     relating to the  issuance of debt were  capitalized  and will be  amortized
     over the life of the debt as interest  expense.  The fees and expenses that
     could be  specifically  identified  as relating to the equity  transactions
     were charged directly to equity.  Compensation expense was charged directly
     to expense.  Other  transaction fees were allocated between debt and equity
     based on the Company's  estimate of the effort spent in the activity giving
     rise to the fee or  expense.  The  allocation  of fees and  expenses to the
     debt, equity, compensation expense and Recapitalization related costs is as
     follows:
                                        Compensation  Recapitalization
                        Debt   Equity     Expense      Related Costs     Total
                        ----   ------   ------------  ----------------  -------
     Direct costs     $20,205  $18,571    $10,487          $6,827       $56,090
     Allocated costs      895      895          -               -         1,790
                      -------  -------    -------          ------       -------

     Total            $21,100  $19,466    $10,487          $6,827       $57,880
                      =======  =======    =======          ======       =======

     On September 29, 2000, the Company through a newly formed limited liability
     company,  RWC Consulting  Group,  LLC,  acquired certain assets and assumed
     certain  liabilities  of RWC  Consulting  Group,  Inc.  ("RWC"),  a service
     company  providing  highly-skilled  consultants to banks to assist in their
     back  office  functions.  Total  consideration  for  RWC  included  cash of
     approximately  $16,968  including  transaction costs of $225, voting common
     stock worth $2,000  (53,376.03  shares) and an 18% unsecured,  subordinated
     note of $5,000 (interest compounded annually and principal and interest due
     September  29, 2003).  The cash portion of the purchase  price was financed
     under  the  Company's  revolving  credit  facility.   The  acquisition  was
     accounted  for under the  purchase  method  and the excess of cost over the
     fair value of the net assets acquired is being amortized on a straight-line
     basis over 30 years. The acquisition  contains a certain contingent payment
     obligation  based on the  attainment  of a  certain  financial  performance
     target over the next three years. The future contingent payment obligation,
     if any,  will be  accounted  for as  additional  goodwill if the payment is
     deemed probable.

     The  unaudited  pro  forma  consolidated  financial  data  presented  below
     provides   pro   forma   effects   of  the   Recapitalization,   the   debt
     extinguishment,  and  the  RWC  acquisition  as if  such  transactions  had
     occurred  as of the  beginning  of each  period  presented.  The  unaudited
     results  have  been  prepared  for  comparative  purposes  only  and do not
     necessarily  reflect the results of operations of the Company that actually
     would have occurred had the  Recapitalization,  the debt extinguishment and
     the  acquisition  been  consummated  as of the  beginning  of  each  period
     presented, nor does the data give effect to any transactions other than the
     Recapitalization, the debt extinguishment and the acquisition.

                                                         Pro Forma
                                                    --------------------
                                                      2000         1999

          Net revenues                              $556,964     $514,016
                                                    ========     ========

          Net loss                                  $(14,864)    $(25,661)
                                                    ========     ========


3.   PROPERTY AND EQUIPMENT

     Property  and  equipment,  which  is  recorded  at  cost,  consists  of the
     following at December 31:
                                                             2000         1999
                                                             ----         ----
       Land                                                $ 2,109      $ 2,109
       Buildings                                             1,917        1,912
       Furniture and fixtures                               10,603        7,964
       Machinery and equipment                               4,176        3,016
       Telephone equipment                                  13,066        9,826
       Leasehold improvements                                9,056        5,590
       Computer hardware and software                       57,710       53,843
                                                           -------      -------
                                                            98,637       84,260
       Less accumulated depreciation                       (52,036)     (40,613)
                                                           -------      -------

                                                           $46,601      $43,647
                                                           =======      =======

4.   INTANGIBLE ASSETS

     Intangible assets consist of the following at December 31:

                                                            2000         1999
                                                            ----         ----
       Goodwill                                           $471,302     $448,651
       Other (fully amortized in 2000)                           -       34,053
                                                          --------     --------
                                                           471,302      482,704
       Less accumulated amortization                       (54,218)     (72,233)
                                                          --------     --------

                                                          $417,084     $410,471
                                                          ========     ========

5.   OTHER ASSETS

     Other assets consist of the following at December 31:
                                                             2000         1999
                                                             ----         ----
       Investment in FINCO                                 $12,000      $12,000
       Servicing asset                                       5,612        1,300
       Prepaid postage                                       5,200        3,326
       Other                                                 7,614        6,135
                                                           -------      -------
                                                           $30,426      $22,761
                                                           =======      =======

6.   DEBT

     Debt consists of the following at December 31:
                                                             2000         1999
                                                             ----         ----
       Term Loan Facility                                  $397,500     $400,000
       Revolving Credit Facility                             32,000       13,000
       11% Series B Senior Subordinated Notes               100,000      100,000
       18% Note payable to stockholder (See Note 2)           5,000            -
       9% Note payable to stockholder (See Note 2)            4,429        4,429
       Other (including capital leases)                         534          878
                                                           --------     --------
                 Total debt                                $539,463     $518,307
                                                           ========     ========

     On April 28, 1997, the Company  registered  $100,000 of 11% Series B Senior
     Subordinated Notes (the "Notes") which mature on November 1, 2006, with the
     SEC to exchange for the then existing  unregistered  $100,000 of 11% Senior
     Subordinated  Notes  (the  "Private  Placement").  The  exchange  offer was
     completed by May 29, 1997.  Interest on the Notes is payable  semi-annually
     on May 1 and  November  1 of each  year.  The Notes are  general  unsecured
     obligations of the Company and are  subordinated in right of payment to all
     senior  debt of the  Company  presently  outstanding  and  incurred  in the
     future.   The  Notes  contain  certain   restrictive   covenants  the  more
     significant   of  which  are   limitations   on  asset  sales,   additional
     indebtedness, mergers and certain restricted payments, including dividends.

