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, 1999

[ ]                   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.
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             (Exact name of registrant as specified in its charter)

                  Delaware                                    58-2197161
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       (State or other jurisdiction of            (I.R.S. Employer
       incorporation or organization)                     Identification Number)
    390 South Woods Mill Road, Suite 350
           Chesterfield, Missouri                            63017
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   (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

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

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

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

APPLICABLE  ONLY TO CORPORATE  REGISTRANTS:  As of March 30, 2000, the following
shares of the Registrant's common stock were issued and outstanding:

  Voting common stock                                           5,976,389.04
  Non-voting common stock                                         480,321.30
                                                               -------------
                                                                6,456,710.34
                                                               =============
DOCUMENTS INCORPORATED BY REFERENCE:  None


<PAGE>
PART I

ITEM 1.    BUSINESS

General

        Outsourcing  Solutions  Inc.  (the  "Company"  or  "OSI")  is one of the
largest  providers  of  accounts  receivable  management  services in the United
States with 1999 revenues of approximately  $504.4 million. The Company believes
that it differentiates  itself from its competitors by providing a full range of
accounts  receivable  management  services  on a  national  basis that allow its
customers to outsource the management of the entire credit cycle. The breadth of
services  the  Company  provides  across all stages of the credit  cycle  allows
itself to  cross-sell  services to existing  customers  as well as to expand its
customer base by providing specific services to potential  customers in targeted
industries.  These services include collection  services,  portfolio  purchasing
services and outsourcing services which accounted for approximately 72%, 16% and
12% of 1999  revenues,  73%, 17% and 10% of 1998 revenues and 67%, 25% and 8% of
1997 revenues, respectively.

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

      -   Portfolio   purchasing   services  involve  acquiring   portfolios  of
          non-performing  consumer  receivables from credit grantors,  servicing
          such portfolios and retaining all amounts collected.

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

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

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

        The customer  base for the accounts  receivable  management  industry is
generally  concentrated by credit grantors in four  end-markets:  banks,  health
care,  utilities and  telecommunications.  Other significant  sources of account
placements include retail,  student loan and governmental  agencies. The Company
believes that the ongoing  consolidation in the banking,  health care, utilities
and  telecommunication  industries will benefit them by creating larger national
customers  seeking  to  place  accounts  with  accounts  receivable   management
companies  that offer  national  rather than local and  regional  coverage.  The
Company's customers include a full range of local,  regional and national credit
grantors. Our largest customer accounted for no more than 5% of 1999 revenues.

        Outsourcing Solutions Inc., a Delaware  corporation,  was formed in 1995
to acquire Account  Portfolios L.P., one of the largest purchasers and servicers
of non-performing  accounts  receivables  portfolios.  Since its formation,  the
Company has completed six additional  acquisitions and has established itself as
a leading industry consolidator.  The Company has experienced significant growth
in their business  through internal growth and  acquisitions,  with its revenues
increasing from $29.6 million in 1995 to $504.4 million in 1999.

Industry

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

      -   Increase in Consumer Debt and Delinquencies.  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 $6.0 trillion.  Furthermore,  charged-off credit card debt
          as a percentage of total  outstanding  consumer debt increased from 3%
          in 1994 to 5.6% in 1998.

      -   Industry Consolidation.  The American Collectors Association estimates
          that in 1995 there were  approximately  6,000 contingent fee companies
          in the United States  participating in an industry that generated over
          $6.5  billion  in  contingent  fee  collection  revenue  in 1998.  The
          industry has  undergone  significant  consolidation,  with the top ten
          contingent fee companies  increasing  their industry share to over 20%
          in 1998.  With over  6,000  debt  collection  companies  in the United
          States and given the  financial  and  competitive  constraints  facing
          these smaller  companies and the limited  number of liquidity  options
          for the  owners of such  businesses,  the  Company  believes  that the
          industry will continue to experience  consolidation.  Well-capitalized
          companies  that  offer  national  capabilities  with a "full  service"
          approach to accounts receivable management are increasingly displacing
          local and regional competitors.

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

      -   Growth  in  Portfolio  Sales.  As  one  of the  leading  providers  of
          portfolio purchasing  services,  we have participated in the rapid and
          consistent  industry-wide  increase  in the  amount of  non-performing
          consumer  receivables sold by credit  grantors.  Portfolio sales offer
          the credit grantor many benefits,  including increased  predictability
          of cash flow reduction in monitoring and  administrative  expenses and
          reallocation  of  assets  from  non-core  business  functions  to core
          business functions.  It is estimated that $10.1 billion of charged-off
          credit card debt was acquired by portfolio purchasers in 1996 and more
          than $22.0 billion in 1999.

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

      -   Technological  Sophistication.  Leading  companies in the industry are
          increasingly  using  technology to improve their  collection  efforts.
          These  initiatives  include  investments in proprietary  databases and
          computerized calling and debtor location techniques.

Competitive Advantages

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

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

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

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

      -   Technology.   The  Company  has  made,  and  will  continue  to  make,
          significant  investmentsin  technology  and  know-how  to enhance  its
          competitive  advantage.  The  Company  currently  has over $53 million
          invested in computer  hardware and  software.  OSI  believes  that its
          proprietary software,  including  debtor-scoring models,  computerized
          calling  and  debtor  databases,  provides  them  with  a  competitive
          advantage in pricing portfolios,  providing  outsourcing  services and
          collecting  delinquent accounts.  The Company's systems interface with
          those of its  customers  to receive new account  placements  daily and
          provide  frequent  updates to customers on the status of  collections.
          OSI has become  increasingly  integrated  with its customers'  systems
          resulting in high switching costs for its customers.

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

Growth Strategies

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

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

      -   Expansion of Customer Base.

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

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

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

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

Acquisition and Integration History

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

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

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

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

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

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

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

Recapitalization

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

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

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

Services and Operations

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

Collection  Services

        The Company is one of the largest  providers of  collection  services in
the United  States.  The Company offers a full range of contingent fee services,
including  pre-charge-off  programs and letter series,  to most consumer  credit
end-markets.  The Company utilizes sophisticated  management information systems
and vast  experience  with  locating,  contacting  and  effecting  payment  from
delinquent  account holders in providing its core contingent fee services.  With
52 call centers in 26 states and  approximately  5,500 account  representatives,
the Company has the ability to service a large volume of accounts  with national
coverage.  In addition to  traditional  contingent  fee services  involving  the
placement of accounts 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
earn a fixed  fee per  placed  account  rather  than a  percentage  of  realized
collections.   These  programs   require  a  greater  degree  of   technological
integration  between OSI and its customers,  leading to higher  switching costs.
The Company primarily  services consumer  creditors,  although the Company has a
growing presence in the commercial collection business,  offering contingent fee
services to commercial creditors.

        Contingent  fee services are the  traditional  services  provided in the
accounts  receivable  management  industry.   Credit  grantors  typically  place
non-performing  accounts  after they have been deemed  non-collectible,  usually
when 90 to 120 days past due,  agreeing to pay the servicer a  commission  level
calculated  on the amount of  collections  actually  made.  At this  point,  the
receivables are usually still valued on the customer's balance sheet,  albeit in
a form at least partially reserved against for possible noncollection. Customers
typically use multiple agencies on any given placement  category,  enabling them
to benchmark each agency's  performance against the other.  Placement is usually
for a fixed time frame, typically a year, at the end of which the agency returns
the uncollected  receivables to the customer,  which may then place them with an
alternative agency.

        The commission  rate for  contingent fee services is generally  based on
the  collectability  of the asset in terms of the costs which the contingent fee
servicer must incur to effect  repayment.  The earlier the placement  (i.e., the
less elapsed time  between the past due date of the  receivable  and the date on
which the debt is placed  with the  contingent  fee  servicer),  the  higher the
probability  of recovering the debt, and therefore the lower the cost to collect
and  the  commission  rate.   Creditors   typically  assign  their   charged-off
receivables  to  contingent  fee  servicers  for a twelve month cycle,  and then
reassign the  receivables to other servicers as the accounts become further past
due.  There are three main types of placements in the  contingent  fee business,
each representing a different stage in the cycle of account collection.  Primary
placements  are  accounts,  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.

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

        The  Company  estimates  the  collectability  of  each  placement  using
sophisticated  statistical scoring systems that are applied to each account. The
objective is to maximize revenues and to minimize expenses. For example, instead
of sending letters to the entire account base, a targeted telemarketing campaign
may be used to directly contact  selected account groups,  thus saving the costs
associated with an unnecessary broad-based mail campaign.

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:

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

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

      -   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

      -   teleservicing  whereby the Company offers inbound and outbound calling
          programs  to  perform  sales,  customer  retention  programs,   market
          research and customer service.

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

Portfolio Purchasing Services

        While  contingent  fee servicing  remains the most widely used method by
credit grantors in recovering non-performing accounts,  portfolio purchasing has
increasingly  become  a  popular  alternative.  Beginning  in  the  1980's,  the
Resolution  Trust  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. The
Company's management estimates the total principal value of purchased portfolios
at over $20 billion per year.  The largest  percentage  of purchased  portfolios
originated  from the bank card receivable and retail markets and such portfolios
are typically purchased at a deep discount from the aggregate principal value of
the accounts,  with an inverse correlation between purchase price and age of the
delinquent  accounts.  Once  purchased,  traditional  collection  techniques are
employed to obtain payment of non-performing accounts.

        The  Company  offers  portfolio  purchasing  services to a wide range of
financial  institutions,  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.  Credit
grantors  selling  portfolios  to the  Company  realize  a  number  of  benefits
including  increased  predictability  of cash flow,  reduction in monitoring and
administrative  expenses,  and  reallocation  of assets from  non-core  business
functions to core business functions.

        The Company's  purchased  portfolios consist primarily of consumer loans
and  credit  card   receivables,   student  loan  receivables  and  health  club
receivables  including portfolios  purchased under forward flow agreements.  The
Company's  most recent  portfolio  acquisitions  have been  primarily  purchases
pursuant to OSI'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 1999, the Company established its own portfolio  purchasing valuation
unit to complement  services  previously  provided by an  independent  portfolio
valuation firm.

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

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

        The marketing force is responsible  both for identifying and cultivating
potential  customers,  as well as  retaining  or  increasing  market  share with
existing  clients.  The marketing force is generally  organized  around specific
industries  and is also trained to market the overall  benefits of its services,
providing a  cross-selling  function  for all its business  units.  Compensation
plans for the marketing force are incentive based, with professionals  receiving
a base  salary  and  incremental  compensation  based  on  performance.  For the
Company's  Transworld  Systems  subsidiary,  it has a sales  force  of over  800
independent contractors based in 150 offices.

Customers

        The Company's customer base includes a full range of local, regional and
national credit grantors.  The Company's largest customer  accounted for no more
than 5% of 1999 revenues.

Employees

        The  Company  employs  approximately  7,000  people,  of which 5,500 are
account  representatives,  100  are  sales  representatives  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 its procedures,  information  systems
and regulations  regarding contact with debtors. The training includes technical
topics,  such as use of on-line  collection  systems  and  computerized  calling
techniques,  as well as  instruction  regarding  the  Company's  approach to the
collection process and listening, negotiation and problem-solving skills, all of
which are essential to efficient and effective collections.

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

Competition

        The accounts  receivable  management  industry is highly  fragmented and
competitive.  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.  Within  the  collection  and
outsourcing  services of the Company's  business,  large volume credit  grantors
typically  employ  more  than  one  accounts   receivable   management  company.
Competition  is  based  largely  on  recovery  rates,  industry  experience  and
reputation,  and service  fees.  Within  this  market,  our largest  competitors
include Deluxe Corporation, Dun & Bradstreet, Equifax Corporation, G.C. Services
and NCO Group.

