SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

[X]              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934
                        For the fiscal year ended December 31, 1998

 [   ]         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 (g) of the Act:
                                                            None
                                                   (Title of each class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                 Yes   X                                   No        
Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation S-K (Section 229.405 if this chapter) 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 19, 1999, the following
shares of the Registrant's common stock were issued and outstanding:

  Voting common stock                                         3,425,126.01
  Class A convertible nonvoting common stock                    391,740.58
  Class B convertible nonvoting common stock                    400,000.00
  Class C convertible nonvoting common stock                  1,040,000.00
                                                              ------------
                                                              5,256,866.59

DOCUMENTS INCORPORATED BY REFERENCE:  None



<PAGE>
PART I

ITEM 1.  BUSINESS

General

Outsourcing  Solutions Inc., a Delaware Corporation (the "Company" or "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  September  1995,  OSI  initiated  this  strategy  with  the  acquisition  of
Atlanta-based  Account Portfolios,  L.P. ("API"),  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  ("Miller"),   two  industry  leaders  in  providing  contingent  fee
services.  Continental,  which is headquartered in Seattle and operates in eight
western states, provides contingent fee services to a wide range of end markets,
with particular  emphasis on public  utilities and regional  telecommunications.
Miller,  based in Minneapolis,  provides  contingent fee services to the student
loan and bank credit card end markets.

In November  1996,  OSI  acquired  Payco  American  Corporation  ("Payco")  with
corporate offices in Brookfield,  Wisconsin.  Originally founded as a contingent
fee service company,  Payco has diversified into other outsourcing services such
as student loan billing, health care accounts receivable billing and management,
contract management of accounts receivable and teleservicing. Upon completion of
the Payco  acquisition,  the  Company  became one of the  largest  providers  of
accounts receivable management services in the United States.

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

In November 1997, OSI acquired Accelerated Bureau of Collections,  Inc. ("ABC").
ABC is a Denver-based  national fee service  company.  ABC specializes in credit
card  collections and derives  approximately  25% of its revenues from early-out
programs with the remaining 75% of revenues derived from standard contingent fee
collections.

In January 1998, OSI acquired  through a tender offer  approximately  77% of the
outstanding shares of The Union Corporation's  ("Union") common stock for $31.50
per share. In March 1998, the Company acquired the remaining  outstanding shares
of Union when Union merged with a wholly-owned subsidiary of the Company.

Union  was  originally  a  conglomerate  involved  in  businesses  ranging  from
electronic and industrial  components to financial  services.  Today, Union is a
leading  provider  of a range of  outsourcing  services  to both large and small
clients.  Union provides  contingent and fixed fee collection services and other
related outsourcing services.  Union provides fee services through the following
wholly-owned  subsidiaries:  Allied Bond & Collection Agency,  Inc.  ("Allied"),
Capital Credit Corporation  ("Capital  Credit"),  and Transworld  Systems,  Inc.
("Transworld").   Allied,  headquartered  in  Trevose,  Pennsylvania,   provides
contingent  and fixed fee  collection  services for large clients across a broad
spectrum of industries. Capital Credit, headquartered in Jacksonville,  Florida,
also provides  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 the largest prepaid,  fixed fee outsourcer of delinquent account
management  services in the United  States.  Transworld's  clients are primarily
small  companies  with low  balance  delinquent  accounts.  Transworld  provides
clients  with a two phase  system.  Phase I is a fixed fee,  computer  generated
"letter  series".  Phase II is a traditional  contingent fee  collection  system
designed to collect those accounts that are not collected  during Phase I. Union
provides related outsourcing services through its Interactive Performance,  Inc.
("IPI")  and  High  Performance  Services,  Inc.  ("HPSI")  subsidiaries.   IPI,
headquartered in North  Charleston,  South Carolina,  provides a range of credit
and  receivables  management  outsourcing  services  primarily  in the  form  of
teleservicing.  IPI's services include inbound and outbound calling programs for
credit  authorization,   customer  service,  usage  management  and  receivables
management.  HPSI,  headquartered in Jacksonville,  Florida,  provides  services
similar to IPI for clients in the financial services industry.

Industry

As a  result  of the  rapid  growth  of  outstanding  consumer  credit  and  the
corresponding  increase in  delinquencies,  credit  grantors  have  increasingly
looked to third party  service  providers in managing  the  accounts  receivable
process.  In  addition,  rapid  consolidation  in the  largest  credit  granting
industries,  including banking,  health care,  telecommunications and utilities,
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.   Nationwide,   more  than  6,000  companies  provide  debt
collection  services,  creating  a  highly  fragmented  industry.  Due  to  this
fragmentation,  the top 10 companies account for only 20% of industry  revenues.
With  this  fragmentation,  a  corresponding  trend in  recent  years is  toward
industry consolidation.

The accounts receivable  management industry has undergone rapid growth over the
past fifteen years.  Two significant  trends in the consumer credit industry are
primarily  responsible for this industry growth. First, consumer debt (a leading
indicator  of current and future  business for  accounts  receivable  management
companies) has increased  dramatically  in recent years.  Between 1990 and 1998,
total  consumer debt  increased 67% from $3.6 trillion to almost $6.0  trillion.
Second, in an effort to focus on core business  activities and to take advantage
of the economies of scale,  better  performance and lower cost structure offered
by accounts receivable management companies, many credit grantors have chosen to
outsource some or all aspects of the accounts receivable management process.

The customer base for the accounts  receivable  management industry is dominated
by credit issuers in four end-markets:  banks/bankcard,  health care,  utilities
and telecommunications.  Other significant sources of account placements for the
industry  include retail,  student loan agencies and oil companies.  The Company
believes   that  the   ongoing   consolidation   in  the   banking,   utilities,
telecommunications  and health  care  industries  will  create  larger  national
customers  seeking  to  place  accounts  with  accounts  receivable   management
companies  that have the  resources  to offer  national  rather  than  local and
regional  coverage.  The  accounts  receivable  management  industry  is closely
regulated  by  federal  laws  such as the Fair  Debt  Collection  Practices  Act
("FDCPA") and similar state laws.

Contingent fee services are the  traditional  services  provided in the accounts
receivable   management  industry.   Creditors  typically  place  non-performing
accounts  after they have been deemed  non-collectible,  usually  when 90 to 120
days past due. The commission rate 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 lower the  commission
rate. Creditors typically assign their charged-off receivables to contingent fee
servicers for a six to 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,  typically  120 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.   Customers  are
increasingly  placing  accounts with accounts  receivable  management  companies
earlier in the collection cycle, often prior to the 120 days past due typical in
primary placements, either under a contingent fee or fixed fee arrangement.

While contingent fee servicing  remains the most widely used method by creditors
in recovering  non-performing  accounts,  portfolio  purchasing has increasingly
become a popular  alternative.  Beginning in the 1980's,  the  Resolution  Trust
Company and the Federal Deposit Insurance  Company,  under government mandate to
do so,  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.  Management estimates
the total  principal  value of purchased  portfolios  at between $25.0 and $40.0
billion per year, and based on the Company's experience,  the annual growth rate
of the  portfolio  purchasing  market  segment  for the period  1990 to 1995 was
between 50% and 80%. The largest  percentage of purchased  portfolios  originate
from the bank card receivable and retail markets and 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 combined with principle  collection  techniques are
employed to obtain payment of non-performing accounts.

Accounts receivable  management  companies have responded to the increasing need
of credit granting companies to outsource other related services as well. Due to
the rapid growth in consumer credit, credit grantors need assistance in managing
increasingly large and complex call centers and accounts  receivable  management
companies  have  stepped  in to provide a variety of  services.  These  services
include, among others,  third-party billing services and customer teleservicing.
Accounts  receivable  management  companies  have found  that their  traditional
experience in managing a large staff in a telephone-based environment provides a
solid base for entering into these  relatively  new and rapidly  growing  market
segments.

The accounts  receivable  management  industry has  progressed in  technological
sophistication  over  the  past  several  years  with  the  advancement  of  new
technology. Today, leading companies in this industry use proprietary databases,
automated predictive dialers,  automatic call distributors and computerized skip
tracing   capabilities   to   significantly   increase  the  number  of  quality
interactions  with  debtors.  This  technological   advancement  is  helping  to
accelerate  industry  consolidation  and facilitates  providing related accounts
receivable  management  outsourcing  services.  The  firms,  which have the most
efficient  operating  system  and can best  use  credit  information,  typically
collect  more funds per account  dollar and thus are awarded  disproportionately
more new accounts.

Business Strategy

The Company's market position and breadth of services distinguishes it as one of
the leading providers of accounts  receivable  management services in the United
States.  The Company's  business strategy is to expand this position through the
following initiatives:

      Full Service  Providers/Cross-Selling  Services to Existing Customers. The
Company is a full service firm which currently offers its customers a wide array
of accounts  receivable  management  options beyond  traditional  contingent fee
services,  including  letter  series and  higher  margin  portfolio  purchasing,
contract  management of accounts  receivable,  billing and  teleservicing.  This
range of services  allows the Company to  cross-sell  its  offerings  within its
existing  customer  base,  as well as to  potential  customers  in  specifically
targeted industries.

      Expansion of Customer  Base.  Two of the most  important  determinants  in
selecting an accounts receivable  management service provider are reputation and
experience.  As the Company develops expertise and recognition with customers in
a particular industry, it markets that expertise to other credit grantors in the
industry. In addition, consolidation in the bank, retail, utility, student loan,
health care and telecommunications industries has created national customers who
are  moving  part or all of  their  accounts  receivable  collection  management
business to national service  providers.  With the ability to offer its services
in all 50 states  and  experience  in  successfully  managing  a high  volume of
placements on a national  basis,  the Company is well positioned to benefit from
this consolidation trend. The Company is also focused on increasing its business
with government  agencies at the federal,  state and local levels, many of which
have begun to outsource  accounts  receivable  functions for items such as taxes
and student loans to private companies.

      Leveraging   Technology.   The  Company  has  invested   aggressively   in
technological  innovations to enhance its  competitive  advantages  over smaller
competitors.  The Company  has  hardware  and  proprietary  software,  including
debtor-scoring models and debtor databases, which the Company believes, provides
it with a competitive  advantage in pricing  portfolios and  collecting  amounts
from debtors. In addition, the Company utilizes automated predictive dialers and
skip  tracing  databases  in  order  to allow  account  representatives  to work
accounts more efficiently. Through interface with creditor computer systems, the
Company can efficiently  receive new account placements from customers daily and
provide frequent updates to customers on the status of accounts collections.  As
the Company  begins to provide  more  comprehensive  outsourcing  services,  the
Company becomes more integrated with its customers'  systems,  making  switching
vendors both costly and inefficient.

      Growth Through  Acquisitions.  The Company has built its position  through
strategic  acquisitions of accounts  receivable service providers in each of the
markets  in which it  participates.  The  Company  plans to  selectively  pursue
additional  acquisitions  which complement its existing services or increase its
customer base.

Services

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

      Contingent  Fee Services.  The Company is one of the largest  providers of
contingent fee services in the United States. The Company offers a full range of
contingent fee services,  including early-out programs and letter series, to all
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 64 call  centers in 27 states and  approximately  5,500  account
representatives, the Company has the ability to service large volume of accounts
with  national  coverage.  In addition to  traditional  contingent  fee services
involving  the placement of accounts over 120 days  delinquent,  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 less
than 120 days past due and earns a fixed fee per placed  account  rather  than a
percentage of realized  collections.  These programs require a greater degree of
technological  integration  between the Company  and its  customers,  leading to
higher  switching  costs.  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 as well.

      Portfolio  Purchasing  Services.  The Company offers portfolio  purchasing
services to a wide range of financial institutions, educational institutions and
retailers.  The Company purchases large and diverse portfolios of non-performing
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. Creditors 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.  Consumer loans
purchased include automobile receivables, mobile home receivables and commercial
real estate receivables.  The Company's most recent portfolio  acquisitions have
been  primarily  purchases  pursuant to the Company's  health club and bank card
forward  flow  agreements.  The  Company  continues  to pursue  acquisitions  of
portfolios in various  industries for both  individually  negotiated and forward
flow purchases.

In late 1997,  the Company  established  a sourcing  relationship  with  Sherman
Financial  Group,  L.L.C.   ("Sherman").   Sherman's  focus  was  singularly  on
developing a  distressed  debt  business on behalf of the  Company.  The Company
benefited from  Sherman's  existing  client  relationships,  industry  marketing
expertise,  pricing technology and negotiating  expertise with illiquid products
in "one-off" transactions. In 1999, the Company will establish its own portfolio
purchasing unit to broaden coverage across industries.  The unit will be located
in New York.

      Related  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 operational  expertise and call and data  management  technology by offering
the  following  services:  (1) contract  management,  through  which the Company
performs a range of accounts receivable management services at the customer's or
the Company's location,  (2) student loan billing,  whereby the Company provides
billing,  due diligence and customer service services,  (3) 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 (4) teleservicing,
whereby the company  offers  inbound and  outbound  calling  programs to perform
sales, customer retention programs, market research and customer service.

Sales and Marketing

The  Company  has a sales  force  of  approximately  100  sales  representatives
providing  comprehensive  geographic  coverage of the United  States on a local,
regional  and  national  basis.  The Company also markets its services in Puerto
Rico, Canada and Mexico. Each of the operating companies,  except TSI, maintains
its own sales  force  and have a  marketing  strategy  closely  tailored  to the
credit-granting   markets  that  it  serves.  TSI  utilizes   approximately  800
independent contractors to sell its prepaid letter series. 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. The Company,  through its established operating company
brand names, emphasizes its industry experience and reputation - two key factors
considered by creditors when selecting an accounts  receivable service provider.
Increasingly,  the  Company  will  focus  on  cross-selling  its  full  range of
outsourcing  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 by the corporate  office in  Chesterfield,
Missouri, which is also responsible for monitoring the sales performance of each
of the operating entities.

Customers

The  Company's  customer  base  includes  a full  range of local,  regional  and
national  creditors.  The Company's  customers include American  Express,  AT&T,
Bally's, Citicorp, Columbia House, First USA, New Jersey Department of Treasury,
Sears,  Sony, Time Warner,  US West and various  student loan guaranty  agencies
(including  the  California  Student  Aid  Commission,  the Great  Lakes  Higher
Education  Corporation  and USA Group  Guaranty  Services  Inc.).  The Company's
largest customer accounted for less than 6% of 1998 revenues.

Employees

The  company  employs  approximately  7,000  people,  of which 5,500 are account
representatives,    100   are   sales   representative   and   1,400   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 Company  procedures,  information  systems and  regulations
regarding contact with debtors.  The training includes technical topics, such as
use of on-line collection systems and skip-tracing techniques and tools, 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.  Nationwide,  there are approximately 6,000 debt collection service
companies  in  the  United  States,  with  the  10  largest  agencies  currently
accounting  for only 20% of industry  revenues.  Competition is based largely on
recovery rates,  industry experience and reputation and service fees. Due to the
competition, the Company in 1998 experienced contingent fee rate pressure. Large
volume creditors typically employ more than one accounts  receivable  management
company at one time, and often compare  performance  rate and rebalance  account
placements towards higher performing servicers.  The largest competitors include
Deluxe Corporation, Equifax Corporation, G.C. Services and NCO Group.

In late  1998,  the  Company's  primary  competitor  for  purchased  portfolios,
Commercial  Financial  Services,  declared  bankruptcy.  Although the  long-term
effects of this  bankruptcy are uncertain,  this  development  has increased the
Company's opportunities to purchase portfolios of debt.

Governmental Regulatory Matters

Certain of the  Company's  operations  are  subject to the FDCPA and  comparable
statutes 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 account  representatives  receive  extensive  training on these policies and
must pass a test on the FDCPA and the agents work in an open  environment  which
allows managers to monitor interaction with debtors.

In December 1998, Account Portfolios, Inc. and its subsidiary,  Perimeter Credit
L.L.C.,  entered into a consent decree with the Federal Trade Commission ("FTC")
to resolve an FTC  inquiry  into  whether  the two  companies  violated  certain
provisions of the FDCPA.  Both companies  cooperated fully with the FTC, did not
admit any wrongdoing and agreed to pay an amount not considered  material to the
Company's financial position or results of operations.

