Osi Portfolio Services 424B3 Prospectus supplement

Filed Pursuant to Rule 424(b)(3)

File Number 333-165975; 333-158745; 333-150885

Supplement No. 4

(To prospectus dated April 30, 2010)

NCO GROUP, INC.

$165,000,000 Floating Rate Senior Notes due 2013

$200,000,000 11.875% Senior Subordinated Notes due 2014

This prospectus supplement No. 4 supplements and amends the prospectus dated April 30, 2010, as supplemented and amended by prospectus supplement No. 1 dated May 14, 2010, prospectus supplement No. 2 dated June 3, 2010 and prospectus supplement No. 3 dated August 13, 2010 (the “Prospectus”).  This prospectus supplement should be read in conjunction with the Prospectus and may not be delivered or utilized without the Prospectus.

On November 15, 2010, NCO Group, Inc. filed with the Securities and Exchange Commission its quarterly report for the quarter ended September 30, 2010.

The date of this prospectus supplement is November 15, 2010.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended September 30, 2010

or

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

For the transition period from            to           

Commission File Number 333-165975; 333-158745; 333-150885

NCO GROUP, INC.

(Exact name of registrant as specified in its charter)

DELAWARE	02-0786880
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
507 Prudential Road, Horsham, Pennsylvania	19044
(Address of principal executive offices)	(Zip Code)

215-441-3000

(Registrant’s telephone number, including area code)

Not Applicable

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  o   No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer o
Non-accelerated filer x	Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o  No x

The number of shares outstanding of each of the issuer’s classes of common stock as of November 15, 2010 was: 2,960,847 shares of Class A common stock, $0.01 par value and 399,814 shares of Class L common stock, $0.01 par value.

NCO GROUP, INC.

INDEX

		PAGE
PART I — FINANCIAL INFORMATION
Item 1.	FINANCIAL STATEMENTS (Unaudited)
	Consolidated Balance Sheets - September 30, 2010 and December 31, 2009	1
	Consolidated Statements of Operations - Three and Nine Months Ended September 30, 2010 and 2009	2
	Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2010 and 2009	3
	Notes to Consolidated Financial Statements	4
Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	31
Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	41
Item 4.	CONTROLS AND PROCEDURES	41
PART II — OTHER INFORMATION
Item 1.	LEGAL PROCEEDINGS	42
Item 1A.	RISK FACTORS	42
Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	42
Item 3.	DEFAULTS UPON SENIOR SECURITIES	42
Item 4.	[REMOVED AND RESERVED]	42
Item 5.	OTHER INFORMATION	43
Item 6.	EXHIBITS	43
SIGNATURES		44

Part I. Financial Information

Item 1. Financial Statements

NCO GROUP, INC.

Consolidated Balance Sheets

(Unaudited)

(Amounts in thousands, except per share amounts)

	September 30,			December 31,
	2010			2009
ASSETS
Current assets:
Cash and cash equivalents (includes cash and cash equivalents of consolidated variable interest entities: 2010, $835; 2009, $982)	$	31,610		$	39,221
Accounts receivable, trade, net of allowance for doubtful accounts of $5,244 and $5,824, respectively	170,416			178,067
Purchased accounts receivable, current portion, net of allowance for impairment of $151,609 and $144,397, respectively (includes purchased accounts receivable of consolidated variable interest entities: 2010, $11,008; 2009, $22,020)	37,340			50,960
Deferred income taxes	2,003			1,753
Prepaid expenses and other current assets	66,004			61,981
Total current assets	307,373			331,982
Funds held on behalf of clients (note 9)
Property and equipment, net	103,899			122,317
Other assets:
Goodwill	537,427			535,857
Trade name, net of accumulated amortization	83,609			83,912
Customer relationships and other intangible assets, net of accumulated amortization	210,990			258,682
Purchased accounts receivable, net of current portion (includes purchased accounts receivable of consolidated variable interest entities: 2010, $15,798; 2009, $18,586)	57,372			87,469
Deferred income taxes	3,584			3,548
Other assets	33,320			36,268
Total other assets	926,302			1,005,736
Total assets	$	1,337,574		$	1,460,035
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Long-term debt, current portion (includes debt of consolidated variable interest entities: 2010, $1,498; 2009, $10,027)	$	10,552		$	41,699
Income taxes payable	7,390			2,838
Accounts payable	23,095			15,865
Accrued expenses (includes accrued expenses of consolidated variable interest entities: 2010, $735; 2009, $795)	104,334			107,250
Accrued compensation and related expenses	43,829			38,094
Deferred revenue, current portion	32,740			39,528
Total current liabilities	221,940			245,274
Funds held on behalf of clients (note 9)
Long-term liabilities:
Long-term debt, net of current portion	871,810			909,831
Deferred income taxes (includes deferred income taxes of consolidated variable interest entities: 2010, $690; 2009, $1,475)	37,749			31,972
Deferred revenue, net of current portion	858			1,147
Other long-term liabilities	36,397			31,261
Commitments and contingencies (note 16)
Stockholders’ equity:
Preferred stock, par value $0.01 per share, 7,500 shares authorized, 3,501 and 3,152 shares issued and outstanding, respectively	35			31
Class L common stock, par value $0.01 per share, 800 shares authorized, 400 shares issued and outstanding	4			4
Class A common stock, par value $0.01 per share, 4,500 shares authorized, 2,961 shares issued and outstanding	30			30
Additional paid-in capital	764,385			763,828
Accumulated other comprehensive income (loss)	3,763			(551		)
Accumulated deficit	(608,563		)	(534,242		)
Total NCO Group, Inc. stockholders’ equity	159,654			229,100
Noncontrolling interests	9,166			11,450
Total stockholders’ equity	168,820			240,550
Total liabilities and stockholders’ equity	$	1,337,574		$	1,460,035

See accompanying notes.

1

NCO GROUP, INC.

Consolidated Statements of Operations

(Unaudited)

(Amounts in thousands)

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
Revenues:
Services	$	292,049		$	346,560		$	921,963		$	1,067,007
Portfolio	4,271			(278		)	32,195			42,588
Reimbursable costs and fees	74,227			27,388			215,626			44,823
Total revenues	370,547			373,670			1,169,784			1,154,418
Operating costs and expenses:
Payroll and related expenses	166,886			188,631			528,805			592,318
Selling, general and administrative expenses	104,637			128,779			329,423			391,178
Reimbursable costs and fees	74,227			27,388			215,626			44,823
Depreciation and amortization expense	27,280			29,251			82,367			90,952
Restructuring charges	7,445			1,466			13,828			3,246
Total operating costs and expenses	380,475			375,515			1,170,049			1,122,517
(Loss) Income from operations	(9,928		)	(1,845		)	(265		)	31,901
Other income (expense):
Interest and investment income	101			461			374			1,397
Interest expense	(23,003		)	(27,196		)	(68,760		)	(76,980		)
Other income, net	1,156			3,925			2,225			7,087
Total other income (expense)	(21,746		)	(22,810		)	(66,161		)	(68,496		)
Loss before income taxes	(31,674		)	(24,655		)	(66,426		)	(36,595		)
Income tax expense (benefit)	2,126			2,628			7,031			(1,056		)
Net loss	(33,800		)	(27,283		)	(73,457		)	(35,539		)
Less: Net (loss) income attributable to noncontrolling interests	(273		)	(2,679		)	864			(3,610		)
Net loss attributable to NCO Group, Inc.	$	(33,527	)	$	(24,604	)	$	(74,321	)	$	(31,929	)

See accompanying notes.

2

NCO GROUP, INC

Consolidated Statements of Cash Flows

(Unaudited)

(Amounts in thousands)

	For the Nine Months Ended
	September 30,
	2010			2009
Cash flows from operating activities:
Net loss	$	(73,457	)	$	(35,539	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	82,367			90,952
Provision for doubtful accounts	1,088			2,583
Impairment of purchased accounts receivable	7,220			15,125
Noncash interest	5,993			5,422
Noncash net gains on derivative instruments	(140		)	(573		)
Gain on sale of purchased accounts receivable	(9		)	(361		)
Deferred income taxes	1,752			(4,511		)
Other	3,622			2,146
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable, trade	7,025			28,272
Accounts payable and accrued expenses	8,709			(17,768		)
Income taxes payable	3,930			(2,634		)
Other assets and liabilities	1,760			10,823
Net cash provided by operating activities	49,860			93,937
Cash flows from investing activities:
Purchases of accounts receivable	(10,890		)	(47,935		)
Collections applied to principal of purchased accounts receivable	47,210			65,454
Proceeds from sales and resales of purchased accounts receivable	332			525
Purchases of property and equipment	(18,376		)	(26,279		)
Net cash paid related to acquisitions	(1,600		)	(4,029		)
Other	1,366			121
Net cash provided by (used in) investing activities	18,042			(12,143		)
Cash flows from financing activities:
Repayment of notes payable	(12,038		)	(19,397		)
Net repayment of borrowings under revolving credit facility	(17,000		)	(47,000		)
Repayment of borrowings under senior term loan	(40,541		)	(19,541		)
Payment of fees to obtain debt	(2,758		)	(2,477		)
Return of investment in subsidiary to noncontrolling interests	(3,148		)	(5,784		)
Issuance of stock, net	—			39,667
Payment of deemed dividend to JPM	—			(8,049		)
Net cash used in financing activities	(75,485		)	(62,581		)
Effect of exchange rate on cash	(28		)	1,345
Net (decrease) increase in cash and cash equivalents	(7,611		)	20,558
Cash and cash equivalents at beginning of the period	39,221			29,880
Cash and cash equivalents at end of the period	$	31,610		$	50,438

See accompanying notes.

3

NCO GROUP, INC.

Notes to Consolidated Financial Statements

(Unaudited)

1.Nature of Operations:

NCO Group, Inc. is a holding company and conducts substantially all of its business operations through its subsidiaries (collectively, the “Company” or “NCO”). NCO is an international provider of business process outsourcing solutions, primarily focused on accounts receivable management (“ARM”) and customer relationship management (“CRM”). NCO provides services through over 100 offices throughout North America, Asia, Europe and Australia. The Company provides services to more than 18,500 active clients, including many of the Fortune 500, supporting a broad spectrum of industries, including financial services, telecommunications, healthcare, retail and commercial, utilities, education and government, technology and transportation/logistics services. These clients are primarily located throughout North America, Europe and Australia. Excluding reimbursable costs and fees, the Company’s largest client during the nine months ended September 30, 2010, was in the telecommunications sector and represented 7.4 percent of the Company’s consolidated revenue for the nine months ended September 30, 2010.

Historically, the Company’s Portfolio Management business has also purchased and collected past due consumer accounts receivable from consumer creditors. Beginning in 2009, the Company significantly reduced its purchases of accounts receivable and made a decision to minimize further investments in the future. This decision resulted from declines in liquidation rates, competition for purchased accounts receivable and the continued uncertainty of collectibility.

The Company’s business consists of three operating segments: ARM, CRM and Portfolio Management.

2.Accounting Policies:

Principles of Consolidation:

The consolidated financial statements include the accounts of the Company and all subsidiaries and entities controlled by the Company. All intercompany accounts and transactions have been eliminated.

The Company also considers whether any of its investments represent a variable interest entity (“VIE”) that is required to be consolidated by the primary beneficiary. The primary beneficiary is the entity that has both (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and (ii) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. A VIE is an entity for which the primary beneficiary’s interest in the entity can change with changes in factors other than the amount of investment in the entity.

The Company has investments in VIEs that purchase portfolios of purchased accounts receivable. Based on the Company’s significant participation in the VIEs’ profits or losses and its ability to direct the activities of the VIEs, the Company consolidates these VIEs as it is considered the primary beneficiary. The aggregate assets of the VIEs, that can only be used to settle obligations of the VIEs, and liabilities of the VIEs, for which beneficial interest holders do not have recourse to the Company’s general credit, are presented on the balance sheet.

Interim Financial Information:

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. The December 31, 2009 balance sheet was derived from the consolidated audited financial statements of the Company, but does not include all disclosures required by accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments (consisting of only normal recurring adjustments, except as otherwise disclosed herein) considered necessary for a fair presentation have been included. Because of the seasonal nature of the Company’s business, operating results for the three-month and nine-month period ended September 30, 2010, are not necessarily indicative of the results that may be expected for the year ending December 31, 2010, or for any other interim period.

4

2.Accounting Policies (continued):

Interim Financial Information (continued):

The accompanying unaudited consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2009, filed with the Securities and Exchange Commission (“SEC”).

Use of Estimates:

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates.

Reclassifications:

Certain amounts in the statement of operations for the three and nine months ended September 30, 2009, and the statement of cash flows for the nine months ended September 30, 2009, have been reclassified for comparative purposes.

3.Restructuring Charges:

The Company has several restructuring plans under which it has recorded restructuring charges, primarily in conjunction with streamlining the cost structure of the Company’s operations. These charges primarily related to the elimination of certain redundant facilities and severance costs. The Company currently expects to pay the remaining severance balance through 2013 and the remaining lease balance through 2016.

The following presents the activity in the accruals recorded for restructuring charges (amounts in thousands):

	Leases			Severance			Total
Balance at December 31, 2009	$	8,562		$	2,997		$	11,559
Accruals	11,148			2,680			13,828
Cash payments	(6,684		)	(3,934		)	(10,618		)
Balance at September 30, 2010	$	13,026		$	1,743		$	14,769

4.Business Combinations:

On August 31, 2009, the Company acquired TSYS Total Debt Management, Inc. (“TDM”), a provider of accounts receivable management legal network solutions, for $4.5 million in cash, which included $1.3 million of acquired cash. The Company allocated $983,000 of the purchase price to the customer relationships and recorded goodwill of $1.1 million. The TDM acquisition was included in the ARM segment.

5.Disposal of Business:

In October 2009, the Company sold its print and mail business, from the ARM segment, for approximately $18.7 million in cash.  The net proceeds from the sale were used to pay down the Company’s senior term loan.