        The  bidding  process  associated  with  the  acquisition  of  purchased
portfolios  has become more  competitive as the number of  participants  in this
business has increased.  However, in late 1998, the Company's primary competitor
for purchased  portfolios,  Commercial Financial Services,  declared bankruptcy.
The Company's largest  remaining  competitors in this market include MCM Capital
Group Inc., Creditrust Corporation and West Capital Corporation.

Environmental, Health & Safety Matters

        Current operations of OSI and its subsidiaries do not involve activities
materially  affecting the environment.  However, the Company's  subsidiary,  The
Union  Corporation,  is  party  to  several  pending  environmental  proceedings
involving  the  United  States  Environmental  Protection  Agency,  or EPA,  and
comparable state environmental agencies in Indiana, Maryland, Massachusetts, New
Jersey, Ohio,  Pennsylvania,  South Carolina and Virginia.  All of these matters
relate to discontinued  operations of former  divisions or subsidiaries of Union
for which it has potential  continuing  responsibility.  Upon  completion of the
acquisition  of  Union,  OSI,  in  consultation  with  both  legal  counsel  and
environmental  consultants,  established  reserves  that  it  believes  will  be
adequate for the ultimate settlement of these environmental proceedings.

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

        The  second  group  of  matters  relates  to  environmental   issues  on
properties  currently or formerly  owned or operated by a subsidiary or division
of Union.  These cases generally  involve matters for which Union or an inactive
subsidiary is the sole or primary responsible party. In one case, the Metal Bank
Cottman  Avenue  site,  the EPA issued a record of decision on February 6, 1998.
According  to the  record  of  decision,  the cost to  perform  the  remediation
selected  by the EPA for the site is  estimated  by the EPA to be  approximately
$17.3 million.  The aggregate  amount  reserved by Union for this site was $18.2
million, which represented Union's best estimate of the ultimate potential legal
and consulting costs for defending its legal and technical  positions  regarding
remediation of this site and its portion of the potential remediation costs that
will ultimately be incurred by it, based on current information.  However, Union
may be exposed to additional  substantial  liability for this site as additional
information  becomes  available over the  long-term.  Actual  remediation  costs
cannot be computed  until such remedial  action is completed.  Some of the other
sites  involving  Union  or an  inactive  subsidiary  are at a  state  where  an
assessment  of ultimate  liability,  if any,  cannot  reasonably be made at this
time.

        It is Union's policy to comply fully with all laws regulating activities
affecting  the  environment  and to meet its  obligations  in this area. In many
"generator" liability cases, reasonable cost estimates are available on which to
base reserves on Union's  likely  allocated  share among viable  parties.  Where
insufficient  information is available  regarding projected remedial actions for
these  "generator"  liability  cases,  Union has recorded what it believes to be
reasonable  estimates of its potential  liabilities.  Reserves for liability for
sites on which former  operations  were conducted are based on cost estimates of
remedial actions  projected for these sites. OSI periodically  reviews all known
environmental  claims,  where  information is available,  to provide  reasonable
assurance that reserves are adequate.

Governmental Regulatory Matters

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

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

ITEM 2.    PROPERTIES

          As of December 31, 1999, the Company and its subsidiaries  operated 69
facilities in the U.S., all of which are leased, except for three administrative
and collection  offices  operated by Transworld  Systems,  which are owned.  The
Company  believes  that  such  facilities  are  suitable  and  adequate  for its
business.  The Company's facilities are strategically located across the U.S. to
give effective broad geographic coverage for customers and access to a number of
labor markets.

ITEM 3.    LEGAL PROCEEDINGS

        At December  31,  1999,  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, 1999.

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

        The  following  matters  were  submitted  to a vote of security  holders
during the fourth quarter of the year ended December 31, 1999.

        In November 1999,  pursuant to written  consent of  shareholders  of the
Company's voting common stock,  the  shareholders  approved the amendment of the
Company's  Certificate  of  Incorporation  to (i) increase the total  authorized
shares of the  Voting  Common  Stock of the  Company,  (ii)  increase  the total
authorized  shares of the Class B  Non-Voting  Common  Stock of the  Company and
(iii) provide for the  authorization of 200,000 shares of other preferred stock.
These consents were executed by holders of a majority of the outstanding capital
stock of the Company.

        In  December  1999,  pursuant  to written  consent of the holders of the
Company's  outstanding 11% Senior  Subordinated  Notes due November 1, 2006, the
noteholders  waived:  (i) the  Company's  obligations  under Section 4.15 of the
Indenture,  including  its  obligations  to make a Change  of  Control  Offer in
connection  with the  Recapitalization;  and (ii) the  failure by the Company to
comply with certain  technical  requirements  relating to the  qualification and
operation of its financing  subsidiary,  OSI Funding Corp.,  as an  Unrestricted
Subsidiary  under the Indenture and any and all consequences  arising  therefrom
under the Indenture.

        In December 1999,  pursuant to written  consent of  shareholders  of the
Company's  voting  common  stock,  the  shareholders  approved  bonuses,  option
acceleration and price amendments,  and option grants to certain officers of the
Company.  These consents were executed by holders of 3,462,726.01  shares of the
Company's  voting  common  stock,  391,740.58  shares of the  Company's  Class A
non-voting  common stock,  400,000  shares of the  Company's  Class B non-voting
common stock,  and 1,040,000  shares of the Company's Class C non-voting  common
stock.

        In December 1999,  pursuant to written  consent of  shareholders  of the
Company's  voting  common  stock,  the  shareholders  approved the amendment and
restatement  of  the  Company's   Certificate  of  Incorporation  to  amend  the
authorized  capitalization of OSI, principally to (i) provide that voting common
stock will no longer have the ability to convert into  non-voting  common stock,
(ii)  provide that there will be only one class of  non-voting  common stock and
(iii) eliminate  reference to any specific series of preferred stock and instead
authorize  preferred stock with rights,  preferences and obligations that may be
established  by the Board of Directors.  Stockholders  holding a majority of the
issued and  outstanding  shares of common  stock of the Company and holders of a
majority  of the  issued  and  outstanding  shares of each of the (i)  preferred
stock,  (ii) Class A non-voting  common stock,  (iii) Class B non-voting  common
stock and (iv) Class C non-voting common stock executed these consents.

PART II.

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

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

        As of March 30, 2000,  there were  approximately 30 holders of record of
the Voting common stock and Nonvoting common stock.

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

ITEM 6.    SELECTED FINANCIAL DATA

        The following  selected  historical  financial data set forth below have
been derived from,  and are  qualified by reference to the audited  Consolidated
Financial  Statements  of OSI as of December 31, 1998 and 1999 and for the three
years ended December 31, 1999. The audited financial  statements of OSI referred
to above are included elsewhere herein. The selected  historical  financial data
set forth below 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
Account  Portfolios  ("API") (as predecessor) not included herein.  The selected
historical  financial  data set forth below as of December 31, 1995,  1996,  and
1997 for the period  September  21, 1995 to  December  31, 1995 and for the year
ended December 31, 1996 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>
<CAPTION>
                                              API                                   OSI
                                       (as predecessor)                        (as successor)
                                       ---------------  ----------------------------------------------------------------
                                                           From
                                              From       September 21
                                          January 1 to        To
                                          September 20   December 31,               Year Ended December 31,
                                          ------------   ------------   ------------------------------------------------
                                              1995          1995        1996         1997           1998         1999
                                              ----          ----        ----         ----           ----         ----
                                                                        ($ in thousands)
Income Statement Data:
<S>                                        <C>          <C>          <C>          <C>             <C>          <C>
Operating revenue ......................   $  21,293    $   8,311    $ 106,331    $ 271,683       $ 479,400    $ 504,425
Salaries and benefits ..................       4,471        2,079       46,997      133,364         230,114      244,157
Other operating expenses (a) ...........       7,343        8,953       80,357      156,738         221,598      224,616
Change in control bonuses, stock option
      redemption and other bonuses .....           -            -            -            -               -       10,487
Nonrecurring conversion, realignment
       and relocation expenses .........           -            -            -            -               -        5,063
Transaction related costs ..............           -            -            -            -               -        6,827
                                           ---------    ---------    ---------    ---------       ---------    ---------
Operating income (loss) ................       9,479       (2,721)     (21,023)     (18,419)         27,688       13,275
Interest expense, net ..................         495        1,361       12,131       28,791          50,627       52,265
Income (loss) before taxes .............       8,984       (4,082)     (33,154)     (47,210)        (22,939)     (38,990)
Provision for income taxes (benefit) ...           -       (1,605)     (11,757)      11,127             830          759
Minority interest ......................           -            -            -            -             572            -
                                           ---------    ---------    ---------    ---------       ---------    ---------
Income (loss) before extraordinary item    $   8,984    $  (2,477)   $ (21,397)   $ (58,337)      $ (24,341)   $ (39,749)
Extraordinary loss .....................           -            -            -            -               -        4,208
                                           ---------    ---------    ---------    ---------       ---------    ---------
Net income (loss) ......................   $   8,984    $  (2,477)   $ (21,397)   $ (58,337)      $ (24,341)   $ (43,957)
                                           =========    =========    =========    =========       =========    =========

Balance Sheet Data (at end of period):
Total assets ...........................      11,272       85,652      355,207      381,690         618,491      624,712
Total debt .............................           -       36,462      247,616      324,966         528,148      518,307
Mandatorily redeemable preferred stock .           -            -            -            -               -       85,716
Partners' capital/Stockholders equity
    (deficit) ..........................      10,559       42,448       51,598       (5,478)        (30,032)     (93,948)
Other Financial Data:
Amortization of purchased portfolios ...   $   2,308    $   5,390    $  27,317      $52,042(c)      $50,703(d)    38,722
Other depreciation and amortization ....         167          331       18,281       33,574          30,007       31,095
Cash capital expenditures ..............         574           97        2,606        9,489          13,480       18,437
On-balance sheet portfolio purchases ...       5,502          903       10,373(e)    46,494          43,186       23,176
Cash flows from:
    Operating activities and
          portfolio purchasing .........         385        1,999       (2,978)     (13,669)         12,066       (3,652)
    Investing activities ...............       6,761      (30,104)    (186,790)     (73,005)       (184,619)     (21,549)
    Financing activities ...............     (20,587)      29,574      202,796       75,394         178,150       22,446
EBITDA (b) .............................      11,954        3,000       24,575       67,197         108,398       83,092
Adjusted EBITDA (b) ....................      11,954        3,000       25,775       67,197         108,398      105,469


------------------------------
</TABLE>


(a) Other operating expenses include  telephone,  postage,  supplies,  occupancy
    costs, data processing costs,  depreciation,  amortization and miscellaneous
    operating expenses.

(b) EBITDA is defined as income  from  continuing  operations  before  interest,
    taxes,  depreciation  and  amortization.  Adjusted EBITDA reflects EBITDA as
    defined  above  adjusted  for  the   non-recurring   write-off  of  acquired
    technology  in  process  in  connection  with  the  Payco   acquisition  and
    relocation   expenses   incurred   by   Continental   of  $1,000  and  $200,
    respectively,  in the year ended December 31, 1996 and the change in control
    bonuses,   stock  option   redemption  and  other   bonuses;   non-recurring
    conversion,  realignment and relocation  expenses;  and transaction  related
    expenses of  $10,487,  $5,063 and  $6,827,  respectively,  in the year ended
    December  31,  1999.  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.