Environmental Matters

Current  operations  of OSI  and  its  subsidiaries  do not  involve  activities
affecting  the  environment.   However,   Union  is  party  to  several  pending
environmental  proceedings involving the Environmental Protection Agency ("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 Union  acquisition,  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  ("ROD") on February 6, 1998.
According  to the ROD, 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 is  $18.2  million,  which
represents  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. The Company periodically reviews all
known  environmental   claims,  where  information  is  available,   to  provide
reasonable assurance that adequate reserves are maintained.


ITEM 2.  PROPERTIES

As of December 31, 1998, the Company and its subsidiaries operated 73 facilities
in the U.S.,  all of which are  leased,  except  for  TSI's  administrative  and
certain  collection  offices,  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, 1998, 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. 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, 1998.


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

There were no matters  submitted to a vote of security holders during the fourth
quarter of the year ended December 31, 1998.


<PAGE>

PART II.

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

No public market currently exists for the Common Stock.

As of March 19,  1999,  there  were  approximately  20  holders of record of the
Common Stock.

The Company has not  declared  any cash  dividends on 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 Second  Amended and Restated  Credit  Agreement,  dated as of
January 26,  1998,  as amended,  by and among the  Company,  the Lenders  listed
therein,  Goldman Sachs Credit  Partners L.P. and the Chase  Manhattan  Bank, as
Co-Administrative   Agents,   Goldman  Sachs  Credit  Partners  L.P.  and  Chase
Securities, Inc., as Arranging Agents and Sun Trust Bank, Atlanta, as Collateral
Agent (the "Agreement")  contains certain  restrictions on the Company's ability
to declare or pay  dividends on its capital  stock.  Both the  Indenture and the
Agreement  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 as of December 31, 1997 and 1998 and for the three
years ended December 31, 1998. The audited financial  statements of OSI referred
to above are included elsewhere herein. The selected  historical  financial data
set  forth  below  as of and for the  year  ended  December  31,  1994 and as of
September 20, 1995 and for the period January 1, 1995 to September 20, 1995 have
been derived from the audited  financial  statements of API (as predecessor) not
included herein.  The selected  historical  financial data set forth below as of
December  31, 1995 and for the period  September  21, 1995 to December  31, 1995
have been  derived  from the audited  financial  statements  of OSI not included
herein.  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>

                                       API (as predecessor)                  OSI (as successor)
                                    --------------------------  -----------------------------------------    
                                                                   From
                                                      From      September 21
                                     Year Ended   January 1 to      To
                                    December 31,  September 20  December 31,     Year Ended December 31,
                                    ------------  ------------  ------------   ---------------------------                   
                                        1994          1995          1995        1996      1997        1998
                                        ----          ----          ----        ----      ----        ----
                                       ($ in thousands)
<CAPTION>
<S>                                    <C>         <C>            <C>        <C>       <C>         <C> 
Income Statement Data:
Operating revenue (a)..............    $39,292      $21,293       $ 8,311     $106,331  $271,683    $479,400
Salaries and benefits..............      2,646        4,471         2,079       46,997   133,364     230,114
Other operating expenses (b).......      8,790        7,343         8,953       80,357   156,738     221,598      
                                       -------      -------       -------     --------  --------    --------
Operating income (loss)............     27,856        9,479        (2,721)     (21,023)  (18,419)     27,688
Interest expense, net..............      2,599          495         1,361       12,131    28,791      50,627
Other expense......................        166            -             -            -         -           -
                                       -------      -------       -------     --------  --------    --------
Income (loss) before taxes.........     25,091        8,984        (4,082)     (33,154)  (47,210)    (22,939)
Provision for income taxes(benefit)          -            -        (1,605)     (11,757)   11,127         830
Minority interest..................          -            -             -            -         -         572
                                       -------      -------       -------     --------  --------    --------
Net income (loss)..................    $25,091      $ 8,984       $(2,477)    $(21,397) $(58,337)   $(24,341)
                                       =======      =======       =======     ========  ========    ========

Balance Sheet Data (at end of period):
Working capital....................    $16,897       $3,809       $22,438      $38,080   $18,558    $    795
Total assets.......................     22,941       11,272        85,652      355,207   381,690     618,491
Total debt.........................          -            -        36,462      247,616   324,966     528,148
Partners' capital/Stockholders equity
   (deficit).......................     22,162       10,559        42,448       51,598    (5,478)    (30,032)
Other Financial Data:
Amortization of purchased portfolios    $2,667       $2,308        $5,390      $27,317   $52,042(d) $ 50,703(e)
Other depreciation and amortization        102          167           331       18,281    33,574      30,007
Cash capital expenditures..........        463          574            97        2,606     9,489      13,480
Portfolio purchases................      6,800        5,502           903       10,373(f) 46,494      43,186
Cash flows from:
   Operating activities............     21,074        5,887         2,902       10,667    32,825      55,252
   Investing activities............       (463)       1,259       (31,007)    (200,435) (119,499)   (227,805)
   Financing activities............    (11,055)     (20,587)       29,574      202,796    75,394     178,150
EBITDA (c).........................     30,625       11,954         3,000       24,575    67,197     108,398
Adjusted EBITDA (c)................     18,465       11,954         3,000       25,775    67,197     108,398

</TABLE>

(a)1994 operating revenues include proceeds on sales of purchased  portfolios of
   $13,325.  The related  amortization  on the portfolios sold included in other
   operating expenses was $1,155. In addition,  transaction costs of $1,165 were
   incurred in  connection  with the sale and are  included  in other  operating
   expenses.
(b)Other operating  expenses include  telephone,  postage,  supplies,  occupancy
   costs,  data processing costs,  depreciation,  amortization and miscellaneous
   operating expenses.
(c)EBITDA is defined  as income  from  continuing  operations  before  interest,
   other expense, taxes, depreciation and amortization. Adjusted EBITDA reflects
   EBITDA as defined above  adjusted for proceeds from portfolio  sales,  net of
   transaction  costs,  of  $12,160  in 1994,  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. 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.
(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 RESULT
         OF OPERATIONS

Results of Operations

Year ended December 31, 1998 Compared to Year Ended December 31, 1997

Revenues for the year ended  December 31, 1998 were $479.4  million  compared to
$271.7 million for the year ended December 31, 1997 - an increase of 76.5%.  The
revenue  increase of $207.7  million was due primarily to increased fee services
and  portfolio  revenues of $17.8  million - an increase of 7.7% over last year,
and $193.3 million from the  acquisitions of Union,  NSA and ABC offset by lower
existing  business  outsourcing  revenue  of $3.4  million.  Revenues  from  fee
services  were $334.0  million for the year ended  December 31, 1998 compared to
$164.8 million for 1997. The increase in fee revenues was due to a 1.0% increase
in existing  business  and $167.9  million from the three  acquisitions.  In the
highly  competitive  contingent fee services  business,  during 1998 the Company
experienced  pressure on their  contingent fee rates coupled with lower bankcard
placements  due  to  credit  grantors   selling  them  resulting  in  less  than
anticipated  growth in  existing  business.  Revenue  from  purchased  portfolio
services  increased  to $84.3  million  for the year  ended  December  31,  1998
compared  to  $67.8  million  in 1997 - up  24.3%.  The  increased  revenue  was
attributable  to  both  higher   collection   revenue  and  strategic  sales  of
portfolios. The outsourcing revenue of $61.1 million compared favorably to prior
year of $39.1 million due primarily to the Union acquisition.

Operating  Expenses  for the year ended  December  31, 1998 were $451.7  million
compared to $290.1 million for the year ended December 31, 1997 - an increase of
55.7%.  Operating expenses,  exclusive of amortization and depreciation charges,
were $371.0  million  for the year ended  December  31, 1998  compared to $204.5
million in 1997. The increase in operating  expenses,  exclusive of amortization
and  depreciation  charges,  resulted from the expenses related to the increased
revenue  and  the  three  acquisitions.  Exclusive  of the  three  acquisitions'
operating  expenses,  operating  expenses  were up 4.4% over 1997. Of the $451.7
million in  operating  expenses  for the year ended  December  31,  1998,  $80.7
million was attributable to amortization  and  depreciation  charges compared to
$85.6  million in 1997.  Of the $80.7  million for the year ended  December  31,
1998, $50.7 million (including $3.0 million of additional amortization to reduce
its  investment  in a  limited  liability  corporation  - See  Note  10  to  the
Consolidated  Financial  Statements)  was  attributable  to  amortization of the
purchase  price of  purchased  portfolios  (compared  to $52.0  million  in 1997
including  $10.0  million  of  additional  amortization  to reduce a portion  of
purchased  portfolios to their  estimated fair value).  Amortization of goodwill
and other  intangibles  of $15.7 million was less than $24.8 million in 1997 due
to no account  placement  amortization  in 1998  ($16.7  million in 1997)  since
account placement  inventory was fully amortized as of December 31, 1997, offset
partially  by  additional   amortization  of  goodwill   related  to  the  three
acquisitions.  The increase in depreciation of $5.5 million from $8.8 million in
1997 to $14.3  million  in 1998 was  attributable  primarily  to the  additional
depreciation related to the three acquisitions.

As a result  of the  above,  the  Company  generated  operating  income of $27.7
million for the year ended  December 31, 1998  compared to an operating  loss of
$18.4 million for the year ended December 31, 1997.

Earnings before interest expense, taxes,  depreciation and amortization (EBITDA)
for the year ended  December  31,  1998 were  $108.4  million  compared to $67.2
million for 1997. The increase of $41.2 million  consisted of $35.9 million as a
result of the three  acquisitions and $5.3 million  primarily from $14.4 million
increased revenue from operations unrelated to the acquisitions.

Net  interest  expense for the year ended  December  31, 1998 was $50.6  million
compared to $28.8 million for 1997. The increase was primarily due to additional
indebtedness incurred to finance the Union, NSA and ABC acquisitions.

The provision for income taxes of $0.8 million was primarily  provided for state
income taxes as the Company will have an  obligation in some states for the year
ended December 31, 1998. In the fourth  quarter of 1997, the Company  recorded a
net valuation allowance 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 net
deferred  tax assets will be realized.  Recording  the net  valuation  allowance
against the net deferred tax assets  resulted in the 1997  provision  for income
taxes of $11.1 million.

Minority  interest in 1998 resulted from the Union  acquisition.  On January 23,
1998, the Company acquired  approximately  77% of the outstanding a 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 net loss for the year ended  December 31,
1998 was $24.3 million compared to $58.3 million for the year ended December 31,
1997 - an improvement of $34.0 million.

Year Ended December 31, 1997 Compared to Year Ended December 31, 1996

Revenues  for the twelve  months  ended  December  31, 1997 were $271.7  million
compared to $106.3 million for the year ended  December 31, 1996.  Revenues from
fee services were $164.8  million for the year ended  December 31, 1997 compared
to $54.9  million in 1996.  The  increase  in fee  revenues  was a result of the
acquisitions  of Payco in November 1996, the  acquisition of NSA in October 1997
and the acquisition of ABC in November 1997.  Revenues  generated from purchased
portfolios  services  increased to $67.8 million for the year ended December 31,
1997 compared to $45.6 million for the  comparable  period in 1996. The increase
in collections from purchased  portfolios resulted primarily from an increase in
purchased portfolio levels and related collection efforts and to a lesser extent
from the Payco  acquisition.  Outsourcing  services revenues of $39.1 million in
1997 compared  favorably to 1996 outsourcing  revenue of $5.8 million due to the
Payco acquisition.

Operating  Expenses  for the year ended  December  31, 1997 were $290.1  million
compared to $127.4  million for 1996, an increase of $162.7  million.  Operating
expenses,  exclusive  of  amortization  and  depreciation  charges,  were $204.5
million  for the  year  ended  December  31,  1997  and  $80.8  million  for the
comparable period in 1996. Operating expenses increased as a result of the Payco
acquisition  as well as the use of  outside  collection  agencies  to  service a
portion of purchased portfolios.  Of the $290.1 million in expenses for the year
ended December 31, 1997,  $52.0 million  (including  $10.0 million of additional
amortization to reduce a portion of purchased portfolios to their estimated fair
value - See Note 14 to the Consolidated  Financial  Statements) was attributable
to amortization of the purchase price of purchased portfolios (compared to $27.3
million  1996),  $16.7  million  was  attributable  to  amortization  of account
inventory  (compared to $12.3 million in 1996), $8.1 million was attributable to
amortization  of  goodwill  associated  with the  acquisitions  of API,  Miller,
Continental, Payco, NSA and ABC (compared to $3.2 million in 1996), $8.8 million
was  attributable  to  depreciation  (compared  to $2.8  million  in 1996).  The
increase in amortization and  depreciation  expense was the result of additional
goodwill and step-up in basis of fixed assets  recorded in  connection  with the
Payco acquisition.

Operating Loss for the year ended  December 31, 1997 was $18.4 million  compared
to $21.0 million for the  comparable  period in 1996.  The operating  loss was a
result of  increased  amortization  related to the step-up in basis of purchased
portfolios  related  to the API  acquisition,  goodwill  and  account  placement
inventory related to the acquisition of Payco.

EBITDA for the year ended December 31, 1997 was $67.2 million  compared to $24.6
million for the  comparable  period in 1996.  The  increase of $42.6  million in
EBITDA reflects  additional  revenues associated with the acquisitions of Payco,
NSA and ABC and  additional  portfolios  at API,  partially  offset by the costs
associated  with the use of outside  collection  agencies  to service  purchased
portfolios.

Net  Interest  Expense for the year ended  December  31, 1997 was $28.8  million
compared to $12.1 million for the  comparable  period in 1996.  The increase was
primarily due to increased debt incurred in 1997 to finance the  acquisitions of
Payco, NSA and ABC and to finance additional purchased portfolio purchases.

Net Loss for the year ended  December  31,  1997 was $58.3  million  compared to
$21.4 million for the  comparable  period in 1996.  The increase in net loss was
attributable  to  increased  amortization  expense  from the step-up in basis of
acquired  portfolios  related  to the  API  acquisition,  goodwill  and  account
placement  inventory  recorded in connection with the acquisition of Payco,  the
increase in interest expense related to the indebtedness incurred to finance the
Payco,  NSA and ABC  acquisitions  and  portfolio  purchases and a provision for
income  taxes of  $11.1  million  as a result  of the  Company  recording  a net
valuation allowance of $32.4 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 net deferred tax assets will be realized.

Liquidity and Capital Resources

At December 31, 1998, the Company had cash and cash equivalents of $8.8 million.
The Company's  credit  agreement  provides for a $58.0 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, 1998, the Company had outstanding $25.5 million under the revolving
credit  facility  leaving $30.9 million,  after  outstanding  letters of credit,
available under the revolving credit facility.

Cash and Cash  Equivalents  increased  from $3.2 million at December 31, 1997 to
$8.8 million at December 31, 1998 principally due to cash provided by operations
and  financing  activities of $55.2  million and $178.2  million,  respectively,
offset by the use of $227.8 million for investing  activities  primarily for the
acquisition of Union, capital  expenditures and the purchase of portfolios.  The
cash provided by financing  activities  was primarily due to the $225.0  million
additional  indebtedness  to fund the Union  acquisition.  The Company also held
$22.4 million of cash for clients in restricted  trust  accounts at December 31,
1998.

Purchased Loans and Accounts Receivable  Portfolios decreased from $62.5 million
at December  31, 1997 to $55.5  million at December  31, 1998 due  primarily  to
amortization  of purchased  portfolios of $50.7 million offset  partially by new
portfolio purchases of $43.2 million. The amount of purchased loans and accounts
receivable  portfolios  which are  projected to be  collectible  within one year
decreased  from $42.9  million at December 31, 1997 to $35.1 million at December
31, 1998.