5

6.Deferred Revenue:

Deferred revenue primarily relates to prepaid fees for ARM collection and letter services for which revenue is recognized when the services are provided or the time period for which the Company is obligated to provide the services has expired. The following summarizes the change in the balance of deferred revenue (amounts in thousands):

Balance at December 31, 2009	$	40,675
Additions	25,093
Revenue recognized	(32,202		)
Foreign currency translation adjustment	32
Balance at September 30, 2010	$	33,598

7.Fair Value:

Recurring Measurement:

The Company uses various valuation techniques and assumptions when measuring fair value of its assets and liabilities. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable (“Level 1”), market corroborated (“Level 2”), or generally unobservable (“Level 3”). The significant majority of the fair value amounts included in the Company’s current period earnings resulted from Level 2 fair value methodologies; that is, the Company is able to value the assets and liabilities based on observable market data for similar instruments (the “market approach”). The Company applied an income approach to amounts included in its current period earnings resulting from Level 3 fair value methodologies.

The financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. The following table sets forth, by level within the fair value hierarchy, the Company’s financial assets and liabilities that were measured at fair value on a recurring basis (amounts in thousands):

	At Fair Value as of
	September 30, 2010								December 31, 2009
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Forward exchange contracts	$	—	$	488	$	—	$	488	$	—	$	2	$	—	$	2
Liabilities:
Interest rate swaps	—		3,779		—		3,779		—		9,104		—		9,104
Forward exchange contracts	—		—		—		—		—		60		—		60
Embedded derivatives	—		—		1,839		1,839		—		—		3,306		3,306
Net liabilities	$	—	$	3,291	$	1,839	$	5,130	$	—	$	9,162	$	3,306	$	12,468

During the nine months ended September 30, 2010, there were no transfers in or out of the Company’s Level 1, Level 2 or Level 3 fair value measurements.

To value the interest rate swaps and foreign currency forward exchange contracts, the Company obtains quotes from its counterparties. The Company considers such quotes to be Level 2 measurements. To gain assurance that such quotes reflect market participant views, the Company independently values its interest rate swaps, and independently validates the relevant exchange rates of its forward exchange contracts.

6

7.Fair Value (continued):

Recurring Measurement (continued):

For purposes of valuation adjustments to its interest rate swap derivative positions, the Company has evaluated liquidity premiums that may be demanded by market participants, as well as the credit risk of its counterparties and its own credit. The Company has considered factors such as the likelihood of default by itself and counterparties, its net exposures and remaining maturities in determining the appropriate fair value adjustment to record.

Embedded derivatives represent the contingent payment provision embedded in the Company’s nonrecourse credit facility related to purchased accounts receivable and the sellers’ participation in collections that are in excess of minimum targets for certain portfolios of purchased accounts receivable. The Company values these embedded derivatives based on the present value of expected cash flows. Inputs used to value these embedded derivatives are considered Level 3 measurements because they are unobservable. Changes in the fair market value of the embedded derivatives are recorded in interest expense on the statement of operations.

The following summarizes the change in the fair value of the embedded derivatives (amounts in thousands):

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
Balance at beginning of period	$	2,140		$	3,332		$	3,306		$	4,457
Accrued interest additions	134			237			543			1,271
Payments	(562		)	(510		)	(1,376		)	(1,655		)
Change in fair value	127			97			(634		)	(917		)
Balance at end of period	$	1,839		$	3,156		$	1,839		$	3,156

Non-Recurring Measurement:

The Company has goodwill and other intangible assets that are measured at fair value on a non-recurring basis and are adjusted to fair value only when their carrying values exceed their fair values. Inputs used to value these assets are considered Level 3 measurements because they are unobservable.

During the nine months ended September 30, 2010 and 2009, there were no adjustments to fair value as there were no indicators that would have required interim testing. The Company performs its annual testing of indefinite-lived intangible assets during the fourth quarter of each year.

Fair Value of Financial Instruments:

The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value:

Cash and Cash Equivalents, Trade Accounts Receivable, and Accounts Payable:

The carrying amount reported in the balance sheets approximates fair value because of the short maturity of these instruments.

Purchased Accounts Receivable:

The Company records purchased accounts receivable at cost, which is discounted from the contractual receivable balance. The carrying value of purchased accounts receivable, which is estimated based upon future cash flows, approximates fair value at September 30, 2010 and December 31, 2009.

7

7.Fair Value (continued):

Fair Value of Financial Instruments (continued):

Notes Receivable:

The Company had notes receivable of $5.0 million and $5.1 million as of September 30, 2010 and December 31, 2009, respectively. The carrying amounts reported in the balance sheets, included in current and long-term other assets, approximate market rates for notes with similar terms and maturities, and, accordingly, the carrying amounts approximate fair value. The Company continually evaluates the collectibility of these notes.

Long-Term Debt:

The following presents the carrying values and the estimated fair values of the Company’s long-term debt at September 30, 2010 (amounts in thousands):

	Carrying Value		Fair Value
Senior term loan	$	508,719	$	518,830
Senior subordinated notes	200,000		179,800
Senior notes	165,000		135,795
Nonrecourse credit facility	3,102		3,102

The fair values of the Company’s senior term loan and senior revolving credit facility were based on market interest rates for debt with similar terms and maturities. The fair values of the Company’s senior notes and senior subordinated notes were based on their approximate trading prices at September 30, 2010. The stated interest rates of the Company’s nonrecourse credit facility approximate market rates for debt with similar terms and maturities, and, accordingly, the carrying value approximates fair value.

8.Purchased Accounts Receivable:

As of September 30, 2010, the carrying value of Portfolio Management’s and ARM’s purchased accounts receivable were $91.5 million and $3.2 million, respectively. The total outstanding balance due, representing the original undiscounted contractual amount less collections since acquisition, was $55.8 billion and $55.2 billion at September 30, 2010 and December 31, 2009, respectively.

The following summarizes the change in the carrying amount of the purchased accounts receivable (amounts in thousands):

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
Balance at beginning of period	$	111,430		$	172,274		$	138,429		$	185,659
Purchases	1,937			14,981			10,890			47,935
Collections	(22,700		)	(31,919		)	(85,831		)	(121,511		)
Revenue recognized	11,126			13,118			38,621			56,057
Proceeds from portfolio sales and resales applied to carrying value	(323		)	—			(323		)	(164		)
Impairment	(7,081		)	(13,784		)	(7,220		)	(15,125		)
Other	323			(102		)	146			1,717
Balance at end of period	$	94,712		$	154,568		$	94,712		$	154,568

8

8.Purchased Accounts Receivable (continued):

The following presents the change in the allowance for impairment of purchased accounts receivable (amounts in thousands):

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
Balance at beginning of period	$	144,488		$	125,229		$	144,397		$	123,804
Additions	8,378			14,330			11,589			19,985
Recoveries	(1,297		)	(546		)	(4,369		)	(4,860		)
Other	40			49			(8		)	133
Balance at end of period	$	151,609		$	139,062		$	151,609		$	139,062

Accretable yield represents the excess of the cash flows expected to be collected during the life of the portfolio over the initial investment in the portfolio. The following presents the change in accretable yield (amounts in thousands):

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
Balance at beginning of period	$	89,476		$	160,275		$	112,108		$	167,411
Additions	1,077			12,242			7,602			50,605
Revenue recognition	(11,126		)	(13,118		)	(38,621		)	(56,057		)
Reclassifications to nonaccretable difference	(8,906		)	(29,176		)	(10,797		)	(31,396		)
Foreign currency translation adjustment	(340		)	(41		)	(111		)	(381		)
Balance at end of period	$	70,181		$	130,182		$	70,181		$	130,182

During the three months ended September 30, 2010 and 2009, the Company purchased accounts receivable with a cost of $1.9 million and $15.0 million, respectively, that had contractually required payments receivable at the date of acquisition of $74.0 million and $573.0 million, respectively, and expected cash flows at the date of acquisition of $3.0 million and $27.2 million, respectively. During the nine months ended September 30, 2010 and 2009, the Company purchased accounts receivable with a cost of $10.9 million and $47.9 million, respectively, that had contractually required payments receivable at the date of acquisition of $649.8 million and $2.4 billion, respectively, and expected cash flows at the date of acquisition of $18.5 million and $98.5 million, respectively.

9.Funds Held on Behalf of Clients:

In the course of the Company’s regular business activities as a provider of accounts receivable management services, the Company receives clients’ funds arising from the collection of accounts placed with the Company. These funds are placed in segregated cash accounts and are generally remitted to clients within 30 days. Funds held on behalf of clients of $79.1 million and $75.1 million at September 30, 2010 and December 31, 2009, respectively, have been shown net of their offsetting liability for financial statement presentation.

10.Goodwill and Other Intangible Assets:

Goodwill is allocated and tested at the reporting unit level. Goodwill is tested for impairment each year during the fourth quarter, and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. No event occurred or circumstances changed since the last annual test that would more likely than not reduce the fair value of a reporting unit below its carrying value. However, if the Company continues to experience adverse effects of the challenging economic and business environment, including changes in financial projections, the Company may have to recognize an impairment of all or some portion of its goodwill.  The Company’s reporting units are ARM, CRM and Portfolio Management.

9

10.Goodwill and Other Intangible Assets (continued):

The following summarizes the change in the Company’s reporting units’ goodwill (amounts in thousands):

	ARM			CRM			Total
Balance at January 1, 2010:
Goodwill	$	552,047		$	128,365		$	680,412
Accumulated impairment	(73,205		)	(71,350		)	(144,555		)
	478,842			57,015			535,857
Acquisitions	1,170			—			1,170
Foreign currency translation and other	400			—			400
Balance at September 30, 2010:
Goodwill	553,617			128,365			681,982
Accumulated impairment	(73,205		)	(71,350		)	(144,555		)
	$	480,412		$	57,015		$	537,427

Trade name includes the NCO trade name, which is an indefinite-lived intangible asset and therefore is not subject to amortization. Similar to goodwill, the NCO trade name is reviewed at least annually for impairment. At September 30, 2010, the balance of the NCO trade name was $82.6 million.

Trade name also includes certain trade names which are not considered to have indefinite lives and are therefore subject to amortization. At September 30, 2010, the gross carrying amount of these trade names was $2.0 million, and the accumulated amortization was $1.0 million.

Other intangible assets subject to amortization consist of customer relationships and non-compete agreements. The following represents the other intangible assets subject to amortization (amounts in thousands):

	September 30, 2010				December 31, 2009
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Customer relationships	$	438,068	$	228,248	$	437,412	$	180,379
Non-compete agreements	3,372		2,202		3,955		2,306
Total	$	441,440	$	230,450	$	441,367	$	182,685

The Company recorded amortization expense for intangible assets of $16.2 million and $16.8 million during the three months ended September 30, 2010 and 2009, respectively, and $48.4 million and $51.4 million during the nine months ended September 30, 2010 and 2009, respectively.

The following represents the Company’s expected amortization expense from these other intangible assets over the next five years (amounts in thousands):

For the Years Ended December 31,	Estimated Amortization Expense
2010	$	64,497
2011	64,087
2012	59,817
2013	53,584
2014	15,761

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11.  Long-Term Debt:

Long-term debt consisted of the following (amounts in thousands):

	September 30, 2010			December 31, 2009
Senior term loan	$	508,719		$	549,260
Senior revolving credit facility	—			17,000
Senior subordinated notes	200,000			200,000
Senior notes	165,000			165,000
Nonrecourse credit facility	3,102			14,322
Capital leases and other	5,541			5,948
Less current portion	(10,552		)	(41,699		)
	$	871,810		$	909,831

Senior Credit Facility:

The Company has a senior credit facility (“Credit Facility”) with a syndicate of financial institutions that consists of a term loan and a $100.0 million revolving credit facility. The Company is required to make quarterly principal repayments of $1.5 million on the term loan until its maturity in May 2013, at which time its remaining balance outstanding is due. The Company is also required to make quarterly prepayments of 75 percent of the excess cash flow from the Company’s purchased accounts receivable, and annual prepayments of 75 percent or 50 percent of its excess annual cash flow, based on its leverage ratio, less the amounts paid during the year from the purchased accounts receivable excess cash flow prepayments. The revolving credit facility requires no minimum principal payments until its maturity in November 2011. The availability of the revolving credit facility is reduced by any unused letters of credit ($5.7 million at September 30, 2010). As of September 30, 2010, the Company had $94.3 million of remaining availability under the revolving credit facility.

On March 31, 2010, the Company amended the Credit Facility to, among other things, adjust the financial covenants, including increasing maximum leverage ratios and decreasing minimum interest coverage ratios, and adjust the required principal prepayments. The amended Credit Facility also limits purchases of accounts receivable in 2010 to $20 million and purchases in 2011 and each year thereafter to $10 million per year.

All borrowings bear interest at an annual variable rate, based on either the prime rate (3.25 percent at September 30, 2010), the federal funds rate (0.15 percent at September 30, 2010) or LIBOR (0.26 percent 30-day LIBOR at September 30, 2010) plus an applicable margin, which is based on the type of rate and the Company’s funded debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”) ratio, as defined in the loan agreement, subject to certain interest rate minimum requirements. The Company is charged a quarterly commitment fee on the unused portion of the revolving credit facility at an annual rate of 0.50 percent. The effective interest rate on the Credit Facility was approximately 9.23 percent and 9.32 percent for the three months ended September 30, 2010 and 2009, respectively, and 9.21 percent and 8.42 percent for the nine months ended September 30, 2010 and 2009, respectively. The Credit Facility also requires that the Company obtain certain levels of interest rate protection.

Borrowings under the Credit Facility are collateralized by substantially all of the Company’s assets. The Credit Facility contains certain financial and other covenants such as maintaining a maximum leverage ratio and a minimum interest coverage ratio, and includes restrictions on, among other things, acquisitions, the incurrence of additional debt, investments, investments in purchased accounts receivable, disposition of assets, liens and dividends and other distributions.

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11.  Long-Term Debt (continued):

Senior Credit Facility (continued):

At September 30, 2010, the Company’s leverage ratio was 5.59, compared to the covenant maximum of 5.75, and the interest coverage ratio was 1.85, compared to the covenant minimum of 1.80. The Company was in compliance with all required financial covenants and was not aware of any events of default as of September 30, 2010.