(c) 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.

(d) 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.

(e) In May 1996, a subsidiary of the Company acquired participation interests in
    certain loan portfolios,  representing the undivided  ownership interests in
    such   portfolios   which  were   originally   sold   pursuant  to  existing
    Participation  Agreements ("MLQ  Interests") for aggregate  consideration of
    $14,772. This amount excludes the $14,772.

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

Results of Operations

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

        Revenues  for the year  ended  December  31,  1999 were  $504.4  million
compared to $479.4 million for the year ended December 31, 1998 - an increase of
5.2%.  The revenue  increase of $25.0  million was due  primarily  to  increased
collection and  outsourcing  revenues of $19.7 million and $7.3 million from the
full year effect of the  acquisition of Union in 1998.  Revenues from collection
services  were $362.9  million for the year ended  December 31, 1999 compared to
$350.1 million for 1998. The increase in collection  services revenue was due to
a  2.1%  increase  in  existing   business  and  $5.7  million  from  the  Union
acquisition.   The  outsourcing  services  revenue  of  $61.1  million  compared
favorably  to  $46.9  million  for 1998 due to  increased  revenue  from new and
existing business of 26.7% and $1.6 million from the Union acquisition. Revenues
from purchased  portfolio  services decreased 2.4% to $80.4 million for the year
ended  December 31, 1999 from $82.4 million in 1998.  The decreased  revenue was
attributable  to lower  revenues  from  on-balance  sheet  portfolios  and lower
strategic  sales of portfolios  offset by higher  servicing fee revenues for the
off-balance sheet collections of portfolios which increased due to the formation
of the Company's  special purpose finance  company  ("FINCO").  Prior to forming
FINCO,  the Company would record as revenue the total  collections  on purchased
portfolios.  Currently,  for all  purchased  portfolios  which  are  sold to and
financed by FINCO,  the Company  records as revenue a servicing fee on the total
collections of FINCO  purchased  portfolios.  During the year ended December 31,
1999, the Company recorded revenue from FINCO servicing fees of $13.5 million on
total collections of $39.3 million compared to servicing fees of $0.8 million on
total  collections  of $1.9  million in 1998.  When  compared  to the year ended
December  31,  1998,  the total  collections  of both on and  off-balance  sheet
purchased  portfolios increased from $65.1 million to $89.0 million in 1999 - an
increase of 36.7% or $23.9 million. The increased collections resulted primarily
from an increase in the total  levels of  purchased  portfolios  primarily  as a
result of the increased buying capacity made available through FINCO.

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

        During the fourth  quarter  of 1998 and the first  quarter of 1999,  the
Company evaluated its business strategy for its operations.  After the Company's
formation and seven  acquisitions,  the Company  adopted a strategy to align the
Company  along  business  services and  establish  call centers of excellence by
industry specialization.  As a result, nonrecurring conversion,  realignment and
relocation  expenses  include costs resulting from the temporary  duplication of
operations,  closure of certain call centers  along with  relocation  of certain
employees,  hiring and  training  of new  employees,  costs  resulting  from the
conversion of multiple collection  operating systems to a one industry operating
system,  and other one-time and redundant costs, which will be eliminated as the
realignment  and  integration  plans are completed.  These costs of $5.1 million
were recognized as incurred during 1999.

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

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

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

        Earnings before interest expense,  taxes,  depreciation and amortization
(EBITDA) for the year ended December 31, 1999 was $83.1 million. Adding back the
nonrecurring  and transaction  related  expenses,  EBITDA was $105.5 million for
1999  compared  to $108.4  million for the year ended  December  31,  1998.  The
decrease was primarily  attributable to the higher  marketing  costs  associated
with branding  initiatives,  higher infrastructure and industry focused expenses
and the decreased  portfolio service revenues resulting from the manner in which
revenues from off-balance sheet collections are recognized.

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

        The  provision  for income  taxes of $0.8 million was provided for state
and foreign income tax obligations, which the Company cannot offset currently by
net operating losses.

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

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

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

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

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
collection,  outsourcing and portfolio  services  revenues of $14.4 million - an
increase of 5.3% over 1997, and $193.3 million from the  acquisitions  of Union,
NSA and ABC. Revenues from collection  services were $350.1 million for the year
ended  December 31, 1998  compared to $180.9  million for 1997.  The increase in
collection services revenues was due to a 1.0% increase in existing business and
$167.9 million from the three acquisitions. In the highly competitive collection
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 $82.4 million
for the year ended  December  31, 1998  compared  to $67.8  million in 1997 - up
21.5%. The increased revenue was attributable to both higher collection  revenue
and strategic sales of portfolios. The 1998 outsourcing revenue of $46.9 million
compared  favorably to 1997 revenue of $23.0  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  11  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.

Liquidity and Capital Resources

        At December 31, 1999, the Company had cash and cash  equivalents of $6.1
million.  The Company's credit agreement  provides for a $75.0 million revolving
credit facility, which allows the Company to borrow for working capital, general
corporate  purposes  and  acquisitions,  subject  to certain  conditions.  As of
December 31, 1999, the Company had outstanding $13.0 million under the revolving
credit  facility  leaving $60.0 million,  after  outstanding  letters of credit,
available under the revolving credit facility.

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

        Purchased Loans and Accounts Receivable  Portfolios decreased from $55.5
million at December 31, 1998 to $39.9 million at December 31, 1999 due primarily
to amortization of purchased portfolios of $38.7 million offset partially by new
on-balance sheet portfolio purchases of $23.2 million.

        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, 1999 and  December  31, 1998 by type of
receivable is shown below:
<TABLE>
<CAPTION>
                                          December 31, 1999                  December 31, 1998
                                   ------------------------------     --------------------------------
                                   Original Gross    Recorded Net     Original Gross      Recorded Net
                                   Principal Value    Book Value      Principal Value      Book Value
                                   ---------------   ------------     ---------------     ------------
                                    (in millions)    (in thousands)    (in millions)     (in thousands)

<S>                                   <C>              <C>                 <C>               <C>
Consumer loans.....................   $2,958           $16,141             $2,114            $11,615
Student loans......................      343             1,258                328              2,782
Credit cards.......................      958            11,837                897             26,489
Health clubs.......................    1,565             9,060              1,460             12,229
Commercial.........................      129             1,651                129              2,378
                                    --------          --------           --------           --------
                                      $5,953           $39,947             $4,928            $55,493
                                    ========          ========           ========           ========
</TABLE>

        Net deferred  taxes was zero at December 31, 1998. At December 31, 1999,
net deferred  taxes was zero due to a net valuation  allowance of $78.8 million.
The net  deferred tax balances at December 31, 1999 and December 31, 1998 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
2019. At December 31, 1999, the Company has a cumulative net valuation allowance
of $78.8 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.  For all  federal  tax years  since the  Company's
formation in September  1995,  the Company has  incurred net  operating  losses.
Since the  Company  has a history  of  generating  net  operating  losses and is
expected to continue to incur significant interest expense,  management does not
expect  the  Company  to  generate  taxable  income  in the  foreseeable  future
sufficient to realize tax benefits from the net operating loss  carryforwards or
the future reversal of the net deductible temporary  differences.  The amount of
the deferred tax assets considered  realizable,  however,  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, 1999 consists of
$413.0 million  indebtedness under the bank credit facility,  $100.0 million 11%
Senior  Subordinated Notes (the "Notes") and other indebtedness of $5.3 million.
See Note 6 of the Consolidated  Financial  Statements of OSI included  elsewhere
herein for a description of the 1999 credit facility.

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

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

        Capital  expenditures  for the year ended  December  31, 1999 were $18.4
million.  The Company  expects to spend  approximately  $18.0 million on capital
expenditures  (exclusive of any expenditures in connection with acquisitions) in
2000. 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, 1999, 1998 and 1997.

Year 2000

        The  Company's  business  applications  and  infrastructure   functioned
flawlessly  upon the beginning of the New Year and  experienced  no  significant
Year 2000  related  glitches during  the  year's  first  full  week of  business
operations and have continued to perform since then.

        Because many of the Company's client relationships are supported through
computer system  interfaces,  OSI worked proactively with clients to assure Year
2000 compliance between respective  computer systems. It also secured assurances
from suppliers and vendors that their products would be Year 2000 ready.

        Within OSI, the Company  tested and confirmed that the full range of its
computer based production systems and  infrastructure  were Year 2000 compliant.
In addition to services typical of most companies,  like phone systems, building
services,   email  and  office  equipment,   OSI's  compliance  program  focused
especially  on customer  interfaces  and  reporting,  collection  and  financial
systems and predictive dialers.

        Spending  for Year 2000  modifications  and  updates  were  expensed  as
incurred and did not have a material impact on the results of operations or cash
flows.  The cost of the  company's  Year 2000 project was funded from cash flows
generated  from  operations.  The  Company  estimates  that its total  Year 2000
expenses were approximately $1.7 million.

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
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)  legal  proceedings,  (8)
environmental  investigations  and clean up  efforts,  (9)  expected  synergies,
economies of scale and cost savings from recent  acquisitions by the Company not
being fully realized or realized within the expected time frames,  (10) costs of
operational  difficulties  related to  integrating  the  operations  of recently
acquired  companies with the Company's  operations  being greater than expected,
(11) 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,  (12) the  effectiveness  of the
Company's Year 2000 efforts, and (13) factors discussed from time to time in the
Company's public filings.

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

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

        The Company uses interest rate 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. In connection with the Recapitalization resulting in the Company
refinancing  its then  outstanding  indebtedness,  all interest  agreements were
terminated.  Therefore,  at December  31, 1999,  the Company had no  outstanding
interest  rate  agreements.  Pursuant  to the Credit  Agreement,  the Company is
obligated  to secure  interest  rate  protection  in the nominal  amount of $150
million by July 2000.

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

                            Interest Rate Sensitivity

                Principal (Notional) Amount by Expected Maturity

                              Average Interest Rate

                              (Dollars in millions)

<TABLE>
<CAPTION>
                                                                                            Fair
                          2000     2001     2002     2003   2004    Thereafter     Total    Value
                          ----     ----     ----     ----   ----    ----------     -----    -----
Liabilities
Long-term debt, including current portion
 <S>                      <C>     <C>      <C>      <C>    <C>       <C>          <C>       <C>
 Fixed rate                  -        -        -        -      -      $100.0      $100.0    $97.0
 Average interest rate    11.0%    11.0%    11.0%   11.0%   11.0%       11.0%


 Variable rate            $2.5    $10.0    $17.5    $32.5  $40.0      $310.5      $413.0   $413.0
 Average interest rate    (1)      (1)      (1)      (1)    (1)        (1)


(1) - One month LIBOR (5.8% at December 31, 1999) plus weighted-average margin of 3.7%.

</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
-------------------------       ---        -----------------------------
Timothy G. Beffa                49         Director, President and
                                                 Chief Executive Officer
William B. Hewitt               61         Director
Timothy M. Hurd                 30         Director and Vice President
Scott P. Marks, Jr.             54         Director
Richard L. Thomas               69         Director
Paul R. Wood                    46         Director and Vice President
Michael A. DiMarco              42         Executive Vice President -
                                                 President Fee Services
Bryan K. Faliero                34         President Portfolio Services
Michael B. Staed                53         Senior Vice President and
                                                 President Outsourcing Services
Gary L. Weller                  39         Executive Vice President and
                                                 Chief Financial Officer


Timothy G. Beffa  (49),  President,  Chief  Executive  Officer  and  Director of
Outsourcing  Solutions  Inc.  since August  1996.  From August 1995 until August
1996,  Mr.  Beffa  served as  President  and Chief  Operating  Officer  of DIMAC
Corporation  ("DIMAC") and DIMAC DIRECT Inc. ("DDI") and a director of DDI. From
1989 until  August 1995,  Mr.  Beffa served as a Vice  President of DIMAC and as
Senior  Vice  President  and Chief  Financial  Officer of DDI.  Prior to joining
DIMAC,  Mr. Beffa was Vice  President of  Administration  and Controller for the
International  Division  of Pet  Incorporated,  a  food  and  consumer  products
company, where he previously had been manager of Financial Analysis.