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, 1998 and  December  31, 1997 by type of
receivable is shown below:

<TABLE>
                             December 31, 1998                      December 31, 1997  
                    ------------------------------------   ------------------------------------
                    Original Gross                         Original Gross
                    Principal Value   Current  Long-term   Principal Value  Current   Long-term 
                    ---------------   -------  ---------   ---------------  -------   ---------
                     (in millions)      (in thousands)      (in millions)      (in thousands)

<S>                      <C>           <C>       <C>           <C>          <C>        <C>    
Consumer loans......     $2,114        $ 5,871   $ 5,744       $2,039       $ 8,978    $ 4,948
Student loans.......        328          2,688        94          322         4,629          -
Credit cards........        897         15,020    11,469          509        12,575     10,765
Health clubs........      1,460          9,946     2,283        1,309        15,307      2,248
Commercial..........        129          1,532       846           41         1,426      1,576
                         ------        -------   -------       ------       -------    -------
                         $4,928        $35,057   $20,436       $4,220       $42,915    $19,537
                         ======        =======   =======       ======       =======    =======
</TABLE>

Net  deferred  taxes was an asset of $0.4  million  at  December  31,  1997.  At
December 31, 1998, net deferred taxes was zero due to a net valuation  allowance
of $68.3  million.  The net  deferred  tax  balances  at  December  31, 1998 and
December 31, 1997 relate  principally  to net operating loss  carryforwards  and
future  temporary  deductible  differences.  The  realization  of this  asset is
dependent on  generating  sufficient  taxable  income prior to expiration of the
loss  carryforwards in years through 2018. At December 31, 1998, the Company has
a cumulative  net valuation  allowance of $68.3 million to reflect  management's
assessment,  based on the  weight  of the  available  evidence  of  current  and
projected of future book taxable income,  that there is significant  uncertainty
that any of the benefits from the net 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.  During  1998,  the  Company has
significantly  increased its total debt from $325.0 million at December 31, 1997
to $528.1 million at December 31, 1998. This increase in debt primarily resulted
from the acquisition of Union. Since the Company has a history of generating net
operating losses and has  significantly  increased its total interest expense to
be incurred,  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,  could be increased in future years if estimates of future
taxable income during the carryforward period change.

The  Company's  current debt  structure at December 31, 1998  consists of $422.1
million bank credit facility,  $100.0 million 11% Senior Subordinated Notes (the
"Notes") and other indebtedness of $6.0 million.  See Note 6 of the Consolidated
Financial  Statements of OSI included  elsewhere herein for a description of the
amended credit agreement, effective January 1998.

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
expense 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 the fourth quarter of 1998, a qualifying 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.  This
arrangement will provide the Company expanded portfolio purchasing capability in
a very opportunistic buying market.

Capital  expenditures  for the year ended  December 31, 1998 were $13.5 million.
The Company expects to spend approximately $17.5 million on capital expenditures
(exclusive  of any  expenditures  in  connection  with  acquisitions)  in  1999.
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.

Inflation

The Company believes that inflation has not had a material impact on its results
of operations for the years ended December 31, 1998, 1997 and 1996.

Year 2000

As the Year 2000 approaches,  many corporate systems worldwide could malfunction
or  produce   incorrect   results  because  they  cannot  process   date-related
information  properly.  Dates play a key role in dependable  functioning  of the
software applications,  software systems, information technology infrastructure,
and  embedded  technology  (i.e.,  non-technical  assets such as time clocks and
building  services)  the  Company  relies  upon  in  day-to-day  operations  for
innumerable tasks. This includes any tasks requiring  date-dependent  arithmetic
calculations, sorting and sequencing data, and many other functions.

The Company  identified  this  problem as a key focus during 1997 and as part of
any subsequent due-diligence procedures related to acquisitions completed during
1998.  The Company has assessed the impact of Year 2000 issues on the processing
of date-related  information for all of its information  systems  infrastructure
(e.g.,  production  systems) and significant  non-technical  assets.  As the new
millennium  approaches,  the Company has developed  and  implemented a Year 2000
program to deal with this  important  issue in an effective  and timely  manner.
This problem has received significant senior management attention and resources.
Management  reviews  have been held on this  topic.  During  1998 and 1999,  the
Company's  Board of Directors  received and will  continue to receive  quarterly
presentations at each regular Board meeting regarding the Company's overall Year
2000 compliance status and readiness.

An  independent  consulting  firm  has  been  retained  to  provide  independent
verification and testing of the production  systems.  Under the direction of the
Company's Senior Vice President and Chief Information  Officer,  the Company has
established a program management structure, a management process and methodology
and proactive  client and vendor  management  strategies to manage the Year 2000
risk.

Because  many  of the  Company's  client  relationships  are  supported  through
computer-system  interfaces,  it is critical that the Company works  proactively
with its clients to achieve Year 2000 compliance.  The Company has established a
proactive  client  management  strategy  focused on enabling the Company to work
together with clients to assure Year 2000 compliance between respective computer
systems.

The  implementation  of the client  management  strategy was  commenced in 1998.
Letters  were sent to  significant  clients,  inquiring  about  their  Year 2000
compliance  plans and status.  The Company has  established a follow-up  process
with each key client, taking a proactive, customer-focused approach to achieving
Year 2000 compliance with its customers.

The Company has also  communicated  with its  strategic  suppliers and equipment
vendors,  including suppliers of non-technical  assets,  seeking assurances that
they and their products will be Year 2000 ready. The Company's goal is to obtain
as much  detailed  information  as possible  about its  strategic  suppliers and
equipment  vendors' Year 2000 plans to identify those  companies which appear to
pose any significant risk of failure to perform their obligations to the Company
as a result of the Year 2000.  The Company  has  compiled  detailed  information
regarding all of its strategic suppliers and equipment vendors.  This will be an
ongoing process during the Year 2000 project.  For those strategic suppliers and
equipment vendors whose response was not satisfactory, the Company has developed
contingency plans to ensure that sufficient  alternative resources are available
to continue with business operations.

The  target  date for  completion  of all  production  systems  and  significant
non-production systems (e.g.,  predictive dialer systems,  phone switches,  wide
area network hardware),  including non-technical assets, is May 1999. Testing is
well underway for all systems with  completion  anticipated  to be no later than
mid-1999.

Spending for modifications and updates are being expensed as incurred and is not
expected to have a material  impact on the results of  operations or cash flows.
The cost of the  Company's  Year 2000  project is being  funded  from cash flows
generated  from  operations.  The  Company  estimates  that its total  Year 2000
expenses will be in the range of $1.4 to $1.6 million.  To date, the Company has
expended  approximately  $1.0 million,  primarily for contract  programmers  and
consulting costs  associated with the evaluation,  assessment and remediation of
computer systems.

The Company is dependent  upon its own internal  computer  technology and relies
upon the timely  performance of its suppliers and customers and their systems. A
substantial  part of the Company's  day-to-day  operations is dependent on power
and  telecommunications  services, for which alternative sources of services may
be limited.  A large-scale Year 2000 failure could impair the Company's  ability
to provide  timely  performance  results  required by the  Company's  customers,
thereby causing potential liability,  lost revenues and additional expenses, the
amounts which have not been estimated.  The Company's Year 2000 project seeks to
identify  and  minimize   this  risk  and  includes   testing  of  its  in-house
applications,  purchased  software  and hardware to ensure that all such systems
will  function  before  and after the Year  2000.  The  Company  is  continually
refining  its  understanding  of the risk the Year 2000  poses to its  strategic
suppliers and customers  based upon  information  obtained  through its surveys.
This refinement will continue through 1999.

The Company's Year 2000 project  includes the  development of contingency  plans
for business critical systems,  as well as for strategic suppliers and customers
to attempt to minimize  disruption to its operations in the event of a Year 2000
failure.  The Company will be formulating  plans to address a variety of failure
scenarios,  including failures of its in-house applications, as well as failures
of strategic  suppliers  and  customers.  The Company  anticipates  that it will
complete Year 2000 contingency planning by mid-1999.

New Accounting Pronouncements

In June 1998,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting Standard No. 133, Accounting for Derivative Instruments and
Hedging Activities, which is effective for fiscal years beginning after June 15,
1999. The statement  provides a  comprehensive  and consistent  standard for the
recognition and measurement of derivatives and hedging  activities.  The Company
has not  determined the impact on the  consolidated  statement of operations and
consolidated balance sheet.

In March 1998,  the AICPA issued  Statement of Position No. 98-1  Accounting for
the Costs of Computer  Systems  Developed  or Obtained  for  Internal  Use ("SOP
98-1"),  which is effective for fiscal years  beginning after December 15, 1998.
SOP 98-1  provides  guidelines  for  capitalization  of  developmental  costs of
proprietary  software and  purchased  software for internal use. The adoption of
SOP 98-1 is not expected to have a material impact on the consolidated statement
of operations and consolidated balance sheet.

Forward-Looking Statements

The following statements in this 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 cost and successful
implementation of the Company's Year 2000 initiatives, (2) statements concerning
the  anticipated  costs  and  outcome  of legal  proceedings  and  environmental
liabilities,  (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) the status and  effectiveness  of the Company's  Year 2000
efforts,  (8) legal proceedings,  (9) environmental  investigations and clean up
efforts,  (10)  the  Company's  ability  to  rationalize  operations  of  recent
acquisitions,  and (11) 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.

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 cap,  collar and 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  derivative
financial  instruments  and other  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 caps,  swap and collars,  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
                                                     1999     2000      2001      2002    2003   Thereafter  Total    Value
                                                     ----     ----      ----      ----    ----   ----------  -----    -----
<S>                                                 <C>       <C>       <C>       <C>      <C>      <C>      <C>      <C>   
Liabilities
Long-term debt, including current portion
  Fixed rate ....................................     -         -         -         -        -      $100.0   $100.0    $95.3
  Average interest rate..........................    11.0%     11.0%     11.0%     11.0%    11.0%     11.0% 
 
  Variable rate .................................   $16.0     $19.8     $47.3     $51.0    $68.8    $219.2   $422.1   $422.1
  Average interest rate .........................    (1)       (1)       (1)       (1)      (1)       (1)

Interest Rate Derivative Financial Instruments Related to Debt
Interest Rate Caps
  Notional amount ...............................   $50.0       -         -         -        -         -      $50.0      $.1
  Strike rate ...................................     7.3%      -         -         -        -         -
  Forward rate ..................................    (2)        -         -         -        -         -

Interest Rate Swap
  Pay Fixed/Receivable Variable .................     -         -       $32.0       -        -         -       $32.0    $(.7)
  Average pay rate ..............................     6.1%      6.1%      6.1%      -        -         -
  Average receive rate...........................    (2)       (2)       (2)        -        -         -

Interest Rate Collars
  Notional amount ...............................     -         -       $35.0     $33.0      -         -      $68.0    $(1.1)
  Strike cap rate ...............................     -         -         6.5%      6.5%     -         -
  Strike floor rate .............................     -         -         5.6%      5.3%     -         -
  Forward rate ..................................    (2)       (2)       (2)       (2)       -         -

(1) - Three month LIBOR (5.3% at December 31, 1998) plus weighted-average margin of 2.9%. 
(2) - Three month LIBOR
</TABLE>


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

None


<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  
------------------------          ---      -----------------------------------
Jeffrey E. Stiefler               52       Chairman of the Board of Directors
Timothy G. Beffa                  48       Director, President and
                                               Chief Executive Officer
David E. De Leeuw                 54       Director
David E. King                     40       Director, Secretary and Treasurer
Tyler T. Zachem                   33       Director and Vice President
David G. Hanna                    35       Director
Frank J. Hanna, III               37       Director
Nathan W. Pearson, Jr.            48       Director
Robert A. Marshall                58       Director
William B. Hewitt                 60       Director
Courtney F. Jones                 59       Director
Daniel J. Dolan                   46       Executive Vice President and
                                               Chief Financial Officer
Michael A. DiMarco                41       Executive Vice President -
                                               President Fee Services
C. Bradford McLeod                50       Senior Vice President,
                                               Human Resources
Patrick Carroll                   56       Senior Vice President,
                                               National Accounts

Jeffrey E. Stiefler (52),  Chairman of the Board of Directors  since January 10,
1996.  Previously,  Mr. Stiefler was President and Director of American  Express
Company,  where he had  previously  served in  various  capacities  since  1983,
including President and Chief Executive Officer of IDS Financial Services. Prior
to joining the Company,  Mr.  Stiefler held various  positions  with the Meritor
Financial Group,  including Chairman of the Meritor Savings Bank Florida and the
Meritor Savings Bank Washington D.C., and Citicorp, including Vice President and
Regional  Business  Manager of the New York  Banking  Division  and Senior  Vice
President and Regional Business Manager of Nationwide  Financial  Services.  Mr.
Stiefler currently serves as a director of Safeskin Corporation and chairman and
Chief Executive Officer of International Data Response Corporation.

Timothy G. Beffa  (48),  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.  Mr. Beffa
currently serves as a director of DIMAC Holdings, Inc.

David E. De Leeuw (54), Director of the Company since September 21, 1995. Mr. De
Leeuw is a managing  general partner of MDC Management  Company III, L.P., which
is the general  partner of McCown De Leeuw & Co. III, L.P. and McCown De Leeuw &
Co. III (Europe),  L.P., a managing  general  partner of MDC Management  Company
IIA,  L.P.,  which is the  general  partner of McCown De Leeuw & Co. III (Asia),
L.P. and a member of Gamma Fund,  LLC.  Prior to founding  McCown De Leeuw & Co.
with  George E.  McCown  in 1984,  Mr. De Leeuw  was  Manager  of the  Leveraged
Acquisition  Unit and Vice  President in the Capital  Markets Group at Citibank,
N.A.  Mr. De Leeuw also  worked  with W.R.  Grace & Co.  where he was  Assistant
Treasurer and manager of Corporate Finance.  Mr. De Leeuw began his career as an
investment  banker with Paine  Webber  Incorporated.  He  currently  serves as a
director of DIMAC  Holdings,  Inc.,  Aurora Foods Inc. and American  Residential
Investment Trust.

David E. King (40),  Secretary,  Treasurer  and  Director of the  Company  since
September 21, 1995. Mr. King is a general partner of MDC Management Company III,
L.P.,  which is the  general  partner of McCown De Leeuw & Co.  III,  L.P.,  and
McCown De Leeuw & Co.  Offshore  (Europe)  III,  L.P.  a general  partner of MDC
Management Company IIIA, L.P., which is the general partner of McCown De Leeuw &
Co.  III  (Asia),  L.P.  and a member  of Gamma  Fund,  LLC.  Mr.  King has been
associated  with McCown De Leeuw & Co.  since  1990.  He  currently  serves as a
director of DIMAC  Holdings,  Inc.,  Fitness  Holdings Inc.,  RSP  Manufacturing
Corporation and Sarcom.

Tyler T. Zachem (33), Vice President and Director of the Company since September
21, 1995. Mr. Zachem is a special limited partner of MDC Management Company III,
which is the general partner of McCown De Leeuw & Co. III; and McCown De Leeuw &
Co. III (Europe),  L.P., and a special limited partner of MDC Management Company
IIIA,  L.P.,  which is the general  partner of McCown De Leeuw & Co. III (Asia),
L.P. Mr. Zachem has been  associated with McCown De Leeuw & Co. since July 1993.
Mr.  Zachem  previously  worked as a  consultant  with  McKinsey & Co. and as an
investment banker with McDonald & Company.  He currently serves as a director of
RSP Manufacturing  Corporation,  The Brown Schools,  Inc., Aurora Foods Inc. and
Papa Gino's Inc.

David G. Hanna (35),  Director of the Company since  September  21, 1995.  Since
1992,  Mr. Hanna has served as President of HBR  Capital,  Ltd.,  an  investment
management  company.  Mr. Hanna is also  President  and Chairman of the Board of
CompuCredit  Corporation  and has served in such capacity since its inception in
1996. David G. Hanna is the brother of Frank J. Hanna, III.

Frank J. Hanna,  III (37),  Director of the Company  since  September  21, 1995.
Since 1992,  Mr.  Hanna has served as Chief  Executive  Officer of HBR  Capital,
Ltd., an investment  management company.  Mr. Hanna also serves as a director of
Cerulean Companies, Inc. Frank J. Hanna, III is the brother of David G. Hanna.