     In connection  with the  Recapitalization,  the Company  entered into a new
     credit facility  providing up to $475,000 of senior bank financing ("Credit
     Facility").  The  proceeds of the Credit  Facility  were used to  refinance
     $439,602 of  indebtedness  outstanding on the date of the  Recapitalization
     which  resulted in an  extraordinary  loss of $4,208 from the  write-off of
     previously  capitalized  deferred financing fees. No income tax benefit was
     recorded with respect to this write-off.  In addition,  the Credit Facility
     will be used to provide for the Company's working capital  requirements and
     future acquisitions, if any.

     The Credit Facility consists of a $400,000 term loan facility and a $75,000
     revolving  credit  facility  (the  "Revolving  Facility").  The  term  loan
     facility  consists  of a term loan of  $150,000  ("Term Loan A") and a term
     loan of $250,000  ("Term Loan B"),  which  mature on December  10, 2005 and
     June 10,  2006,  respectively.  The Company is  required to make  quarterly
     principal  repayments on each term loan beginning January 15, 2000 for Term
     Loan B and January 15, 2001 for Term Loan A. Term Loan A bears interest, at
     the  Company's  option,  (a) at a base  rate  equal to the  greater  of the
     federal funds rate plus 0.5% or the lender's prime rate,  plus 2.25% or (b)
     at the  reserve  adjusted  Eurodollar  rate plus  3.25%.  Term Loan B bears
     interest,  at the Company's option, (a) at a base rate equal to the greater
     of the federal funds rate plus 0.5% or the lender's  prime rate,  plus 3.0%
     or (b) at the reserve  adjusted  Eurodollar rate plus 4.0%.  Interest rates
     for Term Loan A and Term Loan B were  10.05% and 10.80%,  respectively,  at
     December 31, 2000.

     The Revolving Facility has a term of six years and is fully revolving until
     December 10, 2005. The Revolving Facility bears interest,  at the Company's
     option,  (a) at a base rate equal to the greater of the federal  funds rate
     plus 0.5% or the  lender's  prime  rate,  plus 2.25% or (b) at the  reserve
     adjusted  Eurodollar  rate plus  3.25%.  The  interest  rate was  10.04% at
     December 31,  2000.  Also,  outstanding  under the  Revolving  Facility are
     letters of credit of $6,834 expiring within a year.

     At  December  31,  2000,  the  Company  had  interest  rate  collared  swap
     agreements with several financial institutions for interest rate protection
     in the nominal  amount of $150,000 and an interest  rate swap  agreement on
     $50,000 nominal amount of its Notes.  Under the interest rate collared swap
     agreements,  the Company pays floating  three-month LIBOR between 5.90% and
     8.50% in  addition  to the  applicable  margin as set  forth in the  Credit
     Facility.  In the event,  however, the three-month LIBOR falls below 5.90%,
     the Company would be required to pay 7.0% plus the applicable margin, until
     such time the  three-month  LIBOR  rises above 5.90% at which time the rate
     returns to a variable  rate.  Under the interest rate swap  agreement,  the
     Company pays  floating  one-month  LIBOR plus 3.51%,  capped at 11.0% until
     November 2002 and 15.0% thereafter. The financial institution has the right
     to call the interest rate swap agreement, at its discretion, after November
     2001.

     The one-month  LIBOR rate  (Eurodollar  rate) at December 31, 2000 and 1999
     was 6.6% and 5.8%,  respectively.  The three-month  LIBOR rate  (Eurodollar
     rate) at December 31, 2000 and 1999 was 6.4% and 6.0%, respectively.

     The Credit  Facility is  guaranteed by  substantially  all of the Company's
     present domestic  subsidiaries  and is secured by substantially  all of the
     stock of the Company's present domestic subsidiaries,  by substantially all
     of the  Company's  domestic  property  assets and by certain  shares of the
     Company's  Voting  common  stock.  The  Credit  Facility  contains  certain
     covenants  the more  significant  of which limit  dividends,  asset  sales,
     acquisitions and additional  indebtedness,  as well as requires the Company
     to satisfy certain financial performance ratios.

     The Notes are fully and  unconditionally  guaranteed on a joint and several
     basis  by each  of the  Company's  current  domestic  subsidiaries  and any
     additional  domestic   subsidiaries  formed  by  the  Company  that  become
     guarantors under the Credit Facility (the "Restricted Subsidiaries").

     The Restricted  Subsidiaries are wholly-owned by the Company and constitute
     all of the direct  and  indirect  subsidiaries  of the  Company  except for
     certain   subsidiaries  that  are   individually,   and  in  the  aggregate
     inconsequential.  The  Company  is  a  holding  company  with  no  separate
     operations,   although  it  incurs  some  expenses.   The  Company  has  no
     significant  assets  or  liabilities  other  than the  common  stock of its
     subsidiaries,  debt, related deferred financing costs and accrued expenses.
     The aggregate assets, liabilities,  results of operations and stockholders'
     equity of the Restricted Subsidiaries are substantially equivalent to those
     of  the  Company  on  a  consolidated  basis  and  the  separate  financial
     statements of each of the Restricted Subsidiaries are not presented because
     management has determined that they would not be material to investors.