William B. Hewitt (61),  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. were subsidiaries of Union.

Timothy M. Hurd (30),  Director and Vice President of the Company since December
1999.  Mr. Hurd is a director  of Madison  Dearborn  Partners.  Prior to joining
Madison  Dearborn  Partners,  Mr. Hurd was with Goldman Sachs & Co. He currently
serves as a director of Woods Equipment Company, Inc. and PeopleFirst.com.

Scott P. Marks, Jr. (54),  Director of the Company since January 2000. Mr. Marks
is a private  investor in Chicago,  IL. Mr. Marks resigned from his post as Vice
Chairman and a member of the Board of Directors of First Chicago NBD Corporation
in December,  1997, a post he had held since December,  1995.  Previously he was
Executive  Vice  President  of  First  Chicago  Corporation  and  managed  their
credit card business for approximately 10 years. Mr. Marks serves as a  director
of ADA  Business  Enterprises, the for-profit  subsidiary of the American Dental
Association, Pascomar Inc. and Clark Polk Land LLC.

Richard L. Thomas (69),  Director of the Company since January 2000.  Mr. Thomas
has been  retired  since May  1996.  Prior to  retiring,  Mr.  Thomas  served as
Chairman of First Chicago NBD Corporation  from December 1995 to May 1996. Prior
to that he served as Chairman of First Chicago Corporation from December 1991 to
December  1995.  He currently  serves as a director of IMC Global Inc.,  The PMI
Group Inc., The Sabre Group, Sara Lee Corporation and Unicom Corporation.

Paul R. Wood (46),  Director and Vice  President of the Company  since  December
1999. Mr. Wood is a managing  director of Madison  Dearborn  Partners.  Prior to
co-founding  Madison Dearborn Partners,  Mr. Wood was with First Chicago Venture
Capital for nine years in various leadership positions. He currently serves as a
director of Hines Horticulture, Inc., Woods Equipment Company, Inc. and Eldorado
Bankshares, Inc.

Michael A. DiMarco (42),  Executive  Vice  President  and  President  Collection
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.

Bryan K. Faliero (34), President Portfolio Services of the Company since October
1997.  From June 1997 to September  1997, Mr. Faliero served as Vice  President,
Business  Analysis  for the  Company.  Prior to joining the  Company,  he was an
associate with Booz Allen & Hamilton, a strategic  consultancy based in Chicago,
concentrating on operations strategy and network rationalization.

Michael B. Staed (53), Senior Vice President and President  Outsourcing Services
of the Company since July 1999.  From May 1998 to June 1999, Mr. Staed served as
Senior Vice President Marketing,  Outsourcing for the Company.  Prior to joining
the Company,  he served as a partner in the consulting division of Ernst & Young
LLP for four years focusing on the global telecommunications practice.

Gary L. Weller (39), Executive Vice President and Chief Financial Officer of the
Company  since July 1999.  From January 1998 to June 1999,  Mr. Weller served as
Senior Vice  President  and Chief  Financial  Officer of Harbour  Group Ltd., an
investment  firm based in St. Louis.  From June 1993 to December 1997, he served
as  Executive  Vice  President  and  Chief   Financial   Officer  of  Greenfield
Industries, Inc.

<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, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
                                                           Summary Compensation Table
                                    --------------------------------------------------------------------
                                                                           Long Term
                                                                          Compensation
Name and                                                 Other Annual        Awards         All Other
                                    Salary     Bonus     Compensation     -----------      Compensation
Principal Position       Year        ($)        ($)          ($)           Options (#)         ($)(1)
------------------       -----     -------    ------  ------------------ ---------------  --------------
<S>                     <C>        <C>        <C>           <C>              <C>            <C>
Timothy G. Beffa        1999       370,836    365,000                                           2,617
President and CEO       1998       350,000    405,300
                        1997       320,110    457,500                        41,555

Michael A. DiMarco      1999       325,000    100,000       42,373(2)        50,000         1,373,017
Executive Vice          1998(3)    108,337    220,000       14,491(2)
  President - President
  Fee Services

Bryan K. Faliero        1999       195,206     90,000                                         480,337
President Portfolio     1998       159,373     83,800                                           4,272
   Services             1997(4)     73,945     35,000                        25,000             2,412

Mike B. Staed           1999       228,337     70,000                        16,000           947,505
Senior Vice President   1998(5)    135,289     89,600                         9,000
  And President
  Outsourcing Services

Gary L. Weller          1999(6)    134,512    310,000                        50,000            10,459
Executive Vice
  President and CFO
------------------------------
</TABLE>

(1) In connection with the  Recapitalization,  Mr. DiMarco,  Mr. Faliero and Mr.
    Staed  received  change in control  payments  of  $1,356,875,  $475,627  and
    $937,500,  respectively.  Remaining amounts,  if any, represent split dollar
    life insurance and long-term  disability  premiums paid by the Company along
    with the Company's portion of the 401(k)  contribution.  Upon termination of
    split dollar life insurance policy,  any residual cash surrender value (cash
    surrender value less premiums paid) is paid to the executive officer.
(2) Payment of taxes by the Company for includable W-2 relocation expenses.
(3) 1998  compensation  based on an annual salary of $325,000.  Mr.  DiMarco was
    hired in September 1998.
(4) 1997  compensation  based on an annual salary of $138,500.  Mr.  Faliero was
    hired in June 1997.
(5) 1998 compensation based on an annual salary of $210,000. Mr. Staed was hired
    in May 1998.
(6) 1999  compensation  based on an annual  salary of $275,000.  Mr.  Weller was
    hired in July 1999.


        The  following  table sets forth grants of stock options made during the
year ended December 31, 1999.
<TABLE>
<CAPTION>
                              OPTION GRANTS IN 1999

                                    Percent of
                    Number of         Total                                         Potential Realizable Value
                    Securities       Options                                        at Assumed Annual Rates of
                    Underlying      Granted to      Exercise                        Stock Price Appreciation
                    Options          Employees       or Base                            for Option Term
      Name          Granted         In Fiscal        Price         Expiration      ---------------------------
                       (#)             Year         ($/share)         Date              5%             10%
-----------------   -----------    ------------    ------------   -------------    -----------    ------------
<S>                     <C>            <C>           <C>         <C>                 <C>            <C>
Michael A. DiMarco      50,000         23%           $40.00       June 3, 2009       $1,258,000     $3,187,500


Mike B. Staed           16,000          7%           $40.00       June 3, 2009         $403,000     $1,020,000



Gary L. Weller          50,000         23%           $40.00       July 16, 2009      $1,258,000     $3,187,500

</TABLE>

        The following table sets forth options  exercised  during the year ended
December  31, 1999 and options  held by the current  executives  at December 31,
1999.
<TABLE>
<CAPTION>
                   AGGREGATED OPTION EXERCISES IN 1999 AND OPTION VALUES ON

                                DECEMBER 31, 1999



                    Shares                            Number of Securities              Value of Unexercised
                    Acquired                         Underlying Unexercised            In-the-Money Options at
                    on               Value        Options at December 31, 1999          December 31, 1999(1)
                    Exercise       Realized      ------------------------------    -----------------------------
      Name             (#)            ($)        Exercisable     Unexercisable     Exercisable    Unexercisable
-----------------   ----------    ------------   ------------    --------------    -----------    --------------

<S>                 <C>             <C>             <C>                 <C>         <C>                     <C>
Timothy G. Beffa    102,801.87      2,567,468       70,175              0           $1,752,270              0

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

Bryan K. Faliero        6,250          77,968       18,750              0             $233,813              0

Michael B. Staed            -               -       25,000              0                    0              0

Gary L. Weller              -               -       50,000              0                    0              0

</TABLE>

(1) Based on the price per share of $37.47  determined for the  Recapitalization
which was completed on December 10, 1999.

        The following table sets forth option  repricings  during the year ended
December 31, 1999.  Because no public market  currently exists for the Company's
common stock, the Compensation Committee of the Board of Directors must estimate
the fair market value of the stock to set the exercise price when granting stock
options.  In  June  1999,  the  Compensation  Committee  determined  that it had
overestimated  the fair market value of the Company's  common stock, and had set
the exercise  price for several  stock option  grants  significantly  above fair
market  value.  Therefore,  it amended the stock  option  award  agreements  for
certain stock option grants,  including a grant to one named executive  officer,
so that the exercise  price more closely  approximated  the fair market value of
the Company's common stock.
<TABLE>
<CAPTION>
                           TEN-YEAR OPTION REPRICINGS


                                      Number of         Market          Exercise
                                      Securities       Price of         Price at
                                     Underlying        Stock at          Time of                  Length of Original
                                       Options         Time of          Repricing      New          Option Term
                                     Repriced or       Repricing           or        Exercise   Remaining at Date of
                                       Amended        or Amendment      Amendment     Price    Repricing or Amendment
     Name               Date             (#)             ($)(1)            ($)         ($)           (Years)
------------------    ----------    -------------    -------------    ------------   --------  ----------------------

<S>                      <C>            <C>              <C>              <C>          <C>              <C>
Michael B. Staed      June 3, 1999        9,000            37.47            65.00        40.00            9

</TABLE>

(1) Because  there is no public market for the  Company's  common stock,  market
value  at the  time  the  options  were  repriced  in June  1999 is not  readily
determinable.  Price shown is the per share price  determined at the time of the
Recapitalization on December 10, 1999.

Employment Agreements

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

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

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

Director Compensation

        Non-employee  directors of OSI who are not affiliated with a stockholder
of the Company  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.   All  directors  receive   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, Mr.
Stiefler,  who served as the  Company's  Chairman of the Board prior to December
10, 1999  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  also  received an annual  salary of $150,000.
Effective  December 10,  1999,  in  connection  with the  Recapitalization,  Mr.
Stiefler  resigned as Chairman of the Board.  At that time,  he exercised all of
his options and  received  cash of  $575,530.  In 1998,  three other  directors,
Messrs.  Hewitt,  Jones and Marshall,  each received  options to purchase  3,000
shares of common stock of the Company.  These options  time-vested  over a three
year   period.   Effective   December   10,  1999,   in   connection   with  the
Recapitalization,  all of the Company's directors except Mr. Beffa resigned from
the Board of Directors.  As a result,  Messrs.  Hewitt,  Jones and Marshall each
forfeited their options to purchase 3,000 shares of common stock of the Company.
Mr. Hewitt was subsequently elected to the Board of Directors in February 2000.

Option Plan

        The Company  maintains  the 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 (i) 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),  (ii) stock  appreciation  rights  granted in
conjunction with stock options,  (iii) restricted stock, or (iv) bonuses payable
in  stock,  to key  salaried  employees  of  the  Company,  including  officers,
independent  contractors  of  the  Company  and  non-employee  directors  of the
Company.

        A total of 750,000  shares of common  stock of the Company are  reserved
for  issuance  under the Stock Option  Plan.  As of March 24,  2000,  options to
purchase up to 442,925  shares of the  Company's  common  stock are  outstanding
under the Stock Option Plan, all of which are vested and exercisable.