Nathan W.  Pearson,  Jr.  (48),  Director  of the Company  since July 1997.  Mr.
Pearson is an operating  affiliate of McCown De Leeuw & Co. Mr. Pearson has been
affiliated  with McCown De Leeuw since 1997.  Since 1996,  Mr.  Pearson has been
Managing Director of Commonwealth Holdings, a private investment firm. From 1988
to 1995, Mr. Pearson was Executive Vice President and Chief Financial Officer of
Broadcasting Partners,  Inc., a radio broadcasting leveraged buyout organization
and since 1995, Mr. Pearson has been a principal of investment and management of
Broadcasting Partners,  Inc. Prior to joining Broadcasting  Partners,  Inc., Mr.
Pearson was a management consultant with McKinsey and Company from 1982 to 1988.

Robert A.  Marshall  (58),  Director of the Company  since  February  1998.  Mr.
Marshall is President and Chief  Operating  Officer of Arcadia  Financial,  Inc.
since  February  1999.  He is a  director  and has been a  director  of  Arcadia
Financial, Ltd. since March 1997. Prior to joining Arcadia Financial,  Ltd., Mr.
Marshall served as a consultant to the financial services industry. From 1989 to
January 1997, Mr.  Marshall  served in various  leadership  positions at Advanta
Corporation.  He currently serves as a director of Trajecta Inc. and Chairman of
the Board of Impact Services, Inc.

William B. Hewitt (60),  Director of the Company since February 1998. Mr. Hewitt
currently  serves as a consultant to the Company  since January 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. are subsidiaries of Union.

Courtney F. Jones (59), Director of the Company since April 1998. He is Managing
Director in charge of the New World  Banking Group of Bankers  Trust.  Mr. Jones
has been a director of RSP Manufacturing  Corporation since March 1998,  Medical
Manager  Corporation  since April 1997, and First Data  Corporation  since April
1992. He was a Managing Director in Merrill Lynch's  Investment Banking Division
from July 1989 to December  1990.  Prior thereto,  he served as Chief  Financial
Officer,  Executive  Vice  President  and a member of the Board of Directors for
Merrill  Lynch & Co. Inc.  from October  1985.  From  February 1982 to September
1985,  Mr. Jones served as Treasurer and  Secretary of the Finance  Committee of
the Board of Directors  of General  Motors  Corporation.  He also was formerly a
director of General Motors  Acceptance  Corporation and General Motors Insurance
Company.

Daniel J. Dolan (46),  Executive Vice President and Chief  Financial  Officer of
the Company  since  October  1997.  Mr. Dolan has 23 years  experience in public
accounting,  the last 11 years as a  partner  of Ernst & Young  LLP.  Mr.  Dolan
resigned from the Company effective February 28, 1999.

Michael A. DiMarco (41),  Executive  Vice  President - President Fee Services of
the Company since  September  1998.  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.

C. Bradford McLeod (50),  Senior Vice President,  Human Resources of the Company
since  September  1998. Mr. McLeod has over 20 years of diverse  strategic human
resources experience.  From 1997 until September 1998, Mr. McLeod served as Vice
President of Human Resources for LCC  International,  a supplier of products and
services to the wireless  communications  industry. From 1994 to 1997, he served
as Vice President of Human  Resources for a $500 million  division of Pulte Home
Corporation,  the country largest builder of residential housing. Earlier in his
career, Mr. McLeod held senior human resources  positions with Deloitte & Touche
LLP and Frito Lay, a division of PepsiCo.

Patrick  Carroll (56),  Senior Vice President,  National  Accounts since October
1996.  From 1988 until  October  1996,  Mr.  Carroll  served as a  director  and
Executive  Vice  President of Sales and Marketing for Payco.  Mr. Carroll joined
Payco in 1964 and served in both production and sales positions.




<PAGE>

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 for
the years ended December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>

                                             Summary Compensation Table 
                       -------------------------------------------------------------------                           
                                                                 Long Term
                                                 Other Annual   Compensation    All Other
Name and                      Salary     Bonus   Compensation   Awards        Compensation
Principal Position     Year     ($)       ($)        ($)        Options (#)       ($)        
------------------     -----  -------   ------   ------------  -------------  ------------
<S>                   <C>    <C>       <C>        <C>          <C>           <C>     
Timothy G. Beffa (1)   1998   350,000   405,300
President and CEO      1997   320,110   457,500                  41,555
                       1996   103,846   200,000                 131,421.66

Daniel J. Dolan (2)    1998   260,000      -(2)                                  6,384(3)
Executive Vice         1997    56,571   130,000                  75,000
  President and CFO

Patrick Carroll        1998   225,000    79,700    25,277(4)
Senior Vice President, 1997   186,875    60,000                  25,000
   National Accounts   1996   120,000   200,000                                267,000(5)

Michael A. DiMarco(6)  1998   108,337   220,000    14,491(4)
Executive Vice
   President - President
   Fee Services

C. Bradford McLeod(7)  1998    52,390    95,000    15,848(4)
Senior Vice
   President, Human
   Resources

</TABLE>

(1)  1996 compensation based on an annual salary of $300,000.
(2)  Mr. Dolan resigned effective February 28, 1999. 1997 compensation  based on
     an annual salary of $260,000.
(3)  Represents split dollar life  insurance and long-term  disability  premiums
     paid  by  the Company. Upon  termination  of  split  dollar  life insurance
     policy, residual cash  surrender  value (cash surrender value less premiums
     paid) is returned to the executive officer.
(4)  Payment of taxes by the Company for includable W-2 relocation expenses.  
(5)  Represents  value  of stock acquired in connection  with the acquisition of
     Payco by the Company
(6)  Based  on an annual salary of $325,000.  Mr. DiMarco was hired in September
     1998.
(7)  Based  on an  annual salary of $175,000.  Mr. McLeod was hired in September
     1998.

Employment Agreements

On September 1, 1997, OSI entered into an amendment to the employment  agreement
with Timothy G. Beffa. Pursuant to the employment agreement, Mr. Beffa serves as
Chief Executive Officer of the Company. On December 31 of each year, the term of
the employment agreement is automatically extended for an additional year unless
either party gives 30 days advance termination notice. If the Company terminates
Mr.  Beffa's  employment  without  "cause" (as defined in the  agreement) or the
Company  does not  agree to  extend  the  employment  term  upon the  expiration
thereof,  Mr.  Beffa would be  entitled to receive an amount  equal to his total
cash  compensation  (base salary plus bonus) for the preceding year and continue
to receive  medical and dental health  benefits for one year. Mr. Beffa received
an annual  salary of $350,000  and  received a bonus of $405,300 for fiscal year
1998. Starting in fiscal year 1998, Mr. Beffa is eligible for an annual bonus of
up to 150% of his annual  base  salary.  Effective  October 9, 1996,  Mr.  Beffa
received options to purchase  131,421.66  shares of common stock of the Company,
which  options  vest  eight  years  from  date of  grant  or  earlier  upon  the
satisfaction  of certain  performance  targets  and/or the occurrence of certain
liquidity  events.  Effective  March 14,  1997,  Mr. Beffa  received  additional
options to purchase up to 41,555  shares of common stock of the  Company,  which
also vest eight  years from date of grant or earlier  upon the  satisfaction  of
certain performance targets and/or the occurrence of certain liquidity events.

On October 16, 1997,  OSI entered into an  employment  agreement  with Daniel J.
Dolan. Pursuant to the employment agreement, Mr. Dolan served as Chief Financial
Officer of the  Company.  Mr.  Dolan  received an annual  salary of $260,000 for
fiscal year 1998.  Commencing in fiscal year 1998, Mr. Dolan was eligible for an
annual  bonus  with a target of 66-2/3% of his  annual  base  salary.  Effective
December 2, 1997, Mr. Dolan received options to purchase 75,000 shares of common
stock of the  Company,  such  options  vest  eight  years  from date of grant or
earlier  upon  the  satisfaction  of  certain  performance  targets  and/or  the
occurrence of certain liquidity events.  Effective  February 28, 1999, Mr. Dolan
resigned  from the Company and, upon his  resignation,  forfeited the options to
acquire  75,000  shares.  Although Mr. Dolan's  employment  agreement  contained
severance provisions similar to those in Mr. Beffa's employment  agreement,  Mr.
Dolan will not receive severance payments because he voluntarily resigned.

On September 1, 1998,  OSI entered into an employment  agreement with Michael A.
DiMarco.  Pursuant to the employment agreement,  Mr. DiMarco serves as Executive
Vice  President  President  Fee Services of the Company.  On December 31 of each
year,  the term of the  employment  agreement is  automatically  extended for an
additional year unless either party gives 30 days advance termination notice. If
the Company  terminates Mr. DiMarco's  employment without "cause" (as defined in
the agreement) or the Company does not agree to extend the employment  term upon
the expiration  thereof,  Mr. DiMarco would be entitled to receive (i) an amount
equal to his salary for the preceding  year,  and (ii) medical and dental health
benefits  for one year.  The Company also agreed to  reimburse  Mr.  DiMarco for
normal moving and relocation expenses to relocate his residence to St. Louis and
for income  taxes  payable  for him as a result of such  moving  and  relocation
expenses.  In addition,  the Company advanced Mr. DiMarco $117,000 to facilitate
his relocation. Mr. DiMarco receives an annual salary of $325,000 and received a
bonus of $220,000  for fiscal  year 1998.  Commencing  in fiscal year 1999,  Mr.
DiMarco is eligible  for an annual bonus with a target of 67% of his annual base
salary.

On September 14, 1998, OSI entered into an employment agreement with C. Bradford
McLeod.  Pursuant to the employment agreement,  Mr. McLeod serves as Senior Vice
President, Human Resources of the Company. On December 31 of each year, the term
of the employment  agreement is  automatically  extended for an additional  year
unless  either party gives 30 days advance  termination  notice.  If the Company
terminates Mr. McLeod's employment without "cause" (as defined in the agreement)
or the Company does not agree to extend the employment  term upon the expiration
thereof,  Mr.  McLeod  would be entitled  to receive (i) an amount  equal to his
salary for the preceding  year,  (ii) medical and dental health benefits for one
year, and (iii)  reasonable  outplacement  services for one year. If, within two
years of his  employment  with the Company,  certain  types of liquidity  events
occur or if Mr.  Beffa  no  longer  serves  as Chief  Executive  Officer  of the
Company,  Mr. McLeod would also be entitled to terminate his employment with the
Company  and  receive  these  severance  benefits.  The  Company  also agreed to
reimburse Mr. McLeod for normal moving and  relocation  expenses to relocate his
residence to St.  Louis,  for  duplicate  housing  expenses for up to six months
after he  purchased a residence  in the St.  Louis  area,  and for income  taxes
payable for him as a result of such moving and relocation expenses. In addition,
the Company  advanced Mr. McLeod  $148,000 to  facilitate  his  relocation.  Mr.
McLeod receives an annual salary of $175,000 and received a bonus of $95,000 for
fiscal year 1998.  Commencing in fiscal year 1999, Mr. McLeod is eligible for an
annual bonus with a target of 50% of his annual base salary.

Director Compensation

Non-employee  directors of OSI 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 plus,  in each case,  reimbursement  for travel and
out-of-pocket  expenses  incurred  in  connection  with  attendance  at all such
meetings.  Except as  described  below,  no director of OSI  receives  any other
compensation  from OSI for  performance  of services as a director of OSI (other
than reimbursement for travel and out-of-pocket  expenses incurred in connection
with attendance at Board of Director meetings). Effective February 16, 1996, the
Company's  Chairman of the Board,  Mr.  Stiefler,  received  options to purchase
23,044  shares of common  stock of the Company,  which  options vest eight years
from date of grant or  earlier  upon the  satisfaction  of  certain  performance
targets and/or the occurrence of certain liquidity events. Mr. Stiefler receives
an annual salary of $150,000.  Effective  February 24, 1998,  Mr. Hewitt and Mr.
Marshall each received  options to purchase  3,000 shares of common stock of the
Company.  Effective May 28, 1998, Mr. Jones  received  options to purchase 3,000
shares of common stock of the Company. These options time-vest over a three year
period.

Option Plans

The  Company  maintains  a 1995 Stock  Option and Stock  Award Plan (the  "Stock
Option  Plan").  The  Stock  Option  Plan is  administered  by the  Compensation
Committee of the Board of Directors of the Company. Under the Stock Option Plan,
the  Compensation  Committee may grant or award (a) options to purchase stock of
the Company (which 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),  (b) stock  appreciation  rights  granted in
conjunction with stock options,  (c) restricted stock, or (d) bonuses payable in
stock, to key salaried employees of the Company, including officers.

A total of  750,000  shares of common  stock of the  Company  are  reserved  for
issuance under the Stock Option Plan. As of March 19, 1999,  options to purchase
up to 483,820.66  shares of the Company's common stock are outstanding under the
Stock Option Plan.

During 1998, there were no stock option awards to, or stock option exercises by,
any of the Company's  executive  officers.  As of March 19, 1999,  the following
table sets forth options held by the current executive officers:

                            # of Options     Exercisable     Unexercisable
Timothy G. Beffa             172,976.66         34,595        138,381.66
President and CEO

Patrick Carroll                  25,000          5,000            20,000
Senior Vice President,
  National Accounts

There is no trading market for the Company's common stock.

Committee Report on Executive Compensation

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

The Company's executive  compensation  program is 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.  Bonuses for 1998 were determined by the Compensation  Committee in March
1999 and paid shortly thereafter.  The amount of bonuses earned by the Company's
executive officers were determined by the Compensation  Committee based upon the
performance of each executive during the year and the performance of the Company
against  pre-established  earnings  before  interest,  taxes,  depreciation  and
amortization ("EBITDA") goals.

The Company has entered into an  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 1998 was $350,000 and his bonus target
potential was $525,000,  150% of his 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 1998, Mr. Beffa's
bonus was determined  based upon the following two factors,  which were weighted
as indicated:  the Company's  performance against  pre-established  EBITDA goals
(70%),  and Mr.  Beffa's  attainment  of  pre-established  objectives,  based on
specific   strategic   initiatives   to  both   build  a   suitable   management
infrastructure  and deliver on strategic growth  initiatives (30%). Based on the
Company's EBITDA performance and Mr. Beffa's substantial  obtainment of personal
objectives, Mr. Beffa's bonus for 1998 was $405,300--77.2% of his target bonus.

                               Compensation Committee

                                Mr. David E. King
                                Mr. Jeffery E. Stiefler
                                Mr. Tyler T. Zachem

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

As of March 19, 1999,  the authorized  capital stock of the Company  consists of
(i) 1,250,000 shares of Preferred  Stock, no par value (the "Preferred  Stock"),
of which 973,322.32 shares are issued and outstanding,  (ii) 7,500,000 shares of
Voting Common Stock,  par value $.01 per share (the "Voting Common  Stock"),  of
which 3,477,126.01 are issued and outstanding, (iii) 7,500,000 shares of Class A
Non-Voting  Common  Stock,  par value  $.01 per share (the  "Class A  Non-Voting
Common Stock"),  of which  391,740.58 are issued and  outstanding,  (iv) 500,000
shares of Class B  Non-Voting  Stock,  par value  $.01 per share  (the  "Class B
Non-Voting Common Stock"), of which 400,000 are issued and outstanding,  and (v)
1,500,000  shares of Class C Non-Voting  Common Stock,  par value $.01 per share
(the "Class C Non-Voting  Common Stock" and together with the Class A Non-Voting
Common Stock and the Class B Non-Voting  Common Stock,  the  "Non-Voting  Common
Stock," and together with the Voting Common Stock, the "Common Stock"), of which
1,040,000 are issued and outstanding.  In addition,  a total of 46,088.67 shares
of Voting  Common Stock were  issuable upon exercise of warrants held by certain
warrant  holders,  and up to  483,820.66  shares of  Voting  Common  Stock  were
issuable upon the exercise of certain management options.