The Company’s ability to maintain compliance with the financial covenants will be highly dependent on the Company’s results of operations and, to the extent necessary, the Company’s ability to implement remedial measures such as further reductions in operating costs. The economic and business climate in 2010 continues to be very difficult and there is uncertainty as to whether the economic and business climate in 2011 will improve. In addition, other factors, such as the loss of a significant client or reduced client volumes, may impact the Company’s ability to meet its debt covenants in the future. Therefore, no assurance can be given that the Company will be able to maintain compliance with its financial covenants in future periods.

The Company may seek to amend its existing Credit Facility to obtain covenant compliance relief or waivers, or seek additional funding or replacement financing. There can be no assurance that the Company will be able to obtain covenant relief, other funding or replacement financing. Any such covenant relief or new financing may result in additional fees and higher interest rates. In addition, the Company will seek to amend or replace its Credit Facility prior to the expiration of the current facility in May 2013.

If an event of default, such as failure to comply with covenants, were to occur under the Credit Facility and the Company was not able to obtain an amendment or waiver from the lenders, the Company would not be able to borrow under the revolving credit facility and the lenders would be entitled to declare all amounts outstanding under the Credit Facility immediately due and payable and foreclose on the pledged assets. In addition, the acceleration of the amounts due under the Credit Facility could be an event of default under the Company’s Senior Notes and Senior Subordinated Notes and entitle the holders to accelerate the payment of these obligations. Under these circumstances, the acceleration of the payment of the Company’s debt would have a material adverse effect on its business.

Senior Notes and Senior Subordinated Notes:

The Company has $165.0 million of floating rate senior notes due 2013 (“Senior Notes”) and $200.0 million of 11.875 percent senior subordinated notes due 2014 (“Senior Subordinated Notes”) (collectively, “the Notes”). The Notes are guaranteed, jointly and severally, on a senior basis with respect to the Senior Notes and on a senior subordinated basis with respect to the Senior Subordinated Notes, in each case by all of the Company’s existing and future domestic restricted subsidiaries (other than certain subsidiaries and joint ventures engaged in financing the purchase of delinquent accounts receivable portfolios and certain immaterial subsidiaries).

The Senior Notes are senior unsecured obligations and are senior in right of payment to all existing and future senior subordinated indebtedness, including the Senior Subordinated Notes, and all future subordinated indebtedness. The Senior Notes bear interest at an annual rate equal to LIBOR plus 4.875 percent, reset quarterly. The effective interest rate of the Senior Notes was approximately 5.28 percent and 5.54 percent for the three months ended September 30, 2010 and 2009, respectively, and 5.21 percent and 6.02 percent for the nine months ended September 30, 2010 and 2009, respectively. The Company may redeem the Senior Notes, in whole or in part, at any time at varying redemption prices depending on the redemption date, plus accrued and unpaid interest.

The Senior Subordinated Notes are unsecured senior subordinated obligations and are subordinated in right of payment to all existing and future senior indebtedness, including the Senior Notes and borrowings under the Credit Facility. The Company may redeem the Senior Subordinated Notes, in whole or in part, at any time on or after November 15, 2010 at varying redemption prices depending on the redemption date, plus accrued and unpaid interest. The Company also may redeem some or all of the Senior Subordinated Notes at any time prior to November 15, 2010, at a redemption price equal to 100 percent of the principal amount of the respective Notes to be redeemed, plus accrued and unpaid interest and an additional premium.

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11.  Long-Term Debt (continued):

Senior Notes and Senior Subordinated Notes (continued):

The indentures governing the Notes contain a number of covenants that limit the Company’s and its restricted subsidiaries’ ability, among other things, to: incur additional indebtedness and issue certain preferred stock, pay certain dividends, acquire shares of capital stock, make payments on subordinated debt or make investments, place limitations on distributions from restricted subsidiaries, issue or sell capital stock of restricted subsidiaries, guarantee indebtedness, sell or exchange assets, enter into transactions with affiliates, create certain liens, engage in unrelated businesses, and consolidate, merge or transfer all or substantially all of the Company’s assets and the assets of its subsidiaries on a consolidated basis. As of September 30, 2010, the Company was in compliance with all required covenants. In addition, upon a change of control, the Company is required to offer to repurchase all of the Notes then outstanding, at a purchase price equal to 101 percent of their principal amount, plus any accrued interest to the date of repurchase.

Nonrecourse Credit Facility:

The Company has a nonrecourse credit facility that funded certain purchases of accounts receivable prior to 2009. The Company does not have the ability to make any additional borrowings under the nonrecourse credit facility. The financing was structured, depending on the size and nature of the portfolio to be purchased, either as a borrowing arrangement or under various equity sharing arrangements. The lender financed non-equity borrowings with floating interest at an annual rate equal to LIBOR (0.26 percent 30-day LIBOR at September 30, 2010) plus 2.50 percent, or as negotiated. These borrowings are due two years from the date of each respective loan, unless otherwise negotiated. As additional return on the debt financed portfolios, the lender receives residual cash flows, as negotiated, which is defined as all cash collections after servicing fees, floating rate interest, repayment of the borrowing, and the initial investment by the Company, including interest. Residual cash flow payments are accrued for as embedded derivatives.

Borrowings under this credit facility are nonrecourse to the Company, except for the assets within the entities established in connection with the financing agreement. The nonrecourse debt agreements contain a collections performance requirement, among other covenants, that, if not met, provides for cross-collateralization with any other portfolios financed by the nonrecourse lender, in addition to other remedies.

Total debt outstanding under this facility was $3.1 million and $14.3 million as of September 30, 2010 and December 31, 2009, respectively, which included $1.1 million and $2.1 million, respectively, of accrued residual interest. The effective interest rate on these loans, including the residual interest component, was approximately 11.2 percent and 8.7 percent for the three months ended September 30, 2010 and 2009, respectively, and 10.4 percent and 11.0 percent for the nine months ended September 30, 2010 and 2009, respectively. The nonrecourse credit facility contains certain covenants such as meeting minimum cumulative collection targets. As of September 30, 2010, the Company was in compliance with all required covenants.

12.  Income Taxes:

The Company recorded income tax expense of $2.1 million and $2.6 million for the three months ended September 30, 2010 and 2009, respectively, and income tax expense of $7.0 million and an income tax benefit of $1.1 million for the nine months ended September 30, 2010 and 2009, respectively. The Company’s income tax expense differs from the amount of income tax determined by applying the statutory U.S. federal income tax rate to pre-tax income (loss) primarily as a result of the recognition of a valuation allowance on certain domestic net deferred tax assets and income tax expense to be paid in state and foreign jurisdictions.

As a result of cumulative losses incurred by the Company since 2007, a valuation allowance was established due to the uncertainty that federal and certain state deferred tax assets would be realized in future years. The Company increased its valuation allowance by $30.4 million to $98.8 million as of September 30, 2010 from $68.4 million as of December 31, 2009, primarily as a result of federal and certain state deferred tax assets exceeding deferred tax liabilities (after consideration for any net deferred tax liabilities associated with non-amortizable assets such as goodwill and certain trade names).

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12.  Income Taxes (continued):

The Company has also considered future taxable income and ongoing prudent and feasible tax-planning strategies in assessing the need for the valuation allowance.  On a quarterly basis, management assesses whether it remains more likely than not that the deferred tax assets will not be realized.  In the event the Company determines at a future time that it could realize its deferred tax assets in excess of the net amount recorded, the Company will reduce its deferred tax asset valuation allowance and decrease income tax expense in the period when the Company makes such determination.

13.  Stockholders’ Equity:

Preferred Stock and Common Stock:

The Company is authorized to issue three classes of capital stock: Preferred Stock, par value $0.01 per share, Class L Common Stock, par value $0.01 per share (“Class L”) and Class A common stock, par value $0.01 per share (“Class A”). Shares of Class L, Class A and three series of Preferred Stock: Series A 14 percent PIK Preferred Stock (“Series A”), Series B-1 19 percent PIK Preferred Stock (“Series B-1”), and Series B-2 19 percent Preferred Stock (“Series B-2”), are issued and outstanding.

Series A is entitled to a quarterly “paid-in-kind” dividend at an annual rate of 14 percent and Series B-1 is entitled to a quarterly “paid-in-kind” dividend at an annual rate of 19 percent. The following presents the Series A and Series B-1 shares issued for the “paid-in-kind” dividends:

	For the Three Months		For the Nine Months
	Ended September 30,		Ended September 30,
	2010	2009	2010	2009
Series A	110,088	95,935	316,975	275,811
Series B-1	11,442	9,503	32,565	18,453

In February 2009, the Company issued 7,400 shares of Series A Preferred Stock to JPMorgan Chase & Co. (“JPM”) as additional consideration for the acquisition of Systems & Services Technologies, Inc. (“SST”), which occurred in January 2008.

On March 25, 2009, in connection with the amendment of the Company’s Credit Facility, the Company sold 148,463.6 shares of its Series B-1 Preferred Stock and 19,957.4 shares of its Series B-2 Preferred Stock to One Equity Partners, Michael J. Barrist and certain members of executive management, and other co-investors for an aggregate purchase price of $40.0 million. The proceeds were used to pay down $15.0 million of term loan borrowings, and the remainder, net of expenses, of $22.5 million was used to repay borrowings under the revolving credit facility.

Noncontrolling Interests:

The following table summarizes the activity in stockholders’ equity attributable to NCO Group, Inc. and noncontrolling interests (amounts in thousands):

	NCO Group, Inc. Stockholders’ Equity			Noncontrolling Interests			Total Stockholders’ Equity
Balance at December 31, 2009	$	229,100		$	11,450		$	240,550
Stock-based compensation	561			—			561
Distributions to noncontrolling interests, net	—			(3,148		)	(3,148		)
Net (loss) income	(74,321		)	864			(73,457		)
Accumulated other comprehensive loss	4,314			—			4,314
Balance at September 30, 2010	$	159,654		$	9,166		$	168,820

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13.  Stockholders’ Equity (continued):

Comprehensive Income (Loss):

Comprehensive income (loss) was as follows (amounts in thousands):

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
Net loss attributable to NCO Group, Inc.	$	(33,527	)	$	(24,604	)	$	(74,321	)	$	(31,929	)
Foreign currency translation adjustments	3,587			282			1,788			1,178
Change in fair value of cash flow hedges, net of tax	—			—			—			(719		)
Net losses on cash flow hedges reclassified into earnings, net of tax	780			1,501			2,526			4,302
Comprehensive loss - NCO Group, Inc.	(29,160		)	(22,821		)	(70,007		)	(27,168		)
Net (loss) income attributable to noncontrolling interests	(273		)	(2,679		)	864			(3,610		)
Total comprehensive loss	$	(29,433	)	$	(25,500	)	$	(69,143	)	$	(30,778	)

14.  Derivative Financial Instruments:

The Company enters into forward exchange contracts to minimize the impact of currency fluctuations on transactions and cash flows. These contracts may be designated as cash flow hedges. The Company had forward exchange contracts for the purchase of 85.9 million Philippine pesos and 9.8 million of Canadian dollars outstanding at September 30, 2010, which mature throughout the remainder of 2010.

The Company has interest rate swap agreements to minimize the impact of LIBOR fluctuations on interest payments on the Company’s floating rate debt. The interest rate swaps may be designated as cash flow hedges. The interest rate swaps cover an aggregate notional amount of $301.0 million. The Company is required to pay the counterparties quarterly interest payments at a weighted average fixed rate ranging from 3.41 to 3.44 percent, and receives from the counterparties variable quarterly interest payments based on LIBOR. The net interest paid or received is included in interest expense. On March 25, 2009, the Company amended its senior credit facility, which amendment included a minimum LIBOR of 2.50 percent. This amendment caused the existing interest rate swaps to become ineffective and, as of March 25, 2009, these interest rate swaps were not accounted for as cash flow hedges. Accordingly, the fair market value of the interest rate swaps at March 25, 2009 is being amortized to interest expense, using the effective interest rate method, over the remaining lives of the interest rate swap agreements, and future changes in the fair market value of these interest rate swaps after March 25, 2009 are recorded in interest expense.

The Company has embedded derivatives relating to the contingent payment provision in its nonrecourse credit facility relating to purchased accounts receivable, and relating to the sellers’ participation in collections that are in excess of minimum targets for certain portfolios of purchased accounts receivable.

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14.  Derivative Financial Instruments (continued):

The following summarizes the fair value of the Company’s derivatives (amounts in thousands):

	Balance Sheet	Fair Value
	Location	September 30, 2010		December 31, 2009
Derivatives not designated as hedges:
Asset derivatives
Forward exchange contracts	Other current assets	$	488	$	2
Total asset derivatives not designated as hedges		$	488	$	2
Liability derivatives
Interest rate swaps	Accrued expenses	$	3,779	$	9,104
Forward exchange contracts	Accrued expenses	—		60
Embedded derivatives	Long-term debt and accrued expenses	1,839		3,306
Total liability derivatives not designated as hedges		$	5,618	$	12,470

The following table summarizes the effect of derivatives designated as hedges on the Company for the nine months ended September 30, 2009 (there were no derivatives designated as hedges for the three months ended September 30, 2010 and 2009, and for the nine months ended September 30, 2010) (amounts in thousands):

		For the Nine Months Ended  September 30, 2009
		Amount of			Amount of
	Location of	Gain (Loss)			Gain (Loss)
	Gain (Loss)	Recognized			Reclassified
	Reclassified	in OCI (net			into
	into Earnings	of taxes)			Earnings
Derivatives designated as hedges:
Interest rate swaps (prior to March 25, 2009)	Interest expense	$	(719	)	$	(2,056	)
Total derivatives designated as hedges		$	(719	)	$	(2,056	)

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14.  Derivative Financial Instruments (continued):

The following tables summarize the effect of derivatives not designated as hedges on the Company (amounts in thousands):

		For the Three Months Ended September 30,
		2010			2009
		Amount of Gain			Amount of Gain
	Location of Gain (Loss)	(Loss) Recognized			(Loss) Recognized
	Recognized in Earnings	in Earnings			in Earnings
Derivatives not designated as hedges:
Forward exchange contracts	Other income (expense)	$	748		$	3,912
Interest rate swaps (after March 25, 2009)	Interest expense	(803		)	(5,142		)
Amortization of interest rate swaps	Interest expense	(1,225		)	—
Embedded derivatives	Interest expense	(127		)	(97		)
Interest rate caps	Other income (expense)	—			(7		)
Total derivatives not designated as hedges		$	(1,407	)	$	(1,334	)

		For the Nine Months Ended September 30,
		2010			2009
		Amount of Gain			Amount of Gain
	Location of Gain (Loss)	(Loss) Recognized			(Loss) Recognized
	Recognized in Earnings	in Earnings			in Earnings
Derivatives not designated as hedges:
Forward exchange contracts	Other income (expense)	$	1,100		$	6,695
Interest rate swaps (after March 25, 2009)	Interest expense	(1,961		)	(9,058		)
Amortization of interest rate swaps	Interest expense	(3,966		)	—
Embedded derivatives	Interest expense	634			917
Interest rate caps	Other income (expense)	—			(37		)
Total derivatives not designated as hedges		$	(4,193	)	$	(1,483	)

15.  Supplemental Cash Flow Information:

The following are supplemental disclosures of cash flow information (amounts in thousands):

	For the Nine Months Ended
	September 30,
	2010		2009
Noncash investing and financing activities:
Fair value of assets acquired	$	—	$	15,585
Liabilities assumed from acquisitions	—		13,062
Issuance of stock to JPM for the SST acquisition	—		1,758
Adjustments to acquired assets and liabilities	—		1,378

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16.  Commitments and Contingencies:

Purchase Commitments:

The Company enters into noncancelable agreements with various telecommunications companies, a labor subcontractor in India and other vendors that require minimum purchase commitments. These agreements expire between 2010 and 2012. The following represents the future minimum payments, by year and in the aggregate, under noncancelable purchase commitments (amounts in thousands):

2010	$	28,004
2011	18,897
2012	7,392
	$	54,293

The Company incurred $11.1 million and $18.1 million of expense from vendors associated with these purchase commitments for the three months ended September 30, 2010 and 2009, respectively and $38.4 million and $53.0 million for the nine months ended September 30, 2010 and 2009, respectively.