Board of Directors' Report on Executive Compensation

        The Compensation Committee recommends compensation  arrangements for the
Company's executive officers and administers the Company's Stock Option Plan. In
conjunction with the Recapitalization, all members of the Compensation Committee
resigned from the Board of Directors,  effective  December 10, 1999. New members
of the  Compensation  Committee  have not yet been  elected  by the  Board.  The
Company's  1999  compensation  program  was  designed  to  be  competitive  with
companies similar in structure and business to the Company.

        The Company's 1999 executive compensation program was structured to help
the Company achieve its business objectives by:

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

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

-    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 1999 were determined by certain members of the Board in March
2000 and paid shortly thereafter.  The amount of bonuses earned by the Company's
executive  officers were determined 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.

        In  June  1999,  the  Company  entered  into  an  amended  and  restated
employment  agreement  with  Timothy  G. Beffa to serve as  President  and Chief
Executive  Officer of OSI.  Under the  employment  agreement,  Mr.  Beffa's base
salary for 1999 was $375,000 and his bonus target  potential was $562,500,  150%
of his base salary. 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 1999, 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 1999 was $365,000--64.9% of his target bonus.

                                 Board of Directors
                                 ------------------
                                 Timothy G. Beffa
                                 William B. Hewitt
                                 Timothy M. Hurd
                                 Scott P. Marks, Jr.
                                 Richard L. Thomas
                                 Paul R. Wood

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        As of March  30,  2000,  the  authorized  capital  stock of the  Company
consists of (i)  15,000,000  shares of Voting Common  Stock,  par value $.01 per
share, of which  5,976,389.04 are issued and outstanding,  (ii) 2,000,000 shares
of Non-Voting  Common Stock,  par value $.01 per share, of which  480,321.30 are
issued and  outstanding,  (iii)  200,000  shares of 14%  Mandatorily  Redeemable
Senior  Preferred  Stock,  no  par  value,  of  which  100,000  are  issued  and
outstanding and (iv) 50,000 shares of Junior  Preferred  Stock, no par value, of
which 7,000 are issued and outstanding.

        The  following  table sets forth the number and  percentage of shares of
each class of the  Company's  capital stock  beneficially  owned as of March 30,
2000 by (i) each person known to the Company to be the beneficial  owner of more
than 5% of any class of the Company's voting equity securities, (ii) each of the
Company's directors and nominees, and (iii) all directors and executive officers
of the Company as a group.

                                                         Amount and
                                                         Nature of      Percent
                        Name and Address                 Beneficial    of Class
  Title of Class           Beneficial Owner              Ownership        (1)
--------------------    ----------------------------   --------------  ---------

Voting Common Stock     Madison Dearborn Capital        4,536,367.84      75.9%
                         Partners III, L.P.(2)
                        Madison Dearborn Special        4,536,367.84      75.9%
                          Equity III, L.P. (2)
                        Special Advisors
                          Fund I, L.L.C.(2)             4,536,367.84      75.9%
                        Timothy M. Hurd(2)              4,536,367.84      75.9%
                        Paul R. Wood(2)                 4,536,367.84      75.9%
                        Timothy G. Beffa(3)                70,175.00       1.2%
                        Michael A. DiMarco(3)              57,000.00          *
                        Bryan K. Faliero(3)                18,750.00          *
                        Michael B. Staed(3)                30,337.60          *
                        Gary L. Weller(3)                  50,000.00          *
                        All directors and officers      4,762,630.44      76.9%
                          as a group

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

* Represents less than one percent.

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

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

(3)     Includes vested options to acquire the following number of shares of the
        Company's common stock: Mr. Beffa 70,175; Mr. DiMarco 50,000; Mr.Faliero
        18,750; Mr. Staed  25,000 and  Mr. Weller 50,000. The address of Messrs.
        Beffa, DiMarco,  Staed and Weller is c/o Outsourcing Solutions Inc., 390
        South Woods Mill Rd., Suite 350,  Chesterfield,  MO 63017. Mr. Faliero's
        address  is  c/o  OSI  Portfolio  Services,  Inc.,  2425  Commerce Ave.,
        Building 1, Suite 100, Duluth, GA 30096.

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 $520,000 at December 31, 1999.

Advisory Services Agreement

        On September  21, 1995 the Company  entered  into an  Advisory  Services
Agreement (the "Advisory  Services  Agreement") with MDC Management Company III,
L.P.  ("MDC  Management"),  then  an  affiliate.  Under  the  Advisory  Services
Agreement, the Company received consulting,  financial, and managerial functions
for a $300,000  annual fee. In 1999,  the Company paid MDC  Management  $275,000
under the Advisory Services Agreement. On December 10, 1999, in conjunction with
the  Recapitalization,  the Advisory Services Agreement was amended and assigned
to Madison Dearborn Partners, Inc. ("MDP"). As amended, the annual fee under the
Advisory Services Agreement is $500,000. The Advisory Services Agreement expires
September 21, 2005 and is renewable  annually  thereafter,  unless terminated by
the Company.  The Company may terminate the Advisory  Services  Agreement at any
time for  cause  by  written  notice  to MDP  authorized  by a  majority  of the
directors  other than those who are partners,  principals or employees of MDP or
any of its affiliates. The Advisory Services Agreement may be amended by written
agreement of MDP and the  Company.  The Company  believes  that the terms of and
fees paid for the  professional  services  rendered are at least as favorable to
the Company as those which could be negotiated with a third party.

        In December  1999 upon closing of the  Recapitalization,  MDP received a
one-time fee of $8.0 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 original
Consulting Agreement, Mr. Hewitt provided consulting assistance with the growing
outsourcing services of the Company at 80% of normal working hours. In addition,
Mr.  Hewitt  received  options to purchase  10,000 shares of common stock of the
Company,  which  options  in  accordance  with  their  terms  became  vested and
exercisable upon consummation of the Recapitalization.  On January 25, 1999, the
Consulting  Agreement  was extended  through March 31, 1999 and at the same time
the Consulting  Agreement was renewed for the period April 1, 1999 through March
31,  2000,  with  the  consulting  services  reduced  to a  maximum  of 50  days
(approximately  20% of normal  working  hours).  For the year ended December 31,
1999, the Company paid Mr. Hewitt $427,500.

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.
Goldman Sachs acted as co-arranger and Goldman Sachs Credit  Partners,  L.P., an
affiliate  of  Goldman  Sachs,  acted as  co-administrative  agent and lender in
connection  with the then existing  credit  facility,  and in 1999 OSI paid them
approximately $706,000 in interest in connection therewith. MLQ Investors, L.P.,
an affiliate of Goldman Sachs, owns an 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 then existing
credit  facility  and in 1999 OSI paid them  approximately  $150,000 in fees and
approximately  $1,526,000  in interest in  connection  therewith.  Additionally,
Chase Equity Associates,  L.P. an affiliate of Chase Securities,  owns an equity
interest in the Company.

Indebtedness of Management

        During  1998,  the  Company  advanced  $117,000  to Michael A.  DiMarco,
Executive Vice President and President Fee Services to facilitate his relocation
to the St. Louis area from Texas. The advance was  non-interest  bearing and was
repaid in full in March 1999.

PART IV.

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

(a)  1.   Financial Statements

          See  index  on  page  41  for a  listing  of  consolidated  financial
          statements filed with this report.

     2.   Financial Statement Schedule

          See  index  on  page  41  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).

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

   2.5    Assignment and Stock Purchase  Agreement dated as of December 10, 1999
          by and among  Outsourcing  Solutions Inc.,  Madison  Dearborn  Capital
          Partners III, L.P., and certain other parties thereto.

   2.6    Purchase  Agreement  dated  as of  December  10,  1999,  by and  among
          Outsourcing Solutions Inc. and certain other parties thereto.

   2.7    Junior  Preferred Stock Purchase  Agreement,  dated as of December 10,
          1999,  by  and  among  Outsourcing  Solutions  Inc.  and certain other
          parties thereto.

   2.8    Consent  Solicitation  Statement,  dated November 9, 1999, relating to
          the Company's 11% Senior Subordinated Notes due November 1, 2006.

   3.1    Fourth  Amended  and  Restated  Certificate  of  Incorporation  of the
          Company, as of December 3, 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
          (incorporated  herein by  reference  to Exhibit  4.5 of the  Company's
          Form 10-K for the year ended December 31, 1998).

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

   10.2   Advisory  Services  Agreement  dated  September  21, 1995  between the
          Company and Madison  Dearborn  Partners,  Inc.,  as assignee  from MDC
          Management Company III, L.P. as amended by Assignment  Agreement dated
          as of  December  10, 1999 by and between  Madison  Dearborn  Partners,
          Inc., the Company and MDC Management Company III, L.P.

   10.3   Registration  Rights  Agreement  dated December 10, 1999, by and among
          Outsourcing  Solutions Inc.,  Madison Dearborn  Partners III, L.P. and
          certain other parties thereto.

   10.4   Registration  Rights  Agreement  dated December 10, 1999, by and among
          the Company and certain other parties thereto.

   10.5   Amended and  Restated  Employment  Agreement  dated as of June 4, 1999
          between the Company and Timothy G. Beffa.

   10.6   Amended and  Restated  Employment  Agreement  dated as of June 4, 1999
          between the Company and Michael A. DiMarco.

   10.7   Employment  Agreement dated as of June 4, 1999 between the Company and
          Bryan K. Faliero.

   10.8   Amended and  Restated  Employment  Agreement  dated as of June 4, 1999
          between the Company and Michael B. Staed.

   10.9   Employment  Agreement  dated July 5, 1999 between the Company and Gary
          L. Weller.

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

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

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

   10.13  Form of Non-Qualified Stock Option Award Agreement [B], as amended.

   10.14  Form of Non-Qualified Stock Option Award Agreement [C], as amended.

   10.15  Form of Non-Qualified Stock Option Award Agreement [E].

   10.16  1998 Incentive  Compensation Program (incorporated herein by reference
          to  Exhibit  10.15 of the  Company's  Form  10-K  for the  year  ended
          December 31, 1998).

   10.17  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).

   10.18  Credit Agreement dated as of November 30, 1999 among the Company,  the
          Lenders listed therein, DLJ Capital Funding,  Inc., as the Syndication
          Agent, and Fleet National Bank, as the Administrative Agent.

   21     Subsidiaries of registrant.

   27     Financial Data Schedule.





(b)  Reports on Form 8-K

For the three months ended December 31, 1999, the following reports  on Form 8-K
were filed:
          Report on Form 8-K filed October 29,  1999.
          Report on Form 8-K filed December 23, 1999.


<PAGE>


SIGNATURES

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

                                          OUTSOURCING SOLUTIONS INC.


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


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

DATE:  March 29, 2000

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

        Signature                          Title                      Date

/s/Timothy G. Beffa           President and Chief Executive       March 29, 2000
---------------------------   Officer, Director
Timothy G. Beffa


/s/William B. Hewitt          Director                            March 29, 2000
---------------------------
William B. Hewitt


/s/Timothy M. Hurd            Director and Vice President         March 28, 2000
---------------------------
Timothy M. Hurd


/s/Scott P. Marks, Jr.        Director                            March 29, 2000
---------------------------
Scott P. Marks, Jr.