Each Holder of Voting  Common Stock has one vote for each share of Voting Common
Stock held by such holder on all matters to be voted upon by the stockholders of
the Company.  The holders of  Preferred  Stock have no voting  rights  except as
expressly  provided by law and the holders of  Non-Voting  Common  Stock have no
voting  rights  other  than the  right to vote as a  separate  class on  certain
matters that would adversely the rights of such holders. Each share of Preferred
Stock is  convertible  into one share of Common Stock at the holder's  option at
any time after  September  20, 1996.  The Company may, at its sole option,  upon
written  notice to the  holders  of  Preferred  Stock,  redeem any or all of the
shares of Preferred  Stock  outstanding  for $12.50 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.  Each share of Voting Common
Stock is  convertible  into one share of Class A Non-Voting  Common Stock at the
holder's  option,  and  each  share  of  Class  A  Non-Voting  Common  Stock  is
convertible into one share of Voting Common Stock at the holder's  option.  Each
share of Class B Non-Voting  Common Stock and Class C Non-Voting Common Stock is
convertible into one share of Voting Common Stock, at the holder's option,  upon
the  occurrence  of certain  "Conversion  Events,"  as defined in the  Company's
certificate of incorporation.

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 19, 1999 by (i)
each person known to the Company to be the  beneficial  owner of more than 5% of
any  class  of the  Company's  equity  securities,  (ii)  each of the  Company's
directors  and nominees,  and (iii) all directors and executive  officers of the
Company as a group.
                                                           Amount and
                                                           Nature of   Percent
                                                           Beneficial     of
Title of Class      Name and Address Beneficial Owner       Ownership  Class(1)
Preferred Stock     McCown De Leeuw & Co. III, L.P.(2)     674,836.42    66.6%
                    McCown De Leeuw & Co. III
                       (Europe), L.P.(2)                   674,836.42    66.6%
                    McCown De Leeuw & Co. III 
                       (Asia), L.P.(2)                     674,836.42    66.6%
                    Gamma Fund LLC(2)                      674,836.42    66.6%
                    Rainbow Trust One(3)                   168,709.98    16.7%
                    Rainbow Trust Two(4)                   168,708.81    16.7%
                    David E. De Leeuw(2)                   674,836.42    66.6%
                    David E. King(2)                       674,836.42    66.6%
                    Frank J. Hanna, III(3)                 168,709.98    16.7%
                    David G. Hanna(4)                      168,708.81    16.7%
                    All directors and officers as 
                       a group(2)(3)(4)                  1,012,255.21   100.0%

Voting Common Stock McCown De Leeuw & Co. III, L.P.(5)   1,897,793.01    54.6%
                    McCown De Leeuw & Co. Offshore III
                       (Europe), L.P.(5)                 1,897,793.01    54.6%
                    McCown De Leeuw & Co. III 
                       (Asia), L.P.(5)                   1.897,793.01    54.6%
                    Gamma Fund LLC(5)                    1,897,793.01    54.6%
                    Rainbow Trust One(3)                   466,667.00    13.4%
                    Rainbow Trust Two(4)                   466,666.00    13.4%
                    Peter C. Rosvall                       383,600.00    11.0%
                    David E. De Leeuw(5)                 1,897,793.01    54.6%
                    David E. King(5)                     1,897,793.01    54.6%
                    Frank J. Hanna, III(3)                 466,667.00    13.4%
                    David G. Hanna(4)                      466,666.00    13.4%
                    Nathan W. Pearson                       12,000.00        *
                    All directors and officers as 
                       a group(3)(4)(5)                  3,278,321.01    94.6%

Class A Non-Voting  McCown De Leeuw & Co. III, L.P.(6)     391,740.58   100.0%
Common Stock        David E. De Leeuw(6)                   391,740.58   100.0%
                    David E. King(6)                       391,740.58   100.0%
                    All directors and officers as 
                       a group(6)                          391,740.58   100.0%

Class B Non-Voting  Chase Equity Associates, L.P.(7)       400,000.00   100.0%
Common Stock        All directors and officers as a group        0.00     0.0%

Class C Non-Voting  MLQ Investors, L.P.(8)                 640,000.00    61.5%
Common Stock        The Clipper Group(9)                   400,000.00    38.5%
                    All directors and officers as a group        0.00     0.0%


*  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)   Shares of Preferred Stock are convertible, at the holder's option, into an
      identical  number of shares of Common Stock at anytime after September 20,
      1996. Includes 598,917.28 shares owned by McCown De Leeuw & Co. III, L.P.,
      an investment  partnership whose general partner is MDC Management Company
      III, L.P. ("MDC III"),  50,612.76 shares held by McCown De Leeuw & Co. III
      (Europe),  L.P., an investment  partnership  whose general  partner is MDC
      III,  11,809.72  shares  held by  McCown  De Leeuw & Co.  III  (Asia),  an
      investment  partnership  whose general  partner is MDC Management  Company
      IIIA, L.P. ("MDC IIIA"),  and 13,496.66  shares owned by Gamma Fund LLC, a
      California limited liability company. The voting members of Gamma Fund LLC
      are George E. McCown,  David De Leeuw,  David E. King,  Robert B. Hellman,
      Jr.,  Charles  Ayres and Steven  Zuckerman,  who are also the only general
      partners  of MDC III and MDC IIIA.  Dispositive  decisions  regarding  the
      Preferred  Stock are made by Mr.  McCown  and Mr. De  Leeuw,  as  Managing
      General  Partners of each of MDC III and MDC IIIA,  who together have more
      than the  required  two-thirds-in-interest  vote of the  Managing  General
      Partners  necessary to effect such  decision on behalf of any such entity.
      Dispositive  decisions  regarding the Preferred  Stock owned by Gamma Fund
      LLC are made by a vote or  consent  of a  majority  in  number  of  voting
      members of Gamma Fund LLC. Messrs.  McCown, De Leeuw, King, Hellman, Ayres
      and Zuckerman  have no direct  ownership of any shares of Preferred  Stock
      and disclaim beneficial  ownership of any shares of Preferred Stock except
      to the extent of their proportionate  partnership  interests or membership
      interests  (in  the  case of  Gamma  Fund  LLC).  The  address  of all the
      above-mentioned  entities  is c/o  McCown  De Leeuw & Co.,  3000 Sand Hill
      Road, Building 3, Suite 290, Menlo Park, California 94025.
(3)   Shares of Preferred Stock are convertible, at the holder's option, into an
      identical number of shares of Common Stock at any time after September 20,
      1996.  Frank J.  Hanna,  III, a  director  of the  Company,  is trustee of
      Rainbow  Trust One.  The address of Rainbow  Trust One is c/o HBR Capital,
      Two Ravinia Drive, Suite 1750, Atlanta, Georgia 30346.
(4)   Shares of Preferred Stock are convertible, at the holder's option, into an
      identical number of shares of Common Stock at any time after September 20,
      1996.  David G. Hanna,  a director of the  Company,  is trustee of Rainbow
      Trust  Two.  The  address  of Rainbow  Trust Two is c/o HBR  Capital,  Two
      Ravinia Drive, Suite 1750, Atlanta, Georgia 30346.
(5)   Includes  1,640,220.48 shares owned by McCown De Leeuw & Co. III, L.P., an
      investment partnership whose general partner is MDC III, 171,715.02 shares
      held  by  McCown  De  Leeuw  &  Co.  III  (Europe),  L.P.,  an  investment
      partnership  whose general  partner is MDC III,  40,066.84  shares held by
      McCown De Leeuw & Co. III (Asia),  L.P., an investment  partnership  whose
      general partner is MDC IIIA, and 45,790.67 shares owned by Gamma Fund LLC,
      a California limited liability  company.  The voting members of Gamma Fund
      LLC are  George  E.  McCown,  David De  Leeuw,  David E.  King,  Robert B.
      Hellman,  Jr., Charles Ayres and Steven  Zuckerman,  who are also the only
      general partners of MDC III and MDC IIIA. Voting and dispositive decisions
      regarding the Voting Common Stock are made by Mr. McCown and Mr. De Leeuw,
      as Managing General Partners of each of MDC III and MDC IIIA, who together
      have more than the  required  two-thirds-in-interest  vote of the Managing
      General  Partners  necessary to effect such decision on behalf of any such
      entity. Voting and dispositive decisions regarding the Voting Common Stock
      owned by Gamma Fund LLC are made by a vote or  consent  of a  majority  in
      number of voting  members of Gamma  Fund LLC.  Messrs.  McCown,  De Leeuw,
      King, Hellman,  Ayres and Zuckerman have no direct ownership of any shares
      of Voting Common Stock and disclaim beneficial  ownership of any shares of
      Voting   Common  Stock  except  to  the  extent  of  their   proportionate
      partnership  interests or membership  interests (in the case of Gamma Fund
      LLC).
(6)   Shares of Class A Non-Voting Common Stock are convertible, at the holder's
      option,  into an identical  number of shares of Voting Common Stock at the
      holder's option. See "Security  Ownership".  The general partner of McCown
      De Leeuw & Co. III, L.P. is MDC III. The only general  partners of MDC III
      are George E. McCown,  David De Leeuw,  David E. King,  Robert B. Hellman,
      Jr., Charles Ayres and Steven Zuckerman.  Voting and dispositive decisions
      regarding the Voting Common Stock are made by Mr. McCown and Mr. De Leeuw,
      as Managing  General Partners of each of MDC III and MDC III, who together
      have more than the  required  two-thirds-in-interest  vote of the Managing
      General  Partners  necessary to effect such decision on behalf of any such
      entity. Voting and dispositive decisions regarding the Voting Common Stock
      owned by Gamma Fund LLC are made by a vote or  consent  of a  majority  in
      number of voting  members of Gamma  Fund LLC.  Messrs.  McCown,  De Leeuw,
      King, Hellman,  Ayres and Zuckerman have no direct ownership of any shares
      of  Class  A  Non-Voting  Common  Stock  except  to the  extent  of  their
      proportionate  partnership.  The  address  of each of the above  mentioned
      entities is c/o McCown De Leeuw & Co., 3000 Sand Hill Road, Build 3, Suite
      290, Menlo Park, California 94025.
(7)   Shares of Class B Non-Voting Common Stock are convertible, at the holder's
      option, into an identical number of shares of Voting Common Stock upon the
      occurrence of certain  "Conversion  Events,"  as defined in the  Company's
      certificate  of  incorporation.  See  "Security  Ownership."  The  general
      partner of  Chase Equity  Associates, L.P., is Chase Capital Partners. The
      address  of each  of  these  entities  is  c/o Chase Capital Partners, 380
      Madison Ave., 12th Floor, New York, New York 10017.
(8)   Shares of Class C Non-Voting Common Stock are convertible, at the holder's
      option, into an identical number of shares of Voting Common Stock upon the
      occurrence  of certain  "Conversion  Events," as defined in the  Company's
      certificate  of  incorporation.  See  "Security  Ownership."  The  general
      partner of MLQ  Investors,  L.P. is MLQ, Inc. The address of each of these
      entities is c/o Goldman Sachs & Co., 85 Broad Street,  New York,  New York
      10004.
(9)   Shares of Class C Non-Voting Common Stock are convertible, at the holder's
      option, into an identical number of shares of Voting Common Stock upon the
      occurrence  of certain  "Conversion  Events",  as defined in the Company's
      certificate of incorporation. See "Security Ownership." Consists of shares
      held as  follows:  Clipper  Capital  Associates,  L.P.  ("CCA"),  9,268.50
      shares; Clipper/Merchant Partners, L.P., 102,642.16 shares; Clipper Equity
      Partners  I, L.P.,  90,168.81  shares;  Clipper/Merban,  L.P.  ("Merban"),
      120,225.07  shares;  Clipper/European  Re, L.P.,  60,112.54 shares; and CS
      First Boston Merchant Investments 1995/96,  L.P.  ("Merchant"),  17,582.92
      shares.   CCA  is  the  general  partner  of  all  of  the  Clipper  Group
      partnerships  other than Merchant.  The general  partner of CCA is Clipper
      Capital Associates,  Inc. ("CCI"),  and Mr. Robert B. Calhoun,  Jr. is the
      sole  stockholder  and a director of CCI.  Clipper  Capital  Partners,  an
      affiliate of Mr. Calhoun,  has sole  investment  power with respect to the
      shares  beneficially owned by Merchant.  As a result, each of Mr. Calhoun,
      CCA and CCI is deemed to beneficially own all shares of Class C Non-Voting
      Common  Stock   beneficially  owned  by  the  Clipper  Group  (other  than
      Merchant),  and Mr.  Calhoun is deemed to  beneficially  own the shares of
      Class C Non-Voting Common Stock beneficially  owned by Merchant.  Merchant
      Capital,  Inc.  ("Merchant  Capital"),  an  affiliate  of CS First  Boston
      Corporation,  is the  general  partner  of  Merchant  and the 99%  limited
      partner of Clipper/Merchant  Partners, L.P. CS Holding, an affiliate of CS
      First Boston  Corporation,  is the 99% limited partner of Merban.  None of
      Merchant,  Merchant Capital, CS First Boston Corporation and CS Holding is
      an  affiliate  of Clipper or CCA.  The address for  Merchant is 11 Madison
      Avenue,  26th Floor, New York, NY 10010, the address for  Clipper/European
      Re,  L.P.  and Merban is c/o  CITCO,  De  Ruyterkade,  62,  P.O.  Box 812,
      Curacao, Netherlands Antilles, and the address for all other Clipper Group
      entities is 11 Madison Avenue, 26th Floor, New York, NY 10010.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Acquisition Arrangements

OSI holds a minority interest in a limited liability  corporation ("LLC") formed
for the purpose of  acquiring  an accounts  receivable  portfolio.  The majority
interest  in the  LLC is  held  by MLQ  Investors,  L.P.,  one of the  Company's
stockholders.  The recorded  value of the  Company's  investment  in the LLC was
approximately $900,000 at December 31, 1998.

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"),   an  affiliate.   Under  the  Advisory  Services  Agreement,  MDC
Management  provides  consulting,  financial,  and  managerial  functions  for a
$300,000 annual fee. 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 MDC Management authorized by a majority of the directors other
than those who are partners, principals or employees of MDC Management or any of
its  affiliates.  The  Advisory  Services  Agreement  may be  amended by written
agreement of MDC Management 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  January  1998 upon  closing  of the  acquisition  of Union,  MDC  Management
received a one-time fee of $2.5 million for financial  advice provided to OSI in
connection therewith.

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  Consulting
Agreement,  Mr. Hewitt provides consulting assistance in the growing outsourcing
services of the Company at 80% of normal  working  hours.  For the period  ended
December 31, 1998, the Company paid Mr. Hewitt $727,500. In addition, Mr. Hewitt
received options to purchase 10,000 shares of common stock of the Company, which
options vest eight years from date of grant or earlier upon the  satisfaction of
certain  performance  targets and/or the occurrence of certain liquidity events.
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 providing  consulting services at a maximum
of 50 days (approximately 20% of normal working hours).

Following  his  resignation  as Executive  Vice  President  and Chief  Financial
Officer,  Daniel J. Dolan entered into a ten month Consulting Agreement with the
Company.  Under the Consulting Agreement,  Mr. Dolan provides consulting related
to financing and certain other  business  activities.  For the ten months ending
December 31, 1999, the Company will pay Mr. Dolan $134,400.

Certain Interests of Shareholders

Goldman  Sachs and its  affiliates  have  certain  interests  in the  Company in
addition to being an initial purchaser of the 11% Senior  Subordinated Notes. In
1998,  Goldman Sachs served as financial  advisor to OSI in connection  with the
acquisition  of Union and  received  certain  fees  amounting  to  $500,000  and
reimbursement of expenses in connection therewith. Moreover, Goldman Sachs acted
as co-arranger and Goldman Sachs Credit Partners,  L.P., an affiliate of Goldman
Sachs, acts as co-administrative  agent and lender in connection with the credit
facility,  and in  1998  OSI  paid  them  approximately  $100,000  in  fees  and
approximately $581,000 in interest in connection therewith. MLQ Investors, L.P.,
an affiliate of Goldman Sachs, owns a non-voting equity interest in the Company.