Forward-Flow Agreements:

The Company has two fixed price agreements, or forward-flows, that obligate the Company to purchase, on a monthly basis, portfolios of charged-off accounts receivable meeting certain criteria. The forward flow agreements expire in December 2010 and April 2011. The remaining estimated future forward-flow commitments in the fourth quarter of 2010 and for the full year 2011 are approximately $1.9 million and $600,000, respectively.

Litigation and Investigations:

The Company is party, from time to time, to various legal proceedings, regulatory investigations, client audits and tax examinations incidental to its business. The Company continually monitors these legal proceedings, regulatory investigations, client audits and tax examinations to determine the impact and any required accruals. See “Item 3. Legal Proceedings” in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2009.

Attorneys General:

From time to time, the Company receives subpoenas or other similar information requests from various states’ Attorneys General, requesting information relating to the Company’s debt collection practices in such states. The Company responds to such inquires or investigations and provides certain information to the respective Attorneys General offices. The Company believes it is in compliance with the laws of the states in which it does business relating to debt collection practices in all material respects. However, no assurance can be given that any such inquiries or investigations will not result in a formal investigation or an enforcement action. Any such enforcement actions could result in fines as well as the suspension or termination of the Company’s ability to conduct business in such states.

Other:

The Company is involved in other legal proceedings, regulatory investigations, client audits and tax examinations from time to time in the ordinary course of its business. Management believes that none of these other legal proceedings, regulatory investigations, client audits or tax examinations will have a materially adverse effect on the financial condition or results of operations of the Company.

17.  Segment Reporting:

As of September 30, 2010, the Company’s business consisted of three operating segments: ARM, CRM and Portfolio Management. The accounting policies of the segments are the same as those described in note 2, “Accounting Policies.”

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17.  Segment Reporting (continued):

ARM provides accounts receivable management services to consumer and commercial accounts for all market sectors including financial services, healthcare, retail and commercial, telecommunications, utilities, education, and government. ARM serves clients of all sizes in local, regional and national markets in North America, Europe and Australia through offices in North America, Asia, Europe and Australia. In addition to traditional accounts receivable collections, these services include developing the client relationship beyond bad debt recovery and delinquency management, and delivering cost-effective accounts receivable solutions to all market sectors. ARM also provides accounts receivable management services to Portfolio Management. ARM recorded revenue of $9.3 million and $13.7 million for intercompany services to Portfolio Management for the three months ended September 30, 2010 and 2009, respectively, and $33.8 million and $47.7 million for the nine months ended September 30, 2010 and 2009, respectively.

CRM provides customer relationship management services to clients in North America through offices in North America and Asia. CRM also provided certain services to ARM, and recorded revenue of $1.7 million and $3.0 million for the three and nine months ended September 30, 2009, respectively, for the intercompany services to ARM.

Portfolio Management purchases and manages defaulted consumer accounts receivable from consumer creditors such as banks, finance companies, retail merchants, utilities, healthcare companies and other consumer oriented companies. Portfolio Management’s revenue was impacted by an impairment of purchased accounts receivable of $7.1 million and $13.8 million for the three months ended September 30, 2010 and 2009, respectively, and $7.2 million and $15.1 million for nine months ended September 30, 2010 and 2009, respectively.

The following table presents total assets, net of any intercompany balances, for each segment (amounts in thousands):

	September 30, 2010		December 31, 2009
ARM	$	1,026,873	$	1,079,180
CRM	213,219		239,373
Portfolio Management	97,482		141,482
Total assets	$	1,337,574	$	1,460,035

The following tables present the revenue, payroll and related expenses, selling, general, and administrative expenses, reimbursable costs and fees, restructuring charges, income (loss) from operations before depreciation and amortization and capital expenditures for each segment (amounts in thousands):

	For the Three Months Ended September 30, 2010
	ARM		CRM			Portfolio  Management			Eliminations			Total
Revenues	$	310,935	$	65,511		$	3,357		$	(9,256	)	$	370,547
Payroll and related expenses	116,201		49,914			771			—			166,886
Selling, general and admin. expenses	89,831		13,961			9,587			(8,742		)	104,637
Reimbursable costs and fees	74,741		—			—			(514		)	74,227
Restructuring charges	5,707		1,738			—			—			7,445
Income (loss) from operations before depreciation and amortization	$	24,455	$	(102	)	$	(7,001	)	$	—		$	17,352

19

17.  Segment Reporting (continued):

	For the Three Months Ended September 30, 2009
	ARM		CRM		Portfolio  Management			Eliminations			Total
Revenues	$	307,468	$	79,275	$	2,310		$	(15,383	)	$	373,670
Payroll and related expenses	133,066		56,513		776			(1,724		)	188,631
Selling, general and admin. expenses	111,858		15,624		14,343			(13,046		)	128,779
Reimbursable costs and fees	28,001		—		—			(613		)	27,388
Restructuring charges	1,134		197		135			—			1,466
Income (loss) from operations before depreciation and amortization	$	33,409	$	6,941	$	(12,944	)	$	—		$	27,406

	For the Nine Months Ended September 30, 2010
	ARM		CRM		Portfolio  Management			Eliminations			Total
Revenues	$	965,625	$	208,568	$	29,423		$	(33,832	)	$	1,169,784
Payroll and related expenses	368,270		158,054		2,481			—			528,805
Selling, general and admin. expenses	284,791		42,250		35,076			(32,694		)	329,423
Reimbursable costs and fees	216,764		—		—			(1,138		)	215,626
Restructuring charges	9,958		2,389		1,481			—			13,828
Income (loss) from operations before depreciation and amortization	$	85,842	$	5,875	$	(9,615	)	$	—		$	82,102
Capital expenditures	$	12,516	$	5,860	$	—		$	—		$	18,376

	For the Nine Months Ended September 30, 2009
	ARM		CRM		Portfolio  Management			Eliminations			Total
Revenues	$	916,070	$	248,736	$	40,256		$	(50,644	)	$	1,154,418
Payroll and related expenses	413,576		177,905		3,826			(2,989		)	592,318
Selling, general and admin. expenses	341,778		44,981		49,433			(45,014		)	391,178
Reimbursable costs and fees	47,464		—		—			(2,641		)	44,823
Restructuring charges	2,706		379		161			—			3,246
Income (loss) from operations before depreciation and amortization	$	110,546	$	25,471	$	(13,164	)	$	—		$	122,853
Capital expenditures	$	14,603	$	11,676	$	—		$	—		$	26,279

20

18.          Related Party Transactions:

The Company pays OEP a management fee of $3.0 million per year, plus reimbursement of expenses, for management, advice and related services. During the three and nine months ended September 30, 2010, the Company incurred $750,000 and $2.3 million, respectively, relating to such management fees, which were included in selling, general and administrative expenses.

OEP is managed by OEP Holding Corporation, a wholly owned indirect subsidiary of JPM, and JPM is a client of the Company. The Company received fees for providing services to JPM of $3.2 million and $8.8 million for the three and nine months ended September 30, 2010, respectively, and $3.2 million and $10.0 million for the three and nine months ended September 30, 2009, respectively. Additionally, affiliates of Citigroup are investors of the Company, and Citigroup is a client of the Company. The Company received fees for providing services to Citigroup of $11.4 million and $36.9 million for the three and nine months ended September 30, 2010, respectively, and $12.9 million and $42.1 million for the three and nine months ended September 30, 2009, respectively. At September 30, 2010 and December 31, 2009, the Company had accounts receivable of $5.3 million and $5.8 million, respectively, due from Citigroup.

The Company has certain corporate banking relationships with affiliates of JPM and is charged market rates for these services.

19.  Recently Issued and Proposed Accounting Guidance:

In June 2009, the FASB issued authoritative guidance for transfers of financial assets. This guidance removes the concept of qualifying special-purpose entities and eliminates the exception from applying guidance related to consolidating of variable interest entities to qualifying special-purpose entities. This guidance requires additional disclosures in order to provide greater transparency about transfers of financial assets and a transferor’s continuing involvement with transferred financial assets. The Company adopted this guidance on January 1, 2010, and it did not have a material impact on its financial condition or results of operations.

In June 2009, the FASB issued amended guidance for consolidation of variable interest entities. This guidance amends previous guidance to require companies to perform an analysis to determine if their variable interest gives them a controlling financial interest in the variable interest entity, and requires ongoing reassessments of who is the primary beneficiary of a variable interest entity. This guidance also requires enhanced disclosures of information about involvement in a variable interest entity. The Company adopted this guidance on January 1, 2010, and it did not have a material impact on its financial condition or results of operations.

In January 2010, the FASB issued amended guidance for disclosures about fair value measurements, which requires new disclosures regarding transfers in and out of Level 1 and 2 measurements and requires additional disclosures regarding activity in Level 3 measurements. This guidance also clarifies existing fair value disclosures regarding the level of disaggregation and the input and valuation techniques used to measure fair value. The Company adopted this guidance on January 1, 2010, except for the requirement for additional disclosures of Level 3 activity which is effective on January 1, 2011, and it did not have a material impact on its financial condition or results of operations.

In April 2010, the FASB issued amended guidance for loan modifications when the loan is part of a pool that is accounted for as a single asset.  This guidance clarifies that modifications of loans that are accounted for within a pool, which have evidence of credit deterioration upon acquisition, do not result in the removal of those loans from the pool even if the modification would otherwise be considered a troubled debt restructuring. An entity will continue to be required to consider whether the pool of assets in which the loan is included is impaired if expected cash flows for the pool change. The amended guidance is effective for the Company for loan modifications made in or after the third quarter of 2010.  The Company adopted this guidance and it did not have a material impact on its results of operations or financial position.

21

19.  Recently Issued and Proposed Accounting Guidance (continued):

In July 2010, the FASB issued amended guidance for disclosures about financing receivables and allowances for credit losses. The guidance requires further disaggregated disclosures that improve financial statement users’ understanding of (1) the nature of an entity’s credit risk associated with its financing receivables and (2) the entity’s assessment of that risk in estimating its allowance for credit losses as well as changes in the allowance and the reasons for those changes. The new disclosure requirements will be effective for the Company for the annual reporting period ending December 31, 2010. Certain disclosures related to allowance and modification activities will be effective for the Company for reporting periods beginning January 1, 2011. The Company does not expect the adoption of this guidance to have an impact on its financial condition or results of operations.

20.  Subsidiary Guarantor Financial Information:

The Notes are fully and unconditionally guaranteed, jointly and severally, by certain domestic 100 percent owned subsidiaries of the Company (collectively, the “Guarantors”). Non-guarantors consist of all non-domestic subsidiaries, certain subsidiaries engaged in financing the purchase of delinquent accounts receivable portfolios, portfolio joint ventures (which are engaged in portfolio financing transactions) and certain immaterial subsidiaries (collectively, the “Non-Guarantors”). The following tables present the consolidating financial information for the Company (Parent), the Guarantors and the Non-Guarantors, together with eliminations, as of and for the periods indicated.

22

20.  Subsidiary Guarantor Financial Information (continued):

NCO GROUP, INC.