/s/Richard L. Thomas          Director                            March 22, 2000
---------------------------
Richard L. Thomas


/s/Paul R. Wood               Director and Vice President         March 29, 2000
---------------------------
Paul R. Wood

<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS 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,
       1999 and 1998..............................................      F-2
  Consolidated Statements of Operations for the
       years ended December 31, 1999, 1998 and 1997...............      F-3
  Consolidated Statements of Stockholders' Equity
       (Deficit) for the years ended
       December 31, 1999, 1998 and 1997...........................      F-4
  Consolidated Statements of Cash Flows for the years
       ended December 31, 1999, 1998 and 1997.....................      F-5
  Notes to Consolidated Financial Statements......................      F-6



Consolidated Financial Statement Schedule

Independent Auditors' Report......................................       F-23
Schedule II - Valuation and Qualifying Accounts and Reserves......       F-24


<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,  1999 and 1998,  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,
1999.  These  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  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,  1999  and  1998  and the  results  of  their
operations  and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with accounting principles generally accepted in
the United States of America.


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

St. Louis, Missouri
March 28, 2000


<PAGE>
OUTSOURCING SOLUTIONS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(In thousands, except share and per share amounts)
--------------------------------------------------------------------------------


ASSETS                                                     1999         1998
                                                           ----         ----

Cash and cash equivalents                                $  6,059     $  8,814

Cash and cash equivalents held for clients                 22,521       22,372

Accounts receivable - trade, less allowance
for doubtful receivables of $529 and $1,309                52,082       40,724

Purchased loans and accounts receivable portfolios         39,947       55,493

Property and equipment, net                                43,647       40,317

Intangible assets, net                                    410,471      425,597

Deferred financing costs, less accumulated
  amortization of $248 and $5,203                          27,224       13,573

Other assets                                               22,761       11,601
                                                         --------     --------
             TOTAL                                       $624,712     $618,491
                                                         ========     ========

LIABILITIES AND STOCKHOLDERS' DEFICIT

Accounts payable - trade                                 $  6,801     $  7,355

Collections due to clients                                 22,521       22,372

Accrued salaries, wages and benefits                       17,009       13,274

Debt                                                      518,307      528,148

Other liabilities                                          68,306       77,374

Commitments and contingencies                                   -            -

Mandatorily redeemable preferred stock;
  redemption amount $107,877                               85,716            -

Stockholders deficit:
  8% nonvoting cumulative redeemable exchangeable
    preferred stock; authorized 1,250,000 shares,
    973,322.32 issued and outstanding in 1998,
    at liquidiation value of $12.50 per share                   -       12,167
  Voting common stock; $.01 par value;
    authorized 15,000,000 shares, 9,054,638.11
    shares issued in 1999 and 3,477,126.01
    shares issued and outstanding in 1998                      90           35
  Non-voting common stock; $.01 par value;
    authorized 2,000,000 shares, 480,321.30
    issued and outstanding in 1999                              5            -
  Class A convertible nonvoting common stock;
    $.01 par value; authorized 7,500,000 shares,
    391,740.58 shares issued and outstanding in 1998            -            4
  Class B convertible nonvoting common stock;
    $.01 par value; authorized 500,000 shares,
    400,000 shares issued and outstanding in 1998               -            4
  Class C convertible nonvoting common stock;
    $.01 par value; authorized 1,500,000 shares,
    1,040,000 shares issued and outstanding in 1998             -           10
  Paid-in capital                                         196,339       66,958
  Retained deficit                                       (155,525)    (109,210)
                                                         --------     --------
                                                           40,909      (30,032)
  Common stock in treasury, at cost;
    3,078,249.07 shares in 1999                          (134,857)          -
                                                         --------     --------
        Total stockholders' deficit                       (93,948)     (30,032)
                                                         --------     --------
               TOTAL                                     $624,712     $618,491
                                                         ========     ========



                 See notes to consolidated financial statements.

<PAGE>
OUTSOURCING SOLUTIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(In thousands)
--------------------------------------------------------------------------------

                                                 1999        1998       1997
                                                 ----        ----       ----

REVENUES                                      $ 504,425   $ 479,400   $271,683

EXPENSES:
  Salaries and benefits                         244,157     230,114    133,364
  Service fees and other operating and
    administrative expenses                     154,799     140,888     71,122
  Amortization of purchased loans
    and accounts receivable portfolios           38,722      50,703     52,042
  Amortization of goodwill and
  other intangibles                              16,229      15,725     24,749
  Depreciation expense                           14,866      14,282      8,825
  Nonrecurring conversion, realignment
    and relocation expenses                       5,063          -           -
  Change in control bonuses, stock
    option redemption and other bonuses          10,487          -           -
  Transaction related costs                       6,827          -           -
                                              ---------   --------    --------
           Total expenses                       491,150     451,712    290,102
                                              ---------   ---------   --------

OPERATING INCOME (LOSS)                          13,275      27,688    (18,419)

INTEREST EXPENSE - Net                           52,265      50,627     28,791
                                              ---------   ---------   --------
LOSS BEFORE INCOME TAXES, MINORITY
INTEREST AND EXTRAORDINARY ITEM                 (38,990)    (22,939)   (47,210)

PROVISION FOR INCOME TAXES                          759         830     11,127

MINORITY INTEREST                                     -         572          -
                                              ---------   ---------   --------
LOSS BEFORE EXTRAORDINARY ITEM                  (39,749)    (24,341)   (58,337)

EXTRAORDINARY LOSS ON EXTINGUISHMENT
OF DEBT, NET OF INCOME TAXES OF $0.               4,208           -          -
                                              ---------   ---------   --------
NET LOSS                                        (43,957)    (24,341)   (58,337)

PREFERRED STOCK DIVIDEND REQUIREMENTS AND
ACCRETION OF SENIOR PREFERRED STOCK               2,358         681        922
                                              ---------   ---------   --------

NET LOSS TO COMMON STOCKHOLDERS               $ (46,315)   $(25,022)  $(59,259)
                                              =========    ========   ========

                 See notes to consolidated financial statements.

<PAGE>
OUTSOURCING SOLUTIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(In thousands, except share and per share amounts)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                        Non-voting        Common Stock
                                        Cumulative -------------------------------
                                        Redeemable                      Non-voting
                                        Preferred                        Classes      Paid-in   Retained     Treasury
                                          Stock     Voting   Non-voting   A,B&C       Capital    Deficit      Stock        Total
                                        ---------  --------   ---------  ---------   ---------  ----------   ---------    --------
<S>                                      <C>       <C>         <C>       <C>         <C>        <C>                       <C>
BALANCE, JANUARY 1, 1997                 $ 10,816  $     35    $     -   $     18    $  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          -         18       66,958    (84,188)           -      (5,478)

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

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

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

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

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

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

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

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

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

Net loss                                        -         -          -          -            -    (43,957)          -      (43,957)
                                         --------  --------    -------   --------    ---------  ---------   ----------    --------

BALANCE, DECEMBER 31, 1999               $      -  $     90    $     5   $      -    $ 196,339  $(155,525)  $ (134,857)   $(93,948)
                                         ========  ========    =======   ========    =========  =========   ==========    ========

                                                                       See notes to consolidated financial statements.
</TABLE>
<PAGE>
OUTSOURCING SOLUTIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(In thousands)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------

                                                                      1999         1998        1997
                                                                      ----         ----        ----
OPERATING ACTIVITIES AND PORTFOLIO PURCHASING:
<S>                                                                 <C>          <C>          <C>
  Net loss                                                          $(43,957)    $(24,341)    $(58,337)
  Adjustments to reconcile net loss to net
    cash from operating activities and portfolio
    purchasing:
      Depreciation and amortization                                   34,477       32,833       35,613
      Amortization of purchased loans and
         accounts receivable portfolios                               38,722       50,703       52,042
      Extraordinary loss on extinguishment of debt                     4,208            -            -
      Compensation expense related to redemption
        of stock options and repriced options                          4,635            -            -
      Deferred taxes                                                       -          380       10,877
      Minority interest                                                    -          572            -
      Change in assets and liabilities:
        Purchases of loans and accounts receivable portfolios        (23,176)     (43,186)     (46,494)
        Other assets                                                 (13,245)       2,894          195
        Accounts payable and other liabilities                        (5,316)      (7,789)      (7,565)
                                                                    --------     --------     --------
         Net cash from operating activities
           and portfolio purchasing                                   (3,652)      12,066      (13,669)
                                                                    --------     --------     --------

INVESTING ACTIVITIES:
  Payments for acquisitions, net of cash acquired                       (877)    (168,900)     (62,913)
  Investment in FINCO                                                 (2,500)      (2,500)           -
  Acquisition of property and equipment                              (18,437)     (13,480)      (9,489)
  Purchases of loans and accounts receivable portfolios
    for resale toFINCO                                               (56,664)      (9,134)           -
  Sales of loans and accounts receivable portfolios to FINCO          56,664        9,134            -
  Other                                                                  265          261         (603)
                                                                    --------     --------     --------
        Net cash from investing activities                           (21,549)    (184,619)     (73,005)
                                                                    --------     --------     --------

FINANCING ACTIVITIES:
  Proceeds from term loans                                           400,000      225,000       55,000
  Borrowings under revolving credit agreement                        289,700      230,000       66,150
  Repayments under revolving credit agreement                       (302,200)    (236,350)     (34,300)
  Repayments of debt                                                (397,448)     (36,618)      (9,763)
  Deferred financing fees                                            (21,242)      (3,882)      (1,993)
  Proceeds from issuance of preferred and common stock               300,237            -          300
  Repurchase of preferred stock, common stock and warrants          (223,208)           -            -
  Redemption of stock options                                         (3,927)           -            -
  Recapitalization fees                                              (19,466)           -            -
                                                                    --------     --------     --------
           Net cash from financing activities                         22,446      178,150       75,394
                                                                    --------     --------     --------

NET (DECREASE)  INCREASE IN CASH AND CASH EQUIVALENTS                 (2,755)       5,597      (11,280)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                           8,814        3,217       14,497
                                                                    --------     --------     --------
CASH AND CASH EQUIVALENTS, END OF YEAR                              $  6,059     $  8,814     $  3,217
                                                                    ========     ========     ========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
  Cash paid during year for interest                                $ 51,232     $ 43,923     $ 26,372
                                                                    ========     ========     ========
  Net cash paid (received) during year for taxes                    $    306     $(10,995)    $     23
                                                                    ========     ========     ========

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

</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 expected  aggregate  discounted  future
     net  operating  cash flows  derived from the  portfolios  are less than the
     aggregate carrying value (see Note 15).

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

     Revenue  Recognition  -  Collections  on  Receivables  owned are  generally
     recorded  as  revenue  when  received.  Proceeds  from  strategic  sales of
     Receivables  owned are  recognized as revenue when  received.  Revenue from
     collections  and  outsourcing  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.

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

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

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

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

     Comprehensive  Income - Effective January 1, 1998, the Company adopted SFAS
     No. 130, Reporting  Comprehensive  Income, which established  standards for
     the reporting and display of comprehensive  income and its components.  The
     adoption  of this  statement  did not  affect  the  Company's  consolidated
     financial  statements  for the three years in the period ended December 31,
     1999.  Comprehensive  loss for the three years in the period ended December
     31, 1999 was equal to the Company's net loss.

     Accounting For Transfers of Financial Assets - SFAS No. 125, Accounting for
     Transfers  and  Servicing  of  Financial  Assets  and   Extinguishments  of
     Liabilities,  provides accounting and reporting standards for transfers and
     servicing of financial  assets and  extinguishments  of liabilities.  These
     standards are based on  consistent  application  of a  financial-components
     approach that focuses on control. Under this approach,  after a transfer of
     financial  assets,  an entity recognizes the financial and servicing assets
     it controls and the  liabilities  it has incurred,  derecognizes  financial
     assets when control has been surrendered, and derecognizes liabilities when
     extinguished.    This   Statement   provides   consistent   standards   for
     distinguishing  transfers of financial assets that are sales from transfers
     that are secured borrowings.  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 began selling,  concurrent with its
     purchase,  certain Receivables to a special-purpose entity, OSI Funding LLC
     (FINCO) (see Note 18).