     Summarized combined financial information of the Restricted Subsidiaries is
     shown below:
                                                            2000          1999
                                                            ----          ----
            Total assets                                  $595,750      $584,184
                                                          ========      ========
            Total liabilities                             $162,493      $123,551
                                                          ========      ========
            Operating revenue                             $534,193      $504,425
                                                          ========      ========
            Income from operations                         $50,635       $42,669
                                                           =======      ========
            Net income                                     $14,434       $11,861
                                                           =======       =======

     Maturities of debt and capital leases at December 31, 2000 are as follows:

                                                                        Capital
                                                             Debt       Leases
                                                             ----       -------
      2001                                                 $ 14,526     $   215
      2002                                                   17,500         152
      2003                                                   37,500         117
      2004                                                   40,000           -
      2005                                                  187,750           -
      Thereafter                                            241,750           -
                                                           --------     -------
      Total Payments                                       $539,026         484
                                                           ========
      Less amounts representing interest                                     47
                                                                        -------
      Present value of minimum lease payments                           $   437
                                                                        =======


7.  OTHER LIABILITIES

    Other liabilities consist of the following at December 31:

                                                             2000         1999
                                                             ----         ----
       Accrued acquisition related office closure costs,
          over-market leases and other costs                $ 5,665      $ 7,402
       Accrued interest                                      11,854        4,494
       Deferred revenue                                      10,424       10,242
       Environmental reserves                                21,078       22,218
       Other                                                 22,059       23,950
                                                            -------      -------
                                                            $71,080      $68,306
                                                            =======      =======

     The environmental  reserves, on an undiscounted basis, at December 31, 2000
     and  1999  are for  environmental  proceedings  as a  result  of the  Union
     acquisition.   The  Company  is  party  to  several  pending  environmental
     proceedings  involving the  Environmental  Protection Agency and comparable
     state environmental  agencies. All of these matters related to discontinued
     operations of former  divisions or  subsidiaries  of Union for which it has
     potential continuing responsibility.  Management, in consultation with both
     legal  counsel  and   environmental   consultants,   has   established  the
     aforementioned  liabilities  that it believes are adequate for the ultimate
     resolution of these environmental proceedings.  However, the Company may be
     exposed  to  additional  substantial  liability  for these  proceedings  as
     additional information becomes available over the long-term.


8.   MANDATORILY REDEEMABLE PREFERRED STOCK

     Mandatorily  redeemable  preferred  stock  consists  of  the  following  at
     December 31:
                                         14% Senior
                                         Mandatorily
                                         Redeemable        Junior
                                          Preferred       Preferred
                                            Stock           Stock        Total
                                         -----------      ---------     --------

     Balance at December 31, 1998          $     -         $    -       $      -

     Issuance of stock                      77,634          7,000         84,634
     Accrued dividends                         856             21            877
     Accretion of preferred stock              205              -            205
                                           -------         ------       --------

     Balance at December 31, 1999           78,695          7,021         85,716

     Accrued dividends                      14,887            351         15,238
     Accretion of preferred stock            2,501              -          2,501
                                           -------         ------       --------

     Balance at December 31, 2000          $96,083         $7,372       $103,455
                                           =======         ======       ========

     On December 10, 1999, in connection with the Recapitalization, the Board of
     Directors  authorized  50,000  shares  of  Class A 14%  Senior  Mandatorily
     Redeemable  Preferred Stock, no par value and 150,000 shares of Class B 14%
     Senior Mandatorily  Redeemable Preferred Stock, no par value.  Furthermore,
     the  Company  issued  25,000  shares  of  Class  A 14%  Senior  Mandatorily
     redeemable  Preferred Stock, ("Class A"), Series A, no par value and 75,000
     shares  of  Class B 14%  Senior  Mandatorily  Redeemable  Preferred  Stock,
     ("Class  B"),  Series A, no par value;  collectively  referred to as Senior
     Preferred  Stock;  along with  596,913.07  shares of the  Company's  common
     stock,  valued at $37.47 per share, for $100,000.  The Company may issue up
     to one additional series of each Class A and Class B solely to the existing
     holders in  exchange  for shares of Class A, Series A or Class B, Series A.
     The  liquidation  value of each share of Senior  Preferred  Stock is $1,000
     plus  accrued and unpaid  dividends.  Dividends,  as may be declared by the
     Company's  Board of Directors,  are  cumulative at an annual rate of 14% of
     the liquidation  value and are payable  quarterly.  The Company may, at its
     option and upon written notice to preferred shareholders, redeem all or any
     portion of the  outstanding  Senior  Preferred Stock on a pro-rata basis at
     the  redemption  prices in cash at a stated  percentage of the  liquidation
     value plus cash equal to all accrued and unpaid  dividends.  The redemption
     prices for Class A are 110%, 114%, 107%, 103.5% and 100% of the liquidation
     value for the period December 15, 1999 through June 15, 2001, June 16, 2001
     through  December  14, 2003,  December 15, 2003 through  December 14, 2004,
     December  15, 2004  through  December  14, 2005 and  December  15, 2005 and
     thereafter,  respectively.  The redemption price for Class B is 100% of the
     liquidation value.  However,  on December 10, 2007, the Company must redeem
     all of the  shares of the Senior  Preferred  Stock  then  outstanding  at a
     redemption  price  equal to 100% of the  liquidation  value per share  plus
     accrued  and  unpaid  dividends.   Pursuant  to  the  Company's   financing
     arrangements,  the payment of dividends  and/or the repurchase of shares of
     Senior  Preferred  Stock is allowed as long as no default on the  financing
     arrangements  shall have occurred.  The 14% Senior  Mandatorily  Redeemable
     Preferred  Stock was recorded at $77,634 to take into account  common stock
     issued in conjunction  with the sale of the Senior Preferred Stock and will
     accrete to $100,000 by December 10, 2007 using the interest rate method.