Consolidating Balance Sheet

September 30, 2010

(Unaudited)

(Amounts in thousands)

	Parent			Guarantors			Non-Guarantors			Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	—		$	15,670		$	15,940		$	—		$	31,610
Accounts receivable, trade, net of allowance for doubtful accounts	—			152,351			18,065			—			170,416
Purchased accounts receivable, current portion	—			16,876			20,464			—			37,340
Deferred income taxes	(28,808		)	29,327			1,484			—			2,003
Prepaid expenses and other current assets	1,795			32,032			32,177			—			66,004
Total current assets	(27,013		)	246,256			88,130			—			307,373
Property and equipment, net	—			74,003			29,896			—			103,899
Other assets:
Goodwill	—			471,791			65,636			—			537,427
Trade name, net of accumulated amortization	—			80,762			2,847			—			83,609
Customer relationships and other intangible assets, net of accumulated amortization	—			196,912			14,078			—			210,990
Purchased accounts receivable, net of current portion	—			36,482			20,890			—			57,372
Investment in subsidiaries	806,779			4,591			—			(811,370		)	—
Deferred income taxes	—			—			3,584			—			3,584
Other assets	11,715			37,511			(15,906		)	—			33,320
Total other assets	818,494			828,049			91,129			(811,370		)	926,302
Total assets	$	791,481		$	1,148,308		$	209,155		$	(811,370	)	$	1,337,574
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Long-term debt, current portion	$	6,054		$	293		$	4,205		$	—		$	10,552
Intercompany payable (receivable)	182,814			(283,809		)	100,995			—			—
Income taxes payable	—			—			7,390			—			7,390
Accounts payable	750			19,789			2,556			—			23,095
Accrued expenses	14,725			62,594			27,015			—			104,334
Accrued compensation and related expenses	—			30,183			13,646			—			43,829
Deferred revenue, current portion	—			32,113			627			—			32,740
Total current liabilities	204,343			(138,837		)	156,434			—			221,940
Long-term liabilities:
Long-term debt, net of current portion	493,260			374,068			4,482			—			871,810
Deferred income taxes	(75,319		)	110,787			2,281			—			37,749
Deferred revenue, net of current portion	—			858			—			—			858
Other long-term liabilities	9,543			11,772			15,082			—			36,397
Stockholders’ equity:
Total NCO Group, Inc. stockholders’ equity	159,654			789,660			21,710			(811,370		)	159,654
Noncontrolling interests	—			—			9,166			—			9,166
Total stockholders’ equity	159,654			789,660			30,876			(811,370		)	168,820
Total liabilities and stockholders’ equity	$	791,481		$	1,148,308		$	209,155		$	(811,370	)	$	1,337,574

23

20.  Subsidiary Guarantor Financial Information (continued):

NCO GROUP, INC.

Consolidating Balance Sheet

December 31, 2009

(Unaudited)

(Amounts in thousands)

	Parent			Guarantors			Non-Guarantors			Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	—		$	18,984		$	20,237		$	—		$	39,221
Accounts receivable, trade, net of allowance for doubtful accounts	—			156,600			21,467			—			178,067
Purchased accounts receivable, current portion	—			22,406			28,554			—			50,960
Deferred income taxes	(28,808		)	29,327			1,234			—			1,753
Prepaid expenses and other current assets	1,358			29,741			30,882			—			61,981
Total current assets	(27,450		)	257,058			102,374			—			331,982
Property and equipment, net	—			89,347			32,970			—			122,317
Other assets:
Goodwill	—			470,621			65,236			—			535,857
Trade name, net of accumulated amortization	—			81,065			2,847			—			83,912
Customer relationships and other intangible assets, net of accumulated amortization	—			239,393			19,289			—			258,682
Purchased accounts receivable, net of current portion	—			52,966			34,503			—			87,469
Investment in subsidiaries	729,604			19,005			—			(748,609		)	—
Deferred income taxes	—			—			3,548			—			3,548
Other assets	12,852			45,492			(22,076		)	—			36,268
Total other assets	742,456			908,542			103,347			(748,609		)	1,005,736
Total assets	$	715,006		$	1,254,947		$	238,691		$	(748,609	)	$	1,460,035
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Long-term debt, current portion	$	29,334		$	583		$	11,782		$	—		$	41,699
Intercompany (receivable) payable	(953		)	(109,273		)	110,226			—			—
Income taxes payable	—			—			2,838			—			2,838
Accounts payable	—			13,387			2,478			—			15,865
Accrued expenses	14,367			67,538			25,345			—			107,250
Accrued compensation and related expenses	—			26,225			11,869			—			38,094
Deferred revenue, current portion	—			39,101			427			—			39,528
Total current liabilities	42,748			37,561			164,965			—			245,274
Long-term liabilities:
Long-term debt, net of current portion	517,521			388,531			3,779			—			909,831
Deferred income taxes	(82,653		)	108,563			6,062			—			31,972
Deferred revenue, net of current portion	—			1,147			—			—			1,147
Other long-term liabilities	8,290			9,153			13,818			—			31,261
Stockholders’ equity:
Total NCO Group, Inc. stockholders’ equity	229,100			709,992			38,617			(748,609		)	229,100
Noncontrolling interests	—			—			11,450			—			11,450
Total stockholders’ equity	229,100			709,992			50,067			(748,609		)	240,550
Total liabilities and stockholders’ equity	$	715,006		$	1,254,947		$	238,691		$	(748,609	)	$	1,460,035

24

20.  Subsidiary Guarantor Financial Information (continued):

NCO GROUP, INC.

Consolidating Statement of Operations

For the Three Months Ended September 30, 2010

(Unaudited)

(Amounts in thousands)

	Parent			Guarantors			Non-Guarantors			Eliminations			Consolidated
Revenues:
Services	$	—		$	275,480		$	75,497		$	(58,928	)	$	292,049
Portfolio	—			655			3,616			—			4,271
Reimbursable costs and fees	—			74,158			69			—			74,227
Total revenues	—			350,293			79,182			(58,928		)	370,547
Operating costs and expenses:
Payroll and related expenses	4			165,565			48,048			(46,731		)	166,886
Selling, general and administrative expenses	961			86,833			29,040			(12,197		)	104,637
Reimbursable costs and fees	—			74,158			69			—			74,227
Depreciation and amortization expense	—			21,002			6,278			—			27,280
Restructuring charges	—			5,177			2,268			—			7,445
Total operating costs and expenses	965			352,735			85,703			(58,928		)	380,475
(Loss) income from operations	(965		)	(2,442		)	(6,521		)	—			(9,928		)
Other income (expense):
Interest and investment income	—			154			(53		)	—			101
Interest expense	(14,125		)	(7,952		)	(926		)	—			(23,003		)
Interest (expense) income to affiliate	(7,734		)	9,925			(2,191		)	—			—
Subsidiary (loss) income	(6,506		)	(6,120		)	—			12,626			—
Other income, net	747			148			261			—			1,156
Total other income (expense)	(27,618		)	(3,845		)	(2,909		)	12,626			(21,746		)
(Loss) income before income taxes	(28,583		)	(6,287		)	(9,430		)	12,626			(31,674		)
Income tax expense (benefit)	4,944			(634		)	(2,184		)	—			2,126
Net (loss) income	(33,527		)	(5,653		)	(7,246		)	12,626			(33,800		)
Less: Net loss attributable to noncontrolling interests	—			—			(273		)	—			(273		)
Net (loss) income attributable to NCO Group, Inc.	$	(33,527	)	$	(5,653	)	$	(6,973	)	$	12,626		$	(33,527	)

25

20.  Subsidiary Guarantor Financial Information (continued):

NCO GROUP, INC.

Consolidating Statement of Operations

For the Three Months Ended September 30, 2009

(Unaudited)

(Amounts in thousands)

	Parent			Guarantors			Non-Guarantors			Eliminations			Consolidated
Revenues:
Services	$	—		$	338,503		$	81,310		$	(73,253	)	$	346,560
Portfolio	—			3,064			(3,342		)	—			(278		)
Reimbursable costs and fees	—			27,343			45			—			27,388
Total revenues	—			368,910			78,013			(73,253		)	373,670
Operating costs and expenses:
Payroll and related expenses	4			197,827			46,641			(55,841		)	188,631
Selling, general and administrative expenses	1,132			115,678			29,381			(17,412		)	128,779
Reimbursable costs and fees	—			27,343			45			—			27,388
Depreciation and amortization expense	—			22,695			6,556			—			29,251
Restructuring charges	—			539			927			—			1,466
Total operating costs and expenses	1,136			364,082			83,550			(73,253		)	375,515
(Loss) income from operations	(1,136		)	4,828			(5,537		)	—			(1,845		)
Other income (expense):
Interest and investment income	7			177			277			—			461
Interest expense	(18,651		)	(8,180		)	(365		)	—			(27,196		)
Interest (expense) income to affiliate	(1,824		)	3,772			(1,948		)	—			—
Subsidiary income (loss)	(2,340		)	(3,296		)	—			5,636			—
Other income, net	3,912			13			—			—			3,925
Total other income (expense)	(18,896		)	(7,514		)	(2,036		)	5,636			(22,810		)
(Loss) income before income taxes	(20,032		)	(2,686		)	(7,573		)	5,636			(24,655		)
Income tax expense (benefit)	4,572			(1,069		)	(875		)	—			2,628
Net (loss) income	(24,604		)	(1,617		)	(6,698		)	5,636			(27,283		)
Less: Net loss attributable to noncontrolling interests	—			—			(2,679		)	—			(2,679		)
Net (loss) income attributable to NCO Group, Inc.	$	(24,604	)	$	(1,617	)	$	(4,019	)	$	5,636		$	(24,604	)

26

20.  Subsidiary Guarantor Financial Information (continued):

NCO GROUP, INC.

Consolidating Statement of Operations

For the Nine Months Ended September 30, 2010

(Unaudited)

(Amounts in thousands)

	Parent			Guarantors			Non-Guarantors			Eliminations			Consolidated
Revenues:
Services	$	—		$	889,738		$	216,476		$	(184,251	)	$	921,963
Portfolio	—			12,568			19,627			—			32,195
Reimbursable costs and fees	—			215,437			189			—			215,626
Total revenues	—			1,117,743			236,292			(184,251		)	1,169,784
Operating costs and expenses:
Payroll and related expenses	12			535,900			134,760			(141,867		)	528,805
Selling, general and administrative expenses	3,089			279,774			88,944			(42,384		)	329,423
Reimbursable costs and fees	—			215,437			189			—			215,626
Depreciation and amortization expense	—			64,664			17,703			—			82,367
Restructuring charges	—			10,684			3,144			—			13,828
Total operating costs and expenses	3,101			1,106,459			244,740			(184,251		)	1,170,049
(Loss) income from operations	(3,101		)	11,284			(8,448		)	—			(265		)
Other income (expense):
Interest and investment income	244			(1,202		)	1,332			—			374
Interest expense	(42,745		)	(23,890		)	(2,125		)	—			(68,760		)
Interest (expense) income to affiliate	(15,356		)	21,119			(5,763		)	—			—
Subsidiary (loss) income	(7,421		)	(11,239		)	—			18,660			—
Other income, net	785			1,023			417			—			2,225
Total other income (expense)	(64,493		)	(14,189		)	(6,139		)	18,660			(66,161		)
(Loss) income before income taxes	(67,594		)	(2,905		)	(14,587		)	18,660			(66,426		)
Income tax expense (benefit)	6,727			2,301			(1,997		)	—			7,031
Net (loss) income	(74,321		)	(5,206		)	(12,590		)	18,660			(73,457		)
Less: Net income attributable to noncontrolling interests	—			—			864			—			864
Net (loss) income attributable to NCO Group, Inc.	$	(74,321	)	$	(5,206	)	$	(13,454	)	$	18,660		$	(74,321	)

27

20.  Subsidiary Guarantor Financial Information (continued):

NCO GROUP, INC.

Consolidating Statement of Operations

For the Nine Months Ended September 30, 2009

(Unaudited)

(Amounts in thousands)

	Parent			Guarantors			Non-Guarantors			Eliminations			Consolidated
Revenues:
Services	$	—		$	1,070,294		$	216,695		$	(219,982	)	$	1,067,007
Portfolio	—			23,503			19,085			—			42,588
Reimbursable costs and fees	—			44,642			181			—			44,823
Total revenues	—			1,138,439			235,961			(219,982		)	1,154,418
Operating costs and expenses:
Payroll and related expenses	12			615,408			139,172			(162,274		)	592,318
Selling, general and administrative expenses	3,312			356,395			89,179			(57,708		)	391,178
Reimbursable costs and fees	—			44,642			181			—			44,823
Depreciation and amortization expense	—			69,547			21,405			—			90,952
Restructuring charges	—			2,113			1,133			—			3,246
Total operating costs and expenses	3,324			1,088,105			251,070			(219,982		)	1,122,517
(Loss) income from operations	(3,324		)	50,334			(15,109		)	—			31,901
Other income (expense):
Interest and investment income	37			941			419			—			1,397
Interest expense	(52,058		)	(23,400		)	(1,522		)	—			(76,980		)
Interest (expense) income to affiliate	(3,491		)	8,236			(4,745		)	—			—
Subsidiary income (loss)	12,486			(10,823		)	—			(1,663		)	—
Other income, net	6,695			392			—			—			7,087
Total other income (expense)	(36,331		)	(24,654		)	(5,848		)	(1,663		)	(68,496		)
(Loss) income before income taxes	(39,655		)	25,680			(20,957		)	(1,663		)	(36,595		)
Income tax (benefit) expense	(7,726		)	11,285			(4,615		)	—			(1,056		)
Net (loss) income	(31,929		)	14,395			(16,342		)	(1,663		)	(35,539		)
Less: Net loss attributable to noncontrolling interests	—			—			(3,610		)	—			(3,610		)
Net (loss) income attributable to NCO Group, Inc.	$	(31,929	)	$	14,395		$	(12,732	)	$	(1,663	)	$	(31,929	)

28

20.  Subsidiary Guarantor Financial Information (continued):

NCO GROUP, INC

Consolidating Statement of Cash Flows

For the Nine Months Ended September 30, 2010

(Unaudited)

(Amounts in thousands)

	Parent			Guarantors			Non-Guarantors			Consolidated
Net cash (used in) provided by operating activities	$	(40,026	)	$	80,883		$	9,003		$	49,860
Cash flows from investing activities:
Purchases of accounts receivable	—			(9,645		)	(1,245		)	(10,890		)
Collections applied to principal of purchased accounts receivable	—			25,602			21,608			47,210
Proceeds from sales and resales of purchased accounts receivable	—			172			160			332
Purchases of property and equipment	—			(10,087		)	(8,289		)	(18,376		)
Net cash paid related to acquisitions	—			(1,600		)	—			(1,600		)
Other	—			1,366			—			1,366
Net cash provided by investing activities	—			5,808			12,234			18,042
Cash flows from financing activities:
Repayment of notes payable	—			(244		)	(11,794		)	(12,038		)
Net repayment of borrowings under revolving credit facility	(17,000		)	—			—			(17,000		)
Repayment of borrowings under senior term loan	(40,541		)	—			—			(40,541		)
Borrowings under (repayment of) intercompany notes payable	100,321			(89,757		)	(10,564		)	—
Payment of fees to obtain debt	(2,754		)	(4		)	—			(2,758		)
Return of investment in subsidiary to noncontrolling interests	—			—			(3,148		)	(3,148		)
Net cash provided by (used in) financing activities	40,026			(90,005		)	(25,506		)	(75,485		)
Effect of exchange rate on cash	—			—			(28		)	(28		)
Net decrease in cash and cash equivalents	—			(3,314		)	(4,297		)	(7,611		)
Cash and cash equivalents at beginning of the period	—			18,984			20,237			39,221
Cash and cash equivalents at end of the period	$	—		$	15,670		$	15,940		$	31,610