In addition  to acting as an initial  purchaser  of the 11% Senior  Subordinated
Notes,  Chase  Securities  Inc.  ("Chase  Securities")  and its affiliates  have
certain  other  relationships  with  the  Company.  Chase  Securities  acted  as
co-arranging  agent  and  The  Chase  Manhattan  Bank,  an  affiliate  of  Chase
Securities,  acts as  co-administrative  agent  and a lender  under  the  credit
facility  and  in  1998  OSI  paid  them  approximately  $247,000  in  fees  and
approximately  $1,150,000  in interest in  connection  therewith.  Additionally,
Chase  Equity  Associates,  L.P.  an  affiliate  of  Chase  Securities,  owns  a
non-voting equity interest in the Company.

Arrangements with Certain Affiliates

Payco leases its  corporate  headquarters  in  Brookfield,  Wisconsin,  its data
processing center in New Berlin, Wisconsin and the office space for three of its
collection  operations from  partnerships in which certain officers of Payco and
Dennis G. Punches, a former director of the Company, are the principal partners.
The terms of the leases provided for aggregate  annual payments of approximately
$1.9  million and $1.8  million for the years ended  December 31, 1998 and 1997,
respectively. Such lease amounts are subject to an escalation adjustment, not to
exceed 5% annually.  All operating and maintenance  costs  associated with these
buildings are paid by Payco. The Company believes that the terms of these leases
are  at  least  as  favorable  as  could  have  been  obtained  in   arms-length
negotiations with an unaffiliated lessor. Effective November 30, 1998, the above
mentioned director resigned from the Board of Directors of the Company.

Indebtedness of Management

During 1998, the Company  advanced  $117,000 and $148,000 to Michael A. DiMarco,
Executive  Vice  President and  President  Fee Services and C. Bradford  McLeod,
Senior Vice  President,  Human  Resources,  respectively,  to  facilitate  their
relocation  to the St.  Louis area from Texas and  Virginia,  respectively.  The
advances were non-interest  bearing.  Both advances were repaid in full in March
1999.



<PAGE>


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     Asset  Purchase  Agreement  dated  October  8,  1997 by and among NSA
           Acquisition  Corporation,  Outsourcing  Solutions  Inc.,  North Shore
           Agency,  Inc.,  Automated Mailing Services,  Inc., Mailguard Security
           System, Inc., DMM Consultants and Certain Stockholders  (incorporated
           herein by reference to Exhibit 2.6 of the Company's Form 10-K for the
           year ended December 31, 1997).
   2.2     Asset Purchase  Agreement  dated  November  10,  1997  by  and  among
           Outsourcing Solutions  Inc.,  ABC  Acquisition  Company,  Accelerated
           Bureau  of  Collections  Inc., Accelerated  Bureau  of Collections of
           Ohio,  Inc.,  Accelerated  Bureau  of  Collections  of Virginia Inc.,
           Accelerated Bureau of Collections of Massachusetts,  Inc.,  Travis J.
           Justus, and Linda Brown (incorporated herein by  reference to Exhibit
           2.7 of the Company's Form 10-K for the year ended December 31, 1997).
   2.3     Share Purchase  Agreement and Plan of Merger dated as of December 22,
           1997 by and among  Outsourcing  Solutions Inc.,  Sherman  Acquisition
           Corporation  and  The  Union  Corporation   (incorporated  herein  by
           reference  to  Exhibit  2.8 of the  Company's  Form 10-K for the year
           ended December 31, 1997).
   3.1     Restated  Certificate  of Incorporation of the Company, as of January
           13,1999. 3.2 By-laws of the Company (incorporated herein by reference
           to Exhibit 3.2 of  the  Company's Registration  Statement on Form S-4
           filed on November 26, 1996).
   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.
  10.1     Amended and Restated Stockholders  Agreement dated as of February 16,
           1996 by and among the Company and various stockholders of the Company
           (incorporated  herein by reference  to Exhibit 10.1 of the  Company's
           Registration Statement on Form S-4 filed on November 26, 1996).
  10.2     Advisory  Services  Agreement  dated  September  21, 1995 between the
           Company and MDC Management  Company III, L.P (incorporated  herein by
           reference to Exhibit 10.2 of the Company's  Registration Statement on
           Form S-4 filed on November 26, 1996).
  10.3     Amended Employment  Agreement dated as of August 27, 1997 between the
           Company and Timothy G. Beffa  (incorporated  herein by  reference  to
           Exhibit  10.5  of the  Company's  Form  10-Q  for the  quarter  ended
           September 30, 1997).
  10.4     Employment  Agreement  dated October 16, 1997 between the company and
           Daniel J. Dolan (incorporated herein by reference to Exhibit 10.10 of
           the Company's Form 10-K for the year ended December 31, 1997).
  10.5     Consulting Agreement  dated as of March 1,  1999  between the Company
           and Daniel J. Dolan.
  10.6     Consulting Agreement dated as of February 6, 1998 between the Company
           and William B. Hewitt as amended January 25, 1999.
  10.7     Employment  Agreement  dated  as  of  September 1,  1998  between the
           Company and Michael A. DiMarco.
  10.8     Employment  Agreement  dated  as  of  September 14,  1998 between the
           Company and C.  Bradford McLeod.
  10.9     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).
  10.10    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).
  10.11    Form of Non-Qualified  Stock Option Award Agreement [A] (incorporated
           herein by reference to Exhibit  10.32 of the  Company's  Registration
           Statement on Form S-4 filed on November 26, 1996).
  10.12    Form of Non-Qualified  Stock Option Award Agreement [B] (incorporated
           herein by reference to Exhibit  10.33 of the  Company's  Registration
           Statement on Form S-4 filed on November 26, 1996).
  10.13    Form of Non-Qualified Stock Option Award Agreement [C].
  10.14    Form of Non-Qualified Stock Option Award Agreement [D].
  10.15    1998 Incentive Compensation Program.
  10.16    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).
  10.17    Second Amended and Restated Credit  Agreement dated as of January 26,
           1998 by and among the Company,  the Lenders listed  therein,  Goldman
           Sachs  Credit   Partners  L.P.  and  The  Chase  Manhattan  Bank,  as
           Co-Administrative  Agents,  Goldman  Sachs Credit  Partners  L.P. and
           Chase  Securities,  Inc.,  as  Arranging  Agents and  Suntrust  Bank,
           Atlanta,  as Collateral  Agent  (incorporated  herein by reference to
           Exhibit 10.18 of the Company's  Form 10-K for the year ended December
           31, 1997).
  10.18    First Amendment to the Second Amended and Restated Credit  Agreement,
           dated as March 31, 1998 (incorporated  herein by reference to Exhibit
           10.1 of the Company's  Form 10-Q for the quarter ended  September 30,
           1998)
  10.19    Second Amendment to the Second Amended and Restated Credit Agreement,
           dated as August 5, 1998 (incorporated  herein by reference to Exhibit
           10.2 of the Company's  Form 10-Q for the quarter ended  September 30,
           1998)
  10.20    Third Amendment to the Second Amended and Restated Credit  Agreement,
           dated as  September  23, 1998  (incorporated  herein by  reference to
           Exhibit  10.3  of the  Company's  Form  10-Q  for the  quarter  ended
           September 30, 1998)

   21    Subsidiaries of registrant.
   27    Financial Data Schedule.






(b) Reports on Form 8-K

There  were no  reports  on Form 8-K  filed  for the  three-month  period  ended
December 31, 1998.




<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/Daniel T. Pijut
                              ------------------------------------- 
                              Daniel T. Pijut
                              Vice President, Corporate Controller
                                  And Chief Accounting Officer

DATE:  March 30, 1999

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/Jeffrey E. Stiefler     Chairman of the Board of Directors  March 19, 1999
------------------------
Jeffrey E. Stiefler


/s/Timothy G. Beffa        President and Chief Executive       March 30, 1999
------------------------   Officer, Director
Timothy G. Beffa           


/s/David E. De Leeuw       Director                            March 23, 1999
------------------------
David E. De Leeuw


/s/David E. King           Secretary and Treasurer, Director   March 19, 1999
------------------------
David E. King


/s/Tyler T. Zachem         Vice President and Director         March 22, 1999
------------------------
Tyler T. Zachem


/s/David G. Hanna          Director                            March 30, 1999
------------------------
David G. Hanna


/s/Frank J. Hanna, III     Director                            March 30, 1999
------------------------
Frank J. Hanna, III


/s/Nathan W. Pearson, Jr.  Director                            March 20, 1999
------------------------
Nathan W. Pearson, Jr.


/s/Robert A. Marshall      Director                            March 22, 1999
------------------------
Robert A. Marshall


/s/William B. Hewitt       Director                            March 23, 1999
------------------------
William B. Hewitt


/s/Courtney F. Jones       Director                            March 20, 1999
------------------------
Courtney F. Jones


<PAGE>


INDEX TO CONSOLIDATED FINANCIAL STATEMENS AND CONSOLIDATED FINANCIAL 
STATEMENT SCHEDULE


                                                                         Page

Consolidated Financial Statements

Outsourcing Solutions Inc. and Subsidiaries
   Independent Auditors' Report....................................       F-1
   Consolidated Balance Sheets at December 31, 1998 and 1997.......       F-2
   Consolidated Statements of Operations for the years ended 
      December 31, 1998, 1997 and 1996.............................       F-3
   Consolidated Statements of Stockholders' Equity (Deficit) for 
      the years ended December 31, 1998, 1997 and 1996.............       F-4
   Consolidated Statements of Cash Flows for the years ended 
      December 31, 1998, 1997 and 1996.............................       F-5
   Notes to Consolidated Financial Statements......................       F-6



Consolidated Financial Statement Schedule

Independent Auditors' Report.......................................      F-22
Schedule II - Valuation and Qualifying Accounts and Reserves.......      F-23






<PAGE>





INDEPENDENT AUDITORS' REPORT


To the Stockholders of Outsourcing Solutions Inc.:

We have audited the  accompanying  consolidated  balance  sheets of  Outsourcing
Solutions Inc. and subsidiaries as of December 31, 1998 and 1997 and the related
consolidated  statements of operations,  stockholders' equity (deficit) and cash
flows for each of the three years in the period ended  December 31, 1998.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

In our opinion,  such consolidated  financial  statements present fairly, in all
material  respects,  the financial  position of  Outsourcing  Solutions Inc. and
subsidiaries  as of  December  31,  1998  and  1997  and the  results  of  their
operations  and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.





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



St. Louis, Missouri
March 4, 1999





<PAGE>
OUTSOURCING SOLUTIONS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(In thousands except share and per share amounts)

ASSETS                                                   1998        1997
                                                         ----        ----
CURRENT ASSETS:
  Cash and cash equivalents                            $  8,814    $  3,217
  Cash and cash equivalents held for clients             22,372      20,762
  Current portion of purchased loans and accounts 
    receivable portfolios                                35,057      42,915
  Accounts receivable - trade, less allowance for 
    doubtful receivables of  $1,309 and $538             40,724      27,192
  Other current assets                                    8,777       2,119
                                                       --------    --------
        Total current assets                            115,744      96,205

PURCHASED LOANS AND ACCOUNTS RECEIVABLE PORTFOLIOS       20,436      19,537

PROPERTY AND EQUIPMENT, net                              40,317      32,563

INTANGIBLE ASSETS, net                                  425,597     219,795

DEFERRED FINANCING COSTS, less accumulated               13,573      12,517
  amortization of $5,203 and $2,376

OTHER ASSETS                                              2,824         693

DEFERRED INCOME TAXES                                         -         380
                                                       --------    --------
TOTAL                                                  $618,491    $381,690
                                                       ========    ========

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
  Accounts payable - trade                             $  7,355    $  6,977
  Collections due to clients                             22,372      20,762
  Accrued salaries, wages and benefits                   13,274       8,332
  Other current liabilities                              55,071      26,131
  Current portion of long-term debt                      16,877      15,445
                                                       --------    --------
           Total current liabilities                    114,949      77,647

LONG-TERM DEBT                                          511,271     309,521

OTHER LONG-TERM LIABILITIES                              22,303           -

COMMITMENTS AND CONTINGENCIES                                 -           -

STOCKHOLDERS' DEFICIT:
  8% nonvoting cumulative redeemable  exchangeable  
    preferred stock;  authorized 1,000,000 shares,
    973,322.32 and 935,886.85 shares, respectively, 
    issued and outstanding, at liquidation value
    of $12.50 per share                                  12,167      11,699
  Voting common stock; $.01 par value; authorized 
    7,500,000 shares, 3,477,126.01 and 3,425,126.01 
    shares, respectively, issued and outstanding             35          35
  Class A convertible nonvoting common stock; $.01 par
    value; authorized 7,500,000 shares,
    391,740.58 shares issued and outstanding                  4           4
  Class B convertible nonvoting common stock; $.01 par
    value; authorized 500,000 shares,
    400,000 shares issued and outstanding                     4           4
  Class C convertible nonvoting common stock; $.01 par
    value; authorized 1,500,000 shares,
    1,040,000 shares issued and outstanding                  10          10
  Paid-in capital                                        66,958      66,958
  Retained deficit                                     (109,210)    (84,188)
                                                       --------    --------
        Total stockholders' deficit                     (30,032)     (5,478)
                                                       --------    ---------
TOTAL                                                  $618,491    $381,690
                                                       ========    ========
                   See notes to consolidated financial statements

<PAGE>

OUTSOURCING SOLUTIONS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In thousands)
--------------------------------------------------------------------------------

                                                    1998       1997       1996

REVENUES                                          $479,400   $271,683  $106,331

EXPENSES:
  Salaries and benefits                            230,114    133,364    46,997
  Service fees and other operating 
    and administrative expenses                    140,888     71,122    33,759
  Amortization of purchased loans and accounts      50,703     52,042    27,317
    receivable portfolios
  Amortization of goodwill and other intangibles    15,725     24,749    15,452
  Depreciation expense                              14,282      8,825     2,829
  Purchased in-process research and development          -          -     1,000
                                                  --------   --------  --------

           Total expenses                          451,712    290,102   127,354
                                                  --------   --------  --------

OPERATING INCOME (LOSS)                             27,688    (18,419)  (21,023)

INTEREST EXPENSE - Net                              50,627     28,791    12,131
                                                  --------   --------  --------

LOSS BEFORE INCOME TAXES AND MINORITY INTEREST     (22,939)   (47,210)  (33,154)

PROVISION FOR INCOME TAXES (BENEFIT)                   830     11,127   (11,757)

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

NET LOSS                                           (24,341)   (58,337)  (21,397)

PREFERRED STOCK DIVIDEND REQUIREMENTS                  681        922       830
                                                  --------   --------  --------

NET LOSS TO COMMON STOCKHOLDERS                   $(25,022)  $(59,259) $(22,227)
                                                  ========   ========  ========


                    See notes to consolidated financial statements.



<PAGE>
<TABLE>

OUTSOURCING SOLUTIONS INC. AND SUBSIDIARIES

CONSOLIDATED  STATEMENTS OF  STOCKHOLDERS'  EQUITY (DEFICIT) FOR THE YEARS ENDED
DECEMBER 31, 1998, 1997 AND 1996 (In thousands except share and per share amounts)
----------------------------------------------------------------------------------
<CAPTION>
                          Non-Voting
                          Cumulative
                          Redeemable
                          Exchangeable         Common Stock
                                      -------------------------
                          Preferred   Vot-  Class Class Class  Paid-In   Retained
                            Stock     ing    A     B     C     Capital   Deficit      Total

<S>                        <C>        <C>   <C>   <C>   <C>   <C>      <C>          <C>     
BALANCE, JANUARY 1, 1996    $10,000    $28   $ -   $ -   $ -   $35,122  $  (2,702)   $ 42,448
     
 Issuance of 118,866.59
   shares of common stock
   in exchange for notes
   payable to stockholders        -      2     -     -     -     1,484          -       1,486

 Issuance of 2,326,000
   shares of common stock         -      7    10     -     6    29,052          -      29,075

 Conversion of common stock       -     (2)   (6)    4     4         -          -           -

 Payment of preferred
   stock dividends through
   issuance of 65,280 
   shares of preferred 
   stock and recorded 
   preferred stock 
   dividend requirements 
   of $1 per share              816      -     -     -     -         -       (830)        (14)

  Net loss                        -      -     -     -     -         -    (21,397)    (21,397)
                            -------    ---   ---   ---   ---   -------  ---------    --------

BALANCE, DECEMBER 31, 1996   10,816     35     4     4    10    65,658    (24,929)     51,598

 Issuance of 52,000
   shares of common stock         -      -     -     -     -     1,300          -       1,300

 Payment of preferred
   stock dividends through 
   issuance of 70,606.84 
   shares of preferred 
   stock and recorded 
   preferred stock 
   dividend requirements 
   of $1 per share              883                                          (922)        (39)

  Net loss                        -      -     -     -     -         -    (58,337)    (58,337)     
                            -------    ---   ---   ---   ---   -------  ---------    --------

BALANCE, DECEMBER 31, 1997   11,699     35     4     4    10    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   $ 4   $ 4   $10   $66,958  $(109,210)   $(30,032)
                            =======    ===   ===   ===   ===   =======  =========    ========

</TABLE>
                  See notes to consolidated financial statements.