     On December 10, 1999, in connection with the Recapitalization,  the Company
     authorized  50,000 shares and issued 7,000 shares of Junior Preferred Stock
     ("Junior Preferred Shares"). The liquidation value of each Junior Preferred
     Share is $1,000 plus  accrued and unpaid  dividends.  Dividends,  as may be
     declared by the Company's  Board of Directors,  are cumulative at an annual
     rate of 5% of the liquidation  value until December 10, 2003 and then at an
     annual rate of 8% thereafter and are payable annually; however the dividend
     rate will increase to 20% upon consummation of certain events.  The Company
     will pay dividends in the form of additional Junior Preferred  Shares.  The
     Company may, at its sole option and upon written notice, redeem, subject to
     limitations,  all or any portion of the outstanding Junior Preferred Shares
     for $1,000 per share plus cash equal to all accrued  and unpaid  dividends,
     through  the  redemption  date,  whether  or not such  dividends  have been
     authorized  or declared.  However,  on January 10,  2008,  the Company must
     redeem all of the shares of the Junior  Preferred Stock then outstanding at
     a  redemption  price  equal to $1,000  per share  plus  accrued  and unpaid
     dividends as long as all of the shares of the Senior  Preferred  Stock have
     been redeemed.  Upon  consummation  of a primary public  offering having an
     aggregate  offering value of at least  $50,000,  each holder of Junior Pre-
     ferred  Shares  shall have the right to convert all, but not less than all,
     into shares of voting common stock based upon the public offering price.


9.   STOCKHOLDERS' EQUITY AND WARRANTS

     Each share of Non-voting  common stock is convertible  at the  shareholders
     option into an equal number of shares of Voting common stock subject to the
     requirements set forth in the Company's Certificate of Incorporation.

     In connection  with the  Recapitalization,  all warrants  (46,088.67)  then
     outstanding were exchanged for cash with each holder receiving cash for the
     differential  between  $37.47 per share and their exercise price of $12.50.
     Consequently,  there are no warrants  outstanding  at December 31, 2000 and
     1999.

     In 2000, the Company issued  50,040.03 shares of its voting common stock at
     prices  approximating fair value to certain members of senior management in
     exchange for cash and interest  bearing  notes  secured by the shares along
     with  certain  personal  assets of the  members of senior  management.  The
     outstanding  principal  balances  plus  accrued  interest  of  these  notes
     amounted to $1,817 at December 31, 2000 and are  classified  as a reduction
     of stockholders' deficit.


10.  INCOME TAXES

     Major components of the Company's income tax provision are as follows:

                                                    2000       1999        1998
                                                    ----       ----        ----
     Current:
         Federal                                   $    -     $    -      $    -
         State                                        400        550         450
         Foreign                                      194        209           -
                                                   ------     ------      ------
             Total current                            594        759         450
                                                   ------     ------      ------
     Deferred:
         Federal                                        -          -           -
         State                                          -          -         380
         Foreign                                        -          -           -
                                                   ------     ------      ------
             Total deferred                             -          -         380
                                                   ------     ------      ------

             Provision for income taxes            $  594     $  759      $  830
                                                   ======     ======      ======

     Deferred income taxes reflect the net tax effects of temporary  differences
     between  the  carrying  amounts of assets  and  liabilities  for  financial
     reporting purposes and the amounts used for income tax reporting  purposes.
     The Company's  deferred  income taxes result  primarily  from net operating
     loss carryforward,  differences in loans and accounts receivable purchased,
     amortization methods on other intangible assets and depreciation methods on
     fixed assets.

     Net deferred tax assets consist of the following at December 31:

                                                              2000        1999
                                                              ----        ----
      Deferred tax assets:
         Net operating loss carryforwards                   $66,210     $52,302
         Accrued liabilities                                 15,894      16,812
         Loans and accounts receivable                       (1,176)      1,382
         Property and equipment                                 392       1,028
         Intangible assets                                    1,236       3,824
         Tax credit carryforwards                            11,221       3,418
         Other                                                1,402           -
                                                            -------     -------
      Total deferred tax assets                              95,179      78,766
      Less valuation allowance                              (95,179)    (78,766)
                                                            -------     -------

      Net deferred tax assets                               $     -     $     -
                                                            =======     =======

     The  valuation  allowance  was $95,179 and $78,766 at December 31, 2000 and
     1999,  respectively.  The Company has  determined  the valuation  allowance
     based upon the weight of available evidence regarding future taxable income
     consistent  with the  principles  of SFAS No.  109,  Accounting  for Income
     Taxes. The $13,567 increase in the valuation  allowance during 1999 was the
     result of net changes in temporary differences,  and an increase in the net
     operating loss and tax credit  carryforwards.  The valuation allowance also
     includes amounts related to previous  acquisitions  from years before 2000.
     Future  realization  of these  deferred  tax  assets  would  result  in the
     reduction of goodwill recorded in connection with the acquisitions.

     The Company has federal net operating loss  carryforwards of $154,951 as of
     December  31,  2000  available  to  offset  future  taxable  income  of the
     consolidated group of corporations.  Since the Recapitalization transaction
     on December 10, 1999  constituted a change of ownership,  tax law imposes a
     limitation  on  the  future  use  of  the  Company's  net  operating   loss
     carryforwards  generated  through the date of the change in ownership.  The
     annual limit is equal to the long-term  tax-exempt bond rate times the fair
     imputed  value of the  Company's  stock  immediately  before  the change in
     ownership.   In  addition,  the  Company  acquired  a  net  operating  loss
     carryforward  of $3,800  with the  acquisition  of Union that is subject to
     special tax law restrictions that limit its potential  benefit.  These loss
     carryforwards expire between 2010 and 2020.