29

20.  Subsidiary Guarantor Financial Information (continued):

NCO GROUP, INC

Consolidating Statement of Cash Flows

For the Nine Months Ended September 30, 2009

(Unaudited)

(Amounts in thousands)

	Parent			Guarantors			Non-Guarantors			Consolidated
Net cash (used in) provided by operating activities	$	(29,306	)	$	128,399		$	(5,156	)	$	93,937
Cash flows from investing activities:
Purchases of accounts receivable	—			(44,049		)	(3,886		)	(47,935		)
Collections applied to principal of purchased accounts receivable	—			23,990			41,464			65,454
Proceeds from sales and resales of purchased accounts receivable	—			124			401			525
Purchases of property and equipment	—			(18,658		)	(7,621		)	(26,279		)
Net cash paid related to acquisitions	—			(3,377		)	(652		)	(4,029		)
Other	—			121			—			121
Net cash (used in) provided by investing activities	—			(41,849		)	29,706			(12,143		)
Cash flows from financing activities:
Repayment of notes payable	—			(294		)	(19,103		)	(19,397		)
Net repayment of borrowings under revolving credit facility	(47,000		)	—			—			(47,000		)
Repayment of borrowings under senior term loan	(19,541		)	—			—			(19,541		)
Borrowings under (repayment of) intercompany notes payable	66,706			(73,486		)	6,780			—
Payment of fees to obtain debt	(2,477		)	—			—			(2,477		)
Return of investment in subsidiary to noncontrolling interests	—			—			(5,784		)	(5,784		)
Issuance of stock, net	39,667			—			—			39,667
Payment of deemed dividend to JPM	(8,049		)	—			—			(8,049		)
Net cash provided by (used in) financing activities	29,306			(73,780		)	(18,107		)	(62,581		)
Effect of exchange rate on cash	—			—			1,345			1,345
Net increase in cash and cash equivalents	—			12,770			7,788			20,558
Cash and cash equivalents at beginning of the period	—			15,334			14,546			29,880
Cash and cash equivalents at end of the period	$	—		$	28,104		$	22,334		$	50,438

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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Certain statements included in this Quarterly Report on Form 10-Q, other than historical facts, are forward-looking statements (as such term is defined in the Securities Exchange Act of 1934, as amended, and the regulations thereunder), which are intended to be covered by the safe harbors created thereby. Forward-looking statements include, without limitation, statements as to:

·the Company’s expected future results of operations;

·economic conditions;

·the Company’s business and growth strategy;

·fluctuations in quarterly operating results;

·the integration of acquisitions;

·the final outcome of the Company’s litigation with its former landlord;

·statements as to liquidity and compliance with debt covenants;

·the effects of terrorist attacks, war and the economy on the Company’s business;

·expected increases in operating efficiencies;

·anticipated trends in the business process outsourcing industry;

·estimates of future cash flows and allowances for impairments of purchased accounts receivable;

·estimates of intangible asset impairments and amortization expense of customer relationships and other intangible assets;

·the effects of legal proceedings, regulatory investigations and tax examinations;

·the effects of changes in accounting guidance; and

·statements as to trends or the Company’s or management’s beliefs, expectations and opinions.

The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “will,” “would,” “should,” “guidance,” “potential,” “continue,” “project,” “forecast,” “confident,” and similar expressions are typically used to identify forward-looking statements. These statements are based on assumptions and assessments made by the Company’s management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate. Forward-looking statements are not guarantees of the Company’s future performance and are subject to risks and uncertainties and may be affected by various factors that may cause actual results, developments and business decisions to differ materially from those in the forward-looking statements. Some of the factors that may cause actual results, developments and business decisions to differ materially from those contemplated by such forward-looking statements include:

·risks related to the instability in the financial markets;

·risks related to adverse capital and credit market conditions;

·the ability of governmental and regulatory bodies to stabilize the financial markets;

·risks related to the domestic and international economies;

·risks related to derivative transactions;

·risks related to the Company’s ability to grow internally;

·risks related to the Company’s ability to compete;

·risks related to the Company’s substantial indebtedness, its ability to service such debt and its ability to comply with debt covenants;

·risks related to the Company’s ability to meet liquidity needs;

·the risk that the Company will not be able to implement its growth strategy as and when planned;

·risks associated with growth and acquisitions;

·the risk that the Company will not be able to realize operating efficiencies in the integration of its acquisitions;

·fluctuations in quarterly operating results;

·risks related to the timing of contracts;

·risks related to purchased accounts receivable;

·risks related to possible impairment of goodwill and other intangible assets;

·the Company’s dependence on senior management;

31

·risks related to security and privacy breaches;

·risks related to union organizing efforts at the Company’s facilities;

·risks associated with technology;

·risks related to the final outcome of the Company’s litigation with its former landlord;

·risks related to litigation, regulatory investigations and tax examinations;

·risks related to past or possible future terrorist attacks;

·risks related to natural disasters or the threat or outbreak of war or hostilities;

·the risk that the Company will not be able to improve margins;

·risks related to the Company’s international operations;

·risks related to the availability of qualified employees, particularly in new or more cost-effective locations;

·risks related to currency fluctuations;

·risks related to reliance on independent telecommunications service providers;

·risks related to concentration of the Company’s clients in the financial services, telecommunications and healthcare sectors;

·risks related to the possible loss of key clients or loss of significant volumes from key clients; and

·risks related to changes in government regulations.

The Company can give no assurance that any of the events anticipated by the forward-looking statements will occur or, if any of them does, what impact they will have on our results of operations and financial condition. The Company disclaims any intent or obligation to publicly update or revise any forward-looking statements, regardless of whether new information becomes available, future developments occur or otherwise. For additional information concerning the risks that affect us, see our Annual Report on Form 10-K/A for the year ended December 31, 2009 and “Part II. Other Information - - Item 1A. Risk Factors” of this Report on Form 10-Q.

Overview

We are a holding company and conduct substantially all of our business operations through our subsidiaries. We are an international provider of business process outsourcing services, referred to as BPO, primarily focused on accounts receivable management, referred to as ARM, and customer relationship management, referred to as CRM, serving a wide range of clients in North America and abroad through our global network of over 100 offices.

Historically, we have participated in the purchased accounts receivable business on an opportunistic basis. Beginning in 2009, we significantly reduced our purchases of accounts receivable. This decision resulted from declines in liquidation rates, competition for purchased accounts receivable and the continued uncertainty of collectibility.

Our operating costs consist principally of payroll and related costs; selling, general and administrative costs; and depreciation and amortization. Payroll and related expenses consist of wages and salaries, commissions, bonuses, and benefits for all of our employees, including management and administrative personnel. Selling, general and administrative expenses include telephone, postage and mailing costs, outside collection attorneys and other third-party collection services providers, and other collection costs, as well as expenses that directly support operations, including facility costs, equipment maintenance, sales and marketing, data processing, professional fees, and other management costs. Our payroll and related expenses may increase or decrease due to changes in the value of the U.S. dollar against the Canadian dollar and the Philippine peso.

The continuing deterioration in economic conditions in the U.S. has impacted our business over the course of 2009 and 2010. Factors such as reduced availability of credit for consumers, a depressed real estate market, increased unemployment and other factors have had a negative impact on the ability and willingness of consumers to pay their debts and a negative impact on our clients’ businesses, which has adversely affected our results of operations, collections and revenue.

Further changes to the economic conditions in the U.S., either positive or negative, could have a significant impact on our business, including, but not limited to:

·fluctuations in the volume of placements of accounts and the collectability of those accounts for our ARM contingency fee based services;

·volume fluctuations in our ARM fixed fee based services;

·volume fluctuations in our CRM services; and,

·variability in the collectability of existing portfolios.

32

Effective August 31, 2009, we acquired TSYS Total Debt Management, Inc., referred to as TDM, a provider of specialty accounts receivable management services, for approximately $4.5 million.

In October 2009, we sold our print and mail business for approximately $18.7 million in cash.

We operate our business in three segments: ARM, CRM and Portfolio Management.

Three Months Ended September 30, 2010 Compared to Three Months Ended September 30, 2009

Revenue.  Revenue decreased $3.1 million, or 0.8 percent, to $370.5 million for the three months ended September 30, 2010, from $373.7 million for the three months ended September 30, 2009.

Revenue by segment (dollars in thousands):

	For the Three Months Ended September 30,
				% of					% of
	2010			Revenue		2009			Revenue		$ Change			% Change
ARM	$	310,935		83.9	%	$	307,468		82.3	%	$	3,467		1.1	%
CRM	65,511			17.7	%	79,275			21.2	%	(13,764		)	(17.4	)%
Portfolio Management	3,357			0.9	%	2,310			0.6	%	1,047			45.3	%
Eliminations	(9,256		)	(2.5	)%	(15,383		)	(4.1	)%	6,127			(39.8	)%
Total	$	370,547		100.0	%	$	373,670		100.0	%	$	(3,123	)	(0.8	)%

ARM’s revenue for the three months ended September 30, 2010, included $9.3 million of intercompany revenue from Portfolio Management which was eliminated upon consolidation. For the three months ended September 30, 2009, ARM’s revenue included $13.7 million of intercompany revenue from Portfolio Management and CRM’s revenue included $1.7 million of intercompany revenue from ARM, which were eliminated upon consolidation.

ARM’s revenue for the three months ended September 30, 2010 and 2009 included $74.7 million and $28.0 million, respectively, of reimbursable costs and fees (discussed in more detail below), which resulted in a $46.7 million increase in ARM’s revenue. This increase was partially offset by decreases primarily attributable to the weaker third-party collection environment and lower volumes in the first-party collections business during 2010, a $13.9 million decrease resulting from the sale of our print and mail business in October 2009, and a $4.4 million decrease in fees from collection services performed for Portfolio Management.

The decrease in CRM’s revenue was primarily due to lower volumes from certain existing clients, attributable to the impact of the economy on the clients’ business, partially offset by increased client volume related to the implementation of new contracts during 2010.

Portfolio Management’s collections decreased $12.7 million, or 37.6 percent, to $21.1 million for the three months ended September 30, 2010, from $33.8 million for the three months ended September 30, 2009. Revenue for the three months ended September 30, 2010, included a $7.1 million impairment charge recorded for a valuation allowance against the carrying value of the portfolios, compared to an impairment charge of $13.9 million for the three months ended September 30, 2009. Excluding the effect of the impairment charges, Portfolio Management’s revenue represented 48.7 percent of collections for the three months ended September 30, 2010, as compared to 47.0 percent of collections for the three months ended September 30, 2009. The decrease in revenue and collections was primarily attributable to lower portfolio purchases and the effect of the weaker collection environment during 2010.

Payroll and related expenses.  Payroll and related expenses decreased $21.7 million to $166.9 million for the three months ended September 30, 2010, from $188.6 million for the three months ended September 30, 2009, and decreased as a percentage of revenue to 45.0 percent from 50.5 percent.

33

Payroll and related expenses by segment (dollars in thousands):

	For the Three Months Ended September 30,
			% of					% of
	2010		Revenue		2009			Revenue		$ Change			% Change
ARM	$	116,201	37.4	%	$	133,066		43.3	%	$	(16,865	)	(12.7	)%
CRM	49,914		76.2	%	56,513			71.3	%	(6,599		)	(11.7	)%
Portfolio Management	771		23.0	%	776			33.6	%	(5		)	(0.6	)%
Eliminations	—		—		(1,724		)	11.2	%	1,724			(100.0	)%
Total	$	166,886	45.0	%	$	188,631		50.5	%	$	(21,745	)	(11.5	)%

The decrease in ARM’s payroll and related expenses as a percentage of revenue was primarily due to the higher revenue base, which was attributable to the increase in reimbursable costs and fees. Included in ARM’s payroll and related expenses for the three months ended September 30, 2009, was $1.7 million of intercompany expense from CRM, for services provided to ARM, which was eliminated upon consolidation.

The increase in CRM’s payroll and related expenses as a percentage of revenue was primarily a result of leveraging its infrastructure over the lower revenue base.

Portfolio Management outsources all of its collection services to ARM and, therefore, has a relatively small fixed payroll cost structure.

Selling, general and administrative expenses.  Selling, general and administrative expenses decreased $24.2 million to $104.6 million for the three months ended September 30, 2010, from $128.8 million for the three months ended September 30, 2009, and decreased as a percentage of revenue to 28.2 percent from 34.5 percent.

Selling, general and administrative expenses by segment (dollars in thousands):

	For the Three Months Ended September 30,
				% of					% of
	2010			Revenue		2009			Revenue		$ Change			% Change
ARM	$	89,831		28.9	%	$	111,858		36.4	%	$	(22,027	)	(19.7	)%
CRM	13,961			21.3	%	15,624			19.7	%	(1,663		)	(10.6	)%
Portfolio Management	9,587			285.6	%	14,343			620.9	%	(4,756		)	(33.2	)%
Eliminations	(8,742		)	94.4	%	(13,046		)	84.8	%	4,304			(33.0	)%
Total	$	104,637		28.2	%	$	128,779		34.5	%	$	(24,142	)	(18.7	)%

The decrease in ARM’s selling, general and administrative expenses as a percentage of revenue was primarily due to the higher revenue base, which was attributable to the increase in reimbursable costs and fees, as well as cost saving initiatives and the sale of the print and mail business, which had a higher selling, general and administrative expense cost structure.

The increase in CRM’s selling, general and administrative expenses as a percentage of revenue was primarily attributable to leveraging its infrastructure over the lower revenue base.

The decrease in Portfolio Management’s selling, general and administrative expenses resulted from a $4.4 million decrease in fees for collection services provided by ARM. Included in Portfolio Management’s selling, general and administrative expenses for the three months ended September 30, 2010 and 2009, was $9.3 million and $13.7 million, respectively, of intercompany expense from ARM, for services provided to Portfolio Management, which was eliminated in consolidation.