<PAGE>



<TABLE>

OUTSOURCING SOLUTIONS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In thousands)
---------------------------------------------------------------------------------------

                                                           1998        1997      1996
<CAPTION>
OPERATING ACTIVITIES:
<S>                                                      <C>         <C>       <C>      
  Net loss                                               $(24,341)   $(58,337) $(21,397)
  Adjustments to reconcile net loss to net cash from
    operating activities:
      Depreciation and amortization                        32,833      35,613    18,618
      Amortization of purchased loans and accounts         50,703      52,042    27,317
        receivable portfolios
      Deferred taxes                                          380      10,877   (11,757)
      Minority interest                                       572           -         -
      Other                                                    99          48         -
      Change in assets and liabilities:
        Other current assets                                2,795         147      (578)
        Accounts payable and other current liabilities     (7,789)     (7,565)   (1,536)
                                                         --------    --------  --------

        Net cash from operating activities                 55,252      32,825    10,667
                                                         --------    --------  --------

INVESTING ACTIVITIES:
  Purchase of loans and accounts receivable portfolios    (43,186)    (46,494)  (13,645)
  Payments for acquisitions, net of cash acquired        (168,900)    (62,913) (184,184)
  Investment in non-consolidated subsidiary                (2,500)          -         -
  Acquisition of property and equipment                   (13,480)     (9,489)   (2,606)
  Other                                                       261        (603)        -
                                                         --------    --------  --------
        Net cash from investing activities               (227,805)   (119,499) (200,435)
                                                         --------    --------  --------

FINANCING ACTIVITIES:
  Proceeds from term loans                                225,000      55,000   337,000
  Borrowings under revolving credit agreement             230,000      66,150         -
  Repayments under revolving credit agreement            (236,350)    (34,300)        -
  Repayments of debt                                      (36,618)     (9,763) (136,615)
  Deferred financing fees                                  (3,882)     (1,993)  (12,563)
  Proceeds from issuance of common stock                        -         300    14,974
                                                         --------    --------  --------

           Net cash from financing activities             178,150      75,394   202,796
                                                         --------    --------  --------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS        5,597     (11,280)   13,028

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                3,217      14,497     1,469
                                                         --------    --------  --------

CASH AND CASH EQUIVALENTS, END OF YEAR                   $  8,814    $  3,217  $ 14,497
                                                         ========    ========  ========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
  Cash paid during period for interest                   $ 43,923    $ 26,372  $  7,655
                                                         ========    ========  ========
</TABLE>

                   See notes to consolidated financial statements.


<PAGE>


Outsourcing Solutions Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share amounts)
--------------------------------------------------------------------------------


1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    Consolidation  Policy -  Outsourcing  Solutions  Inc.  is one of the largest
    providers of accounts  receivable  management services in the United States.
    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.  Cash equivalents are valued at
    cost, which  approximates  market.  Cash 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 connection with
    acquisitions  in  September  1995 and  November  1996 were  recorded  at the
    present value of estimated future net cash flows.  Receivables  purchased 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 market  pricing or the expected  discounted  future net
    operating  cash flows derived from the  individual  portfolios are less than
    their respective carrying value (see Note 14).

    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 Purchased loans and accounts receivable
    portfolios  owned are generally  recorded as revenue when received.  Revenue
    from accounts  receivable  management  services is recorded as such services
    are provided.  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
    periodically    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.

    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.

    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 11 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 the three years in the period ended  December 31,
    1998.  Comprehensive  loss for the three years in the period ended  December
    31, 1998 were equal to the Company's net loss.

    Accounting  For  Transfers  of  Financial  Assets - In 1996,  the  Financial
    Accounting  Standards Board (the "FASB") issued SFAS No. 125, Accounting for
    Transfers  and  Servicing  of  Financial  Assets  and   Extinguishments   of
    Liabilities.  This Statement 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.  The Company  adopted
    SFAS No. 125 for the year ended  December 31, 1997. The adoption of SFAS No.
    125 did not have a material effect on the 1997 financial statements,  as the
    Company had no transfers  during the year ended December 31, 1997.  However,
    commencing in the fourth quarter of 1998, the Company sold  concurrent  with
    its  purchase  of certain  loans and  accounts  receivable  portfolios  to a
    qualifying special-purpose entity (QSPE). Such QSPE, OSI Funding Corporation
    (FINCO), is a nonconsolidated, bankruptcy-remote, wholly-owned subsidiary of
    the Company (see Note 17).

    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 16,  believes  the Company  operates in one  business
    segment.

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

    Earnings  Per  Share - In  February  1997,  the FASB  issued  SFAS No.  128,
    Earnings per Share,  which  required  adoption in the quarter ended December
    31, 1997,  and  prohibited  early  compliance.  SFAS No. 128  simplified the
    calculation  of  earnings  per  share  and  is  applicable  only  to  public
    companies. Under generally accepted accounting principles and Securities and
    Exchange  Commission  ("SEC") disclosure  requirements,  SFAS No. 128 is not
    currently applicable to the Company and, accordingly,  earnings per share is
    not presented.

    New Accounting  Pronouncements - In June 1998, the FASB issued SFAS No. 133,
    Accounting  for  Derivative  Instruments  and Hedging  Activities,  which is
    effective  for fiscal years  beginning  after June 15, 1999.  The  statement
    provides a  comprehensive  and consistent  standard for the  recognition and
    measurement  of  derivatives  and  hedging  activities.  The Company has not
    determined  the  impact on the  consolidated  statement  of  operations  and
    consolidated balance sheet.

    In March 1998, the AICPA issued  Statement of Position No. 98-1,  Accounting
    for the Costs of Computer  Systems  Developed  or Obtained  for Internal Use
    ("SOP 98-1"),  which is effective for fiscal years  beginning after December
    15, 1998. SOP 98-1 provides  guidelines for  capitalization of developmental
    costs of proprietary  software and purchased  software for internal use. The
    adoption  of SOP  98-1 is not  expected  to have a  material  impact  on the
    consolidated statement of operations and consolidated balance sheet.

    Reclassifications  - Certain amounts in prior periods have been reclassified
    to conform to the current year presentation.

<PAGE>
2.  ORGANIZATION & ACQUISITIONS

    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.  The Company purchases and collects
    portfolios of non-performing 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 September 1995, the Company acquired Account Portfolios,  L.P. ("API"), a
    partnership  which purchased and managed large portfolios of  non-performing
    consumer loans and accounts receivable, for cash of $30,000, common stock of
    $15,000 and notes of $35,000, which were subsequently paid in March 1996.

    In  January  1996,  the  Company  acquired  A.M.  Miller  &  Associates  and
    Continental  Credit  Services,  Inc.,  accounts  receivable and fee services
    companies,  for total cash  consideration of $38,500  including  transaction
    costs of $3,600,  common stock of $6,000, a 9% unsecured,  subordinated note
    of $5,000 (interest  payable quarterly and principal due January 2001) and a
    10% unsecured,  subordinated note of $3,000,  which was subsequently paid in
    November 1996.

    In November 1996, the Company  acquired all of the outstanding  common stock
    of Payco American Corporation  ("Payco"),  an accounts receivable management
    company primarily focused on healthcare, education and bank/credit cards, in
    a  merger   transaction  for  cash  of  approximately   $154,800   including
    transaction costs of $4,600.  The Company allocated the total purchase price
    including  additional  liabilities  reserves  to the  fair  value of the net
    assets  acquired  resulting  in  goodwill  of  approximately   $123,000.  In
    addition,  the Company  allocated $1,000 of the purchase price to in-process
    research and development that had not reached technological  feasibility and
    had no alternative  future uses, which  accordingly was expensed at the date
    of the acquisition.

    In October and November 1997,  the Company  acquired The North Shore Agency,
    Inc. ("NSA"), a fee service company specializing in letter series collection
    services, and Accelerated Bureau of Collections, Inc. ("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,  $1,656 through December 31, 1998, based on
    the  attainment  by  the  newly  formed   subsidiary  of  certain  financial
    performance  targets  over each of the next three years.  Future  contingent
    payment obligations, if any, 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 The Union  Corporation's  ("Union") 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 the amended credit  agreement (see Note 6).
    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 including  additional  liabilities reserves 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 amortized on a
    straight-line basis over 20 to 30 years. Results of operations were included
    in the consolidated  financial statements from their respective  acquisition
    dates.

    In May 1996, a subsidiary of the Company acquired participation interests in
    certain loan portfolios for cash of $3,300,  Class C Nonvoting  common stock
    of  $8,000  and a  10%  unsecured  promissory  note  of  $3,500,  which  was
    subsequently paid in November 1996.

    The unaudited pro forma consolidated financial data presented below provides
    pro  forma  effect  of the  NSA,  ABC  and  Union  acquisitions  as if  such
    acquisitions 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 acquisitions been consummated as of the
    beginning  of each  period  presented,  nor does the data give effect to any
    transactions other than the acquisitions.
                                                  Pro Forma
                                               1998         1997

                      Net revenues           $486,754     $455,700
                                             ========     ========

                      Net loss               $(25,015)    $(64,703)
                                             ========     ========


3.  PROPERTY AND EQUIPMENT

    Property and equipment, which is recorded at cost, consists of the following
    at December 31:

                                                        1998         1997

       Land                                            $ 2,109     $     -
       Buildings                                         1,891           -
       Furniture and fixtures                            6,574       4,478
       Machinery and equipment                           2,479         716
       Telephone equipment                               8,659       5,956
       Leasehold improvements                            4,068       1,599
       Computer hardware and software                   40,785      31,946
                                                       -------     -------
                                                        66,565      44,695
       Less accumulated depreciation                   (26,248)    (12,132)
                                                       -------     -------

                                                       $40,317     $32,563
                                                       =======     =======


4.  INTANGIBLE ASSETS

    Intangible assets consist of the following at December 31:
                                                          1998        1997

       Goodwill                                         $447,774     $226,770
       Value of favorable contracts and placements        29,000       29,000
       Covenants not to compete                            5,021        4,498
                                                        --------     --------
                                                         481,795      260,268
       Less accumulated amortization                     (56,198)     (40,473)
                                                        --------     --------

                                                        $425,597     $219,795
                                                        ========     ========


5.  OTHER CURRENT LIABILITIES

    Other current liabilities consist of the following at December 31:

                                                             1998       1997

       Accrued severance, relocation and office
         closing costs                                     $ 5,554    $ 6,487
       Accrued interest                                      6,851      2,974
       Deferred revenue                                     11,285          -
       Environmental reserves                                3,800          -
       Other                                                27,581     16,670
                                                           -------    -------

                                                           $55,071    $26,131
                                                           =======    =======


<PAGE>
6.  DEBT

    Long-term debt consists of the following at December 31:

                                                            1998       1997

       Term Loan A Credit Facility                        $ 49,250   $ 62,500
       Term Loan B Credit Facility                         123,137    124,922
       Term Loan C Credit Facility                         224,250          -
       Revolving Credit Facility                            25,500     31,850
       11% Series B Senior Subordinated Notes              100,000    100,000
       Note payable to stockholder (See Note 2)              4,429      4,429
       Other (including capital leases)                      1,582      1,265
                                                          --------   --------
                 Total debt                                528,148    324,966
       Less current portion of long-term debt               16,877     15,445
                                                          --------   --------
                  Long-term debt                          $511,271   $309,521
                                                          ========   ========

    On April 28, 1997,  the Company  registered  $100,000 of 11% Series B Senior
    Subordinated  Notes (the  "Notes"),  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 January  1998,  the Company  finalized  the Second  Amended and  Restated
    Credit  Agreement  for $466,663 (the  "Agreement")  with a group of banks to
    fund the Union acquisition and refinance existing outstanding  indebtedness.
    The Agreement,  as amended,  consists of a $408,663 term loan facility and a
    $58,000 Revolving Credit Facility (the "Revolving Facility").  The term loan
    facility  consists of a term loan of $59,187 ("Term Loan A"), a term loan of
    $124,476  ("Term Loan B") and a term loan of $225,000 ("Term Loan C"), which
    mature on October  15,  2001,  2003 and 2004,  respectively.  The Company is
    required to make quarterly principal repayments on each term loan. 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  customary  base
    rate,  plus 1.5% or (b) at the reserve  adjusted  Eurodollar rate plus 2.5%.
    Term Loan B and Term Loan C bear 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  customary  base  rate,  plus 2.0% or (b) at the  reserve  adjusted
    Eurodollar rate plus 3.0%.

    The  Revolving  Facility  originally  had a term of five  years and is fully
    revolving until October 15, 2001. 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  customary base rate,  plus 1.5% or (b)
    at the reserve adjusted  Eurodollar rate plus 2.5%. Also,  outstanding under
    the Revolving  Facility are letters of credit of $1,656;  expiring  within a
    year.

    The three month LIBOR rate  (Eurodollar  rate) at December 31, 1998 and 1997
    was 5.3% and 5.7%, respectively.

    In September  1998,  the Company  amended the Agreement to permit an initial
    investment in FINCO (see Note 17.)

    The  Agreement  is  guaranteed  by  all of the  Company's  present  domestic
    subsidiaries  and is  secured by all of the stock of the  Company's  present
    domestic  subsidiaries  and by substantially  all of the Company's  domestic
    property  assets.   The  Agreement   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 Agreement (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 three
    subsidiaries  that are individually,  and in the aggregate  inconsequential.
    The Company is a holding  company with no separate  operations,  although it
    incurs some  expenses on behalf of its operating  subsidiaries.  The Company
    has no significant  assets or liabilities other than the common stock of its
    subsidiaries,  debt,  related deferred  financing costs and accrued expenses
    relating  to  expenses  paid on behalf of its  operating  subsidiaries.  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:
                                                      1998          1997
                                                      ----          ----

            Current assets                          $114,369     $  96,133
                                                    ========     =========

            Noncurrent assets                       $487,381     $ 272,730
                                                    ========     =========

            Current liabilities                      $50,086     $  57,169
                                                     =======     =========

            Noncurrent liabilities                   $23,207     $   5,284
                                                     =======     =========

            Operating revenue                       $479,400     $ 271,683
                                                    ========     =========

            Income (Loss) from operations            $39,418     $ (14,679)
                                                     =======     =========

            Net income (loss)                        $21,189     $ (23,857)
                                                     =======     =========
  

<PAGE>
    Maturities of long-term  debt and capital leases at December 31, 1998 are as
    follows:
                                                                    Capital
                                                      Debt          Leases
      1999                                          $ 16,182        $  759
      2000                                            19,904           620
      2001                                            51,713            37
      2002                                            50,968             -
      2003                                            68,815             -
      Thereafter                                     319,250             -
                                                    --------        ------
      Total Payments                                 526,832         1,416
      Less amounts representing interest                               100
                                                                    ------
      Present value of minimum lease payments                        1,316
      Less current portion                            16,182           695
                                                    --------        ------

                                                    $510,650        $  621
                                                    ========        ======

    During 1997, the Company  entered into interest rate cap  agreements  with a
    notional  principal  value of $50,000 to reduce the impact of  increases  in
    interest rates on its  floating-rate  long-term  debt. At December 31, 1997,
    the  Company  had  three  interest  rate  cap  agreements  outstanding.  The
    agreements  effectively  entitle  the  Company  to  receive  from a bank the
    amount,  if any,  by which the  Company's  interest  payments  on  specified
    principal of its floating-rate term loans for a specified period exceed 10%.
    The  amounts  paid for these  agreements  of $243 are  included  in deferred
    financing costs and are being  amortized to interest  expense over the terms
    of the various agreements through November 1999.