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

     New  Derivatives and Hedging  Accounting  Standard - In June 1998, SFAS No.
     133,  Accounting for Derivative  Instruments  and Hedging  Activities,  was
     issued,  which is required to be adopted no later than January 1, 2001. The
     statement  provides  a  comprehensive  and  consistent   standard  for  the
     recognition  and  measurement of derivatives  and hedging  activities.  The
     Company has not  determined  the impact on the  consolidated  statement  of
     operations and consolidated balance sheet.

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

     Accounting   Estimates  -  The  preparation  of  financial   statements  in
     conformity  with  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 - SFAS No.  128,  Earnings  per Share,  simplified  the
     calculation  of  earnings  per  share  and is  applicable  only  to  public
     companies.  Under the 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.

     Reclassifications - Certain amounts in prior periods have been reclassified
     to conform to the current year presentation, including changing the balance
     sheet presentation from classified to unclassified.

2.   ORGANIZATION,  ACQUISITIONS & RECAPITALIZATION

     OSI was formed on September  21, 1995 to build,  through a  combination  of
     acquisitions and sustained internal growth, one of the leading providers of
     accounts receivable  management services.  In 1999, the Company reorganized
     many of its acquired subsidiaries. Account Portfolios, Inc. ("API") changed
     its name to OSI  Portfolio  Services,  Inc.  Payco  American  Corporation's
     ("Payco")  largest  debt  collection  subsidiary  changed  its  name to OSI
     Collection   Services,   Inc.  and  Continental   Credit   Services,   Inc.
     ("Continental"),  A.M. Miller & Associates  ("AMM"),  Accelerated Bureau of
     Collections, Inc. ("ABC"), and former subsidiaries of The Union Corporation
     ("Union"),  Allied Bond & Collection Agency and Capital Credit, merged into
     OSI Collection Services.  Former Union subsidiary,  Interactive Performance
     changed its name to OSI  Outsourcing  Services,  Inc.  and the  Interactive
     Performance  and High  Perfomance  services  subsidiaries  merged  into OSI
     Outsourcing  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 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  AMM and  Continental,  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 July 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, 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 assets of The North
     Shore Agency,  Inc. ("NSA"),  a fee service company  specializing in letter
     series collection services,  and ABC, a fee service company specializing in
     credit card  collections,  for total cash  consideration  of  approximately
     $53,800  including  transaction costs of $1,173 and common stock of $1,000.
     One of the acquisitions  contains certain contingent  payment  obligations,
     $2,533  through  December 31, 1999,  based on the  attainment  by the newly
     formed subsidiary of certain financial performance targets over each of the
     next two 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 Union's common stock for $31.50 per share.
     On March 31, 1998, the Company acquired the remaining outstanding shares of
     Union when Union merged with a wholly-owned  subsidiary of the Company. The
     aggregate cash purchase price of the Union  acquisition  was  approximately
     $220,000  including  transaction costs of $10,900 and assumed  liabilities.
     The Company  financed the  acquisition  primarily with funds provided by an
     amended  credit  agreement . Union,  through  certain of its  subsidiaries,
     furnishes a broad range of credit and  receivables  management  outsourcing
     services as well as management and collection of accounts  receivable.  The
     Company allocated the total purchase price 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.

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

     The Recapitalization has been accounted for as a recapitalization which had
     no impact on the historical basis of assets and liabilities.

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

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

     The Company incurred  various costs  aggregating  approximately  $36,780 in
     connection with  consummating the  Recapitalization.  These costs consisted
     primarily of compensation costs,  professional and advisory fees, and other
     expenses.  The compensation  costs of $10,487 consists primarily of expense
     relating to the payment of cash for vested stock options and the payment of
     change in control bonuses to certain  officers in accordance with the terms
     of their respective employment agreements. Of the other transaction related
     costs,  which includes  professional and advisory fees, and other expenses,
     the Company  expensed $6,827 and recorded  $19,466 as an additional cost of
     the repurchase of common stock in 1999. In addition to these expenses,  the
     Company also incurred  approximately  $21,100 of capitalized  debt issuance
     costs,  which  include  the  consent  payment  to  existing  note  holders,
     associated with the Recapitalization financing. These costs will be charged
     to interest expense over the terms of the related debt instruments.

     The  unaudited  pro  forma  consolidated  financial  data  presented  below
     provides pro forma effect of the Union  acquisition,  the  Recapitalization
     and the debt  extinguishment as if such transactions had occurred as of the
     beginning  of each  period  presented.  The  unaudited  results  have  been
     prepared for comparative  purposes only and do not necessarily  reflect the
     results of operations of the Company that actually  would have occurred had
     the acquisition,  the  Recapitalization  and the debt  extinguishment  been
     consummated as of the beginning of each period presented, nor does the data
     give  effect  to  any  transactions   other  than  the   acquisition,   the
     Recapitalization and the debt extinguishment.
                                                            Pro Forma
                                                       1999           1998
                                                       ----           ----

                        Net revenues                 $504,425       $486,754
                                                     ========       ========

                        Net loss                     $(23,865)      $(26,445)
                                                     ========       ========

3.   PROPERTY AND EQUIPMENT

     Property  and  equipment,  which  is  recorded  at  cost,  consists  of the
     following at December 31:
                                                        1999           1998
                                                        ----           ----

         Land                                         $  2,109        $  2,109
         Buildings                                       1,912           1,891
         Furniture and fixtures                          7,964           6,574
         Machinery and equipment                         3,016           2,479
         Telephone equipment                             9,826           8,659
         Leasehold improvements                          5,590           4,068
         Computer hardware and software                 53,843          40,785
                                                      --------        --------
                                                        84,260          66,565
         Less accumulated depreciation                 (40,613)        (26,248)
                                                      --------        --------

                                                      $ 43,647        $ 40,317
                                                      ========        ========

4.   INTANGIBLE ASSETS

     Intangible assets consist of the following at December 31:

                                                           1999         1998
                                                           ----         ----

         Goodwill                                       $ 448,651     $ 447,774
         Value of favorable contracts and placements       29,000        29,000
         Covenants not to compete                           5,053         5,021
                                                        ---------     ---------
                                                          482,704       481,795
         Less accumulated amortization                    (72,233)      (56,198)
                                                        ---------     ---------

                                                        $ 410,471     $ 425,597
                                                        =========     =========

5.   OTHER ASSETS

     Other assets consist of the following at December 31:

                                                           1999          1998
                                                           ----          ----

         Investment in FINCO                             $ 12,000      $  2,500
         Prepaid postage                                    3,326         1,007
         Other                                              7,435         8,094
                                                         --------      --------

                                                         $ 22,761      $ 11,601
                                                         ========      ========

6.   DEBT

     Debt consists of the following at December 31:
                                                           1999         1998
                                                           ----         ----

         New Credit Facility                            $ 400,000     $       -
         Prior Credit Facility                                  -       396,637
         Revolving Credit Facility                         13,000        25,500
         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)                     878         1,582
                                                        ---------     ---------
                   Total debt                           $ 518,307     $ 528,148
                                                        =========     =========

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

     In connection  with the  Recapitalization,  the Company  entered into a new
     credit  facility  providing up to $475,000 of senior bank  financing  ("New
     Credit  Facility").  The proceeds of the New Credit  Facility  were used to
     refinance  $419,818  of  indebtedness   outstanding  on  the  date  of  the
     Recapitalization which resulted in an extraordinary loss of $4,208 from the
     write-off of previously  capitalized  deferred financing fees. In addition,
     the New Credit  Facility will be used to provide for the Company's  working
     capital requirements and future acquisitions, if any.

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

     The Revolving Facility has a term of six years and is fully revolving until
     December 10, 2005. The Revolving Facility bears interest,  at the Company's
     option,  (a) at a base rate equal to the greater of the federal  funds rate
     plus 0.5% or the  lender's  prime  rate,  plus 2.25% or (b) at the  reserve
     adjusted Eurodollar rate plus 3.25%. Also,  outstanding under the Revolving
     Facility are letters of credit of $1,989 expiring within a year.

     The one month LIBOR rate  (Eurodollar  rate) at December 31, 1999 was 5.8%.
     The three month LIBOR rate (Eurodollar rate) at December 31, 1998 was 5.3%.

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

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

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

     Summarized combined  financial  information of  the Restricted Subsidiaries
     is shown below:
                                                     1999            1998
                                                     ----            ----

               Total assets                        $584,184        $595,925
                                                   ========        ========

               Total liabilities                   $123,551        $ 78,252
                                                   ========        ========

               Operating revenue                   $504,425        $479,400
                                                   ========        ========

               Income from operations              $ 42,669        $ 39,418
                                                   ========        ========

               Net income                          $ 11,861        $ 21,189
                                                   ========        ========

Maturities of debt and capital leases at December 31, 1999 are as follows:

                                                                      Capital
                                                         Debt         Leases
                                                         ----         -------

        2000                                           $   2,619      $    675
        2001                                              14,429            95
        2002                                              17,500            19
        2003                                              32,500             -
        2004                                              40,000             -
        Thereafter                                       410,500             -
                                                       ---------      --------
        Total Payments                                   517,548           789
        Less amounts representing interest                                  30
                                                                      --------
        Present value of minimum lease payments                       $    759
                                                       ---------      ========
                                                       $ 517,548
                                                       =========

7.   OTHER LIABILITIES

     Other liabilities consist of the following at December 31:

                                                           1999        1998
                                                           ----        ----
         Accrued acquisition related office closure
            costs, over-market leases and other costs   $   7,402    $  12,103
         Accrued interest                                   4,494        6,851
         Deferred revenue                                  10,242       11,285
         Environmental reserves                            22,218       22,726
         Other                                             23,950       24,409
                                                        ---------    ---------
                                                        $  68,306    $  77,374
                                                        =========    =========

     The environmental  reserves, on an undiscounted basis, at December 31, 1999
     and  1998  are for  environmental  proceedings  as a  result  of the  Union
     acquisition.   The  Company  is  party  to  several  pending  environmental
     proceedings  involving the  Environmental  Protection Agency and comparable
     state environmental  agencies. All of these matters related to discontinued
     operations of former  divisions or  subsidiaries  of Union for which it has
     potential continuing responsibility.  Management, in consultation with both
     legal  counsel  and   environmental   consultants,   has   established  the
     aforementioned  liabilities  that it believes are adequate for the ultimate
     resolution of these environmental proceedings.  However, the Company may be
     exposed  to  additional  substantial  liability  for these  proceedings  as
     additional information becomes available over the long-term.