     The  Company  also  has  available  federal  tax  credit  carryforwards  of
     approximately  $888 which expire between 2003 and 2013 and federal  minimum
     tax credit carryforwards of approximately $759 which may be carried forward
     indefinitely.  The Company has various  state tax credit  carryforwards  of
     approximately  $9,574 with various  expiration  dates  primarily from South
     Carolina,  Alabama,  Georgia and  Pennsylvania for new job creation and new
     capital investment.

     Since the  Company  has a  history  of  generating  net  operating  losses,
     management  does not expect the Company to generate  taxable  income in the
     foreseeable  future  sufficient  to  realize  tax  benefits  from  the  net
     operating loss  carryforwards  or the future reversal of the net deductible
     temporary  differences.  The amount of the deferred  tax assets  considered
     realizable,  however,  is  subject  to  reassessment  in  future  years  if
     estimates of future taxable income during the carryforward period change.

     A reconciliation of the Company's reported income tax provision to the U.S.
     federal statutory rate is as follows:
                                                  2000        1999        1998
                                                  ----        ----        ----

     Federal tax benefits at statutory rate     $(6,411)   $(13,257)    $(7,994)

     State income taxes (net of federal tax
       benefits)                                (12,321)       (874)         18

     Nondeductible amortization                   3,546       3,753       3,414

     Other                                         (827)      2,371         249

     Foreign                                        194           -           -

     Deferred tax valuation allowance            16,413       8,766       5,143
                                                -------    --------     -------

     Provision for income taxes                 $   594    $    759     $   830
                                                =======    ========     =======



11.  RELATED PARTY TRANSACTIONS

     In  connection  with  the  agreements   executed  in  connection  with  the
     Recapitalization  discussed in Note 2, the Company paid  transaction  costs
     and advisory fees to certain Company stockholders.  Such costs were $17,092
     for the year ended December 31, 1999.

     Subject  to  the  agreements   executed  in  connection  with  the  various
     acquisitions,  the  Private  Placement  discussed  in  Note  6 and  certain
     management and advisory agreements, the Company has paid to certain Company
     stockholders  transaction  costs and advisory fees.  Such costs were $3,466
     for the year ended December 31, 1998.

     Under an Advisory Services Agreement, the Company expensed $500 in 2000 for
     professional services rendered by MDP, the majority stockholder.

     Under  various  financing   arrangements   associated  with  the  Company's
     acquisitions and credit facility,  the Company incurred interest expense of
     $2,358,  $3,376 and $2,333 for the years ended  December 31, 2000, 1999 and
     1998,  respectively,  to  certain  Company  stockholders  of which one is a
     financial  institution  and was  co-administrative  agent of the  Company's
     prior credit facility.

     In December 1997, the Company invested $5,000 for a minority  interest in a
     limited  liability  corporation  (the "LLC") for the  purpose of  acquiring
     purchased loan and accounts receivable portfolios. The majority interest in
     the LLC is held by an affiliate of one of the  Company's  stockholders.  In
     the fourth  quarter of 1998,  the Company wrote down its  investment in the
     LLC by $3,000 which is included in amortization expense in the accompanying
     consolidated  statement  of  operations.  The write down  resulted  from an
     analysis of the carrying  value of the  purchased  portfolios  owned by the
     LLC. In December  1998,  the Company  entered  into an  agreement  with the
     majority owner of the LLC to settle all  outstanding  disputes  relating to
     the  sourcing  and  collection  of  certain  purchased  loan  and  accounts
     receivable  portfolios.  As part of the  settlement,  the  Company was paid
     $3,000  which was  recorded  in  revenue in the  accompanying  consolidated
     statement of operations.


12.  STOCK OPTION AND AWARD PLANS

     Under  terms  of the  Company's  incentive  stock  option  plans,  selected
     employees,  directors and certain  consultants  may be granted  options and
     other awards.  The plans are stock award and  incentive  plans which permit
     the issuance of options,  stock appreciation rights ("SARs") in tandem with
     such options,  restricted  stock, and other stock-based  awards.  The plans
     reserved  1,150,000  Voting  Common Shares for grants and provides that the
     term  of  each  award,  not to  exceed  ten  years,  be  determined  by the
     Compensation  Committee of the Board of Directors (the "Committee") charged
     with administering the plan.

     Under  the  terms  of  certain  plans,   options   granted  may  be  either
     nonqualified  or incentive  stock options and the exercise price  generally
     may not be less than the fair market  value of a Voting  Common  Share,  as
     determined by the Committee,  on the date of grant.  SARs granted in tandem
     with an option  shall be  exercisable  only to the  extent  the  underlying
     option is  exercisable  and the grant price shall be equal to the  exercise
     price of the underlying  option. As of December 31, 2000, no SARs have been
     granted.  The  awarded  stock  options  vest over  three to four  years and
     vesting may be  accelerated  upon the  occurrence of a change in control as
     defined in the plans. The options expire ten years after date of grant.

     In June 1999,  25,500 options were repriced from a grant price of $40.00 to
     $25.00.  In addition,  58,500  options were  repriced from a grant price of
     $65.00 or $50.00 to  $40.00.  Simultaneously,  the  vesting  provisions  of
     certain  options  were  modified  to provide  for  prorata  vesting  over a
     specified number of years.  Accordingly,  compensation  expense of $708 was
     recognized  during  1999 as a result  of  these  modifications  of  certain
     options and is reflected in the  accompanying  statement of operations.  In
     addition,  in connection  with the  Recapitalization,  certain options were
     exercised and the holders of such options  received a cash payment equal to
     the exercise price of such options and $37.47, the price per share at which
     the Recapitalization was consummated.