    On March 31, 1998, as required by the Agreement, the Company entered into an
    interest rate swap agreement with a notional  principal value of $32,000 for
    the purpose of  managing  interest  rate risk on a portion of  floating-rate
    long-term  debt.  The swap  agreement  fixes the  interest  rate on  certain
    variable-rate  debt at a rate of 9.105%. The contract has a maturity date of
    March 31, 2001. The Company's  credit exposure on the swap is limited to the
    value of the swap, if such swap is in a favorable position to the Company.

    On April 17,  1998 and May 27,  1998,  as  required  by the  Agreement,  the
    Company  entered  into  interest  rate  collar  agreements  with a  notional
    principal  value of $35,000 and  $33,000,  respectively,  for the purpose of
    managing  interest rate risk on a portion of  floating-rate  long-term debt.
    The collar agreements fix the interest rate on certain variable-rate debt to
    a range of 8.58% to 9.5%.  The  contracts  have a maturity date of April 17,
    2001 and August 27,  2002,  respectively.  The  Company is exposed to credit
    loss  in the  event  of  nonperformance  by  counterparties  to  the  collar
    agreements.


7.  OTHER LONG-TERM LIABILITIES

    Other  long-term  liabilities  at  December  31,1998  include  approximately
    $18,900 for environmental  proceedings as a result of the Union acquisition.
    Other current liabilities include  approximately $3,800 resulting in a total
    liability of approximately  $22,700, on an undiscounted basis, for the Union
    environmental   proceedings.   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.  STOCKHOLDERS' EQUITY AND WARRANTS

    On September 21, 1995, the Company issued  800,000.01 shares of 8% Nonvoting
    Cumulative Redeemable Exchangeable Preferred Stock ("Preferred Shares"). The
    liquidation  value of each Preferred Share is $12.50 plus accrued and unpaid
    dividends.  Dividends,  as  may  be  declared  by  the  Company's  Board  of
    Directors,  are cumulative at an annual rate of 8% of the liquidation  value
    and are  payable in equal  semi-annual  installments  of $.50 per  preferred
    share on the  dividend  payment  date,  as  defined  in the  Certificate  of
    Incorporation.  The Company may, at its sole option and upon written  notice
    to  preferred  shareholders,  redeem all or any  portion of the  outstanding
    Preferred  Shares for $12.50  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.  Pursuant  to the  Company's  financing
    arrangements,  the payment of dividends  and/or the  repurchase of Preferred
    Shares is  prohibited  until the  Company  attains  certain  covenants.  The
    Company may, at its sole  option,  pay  dividends in the form of  additional
    Preferred  Shares.  Each holder of Preferred  Shares has the right, at their
    option, to exchange any or all of their Preferred Shares for the same number
    of shares of Voting Common Stock ("Voting Common Shares").  The Company must
    reserve,  out of its  authorized  but unissued  Voting  Common  Shares,  the
    appropriate  number of Voting  Common  Shares to affect the  exchange of all
    outstanding  Preferred  Shares.  Upon the exchange of any Preferred  Shares,
    such Preferred Shares are to be retired and not reissued.

    Warrants  outstanding  at December  31,  1998 are  46,088.67.  Each  warrant
    entitles the holder to purchase one share of Voting Common  Stock,  $.01 par
    value,  at $12.50 per share.  The warrants are  exercisable at the option of
    the holder and expire on January 10, 2006.


9.  INCOME TAXES

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

                                                    1998     1997       1996
                                                    ----     ----       ----
    Current: 
      Federal                                     $    -   $     -   $      -
      State                                          450       250          -
                                                  ------   -------   --------

          Total current                              450       250          -
                                                  ------   -------   --------

    Deferred:
      Federal                                          -     9,513    (10,250)
      State                                          380     1,364     (1,507)
                                                  ------   -------   -------
          Total deferred                             380    10,877    (11,757)
                                                  ------   -------   --------

          Provision for income taxes (benefit)    $  830   $11,127   $(11,757)
                                                  ======   =======   ========

    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  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:

                                                              1998       1997
     Deferred tax assets:
         Net operating loss carryforwards                   $41,143    $12,759
         Accrued liabilities                                 18,001      5,882
         Loans and account receivable                         3,670      6,737
         Property and equipment                               1,311        724
         Intangible assets                                    4,192      4,557
         Other                                                    -      2,153
                                                            -------    -------
     Total deferred tax assets                               68,317     32,812
     Less valuation allowance                               (68,317)   (32,432)
                                                            -------    -------
     Net deferred tax assets                                $     -    $   380
                                                            =======    =======

    The  valuation  allowance  was $68,317 and $32,432 at December  31, 1998 and
    1997, 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.
    Of the $35,885  increase in the  valuation  allowance  during 1998,  $24,611
    relates to deferred tax assets  recorded in connection  with the acquisition
    of Union  and $800  relates  to the 1997  acquisitions  of NSA and ABC.  The
    valuation  allowance  also  includes  $6,400  related to deferred tax assets
    recorded prior to 1998 in connection with acquisitions in years before 1998.
    Future  realization  of  these  deferred  tax  assets  would  result  in the
    reduction of goodwill recorded in connection with the  acquisitions.  During
    1998, the Company received net cash from income taxes of $12,424.

    The Company has net operating loss  carryforwards  of $87,397 as of December
    31, 1998 available to offset future taxable income of the consolidated group
    of  corporations.  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 2018.

    During 1998,  the Company has  significantly  increased  its total debt from
    $324,966 at  December  31, 1997 to  $528,148  at  December  31,  1998.  This
    increase in debt primarily resulted from the acquisition of Union. Since the
    Company  has  a  history  of  generating   net  operating   losses  and  has
    significantly   increased  its  total  interest   expense  to  be  incurred,
    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,  could be increased in future years if estimates of future  taxable
    income during the carryforward period change.

<PAGE>

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

                                              1998         1997          1996
                                              ----         ----          ----

    Federal taxes at statutory rate       $ (7,994)      $(16,052)     $(11,272)

    State income taxes (net of  
      federal tax benefits)                     18         (2,092)       (1,521)

    Nondeductible amortization               3,414          1,406            879

    Other                                      249         (4,567)           157

    Deferred tax valuation allowance         5,143         32,432              -
                                          --------       --------      ---------

    Provision for income taxes (benefit)  $    830       $ 11,127      $(11,757)
                                          ========       ========      ========


10. RELATED PARTY TRANSACTIONS

    The  Company  had  an  agreement  with  an  affiliate  of  certain   Company
    stockholders to provide management and investment services for a monthly fee
    of $50. The Company recorded management fees to this entity of $450 and $600
    for the years ended December 31, 1997 and 1996. The agreement was terminated
    September 30, 1997.

    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,
    $1,600 and $9,100 for the years  ended  December  31,  1998,  1997 and 1996,
    respectively.

    Under  various   financing   arrangements   associated  with  the  Company's
    acquisitions  and the Agreement,  the Company  incurred  interest expense of
    $2,333,  $3,317 and $2,900 for the years ended  December 31, 1998,  1997 and
    1996,  respectively,  to  certain  Company  stockholders  of which  one is a
    financial  institution  and is  co-administrative  agent  of  the  Company's
    Agreement.

    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.


11. STOCK OPTION AND AWARD PLAN

    The Company has established the Outsourcing Solutions Inc. 1995 Stock Option
    and Stock Award Plan (the  "Plan").  The Plan is a stock award and incentive
    plan which  permits  the  issuance  of options,  stock  appreciation  rights
    ("SARs")  in  tandem  with  such  options,   restricted   stock,  and  other
    stock-based  awards to selected employees of and consultants to the Company.
    The Plan reserved  304,255 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.  In  February  1997,  the Board of  Directors
    approved an increase to the reserve of Voting  Common Shares to 500,000 with
    an additional approval to 750,000 in December 1997.

    Under the terms of the Plan,  options granted may be either  nonqualified or
    incentive stock options and the exercise price 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.
    The  awarded  stock  options  vest over  various  periods and vesting may be
    accelerated upon the satisfaction of certain  performance targets and/or the
    occurrence of certain liquidity  events.  The options shall expire ten years
    after date of grant.

<PAGE>
    A summary of the 1995 Stock Option and Stock Award Plan is as follows:

                                                              Weighted
                                                               Average
                                              Number       Exercise Price
                                             of Shares        Per Share
                                           --------------  ----------------
      Outstanding at January 1, 1996                 -         $    -
      Granted                                  395,809           13.57
      Forfeited                               (149,788)          12.50
                                              --------
      Outstanding at December 31, 1996         246,021           14.23
      Granted                                  397,500           27.99
      Forfeited                                (75,000)          22.33
                                              ---------
      Outstanding at December 31, 1997         568,521           22.78
      Granted                                   64,300           58.83
      Forfeited                                (54,000)          35.19
                                              --------
      Outstanding at December 31, 1998         578,821           25.63
                                              ========

      Reserved for future option grants        171,179

    Exercisable shares at December 31, 1998, 1997 and 1996 were 105,784,  49,647
    and zero, respectively.

    A summary of stock options outstanding at December 31, 1998 is as follows:

                               Options Outstanding           Options Exercisable
                    ---------------------------------------  -------------------
                                    Weighted
                                     Average
                       Number       Remaining     Exercise     Number   Exercise
    Exercise Price  Outstanding  Contractual Life   Price   Exercisable    Price
    --------------  -----------  ---------------- --------  ----------- --------
      $12.50          196,021       7.7 years      $12.50      39,204     $12.50
      $25.00          295,800       8.3 years      $25.00      57,880     $25.00
      $50.00           44,500       9.1 years      $50.00       4,450     $50.00
      $65.00           42,500       9.4 years      $65.00       4,250     $65.00
                      -------                                 -------
    $12.50-$65.00     578,821       8.8 years      $25.63     105,784     $23.03
                      =======                                 =======

    The Company  accounts  for the Plan in  accordance  with APB Opinion No. 25,
    under  which no  compensation  cost has been  recognized  for  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:
                                             1998       1997         1996
                                             ----       ----         ----

      Risk free rate                         5.0%       5.44%        6.33%
      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

    Given that the Company is not  publicly  traded,  the  expected  stock price
    volatility  is  assumed  to be zero.  The  weighted  fair  values of options
    granted  during  1998,  1997  and  1996  were  $23.14,   $12.29  and  $6.67,
    respectively. The Company's pro forma information is as follows:

                                     1998           1997           1996
                                     ----           ----           ----
      Net loss:
          As reported             $(24,341)      $(58,337)      $(21,397)
          Pro forma                (25,742)       (59,570)       (21,758)

    In addition, the Committee may grant restricted stock to participants of the
    Plan 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 at December 31, 1998.


12. 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 $25,521,  $20,661 and $5,986,  for the years ended
    December 31, 1998, 1997 and 1996, 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
                                                    ------
                1999                               $16,242
                2000                                14,002
                2001                                12,485
                2002                                10,838
                2003                                 3,795
                Thereafter                           8,262
                                                   -------
                    Total lease payments           $65,624
                                                   =======

    Rent expense under operating  leases was $15,800,  $8,100 and $3,600 for the
    years ended December 31, 1998, 1997 and 1996, respectively.


13. LITIGATION

    At  December  31,  1998,  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, 1998.


14. 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,  1998 and 1997 are as  follows.  The  carrying  amount  of cash and cash
    equivalents and long-term debt except the Notes, approximate the fair value.
    The  approximate  fair value of the Notes at December  31, 1998 and 1997 was
    $95,300 and $100,000, 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 the interest rate caps, swap
    and collars,  based on quoted market prices,  at December 31, 1998 was $109,
    $(720) and $(1,054),  respectively.  At December 31, 1997, the fair value of
    the  interest  caps at  December  31,  1997  was  $193.  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, 1998 and 1997.

    In December 1997, the Company completed an in-depth analysis of the carrying
    value of the purchased  portfolios acquired in September 1995 in conjunction
    with the Company's  acquisition of API. This analysis included an evaluation
    of achieved portfolio  amortization  rates,  historical and estimated future
    costs to collect,  as well as projected total future collection levels. As a
    result  of  this  analysis,  the  Company  recorded  $10,000  of  additional
    amortization  in December  1997  relating to these  purchased  portfolios to
    reduce their carrying value to estimated fair value.


15. EMPLOYEE BENEFIT PLAN

    At December  31,  1997,  the Company had five  defined  contribution  plans.
    During 1998, the Company combined four of these defined  contribution  plans
    into a new defined  contribution plan sponsored by the Company.  At December
    31, 1998, the Company has five defined  contribution plans, four 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 $1,570,  $276 and $98 for the years ended December
    31, 1998, 1997 and 1996, respectively.


16. ENTERPRISE WIDE DISCLOSURE

    The Company  operates in one business  segment.  As a strategic  receivables
    management  company,  the primary  services  of the  Company  consist of fee
    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:
                                        1998         1997          1996
                                        ----         ----          ----
     Fee services                     $333,969     $164,796      $ 54,901
     Portfolio purchasing services      84,315       67,809        45,581
     Outsourcing services               61,116       39,078         5,849
                                      --------     --------      --------

         Total                        $479,400     $271,683      $106,331
                                      ========     ========      ========


17. PURCHASED LOANS AND ACCOUNTS RECEIVABLE PORTFOLIOS FINANCING

    In October 1998, a qualifying  special-purpose  finance company, OSI Funding
    Corp. ("FINCO"),  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  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.  The Company  believes the servicing
    fees will provide  adequate  compensation  to the Company for performing the
    servicing,  resulting in a servicing asset that was not considered material.
    Servicing   revenue  from  FINCO  will  be  recognized  by  the  Company  as
    collections are received.

    In connection  with  establishment  of FINCO,  the Company's  amended credit
    agreement (see Note 6) was amended to permit an initial  investment in FINCO
    of $2,500  with an  additional  investment  of  $2,500  at such  time  after
    December 31, 1998 as FINCO's  borrowings  exceed $25,000.  All borrowings by
    FINCO under the Warehouse Facility are without recourse to the Company.  The
    following  summarizes the transaction  between the Company and FINCO for the
    year ended December 31, 1998:

               Sales of purchased loans and accounts receivables
                    portfolios by the Company to FINCO          $9,134

               Investment in FINCO by the Company               $2,500

               Servicing fees paid by FINCO to the Company        $792

    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.
    Accordingly,  no gain or loss was  recorded  by the  Company on the sales to
    FINCO.

    At December 31, 1998,  FINCO had outstanding  borrowings of $6,482 under the
    Warehouse Facility.


18. SUBSEQUENT EVENT

    In  January  1999,  the  Company   increased  its  authorized  8%  Nonvoting
    Cumulative Redeemable  Exchangeable Preferred Stock from 1,000,000 shares to
    1,250,000 shares.



                                        * * * * * *


<PAGE>





INDEPENDENT AUDITORS' REPORT


To the Stockholders of Outsourcing Solutions Inc.:

We have audited the consolidated  financial statements of Outsourcing  Solutions
Inc. and it  subsidiaries  as of December 31, 1998 and 1997, and for each of the
three years in the period ended  December  31, 1998,  and have issued our report
thereon dated March 4, 1999; 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, 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 the information set forth therein.





/s/ Deloitte & Touche LLP 
Deloitte & Touche LLP



St. Louis, Missouri
March 4, 1999





<PAGE>




Outsourcing Solutions Inc. and Subsidiaries                          Schedule II
Valuation and Qualifying Accounts and Reserves
For the year ended December 31, 1998, 1997
and 1996
(in thousands)





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

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

           1997           641        367           -           470         538
                         ====       ====          ==          ====         ===

           1996             -        117         671           147         641
                           ==       ====        ====          ====         ===





(A) For 1998,  Union balance at date of acquisition.  For 1996, Payco balance at
    date of acquisition.
(B) Accounts receivable write-offs and adjustments, net of recoveries.