34

Reimbursable costs and fees.  Reimbursable costs and fees consist of court costs, legal fees and repossession fees, representing out-of-pocket expenses that are reimbursed by our clients. Reimbursable costs and fees of $74.2 million and $27.4 million for the three months ended September 30, 2010 and 2009, respectively, are recorded as both revenue and operating expenses on the statement of operations. The increase in reimbursable costs and fees was due to the acquisition of TDM in August 2009.

Restructuring charges.  During the three months ended September 30, 2010, we incurred restructuring charges of $7.4 million, related to streamlining the cost structure of the Company’s operations. The charges consisted primarily of costs associated with the closing of redundant facilities and severance. This compares to $1.5 million of restructuring charges for the three months ended September 30, 2009.

Depreciation and amortization.  Depreciation and amortization decreased to $27.3 million for the three months ended September 30, 2010, from $29.3 million for the three months ended September 30, 2009. The decrease was primarily attributable to lower depreciation resulting from a lower level of property and equipment, as well as lower amortization because certain intangible assets are now fully amortized.

Other income (expense).  Interest expense decreased to $23.0 million for the three months ended September 30, 2010, from $27.2 million for the three months ended September 30, 2009. Interest expense for the three months ended September 30, 2010 and 2009 included $2.2 and $5.2 million, respectively, of net losses from interest rate swap agreements and embedded derivatives. The remaining decrease in interest expense was primarily attributable to lower debt balances. Other income, net for the three months ended September 30, 2010 and 2009 included approximately $748,000 and $3.9 million, respectively, of net gains resulting from foreign exchange contracts.

Income tax expense (benefit).  For the three months ended September 30, 2010, we recorded income tax expense of $2.1 million on a pre-tax loss of $31.7 million, or an effective income tax rate of (6.7) percent. For the three months ended September 30, 2009, we recorded income tax expense of $2.6 million on a pre-tax loss of $24.7 million, or an effective tax rate of (10.7) percent. The change in the effective income tax rate was due primarily to the recognition of a valuation allowance on certain domestic net deferred tax assets and income tax expense to be paid in state and foreign jurisdictions.

Nine Months Ended September 30, 2010 Compared to Nine Months Ended September 30, 2009

Revenue.  Revenue increased $15.4 million, or 1.3 percent, to $1,169.8 million for the nine months ended September 30, 2010, from $1,154.4 million for the nine months ended September 30, 2009.

Revenue by segment (dollars in thousands):

	For the Nine Months Ended September 30,
				% of					% of
	2010			Revenue		2009			Revenue		$ Change			% Change
ARM	$	965,625		82.6	%	$	916,070		79.4	%	$	49,555		5.4	%
CRM	208,568			17.8	%	248,736			21.5	%	(40,168		)	(16.1	)%
Portfolio Management	29,423			2.5	%	40,256			3.5	%	(10,833		)	(26.9	)%
Eliminations	(33,832		)	(2.9	)%	(50,644		)	(4.4	)%	16,812			(33.2	)%
Total	$	1,169,784		100.0	%	$	1,154,418		100.0	%	$	15,366		1.3	%

ARM’s revenue for the nine months ended September 30, 2010, included $33.8 million of intercompany revenue from Portfolio Management which was eliminated upon consolidation. For the nine months ended September 30, 2009, ARM’s revenue included $47.6 million of intercompany revenue from Portfolio Management and CRM’s revenue included $3.0 million of intercompany revenue from ARM, which were eliminated upon consolidation.

ARM’s revenue for the nine months ended September 30, 2010 and 2009 included $216.8 million and $47.5 million, respectively, of reimbursable costs and fees (discussed in more detail below), which resulted in a $169.3 million increase in ARM’s revenue. This increase was partially offset by decreases primarily attributable to the

35

weaker third-party collection environment and lower volumes in the first-party collections business during 2010, a $40.9 million decrease resulting from the sale of our print and mail business in October 2009, and a $13.8 million decrease in fees from collection services performed for Portfolio Management.

The decrease in CRM’s revenue was primarily due to lower volumes from certain existing clients attributable to the impact of the economy on the clients’ business, partially offset by increased client volume related to the implementation of new contracts during 2010.

Portfolio Management’s collections decreased $35.5 million, or 30.5 percent, to $81.0 million for the nine months ended September 30, 2010, from $116.5 million for the nine months ended September 30, 2009. Revenue for the nine months ended September 30, 2010, included a $7.2 million impairment charge recorded for a valuation allowance against the carrying value of the portfolios, compared to an impairment charge of $15.3 million for the nine months ended September 30, 2009. Excluding the effect of the impairment charges, Portfolio Management’s revenue represented 44.5 percent of collections for the nine months ended September 30, 2010, as compared to 46.3 percent of collections for the nine months ended September 30, 2009. The decrease in revenue and collections was primarily attributable to lower portfolio purchases and the effect of the weaker collection environment during 2010.

Payroll and related expenses.  Payroll and related expenses decreased $63.5 million to $528.8 million for the nine months ended September 30, 2010, from $592.3 million for the nine months ended September 30, 2009, and decreased as a percentage of revenue to 45.2 percent from 51.3 percent.

Payroll and related expenses by segment (dollars in thousands):

	For the Nine Months Ended September 30,
			% of					% of
	2010		Revenue		2009			Revenue		$ Change			% Change
ARM	$	368,270	38.1	%	$	413,576		45.1	%	$	(45,306	)	(11.0	)%
CRM	158,054		75.8	%	177,905			71.5	%	(19,851		)	(11.2	)%
Portfolio Management	2,481		8.4	%	3,826			9.5	%	(1,345		)	(35.2	)%
Eliminations	—		—		(2,989		)	5.9	%	2,989			(100.0	)%
Total	$	528,805	45.2	%	$	592,318		51.3	%	$	(63,513	)	(10.7	)%

The decrease in ARM’s payroll and related expenses as a percentage of revenue was primarily due to the higher revenue base, which was attributable to the increase in reimbursable costs and fees. Included in ARM’s payroll and related expenses for the nine months ended September 30, 2009, was $3.0 million of intercompany expense from CRM, for services provided to ARM, which was eliminated upon consolidation.

The increase in CRM’s payroll and related expenses as a percentage of revenue was primarily a result of leveraging its infrastructure over the lower revenue base.

Portfolio Management outsources all of its collection services to ARM and, therefore, has a relatively small fixed payroll cost structure. The decrease in Portfolio Management’s payroll and related expenses was attributable to the restructuring activities following the Company’s decision to limit purchases in this business.

Selling, general and administrative expenses.  Selling, general and administrative expenses decreased $61.8 million to $329.4 million for the nine months ended September 30, 2010, from $391.2 million for the nine months ended September 30, 2009, and decreased as a percentage of revenue to 28.2 percent from 33.9 percent.

36

Selling, general and administrative expenses by segment (dollars in thousands):

	For the Nine Months Ended September 30,
				% of					% of
	2010			Revenue		2009			Revenue		$ Change			% Change
ARM	$	284,791		29.5	%	$	341,778		37.3	%	$	(56,987	)	(16.7	)%
CRM	42,250			20.3	%	44,981			18.1	%	(2,731		)	(6.1	)%
Portfolio Management	35,076			119.2	%	49,433			122.8	%	(14,357		)	(29.0	)%
Eliminations	(32,694		)	96.6	%	(45,014		)	88.9	%	12,320			(27.4	)%
Total	$	329,423		28.2	%	$	391,178		33.9	%	$	(61,755	)	(15.8	)%

The decrease in ARM’s selling, general and administrative expenses as a percentage of revenue was primarily due to the higher revenue base, which was attributable to the increase in reimbursable costs and fees, as well as cost saving initiatives and the sale of the print and mail business, which had a higher selling, general and administrative expense cost structure.

The increase in CRM’s selling, general and administrative expenses as a percentage of revenue was primarily attributable to leveraging its infrastructure over the lower revenue base.

The decrease in Portfolio Management’s selling, general and administrative expenses resulted from a $13.8 million decrease in fees for collection services provided by ARM. Included in Portfolio Management’s selling, general and administrative expenses for the nine months ended September 30, 2010 and 2009, was $33.8 million and $47.6 million, respectively, of intercompany expense from ARM, for services provided to Portfolio Management, which was eliminated in consolidation.

Reimbursable costs and fees.  Reimbursable costs and fees consist of court costs, legal fees and repossession fees, representing out-of-pocket expenses that are reimbursed by our clients. Reimbursable costs and fees of $215.6 million and $44.8 million for the nine months ended September 30, 2010 and 2009, respectively, are recorded as both revenue and operating expenses on the statement of operations. The increase in reimbursable costs and fees was due to the acquisition of TDM in August 2009.

Restructuring charges.  During the nine months ended September 30, 2010, we incurred restructuring charges of $13.8 million, related to streamlining the cost structure of the Company’s operations and our decision to limit purchases in the Portfolio Management business. The charges consisted primarily of costs associated with the closing of redundant facilities and severance. This compares to $3.2 million of restructuring charges for the nine months ended September 30, 2009.

Depreciation and amortization.  Depreciation and amortization decreased to $82.4 million for the nine months ended September 30, 2010, from $91.0 million for the nine months ended September 30, 2009. The decrease was primarily attributable to lower depreciation resulting from a lower level of property and equipment, as well as lower amortization because certain intangible assets are now fully amortized.

Other income (expense).  Interest expense decreased to $68.8 million for the nine months ended September 30, 2010, from $77.0 million for the nine months ended September 30, 2009. Interest expense for the nine months ended September 30, 2010 and 2009 included $5.3 million and $10.2 million, respectively, of net losses from interest rate swap agreements and embedded derivatives. The remaining decrease in interest expense was primarily attributable to lower debt balances. Other income, net for the nine months ended September 30, 2010 and 2009 included approximately $1.1 million and $6.7 million, respectively, of net gains resulting from foreign exchange contracts.

Income tax expense (benefit).  For the nine months ended September 30, 2010, we recorded income tax expense of $7.0 million on a pre-tax loss of $66.4 million, or an effective income tax rate of (10.6) percent. For the nine months ended September 30, 2009, we recorded an income tax benefit of $1.1 million on a pre-tax loss of $36.6 million, or an effective income tax rate of 2.9 percent. The change in the effective income tax rate was due primarily

37

to the recognition of a valuation allowance on certain domestic net deferred tax assets and income tax expense to be paid in state and foreign jurisdictions.

Liquidity and Capital Resources

Our primary sources of cash are cash flows from operations, including collections on purchased accounts receivable, bank borrowings, and equity and debt offerings. Cash has been used for acquisitions, repayments of bank borrowings, purchases of equipment, purchases of accounts receivable, and working capital to support our growth.

The cash flow from our contingency collection business and our purchased portfolio business is dependent upon our ability to collect from consumers and businesses. Many factors, including the economy and our ability to hire and retain qualified collectors and managers, are essential to our ability to generate cash flows. The cash flow from our first-party collections and our CRM businesses are dependent upon the volume of business that our clients place with us. Fluctuations in these factors that cause a negative impact on our business could have a material impact on our expected future cash flows.

The capital and credit markets have experienced significant volatility in the recent past and if this continues, it is possible that our ability to access the capital and credit markets may be limited. Our senior notes and senior subordinated notes are assigned ratings by certain rating agencies. Changes in our business environment, operating results, cash flows, or financial position could impact the ratings assigned by these rating agencies. Significant changes in assigned ratings could also significantly affect the costs of borrowing, which could have a material impact on our financial condition and results of operations.

We have a senior credit facility that consists of a term loan ($508.7 million outstanding as of September 30, 2010) and a $100.0 million revolving credit facility (none outstanding as of September 30, 2010). Additionally, we have $165.0 million of floating rate senior notes and $200.0 million 11.875 percent senior subordinated notes outstanding. As a result, we are significantly leveraged.

Borrowings under the senior credit facility are collateralized by substantially all of our assets. The senior credit facility contains certain financial and other covenants such as maintaining a maximum leverage ratio and a minimum interest coverage ratio, and includes restrictions on, among other things, acquisitions, the incurrence of additional debt, investments, investments in purchased accounts receivable, disposition of assets, liens and dividends and other distributions. At September 30, 2010, our leverage ratio was 5.59, compared to the covenant maximum of 5.75, and our interest coverage ratio was 1.85, compared to the covenant minimum of 1.80. We were in compliance with all required financial covenants under our senior credit facility and we were not aware of any events of default as of September 30, 2010.

Our ability to maintain compliance with the financial covenants under our senior credit facility will be highly dependent on our results of operations and, to the extent necessary, our ability to implement remedial measures such as further reductions in operating costs. The economic and business climate in 2010 continues to be very difficult and there is uncertainty as to whether the economic and business climate in 2011 will improve. In addition, other factors, such as the loss of a significant client or reduced client volumes, may impact our ability to meet our debt covenants in the future. Therefore, no assurance can be given that we will be able to maintain compliance with our financial covenants in future periods.

We may seek to amend our existing senior credit facility to obtain covenant compliance relief or waivers, or seek additional funding or replacement financing. There can be no assurance that the Company will be able to obtain covenant relief, other funding or replacement financing. Any such covenant relief or new financing may result in additional fees and higher interest rates. In addition, we will seek to amend or replace our senior credit facility prior to the expiration of the current facility in May 2013.

If an event of default, such as failure to comply with covenants, were to occur under the senior credit facility and we were not able to obtain an amendment or waiver from the lenders, we would not be able to borrow under the revolving credit facility and the lenders would be entitled to declare all amounts outstanding under the senior credit facility immediately due and payable and foreclose on the pledged assets. In addition, the acceleration of the amounts due under the senior credit facility could be an event of default under our Senior Notes and Senior Subordinated Notes and entitle the holders to accelerate the payment of these obligations. Under these circumstances, the acceleration of the payment of our debt would have a material adverse effect on our business.