     A summary of the plans activity is as follows:











                                                 Number of
                                              Shares of Stock       Weighted
                                                Subject to      Average Exercise
                                                  Options        Price Per Share
                                              ---------------   ----------------
      Outstanding at January 1, 1998              568,521            $22.78
      Granted                                      64,300             58.83
      Forfeited                                   (54,000)            35.19
                                                 --------

      Outstanding at December 31, 1998            578,821             25.63
      Granted                                     214,000             40.00
      Forfeited                                  (104,500)            28.52
      Exercised                                  (245,396)            18.59
                                                 --------

      Outstanding at December 31, 1999            442,925             31.69
      Granted                                     305,420             37.47
      Forfeited                                   (38,000)            40.00
      Exercised                                    (5,000)            25.00
                                                 --------

      Outstanding at December 31, 2000            705,345             33.79
                                                 ========

     Exercisable  shares at  December  31,  2000,  1999 and 1998  were  399,925,
     442,925 and 105,784, respectively.

     A summary of stock options outstanding at December 31, 2000 is as follows:

                                Options Outstanding          Options Exercisable
                    -------------------------------------   --------------------
                                    Weighted
                                    Average
                                   Remaining
                       Number     Contractual    Exercise      Number   Exercise
    Exercise Price  Outstanding      Life          Price    Exercisable   Price
    --------------   -------------------------------------  ----------- --------
      $12.50           70,175      5.7 years      $12.50       70,175     $12.50
      $25.00          111,750      6.6 years      $25.00      111,750     $25.00
      $37.47          305,420      9.6 years      $37.47            -     $    -
      $40.00          218,000      8.1 years      $40.00      218,000     $40.00
                      -------                                 -------
    $12.50-$40.00     705,345      7.8 years      $33.79      399,925     $30.98
                      =======                                 =======

     The Company  accounts for the Plan in  accordance  with APB Opinion No. 25,
     under which no  compensation  cost has been  recognized for the majority of
     stock option awards. As required by SFAS No. 123, the Company has estimated
     the fair value of its option grants since  January 1, 1996.  The fair value
     for these  options  was  estimated  at the date of the  grant  based on the
     following weighted average assumptions:

                                              2000          1999           1998
                                              ----          ----           ----

      Risk free rate                          5.06%         5.0%           5.0%
      Expected dividend yield of stock          0%            0%              0%
      Expected volatility of stock              0%            0%              0%
      Expected life of option (years)          10.0          10.0          10.0

     Since the Company's common stock is not publicly traded, the expected stock
     price volatility is assumed to be zero. The weighted fair values of options
     granted  during  2000,  1999 and  1998  were  $14.83,  $15.74  and  $23.14,
     respectively. The Company's pro forma information is as follows:

                                              2000          1999           1998
                                              ----          ----           ----
      Net loss:
          As reported                      $(19,451)     $(43,957)     $(24,341)
          Pro forma                         (20,836)      (45,436)      (25,742)

     In addition,  the Committee may grant  restricted  stock to participants of
     the plans at no cost. Other than the restrictions  which limit the sale and
     transfer  of these  shares,  recipients  of  restricted  stock  awards  are
     entitled  to vote shares of  restricted  stock and  dividends  paid on such
     stock. No restricted stock has been granted as of December 31, 2000.


13.  COMMITMENTS AND CONTINGENCIES

     From time to time,  the  Company  enters  into  servicing  agreements  with
     companies  which  service  loans  for  others.  The  servicers  handle  the
     collection efforts on certain  nonperforming  loans and accounts receivable
     on the Company's  behalf.  Payments to the servicers  vary depending on the
     servicing  contract.  Current  contracts  expire on the anniversary date of
     such  contracts  but  are  automatically  renewable  at the  option  of the
     Company.

     A subsidiary of the Company has several Portfolio Flow Purchase Agreements,
     no longer than one year, whereby the subsidiary has a monthly commitment to
     purchase  nonperforming  loans meeting certain  criteria for an agreed upon
     price  subject to due  diligence.  The purchases  under the Portfolio  Flow
     Purchase  Agreements  were  $16,371 and  $33,303,  which  includes  amounts
     purchased and subsequently sold to FINCO (see Note 18), and $25,521 for the
     years ended December 31, 2000, 1999 and 1998, respectively.

     The Company  leases  certain  office  space and  computer  equipment  under
     non-cancelable  operating leases.  These  non-cancelable  operating leases,
     with  terms in  excess  of one  year,  are due in  approximate  amounts  as
     follows:
                                                                        Amount
                                                                        ------
                2001                                                   $18,392
                2002                                                    15,882
                2003                                                    13,220
                2004                                                    12,336
                2005                                                    11,598
                Thereafter                                              16,249
                                                                       -------

                           Total lease payments                        $87,677
                                                                       =======

     Rent expense under  operating  leases was $18,372,  $16,974 and $15,800 for
     the years ended December 31, 2000, 1999 and 1998, respectively.


14.  LITIGATION AND ENVIRONMENTAL

     At  December  31,  2000,  the  Company  was  involved  in a number of legal
     proceedings  and claims  that were in the  normal  course of  business  and
     routine  to the  nature of the  Company's  business.  While the  results of
     litigation cannot be predicted with certainty, the Company has provided for
     the estimated  uninsured amounts and costs to resolve the pending suits and
     management,  in  consultation  with legal  counsel,  believes that reserves
     established for the ultimate  resolution of pending matters are adequate at
     December 31, 2000.