8.   MANDATORILY REDEEMABLE PREFERRED STOCK

     Mandatorily  redeemable  preferred  stock  consists  of  the  following  at
     December 31, 1999:
                                     14% Senior
                                     Mandatorily
                                     Redeemable      Junior
                                     Preferred      Preferred
                                       Stock          Stock         Total
                                     ------------   ---------     ---------

     Balance at December 31, 1998     $       -     $       -     $       -
     Issuance of stock                   77,634         7,000        84,634
     Accrued dividends                      856            21           877
     Accretion of preferred stock           205             -           205
                                      ---------     ---------     ---------
     Balance at December 31, 1999     $  78,695     $   7,021     $  85,716
                                      =========     =========     =========

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

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

9.   STOCKHOLDERS' EQUITY AND WARRANTS

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

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

10.  INCOME TAXES

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

                                                1999        1998        1997
                                                ----        ----        ----
     Current:
           Federal                            $     -      $     -    $    -
           State                                  550          450        250
           Foreign                                209            -          -
                                              -------      -------    -------
                Total current                     759          450        250
                                              -------      -------    -------
     Deferred:
           Federal                                  -            -      9,513
           State                                    -          380      1,364
           Foreign                                  -            -          -
                                              -------      -------    -------
                Total deferred                      -          380     10,877
                                              -------      -------    -------
                Provision for income taxes    $   759      $   830    $11,127
                                              =======      =======    =======

     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:

                                                       1999            1998
                                                       ----            ----
      Deferred tax assets:
            Net operating loss carryforwards         $ 52,302         $ 41,143
            Accrued liabilities                        16,812           18,001
            Loans and accounts receivable               1,382            3,670
            Property and equipment                      1,028            1,311
            Intangible assets                           3,824            4,192
                Tax credit carry forwards               3,418                -
                                                     --------         --------
      Total deferred tax assets                        78,766           68,317
      Less valuation allowance                        (78,766)         (68,317)
                                                     --------         --------
      Net deferred tax assets                        $      -         $      -
                                                     ========         ========

     The  valuation  allowance  was $78,766 and $68,317 at December 31, 1999 and
     1998,  respectively.  The Company has  determined  the valuation  allowance
     based upon the weight of available evidence regarding future taxable income
     consistent  with the  principles  of SFAS No.  109,  Accounting  for Income
     Taxes. The $10,449 increase in the valuation  allowance during 1999 was the
     result of net changes in temporary differences,  and an increase in the net
     operating loss and tax credit  carryforwards.  The valuation allowance also
     includes amounts related to previous  acquisitions  from years before 1999.
     Future  realization  of these  deferred  tax  assets  would  result  in the
     reduction of goodwill recorded in connection with the acquisitions.

     The Company has federal net operating loss  carryforwards of $127,347 as of
     December  31,  1999  available  to  offset  future  taxable  income  of the
     consolidated group of corporations.  Since the Recapitalization transaction
     on December 10, 1999  constituted a change of ownership,  tax law imposes a
     limitation  on  the  future  use  of  the  Company's  net  operating   loss
     carryforwards  generated  through the date of the change in ownership.  The
     annual limit is equal to the long-term  tax-exempt bond rate times the fair
     imputed  value of the  Company's  stock  immediately  before  the change in
     ownership.  In addition,  the Company  acquired a net operating  loss carry
     forward 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 2019. The Company also has available
     federal tax credit carryforwards of approximately $616 which expire between
     2003 and 2012,  federal minimum tax credit  carryforwards  of approximately
     $759 which may be carried forward indefinitely and various state tax credit
     carryforwards of approximately $2,043 with various expiration dates.

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

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

                                              1999       1998       1997
                                              ----       ----       ----

     Federal taxes at statutory rate       $(13,257)   $(7,994)   $(16,052)

     State income taxes (net of federal
       tax benefits)                           (874)        18      (2,092)

     Foreign income taxes                         -          -           -

     Nondeductible amortization               3,753      3,414       1,406

     Other                                    2,371        249      (4,567)

     Deferred tax valuation allowance         8,766      5,143      32,432
                                           --------    -------    --------

     Provision for income taxes            $    759    $   830    $ 11,127
                                           ========    =======    ========


11.  RELATED PARTY TRANSACTIONS

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

     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 for
     the year ended December 31, 1997.  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 zero,
     $3,466 and $1,600 for the years ended  December  31,  1999,  1998 and 1997,
     respectively.

     Under  various  financing   arrangements   associated  with  the  Company's
     acquisitions and credit facility,  the Company incurred interest expense of
     $3,376,  $2,333 and $3,317 for the years ended December 31, 1999,  1998 and
     1997,  respectively,  to  certain  Company  stockholders  of which one is a
     financial  institution  and was  co-administrative  agent of the  Company's
     prior credit facility.

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

12.  STOCK OPTION AND AWARD 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  generally may not be less
     than the fair market value of a Voting Common  Share,  as determined by the
     Committee,  on the date of grant.  SARs  granted  in tandem  with an option
     shall  be  exercisable  only  to  the  extent  the  underlying   option  is
     exercisable and the grant price shall be equal to the exercise price of the
     underlying option. As of December 31, 1999, no SARs have been granted.  The
     awarded  stock  options  vest over three to four years and  vesting  may be
     accelerated  upon the  occurrence  of a change in control as defined in the
     Plan. The options expire ten years after date of grant.

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

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

                                               Number of
                                               Shares of        Weighted Average
                                             Stock Subject       Exercise Price
                                              to Options            Per Share
                                            --------------      ----------------

       Outstanding at January 1, 1997            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
       Granted                                   214,000              40.00
       Forfeited                                (104,500)             28.52
       Exercised                                (245,396)             18.59
                                              ----------
       Outstanding at December 31, 1999          442,925              31.69
                                              ==========

       Reserved for future option grants         307,075


     Exercisable  shares at  December  31,  1999,  1998 and 1997  were  442,925,
     105,784 and 49,647, respectively.

     A summary of stock options outstanding at December 31, 1999 is as follows:

                               Options Outstanding         Options Exercisable
                       --------------------------------   ----------------------
                                    Weighted
                                    Average
                                   Remaining
                        Number    Contractual  Exercise     Number      Exercise
     Exercise Price  Outstanding      Life       Price    Exercisable     Price
     --------------  -----------  -----------  --------   -----------   --------
        $12.50          70,175    6.7 years     $12.50       70,175      $12.50
        $25.00         116,750    7.6 years     $25.00      116,750      $25.00
        $40.00         256,000    9.1 years     $40.00      256,000      $40.00
                       -------                              -------
     $12.50-$40.00     442,925    8.6 years     $31.69      442,925      $31.69
                       =======                              =======

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

                                              1999        1998          1997
                                              ----        ----          ----

       Risk free rate                         5.0%         5.0%         5.44%
       Expected dividend yield of stock         0%           0%            0%
       Expected volatility of stock             0%           0%            0%
       Expected life of option (years)         10.0       10.0          10.0

     Since the Company's common stock is not publicly traded, the expected stock
     price volatility is assumed to be zero. The weighted fair values of options
     granted  during  1999,  1998 and 1997  were  $15.74,  $23.14,  and  $12.29,
     respectively. The Company's pro forma information is as follows:

                                        1999           1998            1997
                                        ----           ----            ----
       Net loss:
            As reported              $(43,957)      $(24,341)       $(58,337)
            Pro forma                 (45,436)       (25,742)        (59,570)

     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 as of December 31, 1999.

13.  COMMITMENTS AND CONTINGENCIES

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

     A subsidiary of the Company has several Portfolio Flow Purchase Agreements,
     no longer than one year, whereby the subsidiary has a monthly commitment to
     purchase  nonperforming  loans meeting certain  criteria for an agreed upon
     price  subject to due  diligence.  The purchases  under the Portfolio  Flow
     Purchase  Agreements  were $33,303  which  includes  amounts  purchased and
     subsequently sold to FINCO (see Note 18), $25,521 and $20,661 for the years
     ended December 31, 1999, 1998 and 1997, 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
                                                 --------
                   2000                          $ 16,329
                   2001                            14,019
                   2002                            10,551
                   2003                             8,033
                   2004                             6,668
                   Thereafter                      18,004
                                                 --------
                     Total lease payments        $ 73,604
                                                 ========

     Rent expense under operating leases was $16,974, $15,800 and $8,100 for the
     years ended December 31, 1999, 1998 and 1997, respectively.

14.  LITIGATION

     At  December  31,  1999,  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, 1999.

15.  FAIR VALUE OF FINANCIAL INSTRUMENTS

     The estimated fair values and the methods and assumptions  used to estimate
     the fair values of the financial  instruments of the Company as of December
     31,  1999 and 1998 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, 1999 and
     1998 was $97,000 and $95,300, respectively. The fair value of the long-term
     debt was determined based on current market rates offered on notes and debt
     with  similar  terms and  maturities.  The fair  value of  Receivables  was
     determined based on both market pricing and discounted expected cash flows.
     The discount  rate was based on an acceptable  rate of return  adjusted for
     the risk inherent in the Receivable portfolios. The estimated fair value of
     Receivables approximated its carrying value at December 31, 1999 and 1998.

     In  December  1997,  the  Company  completed  an  in-depth  analysis of the
     carrying value of its Receivables.  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 the  Receivables  acquired in
     September  1995 in  conjunction  with the Company's  acquisition of API, to
     reduce their carrying value to estimated fair value.

16.  EMPLOYEE BENEFIT PLANS

     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, 1999 and 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 $1,654, $1,570 and $276 for the years
     ended December 31, 1999, 1998 and 1997, respectively.

17.   ENTERPRISE WIDE DISCLOSURE

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

     The following  table presents the Company's  revenue by type of service for
     the year ended December 31:
                                               1999         1998         1997
                                               ----         ----         ----
      Collection services                  $ 362,964     $ 350,080    $ 180,871
      Portfolio purchasing services           80,391        82,399       67,809
      Outsourcing services                    61,070        46,921       23,003
                                           ---------     ---------    ---------
           Total                           $ 504,425     $ 479,400    $ 271,683
                                           =========     =========    =========


18.  PURCHASED LOANS AND ACCOUNTS RECEIVABLE PORTFOLIOS FINANCING

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

     The following summarizes the transactions between the Company and FINCO the
     the year ended December 31:
                                                               1999       1998
                                                               ----       ----
         Sales of purchased loans and accounts receivables
               portfolios by the Company to FINCO            $56,664     $9,134

         Servicing fees paid by FINCO to the Company         $13,481       $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.  In
     conjunction with sales of Receivables to FINCO and the servicing agreement,
     the Company  recorded  servicing  assets which are being amortized over the
     servicing agreement.  The carrying value of such servicing assets is $1,300
     at December 31, 1999 and was not considered material at December 31, 1998.

     At  December  31, 1999 and 1998,  FINCO had  purchased  loans and  accounts
     receivable portfolios of $42,967 and $8,361, respectively.  At December 31,
     1999 and 1998,  FINCO had  outstanding  borrowings  of $32,051  and $6,482,
     respectively, under the Warehouse Facility.

19.  NONRECURRING EXPENSES

     After the Company's formation and seven acquisitions, the Company adopted a
     strategy to align the Company along  business  services and establish  call
     centers  of  excellence.  As a  result,  the  Company  incurred  $5,063  of
     nonrecurring  conversion,  realignment and relocation expenses for the year
     ended December 31, 1999.  These expenses  include costs  resulting from the
     temporary  duplication  of  operations,  closure of certain  call  centers,
     hiring  and  training  of new  employees,  costs of  converting  collection
     operating systems, and other one-time and redundant costs.

<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, 1999 and 1998, and for each of the
three years in the period ended  December  31, 1999,  and have issued our report
thereon dated March 28, 2000; such consolidated financial statements and report
is  included  elsewhere  in  this  Form  10-K.  Our  audits  also  included  the
consolidated  financial statement schedule of Outsourcing Solutions Inc. and its
subsidiaries, 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 28, 2000


<PAGE>



                                                                     Schedule II

Outsourcing Solutions Inc. and Subsidiaries
Valuation and Qualifying Accounts and Reserves
For the year ended December 31, 1999, 1998 and 1997
(in thousands)

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

Allowance for doubtful
  accounts:

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

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

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


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