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Our senior credit facility, as amended, does not give us the ability to use available excess cash flow to repurchase our senior notes and senior subordinated notes. However, our senior credit facility, as amended, permits us to repurchase our senior notes and senior subordinated notes out of the net cash proceeds of new equity issuances. We are aware that our senior notes and senior subordinated notes may trade at substantial discounts to their face amounts. We or our stockholders may from time to time seek to retire or purchase our outstanding notes through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. Our stockholders who acquire such notes may seek to contribute them to us, for retirement, in exchange for the issuance of additional equity. The amounts involved may be material.

Beginning in 2009, we significantly reduced our purchases of accounts receivable and made a decision to minimize further investments in the future. This decision resulted from declines in liquidation rates, competition for purchased accounts receivable and the continued uncertainty of collectability. We currently expect to limit our purchases in 2010 to certain of our non-cancelable forward flow commitments, which are estimated to be approximately $1.9 million for the fourth quarter of 2010.

Cash Flows from Operating Activities.  Cash provided by operating activities was $49.9 million for the nine months ended September 30, 2010, compared to $93.9 million for the nine months ended September 30, 2009. The decrease was primarily attributable to lower operating results for the nine months ended September 30, 2010.

Cash Flows from Investing Activities.  Cash provided by investing activities was $18.0 million for the nine months ended September 30, 2010, compared to cash used in investing activities of $12.1 million for the nine months ended September 30, 2009. The increase in cash from investing activities was primarily attributable to lower purchases of accounts receivable and lower purchases of property and equipment, partially offset by lower collections of purchased accounts receivable.

Cash Flows from Financing Activities.  Cash used in financing activities was $75.5 million for the nine months ended September 30, 2010, compared to $62.6 million for the nine months ended September 30, 2009. The increase in cash used in financing activities was due primarily to $57.5 million of total repayments of borrowings under our senior credit facility during the nine months ended September 30, 2010, which was funded primarily by operating cash. During the nine months ended September 30, 2009, we repaid a total of $66.5 million of borrowings under our senior credit facility, which was funded primarily by the issuance of $40.0 million of stock.

Senior Credit Facility.  Our senior credit facility is with a syndicate of financial institutions and consists of a term loan and a $100.0 million revolving credit facility. We are required to make quarterly principal repayments of $1.5 million on the term loan until its maturity in May 2013, at which time its remaining balance outstanding is due. We are also required to make quarterly prepayments of 75 percent of the excess cash flow from our purchased accounts receivable, and annual prepayments of 75 percent or 50 percent of our excess annual cash flow, based on our leverage ratio, less the amounts paid during the year from the purchased accounts receivable excess cash flow prepayments. The revolving credit facility requires no minimum principal payments until its maturity in November 2011. At September 30, 2010, the balance outstanding on the term loan was $508.7 million and there was no outstanding balance on the revolving credit facility. The availability of the revolving credit facility is reduced by any unused letters of credit ($5.7 million at September 30, 2010). As of September 30, 2010, we had $94.3 million of remaining availability under the revolving credit facility.

All borrowings bear interest at an annual variable rate, based on either the prime rate (3.25 percent at September 30, 2010), the federal funds rate (0.15 percent at September 30, 2010) or LIBOR (0.26 percent 30-day LIBOR at September 30, 2010) plus an applicable margin, which is based on the type of rate and our funded debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”) ratio, as defined in the loan agreement, subject to certain interest rate minimum requirements. We are charged a quarterly commitment fee on the unused portion of the revolving credit facility at an annual rate of 0.50 percent. The effective interest rate on the senior credit facility was approximately 9.23 percent and 9.32 percent for the three months ended September 30, 2010 and 2009, respectively, and 9.21 percent and 8.42 percent for the nine months ended September 30, 2010 and 2009, respectively.

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Senior Notes and Senior Subordinated Notes.  We have $165.0 million of floating rate senior notes due 2013, referred to as the Senior Notes, and $200.0 million of 11.875 percent senior subordinated notes due 2014, referred to as the Senior Subordinated Notes, collectively referred to as the Notes. The Notes are guaranteed, jointly and severally, on a senior basis with respect to the Senior Notes and on a senior subordinated basis with respect to the Senior Subordinated Notes, in each case by all of our existing and future domestic restricted subsidiaries (other than certain subsidiaries and joint ventures engaged in financing the purchase of delinquent accounts receivable portfolios and certain immaterial subsidiaries). The Senior Notes bear interest at an annual rate equal to LIBOR plus 4.875 percent, reset quarterly.

For a description of the covenants and other material terms of the Notes, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” in our Annual Report on Form 10-K/A for the year ended December 31, 2009.

Nonrecourse Credit Facility.  We have a nonrecourse credit facility that funded certain purchases of accounts receivable prior to 2009. We do not have the ability to make any additional borrowings under the nonrecourse credit facility. The financing was structured, depending on the size and nature of the portfolio to be purchased, either as a borrowing arrangement or under various equity sharing arrangements. The lender financed non-equity borrowings with floating interest at an annual rate equal to LIBOR (0.26 percent 30-day LIBOR at September 30, 2010) plus 2.50 percent, or as negotiated. These borrowings are due two years from the date of each respective loan, unless otherwise negotiated. As additional return on the debt financed portfolios the lender receives residual cash flows, as negotiated, which is defined as all cash collections after servicing fees, floating rate interest, repayment of the borrowing, and the initial investment by us, including interest. Residual cash flow payments are accrued for as embedded derivatives.

Borrowings under this credit facility are nonrecourse to us, except for the assets within the entities established in connection with the financing agreement. The nonrecourse debt agreements contain a collections performance requirement, among other covenants, that, if not met, provides for cross-collateralization with any other portfolios financed by the nonrecourse lender, in addition to other remedies.

The total nonrecourse debt outstanding was $3.1 million as of September 30, 2010, which included $1.1 million of accrued residual interest. The effective interest rate on these loans, including the residual interest component, was approximately 11.2 percent and 10.4 percent for the three and nine months ended September 30, 2010, respectively. The nonrecourse debt agreements contain certain covenants such as meeting minimum cumulative collection targets. As of September 30, 2010, we were in compliance with all required covenants.

Contractual Obligations. There have been no material changes, outside the ordinary course of our business, to our contractual obligations as reported in our Annual Report on Form 10-K/A for the year ended December 31, 2009.

Market Risk

We are exposed to various types of market risk in the normal course of business, including the impact of interest rate changes, foreign currency exchange rate fluctuations, changes in corporate tax rates, and inflation. We employ risk management strategies that may include the use of derivatives, such as interest rate swap agreements, interest rate cap agreements, and foreign currency forwards and options to manage these exposures. As of September 30, 2010, none of our derivatives were accounted for as hedges. We do not enter into derivatives for trading purposes.

Foreign Currency Risk.  Foreign currency exposures arise from transactions denominated in a currency other than the functional currency and from foreign denominated revenue and profit translated into U.S. dollars. The primary currencies to which we are exposed include the Philippine peso, the Canadian dollar, the British pound and the Australian dollar. Due to the size of the Philippine operations, we currently use forward exchange contracts to limit potential losses in earnings or cash flows from adverse foreign currency exchange rate movements. These contracts are entered into to protect against the risk that the eventual cash flows resulting from such contracts will be

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adversely affected by changes in exchange rates. Our objective is to maintain economically balanced currency risk management strategies that provide adequate downside protection.

Interest Rate Risk.  At September 30, 2010, we had $676.8 million in outstanding variable rate borrowings. A material change in interest rates could adversely affect our operating results and cash flows. A 25 basis-point increase in interest rates could increase our annual interest expense by $125,000 for each $50 million of variable debt outstanding for the entire year. Currently, we primarily use interest rate swap agreements to limit potential losses from adverse interest rate changes. Our interest rate swap agreements minimize the impact of LIBOR fluctuations on the interest payments on our floating rate debt. We are required to pay the counterparties quarterly interest payments at a weighted average fixed rate, and we receive from the counterparties variable quarterly interest payments based on LIBOR.

Critical Accounting Policies and Estimates

General.  The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates. We believe the following accounting policies and estimates are the most critical and could have the most impact on our results of operations: goodwill, other intangible assets and purchase accounting, revenue recognition for purchased accounts receivable, income taxes, and allowance for doubtful accounts. These are described in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in note 2 to our 2009 financial statements, both of which are included in our Annual Report on Form 10-K/A for the year ended December 31, 2009. During the nine months ended September 30, 2010, we did not make any material changes to our estimates or methods by which estimates are derived with regard to our critical accounting policies.

Recently Issued Accounting Guidance

For a discussion of recently issued accounting guidance, see note 19 in our Notes to Consolidated Financial Statements included in this Form 10-Q.

Item 3.Quantitative and Qualitative Disclosures about Market Risk

Included in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of this Report on Form 10-Q.

Item 4.  Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Exchange Act Rules 13a-15(e) and 15d-15(e), as of September 30, 2010. Based on that evaluation, our chief executive officer and chief financial officer concluded that, as of the end of the period covered by this Report, our disclosure controls and procedures were effective in reaching a reasonable level of assurance that the (i) information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Our management, with the participation of our chief executive officer and chief financial officer, also conducted an evaluation of our internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f) and 15d-15(f), to determine whether any changes occurred during the quarter ended September 30, 2010, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, there were no such changes during the quarter ended September 30, 2010.

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A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all controls systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Part II.  Other Information

Item 1.Legal Proceedings

The Company is party, from time to time, to various legal proceedings, regulatory investigations, client audits and tax examinations incidental to its business. The Company continually monitors these legal proceedings, regulatory investigations, client audits and tax examinations to determine the impact and any required accruals. See “Item 3. Legal Proceedings” in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2009.

Attorneys General:

From time to time, the Company receives subpoenas or other similar information requests from various states’ Attorneys General, requesting information relating to the Company’s debt collection practices in such states. The Company responds to such inquires or investigations and provides certain information to the respective Attorneys General offices. The Company believes it is in compliance with the laws of the states in which it does business relating to debt collection practices in all material respects. However, no assurance can be given that any such inquiries or investigations will not result in a formal investigation or an enforcement action. Any such enforcement actions could result in fines as well as the suspension or termination of the Company’s ability to conduct business in such states.

Other:

The Company is involved in other legal proceedings, regulatory investigations, client audits and tax examinations from time to time in the ordinary course of its business. Management believes that none of these other legal proceedings, regulatory investigations or tax examinations will have a materially adverse effect on the financial condition or results of operations of the Company.

Item 1A.Risk Factors

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2009, referred to as the “2009 Form 10-K”, which could materially affect our business, financial condition or future results. The risk factors in our 2009 Form 10-K have not materially changed. The risks described in our 2009 Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3.Defaults Upon Senior Securities

None

Item 4.[Removed and Reserved]

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Item 5.Other Information

(a)None.

(b)Not applicable

Item 6.Exhibits

12	Statement of Computation of Ratio of Earnings to Fixed Charges.
31.1*	Certification of Chief Executive Officer pursuant to Rule 15d-14(a) promulgated under the Exchange Act.
31.2*	Certification of Chief Financial Officer pursuant to Rule 15d-14(a) promulgated under the Exchange Act.
32.1*	Certification of the Company’s Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	Certification of the Company’s Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*      This prospectus supplement does not contain all of the exhibits filed with the Company’s quarterly report for the period ended September 30, 2010.  Exhibits 31.1, 31.2, 32.1 and 32.2 are not filed with and should not be deemed a part of this prospectus supplement.

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		NCO Group, Inc.
Date:	November 15, 2010		By:	/s/ Michael J. Barrist
			Michael J. Barrist
			Chairman of the Board, President
			and Chief Executive Officer
			(principal executive officer)
Date:	November 15, 2010		By:	/s/ John R. Schwab
			John R. Schwab
			Executive Vice President, Finance
			and Chief Financial Officer
			(principal financial and accounting officer)

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Exhibit Index

Exhibit No.	Description
12	Statement of Computation of Ratio of Earnings to Fixed Charges.
31.1*	Certification of Chief Executive Officer pursuant to Rule 15d-14(a) promulgated under the Exchange Act.
31.2*	Certification of Chief Financial Officer pursuant to Rule 15d-14(a) promulgated under the Exchange Act.
32.1*	Certification of the Company’s Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	Certification of the Company’s Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*      This prospectus supplement does not contain all of the exhibits filed with the Company’s quarterly report for the period ended September 30, 2010.  Exhibits 31.1, 31.2, 32.1 and 32.2 are not filed with and should not be deemed a part of this prospectus supplement.

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Exhibit 12

NCO Group, Inc.

Ratio of Earnings to Fixed Charges

(in thousands, except for ratios)

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2010(1)(2)			2009(1)(3)			2010(1)(2)			2009(1)(3)
Earnings:
Add:
Loss before income taxes and noncontrolling interest	$	(31,674	)	$	(24,655	)	$	(66,426	)	$	(36,595	)
Fixed charges	28,464			32,830			86,012			93,823
Amortization of capitalized interest	—			3			1			9
	(3,210		)	8,178			19,587			57,237
Subtract:
Interest capitalized	$	102		$	—		$	312		$	—
Distributions to noncontrolling interest holders	412			1,497			3,148			5,784
	514			1,497			3,460			5,784
Earnings	$	(3,724	)	$	6,681		$	16,127		$	51,453
Fixed Charges:
Interest expense	$	23,003		$	27,196		$	68,760		$	76,980
Interest capitalized	102			—			312			—
Portion of rentals deemed to be interest	5,359			5,634			16,940			16,843
	$	28,464		$	32,830		$	86,012		$	93,823
Ratio of earnings to fixed charges	(0.1		)x	0.2		x	0.2		x	0.5		x

(1)For the three and nine months ended September 30, 2010 and 2009, the Company’s ratio of earnings to fixed charges indicated a less than one-to-one coverage. The deficiency was a result of earnings that were $32.1 million and $26.1 million less than fixed charges for the three months ended September 30, 2010 and 2009, respectively, and $69.6 million and $42.4 million less than fixed charges for the nine months ended September 30, 2010 and 2009, respectively.

(2)Loss before income taxes and noncontrolling interest includes restructuring charges of $7.4 million and $13.8 million for the three and nine months ended September 30, 2010.

(3)Loss before income taxes and noncontrolling interest includes restructuring charges of $1.5 million and $3.2 million for the three and nine months ended September 30, 2009.