     Current  operations of OSI and its  subsidiaries do not involve  activities
     materially  affecting the environment.  However,  The Union Corporation,  a
     subsidiary  of the  Company,  is party  to  several  pending  environmental
     proceedings involving the United States Environmental Protection Agency, or
     EPA, and  comparable  state  environmental  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   of  Union  for  which  it  has   potential   continuing
     responsibility.  Upon  completion  of the  acquisition  of Union,  OSI,  in
     consultation  with  both  legal  counsel  and  environmental   consultants,
     established  reserves  that it believes  will be adequate  for the ultimate
     settlement of these environmental proceedings.

     One group of Union's known  environmental  proceedings relates to Superfund
     or other sites  where  Union'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, Union's
     involvement  is considered to be de minimus  (i.e.,  a volumetric  share of
     approximately  1% or less) and in each of these  cases Union 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  Union's  projected  liability,   although
     potentially  joint and several,  is consistent  with its allocable share of
     liability.  At one  "generator"  liability  site,  Union'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.  Union 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
     Union. These cases generally involve matters for which Union or an inactive
     subsidiary is the sole or primary responsible party. In one case, the Metal
     Bank Cottman  Avenue site,  the EPA issued a record of decision on February
     6, 1998.  According  to the  record of  decision,  the cost to perform  the
     remediation  selected by the EPA for the site is estimated by the EPA to be
     approximately  $17.3 million.  The aggregate  amount  reserved by Union for
     this site was $18.2 million, which represented Union's best estimate of the
     ultimate  potential legal and consulting  costs for defending its legal and
     technical positions  regarding  remediation of this site and its portion of
     the  potential  remediation  costs that will  ultimately be incurred by it,
     based on current information.  However,  Union 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
     Union or an  inactive  subsidiary  are at a state  where an  assessment  of
     ultimate liability, if any, cannot reasonably be made at this time.

     It is Union'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 Union's  likely  allocated  share  among  viable
     parties.  Where insufficient  information is available  regarding projected
     remedial actions for these "generator"  liability cases, Union 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.
     OSI periodically reviews all known environmental  claims, where information
     is available, to provide reasonable assurance that reserves are adequate.


15.  FAIR VALUE OF FINANCIAL INSTRUMENTS

     The estimated fair values and the methods and assumptions  used to estimate
     the fair values of the financial  instruments of the Company as of December
     31,  2000 and 1999 are as  follows.  The  carrying  amount of cash and cash
     equivalents  and  long-term  debt except the Notes,  approximates  the fair
     value.  The  approximate  fair value of the Notes at December  31, 2000 and
     1999 was $80,000 and $97,000, respectively. The fair value of the long-term
     debt was determined based on current market rates offered on notes and debt
     with  similar  terms and  maturities.  The fair  value of  Receivables  was
     determined based on both market pricing and discounted expected cash flows.
     The discount  rate was based on an acceptable  rate of return  adjusted for
     the risk inherent in the Receivable portfolios. The estimated fair value of
     Receivables approximated its carrying value at December 31, 2000 and 1999.


16.  EMPLOYEE BENEFIT PLANS

     At December 31, 1999 and 1998,  the Company had five  defined  contribution
     plans,  four of which it  acquired  through the Union  acquisition.  During
     2000,  the  Company  transferred  the  assets  of three  of  these  defined
     contribution  plans into OSI's plan. At December 31, 2000,  the Company has
     two defined  contribution plans, one of which it acquired through the Union
     acquisition,  which provide retirement benefits to the majority of all full
     time employees.  The Company matches a portion of employee contributions to
     the plans. Company  contributions to these plans, charged to expense,  were
     $1,652,  $1,654 and $1,570 for the years ended December 31, 2000,  1999 and
     1998, respectively.

     In November 2000, the Company established a deferred  compensation plan for
     selected employees who, due to Internal Revenue Service guidelines,  cannot
     take full  advantage  of the  contributory  plan.  This plan,  which is not
     required to be funded, allows eligible employees to defer portions of their
     current  compensation.  To support  the  deferred  compensation  plan,  the
     Company has  elected to purchase  Company-owned  life  insurance.  The cash
     surrender  value  of the  Company-owned  life  insurance  and the  deferred
     compensation  liability  were not material at December 31, 2000 as the plan
     was established in November 2000.


17.  ENTERPRISE WIDE DISCLOSURE

     The Company operates in one business  segment.  As a strategic  receivables
     management  company,  the  primary  services  of  the  Company  consist  of
     collection   services,   portfolio   purchasing  services  and  outsourcing
     services.  In  addition,  the  Company  derives  substantially  all  of its
     revenues from domestic customers.

     The following  table presents the Company's  revenue by type of service for
     the year ended December 31:
                                               2000         1999        1998
                                               ----         ----        ----
     Collection services                     $353,447     $349,708    $334,889
     Portfolio purchasing services             87,518       80,391      82,399
     Outsourcing services                     101,662       74,326      62,112
                                             --------     --------    --------
         Total                               $542,627     $504,425    $479,400
                                             ========     ========    ========




18.  PURCHASED LOANS AND ACCOUNTS RECEIVABLE PORTFOLIOS FINANCING

     In October 1998, a  special-purpose  finance  company,  OSI Funding  Corp.,
     formed  by the  Company,  entered  into  a  revolving  warehouse  financing
     arrangement  (the  "Warehouse  Facility")  for up to  $100,000  of  funding
     capacity for the purchase of loans and accounts receivable  portfolios over
     its five year term. In connection  with the  Recapitalization,  OSI Funding
     Corp.  converted to a limited  liability company and is now OSI Funding LLC
     ("FINCO"),  with OSI owning approximately 78% of the financial interest but
     having  only   approximately  29%  of  the  voting  rights.  The  Company's
     investment in FINCO is accounted for under the equity method. In connection
     with the  establishment  of the  Warehouse  Facility,  FINCO entered into a
     servicing  agreement  with a subsidiary  of the Company to provide  certain
     administrative and collection services on a contingent fee basis (i.e., fee
     is based on a percent of amount collected) at prevailing market rates based
     on the nature and age of  outstanding  balances to be collected.  Servicing
     revenue  from  FINCO  is  recognized  by the  Company  as  collections  are
     received.  All borrowings by FINCO under the Warehouse Facility are without
     recourse to the Company.

     The following summarizes the transactions between the Company and FINCO for
     the year ended December 31:
                                                                  2000    1999
                                                                  ----    ----
         Sales of purchased loans and accounts receivables
              portfolios by the Company to FINCO                $86,910  $56,664

         Servicing fees paid by FINCO to the Company            $26,827  $15,228

     Sales of purchased loans and accounts receivable  portfolios by the Company
     to FINCO were in the same amount and occurred shortly after such portfolios
     were  acquired  by the  Company  from the  various  unrelated  sellers.  In
     conjunction with sales of Receivables to FINCO and the servicing agreement,
     the Company  recorded  servicing  assets which are being amortized over the
     servicing agreement.  The carrying value of such servicing assets is $5,612
     and $1,300 at December  31, 2000 and 1999,  respectively.

     At  December  31, 2000 and 1999,  FINCO had  purchased  loans and  accounts
     receivable portfolios of $76,908 and $40,010, respectively. At December 31,
     2000 and 1999,  FINCO had  outstanding  borrowings  of $67,636 and $32,051,
     respectively, under the Warehouse Facility.

     FINCO's summarized results from operations for the years ended December 31,
     2000 and 1999 are as follows:
                                                             2000         1999
                                                             ----         ----
            Net revenues                                   $76,578      $40,708
            Income from operations                           4,363        1,759
            Net income                                         702           56


19.  NONRECURRING EXPENSES

     After the Company's formation and seven acquisitions, the Company adopted a
     strategy to align the Company along  business  services and establish  call
     centers  of  excellence.  As a  result,  the  Company  incurred  $5,063  of
     nonrecurring  conversion,  realignment and relocation expenses for the year
     ended December 31, 1999.  These expenses  include costs  resulting from the
     temporary  duplication  of  operations,  closure of certain  call  centers,
     hiring  and  training  of new  employees,  costs of  converting  collection
     operating  systems,  and other one-time and redundant  costs. No additional
     costs have been accrued at December 31, 1999.

     In  continuing  the  above  strategy,   the  Company   incurred  $2,742  of
     nonrecurring  realignment  expenses  for the year ended  December 31, 2000.
     These  expenses  include  costs  resulting  from  closure of  certain  call
     centers,  severance associated with these office closures and certain other
     one-time costs. No additional costs have been accrued at December 31, 2000.

















20.  QUARTERLY FINANCIAL DATA (unaudited)

           2000                         First      Second      Third    Fourth
           ----                         -----      ------      -----    ------
     Revenues                         $133,250    $137,373   $133,871  $138,133

     Income from operations             10,988      10,175      9,679    11,235

     Net loss                           (3,380)     (5,203)    (5,763)   (5,105)


           1999                         First      Second      Third    Fourth
           ----                         -----      ------      -----    ------
     Revenues                         $129,247    $127,829   $122,987  $124,362

     Income (loss) from operations       9,087      10,027      8,307   (14,146)

     Loss before extraordinary item     (3,554)     (2,992)    (4,698)  (28,505)

     Net loss                           (3,554)     (2,992)    (4,698)  (32,713)


<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of Outsourcing Solutions Inc.:

We  have  audited  the  accompanying   consolidated   financial   statements  of
Outsourcing Solutions Inc. and its subsidiaries as of December 31, 1999, and for
each of the two years in the period ended December 31, 1999, and have issued our
report thereon dated March 28, 2000; such consolidated  financial statements and
report is included  elsewhere  in this Form 10-K.  Our audits also  included the
consolidated  financial statement schedule of Outsourcing Solutions Inc. and its
subsidiaries  as of December 31, 1999 and for each of the two yers in the period
ended December 31, 1999, listed in the accompanying  index at Item 14(a)2.  This
consolidated financial statement schedule is the responsibility of the Company's
management.  Our responsibility is to express an opinion based on our audits. In
our opinion, such consolidated financial statement schedule,  when considered in
relation  to the  basic  consolidated  financial  statements  taken  as a whole,
presents fairly in all material respects set forth therein.





/s/ Deloitte & Touche LLP
-------------------------
Deloitte & Touche LLP



St. Louis, Missouri
March 28, 2000

<PAGE>




Outsourcing Solutions Inc. and Subsidiaries                          Schedule II
Valuation and Qualifying Accounts and Reserves
For the year ended December 31, 2000, 1999 and 1998
(in thousands)



    Column A       Column B     Column C
    ---------      ---------  -----------                  Column D     Column E
                                Additions                  -----------  --------
                               -----------                    (B)
                     Balance                  Charged to   Deductions    Balance
                    @ beg. of   Charged to     Other        (Please     @ end of
    Description      Period      Expense     Accounts (A)    explain)    Period
    ------------    ---------   ----------   ------------  -----------  --------

Allowance for doubtful accounts:


       2000            529         671             -           753         447
                       ===        ====            ==          ====         ===

       1999          1,309         651             -         1,431         529
                     =====        ====            ==        ======         ===

       1998            538         108           798           135       1,309
                       ===        ====          ====          ====       =====





 (A)  For 1998, Union balance at date of acquisition.
 (B)  Accounts receivable write-offs and adjustments, net of recoveries.